Factor winners, Richard Oldfield, DIY investors and bad data - the best investing blogs and podcasts from the past week

Aug 19, 2022

What did you need to be doing to get the best returns out of the stock market so far this year? Well, in punishing conditions it was exposure to high dividends and low volatility that delivered the best results in the first half, which makes sense when you think about it…

Against a backdrop of surging inflation, interest rates hikes and the prospect of recession, dividend-paying stocks and conservative, low beta shares have undoubted appeal. These are the factors that text books tell you generally hold up in bearish phases, and so it has proved.

Traditional big divi payers in natural resources, healthcare and financials have fared much better than most in the market sell-off this year. Dividends have also been rebounding fast from the mass-cutting that went on during the Covid shock in 2020 and 2021. Meanwhile, low-vol stocks, which can sometimes find themselves overlooked in the good times, can and have resisted some of the heaviest selling. It’s been a somewhat triumphant period for safe, sensible, diversified investing.

But that’s where the good news largely ends. Half-year analysis by ETF provider WisdomTree, shows the resurgence of value over the past couple of years stalled between April and June 2022. With the prospect of recession on the cards, low quality value stocks seem to have lost their appeal for now, which perhaps isn’t surprising.

Momentum and size (the small-cap effect that ‘small beats big’ over time) both remain in the doldrums, and quality has been a mixed bag. Here’s a chart from the WisdomTree research (and you can read the details here).

Year to date outperformance of equity factors in developed markets

Sticking with the factor theme, this post from Nicolas Rabener at Factor Research is an indulgence for anyone with an affection for diving into the detail on this stuff: Outperformance Ain’t Alpha. In there, he pulls apart what really contributes to performance and how analysing factor exposures shows that ‘outperformance’ and investment ‘alpha’ really aren’t the same thing. And guess what? It turns out Cathie Wood’s Ark fund really is creating alpha!

If you want to dig further into the relationship between high and rising inflation and both sectors and factor performances, this blog from MSCI this week has a more technical take on it all: Inflation Sensitivity and Equity Returns.

Top posts from the past week

Behind the Balance Sheet - Episode 13 - The Contrarian

In this episode of the Behind the Balance Sheet podcast, Stephen Clapham talks to Richard Oldfield, the founder of investment firm Oldfield Partners and the author of the 2007 book, Simple But Not Easy. Richard is a deep value investor the likes of which have seen their numbers dwindle over the past decade as growth became the dominant market factor. What’s striking throughout this interview is his stoicism. The man was schooled in value through the pages of Ben Graham and hasn’t deviated from those principles whatsoever. His brand of investing is all about buying sound businesses at low valuations and in his words value investors “are born, not made”. He says it takes a particular type of person to become more interested in a company when its share price is falling. The conversation takes in his distaste for indexing and how the coming decade could be a good one for active money management. Plus the importance of psychology and having a long time horizon. There are some real gems in here for any investor - particularly those with an eye for value.

Occam Investing - Do DIY investors underperform?

You don’t have to look hard to find academic research showing that individual investors have a habit of underperforming the stock market. A potent combination of multiple bad decisions and trading fees are more than capable of ruining returns. But then there’s research that DIY investors can have an edge in the market and make profits that would be hard to imagine elsewhere. So where’s the truth? This is a great post from Occam Investing that explores some of the best research (some current and some dating back years) on both sides. As a disciple of index investing, Occam’s views are clear, but for the humble DIY’er there’s a lot of food for thought here.

Of Dollars And Data - When Data Fails

Nick Maggiulli’s blog, Of Dollars and Data, has been around since early 2017, and he went on to join Ritholtz Wealth Management in mid-2018 (where he’s now COO). He does a great job of weaving data science and storytelling in his investment articles (and I’d say there are echoes of Morgan Housel, who does it brilliantly). This article picks up on the theme of badly deployed data, or rather drawing the wrong conclusions from the data in front of you. Whether it’s missing something, badly collated or plain wrong, bad data is a perennial risk to investors and this blog makes sense of how it can happen.

UK Dividend Stocks - Portfolio 2022 half-year update

John Kingham has been interviewed on a couple of podcasts recently (profiled in the July 15 2022 issue of Fully Invested). This week he published his half-year portfolio update on his UK Dividend Stocks blog. I’m a big fan of private investors who blog the thinking behind their portfolios and update the good and bad on a periodic basis. John is a master at this and his blog this week takes a seriously deep dive into some of the ideas behind his approach, how he’s refined it over time into a series of rules-of-thumb.

Among other PI portfolio updates recently, you could try this from value and opportunity: Half Year Portfolio Review 2022 - Part 1 or this from DivHut: Dividend Income Update July 2022

Stratechery - Instagram, TikTok, and the Three Trends

The future of social media platforms like Facebook, Instagram, Twitter and TikTok are not only important to those firms and their shareholders, but also millions of others who are in various ways reliant on them. Ben Thompson, who writes the Stratechery blog, is a technology and media analyst who knows this stuff better than most. Much of his work isn’t free, but this article is, and offers some interesting ideas about how these platforms are evolving and what the future might hold for them.

Have a great weekend - and don’t forget to check out the best of the rest investment blogs and podcasts below…

Ben