Dear FI listeners, today’s episode is not for everyone! It’s aimed at all the financial geeks who want to dive deeper in the art of investing and are interested in how to make 2 to 4 per cent more than the average. Luis, a professional investor, will take us through the facets of this complex topic, and it’s worth the effort for sure!
We also talk about:
- The efficient market hypothesis
- The value factor
- Joel Greenblatt’s Magic Formula
- Tools for factor investing
- Quantifying increases in returns
- Factors and market phases
A systematic approach to investing
Luis Is an investment professional from Portugal and used to manage funds for the biggest asset managers in the country. Around 2008-2009 he started approaching his job in a different and more systematic way, and his new take on it proved to be much more successful than the average, eventually leading to him starting his own consulting company. Factor investing has been a key element in the development of his strategies ever since.
Factor investing: what is it about?
Factor investing aims at combining the best elements of passive and active investing strategies: at its core it begins the analysis of companies with regard to different factors (value, momentum, low volatility, etc.) and looks at past strategies from active investors as well as academic research to define a portfolio based on companies of different types to achieve a balanced mix that can allow for less risk and increased returns.
Factor investment in practice
The usual workflow in building a factor investment strategy begins with establishing the rules and criteria you want to analyze, and how you rank them (based on statistical evidence or discretionary factors). These rules have then to be tested against the desired market subset (be it country-specific, sector-specific or else) because different strategies can yield very different results depending on it. Then comes the implementation, with decisions to be made about turnover frequency and other issues: it’s a complex process and it’s usually better managed by investment professionals.
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Disclaimer: The discussion is intended for information purposes only. The views and opinions are those of Luís at the time of the podcast. The information provided should not be considered a recommendation or investment advice.
- Joel Greenblatt’s “The Little Book That Still Beats The Market”
- ”The Intelligent Investor” by Benjamin Graham
- Luis on LinkedIn
- Stoik Investing
- CFA Institute the CFA Institute was born from the New York Analyst Society that Ben Graham co-founded in 1937 to increase the level of ethics and professionalism in the security analyst profession
- CFA’s Investment Foundations course
- Aswath Damodaran’s Investment Philosophy course on iTunes
- Damodaran’s blog
- Portfolio 123
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