How to Evaluate Your Investment Decisions
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- Опубліковано 19 лип 2019
- Looking at past outcomes to evaluate investment decisions is not easy for a human to grasp. We tend to have an illusion of control bias, where we overestimate our influence on outcomes. This can be particularly dangerous when it comes to investing.
Referenced in this video:
How Much Can I Spend In Retirement? - www.amazon.com/dp/B076J4NBBZ/
Does Past Performance Matter? The Persistence Scorecard - www.spglobal.com/spdji/en/doc...
Catch up on our latest investing advice, insights and white papers here.
www.pwlcapital.com/teams/pass...
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#investing #strategies #marketefficiency
If this channel was a stock, I would buy it
And you would get like 5%
@@m.morininvestor9920 ahahah
Its funny because that would go against what the channel suggests. He would tell you don't buy my stock put it in an index fund
And Ben would advise against it, recommending you to diversify
If it *were*
Ben is so woke that he never blinks in case of an investment opportunity appearing at anytime
Ahh! Perhaps Ben wears contact lenses! I also wear contacts and I never blink, I have to consciously make myself blink.
@@Tuxedo_Cake I don't wear contacts. The videos are edited though, so I'm guessing my blinks happen in between frames.
manapate you just caught on that he’s a robot.
Maybe hes blinking right when you blink.....
@@Tuxedo_Cake What? Contact lenses definitely shouldn't interfere with your unconscious blinking. Ask your ophthalmologist or optometrist about that.
I admire the financial independence of people, But you can live better if you work a little more. After watching this I think there are people out there, on the extreme, who plan to die early just to be able to retire early. To each their own but to me, retirement isn't just about not having to work, it's about having the freedom to do whatever you might reasonably want, such as travel, buying things, enjoying life, etc. I don't think I could retire with less than $3m in income-generating investments, maybe $2m at the very minimum. I plan to work until I'm at least 45
Nobody knows anything, you need to create your own process, manage risk and stick to the plan, through thick or thin while also continuously learning from mistakes and improving
@@ReeceSharo Having an investment adviser is the best way to go about the market right now, especially for near-retirees, I've been in touch with a coach for a while now mostly cause I lack the depth knowledge and mental fortitude to deal with these recurring market conditions, I netted over $220K during this dip, that made it clear there's more to the market that we avg joes don't know
@@LukeDiogo Who’s the person guiding you
@@ReeceSharo credits to KRISTIN GAIL CUNNINGHAM, one of the best portfolio managers out there. she's well known, you should look her up
@@LukeDiogo Thank you, I just checked her out and I have sent her an email. I hope she gets back to me soon.
Ben, Thank you for hard work to cover the diversity of investment topics. At this point, this is the best channel!
Thank you!
"Retirees in 1973 and 1975 had 28 of their 30 working years overlap, but the 1975 retiree reached retirement with 36% less wealth than the 1973 retiree. They both made the same investment decisions and worked for the same number of years, but their outcomes diverged based solely on the uncertainty of the stock market outcomes."
Damn, that hit hard. I know it was the 1973 Oil Crisis that tanked the market 2 years forward, but man... What a difference, above 1/3 of your portfolio!
Nevertheless, I'll still invest constantly in a cap-weighted global stock market index fund, but I sure hope that the market won't crash/dip just before I cash out somewhere in 2060 :(
In the insightful book “Thinking in Bets”, Annie Duke calls it “Resulting”, where one equates the quality of the decision to the quality of the outcome. Thanks in part to this video I’m now writing down the reasons on my investments to see whether I made good decisions or not. Thanks for the lessons Ben!
Hey Ben! I just found your channel yesterday and I have been loving these videos. They don't paint a dream of big money like most other investment youtubers but rather explain the fundamentals behind what's going on. I just wanted to say that in the beginning of this video you give a break saying "Take a moment to let that sink in!" I think we should have more of that in your videos since they are so information dense for someone without familiarity and comfort with all the economic jargon and concepts that you use.
Well researched....I had to listen to it a couple of times to fully understand, but worth the time. Thank you!!
This is a fun channel Ben. I am in retirement with a three fund indexed portfolio. Your channel reinforces much of what I have been doing and enlightens me to some of the pitfalls in my prior investing experiences.....Thanks!
I appreciate all of your videos but this one is among the best you've done. Thank you!
First time I have heard the topic explained this way. WELL DONE!!!! Keep up the top-shelf videos Ben :-) You are helping investors make the best decisions they can. Have a fantastic day.
Very straight forward financial channel.. Keep up the good work.
Ben taught me so much about money
Beautifully stated points. Thanks Ben.
Thank you Ben, as some one who is looking for a good asset allocation strategy your videos really help me a lot
Great content and an informative approach, well done.
Great video, thanks for making it!
I would love to get more detailed information about different risk premiums and examples how they manifest themselves? How to diversify against different risk premiums? What level of diversification is sufficient?
Great video Ben! Thanks for making this vid!
Such top quality information. Appreciate the efforts and consistency in quality.
I have a thing I call “irrelevant hamburger futures”. When a stock is doing particularly well, I figure out how much has been gained, and dip into a savings account (just a standard, high yield savings, nothing fancy) and buy a meal with the gain.
I get the benefit of cashing in (a fun meal or whatever) without the loss of the actual stock.
The name comes from the idea that I bought a meal based on future earnings (“hamburger future”) but without altering portfolio strategy on something easily affordable now without touching anything (“irrelevant”).
It’s a silly mental game but brings me much joy and a fair number of good meals.
Enjoyed the video greatly, found you via Plain Bagel, am watching your catalog. Thanks for sharing.
thank you for this.
This is the clearest, most detailed explanation for diversification and the temptation to stray away from it that I've ever heard.
What books do you recommend for someone to learn about investing?
Books by jack bogle
Not if you want to learn how to pick individual stocks. In that case, start with Benjamin Graham.
@@jamesdarnell8568 Problem is that Ben Graham doesn't do what he teaches in the book. What he did back then was he would buy undervalued companies with price to book of less than one. He would take control of the company, and liquidate most of the companies assets to bring it back to one. During the process, he would grab the cash and exit.
Just buy the total market index fund and forget about it. Stop trying to outsmart yourself.
Thank you, Sir!
This is basically a summary of my time invested in Bitcoin. Happened to get interested just as it was going up last time it went to 20,000 and pretty much sold at the peak. Made a good amount of money, but it was a horrible investment decision and I didn't really think at the time about just how much I was completely gambling.
But.... you made money. That's the entire point of investing
@@utkarsh12 You can also make money by going to the casino or playing the lottery ticket. Doesn't make it a good investment idea.
@@utkarsh12 if you watched the video, you’d realize that a good outcome does not necessarily mean you made a good decision. In this case, it simply means you got lucky.
I rank my investment decisions based on if I was able to buy in at a low point and honestly based on outcomes. But maybe I can change that! Thanks for the videos
You are amazing Ben , I’m impressed
Ben I have commented many times. You are a very intelligent person. You have motivated me to become more well informed about my investment decision 👍. Thank you for sharing your knowledge 👍,
Best explanation about investment decisions. Thanks. So many people try to argue to make choices on some accidental good outcome. Which is not necessarily bad, but I would rather follow your advice and make my decisions based on taking a specific risk in view of a possible outcome.
Another Home Run video Ben.
Hi Ben, what factors should one consider before switching to another investment decision? I ask this as I was previously looking for real estate investments, but then changed my mind to investing in index funds instead upon learning about the risks and real returns of real estate, and listening to your podcast episode on real estate investing :-). Thanks for the excellent and helpful insights as always!
Thanks for educate people about the reality of investing. I see a lot of wannabe “guru investors” on the Internet spreading misinformation and dangerous advice. All they do is basically selling what people want to hear.
I agree Gabriel. It is a bit of a wild west situation out there with a ton of non-expert experts. I heard a great line recently: _without data, you're just another person with an opinion._ I try to bring everything back to the data.
Best channel!
I bucket my money and follow different strategies in each... this confirms I should stick with that. What I don’t have confidence in is the percent allocation between strategies. If you can speak to that, that would be awesome.
Nice so I can stop comparing past performance of my index funds and just stick with my SCV tilted strategy.
Hi Ben, what you think about my portfolio 60% in bonds VWOB and 40% in SPMV from iShares, is it a good strategy before recession if it may happens in next few years? or it may sense to increase percentage in SPMV
Can you do an episode on fundamental analysis vs technical analysis?
Have you read Annie Duke’s Thinking in Bets? Her whole thesis is not to evaluate decisions based on outcomes. She draws on her experience as a professional poker player.
Yes. I think that is probably where I got the phrase _you can't judge a decision based on the outcome._
Can you do a investment video on REIT's, and investing in real estate through funds and other trust funds where you invest in a company that buys and rents out apartments etc, something like IIP.un for example.
Thanks, and please keep making great videos!
Yes, this video is in the queue.
What are your thoughts on the Canadian Couch Potato ETF models?
Also, for a young mid 20s person leveraging (low interest) to invest in ETFs, would you say it is then sensible to be even more aggressive than the "aggressive" model on CCP by eliminating the ZAG bond ETF from the equation?
You're the best
Hi Ben
Thank you so much for providing very practical investment information and advice. What is right mix of bonds and equity for long term investors who need access to money only after 20 years. Is it VBAl or VGRO. What is reasonable expected annual return for each of these categories based on historical figures for at least 10 years and 20 years holding.
Please keep up with your excellent presentations 👍🏻👍🏻
The mix between stocks and bonds depends on a lot of different factors. I wrote about this here www.theglobeandmail.com/investing/personal-finance/gen-y-money/article-for-young-investors-a-100-per-cent-allocation-to-stocks-can-yeild/
For expected returns I would suggest this video ua-cam.com/video/WhYHrHiOS_E/v-deo.html and this PWL white paper www.pwlcapital.com/wp-content/uploads/2018/06/2016-03-07_-Kerzerho-Bortolotti_Great-Expectation_Hyperlinked.pdf
Sorry to comment on an old video, but could you explain why value stocks are riskier than growth stocks? Is it strictly to do with market outlook on those stocks?
Interesting rationale
Is it sensible to diversify among ETF providers as well, in order to protect against the providers themselves "tanking" unexpectedly in some manner? For instance let's say I've decided that I want 40% of my portfolio in broad base index funds for the "Total US stock market". Would it make sense to split that 40% evenly among two or three different ETF providers, eg: BMO, Vanguard, and Blackrock?
Aren’t the Momentum factor working for the growth stocks? when we are considering the risk premium of value vs growth stocks.
Great question. Value is inherently short momentum. This can be addressed different ways. Dimensional Fund Advisors, who I generally align with in terms of how they implement, uses momentum as a final screen when trading. If they need to add a position to the portfolio, they will favor adding a position with momentum. However, they will never trade on momentum alone. The challenge with momentum as a standalone strategy is that it is very high turnover and expensive to implement.
Hi Ben
Love the videos and am definitely sold on factor investing however I don't see how I can put the ideas in the video into action. If I went for a vanguard small cap index fund I'm unable to ensure I'm exposed to profitability and value factors. Are there any recommendations for low fee index funds that use factor investing to construct their holdings?
This may help as a starting point www.pwlcapital.com/wp-content/uploads/2019/04/PWL-WP-Felix-Factor-Investing-with-ETFs_03-2019-Final.pdf
@@BenFelixCSI Nice paper!
Hi Ben, your videos have made me decide to invest in index funds!! After thinking verg hard and research, I finally decide the following allocation for my ROTH IRA:
70% VTI
21% VEA
9% VWO
I would really appreciate it if I could get your thoughts on this allocation. Thank you so much and have a wonderful day! God Bless🙏🏼
It seems reasonable. VT is pretty awesome too.
I think this Ben pointed out in previous videos that low fee trackers like S & P 500 are already well diversified geographically because most of the biggest companies like Apple, Amazon, Alphabet and the energy companies operate and/or sell globally.
I don't think that was me. I am in the process of writing a video on the S&P 500 and I actually make the opposite point: the S&P 500 is not globally diversified enough.
@@BenFelixCSI Must have been somone else. Interested to hear your views on the matter.
It is a common sentiment. That is why I am addressing it in the video.
Market risk is based on premiums. Regardless of outcome. Hmmm interesting 🤔 thanks for the video ben
Thanks for watching!
@@BenFelixCSI Yeah great stuff it makes me think different
Great video ! Question for you would you follow the advice of warren Buffett : « When it's raining gold, reach for a bucket, not a thimble. » ? If so how would you do it? (I know your more a passive investor and warren an active one, im just curious of your answer)
That is not Warren Buffett's advice to you. Here is his advice to you: ua-cam.com/video/JzoTdkfues4/v-deo.html
Great video Ben, Subscribed! Wish I would have found this video sooner... I would have saved some money.
Dou you thing It makes Sense to mix a US Total Stock market ETF with a Small Cap Value ETF? Ir you would prefer, in this case, to buy anexo S&P500 index fund such as VOO and a Small Cap Value ETF?
Excellent video - you might have convinced me a little more that picking individual stocks can be a bad investment decision!
Ben i am new at this just started last year .I started out with Fitbit GoPro LX. I was thinking maybe people will buy lots of these because of Christmas ant the new year it went up. I sold then quickly went down the same day .i waited I went back up I brought it back . Then it went all the way down to 3.21 .. I did not sell it. So I brought more even though it has been down for months. That was in Aug. in Nov. I jumped to 7.14 so i sold it made 85.68 with 12 shares . It still in the 6s so I am just waiting
Hey, I really lke your videos, but I would really appreciate if you would post the links to your data sources (like x% over that period)...
Sure. The data source will always be either Morningstar Direct or Dimensional Returns Web. I have been meaning to start linking the papers that I refer to though.
Keep calm & index on.
One of your best videos so far! Great explanation as to why investing decisions are too often made for the wrong reasons.
Thanks Robin!
principles underlying investment decisions are the _____regardless of the _____or type of entity investing. please tell me the answer of this question
If an investment decision only pays off 75 years from now, was it worth it? What if you're dead and not able to reap the benefits?
That's the risk. If it was risk free, then the market is inefficient.
this guy is 200%
Hi Ben, I just recently read Tony Robbin's 'Money: Master the Game', where he breakdowns how several billionaires diversify their index funds and in what proportions. People like billionaire Ray Daleon (sic), and the Yale Trust fund manager, Warren Buffet etc. I'd love to hear your opinion on these breakdowns. Thanks!
Hi Dan, I wrote about this when the book came out. I did not address all of the portfolios - only Dalio's. But I did address the book in general as well. www.pwlcapital.com/stories-over-science-tony-robbins-financial-advice/
Hi Ben,
Thanks for the great content!
How do I get exposure to small cap-value with etfs? I found only two ucits etf for this (us & europe).
Vanguard has small and mid cap value.
@@666yaoz Ucits and accumulating?
I can only buy ucits etfs here in Europe and I don't want deal with etf dividends for practical and taxing reasons.
I don't know enough about the UCITS product universe to answer this question. I proposed using IJS and IUSV to get US value exposure. Maybe there are UCITS ETFs that track the same indexes?
@@BenFelixCSI I have only these indexes to track:
MSCI USA Small Cap Value Weighted Index
MSCI Europe Small Cap Value Weighted Index
As I understand these are not pure small cap value indexes, just overweighted in small cap value versus small cap growth.
Other than these I have only found pure small cap stuff like MSCI World Small Cap.
I am not sure if it is worth to complicate my portfolio with this.
@@mgoogyi The small cap value weighted indexes seem good, no?
Do you invest in individual stocks at all for fun? I have personally invested a little in Tesla. I really believe in where they are headed, but I'm prepared to take a loss if things headed south.
I don't find gambling fun. I like building high end remote controlled cars with my kids.
I buy individual stocks and I don't do it for fun. I do it seriously. I like to control my gains so I can pay ZERO percent gains taxes. I have a 2M portfolio and I only hold between 7 and 10 stocks. I don't really diversify. I buy companies that I believe have decades of growth ahead of them. I have 300K in Costco alone. If they become overvalued I can always buy puts. Also, I would never own a company like a TSLA in my portfolio. That is guessing not investing. Also, the auto industry is pretty much never worth investing in. Especially long term. I know, I grew up in The Motor City.
Hi Ben I find your podcasts (the rational reminder) very helpful. Especially episode 36, However I cant find the information on your website that you said would be posted (maybe my fault). Please post the link. A couple of points if I may. In 1 podcast you said most investors don't look at RRSP accounts as the true value (not taxed) I have to disagree as a 58 year old I know ill lose money to tax on with drawl and realize the less money I make per year after retirement the less tax I will pay. Also you mentioned how its important to have a good advisor. I agree however because I have less than $200,000 total money invested or to invest I cant get a good advisor. Maybe thats a market to be looked at. Please do future shows on where an investor with less than $200,000 can go besides banks as they suck. also please do a show on flipping RRSP to RIFF if possible. Keep up the great work. Although I get lost in your shows sometimes I find the information useful and you really do have great guests. I hear and think about things I never knew or thought about. THANK YOU
Thanks for listening and for all of these great questions! We have not yet posted the model portfolio (long delay, I know), but they are done and should be up soon.
As for advice, you can always engage a fee-only planner like boomerandecho.com/fee-only-advice/
As a Telecom employee, they match 50% of your payroll investment into company stock. Is what you are saying, mean I should sell these shares and buy ETF’s?
I believe I addressed this directly in this video ua-cam.com/video/AecvTErBQY8/v-deo.html
I also answered this exact question in the comments on that video: _Logically the optimal path would be selling immediately to diversify. This is based on the data cited in this video. However, if you do that and the individual stocks goes on to do very well, you may feel sad. You have to weigh this emotional risk against the logic of selling to diversify._
Can you make a video on all risk premia?
Seconded
Be interested in what you think of Lars Kroijer, basically follow his advice but have a small portion
Great video! Do you have any examples of how we can apply Bayesian analysis in a decision? Sometimes the theory is so abstract that it’s hard to imagine how to actually use it in a real world situation
I'm sorry, but how can bayesian thinking be an abstract process? Assessing the weight of prior knowledge to judge a new knowledge fairly is abstract in what sense?
Could you make a video with the same thought process for choosing a wife? What risk and reward factors would be most relevant? What would be a suitable time horizon to evaluate the decision over? And is it true that the quality of my decision shouldn’t be based on the quality of outcome?
Hello Ben, I am from Germany studying Finance in my Masters degree. Do you have the title of the paper dealing with correlation of several factor premiums over different time horizons?
Thank you in advance Bud!
I think I was referencing my own paper www.pwlcapital.com/resources/five-factor-investing-with-etfs/
Those data can be recreated pretty easily using the Ken French data library.
I discovered this channel a few weeks ago and watched most videos. It's the best channel about investments that I know. Thank you so much for all the very valuable information about investing considering the efficient market hypothesis. I have some questions:
1- I am Brazilian and here there are isn't a really good ETF and you have to pay taxes when you sell ETFs but not when you sell individual stocks. Since the Brazilian market has only about 200 stocks with good liquidity, do you think it's valid to purchase a ton of individual stocks in a disciplined way to build my own index?
The next questions assume that the first got a "yes" answer.
2- I read how Morningstar classifies stocks on their style box and they consider different things to classify if a stock is growth and value. So even though value and growth are on the same axis in their style box, it doesn't look like they are opposites. A stock maybe could be growth and value at the same time. Ben, I got the impression that you treat value and growth as opposites. Is the Morningstar style box a valid way of determining if a stock is a value stock or would using the price to book ratio be better?
3- When looking at indicators like Price to Book Ratio to try to determine if a stock is a value stock, do you have to compare The P/B of the stock to the P/B of the overall market or to companies in the same industry?
4- Is it a good idea to exclude consistently unprofitable companies, or companies near bankruptcy?
Unfortunately, these academic theses are not applicable to Brazil... There's only a few companies that worth investing and the government interest rates (bonds) are extremely high. First of all, unlike SP 500, the Ibov index has a unproportional ammount of trash in it, in a extent that an avarage investor stock picking (just avoiding the trash) can easily "beat the market". Ibov index didn't even beat brazilian fixed income in the past 20-30 years (not even inflation in the last 10!!). Maybe things will change in years ahead, now that interest rates are at a historical low, but is still a great deal to avoid the index.
@@leonardols1 Leonardo L Thanks for the reply Leonardo. The bonds used to have really high interest rates in the past, but that's because they used to be a really high risk investment, so that doesn't violate the Efficient Market Hypothesis. But the IBOV did beat government bonds since Plano Real, by a tiny bit. From now on, it would be crazy not to expect IBOV to beat government bonds, since the bonds now have a much lower risk and consequently lower yields.
Also, the IBRX-100 index beat IBOV and the Small Cap Index beat IBOV and IBRX-100, as expected, because higher exposure to small caps should result in higher returns, as Ben has been saying.
I'm not sure what you meant when you said the IBOV has a lot of trash in it, but that shouldn't be something reasonable to say, because according to the EMH the "trash" companies should be priced lower than the "good" companies, making the index a fair deal. I calculated the real returns (removing the IPCA inflation) of the IBOV index from JUL 94 to JUL 19 and got 6.254% per year. It's only 25 years but the numbers are already in line with what Ben would have predicted for an emerging market such as ours, So I think the IBOV index is a fair deal. Also, as the video we just watched explained, I don't think looking at the returns of the past 10 years is a good way of evaluating the IBOV.
I would be hesitant to suggest going the route of individual stocks in Brazil for tax reasons. There are some parallels to Canada. There are only ~250 stocks on the S&P/TSX index with a big concentration in financials. Canadian dividends are taxed at a favorable rate for Canadian investors. However this is true whether they are held individually or through an ETF. Anyway, Canadian index investors will still generally hold a mix of Canadian, US, and International index funds in their portfolio.
A stock cannot be both value and growth at the same time. Value and growth classifications are based on a valuation metric like price to book. The Highest price to book stock are growth stocks, and the lowest price to book are value stocks. It is a relative metric. A stock cannot be both. A stock can however be classified as blend/neutral which would be the middle segment of stocks when the market is sorted into three buckets. I think this also answers question 3. Excluding companies can be useful if its done systematically. For example, small cap growth stocks with weak profitability have had consistently poor risk adjusted returns. They are good candidates for exclusion.
@@BenFelixCSI Wow, you answered everything, and so soon, I wasn't expecting that. Thank you very much.
Looks like MorningStar uses metrics a bit different for value and growth classification, if I understand it right: news.morningstar.com/pdfs/FactSheet_StyleBox_Final.pdf
I've been considering using their style box, but I'd like growth to be considered the opposite of value, as you do.
So for question 3 compare it to the market, not to the industry, right?
To expand on question 1: We have in Brazil the IBOV index, with our 62 biggest companies, and 85% of the market cap of the free floating stocks. I calculated that since it's inception in December 2008, the ETF that tracks the index had average real annual returns of 3.17% after tax, while the index had 4.48%. I could buy stocks to track the Index paying negligible buying fees and 0 tax, or I could build my own value and small cap tilted index with around 100 stocks, so that's what I've been considering doing since I'm young and disciplined enough to not sell the stocks for decades except for minor rebalancing and would be benefited by risk factors.
Hi Ben. How should I diversify between stocks and bonds in relationship to how close I am to retirement?
Is there a formula?
125 - your age = % of your portfolio that should be stocks. So if you’re 30, 95 stocks, 5 bonds. Not a rule, but a guideline, can go more or less.
Yep, 100- age if you are more conservative.
@@UnknownUnknown-tu3be even if I'm retiring at age 40?
@@NimW Yea.
Not sure if this question will reach you Ben, but I've come to the understanding that value stocks are not as risky as growth stocks due to lower volatility. However, I've also seen evidence that you are saying that value is more risky as well. Are these coming from two different views or risk, or am I missing something?
Multifactor asset pricing measures risk by volatility and covariance with other states of the world. The returns of value stocks tend to covary with bad states of the world. That is why they are riskier than growth.
@Ben Felix Thank you for the follow up explanation! This helps me understand the view a bit more. I'll do some more research on stocks using multifactor asset pricing. Appreciate your videos!
So what's the best portfolio for a 20 something who has 40 years to ride out the storms? I'm guessing 100% equity and index funds but what sort of allocation?
Discussed a bit here ua-cam.com/video/2MVSsVi1_e4/v-deo.html and here www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf
Hmm, is this the first time I have seen Ben’s hand?
Interesting, thanks. I'd like to see a video on evaluating my portfolio performance, say annually.
A video on benchmarking could be a good idea. Thanks!
Hey Ben, currently, my strategy is: 50% mid cap value, 30% small cap value and 20% international. What's your take on the diversification for this?
It seems like you're missing out on market by going so heavy on mid and small. Large plays an important role in both returns and diversification. The last decade is a good example of why that is. Large has been fantastic. I wouldn't overweight large, but I'd have it in there. I might also go a bit heavier on International, but there is no right answer there.
@@BenFelixCSI thanks for the reply. I'll add back voo
So investing in a company that has zero debt (0), a good PE and PBV, growing earnings, a history of good performance and a diversified portfolio of both quality listed stocks and private equity would be a bad decision solely because it is an individual stock? Even when it's just a relatively small part of an overall, globally diversified portfolio consisting mostly of ETF's?
Hi Ben
What does it mean if stocks trail bills x%?
It means you could have earned higher returns in bills without taking any risk in stocks over that time period.
I'm interested to see how you feel about hard assets.
Which asset class? Real estate? Gold? Timberland?
@@BenFelixCSI gold and silver
Formal education will make you a living; self-education will make you a fortune. --Jim Rohn/
Couldn’t agree more. Index funds and diversification is for sure a good decision. However, over diversification may lead to ‘’Diworsefication’’. I always balance the risk of loosing money with the risk of missing out an opportunity. That’s how I assess my decision. Great video Ben. Big thumb up 👍🏻
I bought Apple at 173 at the beginning of last year when it went up to 203 I sold it making about 30 dollars. I was waiting for it to go back down but nope! I has went up to 300? So now I am think maybe I should have more shares so I can sell half and keep have .. again I am new not sure what I am doing . I got started playing with an app . That you did no have to use real money it was just practice hahah . So I save 50 dollars and joined Robinhood then 173 for Apple feb 2019 . Right now I have 323.87 . So next time I am going to only sell part and keep part because of the dividends . So what can I do better Ben?
Never pick stocks and never sell.
Personally, I've invested a lump sum in a low-cost index fund that tracks the performance of the ACWI index, and then I just invest a fixed amount every month.
History shows that you are going to be pretty well off just by doing so.
What is your thoughts on this method, Ben? 🙂
It's beautiful, elegant, simple, and reliable.
@@BenFelixCSI What about performance? With a 1 year return of -0.4% on ACWI, the 2% return of T-bills (BIL) beats that strategy with lower risk.
How is it possible that Value stocks trailed AND beat growth stocks during the SAME period (years) ? I’m confused , please explain ! Thanks
Did I say that?
@@BenFelixCSI lol
You recommend any books?
Carlos Mota Judging from the topics covered in this channel, "A random walk down wallstreet" should be relevant
Hey Ben great video. Is the risk return characteristics of developed and emerging markets worth it? And what's the tax implications of international etfs?
I think that global diversification is important. See today's video: ua-cam.com/video/RR7e1Y-HJxQ/v-deo.html
Would etf's like VGRO/XGRO or VBAL/XBAL provide enough diversification? I'm leery about the S&P right now. With what little knowledge I have, it looks to me that XBAL has actually been outperforming XGRO/VGRO
Chris, absolutely they provide enough diversification. They contain both the value and the growth stocks that Ben mentioned as well as bonds. The difference between the "V" etfs and the "X" ETFs is very minimal. The difference between "GRO" and "BAL" is based on the ratio of stocks to bonds. GRO will have more stocks and less bonds and a higher expected return in the long run, but higher risk. BAL will have more bonds and less stocks, with a lower expected return and lower risk. You have to discover what your risk tolerance is to choose between these ETFs, but both are good options. Don't look at recent returns to determine which will outperform. You have to look at the long term expectations of the asset class. Hope this helps.
Check out his Rational Reminder podcast to hear Ben get into these topics in more detail. Good luck!
Hi Chris, I talked about this here ua-cam.com/video/rSn2CT6lDlA/v-deo.html
I also have an upcoming video on the S&P 500 which will further answer your question.
@@Forseti6288 Thanks! I also have some ZAG, so I'm thinking about XGRO to simplify my holdings. This is all in my RRSP.
@@ChrisReher No problem! Yes, it would be redundant to hold ZAG and one of these ETFs which already hold bonds, so I wouldn't hold both.
Why would buying a stock with a higher earnings yield or a higher book to price be more risky?
There are both theoretical and economic arguments. The basis of valuation theory is that future cash flows are discounted to present value at some discount rate. A higher discount rate (lower price) indicates more risk that the market has priced into that security. From an economic perspective, value stocks tend to be mature businesses with higher fixed costs/operating leverage which makes them riskier than growth stocks in bad economic times. Further evidence of the additional risk of value stocks is the additional risk premium that they have delivered over growth stocks over the long-term.
My approach to investment decision-making: inaction. Risk premium= zero or absence of outcome. LOL
Another great video, you are one of the very few channels that gets likes from me for most videos... You are like an undervalued small stock, which has not been discovered by most yet (by the number of subs and views) but which is worth more that many large caps... (the best I have found so far). The advantage for us is that you can reply to almost every comment, which would be impossible with 1000+ comments... :-)
Yes, the current size of the channel is quite nice for that reason. Of course I'll be happy if it continues to grow, but even now I find I can't get to many of the comments.
I will retire sometime in the 2060s, meany belie that industrialization of Africa will be the most significant global trend in the coming decades. And this prediction seams reasonable based on the history of our civilization and global capitalism. Given this is it smart to wight my retirement investments towards ETFs in promising African counters? or would I just be "stock picking" and "market timing" just on wast geographic and temporal scales?
i suspect Ben Felix would answare: "the potential of an industrial revolution in Africa is already accounted for in the value of African stocks, you have no edge kid"
The challenge is that the economic potential of these countries is not a secret. It should be included in market prices today. The only way that you will earn outsized returns is if the realized potential ends up being greater than current expectations.
This guy's advice is always "buy index funds". Well that doesn't work for everyone, some people need to dive in deep and get nerdy and obsessive about their investing to stay interested. I couldn't stand putting my money in an index fund every month as there wouldn't be any incentive for me to save my money. If I research stocks a few night every week I not only learn a ton about money and markets but I also get motivated saving as much as I can.
And you probably wind up with a lower rate of return over the long run.
There’s plenty of opportunity to ‘dive in deep and get nerdy’ with this type of investing. Research into factors, pricing models , market efficiency etc leaves plenty of opportunity for research.
But I get your point , you get utility from the fun of it , but that’s not what this channels about - at least not at the cost of forgetting what we know about risk , asset returns etc
Ben, rational is great but it's also boring. How much should "fun" weigh into our investment strategy. Because these are lifelong endeavors so really, if we are not enjoying the journey, what's the point?
“If investing is entertaining, if you’re having fun, you’re probably not making money. Good investing is boring.” - George Soros
@@BenFelixCSI lol. Thanks for that! Still I bet he has a little fun shorting the pound to the tune of billions. :)
@@abberantgeck0 my opinion is that something as important as your investments should be as reliable as possible. It should not be fun. There are lots of other things that are fun. There are also lots of other ways to take exciting risks (further education, career changes etc.) that have a more reliable outcome than speculating in the stock market.
@@BenFelixCSI Question asked. Question answered. Cheers Ben. Keep up the great work!
The point that Ben is making can perhaps be best illustrated by a lottery ticket. If you pay $1 for a ticket you have something that is worth (about) 50 cents -- obviously a bad decision. But maybe you win and it pays $1 million. A great outcome!
Does that great outcome make anybody reading this want to finance retirement using the lottery?
I like the example of a drunk driver making it home safely. Terrible decision. Good outcome.
@@Schindlabua also people buy lotto aren’t really thinking of it as “investment” the way people think of real estate, stocks, etc when they say investments. Buying lotto is like a consumption activity like buying cigarettes or buying a ticket on that half hour swan boat ride around a lake, the feeling and the experience they get from it. Others may see it as moonshot or Hail Mary like my grandfather, who buys lotto every week...he says his $2-5 bucks a week on scratchers is better than whatever his friends spend in smokes and booze weekly. So talks of bad investments or whatever doesn’t make sense to him since he sees it more an activity that less harmful than alternatives.
If VEQT would give something good, very few data on it yet.
Ben says we should not evaluate our decisions based on outcome. Then proceeds to use the long historical risk premium outcome as a basis for reasonable return. I am puzzled.
There is a huge difference between these two methods of evaluating performance. Historical evidence is always used when investigating the world - it can then be used to make predictions of the future and it can then be tested. Historical premiums have been widely tested in and out of sample and have been shown to be robust and persistent. Not only that there is a strong theoretical basis to support why this empirical evidence exists and why we can expect it to continue (it is not based purely on returns) . This does not exist for all types of investment strategies , in fact , a lot of popular strategies have been demonstrated to be ineffective AND also have a strong theoretical basis as to why nobody should consider these strategies when investing. For example stock picking has been shown to be an ineffective strategy , but it’s obviously possible to pick stocks and get a good outcome. That does not mean the decision to invest in an individual stock was a good one. Likewise you could have invested in a market cap weighted index etf prior to the covid crash and experienced an immediate and significant loss. That didn’t mean the decision to invest in a market cap weighted index was a bad one.
@@739jep I understand that if my stock went up 5x, it doesn't mean that decision to buy the stock was informed or comprehensive with adequate awareness of risks. Statistically speaking, I kind of understand your point that historical premiums are robust and persistent, but what I fail to grasp is the idea that they can be expected to continue. That seems to suggest they can be a predictor of the future, but we know that past performance is no indicator of future results. To your other point, the "ineffectiveness" of investment strategies as I currently understand is due to simply "consensus". Technical analysis did work at a period of time where information was less widespread and not every participant could pull out a chart. Stock picking of a certain kind of stocks may work for a period of time, but will always fail in the long run. As long as every active participant is trying to find edges for alpha, each alpha will only last for so long. Then when it is well-established to be written in academic papers, the strategy would have lost its effectiveness anyways and thus lead to such a conclusion. I think the difficult part is we need long periods of data to support a new strategy's effectiveness but the strategy's effectiveness declines over time as other participants discover similar versions of it.
@@jl8252 the key here is if these historical premiums are because these types of stocks are riskier or because investors have behavioural biases.
Performance can be expected to continue if the historic premiums are risk based (and therefore there is no alpha). If they are behavioural based then yes we can expect them to disappear post publication, due to the mechanisms you’ve described. Perhaps not immediately however as behavioural biases can be persistent even after identified.
This does not mean that the historical premiums are predictive of the future in the way you’re describing. We know that historically these premiums existed , but we don’t know when or by what magnitude they will show up in the future - we just expect there to be a premium over the long term. It’s the exact same thing with the market premium , yet people are always pretty confident that long term stocks will provide a return. By your same logic it’s possible that stocks never again return a premium over treasury bonds - and I agree it’s possible , but I’m not going to invest as if I expect that.
We have a strong theoretical basis as to why these historical premiums are risk based and these risk factors are currently included in pricing models that explain approximately 95 percent of asset prices. That’s a pretty useful model I think.
Despite higher volatility which does not provide an improved risk adjusted return profile for more risky investments in EM individual countries but might provide higher expected return for long term investors, how do you think these returns might be affected by skewness since in a research paper published in 2019 with the title "Do global stocks outperform US treasury bills?", the authors looked at 600,000 global common stocks during the period 1990 - 2018 and found that the wealth created in excessive Treasury bills by the stock market over that period was driven by 1.3% of the stocks in the sample. The majority of stocks in the sample - 61% destroyed wealth over the sample period. Investing in most companies resulted in negative long term wealth creation.
Due to this positively skewed profile of stock returns, do you think that a CAPE value portfolio which aims to increase the expected return might end up in a trap of being hit by uncompensated risk and therefore underperform because it misses to capture those few stocks which have a high magnitude of positive returns? However, if that is the case, has skewness during the time proved to eliminate the advantages of cheaper valuations for a portfolio of individual countries (not one country alone)?
We may also just focus on one country, eg the US. I've seen the same research that highlights that most stock market returns are explained by few stocks, eg FAANGs recently. However, we have long-only smart beta portfolios since 1926 and although these might be missing some of these stocks, but they have not underperformed the market. In fact, we know that Value and Momentum have outperformed the market.
So how can we reconcile these results?
How is consentrating more on value or profitability or momentum stocks diversification ??? Only small caps seams like diversification as you whould have your money more equally waighted to more individual companies. Adding value you just take more risk (that is compensated yes) while adding small caps up to a point, you might add returns without adding risk of variation due to diversificstion aka in periods that large and mid stocks fall more than small caps your portfolio drops less and on periods where all caps fall equally you will have the same risk and only on periods where small caps fall more you will have more risk, but you will have higher returns.
But if you consentrate on value stocks on periods value stocks fall you will see masive falls on your pprtfolio while if growth falls you will see tiny, therefore you are less diversified
Is there an example of what you are mentioning? I would like to see examples of large value index funds drawdowns though
Can you make a video on moving averages?
What about them?
@@BenFelixCSI I'm watching your videos since recently, but you seem to give an objective opinion backed by research. So perhaps explaining a bit about the 3 types (simple, weighted and exponential) and then sharing how viable of a strategy you think it is based on research and personal experience.
@@stoyan3597 so the question is focused on using moving averages to time trades?
@@BenFelixCSI Yes. I've read a bit about it, but I haven't used it in practice yet. I think you bring some interesting points in your videos and I'm sure we're all going to learn something new :)