QOTD: We like the new stuff

All of my personal money is invested in value/momentum/shareholder yield strategies. New iterations of these pop up all the time (I do a lot of this testing myself). The market has a cruel sense of humor, though. Beware: whatever idea you are hearing the most about may be overly ripe. I hate even writing this because it’s cliché and self-evident, but the key to winning with these factors (if they are going to keep working) is to stick with them for the long term. This is really hard. Backtests are like diet books: tons of great evidence, studies, and so on. They make it really easy to invest or to cut out gluten. But what about a year later, or two, or three? Some new book (with a new diet or backtest) will appear, and we like the new stuff. The worst thing you can do is style hop, but we always do it because stupid evolution made us impatient performance chasers.

My pal Patrick O’Shaughnessy correctly identifies one of the key behavioral difficulties investors face. It’s not easy for people to separate the difference between “What works most of the time” from “What’s working right now?”

Successful strategies rise and fall on a wheel, sometimes they’re rolling skyward and rewarding the faithful, while other times they’re rolling down underwater, soaking those who stick around. And just at the point of max pain, when we’re gasping for air, they begin to roll up again. A lot of people have to give up on them in order for the next revolution higher to take place. The wheel’s gotta cut some dead weight in order to rise; doubt is the engine fueling its ascent.

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