Bogleheads University 501 2023 - The Case Against Factor Investing with Rick Ferri
00:00:00.000 | And Rick had 35 years as a financial advisor.
00:00:11.200 | He is a recognized champion for low investment fees.
00:00:14.520 | I view him as the Jack Bogle heir apparent in a lot of ways.
00:00:19.440 | But he's a pioneer in low-fee investment advice and portfolio management.
00:00:23.880 | He's authored seven investment books,
00:00:25.640 | hundreds of articles, been published all over the place.
00:00:29.080 | He's got a Master of Science in Finance from Walsh College.
00:00:32.920 | He's also a CFA charter holder and he's a marine.
00:00:36.960 | There's no such thing as a retired marine or an ex-marine.
00:00:39.600 | He's a marine. He flew jets for the Marines for 21 years.
00:00:42.560 | >> Thank you. Me, the case against factor investing.
00:00:47.960 | Okay. I was asked to do this.
00:00:53.400 | And I told Paul, I don't really need 20 minutes, probably five.
00:00:59.560 | So here we go. Okay.
00:01:04.680 | Now, I'm going to describe what I put up here next.
00:01:10.040 | So the bullet points will come up and then I'm going to talk about them.
00:01:13.840 | So you don't really have to look at them on the screen.
00:01:16.400 | But here's the reality.
00:01:19.160 | And that is, number one,
00:01:22.400 | this is just some basic stuff about the markets and the stock market.
00:01:27.240 | Market beta, the return of the entire market,
00:01:33.720 | explains most of the return of every diversified portfolio.
00:01:39.840 | There've been several studies on this, several famous studies.
00:01:42.400 | Eighty percent of the return of your diversified portfolio of stock.
00:01:47.400 | And they use stock portfolios,
00:01:50.120 | the academics that did this, 100 stocks in each portfolio.
00:01:53.760 | So just mixed them all up,
00:01:55.480 | individually selected 100 stocks,
00:01:58.080 | 50,000 tests of this.
00:02:00.840 | The bottom line is,
00:02:02.400 | 80 percent of the return or the variability of
00:02:06.200 | any of those portfolios was based on the return of the market.
00:02:11.400 | So it doesn't matter how much small value,
00:02:13.840 | large growth, whatever you put in your portfolio,
00:02:17.640 | beta, or the return of the market,
00:02:19.840 | is going to drive more actually than 80 percent of your stock return.
00:02:25.680 | Whether it's small value or large cap,
00:02:27.680 | or small cap or value or whatever,
00:02:30.520 | is going to drive a small portion of it.
00:02:35.560 | These things are called factors.
00:02:38.880 | And Gene Fama, Nobel Prize Laureate Gene Fama,
00:02:44.240 | I interviewed him for a blog one time,
00:02:47.080 | and he called them additional factors.
00:02:49.120 | And what that meant is that in addition to the 80 percent
00:02:53.520 | that explains the return of any portfolio,
00:02:56.600 | any diversified stock portfolio,
00:02:58.720 | about 20 percent or less will be explained by these other factors.
00:03:03.760 | And that is the amount of stock in that portfolio
00:03:07.840 | that is small relative to the market,
00:03:11.760 | the amount in that portfolio which has more value stocks relative to the market,
00:03:16.840 | the amount in that portfolio that has more quality stocks,
00:03:19.240 | price momentum stocks relative to the market,
00:03:21.560 | is going to explain a very small portion
00:03:24.600 | of the return of the variability of those portfolios.
00:03:28.080 | Those are called additional factors.
00:03:32.040 | Now, some people call it smart beta.
00:03:33.800 | I mean, there's a lot of marketing terms for this.
00:03:36.040 | That makes up the rest of the portfolio.
00:03:38.400 | So in the end, what is going to drive your portfolio return is beta.
00:03:44.280 | Beta is driving your return, and factor investing is sort of,
00:03:49.880 | I don't know, the color of the flavor of the sprinkles
00:03:53.520 | that you put on your ice cream, okay?
00:03:56.560 | Now, most of the weight to additional factors,
00:04:00.320 | this will determine what's called the tracking error,
00:04:03.000 | the tracking error of your portfolio to the market.
00:04:05.520 | So if you have more value stocks, you have more quality stocks,
00:04:08.440 | you have more momentum stocks,
00:04:09.840 | you have more of these factors in your portfolio,
00:04:12.600 | the return will track the return of the market,
00:04:15.040 | but it might be more, which is the premium that Paul is hoping for,
00:04:19.880 | or it could be less, and that's a negative tracking error,
00:04:23.160 | which was what we've seen for the past almost 20 years,
00:04:25.720 | negative tracking error.
00:04:28.080 | So a factor-tilted portfolio,
00:04:30.240 | so what I'm doing here is I'm going over some semantics.
00:04:32.600 | The factor-tilted portfolio means you are starting
00:04:35.520 | with the base portfolio of the market,
00:04:38.200 | a total stock market index fund.
00:04:40.360 | I know all the poor old slides were talking about the S&P 500
00:04:43.200 | versus small value and all that.
00:04:45.720 | That's great for the presentation that he made,
00:04:48.600 | but I don't start with that.
00:04:49.760 | I start with the Vanguard total stock market index fund,
00:04:52.760 | which has small value in it, and it has everything else.
00:04:57.160 | So you're going to get a factor-tilted portfolio.
00:05:00.480 | You start with a total stock market,
00:05:02.800 | and then you decide how much load you want to add to it,
00:05:06.960 | to small cap, how much to add extra value,
00:05:10.320 | how much to add in momentum stocks,
00:05:12.240 | how much to add in quality stocks,
00:05:13.920 | these other additional factors,
00:05:15.760 | and then that will determine your tracking error
00:05:18.720 | to the market over the long term, that other 18%.
00:05:23.000 | So now, the presumption with Paul's slides that go all the
00:05:27.320 | way back to 1926, which I'm sure
00:05:30.400 | that you were all investing since then,
00:05:33.160 | the factor premiums have been positive.
00:05:35.680 | I'm not going to argue with math that Paul put up there
00:05:39.000 | as far as the factor premiums.
00:05:40.360 | I will say that if you looked at the slide
00:05:43.400 | where he showed the factor premium,
00:05:45.320 | which was one of his first slides,
00:05:47.040 | it took large cap value minus small cap value.
00:05:52.040 | In other words, it's a long-short strategy, long-short.
00:05:58.000 | So you're going to go long, say, large cap growth stocks
00:06:03.920 | and short, small cap growth stocks
00:06:06.160 | to find out what the premium is on small cap growth.
00:06:09.080 | You go long, large cap value versus small,
00:06:12.360 | minus small cap value.
00:06:13.960 | So you get, it's a long-short strategy.
00:06:16.480 | So really, if you're just going long,
00:06:18.760 | if you're just a long-only investor,
00:06:20.520 | you got to cut everything in half.
00:06:22.360 | In fact, it's less than half.
00:06:24.160 | I talked to Wes Gray, who has a PhD
00:06:25.960 | from the University of Chicago,
00:06:27.440 | and the upside premium is actually less
00:06:29.520 | than the downside premium.
00:06:31.360 | But anyway, I don't want to get into the math of it too much.
00:06:32.880 | The bottom line is, if you invest in these factors
00:06:37.080 | and that premium is not positive, it's less than zero,
00:06:42.080 | then you're going to have negative tracking error
00:06:46.280 | to the market.
00:06:47.120 | Your portfolio will underperform
00:06:48.960 | the total stock market index fund.
00:06:51.560 | It will, which is what we've seen for a long time.
00:06:55.080 | So the only way that you could make money
00:06:58.800 | using a tilted strategy is to be in it long enough,
00:07:03.480 | and Paul said 17 years.
00:07:05.920 | Wes Gray and I discussed this,
00:07:07.480 | and it's more like 25 years.
00:07:10.080 | You have to be committed to a factor-tilted portfolio
00:07:14.120 | for probably 25 years to have a fairly high probability
00:07:19.120 | that you will actually get the factor premiums.
00:07:24.320 | Takes that long.
00:07:26.080 | And if you are going to commit
00:07:28.200 | to that 25-year period of time,
00:07:31.440 | and you want to do this strategy,
00:07:33.560 | okay, it's not gonna make that much difference,
00:07:36.520 | but if this is what you want to do,
00:07:37.960 | you have to stay for the long term.
00:07:39.800 | You gotta get over that, what's called the hurdle rate,
00:07:42.200 | and the hurdle rate, by the time you have to,
00:07:47.200 | I'm sorry about that, one second.
00:07:48.720 | You gotta get over the hurdle rate
00:07:50.240 | of the underperformance and the fees.
00:07:53.720 | By the way, small cap value, everything else,
00:07:56.480 | beta is free.
00:07:58.340 | You can go out and you can buy beta,
00:07:59.480 | the total stock market index fund.
00:08:00.760 | I don't know if you've done a comparison
00:08:02.360 | of the total stock market index fund return
00:08:04.520 | that Vanguard has to the total stock market index,
00:08:08.660 | but they do a few things in the portfolio
00:08:11.880 | that I'll be talking about tomorrow with Jerry O'Reilly,
00:08:14.040 | who's the portfolio manager of that fund,
00:08:15.880 | that actually makes up a few basis points
00:08:18.360 | in the total stock market index fund
00:08:19.800 | where you are actually getting
00:08:23.120 | the return of the total stock market, even net of fees.
00:08:27.760 | So beta is free.
00:08:30.120 | Factor investing is not free.
00:08:33.000 | You will pay fees.
00:08:34.880 | The fees have come down.
00:08:37.020 | You can get a small cap value fund relatively cheap.
00:08:40.720 | Problem is it doesn't have high loadings
00:08:42.840 | to small cap value, 'cause the cheaper you get,
00:08:45.840 | it seems like the less the loadings to the value are.
00:08:48.560 | In other words, loadings are how much of that fund
00:08:52.000 | is allocated to small cap value
00:08:53.640 | and how much is allocated to maybe mid cap,
00:08:56.000 | mid cap value and so forth,
00:08:57.400 | which is a little bit diluted.
00:08:58.900 | And so you get something like a Vanguard
00:09:01.280 | small cap value fund, it tends to be lower fee,
00:09:03.900 | but it's also not high loadings to value factors.
00:09:07.900 | I know we're talking, but this is the advanced group, right?
00:09:13.360 | Right, okay.
00:09:14.200 | Anyway, okay, 501, this is 501.
00:09:16.920 | Now you can then say, well, okay,
00:09:18.320 | I want to look at these small cap value funds
00:09:21.300 | based on a different metric,
00:09:22.560 | and that is my cost per unit of risk.
00:09:26.200 | And when I'm talking about risk,
00:09:27.160 | I'm not talking about beta, you X that out.
00:09:29.560 | I'm talking about what does it cost me
00:09:30.760 | to get the exposures to small cap and small cap value?
00:09:34.220 | Is it a very deep small cap value fund?
00:09:37.720 | It's probably better if you're actually gonna do that,
00:09:39.760 | better to have that fund,
00:09:41.280 | because you'll find that when you look at the fees,
00:09:43.960 | they're not that much higher than the less potent,
00:09:46.760 | if you will, Vanguard fund.
00:09:48.520 | So the cost per unit of risk
00:09:51.360 | for the more potent fund would be better.
00:09:53.400 | So I'm just saying that if I was gonna do small cap value,
00:09:55.400 | I would buy the most potent small cap value fund
00:09:58.160 | I could find, even though the fee
00:10:00.040 | is gonna be a little bit higher.
00:10:00.920 | But the point is, there's always fees.
00:10:03.640 | 25 basis points, 30, 35, a lot higher than the total market.
00:10:07.900 | That's the hurdle rate you have to get over.
00:10:09.980 | You have to make that up before you're gonna outperform,
00:10:14.000 | and if you don't make that up,
00:10:16.080 | then you're gonna underperform.
00:10:17.640 | And how have we done?
00:10:21.320 | All right, this seems to be a real interesting thing,
00:10:24.280 | phenomenon that happens in the academic world.
00:10:26.240 | It's that when academics come out with a new study,
00:10:29.680 | and it gets published, and you find out
00:10:31.560 | that small cap stocks back in 1980,
00:10:34.360 | the study that was done in 1980,
00:10:37.900 | small cap stocks outperformed large cap stocks.
00:10:40.920 | Wow, that was published, all of it,
00:10:43.760 | and by the way, at the same time,
00:10:44.800 | small cap mutual funds started to become very, very popular.
00:10:47.920 | Lots of people investing in small cap.
00:10:49.760 | What happened?
00:10:50.840 | Since 1980, no more premium, no more premium.
00:10:55.060 | Okay, what about value versus growth?
00:10:58.600 | Now, there's a million different ways
00:10:59.720 | in which you could do value.
00:11:01.720 | Like Paul said, there's different value indexes.
00:11:04.440 | That's true, value is in the eyes of the holder.
00:11:07.520 | You could use price to book, price to sales,
00:11:10.320 | return on equity, enterprise value, on and on and on,
00:11:14.520 | a million different ways
00:11:15.400 | in which you could create a value fund.
00:11:16.640 | So value is in the eyes of the beholder.
00:11:18.640 | How have value stocks done relative to growth stocks
00:11:24.600 | since the big study on this came out
00:11:28.640 | in basically the early 1990s, the Palmer French study?
00:11:33.640 | And the answer is, not that great.
00:11:37.680 | What's going on?
00:11:38.640 | Are the academics wrong on this stuff?
00:11:44.340 | No, they're smart people, very smart people.
00:11:47.000 | They went back into the data
00:11:48.320 | and they dug out all this information
00:11:50.520 | and they said, if you were doing this back in the day,
00:11:53.820 | you would have achieved higher rates of return.
00:11:56.320 | Larry has this great book and Larry and I
00:11:58.960 | discuss a lot of things.
00:12:05.320 | And, but I mean, he's a really a fine researcher himself
00:12:10.320 | and he wrote this book called,
00:12:11.680 | co-wrote it with,
00:12:12.520 | Your Complete Guide to Factor-Based Investing.
00:12:14.160 | It's a great book.
00:12:15.000 | I really like his, this book.
00:12:16.160 | It's very good.
00:12:17.460 | And Larry has a library of over 3,000 different articles
00:12:22.460 | that were, or studies also that were done
00:12:25.380 | on factor investing, the so-called Factors Zoo.
00:12:28.600 | The Factors Zoo.
00:12:29.440 | There's literally 300 different factors
00:12:31.840 | that make up that 18%.
00:12:33.680 | They call it the Factors Zoo.
00:12:34.840 | In his book, he cites 106 of these different factors.
00:12:38.240 | Oh, they're out there.
00:12:39.080 | You can go back test to your eyes water.
00:12:41.960 | You know, you can find all these things in,
00:12:44.960 | back in history before people knew about it.
00:12:48.000 | And you could create a study and say,
00:12:49.200 | you know, if you actually did this,
00:12:51.280 | you know, you would have outperformed.
00:12:53.180 | So, you know, are the academics wrong?
00:12:56.840 | No, they're not wrong.
00:12:58.440 | They're very good at going back and looking at past data.
00:13:01.800 | Very good.
00:13:03.200 | What is the problem?
00:13:05.040 | Anybody ever see this photo?
00:13:07.440 | This is amazing photo.
00:13:11.840 | That is Leonardo da Vinci and Mona Lisa.
00:13:15.320 | This photo was taken in Florence in 1504.
00:13:18.820 | What are you laughing for?
00:13:22.960 | What's wrong with it?
00:13:24.000 | It didn't exist.
00:13:26.340 | Of course, cameras weren't invented until the early 1800s.
00:13:28.480 | So how could this photo exist?
00:13:30.020 | It was back tested.
00:13:31.840 | It's a hypothetical photo.
00:13:33.440 | But I bet if there actually were photographers
00:13:38.200 | back in 1504, that that picture
00:13:42.160 | probably wouldn't have been taken
00:13:43.480 | because Mona Lisa and that whole thing
00:13:45.160 | wasn't even popular back then.
00:13:46.840 | So in other words, same thing with back testing.
00:13:49.240 | If you would have known,
00:13:51.920 | if you would have known that these things
00:13:56.000 | actually were gonna perform like Paul said,
00:13:59.760 | would it have changed the world?
00:14:02.200 | The answer is yes.
00:14:03.200 | Of course it would have.
00:14:04.700 | If people actually knew that small cap
00:14:06.640 | is gonna outperform large cap,
00:14:08.920 | they would have invested in small cap.
00:14:10.120 | These institutional managers have to perform.
00:14:12.080 | It's their job.
00:14:13.300 | If they knew that value was gonna outperform growth,
00:14:16.840 | of course they would have invested in it.
00:14:18.400 | What would that have actually done to the real world data?
00:14:21.780 | It would have changed it.
00:14:23.220 | We in a period now where since all this academic information
00:14:26.920 | is now out there, that maybe the world has changed.
00:14:31.280 | Maybe we're not gonna see these premiums going forward.
00:14:35.400 | Something you're gonna have to decide.
00:14:37.300 | But there's another issue besides the data
00:14:43.320 | and that is behavior, us, our bad behavior.
00:14:48.760 | So factor tilts create what I call a behavioral risk.
00:14:54.800 | It's a behavioral risk that occurs
00:14:58.280 | when you're not holding the stock market.
00:15:01.080 | You're not holding the market.
00:15:02.560 | You're holding something else.
00:15:04.120 | Why are you holding that other thing?
00:15:06.600 | Why are you not holding the market?
00:15:09.060 | 'Cause you want to outperform.
00:15:11.800 | You wanna beat the market.
00:15:14.160 | That's why you're investing in factor funds.
00:15:17.380 | How long will you last?
00:15:20.980 | That's the question.
00:15:21.980 | From 2000 to 2007, after the tech stock bubble exploded,
00:15:29.320 | small cap value stocks had their best run,
00:15:32.960 | I think, ever, and Paul, you can correct me on this.
00:15:36.040 | I was in the money management business at the time.
00:15:37.880 | I had a money management shop.
00:15:39.840 | I got hundreds of phone calls from people.
00:15:44.280 | How do I get DFA funds?
00:15:46.400 | How do I get DFA funds?
00:15:47.680 | Will you put me in a portfolio with DFA funds?
00:15:50.520 | Everybody wanted DFA funds
00:15:52.960 | because they were the ultimate farmer,
00:15:55.240 | French three-factor model,
00:15:56.640 | small cap value investment management firm at the time,
00:16:00.640 | and everybody wanted access.
00:16:02.040 | And the only way you could get access to DFA funds
00:16:04.120 | at the time was to go through an advisor,
00:16:07.000 | and most of the advisors were charging 1% or more
00:16:11.800 | to have that access.
00:16:13.400 | So I was getting these calls all the time,
00:16:15.600 | and I said, "No, we're not gonna do that.
00:16:17.400 | "We really don't believe that.
00:16:18.800 | "We can put a small amount in,
00:16:20.740 | "but we may not even use DFA.
00:16:22.220 | "We may use something else
00:16:23.280 | "that's a little cheaper than DFA," whatever it was.
00:16:25.880 | It was a flood of people.
00:16:30.600 | But you'll probably hear this tomorrow from Charlie Ellis.
00:16:34.600 | There's something in the markets
00:16:35.480 | called regression to the mean.
00:16:37.840 | And what happened?
00:16:39.440 | Well, we had a long period of underperformance.
00:16:43.320 | Since 2007, small cap value and factors in general
00:16:47.200 | have underperformed the market significantly.
00:16:50.600 | Let's see, it's 2023 now.
00:16:53.020 | So what is that, 16 years, 17 years, roughly?
00:17:00.240 | Weak hands have already thrown in the towel.
00:17:02.680 | You're trying to beat the market.
00:17:05.740 | That's why you did this.
00:17:07.120 | Come on, right?
00:17:08.360 | That's why you do small value.
00:17:10.000 | You're trying to beat the market.
00:17:11.000 | How long are you gonna hang in there?
00:17:13.280 | 17 years, 15 years, 10 years?
00:17:16.480 | How long you gonna give it?
00:17:18.000 | Most people, a lot of people who contact me,
00:17:21.080 | and I do that hourly model now,
00:17:23.280 | they've already thrown in the towel,
00:17:24.540 | or they wanna throw in the towel.
00:17:25.840 | They're done, especially as you get older.
00:17:28.280 | I mean, you know, I'm on Medicare now.
00:17:30.840 | The last thing I want is complexity in my portfolio
00:17:34.260 | or things that have underperformed.
00:17:36.400 | So anyway, so the performance-chasing mentality
00:17:40.720 | or the performance-chasing mindset
00:17:42.320 | that got people into factor investing to begin with
00:17:45.140 | isn't really factored into these studies.
00:17:48.040 | They talk about the premiums that they delivered
00:17:50.000 | since 1928 or '26 or whatever the year is,
00:17:53.200 | but they don't talk about the mental aspect of it.
00:17:55.880 | In the long periods of time
00:17:57.320 | in which there's this drought of returns
00:18:00.360 | where people who got in during that I-gotta-have-DFA period
00:18:04.780 | have already thrown in their hand, and guess what?
00:18:08.680 | They, guaranteed now, are gonna underperform
00:18:11.960 | the stock market since inception, guaranteed,
00:18:14.620 | because they have no chance of making that back
00:18:16.400 | if small-cap value actually comes back.
00:18:18.440 | Therefore, I'm gonna tell you something John Bogle said.
00:18:22.320 | John Bogle was way advanced, way advanced on this stuff.
00:18:27.320 | He said, you know, it's a lot easier in life
00:18:31.320 | over your retirement to just hold the stock market,
00:18:37.360 | just hold the whole market.
00:18:38.880 | I mean, people are okay holding the market.
00:18:41.040 | You allocate a certain amount to the market,
00:18:43.360 | you own an index fund that owns the whole market,
00:18:45.760 | and you're done, it's easy.
00:18:47.240 | You can do that.
00:18:48.600 | As factors, much, much more difficult.
00:18:51.720 | So Rick's bottom line on all this.
00:18:54.580 | You could be rewarded for adding additional factors
00:18:58.920 | to your portfolio in the long term,
00:19:01.200 | but those premiums may not be guaranteed.
00:19:04.400 | They may be a lot smaller,
00:19:05.880 | or maybe they've gone away entirely.
00:19:07.740 | The only guarantees that you will have
00:19:10.560 | is you are taking a risk when you do this.
00:19:13.280 | You are taking a risk
00:19:14.480 | that you're not gonna get a market return.
00:19:17.240 | You're also gonna pay more.
00:19:19.200 | You're also making your portfolio more complex,
00:19:22.340 | and the tracking error to the market,
00:19:27.500 | if it goes on for a long enough period of time,
00:19:30.040 | you may decide to blow out,
00:19:31.240 | and now you've permanently locked in on the performance
00:19:33.560 | relative to the total stock market return.
00:19:37.020 | If you are in, okay, so here's my advice
00:19:42.080 | to the people who are already doing this, Paul.
00:19:45.000 | Okay? (laughs)
00:19:47.280 | Stay in.
00:19:48.560 | You've got sunk cost.
00:19:51.160 | I mean, you've been in it, you've been losing,
00:19:52.780 | it's been underperforming.
00:19:53.880 | I mean, it's hard, okay?
00:19:57.080 | But you've got sunk cost,
00:19:58.600 | so you really need to stay in this thing, okay?
00:20:01.760 | If you're thinking about adding additional factors,
00:20:04.760 | I say limit your exposure to 25%,
00:20:06.960 | and what do I mean by that?
00:20:07.800 | You have a total stock market of 75,
00:20:09.600 | and then you do a very heavily concentrated portfolio
00:20:12.400 | of no more than 25% of small cap value.
00:20:15.980 | And you need to do it for a very long period of time,
00:20:23.120 | probably the rest of your life,
00:20:26.000 | and that may not be long enough.
00:20:28.080 | In fact, Paul was saying he put it in his,
00:20:29.640 | what was it, your granddaughter's account?
00:20:31.360 | Is that what it was? (laughs)
00:20:34.900 | So remember, the most important decision we make,
00:20:37.000 | so let's get back to basics,
00:20:38.460 | the most important decision we make as investors
00:20:40.840 | with our portfolio is your beta allocation,
00:20:43.840 | your beta allocation.
00:20:45.000 | How much stock market beta are you going to have?
00:20:48.680 | How much bond market beta are you going to have?
00:20:52.280 | Jim Dolly gave the presentation about real estate,
00:20:54.520 | which would include your home.
00:20:56.080 | How much of that beta would you have?
00:20:58.920 | How much cash would you have?
00:21:01.040 | And then let the markets do their thing.
00:21:03.400 | If you wanna do small cap investing,
00:21:05.920 | small cap value investing, it's not important.
00:21:09.760 | I mean, it becomes increasingly unimportant
00:21:12.800 | the older you get.
00:21:13.800 | So this is something that it's hard to talk the talk
00:21:21.560 | and walk the walk.
00:21:25.320 | I always love this.
00:21:26.480 | This is factor investing.
00:21:27.920 | It's hard walking on this stuff.
00:21:30.880 | It is.
00:21:32.400 | It's hard to swallow 17 years of underperformance.
00:21:36.620 | And what is the bottom line?
00:21:39.000 | What is the risk?
00:21:39.840 | What is the biggest risk of factor investing?
00:21:41.640 | I don't think it's the fact that these premiums
00:21:43.400 | may or may not happen again in the future.
00:21:46.360 | I mean, I think that if enough people blow out
00:21:48.000 | of these factors, which it seems like maybe,
00:21:50.080 | I mean, the spreads between value and growth
00:21:52.800 | just keep on getting bigger and bigger and bigger
00:21:54.040 | and bigger and bigger.
00:21:54.880 | Every year I hear the value people say,
00:21:56.840 | hey, hey, look at this, look at that, look at the spread.
00:21:59.640 | I mean, value has never been cheaper.
00:22:00.840 | We have except for next year, it gets cheaper.
00:22:03.960 | The year after that, it gets even cheaper.
00:22:05.920 | Okay?
00:22:07.320 | So if you're gonna do it, you need to do it
00:22:09.120 | for the long run, you need to stay in it
00:22:10.980 | literally for the rest of your life.
00:22:12.160 | I mean, it is a 25 year at least commitment
00:22:15.720 | to try to get these premiums.
00:22:17.160 | And that's me, that's my presentation.
00:22:20.540 | Thank you.
00:22:21.380 | (audience applauding)
00:22:24.540 | - Thank you, Rick.