podcast link including transcript: https://investresolve.com/podcasts/factor-investing-and-the-pitfalls-of-poor-strategy-construction-podcast/
Key Takeaways
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Factor bets are meant to be truly orthogonal or independent bets
Criteria for durability:
- persistent through time
- pervasive across geography and asset class
- Is it profitable after transaction costs?
- Consistent over various ways of defining the premia (ie value as P to B OR price to EBITDA)
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Examples:
- value
- momentum
- defensive (low-vol)
- carry
- trend
- volatility
- merger arb
- insuring catastrophe
Style premia can perform poorly for long periods
- If they didn’t they would be arbitraged away
- It’s critical to study what the contours and shapes of these payoffs look like. If you cannot stick with periods of poor performance you risk chopping yourself impairing your money-weighted returns
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