Weekend Reading – 1900-2024: The Optimal Equity Allocation & Factor Investing In Bull And Bear Markets.
July 11, 2024
Weekend Reading – 1900-2024: The Optimal Equity Allocation & Factor Investing In Bull And Bear Markets.
Weekend Reading is a collection of Investment Research and Lifestyle topics from all corners of the Web. We source the highest quality insights from Wall Street and Main Street that you may apply to your investment process. Unlike the rest of Bankeronwheels.com, this series is provided without additional guidance. As usual, everything is to be used at your own risk. Below is the type of content we shortlist:
The world is a book, and those who do not travel read only one page
Featured
MSCI vs FTSE vs SOLACTIVE: Which Index Should Your Equity ETF Track? (Banker on Wheels)
Most Equity ETFs track either an MSCI or FTSE Benchmark. But Amundi is also tracking a niche provider – Solactive, for example in its newly issued Amundi Prime All Country World UCITS ETF. A diversified tracker can cover the U.S. Market, Developed and Emerging Markets. Frontier Markets like Vietnam are marginal and need a separate ETF. Most ETFs comprise Mid and Large Caps. However, exposure to 10%-15% of Small Caps is typically not captured. But some Small Cap Stocks are the black hole of investing, and not having exposure to them has historically been beneficial.
Portfolio Construction
Asset Allocation
Optimal Equity Allocation since 1900 (FT - Click First Link)
The modern portfolio theory advanced by Nobel Prize winner Harry Markowitz allows us to find the so-called “optimal portfolio” with the highest return relative to risk, incorporating potential for diversification. This portfolio can then be combined with cash or leveraged up, depending on risk tolerance. In hindsight, the 60/40 portfolio did indeed deliver the highest risk-adjusted returns since 1900, but over 10-year rolling investment horizons the optimal asset mix had large swings and was seldom exactly 60/40.
Understand Financial Markets
On Social Media, you often hear the bear cases for Stocks. But, the stock market has had a torrid run in 2024 despite the fact that interest rate cuts haven't materialized in the way people had expected at the start of the year. On this episode, we speak to Tom Lee, the former JPMorgan strategist about how he thinks about the market, what he sees happening right now in macro and demographic trends, and why he thinks it’s plausible that the market could roughly triple in the next six years.
- 70% of MSCI World All hit record highs (Amundi)
- How Bull Markets Work (A Wealth of Common Sense)
- What if history rhymes? Equity return scenarios for the next five years (Robeco Qauntitative Investing)
- Debt-to-GDP has not been correlated with stock market returns (Dimensional Funds)
- Charting China’s comeback (UBS)
AI: Too much spend, too little benefit? (Goldman Sachs)
Tech giants and beyond are set to spend over $1tn on AI capex in coming years, with so far little to show for it. So, will this large spend ever pay off? MIT’s Daron Acemoglu and GS’ Jim Covello are skeptical, with Acemoglu seeing only limited US economic upside from AI over the next decade and Covello arguing that the technology isn’t designed to solve the complex problems that would justify the costs, which may not decline as many expect.
How To Invest
Active Investing
Factor Investing
Dissecting factor returns in bull and bear markets (Outcast Beta)
Historically, long-short equity factors have provided positive mean returns with low correlation to other assets. Most retail investors use long-only products, meaning they invest only in the long leg of the long-short factors. We will dissect factor returns into their long and short legs and further examine their performance in different states of the equity market—both bull markets and bear markets.
Discretionary Investing
Alternative Asset Classes
Wall Street
Katie and Matt discuss short squeezes past, present and future, interviewing for private equity jobs two years in advance, and how if you want to own stock but with less risk, you can just sell some of your stock.
Bad Bets
History's Greatest Conman! (Patrick Boyle)
Gregor MacGregor was a Scottish soldier, adventurer, and con man who invented a Central American country called “Poyais,” in 1820 which he claimed to rule as the “Cazique.” MacGregor attempted to draw British and French investors and settlers to his fictional country. Hundreds invested in Poyaisian government bonds and land certificates, while about 250 emigrated to MacGregor’s invented country.
ETFs
US ETFs
Wealth Management
Personal Finance
The Fastest Growing Millionaire Populations, by Country (2013-2023) (Visual Capitalist)
The world’s economic powerhouses, like the U.S. or China, hold the majority of millionaires in absolute terms. But which countries are growing their millionaire populations at the fastest rate? This chart shows the growth of millionaire populations by country between 2013 and 2023, using data from New World Wealth, as detailed in the Henley Private Wealth Migration Report 2024. Specifically, the report tracks high-net-worth individuals (HNWIs) who possess liquid investable wealth of $1 million USD or more. The figures are rounded to the nearest hundred and represent residents of each country as of December 2023.
- You are saving too much if you are missing out on opportunities to make memories. (A Wealth of Common Sense)
- He thinks I’m too materialistic’: My husband and I are in our 40s. He takes zero interest in our finances. (Market Watch)
- Gen Z and Investing: Social Media, Crypto, FOMO, and Family (Finra foundation)
- 10 Things To Buy To Be Happier: According To Science (New Trader U)
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(Early) Retirement
How Does Inflation Impact Retirement? (Of Dollars and Data)
Though the rate of inflation has decreased over the past two years from a high of 9%, many consumers are still worried about rising prices. This is especially true for retirees, who don’t have the ability to earn more money and offset an increased cost of living. But how much does inflation actually impact retirees? Is it better to have high inflation earlier or later in retirement? And, most importantly, what can retirees do to ensure they don’t run out of money as they face rising prices? I will answer all of these questions and more as I explore the impact of inflation on retirees.
Financial Advice
Design Your Lifestyle
Personal Development
Travel
Bikepacking Across the UK: A GB Divide Film (Video) (Bikepacking.com)
Earlier this year, Avery Caudill rode 2,000 kilometers from Land’s End to John O’Groats in the UK, following the GB Divide bikepacking route. Watch the 20-minute video he put together from the ride here… This spring, Avery Caudill set off on the GB Divide, a 2,000-kilometer bikepacking route running the length of Britain from Land’s End to John O’Groats in the north.
Tech & Economy
Economy
How a New Type of Immigration Is Radically Changing Portugal’s Economy (Economics Explained)
In this video, we explore the dramatic changes in Portugal's economy driven by the influx of digital nomads. Discover how warm sandy beaches, vibrant culture, excellent internet speeds, and affordable living costs have transformed Portugal into a top destination for remote workers from high-income countries. We examine the complex balance Portugal faces between economic growth and local affordability.
Tech & Science
And Finally
Good Luck and Keep’em* Rolling!
(* Wheels & Dividends)
