Evaluating Systematic Equity Strategies (EP.152)

Welcome back to your favourite Canadian podcast about sensible investing! Today we are focusing on evaluating equity strategies and wondering aloud whether you should be chasing these anomalies, thinking about the costs and turnover, and how these products are being implemented. These are just some of the important questions that can be asked on this subject, and we do our best to cover the most vital points in this episode. We start things off with our customary book review segment, taking a look at Katy Milkman's fascinating new title How to Change and the thesis it lays out on the continuum from now into the future. We then turn to a few interesting and pertinent news stories dealing with the CPP and clarifying the role of fund managers! After the preamble, we get into the main course of today's show and talk about some of the most prominent literature on the subject of equity strategies before laying out some criteria for useful data in this discussion. Our main point can be simplified as such: in the event of selecting systemic equity strategies with hopes of beating the market, there are many additional tradeoffs and costs that should be considered, many more than we even have time here to go through! To close out the show we take on a few questions for our Talking Sense segment and share some somewhat relieving news for our bad advice of the week!

Key Points From This Episode:

• A retraction and re-review of the last episode's book of the week, Effortless! [0:04:26.4]
• This week's book review of the exciting new title from Katy Milkman, How to Change. [0:06:35.6]
• A round-up of recent news stories from the WSJ, The Globe and Mail. [0:10:32.2]
• The surprising results of the Canadian year-end SPIVA scorecard. [0:14:55.8]
• Investment topic of the week: evaluating equity strategies and the inspiration behind it. [0:17:24.5]
• The identification of systematic factors; Fama and French's original findings and newer research. [0:21:15.9]
• Conditions for useful data: persistent over time and pervasive across markets, strong economic rationale, and non-reliance on rising valuations. [0:23:44.3]
• The two forms of implementation costs that the data needs to survive: implicit and explicit. [0:32:40.1]
• The importance and impact of taking transaction costs into account for your portfolio. [0:35:53.0]
• The rough estimations that Ben put together in 2019 for a fund premium regression. [0:38:54.6]
• The 'what if I am wrong' check; the usefulness of maintaining a healthy level of skepticism. [0:42:22.5]
• Summarizing today's argument about additional costs and tradeoffs when selecting equity strategies. [0:46:01.7]
• Talking Sense segment; thoughts on money's purpose, and goals and sacrifices. [0:46:39.1]
• This week's bad advice! The amazing claims of TFSA maximizer schemes. [0:52:21.0]