Show Notes
A few weeks ago, I joined Cameron Howe on the Investipal Podcast to untangle the complexities of investing.
You can find the original audio and video versions of the episode on Investipal’s website, but below are some highlights from the conversation:
Sign up for my newsletter so you can easily reply to my emails with your thoughts or questions for the podcast:
Portfolio Construction Philosophy (00:59)
There is no perfect one-size-fits-all portfolio. The perfect portfolio is the one an individual can stick with through market ups and downs.
Building a portfolio must start with an investment philosophy, ideally one that’s rooted in peer-reviewed academic research.
Once you have your philosophy, the starting point for building a portfolio is the total market. When you take the average of all aggregate holdings of all investors in the world, you get the market portfolio. So it’s fair to say that the average investors holds the market portfolio.
Now ask yourself, how are you (or the investor you’re building a portfolio for) different than average? Things like liquidity needs, human capital, time horizon, risk tolerance, home country, temperament, and preferences are just a few things that might cause someone to deviate from the market portfolio.
Quantitative vs. Fundamental Approach (10:16)
- Hold across long periods of time and different economic regimes.
- Work across countries, regions, sectors, and even asset classes.
- Apply for various definitions (for example, there is a value premium whether it is measured by price-to-book, earnings, cash flow, or sales).
- Holds up not just on paper, but also after considering actual implementation issues, such as trading costs.
- Intuitive – There are logical risk-based or behavioral-based explanations for its premium and why it should continue to exist.
Plancorp takes a more quantitative approach, focusing on factors with explanatory power to portfolio returns and have delivered a premium (a fancy word for higher returns). Additionally, they seek factors that:
See – EP.22: To Add or Not to Add
Reducing Emotional Biases (28:45)
Clients, advisors, and portfolio managers all have inherent biases that must be accounted for.
I always enjoy talking about techniques that apply to investment committees to help reduce bias such as red team/blue team debates, blind voting, and size considerations.
But for all investors—individuals, professionals, investment committees, etc—it’s important to focus more on the process than the outcome.
Resources:
- Investipal and the video version of this interview
- EP.22: To Add or Not to Add
The Long Term Investor audio is edited by the team at The Podcast Consultant
Submit Your Question For the Podcast
Do you have a financial or investing question you want answered? Submit your question through the “Ask Me Anything” form at the bottom of my podcast page.
Support the Show
Thank you for being a listener to The Long Term Investor Podcast. If you’d like to help spread the word and help other listeners find the show, please click here to leave a review.
I read every single one and appreciate you taking the time to let me know what you think.
Disclosure: This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.
The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Plancorp LLC employees providing such comments, and should not be regarded the views of Plancorp LLC. or its respective affiliates or as a description of advisory services provided by Plancorp LLC or performance returns of any Plancorp LLC client.
References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.
Please see disclosures here.
