Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests Today

This is an outstanding addition to anyone's investing library. It is a must read for any individual investor or financial advisor interested in understanding modern investing. Over the last two decades there has been a huge shift in popular investing from active management to passive index funds. Modern investing has now moved beyond a single market factor world though. Market beta explains perhaps 60-70% of a portfolio's returns. Fama and French introduced the size and value factors, and the three factor model explained greater than 90% of a portfolio's returns. Now there are about five or six factors that explain about 95% of a portfolio's performance. These few factors stand out among the hundreds of factors that have been described in the literature.Larry and Andrew explain these factors and the data supporting them. They describe five criteria that a potential factor must meet to be real and meaningful. The equity factors described are the market factor, size, value, momentum, profitability/quality. Although learning these factors is important and potentially profitable to the investor, there is an even bigger and more important lesson in the book. The authors teach us how to evaluate any new potential factor or potential portfolio addition. They describe the five criteria that we can apply to these five equity factors and any potential factor we may come across in the future: persistent over time, pervasive across markets, robust to different definitions, intuitive to common sense, and investable at reasonable access and expense to us common folks. Understanding these criteria are vitally important to the investor. They emphasize that an investment plan is worthless if an investor can't stick to his plan. All factors will underperform for long periods. Understanding and believing the criteria will give the investor the fortitude to stick to his well thought out plan. Moreover, by looking at correlations, they build a powerful case for diversifying across factors.The book is very readable, but it is meant for the highly interested do it yourself investor or advisor, who already understands concepts of efficient markets, asset allocation, diversification. A serious investor will read this book and place it on his investment shelf. He will return to it periodically over the years to look at a few of the tables and some of the data as the various factors perform and underperform over the years.An important question arises. When these factors become well known, especially the behavioral (as opposed to risk based) factors, are they still worthy of investment? The authors address this in one of the last chapters. I strongly recommend this book for anyone interested in a serious look at modern investing in language someone without a finance degree can understand.

I've been a CFA since 1989 and I learned a lot from this book.It's well organized, beginning with an introduction that defines the topic, its scope, and its importance. The foreword by Cliff Asness is a great read by itself: Asness compliments the book's simple genius, and he offers insightful context in his typically witty fashion.Each chapter has clear definitions and a systematic review of factors using the same quantitative measures (factor premia, Sharp ratios, probability of success) and qualitative criteria (is the factor persistent, pervasive, investable, and intuitive).The book covers a lot of ground, and it does a heroic job of summarizing a vast amount of academic research briefly, and in plain English. Each chapter is dense with information and nuance, so you won't find yourself skipping over the fluff.Finally, I was particularly impressed by how up-to-date the book is: The book was published in 2016 yet on page 294 it refers to a 2016 study by Clarke, de Silva, and Thorley: "Factor Portfolios and Efficient Factor Investing." Clarke et. al. discuss how to combine multiple factors in a single portfolio, and their study appeared in the Financial Analyst Journal in October 2016. Berkin and Swedroe must have read the advance copy of this research on SSRN in 2015. (Or they have a time machine in the basement.)Well done!Rob______________Robert J. Martorana, CFARight Blend Investing, LLC

Investors interested in breaking away from building portfolios using the Strategic Asset Allocation model will find this is an excellent look at Factor Investing. Berkin and Swedroe extract eight critical factors from hundreds of market anomalies and they are: beta, size, value, momentum, profitability, quality, term, and carry. Obviously, some of these factors are more important than others. Further, it is easier to implement some, particularly if using ETFs to construct the portfolio.At the end of the book, the authors include mutual funds and ETFs to use to construct Factor Based portfolios. The list could have been more complete, particularly when it comes to ETFs. Far too many of the recommendations are DFA funds which require the investor to go through a paid or approved advisor.Warning: The book does not include an index. Why any publisher releases an investment book without an index is baffling. This is a Factor Investing research book and therefore should include an index.

This is the definitive guide to factor investing, in my opinion. Berkin and Swedroe have the whole history and sweep of factor theory in their sights. They take a highly systematic approach, identifying key factors in the factor zoo and putting each through five tests. Not all pass. One of the most valuable insights, for me anyway, is the distinction between risk-based and behavioral explanations for factors – not all factors are created equal and some should be handled carefully. The authors have thought of many questions that concern investors (eg, will exposure eventually arbitrage away factor premia?), and answered them. There are some useful appendices that delve into interesting related issues, like the vacuity of “smart beta” or time-series (vs cross-sectional) momentum. The authors helpfully also identify key fund and ETF vehicles for factor exposure. The book is written in plain English, but also contains the accumulated weight of the authors’ knowledge and experience – it can take time to unpack the nuances, but amply repays it. By my count Swedroe has authored or co-authored 15 books; together they constitute a master class in no-bullshit modern investing. This volume could be the capstone.

Wonderful book for anyone interested in passive investing, particularly factor-based investing. Based on thorough research papers. Shows which are “real factors” in factor-based investing and which are not. The “Tracking Error” section in Appendix is a must read. Great efforts by the authors to distill the subject.

Un ottimo manuale - in inglese - per fare chiarezza sul concetto di fattore di mercato, sulla sua validità storico/statistica e sul perché potrebbero (non ne esiste solo uno) essere degli investimenti utili per il vostro portafoglio. Consigliato

O livro é uma ótima introdução a factor investing. Muito esclarecedor sobre o funcionamento de cada fator e trás um resumo acadêmico de cada um. Só senti falta de como implementar cada fator na prática, mas tirando isso, o livro é muito bom!

Good for studying factor-based investing, Worth to read

Das Buch bietet wenig neue Informationen zum Faktor-basierten Investieren, die über das hinaus gehen, was man in wenigen Minuten über google zusammensuchen kann. Der Kauf lohnt sich meiner Meinung nach nicht.