Hello and welcome to Episode 45 of Retire Me!

This week we continue our deep dive into factor investing.  Last week we started with Market Beta and Small Cap Premiums.  This week, we will go into the Value Premium and the Profitability Premium.

As a quick refresher, a factor is a unique source of risk in a portfolio.  We want to pursue risk to generate higher returns, and we want to diversify our sources of risk so that we lower our volatility (smooth out our ride), because not all factors work all of the time.  In fact, they frequently go through periods where they don't work.

Before we dive into this week's factors, a quick reminder about what makes for a good factor, and the lens that we will use to go through the factors today:

• Has to deliver positive returns
• Has to be persistent across different periods of time and economic regimes
• Has to be pervasive – holds across countries and regions
• Has to be robust – holds up to various different measurements and definitions
• Has to be investible
• Has to be sensible – has a risk-based and behaviour based definition. the aunt who wins the NCAA pool by picking all teams with red uniforms, or for an animal

So this week, we will discuss the value premium and the profitability premium.  Next week we will go through the premiums in fixed income (bonds).  The week after that, we will go through portfolio construction and wrap up with my thoughts about who should and who shouldn't invest in a factor portfolio. 

Show notes and links will be on my blog this week at www.walhoutfinancial.ca/podcast.

Send your questions to [email protected]

Thanks for listening!

Mark