Factor Glut – The Eighth Portfolio Rule

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Factor Glut – The Eighth Portfolio Rule
3112014 / Pixabay

Factor Glut – Eighth Portfolio Rule by David Merkel, CFA of The Aleph Blog

I use factors in my investing. What *are* factors, you ask?  Factors are quantitative variables that have been associated with potential outperformance.  What are some of these factors?

  1. Valuation (including yield)
  2. Price Momentum (and its opposite in some cases)
  3. Insider Trading
  4. Industry factors
  5. Neglect
  6. Low Volatility
  7. Quality (gross margins as a fraction of assets)
  8. Asset shrinkage
  9. Share count shrinkage
  10. Measures of accounting quality
  11. and more…

This is a large portion of what I use for screening in my eighth portfolio rule.  I’m not throwing this idea out of the window, but I am beginning to call it into question.  Why?

RV Capital 1H22 Letter to Co-Investors in Business Owner