In this episode, Preston and Stig talk to Patrick O’Shaughnessy about what he does best: “Demystifying stocks with hard core facts!” Patrick O’Shaughnessy is a lead authority in the new generation of quant value investors, and he runs the amazing blog, The Investor’s Field Guide. Co-hosting this week’s show is bestselling author Toby Carlisle, who blogs at Greenbackd.com

  • In this episode, you’ll learn:
    • Why you shouldn’t be worried about companies that uses leverage to buy back shares
    • If excess stock returns found through back testing can be expected to continue in the future
    • Why a back testing strategy is more profitable when combined with a basic strategy
    • Why the optimal stock portfolio might be a combination of momentum and value stocks
    • Why buying Amazon stocks is the same as buying lottery tickets
    • Ask the Investors: How should I position my portfolio if the FED hikes rates?

Tweet your comments about this episode directly to Preston, Stig, and the rest of The Investor’s Podcast Community using #TIPMoney.

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Podcast Transcript and Summary

Preston: [00:00:00] We study billionaires and this is Episode 61 of The Investor’s Podcast. We’re broadcasting from Bel Air, Maryland.
This is The Investor’s Podcast. We read the books and summarize the lessons. We test the waters and tell you the best actionable investing strategies.
Hey! How’s everybody doing out there? This is Preston Pysh. I’m your host for The Investor’s Podcast and as usual, I’m accompanied by my co-host, Stig Brodersen, out in Denmark.
Preston: [00:00:00] We study billionaires and this is Episode 63 of The Investor’s Podcast. We’re broadcasting from Bel Air, Maryland.

This is The Investor’s Podcast. We read the books and summarize the lessons. We test the waters and tell you the best actionable investing strategies.

Hey! How’s everybody doing out there? This is Preston Pysh. I’m your host for The Investor’s Podcast and as usual, I’m accompanied by my co-host, Stig Brodersen, out in Denmark.

Today, we’ve got a great guest for you. Actually, we’ve got two guests on the show. Well, a lot of people know one of the guests who we have a lot of the time and that is Toby Carlisle. He’s the author of “Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations.” He’s joining us today.

The reason we invited Toby on the show is because we’re talking about this field of study that everyone loves, which is value investing. One of the leading experts in the field is obviously Toby, and the other leading expert in this field is Patrick O’Shaughnessy.

If you guys remember, I think it was maybe two or three episodes ago, we had James O’Shaughnessy on the show and James was talking very briefly about his son, Patrick. And so that’s who we have on the show with us.

So, we are thrilled to have Patrick here and Patrick comes with a wealth of information. He is truly one of the experts in this field. He’s written the book, “Millennial Money: How Young Investors Can Build a Fortune.” He’s also the founder of this website called The Investors Field Guide where he posts all this free content and talks about quant investing and a multitude of other topics. On top of that, Patrick is also a portfolio manager at O’Shaughnessy Asset Management. So with all that said, Patrick, we really want to welcome you to the show. Thank you so much for taking time out of your day to talk with us and to help enlighten our audience with some of the ideas that you’re going to share.

Patrick: [00:01:56] Well, thanks very much for having me guys. Now, I’ve listened to a bunch of the episodes of your previous guests. So, I know this is going to be a lot of fun.

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Preston: [00:02:05] Well we’re thrilled to have you here and we can’t wait to jump into some of these questions. So Patrick before we do that I want you to really kind of provide our audience a little bit of a background and story about yourself and how you eventually found yourself following in your dad’s footsteps. And for many people out there they might see that you work at Shaughnessy asset management company and think that that’s always been really a passion for use finance but you have this really unique background and path and how you kind of arrived at that. And I really want you to share that story and kind of that background with our audience.

Patrick: [00:02:37] Sure. We had a typical field of study for someone that’s in finance and then just pure dumb luck. So explain both of us played a role but I studied philosophy in school so I never took a single finance. Actually not even a single business class when I graduated. I don’t think I’d ever even used Excel. Certainly having studied markets at all. And so my interest was really in philosophy and sort of an unofficial minor in psychology and what I’m interested in is what makes people tick how people think how they actually behave and what I learned very quickly coming out of school was that stock market specifically the place that all the most interesting topics intersect the most. So it’s like this one grant human psychology experiment. This is something that was very interesting to me with my background. And the first thing to look at given what I had been studying in school which was you know sometimes esoteric German philosophers and things like that. So it was a nice change to move from something only unrelated but I could feel it because it teaches you to think it teaches you to argue and reason and build the case for Australian best thing or take stock you might want to buy. So there are a lot of crossovers in that you’re not talking about markets at all. And I just happened to graduate in the summer of 2007 right into the worst financial crisis we are seeing and I started as an editor I didn’t know what I wanted to do like a lot of philosophy majors a graduate having no clue what’s next. A lot of them go to law school or mania. But those things were not for me so I just started as an unpaid intern but I really like looking for office space and putting together chairs or things like that. And very quickly I just fell in love with markets and had a trial by fire in 0 8 0 9 and had been doing research and portfolio management stuff ever since.

Preston: [00:04:27] I just got of piggyback question real fast. Patrick, so you’re this one guy so when you think of a person who’s a quiet investor you think hardcore math. And when I think of a philosophy major a person who studies at their undergrad I think that’s a person who’s probably very English or literature great writing background. And so you typically don’t see people that would mesh and kind of jump from such a drastic change. I mean I think point investing I think hardcore statistics I think people that are just run and all these algorithms programming and things like that and it’s just amazing to me that you were able to jump into that realm without much of having a background in that. Did you study a lot of that on your own? Did you go and take more courses? How did you really kind of bridged that?

Patrick: [00:05:12] I guess that yeah there’s a lot of things that fall under the Quon Rella or the script or and some of those things and ball you know Algor pyrotechnics and crazy math and you know a lot of trading that’s not really what we do. The better way to describe what we do is it’s a sound investing strategy that’s been systematized that we have identified through a lot of research or rules or DNA or a common attribute shared by stocks that have tended to do well and then build a systematic approach around those factors. Well that’s a lot of those things we’ll talk about today sound a lot more like a fundamental investor might say about a different company than a quad. So there’s a lot there’s a wide range of what might be called the Kwanten that’s important to know that our holding periods are long stocks for five plus years. It’s very different from the high-frequency trading type stuff that scares people and makes Quent almost a four letter word sometimes. That being said there’s definitely some catch up I had to do after school. You know I went through the CFA program so I see a bitch or holder Oh myself a lot of programming statistics stuff. I didn’t go through kind of the motion. Not as easy as just jumping in with a WASPy degree but the CFA did want.

Preston: [00:06:24] I absolutely love how you just threw out. Yeah. CFA you know certified like that’s no big deal for the people in our audience that are listening I’m just throw something out there to get your CFA. It is so darn hard. I don’t think people have any idea what he just threw out there but that’s studying for years that’s like going as deep as you can possibly go. That’s one of the hardest charters you can possibly get. Those guys are like the jet Knights of finance. Don’t let them fool you by just casually throwing that one out there.

Patrick: [00:06:52] I think with the CFA says about you more than anything is it’s a testament to your ability to just punish yourself with stuff. It’s it’s really just about the hours. It’s not particularly hard. You cannot pass without putting in the time. That’s probably what it’s sort of for more than the knowledge of finance because I forgot how we get I it.

Preston: [00:07:12] Wow that’s amazing. I wish I had my CFI. I’m probably working on one of those here in the future. Yeah. I love the metaphors to be the eye of something. I mean that we should always strive for that. Guys, to be the good at something when in finance so no. So Patrick when starting your research I find it really interesting that the companies that buy back the only years most aggressively offer form the Moggach by three point three percent. You also address that many high conviction companies use an excessive amount of debt to do so. So as a snug investor how worried should I be about debt being the funding for share buybacks?

Patrick: [00:07:50] I think buybacks, in general, is one of the more interesting topics out there today and it’s also become one of the main focuses of the kind of financial media. And I would say the majority of the stories are that buybacks in aggregate are bad. There are some very famous people out there saying that they are very short-term oriented that it’s about boosting stock price that they’re being done at the expense of research or investment which would be better investments for the longer term. And what happens is that all these writers tend to paint all companies that are buying back their shares with one broad brush. And the research that I’ve done suggests that there are a lot of different kinds of buyback programs and that the conviction level with which companies are repurchasing their shares. The simplest way to think about that is what percent of their shares outstanding Are they buying back the last one year or two years to buy back a few percent. That’s probably not a very high conviction bet on your own stock price where is it you’re buying back 10 percent or 20 percent or 30 percent. Well, that’s a pretty big bet that your share price is undervalued. Hopefully, that would be the best motivation for a big buyback program and what you find is that these low conviction versus high conviction firms perform very differently across history.

Patrick: [00:09:02] So companies that have a combination of really good cheap prices you know low key ratios low price sales ratios things like that that are buying back huge chunks of their shares have outperformed by pretty considerable margin and done so very consistently over time whereas the lower conviction guys they have outperformed a little bit so they’ve outperformed say growth stocks that you know are issuing shares I think about Facebook or something like that today. They’ve performed by a percent or so but not nearly to the same degree as companies with these high conviction programs. Now, are they all good. Definitely not. There are definitely concerns about that and the use of debt to just sort of do a swap of debt-equity swap. But you have to remember that that is not always a bad thing. And what I found, in general, is that while there are certainly offenders who have levered up to the hills in order to buy back stock on average companies that are buying back shares don’t really look all that more levered than the rest. The overall market. So it’s it’s an easy narrative because it’s but there are definitely companies that do it for the right reasons and those companies have tended to outperform.

Preston: [00:10:09] Yeah and it’s really interesting what just said that the companies that like the most high conviction companies actually less leverage. That was something that surprised me whenever I saw that because it seems counterintuitive but one of the things or one of the strategies that some companies might apply right now with the interest level being so low is that they would issue bonds and then they will buy them back when the interest rate increases is that you think will be applied by these companies because that would really signal Legace route management. Do you think it’s a temporary thing. We’re looking at it the markets at the moment.

Patrick: [00:10:43] I think that it’s the last five years and maybe my whole career has taught me anything it’s to not make any investing decisions based on interest rate forecasts because most everyone has been wrong and wrong for a long time. Now if that strategy were executed properly that brilliant strategy sounds good. One of the interesting things that we find historically is that if you take a simple factor like that as a measure of leverage and compared to equity between companies and other similar companies or utility to a utility consumer stocks or her stock. So for the companies that actually do the best ones in the middle of the distribution companies they can use some debt but are the most likely so the worst performing stocks are the ones that have the highest debt to equity. And actually, the ones that use no leverage have tended to underperform as well. So some of the smart mix of leverage into the capital structure has been what’s been rewarded. Now that I want to be clear that that’s not a factor that’s nearly as predictable as something like value which I think we’ll talk about today as well. But if there’s anything to know from leverage historically it’s that the tail end of the distribution tended to underperform.

Preston: [00:11:51] So I just want to throw something out there just to kind of piggyback on this first. The reference that Stig had for that 3.3 percent that Patrick had referenced in one of his blog posts we’re going to have a link to that in our show notes so people can read that and kind of see a little bit more detail behind what we’re talking about. But to throw some contrast to that argument I just wanted to throw out that billionaire Mark Cuban absolutely hates share buybacks I mean hates them. He wrote this raging blog post about why he thinks share buybacks are horrible. So I want to have a link to that as well. And I want them to be kind of right next to each other so whenever you guys get in our show notes you can kind of read both sides of this argument. Now my personal opinion and I really like the way Patrick described this is that it’s really all about the conviction. If the company’s doing share buybacks in a really modest level typically what they’re doing with share buybacks is they’re putting them into their treasury their equity treasury account and what they’re then doing is they’re issuing them out to their employees as incentives when they’re doing it at a very small and not much conviction behind it. When you have them doing it in a high conviction rate they’re actually saying you know what we think our companies undervalued relative to the yields we’re going to get by maybe purchasing other equities or other operational investments within our company.

Preston: [00:13:07] And so what we’re going to do is we’re going to buyback our own stock because we know what we’re buying We know what kind of food we’re cooking for ourselves here if we if we repurchased these stocks and when they do that at a high conviction level it’s actually good for the shareholders. That’s what Patrick’s getting at and I completely agree with that opinion but I really want to throw that out there. I want people to see that contrast. They can read and make the determination for themselves and I see Toby has a comment. He wants to piggyback on this as well. I would just say this. Sometimes it’s important to think about the mechanics of what’s actually occurring versus sort of trying to detect as an investor so what that’s talking about is detecting a company that’s going to outperform subsequently And that’s something that’s shown by conviction investing. But it’s also helpful to think about the nature of the buybacks so buyback that’s undertaken at a premium to intrinsic value ought to agree with Mark Cuban on that that will destroy value and that’s a bad thing. But a buyback undertaken at a big discount to intrinsic value does create value for the remaining shareholders. It may be that that doesn’t necessarily show up immediately in the investment results or a thing that you would agree that it deeply undervalued and undertaking buybacks that’s a pretty powerful signal together.

Patrick: [00:14:16] It is a powerful signal and maybe just a few more points on buybacks in general because it’s such a nuanced issue right. There are definitely valuable and accurate criticisms of buybacks in aggregate in aggregate and this time the dollar value buybacks peaked in early 2008 which of course was a terrible time to be buying huge chunks of your own equity and the dollar rallies again today. I think it’s crazy that people always focus on raw dollar values and not yields or percentages because the raw dollar value the market’s much bigger today. So it’s a smaller percentage than it was in 2008. But still, it’s still pretty high in elevated terms of gross dollars being spent back. So in aggregate companies don’t do a great job at tying their share repurchases. But those high conviction guys tend to do a slightly better job and we certainly wouldn’t advocate just fine because of a buyback program. All sorts of other things you should look at all the earnings that levels lots of other things that valuations that we can talk about. But it does seem like those companies with the highest conviction do buy back cheaper relative prices than the low conviction guys out there.

Patrick: [00:15:21] So I think that it’s really important decontextualized with what else is going on with the business. And the other thing that drives me nuts is you know you’re here. IBM has become the popular sort of target for rapid company that’s you know falling in sales quarter after quarter and it’s a dinosaur and buying back their shares. Burning money and so on and so forth. You have to remember that there’s not some store that these companies can go to with high return capital projects that they can just plug in and start earning really impressive rates of capital and sometimes buyback programs show a little bit of discipline on the part of managers behind these big companies because one of the worst things you could do for shareholders is start earning money on low return projects or investments. And it’s not like these things grow on trees so you know IBM just because it’s not plowing all its money into R&D doesn’t mean that these buybacks are a bad thing.

Preston: [00:16:13] I love that you’re saying that. So if you go back to eBay so you can listen to Griffin the author of Charlie Munger Papin investor impressed and I talking about how bad IBM and Hummer above is being wrong and why you should never do that is of value. That’s true. So it’s nice to see there’s a nuance to the discussion.

Patrick: [00:16:34] Yes the fun thing about being a writer or a systematic investor is you own a lot of stocks right. So I talk about I’m interested in individual stocks as sort of a side hobby. And it’s I think helpful to talk about them just to convey the principles that we’re trying to invest based upon. But if you want IBM was it quiet it’s going to be you know a tiny percent of your overall portfolio. And the goal is that a basket of stocks that kind of have that IBM like profile easy they either build a negative narrative on media talk about as value traps for example that a basket of those kinds of stocks tends to do very well. So it’s key to you spread your bets even though we’re talking about individual name example so who the heck knows what’s going to happen with IBM. But there again good one to talk about Tobey go ahead and hit up the third question.

Preston: [00:17:20] A huge amount of backtesting. And one of the great things that I have access to is Pat because I get this is that you know it’s something odd that it’s just a little bit unexpected and Pat has access to the best backtesting system probably in the world and he’s right in the weeds of it he knows all of it Indies. And crucially he’s very generously often available to me. And so to add to my old questions. So I was just wondering what are some of the weirdest backtest results you’ve seen and did you sort of subsequently sort of think through the result and work out why it was working and realized it was a genuine kind of thing not just a quirk of the data.

Patrick: [00:18:03] It’s a really interesting question. They go use as an opportunity to talk philosophically about back to us a little bit because they’re becoming more and more popular you’re seeing more and more these kinds of logarithmic growth of the dollar charts that show some strategy absolutely creaming the overall market and we do it with ease over many decades. The joke always goes in our line of asset management that no one’s ever seen bad backtests. Well, I’ve seen a lot of facts. And typically what they have in common is that there’s something wrong with the test itself. You know there’s now a lot of services that allow people to enter in some formula and backtested online. And there’s something services that do this as well. And what I’ve found is that there are generally a couple big issues that people screw up when conducting backups that lead to conclusions that may give strategy look a lot better than this. So does that give you an example the first would be the data itself? So we’re very reliant on a couple big historical data sets and there’s just no perfect data set. So these companies do the very best to have stripped out things like survivorship bias making sure to include companies that have gone out of business because after all all you ever did was invest in stocks that kept surviving.

Patrick: [00:19:17] We do pretty well. Didn’t ever invest in any of the losers so things like survivorship bias companies restatements that happen in our backfilled after the fact some statistical issue. So just the actual conducting of the test itself and maybe finding that something works when it sees that is actually completely insignificant making sure you do in and out of sample testing. There’s just so much nuance to all of this testing that we do. And it worries me that it’s become so popular because you know listen if you test enough things that Rana has 300 things a random small handful are going to look phenomenal just by pure chance. So you just have to be very careful with that test. That’s kind of my broad opinion of them. But of course they’re useful and it’s a great way to test the market hypothesis. But usually, when I see weird results it’s because I screwed something up setting it up.

Preston: [00:20:06] All right Patrick so this is kind of piggybacking off of this conversation with backtesting but when I think about all this backtesting that people have been doing on the market over the past 50 years I think it’s important to highlight that interest rates have been at normal levels whenever you’d be looking at those results. And as we look at the current conditions and the expectation for future movements interest rates seem to be polarizing to 0 percent using Japan as an example for future performance in the debt markets many think that those rates will continue to drop to zero or even negative moving into the future decade.

Patrick: [00:20:39] Do you ever worry about the backtesting results that you’ve done in the past and that they might not necessarily correlate to the way securities will perform moving forward with that idea of this polarization toward zero percent or pretty much that we’ve got data on just about every kind of market in macroeconomic Ruchi both in the U.S. and Gogoi so we can take kind of the core ideas that we’re all about which is we are really at the end of the day it’s ideas like valuation momentum a return of capital to shareholders things like that and we can test those in the 70s and their crazy interest rate environment very different from when we were through in the last 30 plus years. We tested in Japan since 1989 to see OK value works everywhere. But what about in this weird deflationary kind of sagging economy. And we can we can stress test these things and for the most part those key core ideas and there’s a lot of ways I know you can measure that. Cetera but those core ideas have pretty much stood up to every out of sample test every macroeconomic environment every different scenario we put them through of course those bad periods of under-performance but they’ve always survived and thrived. And I think the reason for that is is the reason why the strategies work in the first place so I know you have Westray on the show.

Patrick: [00:21:53] I think you and I would probably agree with this being more of a behavior story than a risk story. So that’s the debate. In our world is there’s value investing. Because it’s a risk that you’re being compensated for that would be sort of the gene for more efficient markets you like value stocks outperform. And then there’s the behavioral explanation which is that at extremes the market overdoes it. The market is a discounting mechanism. It’s effectively making predictions about individual stocks future. That’s a value stock that sounds great but it’s a nice way of, say, really pessimistic expectations really crappy company bad outlook and what we find. And then the opposite of you know fantastic outlook ridable future growth rates things like that. And what we find is that people over extrapolate and underappreciate the fact that markets are hurting. So IBM should trade a lot cheaper than Amazon. There’s no doubt in anyone’s life. But I remember trading too cheap. So the market has over-extrapolated its bad results its sales and some sort of any sort of little positive surprise would catalyze an upward. Yeah. And vice versa or something like Amazon. So I’m a subscriber to that behavioral explanation for why value works. And because of that because people are not going to change human nature it’s not going to change.

Preston: [00:23:09] Hey guys can we continue. I just want to continue the conversation on Amazon because I just want to hear your thoughts on this so whenever I look at Amazon and everyone’s trading it it ridiculous multiples. Then if they’re really trading it off of the top line revenue and what they’re doing is they’re looking at that revenue growth and they’re saying you know what if Amazon would choose to basically start making a 10 percent margin on that revenue. It would be priced at where it’s at right now. That’s how they’re really doing it. They’re basically saying that would be a 10 percent and then they’re basically using a market cap of that. But the fact of the matter is is they aren’t choosing to have any margin at all. There are some quarters where it comes in pause of there’s the following corner comes in slightly negative and it’s Jeff Bezos is a method to basically just keep growing his company like a weed. And you’re seeing his revenue his top line revenue just growing like a weed. Now recently I think you’re starting to see the revenues start to taper a little bit you’re not seeing it grow nearly the growth rate that it has in the past. And so my question to you guys is what’s his end state. You know Mohnish Pabrai has a great explanation he says whenever you have a human being that gets so big it’s actually it starts to become unhealthy for that person because they’re so big and there’s something that biologically holds them back from basically functioning appropriately he says I feel like you see the same thing with businesses once they get so big it’s kind of like there’s this barrier or like you’re approaching the speed of light where you have to basically start slowing down.

Preston: [00:24:34] And so what’s the answer. With the Amazon and how is the market going to treat their market cap. I think they’re going to get obliterated whenever we start to see their top line revenue start to taper off. So have you set the price and because I don’t. No actually I was so desperate to figure out what Amazon is doing that forced all of my grad students to make a valuation of MSO and then they come up with like 30 different results because it’s so hard to figure out. And to me I think the whole point is that to have any pricing power like the whole business model in the way of that scale the need to have some kind of pricing power before you can start to argument for the current valuation. And I’m not sure because they are events is that they don’t have any Marten’s that is that is a what if the basis of saying that they have no markings.

Preston: [00:25:18] That is how it can be competitive in a way. But I just can’t see how they can stop making any kind of money like real money compared to the current valuation with the current model they have right now simply because the industry that they are putting in are just too competitive whenever they start to increase the margins. So it’s probably not that interesting on Amazon it’s just one of those things that on aren’t on it necessarily need to have an opinion on every single stock it’s just if it’s not on my screen if it’s not in the portfolios I tend not to look at it I don’t really know in relation to Amazon. I don’t think that Stig’s point I don’t think that they are trying to be they’re never going to be the franchise style company. They’re just going to be the low-cost operator which seems to have been a very successful strategy that may just be able to deliver packages to homes cheaper than anybody else and that might be that competitive advantage. That’s just impossible to roll because they become so well networked and so close to everybody that no one can compete with an auto and really have any great view on the valuation.

Patrick: [00:26:14] It’s just it’s too expensive and a don’t short individual items but it’s yet another good stock to illustrate a broader general principle behind the value versus growth best thing. You know Amazon has a lot of stock. It’s like buying a lottery ticket. There will be certain of these incredible growth incredible companies stories stocks that do extremely well. The next 10 years. This past decade it was Apple and Apple and Apple earned. It’s outrageous price at different times. Right. So you know if you do some back of the envelope stuff on Amazon they have to grow it. Let’s say they just grow with the market over the next 10 years or so they have to grow their earnings. Their bottom line is like 55 percent a year. That’s happened before. It’s about 0.3 percent of the time which is a tiny tiny percentage but it has happened in Apple one of the companies that did it. So there are these darling growth names that were out there the winning lottery tickets. But certainly by the same logic I wouldn’t suggest to go buy a lottery ticket. We know that that’s a bad idea in general through history. Buying stocks like Amazon has been a really bad idea. But of course we just don’t know whether this will be the one stock that proves to be the exception that keeps people playing this game because now everyone wants the next Apple and it seems as though Amazon might be that stock. It’s an amazing company that we all use and all love. It’s just priced outrageously.

Preston: [00:27:36] I love that metaphor that you use because there are so many people that let’s say if I were to just pop Microsoft back in 1990 and it’s it’s almost you might as well just say I wish I would’ve went out and bought that lottery ticket that won because that’s really what you’re saying is as far as probabilities go. Like Patrick throughout the odds point 0 3 percent was that correct.

Patrick: [00:27:58] Yes so that’s a perspective that’s like nine times rarer than hitting a single number but you know the numbers on.

Preston: [00:28:07] So for the next question we’re going to talk about Wisley Gray actually. And I think people in that podcast know West we had him on. And this is really started to become a a family podcast and I’m really saying that this my mom lives here because we had Patrick had his dad on now we’re talking about West Wing. Toby wrote a book with and Petra before this show just told us that he went out with two weeks ago in Vegas. So this is really it’s an answer I gave him in the podcast but then I really come from a foundation of value investing. And we had with the on the on the show the other day and he started talking about momentum investing which was something that was not really on our radar which is basically the principle of buying stocks when they were they have soared and then hope that they will continue to increase in price and it might seem like the opposite of value investing it might seem like something you shouldn’t do. If you value investor but I’ve seen in your research Patrick that you actually found that if you have a portfolio with 70 percent in value stocks and 30 percent momentum stocks it’s actually the most optimal portfolio mix you can have. Could you please elaborate on on your findings.

Patrick: [00:29:20] Sure. So first I used the word optimal very delicately optimal in the sense that in this sample data with which we have to work this sort of blend of 70 percent value 30 percent to a very simple test produces the best ratio i can all but guarantee that in the next five to 10 years it will be some other mix of 17:30 that proves the best. Who knows what it’s going to be. The broader point though is that there does seem to be some advantage of mixing these ideas of value and momentum which on the face of it seem like opposite things. Right so value stocks are going down. I have bad moments and growth stocks are good momentum right. So it almost seems like you’re talking apples sides now. But it’s important to know that there are very different strategies. And the difference really is that time for us. So when you buy value stocks that’s a strategy that works for a very long time. That you buy a basket of 100 values stocks today on average historically that occurred 100 companies will keep outperforming for five years or longer. It’s a very low turnover strategy.

Patrick: [00:30:22] Palgrave’s overall you mentioned in contrast is a much higher turnover strategy. So the idea is like valuing the buy something because it’s cheap. With momentum we buy something because it’s gone up a lot in the last three to 12 months. Typically the window that people look at what the difference is that you need to trade down a lot. So tax sensitive investors people worry about capital gains that sort of thing. Momentums not probably nearly as helpful but it has been a strategy that’s working very very well. Just like value as long as you’re kind of rebalancing at least annually typically more often than say every six months or even more frequently. But momentum does work really well and it works really well in combination with value. And your worst case scenarios historically would have been much better than if you had been 100 percent value 100 percent Benta but you had some sort of bland 17:30 were great 50/50 works great 40 60 works great. I think the exact blend is important. The more important idea is that you can use more than just one factor to create a better overall strategy.

Preston: [00:31:25] So Patrick I think it’s important for us to highlight to all the listeners we’re going to have a link in the show notes to the article that Snigs referencing for this 70 30 split so you guys can read more about this. I’m curious because I really don’t study anything to do with momentum investing I’m typically just street value and so I’m very curious to talk about this a little bit more. I think a lot of the people in the audience would be as well. When you say you’re looking at this three month to 12 month horizon and you’re talking about price basically going up what else are you looking at are you looking at the revenue are you looking at the net income. What other factors are you looking at in addition to that price and how is it correlated to price I guess is where I’m really interested to know more.

Patrick: [00:32:06] So we focus exclusively on price from that total return of the stock. There are other versions of the mentum kind of short term earnings sales. Sometimes you can even look at the revisions of analysts Felicita analysts estimates on stocks something I’ve seen people do when talking about momentum. There’s there’s some advocacy to all of them. What we find is the most predictive or most successful picking stocks that go on to win in the next year or so is that strength price movement over the last three to nine months. It sounds pathetically simple and we all know that chasing performance in general is a really bad idea. But that chasing performance usually happens is people chasing some asset class or some strategy that’s worked over the last three to five years. Now over the last three to five months so momentum is a much shorter term. So you know certainly don’t chase a five year winner. Those tend to meaner but that short term event does seem to be productive.

Preston: [00:33:04] Now do you get better results depending on where you’re at in the credit cycle so let’s say it’s 2008 2009 you know you’re kind of in the depths of a very deep recession at that point. And so basically you’re starting over with the credit expansion at that point. Does this momentum strategy work better during that time period versus where we’re at today where you’re basically topped out at the end of this credit cycle you’re basically chasing something that might really end bad. Is there a timing in that credit cycle that this strategy works better than other times.

Patrick: [00:33:36] Easier your answer in terms of market cycles than credit cycles just because the answer is a little bit more consistent. So when momentum tends to do well is a kind of the rising bull trading markets so periods of kind of established and rotating trends where it tends to do really really badly and this is one of the great difficulties with thing but that’s an investor is in the initial period following a severe bear market bottom. So if you think back to March 2009 this happened in the early 2000s in the 1970s in 1937 in 1932 coming out of the initial part of a bear market bottom. So back to March 2009. What happens with momentum is well what we call factor crash. You can think about a market crash or the market goes down after a crash is where what normally works completely gets inverted. So now all of a sudden it’s the low low income stocks that are killing the market behind them stocks that are going nowhere. Or the value factor crash would be expensive stocks like what we’ve seen this year and it’s really expensive stocks outperforming cheap stocks underperforming out of the value crash. So the momentum has these factor crashes coming out of bear markets and their history and they can take years for that momentum strategy to work its way back into positive excess return territory. So it’s not for the faint of heart. And you have to understand that while that has been pretty consistent we want to be at an event that everybody knows we know that it’s impossible the times things. So sometimes you know you have to stick with it through a couple cycles for it to really be rewarded. But it does really badly coming out of a bad bear markets.

Preston: [00:35:11] I’m going to shamelessly advertise myself because I wrote a few blog posts about momentum and nesting in value investing and why I am still an ad nauseum best or not mentum best or so I would I would make sure to link to that in the show notes but the thing is really really interesting because if you’re really into called investing you might also come to a point where you don’t care if it’s because of a value factor or cost costs that momentum factor that you operate on the market. Now I’m actually really curious to hear your take to it because you’re first of all you’re smarter than I am and you’ve been studying momentum a lot more to me. So being a hundred percent value guys in these in my opinion like have you changed your approach to Khond investing and include momentum investing. Thanks Steve. I don’t think that I’m smarter than you would over it. I’ll tell you what I have a little bit of an evolution me from spending time with Patan was and made fiber as well. The thing that you find when you’re running a value portfolio is that it does have these periods of under-performance.

Preston: [00:36:08] This is a good idea to illustrate that where the market is very strong. So it’s the tail end of a bull market but there’s no evidence yet that it’s in fact the case. It’s just a market that’s gone up a lot and has sort of seemed to slow it down. I think you see values starting to sell off. So you sort of started selling off six to 12 months ago. And I sort of attribute that to you guys. This mean reversion function where they buy these stocks that have beaten up but there’s a point where the market just gets too expensive individual stocks become too expensive and they don’t perform that main reversion function because they don’t buy those stocks for them they’re still not sufficiently cheap. And so I think that’s why you see the drop in the value stocks. And so it’s very helpful to a pure value strategy to have some momentum in it in a period like this because the momentum stocks have worked over the last six 12 months. Is that right.

Patrick: [00:36:58] You say not yet for sure. I mean it’s been a lot of it is concentrated in just a handful of names a face like Sammis and so on but definitely value has got crushed. And the more value your portfolio or the worse you are likely done. The more a trend following into your portfolio the better chance that this is that one of the sharper years since the late 90s or that version.

Preston: [00:37:21] It’s a phenomenon that happens regularly enough that a portfolio that has that blend to a particular article it’s Stig was talking about yours. That was long only right. That wasn’t long short. Yes. So just being long only and using identity that you even necessarily taking 70 percent stocks you’re just using 70 percent fact and first value versus momentum about 50 percent momentum. It was the one that gave you the best shot ratio but it also had this effect that where value did really fall in the late 1990s the momentum kind of picked up that. So it didn’t crash as badly. And similarly when light non went by mentum had the big crash momentum under-perform value sort of picked it up and so it doesn’t ever seem to win. But it doesn’t lose by much either and it’s always in it’s always in the best performed sort of group. So over a period of time works the best.

Patrick: [00:38:09] Yes. I mean the basic idea here is as investors what we’re trying to do is find stuff that works that has no correlation to one another. Right. You can find things that work that work at different times and that seems to be the case for value momentum that they are negatively correlated maybe a rolling three year basis for one’s working. Odds are the other one is not that that tends to be a long short run. It works if you work just that excess returns like it was just the top 10 percent of the market value of the top 5 percent. That’s just why only those two strategies excess hurt her would have a negative correlation typically on a roll through year basis. So this is when you can find a stock that has really good valuations. But it also has these recent trends so if it keeps up the market is just getting down. So for Catulus that’s tended to wear pretty well.

Preston: [00:39:03] And I just want to highlight one other thing here Patrick so what I find fascinating about what you guys are talking about is right now where we’re at in the cycle momentum is doing really well. Values not doing nearly as well but we’re at that point in time where maybe you can have the market completely change around very quickly and you could see those two strategies flip very quickly and very drastically for. So for that person who’s listening and hearing momentums doing really good and you’re kind of linked to the game when you start jumping on that bandwagon you have to realize this is the point where cycles can potentially shift very drastically in what could turn out to be the strategy that works really well could actually be the strategy that really you get punished with if you get into it too late and it comes down to this timing piece. So where I think that this goes at the heart of Stig’s original question when you’re combining these two strategies together and you’re just doing it from a co-op and you’re doing this across a multitude of different picks and you’re not trying to time it you’re just saying whatever happens I’m going to I’m going to stick with this strategy.

Preston: [00:40:09] That’s how you can implement it successfully not picking one or the other or trying to do this timing piece that’s where I think people can really get themselves and a lot of trouble hearing this conversation. So I just loved that exchange. It’s the first I’ve really dove into any of this before and I’m assuming a lot of people in our audience have never heard this either. But just an amazing amount of information. So with that said Toby go ahead with your next question. Back to the kind of thing stick you had a great quote yesterday. It was the Henry Ford Quoy were something like imagination without execution is hallucination something like the conflict that’s backtesting is just pure sandbox toy playing and the rubber only hits the road when you start implementing the strategy. So the question that I had is did you have any practice that you are confident in that when you try to them they didn’t work. Did it sort of reveal something about either the back test or the fact that it’s kind of interesting.

Patrick: [00:41:08] Yes there’s a few things and it’s a great quote that well describes backtesting because maybe the worst sin of backtesting is the false sense of security that imparts on potential investors. You see one of these you know four or five decade tests that shows 5 percent of your outperformance and really consistent with rates and all these great stats. And it just makes it seem easy. Right. Markets are just way too efficient for that. But none of this is easy it takes a tremendous amount of discipline a battle for any of this stuff to work. And you know a three year period or a five year period of under-performance seems like nothing if it’s you know between 1980 and 1985 and it’s you’re back test but having now been doing this for almost a decade and having lived through it myself a lot of money professionally managed in these strategies. Having lived through periods of under-performance I can tell you it is extremely difficult to to your strategy when it’s not working because there is more and more backtesting coming on board or strategies that seemed like they were externally. It’s going to be easy for investors to hear the new backtesting now it’s not going to be that these stocks would be the height of backlist strategy that people will jump between and over trade and do all the same says they do with individual stocks.

Patrick: [00:42:26] So for me the last thing I would urge you that you’re back testing as a useful tool and it’s a great way to find good strategies. But the more important thing is to come up with a basic strategy that you can stick with and believe in. And they just never change it because I guarantee in three years a guy like me is going to publish some great new fact or some great new strategy and it’s going to be tempting to say well you know I like value and event of the combo but it hasn’t worked for the last five years and this is more of the stakes Let’s roll into that and I guarantee you will be missed. So if that testing is useful but just the there it’s more about finding something that makes sense. That’s worked historically and then just sticking to your guns for 20 years. So so just that that may not be accurate. I think that’s so. Or for potential investors in these strategies in terms of stuff that hasn’t worked when we’ve expected it to. I think a lot of clients. We did a similar answer even though it’s become a popular new category and I’ll call it probably quality factors to things like return on capital or return on assets or return on equity different measures of margin. You know there’s a lot of different ways of looking at quality low volatility of earnings things like that.

Patrick: [00:43:36] And what we find is that these factors are somewhat useful but they’re not useful in the way that sounds good. So you often hear people say like the Warren Buffett you know the guess is expertises there are famous billionaires who have been really successful investors. So Warren Buffett’s mantra is buy good companies with good prices and early. That’s what major stage is besting strategy. He got over the early Bangar and stuff and it doesn’t really work as well it’s just pure volume of that type investing all of what we find useful is to avoid the absolute worst stuff out there. So companies who have horrendously suspicious cash flows. So they’ve got you know a great earnings huge earnings growth but no cash flow growth. So that’s all. And we accruals or something like that. We’re still going on with their inventories. There’s all sorts of these earnings quality things you can screen for that. It’s helpful to lead a very small group of stocks but it’s really not helpful if you’re asked back to buy the absolute best balance sheets the absolute best return on capital gains the absolute best earnings quality. That sounds like a good strategy and you hear a million dollar investors say good companies and good prices. But it would better probably be better served just going with good prices.

Preston: [00:44:55] Hey Patrick you have this fantastic blog called the investor’s field guide. And for anybody that wants to look this up it’s the investors field guide dot com. The site is 100 percent free and full of comprehensive ideas and thoughts on investing. Among many other topics that you cover. Tell our audience your site. More importantly why do you do it for free. I mean why do you put all this information out there on the net and share everything that you know and just to help people. I’m just really curious what motivated you and what put this passion you have for investing into this Web site.

Patrick: [00:45:26] Well people learn a lot of different ways. I happen to learn by writing. So my passion is reading. I want to read I’m a huge reader. Like all talk about books and a few minutes here. They always do that on the show which is just great but really where I can learn something and it can really get a concept or an idea down is by reading a lot and or doing a lot of hands on research and then trying to put it into a cohesive comprehensive and understandable narrative. And so really it’s just like an outlet for me to come and do that in public. And it creates a fun interaction with other smart interested investors who want to talk about these ideas because you know it creates a forum for engaging with other smart people. So it’s really just I just think about it as like by learning in public. And sure it’s all free. But but I’m getting a lot out of that. And I also don’t publish everything you know so there’s there’s certainly more and more people doing these kinds of strategies. I don’t want to say that value has become a commodity because it hasn’t. There’s a lot of nuance to value investing but with more and more people doing kind of plain vanilla value investing.

Patrick: [00:46:31] You know you don’t want that as a value investor you want fewer people doing your strategy as possible so I’m not Polish. I say maybe this is me and this is our whole firm. It’s a big furry. I’m guilty of using the word I too often. But our firm in general is going to keep some stuff close to the best. But I think that sharing information and educating investors is a good thing because we’ve also learned that no one is going to be able to mistake with these kinds of strategies unless they know a lot about them and are well informed. And that’s our responsibility as asset managers. Is not just to you know pick your track record many of which are really good but to say here’s why it’s going to keep working. Here’s what we’re thinking about. Here’s the all the psychology behind why this stuff works. So I think sharing all that is actually self-serving is a way for us to learn and it’s a way for investors in these kinds of strategies to build the confidence to stick with them when they were bad. And this year is a great example.

Preston: [00:47:28] It’s very Buffett. Buffett has said about his and his shareholders led us thought he doesn’t know what he thinks until he writes it down which always very interesting because it is so and thoughtful. But he he doesn’t order his thoughts until he puts them down on paper. Yeah we really are the enemy of Patrick here like the three of us we really promote value investing and tell everyone to start their own million missing career. So we are not Goodwins of Petrik I’m sure you know so Padraig’s speaking about books we’d love to provide great book recommendations to our audience. And if you could recommend one or perhaps more books to audience that is not your own legal money or good that’s what works on Wall Street. Do you have any great book recommendations.

Patrick: [00:48:12] So this is a this is a hard question for me because maybe the most successful part of the whole web site that I started was a little side project within the Web site that’s called The Book Club. And I’ve always read probably you know I have one of the kids now but before I had kids I’d probably read a hundred fifty books a year and even now I’ve read you know 80 90 100 so I’ve always read a lot of people always ask me for imitations. And so I think that I would create like an email list and just once a month send it out you know three four or five different books that I really liked and some reasons why and kind of build a little narrative around it and it’s become really interesting because it’s about 5000 people now. And whereas it started with me push the recommendations it’s actually now become my main source of getting recommendations for books myself. So it’s completely inverted where I don’t have to search for books anymore because every month they ask you know if you’re reading something good what’s Latino about it. So it’s it’s very hard for me to pick just one. So maybe what I’ll do is cheat a little bit and it’s fine to do so based on something that we just said are off it.

Patrick: [00:49:18] And so what I recommend is a group of essays by a guy named Paul Graham. So Paul Graham is an entrepreneur and a philosopher and started a company called Y Combinator earlier in the 90s a company that helped businesses put their businesses online. Like early e-commerce stuff all of these essays are free and a small portion of them are actually collected in a book. It’s called hackers and painters. So he’s been doing this for a long time and he is probably my favorite writer over at least of the people that I discovered in the last three or four years. And the reason is that he’s really a philosopher. He’s teaching people how to think about business about competitive advantage. Probably the best essay to get people started to see if they like his style is one called what you can’t say. So it’s like him walk you through basically a way to find contrary ideas. So you know this whole thing about Peter teal and 0 1 which is a good book is you want to find the contrary. And I do the same thing with investing. You want to find a strategy that nobody else is doing. How do you do that.

Preston: [00:50:25] You know Patrick it’s funny because I think it was in Tren Griffin’s book on Charlie Munger that I read this they were talking about how profound Charlie Munger is and his ability to just dissect things and just intuitively understand how things function and work. And they attributed it to this idea that you’re talking about where Charlie studies so many other things outside of value investing in finance and things like that. And so he studies physics he studies you know law he studies all these other things and he wrote a lot of people attribute his ability to understand how finance and business works so well because he’s ventured out and thought about things in that same exact manner. So I love those book recommendations I’m really excited that your first recommendation is for free online. Just go to our show anote you can click on that link and we’ll have exactly what Patrick was talking about so people can go directly to that. So something we want to throw out to everyone in our audience is we offer a free audio book download if you go and use our link on our show anywhere on our on our Web site. You’ll see that we have this link where you can go to the source code audibles dot com and this is the platform that Amazon uses. So if there’s a book that you want to listen to this is how Stigand I read all of our books when we’re driving in our car traveling. We can listen to our books and do multiple things at the same time. You can get your very first book for free and some books are $30 so you can get that completely for free if you use our link on the show. So at this point in time we want to go ahead and transition into the question from our audience and this week’s question comes from Hugh when good morning Preston and his take this is Hugh.

Patrick: [00:51:56] And second here mathematics students in university of Waterloo Canada thank you so very much for providing such high quality information about the investment world. I truly appreciate your work today. My question is about the importance of the interest rate in the current economic condition according to what I read in the like in my school the U.S. inflation rate is struggling to meet the 1 percent range which is abnormal compared to the ideal inflation rate of 2 to 3 percent annually. Where is good reason for the Fed to raise or not to raise the interest rate at this point in time. How does it affect businesses within the country as well as the global economy. Can you also explain why the dollar will get stronger as the Fed high interest rate. Thank you so very much for your time. And now I look forward to hearing your answer.

Preston: [00:52:51] All right Hugh this is a fantastic question and I’ll tell you you’ve got the smartest people in the world trying to figure out the answer to it. I can tell you this. This is my concern. If rates continue to get polarized to zero. My concern is that you have a total manipulation in the markets for basically accounting for risk and paying a premium for risk. So as that continues to happen and you look over Japan as a perfect example of rates that have literally been at 0 percent for a decade at this point how are people able to lend money and assume what risk is occurring appropriately whenever you have so much government interaction manipulating the markets. That’s my concern. I don’t know what the right answer is and I know that if the Fed would start raising rates because you don’t have much growth and you don’t have much investment coming from basically you don’t have that growth percent occurring within the country. If you do raise rates above that growth rate you’re going to cause a major downturn in the market. And that’s the big concern at this point. And that’s why the Fed is so hesitant to raise rates. What I do know that you can’t let it continue to go to zero because you’re throwing things completely out of whack and this is a concern that everyone has in the world and I don’t know if we really have a good answer for you but I want to hear Toby Steg and Patrick’s comments and we’ll start off with Patrick.

Patrick: [00:54:08] Sure. So this is the topic that we get asked about the most and it’s probably the one that we have the least say about because I think it’s very difficult to predict what’s going to happen. So all we can do is kind of position ourselves to be diversified in our portfolios in a way that will react well to steadily rising rate environment or to one that just is status quo that continues to look like what we’ve seen. I think one of the dangers with that being is cheap or money being as cheap as it is is a reversal in the kinds of companies that do well in terms of how they use that. So over the longer term companies that are are aggressively using debt issuing a ton of net debt in the market relative to their kind of their cash from operations and other cash flows are tended to underperform pretty badly. That has gone away in the last five years so those companies that actually outperform because money has been so cheap it’s actually been smart to aggressively news very low interest rates from the standpoint we don’t think that that means you should go by high high lever companies. But it does show that different strategies work at different times and you should be diversified.

Patrick: [00:55:21] So the good thing to know is that in let’s say we get one of those rising rate environments we have 17 or so of them that we can study back to the 1930s. All of those 70 in across those 17 the way we did find it was a move of 1 percent or more by the change in that you know the 10 year Treasury us 10 year treasury and said during this period 17 periods how often that value investing value just simply to find the cheapest temperature of the stocks versus the market. And it outperformed in about 40 17 periods by an average of about four percent or so and it’s pretty consistent with its long term outperformance numbers but quite consistent numbers Fortunata 17 is pretty good. The major one we’re at last was the period ending 1999. We all know what was happening with value investing. So I think having some value in your portfolio would be smart and I think that momentum which has done really well in this kind of lower interest rate reset market as well and that was done really well. We asked that scenario would be a great balance.

Preston: [00:56:21] This is just my own personal opinion. I think macro is really really hard and there are two reasons why it’s really hard. One is I think it’s kind of it reveals politics more than anything else. It’s kind of politics dressed up with numbers dressed up as math and sort of made to appear more rigorous than it really is. But there are guys who are still trying to invest on the basis of macroeconomics and so best interest in the politics of it and looking at what the data on the line reveal. And you have to get so many things wrong in series that if you get nine of these difficult questions right and you get the tenth one wrong and you still end up being wrong on a sort of trade like that and you can look at lots of examples. Bass with Japan has this phenomenal analysis a few years ago where you worked out the edge it would have to stop dissaving the Japanese household stop saving and buying Bank of Japan notes until it starts selling at that stage and would cause weakness for the yen. And he came up with a great theory for shorting the yen at that stage and it didn’t work and the reason is that the I stepped in and started buying Bank of Japan not at that stage so the difficulty that’s sort of reveals the difficulty of it that most people in positions of power politicians and central bankers don’t just stand there and let these things happen in relation to the U.S.

Preston: [00:57:39] interest rates close to zero. The question is is the data correct. Is the data correct. The inflation rate is that low. That’s the way that the CPI is measured the CPI is just a measure of inflation it’s not inflation itself. Inflation is a much broader measure than that. I really have no idea what they are going to do or how they’re going to do it or what the impact will be if it occurs. And I just think sometimes time spent worrying about it is time that you could be better served trying to work out on the value stocks or finding a strategy that you can stick to my two cents. My take is not some thoughts about whether or not the Fed will hide the rates or not. Obviously they must do that at some point in time I don’t know if it’ll be December or whenever that will be. But I think I’ll respond to the last question you have Hugh about why the dollar would get stronger if the Fed start to hike rates and is basically a question about like where can people get the highest return and everything else equal. People would be able to get a higher return if there was a higher interest rate in America and the way to think about this is that the demand for the dollar will increase and the currency is really just a supply and demand thing.

Preston: [00:58:41] So if there is a higher demand, then the price, which will be the exchange rate, will increase as well. But again, that’s something we teach in in macroeconomics. A lot of things can happen, so you won’t necessarily see that the dollar will strengthen. You might as well argue that if it didn’t the economy would be better off which was also increased demand for dollars. And then you have a stronger currency. So there are so many things happening. But everything else equal yes. You you’re right. The dollar should get stronger if the hike rates. All right guys that’s all we have for this question here Hugh we’re going to send you a free signed copy of her book The Warren Buffett accounting book and for anybody else out there if you want to get your question played on our show go to ask the investor’s dot com and you can record your question there. And for anybody who gets the question play on the air we’ll send you a free signed copy of our book. So we really want to thank Patrick for coming on the show. Patrick if people want to learn more about you or dig into some of the things you’ve done how can they reach out to you and find you on the net.

Patrick: [00:59:39] Probably the easiest way is go to investors field guide or to search for investors field guide to be one of the first couple. It’s on Google that will have a lot of writing links to that book club I was talking about links to the book that I gave and my you know address on there so I have my personal one so people want to get in touch with me that’s the best way.

Preston: [00:59:58] And Toby how about yourself. The best way is either through greenback’s dot com acquires multiple dot com. There are forums on the choirs multiple that I wade into and chat about individual name strategies and other things like that fantastic. That’s all we have for you guys and we’ll see you guys next week. Things we’re listening to the investor’s podcast To listen to more shows or access to the tools discussed on the show. Be sure to visit w w w dot the investors podcast dot com. Submit your questions or request a guest appearance to the investor’s podcast by going to WDW. Passkey investors dotcom. If your question is answered during the show you will receive a free autographed copy of the Warren Buffett accounting book. This podcast is for entertainment purposes only. This material is copyrighted by the IP network and must have written approval before a commercial application.

Books and resources mentioned in this episode

Patrick O’Shaughnessy’s Site, The Investor’s Field Guide

Patrick O’Shaughnessy’s book, Millennial Money – Read reviews of this book

Patrick O’Shaughnessy’s blog post about Debt and Share Buybacks

Patrick O’Shaughnessy’s blog post about Momentum and Value Stocks

Billionaire Mark Cuban’s blog post about Share Buybacks

Toby Carlisle’s Blog: Greenbackd.com

Toby Carlisle’s Book, Deep Value – Read reviews of this book

Toby Carlisle’s Book, Quantitative Value – Read reviews of this book

Stig’s Blog on Momentum Investing

Stig’s 2nd Blog Post on Momentum Investing

Paul Graham’s Free Essays

Paul Graham’s book, Hackers and Painters – Read reviews of this book

Videos that support this podcast

Patrick talking about Millennial’s Investing on CNBC’s Squawk Box

Patrick O’Shaughnessy on Individual Investing