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Understanding Factor Investing
Whether you know it or not, every investor's portfolio takes factor bets. In Episode 26 of Greenstream, we break down what factor investing actually is and how it is used as a framework for understanding risk, diversification, and portfolio construction.
You’ll learn:
This episode builds directly on Episode 25, Is Indexing the Best You Can Do?, where we explored why even index investing involves active decisions and why implementation matters.
Chapters
00:00 — Understanding Factor Investing(1)
Every portfolio reflects factor choices, whether investors realize it or not.
02:17 — What Is Factor Investing and What It Isn’t (1-3)
Factor investing means intentionally deviating from market weights to target groups of investments with shared risk and return characteristics, not chasing outperforming stocks.
06:07 — Why Factor Returns Are Expected, Not Promised
Factor premiums improve long-term odds, but they are uncertain, volatile, and can underperform the market for long stretches.
12:02 — Why Stocks vs Bonds Is the Original Factor Bet (1)
The most widely accepted factor is the market itself: stocks have higher expected returns than bonds, and every investor chooses their exposure.
18:29 — Size and Value: Long-Term Evidence and Tradeoffs (2-3)
Smaller and cheaper companies have historically offered higher expected returns, but only for investors willing to tolerate discomfort and tracking error.
30:29 — Momentum: Why Trends Exist (4)
Momentum appears consistently in market data, but high turnover, costs, and behavioral challenges make it difficult to capture in practice.
33:44 — Quality: Profitability, Balance Sheets, and Staying Power (5)
More profitable companies tend to deliver better outcomes when controlling for size and valuation, helping refine factor exposure.
37:38 — When More Factors Don’t Help
Beyond the core factors, many proposed premiums add complexity and cost without meaningfully improving diversification or returns.
40:40 — Common Critiques of Factor Investing (6)
Skepticism often stems from recent underperformance, volatility, and the discomfort of looking different from the market.
46:05 — How Investors Actually Implement Factor Tilts
Practical implementation starts with understanding current exposures and making thoughtful, diversified adjustments over time.
50:56 — Closing: Better Questions, Not Better Predictions
Factor investing isn’t about forecasting winners, it’s about improving decision quality and long-term odds.
Follow on Apple Podcasts: https://podcasts.apple.com/us/podcast/greenstream/id1795467982
Follow on Spotify: https://open.spotify.com/show/26NYX6WD7godcJAYVE0Yk8?si=Qxj-H7HiRdGmbNlW8uuV9g
Subscribe for Email Updates: https://greenspringadvisors.com/greenstream-podcast
Meet with Pat & Marcus: https://outlook.office365.com/book/MarcusCalendaratGreenspringAdvisors@Greenspringos33.onmicrosoft.com
Sources
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.
View all episodes
By Greenspring Advisors
5
77 ratings
Whether you know it or not, every investor's portfolio takes factor bets. In Episode 26 of Greenstream, we break down what factor investing actually is and how it is used as a framework for understanding risk, diversification, and portfolio construction.
You’ll learn:
This episode builds directly on Episode 25, Is Indexing the Best You Can Do?, where we explored why even index investing involves active decisions and why implementation matters.
Chapters
00:00 — Understanding Factor Investing(1)
Every portfolio reflects factor choices, whether investors realize it or not.
02:17 — What Is Factor Investing and What It Isn’t (1-3)
Factor investing means intentionally deviating from market weights to target groups of investments with shared risk and return characteristics, not chasing outperforming stocks.
06:07 — Why Factor Returns Are Expected, Not Promised
Factor premiums improve long-term odds, but they are uncertain, volatile, and can underperform the market for long stretches.
12:02 — Why Stocks vs Bonds Is the Original Factor Bet (1)
The most widely accepted factor is the market itself: stocks have higher expected returns than bonds, and every investor chooses their exposure.
18:29 — Size and Value: Long-Term Evidence and Tradeoffs (2-3)
Smaller and cheaper companies have historically offered higher expected returns, but only for investors willing to tolerate discomfort and tracking error.
30:29 — Momentum: Why Trends Exist (4)
Momentum appears consistently in market data, but high turnover, costs, and behavioral challenges make it difficult to capture in practice.
33:44 — Quality: Profitability, Balance Sheets, and Staying Power (5)
More profitable companies tend to deliver better outcomes when controlling for size and valuation, helping refine factor exposure.
37:38 — When More Factors Don’t Help
Beyond the core factors, many proposed premiums add complexity and cost without meaningfully improving diversification or returns.
40:40 — Common Critiques of Factor Investing (6)
Skepticism often stems from recent underperformance, volatility, and the discomfort of looking different from the market.
46:05 — How Investors Actually Implement Factor Tilts
Practical implementation starts with understanding current exposures and making thoughtful, diversified adjustments over time.
50:56 — Closing: Better Questions, Not Better Predictions
Factor investing isn’t about forecasting winners, it’s about improving decision quality and long-term odds.
Follow on Apple Podcasts: https://podcasts.apple.com/us/podcast/greenstream/id1795467982
Follow on Spotify: https://open.spotify.com/show/26NYX6WD7godcJAYVE0Yk8?si=Qxj-H7HiRdGmbNlW8uuV9g
Subscribe for Email Updates: https://greenspringadvisors.com/greenstream-podcast
Meet with Pat & Marcus: https://outlook.office365.com/book/MarcusCalendaratGreenspringAdvisors@Greenspringos33.onmicrosoft.com
Sources
Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.