What caught my eye this week.
According to the reliably provocative Cullen Roche at Pragmatic Capital, factor picking is the new sector picking for flighty trader types.
And the problem with that, Roche writes [1], is:
“Predicting factors isn’t just identifying known sectors of the market. Factors are moving targets that require an even greater degree of asset forecasting than sectoral picking.”
Roche includes a new chart from Northern Trust [2] [PDF], showing how factor returns have been all over the place from year to year:
Clearly active investors are going to have to be channeling Mystic Meg to successfully switch from factor to factor in advance, given that chart. The vast majority will surely fail.
What about passive investors?
My co-blogger has made the case for adding a factor tilt to your portfolio (he prefers the term return premiums [3]) whereas Monevator contributor Lars Kroijer is skeptical, and suggests you stick [4] to simple market-cap weighted indices.
Your choice. But if you do decide to add a factor tilt to your index portfolio, then I’d suggest it’s best to commit to your strategy for the long-term and rebalance as required.
Clearly some years are going to be bad years, even if overall the allocation pays off.
From Monevator
The Slow and Steady passive portfolio update: Q2 2017 – Monevator [5]
Why I don’t use the FIRE acronym for financial freedom [Good comments [6], too] – Monevator [7]
From the archive-ator: You don’t have to go nuclear on working for a living – Monevator [8]
News
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1 [9]
UK faces tightest squeeze on household finances in five years – Guardian [10]
£1,000 cash in a savings account in 2007 now worth £878 in real terms – Guardian [11]
Some Shard apartments are still empty, five years on – Guardian [12]
10 ways HMRC can tell if you’re a tax cheat [Search result] – FT [13]
Mel B has “wiped out” her estimated £50m Spice Girls fortune, LA court told – Telegraph [14]
If you hold AIM shares and noticed weird quotes this week, here’s why [Forum] – Stockopedia [15]
NIMBYs told Tory building plans could boost the value of their homes – Telegraph [16]
What happened to the BTL tax backlash? It’s getting cheaper to rent! – Telegraph [17]
Family of four needs “at least £40,800” a year, says think tank – Guardian [18]
Graduates in England face decades repaying £60,000 of student debt – Bloomberg [19]
Products, taxes, and services
Tesco revamps Clubcard scheme, adds Uber to list of reward partners – ThisIsMoney [20]
Are you taxed on a divorce settlement? No, but beware wrinkles – Telegraph [21]
Would you gamble on HSBC’s new 0.99% tracker mortgage? – ThisIsMoney [22]
Virgin’s Manchester United bond triples 1% return if it does double – Professional Advisor [23]
Funeral plans could be “the latest mis-selling con” – ThisIsMoney [24]
HSBC and Investec have joined the ranks of the robo-advisors – ThisIsMoney [25]
Charity opt-out service launched to crack down on donation requests – Guardian [26]
Amazon is promising its usual raft of offers for its made-up festival, Prime Day – Amazon [27]
Comment and opinion
What I learned from my ‘faux-tirement’ – Morningstar [28]
The awesomeness of not being important – Think Save Retire [29]
Why consumer goods giants will pay Clooney-Tunes prices for rivals – Value Perspective [30]
How to save for retirement with a lumpy income – Liberate Life [31]
Preview of the upcoming How to Retire at 40 broadcast on 10 July – ThisIsMoney [32]
The case for selling out of Morrisons shares – UK Value Investor [33]
The broadest markets offer the best likelihood of expected returns – Fortune Financial [34]
Good decisions can have bad outcomes (and vice versa) – Oblivious Investor [35]
Excess indexing? The stock market has entered Bizarro World – Bloomberg [36]
In real estate – rent luxury, buy utility [US data but interesting] – Financial Samurai [37]
“Drunk with internet riches, hall-of-fame investor Stanley Druckenmiller plowed an additional $6 billion into tech stocks in March 2000. The bubble burst just days later and he lost $3 billion. When asked what he learned from that experience, Druckenmiller replied, “I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and couldn’t help myself.” – Bloomberg [38]
Off our beat
Seems young men are skipping work for superior video games – New York Times [39]
More from Tim Hartford: Fantasy gaming can be better than a job [Search result] – FT [40]
Alain de Botton Tweets ironically about banks leaving UK. Brexiteer misses joke – Twitter [41]
Economist Milton Friedman predicted the failure of the bloody War on Drugs – AE Ideas [42]
And finally…
“A part of all I earn is mine to keep.’ Say it in the morning when you first arise. Say it at noon. Say it at night. Say it each hour of every day. Say it to yourself until the words stand out like letters of fire across the sky.”
– George S. Clason’s classic The Richest Man In Babylon [43] is just 99p on Kindle
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- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [48]]