Factor Farming and the Value of Perspective

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An interesting recent trend I’ve noticed in portfolio discussions is a renewed debate about the resilience of factor premiums versus the good old cap-weighted stock market. It’s entirely predictable that a tough stretch for any investment has a way of bringing out both the nervous supporters on one side and the proud haters on the other. But I really can’t fault the pros for keeping an eye on performance of some of the trendier factors or the investing laypeople for wondering what everyone is even talking about.

What do I think? It’s complicated. So let’s talk about factor investing.

How To Build a Noise-Cancelling Portfolio

Advanced, Tools

I’ve flown a lot over the years, and I understand first-hand how all of the little details like packing, efficiently getting through security, and getting settled on the plane become so routine for frequent travelers that they can do them without even thinking. But occasionally life throws you a curveball, just as it did on a recent flight where I was without my normal headphones. Stuck for several hours with nothing but the drone of the engines to keep me company, I can’t say I was thrilled but it turns out it was just the inspiration I needed to explain a complicated concept:

How do consistent portfolios full of volatile assets actually work?

Sure, I could go into a detailed discussion of covariance, standard deviations, and the complicated math behind efficient portfolio construction, but frankly I know I would quickly lose most people and even bore myself in the process. So inspired by the the desire for silence I normally take for granted, let’s step back and think of the problem a little differently in terms we can all relate to — noise.

The Top 4 Portfolios to Recession-Proof Your Investments

Beginner, Portfolios

Something must be in the financial water lately, as even the most bullish investors have started publicly expressing worry about the stock market finally reaching an unsustainable climax after more than a decade of record growth. With increased stock volatility, inverted yield curves, and global trade worries all making news, the economic tension is palpable to the point that the dreaded R-word is starting to get some significant buzz.

Are we headed for a recession?

Recessions get people worked up for a variety of reasons. For example, the events of 2008 decimated the stock market, cost scores of people their jobs, forced many leveraged buyers out of their homes, and nearly upended the entire financial system in the process. While there are many factors that contributed to that turmoil beyond the recession that came with it, it’s true that recessions tend to coincide with a lot of negative financial events. So it’s understandable that anyone who lived through the situation might be worried about a repeat and walking on eggshells given current market sentiment.

I’m not going to pretend that I have all of the answers for every problem associated with recessions, nor am I going to claim I have any idea when the next recession will start. But as a long-time student of portfolio history I’m in a pretty decent position to bring something to the table when it comes to how to structure your investments to weather the inevitable storm. So rather than just peddle in the typical doom and panic, let’s study something productive.

Which portfolios performed the best in recessions, and what can we learn from them?

How to Study Portfolios When the Data Is Full of Bubbles

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When discussing historical investing data one of the more interesting points that inevitably arises is the question of just how applicable past results are to current events and future investing decisions. Some people reject all historical data as completely irrelevant because the future will never look exactly like the past, while others hold up mathematical evidence-based investing as some sort of scientific principle that one would be foolish to question. I imagine one might expect me to fall into the latter camp, but frankly I think it’s more complicated than that. Good data speaks for itself but unless you’re speaking the same language you can easily get the message completely wrong.

Find a Portfolio to Love

Beginner, Psychology

Growth is a wonderful thing. We all start somewhere and do the best we can, and over the years people learn, mature, and evolve into something even better. That applies to lots of things like relationships, careers, asset allocations, and even hobbies like this little Portfolio Charts endeavor. So in honor of the 4-year anniversary of the site I’ve decided to launch a new logo and tagline that I think celebrates its growth as a resource and captures its spirit and mission looking forward.

Find a portfolio to love

You see, the pages here may contain a lot of data and visualizations but the design intent goes so much deeper than that. Strip away the methods and focus on the goal, and there’s really one singular mission I have in mind — I want you to be a happy investor! It’s such a simple concept but it’s amazing how difficult it is for so many people to grasp, so let’s forget everything we think we know about investing and start from scratch.

What does it mean to love your portfolio?

Happy Investors Enjoy Portfolio Charts With Coffee

Featured, Updates

I imagine it sounds hard to believe in today’s hyper-monetized internet, but in years of writing about asset allocation I’ve never made a dime from the effort. It’s certainly not from a lack of opportunities, but building a money generating machine has always been way down my list of priorities compared to other more important goals like living a happy life and helping as many people as possible learn about the immense benefits of modern asset allocation techniques. Portfolio Charts is something that I really care about, and turning one’s passion into a business has a way of inevitably killing the joy. So I have always researched data sources, created new tools, and published it all for free not because I expected something in return but because it just felt right.

One valuable thing I do consistently receive from Portfolio Charts is a sense of community. I’ve always appreciated every post, tweet, and email, and over the years I’ve been blessed to hear from scores of people who have offered all kinds of encouragement and new ideas. Many of those eventually become new features, but one of the most common requests has been something I’ve intentionally kept on the back burner.

“How can I give back?”

Enjoy the Lasting Value of Organized Insights

Updates

Over the past week you may have noticed a few changes here at Portfolio Charts. The most significant is how the articles are sorted, as the old Discussion section has given way to the new Insights page with a fancy new look. There’s a lot more going on behind the scenes beyond a pretty new interface, so let’s talk briefly about how it works and what it means for the future.

High Profits at Low Rates : The Benefits of Bond Convexity

Advanced

In the world of investing, it seems most people’s energy is focused squarely on stocks. Massive amounts of research goes into stock investing every day and even casual investors have an incredible amount of information at their fingertips. Combine that wealth of data with a long term growth pattern in the stock market since 2009 that means anyone who has been in the market less than ten years has no recollection of a single meaningful bear market, and stocks are so ingrained on our collective investing consciousness that many people don’t give other assets a second thought.

As a result, while bonds were once staples of any self-respecting asset allocation lots of investors just aren’t into them like they used to be. Some of it is definitely recency bias, and I think another factor is that many people don’t truly understand how bonds work, but I’ll concede that the bond market is also different than it was more than a decade ago and I can understand why people might think twice about relying too much on historical data. After all, bonds sound like awesome choices when they paid 10% interest, but consistent declining rates over time surely boosted any backtested numbers while depressing yields today to something a lot less desirable. So it’s no surprise that I see questions along this line all the time:

With record low interest rates today that are even negative in some situations, what’s the point of having bonds in a portfolio at all?

That’s a very good question. And the full answer is kinda complicated and includes some advanced finance mechanics that fly under the radar even for very experienced investors. But explaining complicated concepts is kinda my thing, so let’s talk about a little thing called bond convexity.

New Approach, New Destinations

Updates

Innovation and progress often come in waves, and for whatever reason the stars have aligned the past few months and it has been an incredible time for new ideas. Between the necessity of a few design problems, the learning process of my own experiments, and the inspiration of an assortment of well-timed serendipitous feedback, things have really escalated quickly and I have some exciting new updates to share.