"Exactly. Systems beat trends every time. In my view, building a rule-based engine that cash-flows steadily is what works for me to ignore market noise and maintain a true forever-hold mindset."
Excellent piece on factor DNA. Sticking through a decade-long factor underperformance slump is definitely the ultimate psychological hurdle.
I try to insulate myself from this by barbelling my global exposure: holding VT for raw market-cap drift and PAYG for an active, covered-call overlay.
Because PAYG focuses on cash-flowing global leaders and distributions are paid twice a month, it satisfies the behavioral need for constant returns even when specific growth factors stall.
In your rotation model, how do you handle periods where multiple factors are highly correlated, like Quality and Momentum blending together during mega-cap bull runs?
This behavioral need for constant returns is a good point, but also a very individual matter - for some it is strong, while for others (myself included) it’s not there at all.
You are right that in some periods factors can be highly correlated, but rarely all 4 of them. Blending with sector momentum also adds diversification to my system, and I don’t change any of the rules because of a period with high correlation.
The other comment nailed half of it. Discipline matters more than selection. But discipline isn't really a personality trait that you have or don't. It's an output of how the rest of the portfolio is engineered. The investor who sits through ten years of value underperformance can do that because their cash buffer covers the unplanned sale, their income sleeve pays the bills, their dependents aren't being asked to wait. Strip that architecture away and even the most disciplined investor folds, because life forces the hand that conviction alone can't hold. The factor literature treats discipline as a willpower problem. It's mostly a funding problem.
Great piece.
What stands out is that factors are not really the hard part—sticking with them is.
Most investors abandon a sound strategy during the years it looks broken, only to chase what recently worked.
In investing, discipline often matters more than selection.
"Exactly. Systems beat trends every time. In my view, building a rule-based engine that cash-flows steadily is what works for me to ignore market noise and maintain a true forever-hold mindset."
Excellent piece on factor DNA. Sticking through a decade-long factor underperformance slump is definitely the ultimate psychological hurdle.
I try to insulate myself from this by barbelling my global exposure: holding VT for raw market-cap drift and PAYG for an active, covered-call overlay.
Because PAYG focuses on cash-flowing global leaders and distributions are paid twice a month, it satisfies the behavioral need for constant returns even when specific growth factors stall.
In your rotation model, how do you handle periods where multiple factors are highly correlated, like Quality and Momentum blending together during mega-cap bull runs?
Thank you! 🙏
This behavioral need for constant returns is a good point, but also a very individual matter - for some it is strong, while for others (myself included) it’s not there at all.
You are right that in some periods factors can be highly correlated, but rarely all 4 of them. Blending with sector momentum also adds diversification to my system, and I don’t change any of the rules because of a period with high correlation.
Value Factor
= Opportunitu Cost
=
P/E ÷ G
or
= P/E ÷ √(G × ROIC)
Or
= P/E ÷ √(G × ROA)
Or
= P/E ÷ √(ROIC × ROA)
Or
....
...
The other comment nailed half of it. Discipline matters more than selection. But discipline isn't really a personality trait that you have or don't. It's an output of how the rest of the portfolio is engineered. The investor who sits through ten years of value underperformance can do that because their cash buffer covers the unplanned sale, their income sleeve pays the bills, their dependents aren't being asked to wait. Strip that architecture away and even the most disciplined investor folds, because life forces the hand that conviction alone can't hold. The factor literature treats discipline as a willpower problem. It's mostly a funding problem.