Fully Invested

Welcome to Fully Invested where I give you evidence based approaches to help increase your odds of investing success.

Value Investing On Autopilot

Last week, I introduced the idea of value investing. The concept of never overpaying for a stock and in return receiving better returns over time.

This strategy has led to some fantastic returns for long term investors.

Dr Daniel Crosby is a bit more forceful when he says in The Laws of Wealth,

"I cannot say this emphatically enough - paying an appropriate price, commonly referred to as value investing, is the single greatest thing that you can do to ensure appropriate returns and manage risk"

But how do you find these stocks?

This is the best part. You don't have to!

Value investing isn't a niche strategy anymore. Even when it goes in and out of mainstream popularity, the concepts are far from new.

As a result, there are many ETFs and mutual funds that can give you exposure to this type of investing without you having to pick individual stocks.

These ETFs and mutual funds will use systematic approaches to evaluate which stocks are worth owning more of and buy them automatically for you.

Increasing your odds of success on autopilot!

Whether your preference is passive or factor based, you can be a value investor with a single ticket solution.

I recommend using ETFs or mutual funds for the simple reason that it will decrease the odds of you picking the wrong stocks and it will increase the odds that you get the returns associated with the value premium.

Picking individual stocks is hard even if you're staying in the value universe. I don't waste my time on that.

Here's my approach

Personally, I like to follow the words of economist John Maynard Keynes:

"I'd rather be vaguely right than precisely wrong"

Sometimes value investing doesn't work. Sometimes crappy companies are good investments. Sometimes great companies don't see the love from the market. Sometimes the index is the best option.

So instead of throwing everything into value stocks exclusively, I use value stocks like seasoning on my portfolio. You add seasoning (salt, acidity) to make things taste better but most people don't want a mouth full of salt and vinegar.

I mostly invest using funds from Dimensional Fund Advisors. Their approach takes an index and tilts it towards the parts of the market with higher expected returns (like value stocks). They'll own everything but they'll own more of the good stuff.

Here's a factor breakdown of everyone's favourite ETF, VEQT (Vanguard All-Equity ETF Portfolio 0.24% MER). About 28% of the portfolio would be considered "value".

And here's the DFA Global Equity Portfolio (0.33% MER) as a comparison with 36% categorized as "value". There's a little more seasoning on this portfolio.

Over a long enough time horizon, the extra focus on value stocks should lead to strong performance that is backed by nearly 100 years of academic research.

Just on a pure performance basis, value has dramatically outperformed growth over time.