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Benjamin Graham on bear markets

Any naughty active investor who hasn’t yet read The Intelligent Investor by Benjamin Graham should probably put down this blog and go pick up the latest edition of that classic. 

The Intelligent Investor was published 70 years ago. Yet somehow it still seems relevant for every generation.

Indeed one schmuck by the name of Warren Buffett has called it “By far the best book on investing ever written.” 

True, much of The Intelligent Investor is outdated. And you’ll read nothing in there that you can’t find rehashed on the Internet.

Yet there’s still something uncanny about its relatively ancient wisdom. The voice of Graham describing a different time and place does make you think twice about the markets today.

I suppose it’s like seeking solace in the 2,000-year-old Meditations of Marcus Aurelius.

A lover of the classics, Graham might well have liked that analogy.

Known as The Dean of Wall Street, the original value investor considered his time better spent ‘conversing’ with the long-dead philosophers of Athens – the ‘eminent dead‘, as Buffett’s sidekick Charlie Munger calls them – rather than engaging in Wall Street tittle-tattle.

Certainly more so than making money.

Getting richer was low on Graham’s priority list by the end of his professional life.

The even more intelligent investor

Despite his enduring writing, the real reason we still know about Benjamin Graham is of course because he was Buffett’s mentor.

Graham taught the world’s sometime richest pupil how to kickstart a fortune by buying unloved companies trading at less than book value.

A survivor of the Great Depression, Graham called these companies ‘cigar butts’.

The idea was to find a company with enough value left in it to get a last puff by realising its assets. Just like a 1930’s hobo might enjoy a discarded stub. The profit could come through other investors re-rating the shares when they too saw the value. Other times, Graham got hands-on as an active investor. He did this via his proto-hedge fund: the Graham-Newman Corporation.

Pioneering stuff. But by the end Graham didn’t see much point in most other people trying.

An interviewer for the Financial Analysts Journal asked Graham in 1976: “Can the average manager obtain better results than the Standard and Poor’s Index over the years?”

“No,” replied a man who made millions from inefficient markets and taught others how. “In effect that would mean that the stock market experts as a whole could beat themselves – a logical contradiction.”

Graham also pointed to the market-lagging performance of many active fund managers. Investors might wonder why they paid these professionals so much more than the new-fangled ‘indexed funds’ that were just then appearing.

By the 1990s even Buffett had reached a similar conclusion.

Benjamin and the bear

I was thinking about Graham the other day, as I mused to myself about how long the bear market in my own portfolio has persisted.

Next month – barring some impossibly unlikely miracle – will mark two years since my portfolio peaked on a unitised basis.

I’m still down around 20%.

My net worth slump adds to the pain, thanks to swan dives in the price of assets I don’t count within my actively-tracked portfolio. Stuff like unlisted private investments and Bitcoin.

Yes, I could bump up my personal balance sheet by adjusting for the alleged increase in value of my flat.

My home is, after all, also an investment and an asset.

But the truth is I don’t trust my bank’s recent robo-assessment of my flat’s price appreciation since I bought in 2018. (In fact, I still slightly mark it down in my net worth spreadsheet).

All told, not the prettiest picture for someone on the wrong side of halfway through his investing journey.

Down but not out

Does my 24 months hacking sand in the bunker bother me?

Yes and no (and yes again!)

In the old days I wouldn’t have cared at all. I usually loved buying during market routs.

This time is different, partly I suspect because my earnings – and hence my fresh savings – are very modest compared to a portfolio that’s been pumped-up by two decades of (overall) strong returns.

I think it also feels different because usually I fare better during market declines than my deadly rival benchmark – a global tracker fund – and this time I’ve done worse. Blame those US mega-tech cap stocks that have bounced back faster than anything else – and against all precedents – to pump up the US index.

Finally, I made a hash of the dip-buying that I did begin in late 2021.

I actually anticipated the market froth stage quite well, and had positioned myself accordingly. But I misjudged how pessimistic markets would get about most stocks, and bought back in too early.

Honest mistakes

Being an active investor who meticulously tracks their returns means you can’t fool yourself for long.

Yes, any active investor must expect periods of underperformance.

Even the (few) great market beaters have them. Benjamin Graham underperformed on occasion. Buffett too has lagged for years at a time.

But I know I played the good hand I had given myself badly at the start of this decline.

An unforced error. When that happens it’s hard not to wonder if you’ve lost your edge.

Benjamin Graham and Mr. Market

One reason late 2021 to early 2022 went off the rails for me is that – in retrospect – I think I got cocky about my ability to read the machinations of Mr Market.

A mister who, conveniently for this post, is yet another legacy of Benjamin Graham.

In The Intelligent Investor Graham wrote these classic lines to anthropomorphise the capricious market:

Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometime his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposed seems to you a little short of silly.

If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price and equally happy to buy from him when his price is low. But the rest of the time you will be wise to form your own ideas of the value of your holdings, based on full reports from the
company about is operations and financial position.

Graham’s ‘Mr Market’ parable is still regularly cited. Even more so after it resurfaced in the Buffett biography The Snowball. All but the newest Monevator readers will be familiar with the concept, and many with the Mr. Market term too. That’s how enduring his metaphor has become.

However familiarity can breed contempt.

Having made several successful market calls over the years (here’s one) I got cute in late 2021 and supposed I could perhaps understand what unpredictable Mr. Market was up to.

But I couldn’t!

So I bought stocks that were down 50% that fell another 30-50%. Not with anything like all my money. But with enough for a prang that took off the wing mirrors and more.

Mr. Market and me

The bigger picture – more relevant to the majority of passive investors who read Monevator – is that one should not let Mr. Market’s mood swings get to you.

I was wrong (so far) in contrarily betting against him.

But it’s usually even worse to go all-in along with him, whether it’s by loading up when he’s euphoric or by dumping the lot when he’s on one of his historic downers.

Remember the pandemic doom-fest of March 2020?

Do not sell, my co-blogger semi-famously wrote.

That was the more important (and potentially more wealth-preserving) message than the one I wrote with the sun shining a month before, that warned giddy investors that the good times wouldn’t last forever:

A proper prolonged crash will come again. That isn’t a reason not to invest – bear markets are part and parcel of enjoying the gains from shares – but it is a reason to make sure your portfolio is robust to all reasonable scenarios.

Most of the time, for most people, sticking with the plan through everything will prove more profitable in the long-run than trying to white-water raft along the market’s ebbs and flows.

(Perhaps I’m discovering that’s true for me too…)

Benjamin Graham is not bovvered

I re-read another passage from Benjamin Graham last night. One that’s less well-known.

Living through the Wall Street Crash of 1929 – and eventually prospering again in its aftermath – helped Graham reach his then-novel perspectives on bull and bear markets, as we’ve seen.

So he had the scars to prove it when he wrote:

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book [that is, his portfolio], and no more.

Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.

That man would be better off if his stocks had no market quotations at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgement.

I tried to say this in my early post about buying in bear markets, but it took me thousands of words.

It seems unfair Benjamin Graham should be both a brilliant writer and an investing legend!

Anyway ignore the noise and other people’s opinions. That’s the takeaway.

In Graham’s day, noise was the gossip around Wall Street bars and in the newspaper reports. What he’d make of CNBC is anyone’s guess.

Still contrary after all of these years

Incidentally, I followed up that post about the inevitably of a bear market in February 2020 with one the next week that centred on one of Benjamin Graham’s own personal favourite quotes:

Many shall be restored that now are fallen and many shall fall that now are in honour.

(It’s from Horace. Not Jim Cramer or Bill Ackman.)

In my article, I wondered how long the tech stock super-rally could continue. As things turned out it still had a bumper of a year left in it, thanks to pandemic pandemonium and a final splurge for free money.

But fast-forward to today, and many beaten-up tech stocks remain in the dumpster. High-growth tech holdings still weigh down the portfolios of UK investor favourites like Baillie Gifford’s former high-flyer Scottish Mortgage.

This despite a huge rally in those truly giant technology companies.

In addition, non-US markets – and in particular UK shares – look relatively far cheaper. Call me stubborn, but I cannot see this continuing forever.

Consider this recent chart from Fidelity:

Of course, while CAPE valuations – yet another Graham innovation – are the best predictor of long-term returns we have – low CAPE being better – they are far from foolproof.

But there are other reasons to think that the US market is overdue a period in the doldrums. Such as the fact that historically, market yings tend to eventually yang, and vice versa:

Source: Hartford Funds

Make America de-rate again

The US has been on a winning streak for a dozen years. It feels inevitable, but history says it’s not. And I’m betting that way too.

I do own US growth stocks, but aside from Tesla I currently have very little exposure to the ginormous tech behemoths. And I’ve got all sorts of other odds and ends from other markets around the world.

Then again, maybe it is different this time? Perhaps we’re moving to some dystopia from the mind of Philip K. Dick where half a dozen $10 trillion companies rule the world?

Or maybe it’s a transition to a utopia of abundance – once nuclear fusion and AI reach their zenith – as imagined by the likes of Ian M. Banks.

Well maybe. More likely the US market is out over its skis.

Time will tell.

p.s. If after all this you’re intent on guessing when our current bear market has ended, you might want to read the thoughts of a more contemporaneous oldie, Jim Slater.

{ 23 comments… add one }
  • 1 oldie September 14, 2023, 5:53 pm

    When in a (for fun) investment club some years ago had a conversation which went something like:
    person 1. I am interested in performance over last 12 months. Regularly review.
    person 2. I only look at last weeks market change. Check each weekend,
    person 3. I only want to know about tomorrows performance.

  • 2 Mr Optimistic September 14, 2023, 7:28 pm

    What’s most disappointing is I have missed an opportunity for schadenfreude (which is a close second to ‘I told you so’) as my investment returns are similarly rubbish. Maybe next time.

  • 3 xxd09 September 14, 2023, 8:30 pm

    Active investors do some of us a great service even if it’s only to be a continual reminder that us poor passive /inert amateur investor types might be on some semblance of the right track – for our own particular low grade investing abilities ie by selecting an Asset Allocation and sticking with it – rather than the alternative of a frequently trading active investment plan
    Successful active investing seems very problematic
    Apologies for the backhanded compliment!
    My very conservative portfolio is now back to July 21 levels (hopefully about to recommence on its upward way) and my withdrawals ie life style have not been affected-so far
    All this achievement has been made without much if any input from me
    Bear markets come and they go-I have lost count of the ones I have been through-at least 4
    Perhaps passive is boring but getting my kicks from reading about the stockmarket and then doing very little if anything seems to have worked for me

  • 4 Neverland September 14, 2023, 10:46 pm

    I’ve never really understood why any self aware individual does anything other than passive investment in world tracker funds and some bonds to taste

    Over the long run an active investor is likely to achieve pretty much average returns like a tracker would and anything extra you might manage to make is most likely just luck not genius

    But then again, most people believe they are above average drivers too

  • 5 Time like infinity September 15, 2023, 2:22 am

    We’ve sadly gone and realised the worlds of PKD (A Scanner Darkly) and William Gibson (Neuromancer). Bank’s Culture is just too good for humanity. He knew it, and now so do we.

    Buffet gave up on Grahamite Net-Nets, wisely investing instead in the widest, most enduring moats and the longest term compounders. Meaningful Quality, but not at any price. In the end, even Graham gave up on Graham. And that’s just fine. Nothing works all the time, or forever. Try to find the right tool at the right moment for each job. Style consistency is probably overrated. Change opinions as the evidence changes.

    It’s also fine to be an agnostic. Don’t sweat that you can’t know if Value (or Small and Mid Caps) will stage a comeback from their epic 2009-21 relative underperformance versus profitable mega cap Growth. 2022 saw tentative signs that they might, and they could still go on to mean revert even now; but neither means that they will.

    This is the 2nd of the 4 legs of a global tracker. You’re liberated from having to hold opinions – no longer needing to be proved right or wrong. 1st leg is beating return skewness (Bessembinder again). Hold everything, and you will hold all the winners. 3rd leg is simplicity and ease (don’t just stand there, do nothing). 4th leg is low costs. That’s still important, but the least compelling of the quartet.

    As to when the Great Bear market of 2022 gives way to the Big Bull, as Colonel Kilgore says in Apocalypse Now, some day this war’s gonna end.

  • 6 Half Full September 15, 2023, 8:31 am

    Great read – enjoyed it very much and glad I have found this site! An off-topic comment… but would love to see an article on Wealth Preservers (such as CGT / PNL / etc). I think it would make a great read as I’m sure I’m not the only investor pondering the safety(?) of WP’s..

  • 7 The Investor September 15, 2023, 10:17 am

    @oldie — Well I’d love to know about tomorrow’s performance, so that person was correct. Just wildly over-optimistic! 😉

    @Mr Optimistic — Hah, cheers for that!

    @xxdo9 — Cheers for sharing. Interesting you’re still looking back to 2021, I suppose that’s your bond weighting versus the global market pulling down returns? Hopefully with inflation rolling over the pain has stopped there for now, or that we’re passed the worst anyway. 🙂

    @Neverland — As Mallory said of Mount Everest: “Because it’s there”.

    @TLI — I agree and had a big discussion years ago with a hedge fund buddy when I thought I might try to launch something, as I explained my style was very malleable and I was well aware it made me sound like a mug punter chasing the new not thing — or at the very least that I wouldn’t be able to be put into a box by a multi-manager fund or a pension allocator (which is fair enough re: the MM strategy).

    @HalfFull — Cheers. You might enjoy the first article below, and get something from the second (especially the comments, which do reference PNL):



    By the way, regarding your double post, we do have a problem at the moment with an over-aggressive spam filter that is requiring me to salvage legit comments from the spam morass 4-5 times a day. Please be patient if something doesn’t appear. 🙂 Thanks for commenting, welcome to the site!

  • 8 Algernond September 15, 2023, 11:38 am

    @Neverland, TLI.
    The statistics about active investors generally doing worse than ‘the market’ comes from surveys of (large) institutional investors I think.
    I believe both Graham & Buffet (+ many others) have acknowledged that the reason they had to change from their small cap cigar-butt/net-net strategies was because of their large overall fund sizes not being conducive to making significant %’age gains from it, but that smaller personal investors can still do very from this strategy in %’age terms.

  • 9 ZXSpectrum48k September 15, 2023, 11:38 am

    The fact you are still down 20% from peak, two years later, only matters if this is a significant deviation from the portfolio behaviour you would expect. For me, 20% down should be impossible. So it would be a big problem. For someone who invests mainly in equities with a strong sector and single name bias, it would seem very likely given any reasonable time horizon. If the S&P generates 15%+ return vol, then a 20% drawdown after 24 months looks perfectly normal.

    I’ve noticed many good professional PMs focus too much just on performance and not on the structure of that performance. Making too much in the good times needs to be as much a focus as losing money. Essentially, while you might not be able to predict the next market scenario, you should be able to predict your returns under that scenario. When I can’t, I take action fast.

  • 10 tom_grlla September 15, 2023, 12:34 pm

    Good thoughts.

    Personally I find Graham’s writing style a bit too dry, though I don’t deny the wisdom. But investment books are very subjective. Adam Smith’s Money Game might not be right for the beginner, but there’s wisdom to be had, and I love his almost Runyon-esque prose. I haven’t read Phil Fisher in ages, but I remember it a bit livelier than Graham, though a different message.

    Sorry to hear about the portfolio. 2023 has felt especially strange in terms of that Horace quote. Lindsell Train are still struggling despite a quality portfolio, Capital Gearing have had an awful year for them. A crypto bro might argue they’re old and past it, but I don’t think so (though of course I continue to think about it). But if inflation takes off properly, I suspect Lindsell’s profitable, dividend-paying stocks may be more in demand again.

  • 11 Al Cam September 15, 2023, 1:08 pm

    An interesting somewhat reflective piece; age does catch up with us all! Will you change anything?

    Personally, I like Iain Banks books far more than the Iain M ones. OOI, did you ever read Raw Spirit, which although penned by just Iain is very atypical!

  • 12 dearieme September 15, 2023, 2:01 pm

    What would Graham have thought of Index-Linked Gilts and TIPS had they been available in his day? We’ll assume present valuations, with a ladder of bonds held to maturity.

    An attractive diversifier for the equity-inclined?

    A suitable investment for codgers i.e. a “Granny Bond” substitute?

  • 13 Half Full September 15, 2023, 3:12 pm

    Thanks for link above to CGT. The article was from 2015 – do you have any plans to update or revisit it any time soon? Thanks again

  • 14 Steve Lemon September 15, 2023, 3:56 pm

    I would also be interested in some up to date thoughts on PNL/CGT, as I have both in my portfolio as the only non-passive elements. My thinking when I bought them to cover the remaining “diversification I don’t understand or can’t access” (eg t-bills, index linked gilts, anything else that would constitute the “water” in the “whisky and water” analogy).

    Obviously CGT has had a sticky couple of years and I’m more down than I was expecting would be possible. I’m wondering whether I should replace it with something more passive. Not because it’s down, but because maybe I might as well have just bought an index-linked gilt fund all along?

  • 15 xxd09 September 15, 2023, 5:35 pm

    Enjoyed Times like Infinity tongue in cheek post on passive investing or was it?
    Currently I am awaiting my intermediate bonds(a big part of my global bond index fund) to achieve “ escape velocity “ as short term ones have done -whatever “escape velocity “ means
    Another interesting financial puzzle/technical term which I enjoy reading about,do nothing about and maybe will understand some day!
    PS my portfolio is currently down 11% from the last “high” a couple of years ago -acceptable in these exciting times

  • 16 The Investor September 16, 2023, 9:06 am

    @Algernond — In general the statistics are pretty unequivocal, and as Ben Graham recognised inevitable at the big picture scale. I have seen definitely some evidence of a systematic fund size affect over the years, where AuM growth hurts returns. With that said, of course skilled (or lucky or crooked or whatever) individuals or small teams can do better. That has been what I’ve been up to (trying) over the past 20 years. 🙂

    @ZXSpectrum48K — Good food for thought as always. I suppose my counter (to myself, thinking about it) would be that down 20% is in the range that I would certainly expect as extremely possible, but that I’m disappointed it happened along this particular path. This was a path where the way I invest (which versus yours would definitely look like incorrigible punting 😉 ) has previously seen me earning out a little 10% advantage or so over the bear market, which frankly might have helped after the last few years. I did do very well in 2020 and for most of 2021 and you’re right that such upside for me is only enabled by the risk of this kind of downside/underperformance. (When thinking about my ad hoc approach to market drawdowns, I’m always reminded of a quote by designers of a particular class of pre-WW1 battleships. “Speed shall be their armour” they said, because what they lacked in weight they made up for in nimbleness and pace. Of course the reason I know that quote is because it’s sometimes brought up ironically, as the battleships proved hugely vulnerable when they finally saw enemy contact!)

    @tom_grlla — Cheers. Re: Lindsell Train, I’m sure you haven’t but don’t forget the big impact of the asset management business on the LTI balance sheet. That kind of crowds out the other stuff (or arguably makes it a levered bet on the other stuff, in that if/when his quality compounders / bond proxy style companies come back, you get a reversal of what’s been a declining AuM through inward fund flows as well as returns). I hold LTI too. Are we all in the same stuff?! (Eek).

    @Al Cam — I’m always changing. It’s a long story. 😉

    @dearieme — From memory he was a big bond fan; in the style of his era, he saw investing in bonds as actually investing with, IIRC, all equity investing including his own as ‘speculation’. But I might be misremembering. There’s another good link on the attractiveness of TIPS right now in today’s Weekend Reading from Morninstar, btw.

    @Half Full — You’re welcome. I wouldn’t say it’s a priority, no. Perhaps if we get into a bull market again and it gets back onto my radar. (Note: ‘bull’ market. That’s a clue as to when I think it’s best to look at wealth preservers, personally! 😉 )

    @Steve Lemon — Well both those funds have equity risk, and also I don’t think it’s fair to expect them to sidestep the worst fixed income crash for several generations / ever in 2022, given the way they are set up. 🙂 But your conclusion is one I’ve reached several times with CGT, albeit thinking a DIY version would be spread across more than just that one ETF / asset class. With all that said, it had a better 2022 than I did even with my lower-volatility ‘side bucket’ (created early that you to be vaguely set against my interest only mortgage) so ho hum I wouldn’t count them out.

    @xxd09 — There was an article explaining ‘escape velocity’ in last week’s Weekend Reading if you’re curious to learn more. See the bond bit mini-special. 🙂

  • 17 tom_grlla September 16, 2023, 10:17 am

    @TI – yes, LTI did so well for so long (esp. if one was disciplined buying when not at big premium) & they are good people one can trust. My assumption was that they’d keep going neck-and-neck with Fundsmith as ‘the nation’s favourites’.

    But as you know their Global Portfolio is largely empty of the ‘glamour stocks’ which have dominated the past 3 years. Their US ‘Tech-esque’ stocks, Paypal, oh dear & Intuit has struggled. Then a large part of their AUM is UK stocks, which hasn’t been easy. Arguably it is almost a ‘Value Portfolio’ now, given how de-rated many of the quality holdings are.

    And of course there’s the whole HL debacle, which I suspect didn’t help.

    On the other hand, there’s the occasional reminder of greatness – buying FICO last year looks like a masterstroke now. I was hoping they might find more small-caps for LTI like Laurent-Perrier, which is interesting, but that seems to be an anomaly.

    Hard to believe it’s on such a discount now if you’re a long-term holder, though rationally understandable. There seemed support at £1k earlier this year with Mike Lindsell buying, but now that’s turned to 900 with him buying again.

    @steve lemon – PNL arguably not that hard to replicate e.g. Fundsmith/TIP$ ETF/Cash. But the OCF is pretty low now, so maybe worth leaving them to it.

    CGT – again a crack team & I think not possible to recreate. My only concern is that their AUM is so much more than it was, & so they are arguably not as nimble as they were & unable to make significant sums from tricks like Investment Trust discount disparities. But I’ll give them benefit of doubt for now to do things with ETFs and lots of small positions.

  • 18 Half Full September 16, 2023, 4:20 pm

    Thanks for reply, The Investor. Sorry to keep taking this off-topic but I’m really intrigued by your comment re CGT – “Perhaps if we get into a bull market again and it gets back onto my radar. (Note: ‘bull’ market. That’s a clue as to when I think it’s best to look at wealth preservers, personally!)”

    I thought the whole point of Wealth Preservers (like CGT) was for times when the expected positive returns on equity was in doubt. In a bull market surely you’d just want to be 100% equity? Cheers

  • 19 Barney September 18, 2023, 9:52 am

    Having taken a haircut that resembled a Kojak when I cut loose from SMT, and then switched Terry Smith to Vanguard, I’m 1.01% up on July 2021. 100% passive now including two 5 star, Fid Ind Wld and Van Dev Wld.

    When I look back to the nineties and realise how I was suckered into the “active” system (along with the majority) not knowing my @ from my elbow and the time wasted buying money mags at £5 a pop researching, is painful to recall.

    Having moved 80% into Interactive will save a bit more. I can at least contact their ceo and if necessary, Abdn, as opposed to Vanguard who, as far as customer service is concerned, still think it’s the 1970’s.
    Interactive also include the Morningstar ex-ray too.

  • 20 Alan September 18, 2023, 5:19 pm

    The Investor, you sound like a market timer, if you think you can predict the right moment to enter the market. No one can do this.

    When it comes to making money out the market, you need to think I’m the terms of decades, not days, weeks, months or even years.

    A lesson learnt, I hope. After you finish Graham, try reading some of Bogle’s books, that will put you on the right track.

    Do you have a mortgage on your flat too?

  • 21 The Investor September 18, 2023, 7:15 pm

    @Alan — LOL. Cheers. 😉

  • 22 Time like infinity September 20, 2023, 7:52 pm

    On the valuation front, I’ve just included a link to the current Fama-French factor relative and absolute valuations in the comments on one of Monevator’s early (2015) forays into factor investment, as it looked like it needed more comment love:
    I have a bit of ‘quanty factor glasses’ view of equities, with momentum bias, as it’s a behavioural heuristic ‘factor’, rather than one based on fundamental characteristics (e.g. P/B, gross profitability etc).

  • 23 Time like infinity November 18, 2023, 8:49 am

    @TI: you write that you “currently have very little exposure to the ginormous tech behemoths” I’m normally pretty relaxed about concentration of holdings in big cap weight indices. It’s not uncommon, and in some loose sense cap weighting is a weak form of momentum (one that dare not speak it’s name). But I get less relaxed when we approach a historically unprecedented level which starts to raise questions about whether a cap weight index continues to provide adequate diversification against idiosyncratic risk. Alpha Architect has just covered the stats, focussing on the so called Magnificent 7 big tech stocks:


    The divergence between the S&P 500 and the Russell 2000 is striking.

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