[Music] when you look at the investment spectrum Reid said somewhere between equities and fixed income like fixed income they offer a consistent dividend return to investors MVD Reid pays a consistent dividend semi-annually REITs also offer investors potential access to capital appreciation on the assets as well as a return on their shares within the spectrum REITs offer investors the opportunity to further diversify their investment portfolios [Music] you
Factor Investing has become more popular over time, especially since the financial crisis simply because investors realized that there is actually very little Alpha and most of it is just called systematic beta or factor exposure. Of course investors do want to achieve outperformance so if you're benchmarked against that S&P500. and the S&P500 is up ten percent it would be great if you have eleven percent. Now finding fund managers that generate that extra 1% that you want… that's actually quite challenging. Factors have shown over the long term, especially if you combine several factors, that they do allow to outperform an index and that's why they have increased in popularity. They're the only source of returns that do allow to outperform the index. It doesn't matter which asset class. One way of explaining why factors work why they should generate excess returns is that they do represent risks. And you get effectively compensated for holding them, once in a while the risk actually takes place there's a drawndwn but over a long time you can harvest those returns. Factor investing comes from the academic world versus smart beta is a practical application. Smart beta is nothing than factor investing in a long only form. So effectively what companies like Blackrock or Vanguard do is: take the S&P 500 and tilt it towards certain factors. Someone wants to take advantage of the value factor? They can look for a 'Smart Beta Value ETF'. It's very important to note that there's a big discrepancy between theory and reality. So what most investors who are interested in factor investing do is: they tend to read academic research or at least read what other people are summarizing about the research. What you see is those returns being published in journals and for example the value factor giving XYZ present return. Now what unfortunately has happened is that you take the investment products that most investors have access to, such as retail investors in smart beta ETFs. The returns they get out of those are often a fraction of what you see in academic journals so it's a big disconnect between what people are reading and what people are getting and that's something worth highlighting. The opportunity set that investors have especially on the retail side is just so much more narrow than what you have on the institutional side, where you can replicate structures that are more similar to what you read in academic research.
what makes a great investment is it's very personal to you as the investor it depends on your time frame your risk appetite and choosing the right mix of assets to achieve the highest return for the lowest risk that you can take what will make a good investment was if we can we can point to specific attributes of a stock or company and its place in the market which we think are going to translate to a positive future and profitability something that has really strong cash generation has growth potential so in a growing market has brand strengths so it means as good pricing power signs of progressing the dividend but also a well covered dividend CIC really kind of gets under the bonnet of the figures a lot more looking in it in a lot more depth and it's it's looking at the figures and telling the story behind the figures when we're trying to identify a getting you know a good investment story or we read as much as we can really and we also speak to as many people as we can speaking with the companies themselves so in terms of company management and what makes a good manager of a company I like to look at things like track records other companies they've been able to affect turnaround to improve the performance of the company something else that I think is critically important is transparency but a company is very cagey or defensive and perhaps there's a wider problem there you could look at something fairly simple like where the brokers are upgrading their forecast those kind of trends are fairly predictable once they get established they tend to continue the market doesn't latch on to these changes until they actually comes through so you can guess that that trends going to continue trends in my opinion exist everywhere but you've got to train yourself a to think about them be to be ready to spot them and see to have the courage to jump on them hopefully before the bandwagon was left have the ultimate proof of what makes a great investment as if it makes you money study after study has shown that the best way to build wealth and to maintain it is to keep a core group of investments with England folio and stick with them over years if you're going to buy something go you buy in the knowledge that you'd be willing to just hold on to it for the next five years and not do anything with it Warren Buffett would say the ideal holding period is forever and I agree I mean if you've got a good company why would you ever want to take your money out if something if it's a great company and something bad happens something one-off it doesn't mean you need to sell out means need to buy more because then you've got a great company which has had a problem and it's cheap and I think a mistake that a lot of people make is that something goes a little bit wrong and they sell when the price is low people tend to misunderstand their own behavioral biases their cognitive biases what we try and do on the magazine is is to look into areas of cognitive bias and behavioral finance to help you realize where you could be making mistakes there are going to be jittery times for any investor the markets going to go against you it's inevitable some of your decisions will turn out to be wrong but if you really understand the basis of why you're buying a stock then you're far better place to deal with those inevitable upsets investing is fun it is challenging you've got to do your homework but it's like playing with the most brilliant jigsaw puzzle you've ever seen the more work I do the luckier I get and that's very much the rule for investing