Fully Invested

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Welcome to Fully Invested! My newsletter about evidence based investing for Canadians.

I wanted to launch this newsletter because most of the content around investing is hype based or fear based. But hype and fear don't lead to quality decision making...

I like evidence and systems and repeatable processes.

My suspicion is that you do too. (If not, please feel free to unsubscribe!)

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What is evidence based investing?

Recently, I launched the Find Your Focus Scorecard which helps people find the areas of their financial life where they should spend more time and effort.

One of the questions was whether you were familiar with the idea of evidence based investing.

64% of people don't know what I'm talking about regarding evidence based investing. So let's get started!

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Evidence based investing is a repeatable, low cost, reliable way to invest that takes emotions, fear and faulty predictions out of the decision making process and increases your odds of success. Perhaps that's a bit of a mouthful....

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In my last newsletter I sent to my clients, I described the building blocks of my core investment philosophy. I believe that a well-built portfolio should have the following characteristics:

1. Diversified
2. Global
3. Simple
4. Low cost
5. Pursing higher expected returns based on evidence

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The first four are generally straightforward but that last one... Let me try to explain with an analogy from the movie Moneyball.

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In baseball, there are many teams who build around stars with name recognition, home runs and imposing physical characteristics. But at the end of the day, there are greater predictors of success. (clicking on the video below will take you to YouTube to watch the clip. Click here if the video doesn't show up in your email)

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"Your goal shouldn't be to buy players, your goal should be to buy wins"

The exact same thing is true with stock investing. Your goal shouldn't be to buy stocks or bonds, your goal should be to buy a great outcome over time. What's the point of investing anyways? To have your money grow for spending on things you love or giving away to others. If we don't know the future (we don't!), we need to increase our odds of success and not guess at where the returns will come from next. This is where the "evidence" part comes in.

"I see an imperfect understanding of where runs come from"

In the investing world, many people are confused about where returns come from too. The "next big thing" (artificial intelligence perhaps?), the stocks you hear about on the news, the companies of products you're familiar with? Maybe, but probably not.

If you continue watching the movie (I would recommend it!), you'll learn that one of the key factors that actually determines positive outcomes in baseball is the on-base percentage: how many times do you get on base (hits or walks) when it's your turn to bat. You don't need home runs, you don't need stolen bases, you don't need to be 6'4"... you just need to get on base more often than the other guys and over time you'll end up with more wins than the other guys. Get on base, score more runs, win more games.

In an evidence based investment approach, there are similar ideas to on-base percentage that we can use to determine greater expected results over time. These are often called factors or dimensions (like our friends at Dimensional do of course). These factors show us which stocks have higher expected returns over time. I won't get into the explanations today but Value (lower relative priced stocks), Size (smaller stocks) and Profitability (companies with higher profits) are some of the most common factors to pursue when building a portfolio with high odds of success.

The research on these factors have received multiple Nobel Prizes, more research is constantly ongoing, and are there are firms dedicated to investing in these ways so that we all have access to these strategies.

The best part is that even though the research and academic side of things can be complicated, the end result ticks a lot of the boxes for my ideal investment philosophy:

1. Diversified
2. Global
3. Simple (all that research and diversification can be found in a single fund!)
4. Low cost (letting the computers crunch the numbers creates a system that is very low cost)
5. Pursuing higher expected returns based on evidence
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One of the things that one of my former colleagues often repeated to clients is that to have investing success "you need to have a system and the discipline to stick with the system". An evidence based system is one that I can really stand behind for my clients and for those of you who read my newsletters and listen to my podcast. I want to lean on evidence and research instead of hopes and dreams. A consistent approach instead of a portfolio that changes with the wind.

By now, many of you have likely heard these things from me already but I look forward to having more conversations about these ideas going forward. If you have any questions or comments about this, I'd love to hear it. Hit REPLY and let me know what you think.

Have a great summer!

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Evan Neufeld
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