Today’s post is a continuation of this post. It might be helpful for you to read that post first and then pop back over here to continue the discussion about evidenced-based portfolios.
Did the recognition of “three-factor investing” solve the market? Well, no. Not really. Someone will always be identifying additional market factors at play.
There will always be those seeking to find patterns to gain an advantage in the market. Two newer factors discussed in academic circles are profitability and momentum:
Before we get ahead of ourselves, let’s discuss a few caveats.
As a result, opinions vary on how profitability and momentum should play a role in current portfolio construction.
These new factors are a bit like new shoes. As you continue on your journey, it may be enticing to try them out. They might work well, but you still don’t know how they might react in all conditions.
But, wait. These aren’t shoes. This is your life, your prosperity, your future. We’re here to help you assess whether they may make sense for you. So, let’s explore how to think about investment information.
Relentless questioning from scholars and practitioners is essential to evidence-based investment theory and application. Progress is good and necessary. But you need only glance at daily headlines to notice a never-ending stream of ideas from conflicting voices of authority.
Staying informed is helpful, but being inundated with jargon-filled jibberish can do as much harm as good.
So, how do you know who to follow and who to ignore?
This is why you have an advisor. A professional in your corner can separate the emotional response from the informed, forward-thinking one. We must ask pointed questions that can take years to resolve:
It becomes fairly obvious, when we answer these questions, what is useful and what is not. If it isn’t leading you to your destination, you’re better off forgetting it.
We’re looking for the smoothest journey for you. When we identify a new route that might make that journey easier, we must be careful not to overreact. You never know what may lie around the next bend on an uncharted path.
Staying the course will almost always serve you well. But it doesn’t hurt to keep an eye out for new information.
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