Today’s Markets Are a Zoo. Which Exhibits Are Worth Checking Out?
- by: Hank Berkowitz
- October 28, 2016
As we discussed last week, writing a relevant eBook, blog or regular column can position you as a thought leader in your niche and garner you national media attention. Last week, our client Blake Christian, CPA, a tax partner of Long Beach, CA-based HCVT was featured in a US News & World Report story How to Create a Foolproof Withdrawal Plan for Retirement Assets.
We typically start our outreach efforts at least three months prior to release date and several of our clients have landed new business just by sending out pre-release chapters to their centers of influence for review.
To that end, my friend Andrew Berkin, Director of Research for Houston-based Bridgeway Capital Management, has received tremendous advance publicity for his now-released book Your Complete Guide to Factor Based Investing that he co-authored with the legendary Larry Swedroe of Buckingham Asset Management (BAM). We didn’t help Andy with this particular book, but we’ve edited many of his articles and we know he always writes with the marketing end goal in mind. Andy’s a “quant,” but he has a knack for taking the wonky math, science and jargon out of evidence-based investing and helps everyone from individual stock players to large-scale institutional investors isolate the true factors you need to make intelligent and repeatable investment decisions.
While some advisors tend to have “smartest kid in the class syndrome,” Berkin, Christian and Glomski do the opposite. They work very hard to make difficult concepts simple for clients, prospects (and journalists) to understand—and that’s why they have the following they do.
A zoo of factors
I caught up with Berkin last week and he told me the term “zoo of factors” comes from a speech that University of Chicago’s John Cochrane gave at the American Finance Association. His point: only a small handful of investment factors, from among the mountains of data, are really required to make highly impactful investment decisions and that the rest is just noise.
Berkin said much of the book is based on long-term analysis that he and Swedroe did on a myriad of investment performance factors—both individually and in combination. The key was taking that analysis from “academic research to practical benefits.”
When asked what investors, including professionals and wealth managers still don’t get about today’s markets Berkin said he is still surprised at how many fail to realize that markets go through cycles. “What has worked in the very recent past may continue to work for a while as other investors pile in,” Berkin said. “But, following the latest fad all too often ends badly as folks buy high and subsequently sell low,” he added. Instead, he said you should set a long-term plan and look for factors that are “persistent over long time periods, pervasive across geographies and sectors, robust to various definitions, investable and intuitive.”
Berkin said many investors are worried about uncertainty in what they view as a very volatile and fragile environment. But, he said there will always be uncertainty with investing; “we don’t have laws in investing like we do in science. And that is one way that an evidence-based factor approach to investing proves invaluable.” Berkin added that there are no guarantees, but by applying the scientific method to investing, “we can better understand what drives the returns of securities, how those returns interact, what their likelihood of success will be and how to combine them into an overall portfolio. “
Advisors seemed to be scared too. Why? “For some advisors,” said Berkin, “there is a feeling that the lowest hanging fruit has been picked. Getting new clients and growing is tougher. There is a need to spend more on everything. And there is pressure on fees. Clients want more for less. It won’t be easy. But keep staying nimble and things will turn up,” he added for good measure.
TAGS: Andrew Berkin, Larry Swedroe, Blake Christian, market factors