Preparing for the Recession
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- Опубликовано: 13 сен 2024
- On average, stock returns during US recessions have been negative for a globally diversified Canadian investor. Nobody wants to lose money, so it is common to wonder what can be done to avoid the potentially negative stock returns that often come with a recession.
Referenced in the video:
- The Death of Diversification Has Been Greatly Exaggerated: pdfs.semantics...
- Fama-French Factors and Business Cycles: papers.ssrn.co...
- Inverted Yield Curves and Expected Stock Returns: famafrench.dim...
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#recession #benfelix #investing
Get yourself a spouse that smiles when they talk about you the way that Ben smiles when he talks about value stocks.
Elliott Miller :D Good one
Get myself with a wife with a huge TFSA that I can play with 🤣
Get yourself someone who loves you the way Ben loves Fama and French.
I think you should diversify across spouses to avoid uncompensated risks materializing. That's why I have a globally diversified harem of mostly small value spouses. (All legal of course)
"I have not told you anything new" ~ Ben Felix in every video, but I keep on watching...
Same here. Just by googling all the peculiar terms, papers, concepts, etc., I feel like I am getting more knowledge than during my majors.
Oh but he has, that's why I keep coming.
Lol
Hear, hear! :)
That's the point where I hit the like button. Thanks for not selling me magic beans
I'm currently watching this during the COVID-19 pandemic... whee
The yield curve predicted pandemic. All hail the mighty yield curve.
i sometimes wonder why these videos AREN'T weird. I mean its ten minutes of Ben centered on screen and talking to you the entire time. No camera angel changes, no fancy clips or charts, just Ben talking to you and blinking once every minute. But I love these videos! Idk why, if it had been anyone else I don't think I'd be comfortable.
For me, I watch them 'podcast-style'. As he speaks I'm googling terms and pausing and opening articles and such. I actually had to rewatch the video to see that there were no visuals or generic scenes to match the topic. Great observation though, he's so natural in his communication.
5:49 written out factor abbreviations:
- SMB (Small Minus Big) is the average return on the nine small stock portfolios minus the average return on the nine big stock portfolios
- HML (High Minus Low) is the average return on the two value portfolios minus the average return on the two growth portfolios
- Mkt (Marketvalue) is the excess return on the market over the one-month Treasury bill yield. The `market' consists of rms incorporated in the US and listed on the NYSE, the AMEX, or NASDAQ, that are found on the CRSP database.
- Mom (Momentum) measures the return on six portfolios based on their prior returns. It is the average of two high prior return portfolios minus the average of two low prior return portfolios.
- RMW (Robust Minus Weak) is the average return on the two robust operating profitability portfolios minus the average return on the two weak operating profitability portfolios
- CMA (Conservative Minus Aggressive) is the average return on the two conservative investment portfolios minus the average return on the two aggressive investment portfolios
Credit: mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/f-f_5_factors_2x3.html
Tha real MVP
Thanks!
Wait, why do the "conservative" portfolios show a premium? shouldn't they be at lower return for the lower risk?
@@la.zanmal. The study was focused to time periods that fall into "recession". Conservative portfolios should outperform aggressive ones during recessions.
Conservative ones also are shown to outperform aggressive ones in general, over long time periods; not just during a recession.
I'd guess at three possibilities explaining this phenomena:
-If a company isn't spending money on assets, it's spending money on dividends and debt paydown instead. So basically "conservative stocks are better" is another way of saying "dividend stocks are better"; and you can listen to the arguments of dividend stock advocates to understand that.
-Value and conservative investment are so highly correlated that the authors actually suggested possibly dropping value entirely. The reason they suggest dropping value rather than conservative is conservative correlates better with returns when controlling for everything else; but as value stocks having greater returns makes more intuitive sense, you could argue that is a statistical fluke and value is actually the underlying thing.
-Alternatively, it could be an artefact of the things you control for. e.g. If conservative stocks are dividend stocks, the means you'd expect them to have lower market beta; reducing the Mkt factor of the portfolio. If you insist on maintaining a high market beta while reducing investment aggressiveness, you might end up with some rather unusual companies.
Also, many people argue this was a mispricing in the past which no longer exists, which is why there are still many investors which still buy large-cap low-value low-profitability aggressive companies with a downward price trend.
Evidence-based advice! That is what makes Ben's videos and his explanations so very credible. So happy that I discovered this channel.
Maybe you didn't tell me things you haven't told me before, but you have reduced the temptation to do counterproductive things like thinking I can time the market.
You wouldn't be commenting on youtube if you could time the market.
I'm still pretty sure I can...
Informative yet Concise, exciting and high production values - this is my new favorite stock channel.
This aged well.
I know man. His channel is amazing
Hi Ben. I would like to express my appreciation for your videos. You're always direct and on point with clear explanations that make sense and that are easy to understand. I hope you'll reach 1MB subs soon.
Thank you!
Favorite finance channel on RUclips
Once again, Ben, you have pierced one of my favorite illusions. I knew all about the yield curve inversion, but the lack of anything useful to do about it hurts.
Build cash? Double-triple emergency funds? I wish he talked about this part. I understand you don't sell in anticipation of a crash, but is it not wise (if you have the privilege) to hold off on your TFSA/RRSP contributions to build some cash in the meantime? Hmm
@@r10badboy
Basically, this research says that building cash in anticipation of a recession is a bad idea.
Building cash is essentially equivalent to selling while increasing your total portfolio size, and this research is independent of portfolio size, so the same conclusions apply.
Of course, having cash might help psychologically during a recession; and if you anticipate losing your job during a recession and you don't think you have enough cash to tide you over a larger emergency fund might be a good idea.
But from a purely returns basis, building cash in anticipation of a recession does not help.
I am always amazed how much useful info is packed in every video you put out. Ben, thank you.
Thanks!
I love binging CSI because almost every video I'm learning these crazy new terms and at the end of it I basically learn that I can disregard it all and just stick to regular index fund investing :D
When I first read it, I thought CSI the TV show.
Wasn't sure where it was going and kept reading.
Was confused on the first read through.
@@miked412 Horatio, what should we invest our money in?
Horatio: "Puts sunglasses" Put it in low cost broadly diversified market cap weighted ETFs
Background: YEAHHHHHHHHHH
I love this video. It flies in the face of every gut instinct we have. And yet his data points the weather vane in the opposite direction. I personally lost growth opportunity by trying to “time the market”, seized by a moment of market worry. Wish I seen this earlier. Ben offers superb advice. “Stay in your seat”
Timing the market is difficult and will result in negative results for the average investor. Recessions are wonderful, you get the opportunity to buy great businesses at great values.
We agree! You reminded me of the Peter Lynch quote: _Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves._
@@BenFelixCSI That is a great quote!
Mechanical market timing gives better risk-adjusted returns. It's prudent to have at least part of a portfolio allocated to a trend following strategy.
Can't resist... And then customers get to buy great products from companies!
Build cash? Double-triple emergency funds? I wish he talked about this part. I understand you don't sell in anticipation of a crash, but is it not wise (if you have the privilege) to hold off on your TFSA/RRSP contributions to build some cash in the meantime? Hmm
1 Stick to your well diversified and rational investment plan built just for you
2 Stay invested and remember #1 above to allow the power of compounding in the markets to work hard for you & your hard earned money
The message never gets old, Ben. Keep up the good work
If preparing for a recession were possible, that combined with the efficient market hypothesis would create a paradox, time-space would warp into an essential singularity, and we would all disappear into a black hole. Thank god that's not the case, Ben.
Ah yes the little-known relationship between EMH and black holes.
Ben is a moron
Saw the title and thought you were going to be another RUclipsr predicting a recession...glad you kept it real.
That's Ben to a T
I love your clear and concise presentation with lots of useful reiteration. Keep 'em coming!
Ben's videos are among the best quality you will find on the youtubes. The advice, while incredibly simple, is backed with research and obviously well thought out reasoning. It almost seems too good to be true that this content is available for free. Much appreciated Ben. Now, when will you do a similar job on diet and exercise? Thanks.
One day I’ll get to making a course that people can pay for if they like.
Ben: "Market timing is difficult"
Ben - Just timed the market haha
This is the fourth video I watch from your channel, I'm now subscribed. Thanks for the content.
Thanks!
You should check out his podcast as well. 😇
just wanted to thank you for toning down the loud intro
Thank you for all the time and effort into these videos!
Thanks for watching! It makes my time and effort worthwhile.
How someone like you has "only" 46k subs??? Damn! I'm happy to find you but sad that you have been here for a while *and I didn't know you before*. Congrats for your work.
Totally agree.
Still pre small-scap. Growth explosion about to occur with looming recession.
Thanks for the videos and the awesome, awesome podcast!
Because people do not like his points because they do not want to hear anything against their beliefs and do not like scientific discussion methods.
That study requires holding t-bills immediately after inversions when it is well known the first 10 months after inversion nearly always have positive returns. Also that test uses a procedure, simply an amount of time, for when to re-enter the market instead of logically returning to the market when the recession has ended or when we have market prices below our selling point. No one would use inversions to leave and enter the market as this study does.
Bravo for your research work and your excellent understanding of asset Management.
I am a big fun.
Though I agree with you, Ben. However, there is a way to protect your portfolio with options. You can do it either three ways: buying a protective put outright, selling a covered call and using the premiums to purchase a put or selling a cash covered put and a covered call. In case if shares go lower your put will get exercised while your call expires worthless. Then you will repeat this process which will mimic what advisors call dollar cost averaging.
Predicting where the yield curve is headed is about as easy as forecasting exactly where a fistful of feathers will land in a hurricane.
I like it.
Ben Felix, the periodic reminder of keeping it diverse and invested.
Such great analysis and advice. Thanks, Ben!!!
I *really* enjoy the quality and variety of educational videos on this channel. All I can say is *keep* *it* *coming* ! :)
Now this advice becomes relevant due to covid and inflation mess.
Ha
what's the investment factor?
Still waiting for this recession...
Tell me you didn't watch the video without telling me you didn't watch the video.
The "recession" signalled y the curve inversion in late 2019 didn't happen because the COVID pandemic meant markets were altered by lockdowns and economic adjustments to the new reality, and governments and central banks all over the world poured money like crazy and adjusted the creditary conditions to avoid a 2008 crash that would take many years to recover from. There might still be a different recession due to the inflation/Ukrainian war, and central banks, companies and consumer response to higher prices
I'm watching this video right now Ben, it is reminding me of good info
Great information and well presented as always. You are the best!
So, Ben, is the expected Market premium of >6% due to the growing populations? Or due to the technological advancement? It would be great to hear your opinion on the macroeconomics that drive the market growth over the long term.
No harm in taking a profit while you have it of course
The market was just at an all-time high, having gained almost nothing for 1 entire year.. I'd take my profit. I don't see what people are hoping for here.. how much more return do you want in this longest expansion in history, that has started sputtering long ago... 5 more %?? 10 more %? There is a long way down, and not much way up with the current economic data. Does nobody realize this?.... I guess everyone is hoping for a "correction" and that there will be no crash. That was a great run to the top we're at, but don't see what will drive it any higher at this point. Trump's tariffs aren't helping any.. weakening data, manufacturing recession, global recession.. what do we have that's positive to drive more earnings and higher share prices?
The curve didn't invert though.. it partly inverted. 10yr and 30yr as of right now are still higher than 2yr.
Fantastic video as usual, Ben. Thank you. I've always seen recessions as time to fuel your portfolio even more by adding more rather than meddling with allocations.
Agreed. It all depends on your life stage. If you have valuable and stable human capital, then recessions are an opportunity.
Through rolling over some old 401ks into IRAs a couple of years ago and then literally forgetting about it I have found myself in the awkward position of my portfolio being about 2/3 cash. Yes, I totally %&^*%& up and have had most of my money sitting in a settlement fund for two years. Based on your video I should resist the temptation to keep letting the cash sit in hopes of timing the market and just put it in NOW so that I don't miss out on more potential gains. I won't be retiring for 30 more years, so my expectation is that's really the wisest thing to do. Aside from, of course, paying more attention in the future. Thanks for these amazing videos, Ben.
2 years isn't long compared to 30. So it's not too late. I'm at the end of your 30 years, and I'm certainly glad I didn't just leave it in a money market. But at least you didn't just take a lump sum and pay the penalty like I did with my first job change 401k non-roll over. And...at least you contributed to a 401k. So many people I know don't do that.
this vid aged nicely
It's amazing. With most new videos here there's new important and fun things for me to learn. Thanks Ben, I love the channel
Thanks!
Timing recessions may be hard, but it's also hard to see how entering the market before or after a long bear period will greatly affect future returns, especially if the market will not continue to perform as it has for the last 10 years. Since the definition of a recession is two months of negative GDP, it is neither something which happens from one day to another. So I have a hard time seeing how it's so difficult to time, at least within a certain margin.
GDP data lags a quarter behind real time so it's possible you might not know you were in a recession until it's already passed.
Also, the stock market quite often goes up during recessions, especially if you're including dividends.
Can’t wait for buying season!
Yes you CAN predict a stock market crash after invertions. Normally it take about 13 months to a recession and WHEN a recession occurs stock markets fall.
Excellent. I love it how you provide the links to the studies cited.
The best way to avoid losing money is to not sell in the middle of a down turn.
But if you lose 50% then you must gain 100% to break even.
I seriously hope most people think like this and panic sell so I can pick up some great bargains. :D
Thanks for the video Ben. Nice and concise and easy to digest. My preferred investment channel to watch :)
How is the investment factor defined?
Investment is measured by changes in book value. A company with a large increase in book value is considered to be investing aggressively.
Diversify among factors, and rebalance every time you add into the portfolio. This is the way.
I am a firm believer in the merits of factor investing. However, is it imprudent to invest in small capitalization stocks, which are inherently riskier, at a time when there seems to be an increasing dichotomy between asset prices and residual operating incomes (a metric that seems to be a reliable indicator of inherent value)?
The profitability factor. I have a video on why it is exceptionally important in small cap investing m.ruclips.net/video/uErHwq4M6pg/видео.html
Hello Ben. How we should, in terms of exposure to factors, distribute those factors in our asset allocation? Is there any recommended percentage? I have seen your portfolio percentage exposure to small caps... What about the value and other factors? Thanks.
Could you make a video about the recent recovery since March 2020 and what the outlook is now? Is the recession still waiting around the corner? I saw your video about QE not causing inflation, but regardless there seem to many indicators screaming that the stock market is over ripe for correction
Not sure if this is still the case, but this is from Ken Fisher's email. Fisher does say an inverted yield curve is not necessarily an indicator of recession and is hard to pin down when, like you say.
'America's Yield Curve Is No Longer Inverted
By Staff, The Economist, 11/13/2019
MarketMinder's View: About a month ago, the US yield curve un-inverted. The news garnered little fanfare-a far cry from when the yield curve inverted in May and headlines couldn’t stop speculating about a recession that has yet to arrive. Following the “unversion,” some wonder if the Fed’s rate cuts merely delayed, rather than prevented, trouble. More worrying, in this piece’s estimation, is if the Fed interprets the latest inversion as a “false alarm” and doesn’t respond strongly if it happens again-thereby leading to recession. In our view, this retelling ignores a key point: The yield curve didn’t un-invert solely because short rates fell a ton, but because long rates rose-just as it inverted initially because long rates fell globally. To credit rate cuts for the unversion is incomplete at best. Whether the next inversion is another false alarm or a recession precursor will similarly depend on a host of variables beyond the Fed.'
Great video as Always!!! What do you think of ishares msci world edge value factor etf?
Preparing for what...
A fictional recession that probably won"t happen. Economys are cyclical and always have recessions. I have been through a few and I'm still here living a good life.
Very simple strategy that has worked for me the past couple decades. Keep you debt load low or no debt. Real estate and a mortgage is good debt. Keep cash savings and invest long in the markets. Annuities. Roths, and ETFs that pay a dividend will do well through all cycles.
Don't go buying cryptos and PMs or transferring retirement and long savings into metal or crypto IRAs. They have high markups of up to 20%. Storage and tech costs are high.
History reminder...For 30 years the S&P has had a 1200% compounded dividend return non CPI vs gold at only 320%.
so convert everything to value stocks?! 😵 Its so confusing for a new guy!!
We do this to keep the compounding going and recover wealth later ??
I have everything invested in 2 index funds, 50mid n 50large cap companies.. good?
No need to convert, but having value as part of the overall long term allocation is probably a good idea.
@@BenFelixCSI How can we capture value premium as European retail investors? Should we use iShares MSCI Enhanced Value Indexes? However, they only contain large and mid cap value stocks and are only available for DM.
www.msci.com/documents/10199/67b801e5-43ef-4200-8531-540851378835
People consider compounding as buying only the same stocks by returns like dividend payments. I interpret it as not pulling any return out of the account and re-investing them any way you fit. This includes any other stock as well.
Briefly, use returns to generate more returns with best possible options.
Last recession I had cash on hand so a bought a bunch of really cheap high quality stocks and waited and sold when everything went back to normal. I made a lot of money. I am saving cash again waiting for the next stock market drop. I am doing some monthly investment though.
If you bought at the bottom last recession, and know when normal was to sell, and are going to perfectly time the market again, you should take over Berkshire Hathaway, because even Warren Buffett says he can't time the market.
I only buy the highest quality stocks that is cheaper than dirt. I made all the money that was ever made.
I am now recommending Vanguard portfolios over Dimensional for my clients. Even putting core Vanguard etfs into my direct share clients’ accounts.
Why?
Ben Felix good question! I seem to view Vanguard as a safer hold with lower fees. The value factor underperforming is also a reason.
Interesting. Thank you
Gold, Silver, Cryptos, Food, Water, Shelter, Protection.
right
Hi Ben, congrats for your videos. Most of the recommendations you give in this video refer to people who have a portfolio. What about people who are willing to enter the market and build their first portfolio? Would you suggest to wait? Is it clear that recessions cannot be predicted, but waiting for 6 or 10 or 15 months before investing it might be worth to pay stocks much less. Does it make sense to you?
Thanks! No it does not make sense. You are more likely to lose by missing gains than you are to gain by missing losses. This video might help m.ruclips.net/video/w_aOERmUWdA/видео.html
This would be the most forecasted recession, I think we already had it
Hi Ben! It would be great to hear your take on multi factor ETFs. Thanks for all the valuable educational content published so far!
I haven't done a video specifically on this, but I did do a paper www.pwlcapital.com/wp-content/uploads/2019/03/PWL-WP-Felix-Factor-Investing-with-ETFs_08-2019-Final.pdf
I agree the paper would be a good video topic.
You should discuss rate of sequence of return risk prior to retirement, and how to manage it. For example I can see going conservative right before retirement, especially in this late stage market. Then one could dollar cost average back into the market after the recession is over, especially if one is looking to do Roth Conversions over a period of several years.
I am just in the process of selling my home. After all is said and done, I will have $90k (CDN) cash that I can allocate into my unregistered account.
Considering the already inverted yield curve and market anticipation of an upcoming recession, and we are in the late-stage gains cycle, seemingly, what's the right move here? Not just for me, but anyone in a similar situation, ie. having some cash on hand.
Gold, Silver, Bitcoin, a small amount in utility stocks maybe.
Keep a certain amount saved obviously and have some in cash in a safe or hidden.
Find cheap accommodation to rent or wait for cheap property prices before buying or buy something cheap and modest in a cheap area (maybe more rural).
Holymolie, there was a study done on people who purchased the sp500 this figurative person only purchased on the highest point before 3 crashes. the most expensive point before the crashes”, still made money over the long period. Something to think about
Your videos are the absolute best. Thanks Ben :)
0:19 I know I've already watched this video once, but isn't the yield curve a bad indicator for recessions (or at least has no real statistical, worldwide backing)
Can you explain what is "Investment Factor" @ 5:35. I know 3 factors as per FFM and additional 2 that were discovered recently. But never heard of "investment" factor. - Thanks
Seems like being invested in stocks, at all. The opposite of being not invested in anything. Please let the author correct me.
Totally disagree, suggest watching Bergman’s Call on BNN Bloomberg. The best method to describe what to do late in a business / market cycle is to become defensive, and is described within the educational or last third of the show, which are archived as past episodes.
Make a video talking about Brazil, u r loved here!
So to sum up:"VGRO, discipline, years, consistently"
Joe Elyahchouchi this doesn’t include value exposure though?
I just started investing and mostly VGRO in my TFSA. I will still continue to invest and not time the market but what should I expect when a recession hits?
@@Otang6 I think it does. It contains total market indexes. So ALL the US stocks no exceptions etc... What it does not have is preferred shares, which I own some on the side as a satellite holding(very little)
prepare for the next recession??
My investors and I prepared for this recession three or more years ago.
The derivitive problem spurred on for ten years by one giant bank (we all know), the credit card and commercial loans going the wrong way is long ago.
We diversified our people into gold land parcels passive properties when in vibrant markets.
When you deal with large amounts diversification is easier.
more to go around.
Good job missing the 2017 and 2019 returns lol
Every economic prediction will come true whether based on yield curves or demographics or the price of gold - the question is will it be in 3 months, a year, 10 years...tomorrow?
Great video man just subbed and liked
Hi Ben
As a recent subscriber based in the UK I first want to say thanks for the great content. I’m a complete novice to portfolios and am only currently contributing monthly to a global index fund into my sons tax-free junior ISA. Whilst I love the videos would you recommend as (relatively) beginners basic book into investing to cover topics such as value factor etc? Thanks again
Hope you can explain which model you use to decide how to diversify your portfolio...
Also a question: if advanced models of for assets valuation like the Black-Scholes equation are true meaning that the assets prices are random walks... That implies that predictions are impossible, so trying to use a timming strategies is a nonsense, Or isn it?
your videos are good. clear and concise, thank you !
We’ve recently moved from our “advisor” to an online platform(equifax Canada)Cashed out the mutual and stocks with the intention to move them into index funds. But with all the noise these days.... do we just bite the bullet and do it?
Just make sure you diversify and dont just put them into one countries index, other then that I dont see how its a bad idea, even if there will be a recession the market will bounce back in a couple of years
Hey Ben Felix, can you plz make a video on the current situation and what to expect.
Hi Ben, my compliments for the great and useful content. I'd like to propose a topic on which maybe you can elaborate in the future. In your video(s) on asset allocation you benchmark the portfolio in terms of 'expected returns' vs 'expected volatility', which brings us to the question: is the 'efficient frontier' something we should be aiming for? We know expected returns can be explained in terms of factors. But in absence of predictive factors for volatility, isn't it a fallacy to use the 'expected volatility' based on historical data to measure the efficiency of a portfolio? Thank you in advance for the (potential) consideration.
Nice video. I'm in retirement and my asset allocation is around 60% stocks. My portfolio spending needs are low. Selling because of imagined downturns will only raise my tax bill. That is a guarantee. Nice video, as usual. Greetings from NY.
Yep, you get the idea!
I change nothing. If the market goes up i buy the same ETF index funds , If the market stagnates i buy , If the market goes down i buy.
Another excellent video with great advice. I look forward to your thursday upload's of your podcast! Best canadian finance podcast. Vanguard and other asset allocation etfs providers need to start giving you a cut for all the business you are sending them. Thanks for these videos and sharing sound evidence based information.
Thanks for watching and listening! We recorded next week’s episode yesterday. Hopefully it was a good discussion.
Un Lectio Magistralis ! Congratulazioni .
if you are using an index fund for dividend investing like vanguard then dollar cost averaging will smooth out the highs and lows of the market
Great content! Well timed statistical prediction of COVID-19 pandemic recession :p
BUT do you blink? It's scary
Fed said I heard you like to use the 3mo/10yr as a recession indicator....how about we purchase those treasuries until Q2. See like magic no more inversion everything is fine!!
Another awesome video, thanks Ben!
Ben, can you make a video on investing in natural resources (oil, gas, timberland, agriculture)? Yale is currently investing 7% of their endowment in that. Source (Yale's endowment report): static1.squarespace.com/static/55db7b87e4b0dca22fba2438/t/5c8b09008165f55d4bec1a36/1552615684090/2018+Yale+Endowment.pdf
Clear comments, based on research. These videos rock!
Was watching your other videos just as you uploaded. Good stuff. I still don't have enough savings to start investing but I am accumulating knowledge for the time when I (hopefully) will.
Open a wealth simple trading account. Free trades. Save 50 bucks a month and buy 1 etf share a month.
I'm at the same place as you.
You came to the right channel.
You could buy an ETF share for 20ish$. There's no such thing as not enough savings to invest.
Mental Drain Not sure of your age, but if you are just starting investing, want global diversification with a portfolio self balancing element to it for protection, you might want to watch an earlier video Ben made about VGRO ( an all in one portfolio)
isnt there research to suggest that the momentum factor outperformed historically if the strategy was only used during positive yield curves?
Stay the course - Jack Bogle
#benfelix, Alan Greenspan believes the 5/30 bond yield curve inversion is a better indicator of a recession. What are your thoughts on the 5/30? Is the yield curve inversion like a 13/30 day moving average cross over, in that you can "reliably" see a new trend?
Great channel! Thanks for your insights!
Is this the financial equivalent of Seth Everman?
A couple of questions. 1. Just what is the "investment factor"? Sounded like the equity risk premium, but not sure from the presentation. 2) Interest rates are, to me at least, just weird right now. In a time of "negative interest rates" might a yield curve inversion mean something else at the present?
1) Good question. Investment is the risk premium for stocks that invest conservatively minus stocks that invest aggressively. It is the fifth factor in the Fama-French five factor model (market, size, value, profitability, *investment*)
2) I'm not sure if the level of short interest rates affects the predictive power of the yield curve. Whatever the short rate is, if long rates are lower, then the curve is inverted. I suppose this is also unprecedented territory, so even if there is a difference theoretically, we have no way to investigate it empirically.