“Factor investing offers a realistic way to boost your returns” states a financial pages headline. Hard to ignore, is it not? That sentence is followed by “- but there’s one catch you need to know about.”
Monday Morning Millionaire Program members know that the article will not offer any actionable ideas.
Working for the New York Times, Pulitzer prize-winning commentator and author Thomas Friedman is required to write 800 words once a week on any subject from anywhere in the world. What a career! Friedman will always find something newsworthy, easily. Financial columnists are also required to write something regularly even when there is nothing to write about that will affect our investing behaviour.
If you read financial columns in order to learn something that you don’t know, possibly, factor investing, well and good. If you read financial columns in order to act on your approach to investing, most frequently, you could spend your time in better ways. Walk the dog, spend time with your family and friends, read a good book or do anything else that you enjoy.
Why is that?
Years ago, Princeton University’s Burton Malkiel convincingly argued that a blindfolded monkey throwing darts at a list of stocks would most often get better results than most professionals. Malkiels’s fascinating statement was based on Eugene Fama’s Nobel prize-winning efficient market hypothesis. To test Professor Malkiels’s supposition, the Wall Street Journal ran 142 overlapping six-months contests for 14 years (using journalists instead of monkeys). They compared the dartboard portfolios to the Dow Jones Industrial Average and to the portfolios put together by professionals. For 90% of the contest, the performance of the professionals could not be distinguished from the dartboard portfolio.
