Small Cap and Value Stocks

I have concluded many of my videos with some variation of “You’re probably better off in low-cost market cap weighted index funds”, which is a statement that I believe.

What I have not told you, and the reason that I think I owe you an apology is that I do not invest my own money in market cap weighted index funds.

Referenced in this video:

Follow the link to read more content from the Passmore/Felix team at PWL Capital.

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[superslyko]

Wow! A Financial Planner that is not just looking to line his pockets! I subscribed.

[sunnypsydup]

As a senior economics and finance student, I cannot tell you how helpful and informative your videos are. Keep up the great work and thank you!

[Rileyb]

Ben, this is the best video you've made, and I've watched a lot of your videos and have recommended them to many people. Please keep making nuanced, technical videos like this. I have a background in portfolio theory and I feel like I've hit the jackpot upon finding your channel.

Why are you spending so much time making these videos and responding to the comments? Your opportunity cost is so high as you're so smart and talented so the cost of your time is extremely high. I can't imagine that your ROI from making these videos is offsetting your opportunity cost.

I’m absolutely loving your videos but am bewildered why such a smart guy like you so devoting so much time to this and am genuinely curious as to why you’re doing this.

I’m a huge fan and will continue to recommend your channel to people.

[mangoh]

This is one of the most clear and concise ways I've ever heard the Fama-French Model described. Great work!

[aaronr]

Great script. Clear, concise, direct, efficient. No wasted verbiage, just high density information with a clean flow. Great post.

[linusverclyte]

When Ben says "it's time to go deep" I put on my thinking cap. It's actually not hard to understand: if the research shows that value stocks and small cap stocks have consistently higher returns than their opposites it makes sense to invest in those equities. Preferably through index funds or ETF's. See I did learn something from you Ben ;-).


Seriously: big thanks for your substantial efforts in popularizing complex research that directly pertains to investing and explaining it in such a way it's understandable for laypeople. You're making all of us better investors.


This video should be watched in conjunction with a related one titled 'The problem with small cap stocks'. The essence of that video is that it only pays to invest in small cap value stocks not general smal cap ETF's or index funds as they contain a lot of growth stocks that drag down the returns.

[sharonminsuk]

It may be true that stocks mid-way between value and growth are indeed "bland", however I think that that middle column in the style box is supposed to be labeled "blend". 😜

[SebtorDude]

I think you made a lot of very valid points. The factors are probably here to stay and we have found 95% of what actually works. A lot of the new factors that are introduced every year are probably just the result of data mining and won‘t work out of sample. I think that it‘s still possible to improve on the criteria that are used to determine what‘s a „value“ or „quality“ stock. For example there is a lot of debate whether price-to-book is an accurate representation of the value characteristic or if we should also (or exclusively) look at metrics like EBITDA, EBIT, Gross Margin, etc.

I am glad that you mentioned that there also seem to be some interdependencies between the factor. Small is good. Growth tends to e bad but the combination of the two (Small-Growth) tends to be even worse and is known as „the black hole if investing“. The reason is probably that these stocks feel like lottery tickets to many people and people are known to overpay for lottery-like games.

Another interesting quadrant is Large Cap-Value. There is some evidence that the value premium has disappeared among large caps. Maybe it‘s worth looking for Value-Factor ETFs that exclude Large Caps. I have no idea if any exist.

[sheldonberg]

This guy is probably too smart for me. I know the very basics of investing and want to become more sophisticated and knowledgeable. Not sure if I will get to this level of sophistication but it inspires me to learn more.

[cat-.-]

Close you eyes. Obama is talking to you about investing

[Mutmutism]

Wow, every video is better than the other. Very insightful channel, the best one I came across on YouTube so far.
Greetings from France

[RazeenMujarrab]

Congratulations on your promotion. Absolutely love your videos, please don't stop making them! They're going to be more useful moving forward as consumers seek expert advice as we move towards an inevitable recession. Cheers :)

[samuelpezzetta]

As a quantitative-value investor, I really enjoyed watching this video. I really like your way of explaining things, it makes it much easier to understand the whole topic! Could you maybe cover the momentum factor in a future video?

[iandunn]

It seems like VIOV might also be a good choice, interchangeable with IJS. It also tracks the S&P 600 -- giving exposure to the profitability factor -- but its expense ratio is 10bp lower.

Subjectively, I'm also just more comfortable with Vanguard funds. I trust them more than other firms, because of their history of promoting sensible investments, and their client-owned business model.

[juukame]

First 2 seconds of video:

"I owe all of you an apology."

Quintessentially Canadian lol

[andrewdixon]

Put a decent % into small cap 6 months back as a result of this video, reaping the rewards atm!! Thanks Ben!!

[Flyfisher]

Felix - just found your channel. Subbed. Fantastic content, this should be mandatory viewing for Canadians.

[vicentej]

Thanks so much for the video. I'm 18 and all of what you said has started to click in my head. I'll check out your paper too. Thinking about something like 45 VTI, 25 AVUV, 15 VTV, and 15 QQQ. There's still a lot to learn but I can't thank you enough for the clear and concise overview of factor-weighted portfolios.

[jannl]

Man… How spot on is this video given what’s happening now with rotation.

[yesimBata]

If we put things into context, it makes perfect sense that value stocks aren’t as profitable as they used to be.

In the older days, investors didn’t have access to the internet and a plethora of ways to automate investing. This means that trying to beat the market is much more difficult, as virtually any metric that can be used to evaluate a stock has already been priced in.

While small caps still manage to escape this to a certain degree(as they tend to be less of a focus for institutional investors and bots), I just don’t see this changing over time at all. If anything, it will just get worse.