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Factor Investing For Dummies
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Factor Investing For Dummies helps you go beyond the investment basics, with proven techniques for making informed and sophisticated investment decisions. Using factor investing, you’ll select stocks based on some predetermined, well, factors. Momentum, value, interest rates, economic growth, credit risk, liquidity—all these things can help you identify killer stocks and improve your returns. This book explains it all, and helps you implement a strategic factor investing plan, so you can boost your portfolio’s performance, reduce volatility, and enhance diversification. You’ll also learn what not to do, with coverage of the factors that have failed to deliver consistent returns over time. We explore factor-based ETFS and loads of other ideas for injecting some factors into your investment game.
- Learn what factor investing is and how you can use it to level up your portfolio
- Understand the various types of factors and how to use them to select winning stocks
- Choose from a bunch of factor investing strategies, or build one of your own
- Generate wealth in a more sophisticated, more effective way
This is the perfect Dummies guide for beginner to seasoned investors who want to explore more consistent outperformance potential. Factor Investing For Dummies can also help portfolio managers, consultants, academics, and students who want to understand more about the science of factor investing.
ISBN-13: 9781119906742
Media Type: Paperback
Publisher: Wiley
Publication Date: 12-01-2022
Pages: 304
Product Dimensions: 7.30(w) x 9.00(h) x 0.10(d)
James Maendel, BFA, AAMS, AIF, DACFP, founded Maendel Wealth, an investment advisory firm. He has won the Five Star Wealth Management award for multiple years. Paul Mladjenovic is a national speaker, educator, author of Stock Investing For Dummies, Currency Trading For Dummies and other Dummies titles and runs RavingCapitalist.com.
Introduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 2 Where to Go from Here 3 Part 1 Starting with Factor Investing Basics 5 Chapter 1 Counting on Factor Investing 7 The Essentials of Factor Investing 7 Introducing the Factor Groups 8 Style factors 8 Macroeconomic factors 11 An Example of a Factor-Based Portfolio 13 The Upside and Downside of Factor Investing 13 Factor Investing through ETFs and Mutual Funds 14 Chapter 2 Why Use Factors? 15 Following a Systematic Approach 15 Leveraging the power of a persistent strategy 16 Following a disciplined core strategy 18 Considering Reasons to Use Factors 20 Keeping more of what you earn 20 Used by professional money managers 21 Using the Two Models of Factor Investing 22 Capital Asset Pricing Model 22 Fama and French 3-Factor Model 23 Chapter 3 Knowing Which Factors Are Worth Your Time 25 Putting You in Charge of Your Factor Investing Strategy 26 Navigating the Factor Jungle 27 Avoiding the Factor Zoo 28 Avoiding supercomputer factors 28 Finding investable factors 29 Chapter 4 Beating the Market without Timing It 33 Looking at the Indexes that Make Up the Market 34 The original index and its famous sister 34 The most popular index today 35 Planning Your Market Strategy 36 Beating the Market with Factors 38 Part 2 Going Deep with Factor Strategies 41 Chapter 5 Making Room for the Growth Factor 43 Seeking Profitability 44 Looking for Stable Earnings 46 Staying Vigilant for Non-Quality Growth Stocks 48 Employing a Low Turnover Strategy 50 Chapter 6 Value Investing with Factors 51 Paying for Value 51 Stock versus company 52 Exceeding - or not - expectations 52 Analyzing the Fundamentals 53 Understanding different types of value 54 Looking at the important numbers 55 Chapter 7 Banking on Momentum with Winners and Losers 59 Defining Momentum 60 The psychology of the momentum factor 60 Types of momentum 61 Exploring different momentum strategies 61 Looking at a momentum example 62 Making Money by Short-Selling Downtrends 64 Profiting from stocks with downward momentum 65 How short-selling works 65 The risks of short-selling 65 Minding the costs of short-selling 67 Knowing the Potential Limitations of the Momentum Factor 68 Expecting higher volatility 68 Paying higher fees and taxes 69 Choosing a Momentum Approach 69 Chapter 8 Sizing Up a Stock's Size 71 Defining the Size Factor 71 Timing with the size factor 72 Exploring the Cons of the Size Factor 74 Deficiencies in the database 74 Tossing out the small-cap growth stocks 74 Considering the timing 75 Dealing with sensitive bull and bear markets 76 Using Size Factor with Funds 77 Chapter 9 Dividend Income Using Factors 79 Getting Started with Dividends 79 Gaining dividend benefits 80 Using value factors for dividends 80 Understanding the Difference Between Dividend Amount and Dividend Yield 81 Knowing the Dividend Payout Ratio 82 Checking Dividend Growth 83 Getting Paid by Your Dividends 83 Reinvesting Your Dividends 84 Dividend reinvestment through your broker 84 Using dividend reinvestment plans 85 Projecting Dividend Income 85 Where to find good dividend payers 86 Part 3 Using Factor Investing in Your Portfolio 89 Chapter 10 Using Brokerage Orders with Factor Investing 91 Understanding the Types of Brokerage Orders 92 Condition-related orders 92 Time-related orders 96 Using Margin 97 Margin trading scenarios 97 Maintaining balance requirements 98 Striving for success on margin 99 Factor investing and margin 100 Chapter 11 Using Macro Factors 101 Exploring the Main Macro Factors 102 Gross Domestic Product (GDP) 102 Inflation 104 Interest rates 108 Checking Out Other Economic Indicators: Leading, Lagging, and Coincident 110 Leading economic indicators 110 Lagging economic indicators 111 Coincident economic indicators 111 Watching Macro Factors and Trends 112 Chapter 12 Combining Multiple Factors for a Powerhouse Portfolio 113 Creating a Combination of the Right Factors 114 Taking an Optimal Approach with ETFs and Funds 115 Using the Optimal Approaches for Factor Investing 116 Creating diversification 117 Dollar cost averaging 118 Taking Advantage of the Professionals 119 Working with portfolio managers 119 Taking a core and explore approach 120 Chapter 13 Going Global with Factor Investing 121 Exploring Why You Should Invest Globally 122 Global economies are always shifting 122 New technologies lead to new asset classes 123 Good ideas are everywhere 123 Diversity is the key to investing 124 Investing in Environment, Social, and Governance 125 Chapter 14 Performing Technical Analysis for Factor Investing 129 Tracking a Stock's Relative Strength Index (RSI) 130 The RSI parameters 130 RSI drawbacks 131 Checking a Stock's Technical Charts 132 Head and shoulders charts 133 Reverse head and shoulders 134 Adding Up Moving Averages 135 Simple moving averages (SMA) 136 Exponential moving average (EMA) 136 Chapter 15 Using Stock-Screening Tools in Your Factor Investing 139 Finding Investments with a Screening Tool 140 Choosing a category 141 Choosing screening filters 142 Entering search settings 144 Using a Screening Tool to Find Factor Stocks 144 Growth stock approach 144 Value stock approach 145 Dividend income stock approach 145 Speculating with a bearish screening approach 145 Finding ETFs with Screening Tools 146 Part 4 Applying More Complex Investment Tactics 149 Chapter 16 Outsourcing with ETFs and Mutual Funds 151 Comparing ETFs to Other Investments 152 ETFs versus mutual funds 152 ETFs and stocks 153 ETFs and other investments 154 Diving into the Broad Market of Exchange-Traded Products 154 Exchange-traded notes (ETNs) 154 Exchange-traded commodities (ETCs) 155 Factor-specific ETFs 155 Combining Sectors with Macro Factors 156 The economy is expanding 156 The economy is contracting or flat 156 Categories of sector ETFs 157 Exploring Factor Mutual Funds 158 Chapter 17 Bonds and Factor Investing 161 Defining Bonds 161 Using Factors with Bonds 162 Duration 163 Momentum 163 Quality 163 Value 163 Taking into Account the Key Issues with Bonds 164 Quality factor 164 Adjustability 165 Duration factor and bond terms 165 Understanding the Elements of Bonds 165 Principal and interest 165 The bond market 166 Bond yields 167 Discount or premium? 168 Bond pricing versus market interest rates 168 Bond ratings 169 Looking at Savings Bonds 170 EE bonds 170 I bonds 170 Investing in Multifactor Bond Exchange-Traded Funds 171 Chapter 18 Using Options with Factor Investing 173 Writing Call Options 174 The call option buyer 174 The call option writer 175 Benefits and pitfalls of covered call writing 176 Selling the Put Options 176 The put buyer 177 The put writer 177 Benefits and pitfalls of writing puts 178 Being Strategic with Your Options 179 Covered call option strategy 180 Put option writing strategy 180 Chapter 19 Watching the Factors that Lead to Major Market Moves 183 Tracking the Early Warning Signals 184 Tax factor 184 Regulation factor 185 Government spending factor 185 The Fed factor 186 Navigating Volatile Periods 187 Investing in Commodities 188 Chapter 20 Considering Taxes 191 Understanding the Tax Treatment of Different Investments 192 Understanding capital gains and investment income 192 Capital gains example 194 Minimizing capital gains taxes 195 Cutting taxes with capital losses 196 Evaluating gain and loss scenarios 197 Sharing with the IRS 197 Tax forms 198 The wash-sale rule 199 Taking Advantage of Tax Deductions 199 Investment interest 200 Foreign taxes on investments 201 Miscellaneous expenses 201 Donating securities 201 Non-deductible items 202 Investing in a Retirement Account 202 IRAs 202 401(k) plans 204 Keeping Up on Tax Resources 204 IRS publications to get 204 Tax sites 205 Tax software 205 Financial sites with tax info 205 Part 5 The Part of Tens 207 Chapter 21 Ten Do-It-Yourself Factors 209 Profit 209 Sales 210 Consistency 210 Debt 211 Price-Earning Ratios 211 Dividend Income 212 Human Need 213 Optionable 213 Industry Top 20% 213 Political and Economic 214 Chapter 22 Ten Ways to Mess Up Your Investment Plan 215 Breakevenitis 216 This Time It's Different 216 Cutting Winners Short and Letting Losers Stay 217 Letting Fear and Greed Lead 218 Buying the Hype 218 Using Leverage 219 Buying or Selling Everything at Once 220 Getting Impatient with Positions That Aren't Working 220 Borrowing or Going into Debt to Invest 221 Micromanaging Your Portfolio 222 Chapter 23 Ten Non-Factor Strategies and Considerations 223 Pay Off Debt 224 Save an Emergency Fund 224 Plan for Taxes 225 Consider Insurance 225 Plan Your Estate 225 Watch the News 226 Monitor the Companies 226 Know How the Federal Reserve Works 227 Maintain Your Career 227 Practice Diversification 227 Chapter 24 Ten Financial Problems You Can Navigate with Factor Investing 229 Recessions 230 Subprime Lending Crisis 231 High Inflation 231 Market Crashes 232 Pandemics 233 Government Overreach 234 Hyperinflation 235 Tight Labor Market/Talent Shortage 236 Black Swan Events 236 Market Shutdowns 237 Part 6 Appendixes 239 Appendix A Resources for Factor Investors 241 Factor Investing Books 241 Other Valuable Books for Factor Investors 243 Periodicals and Magazines 244 Resources on the Big Picture for Factor Investors 245 Investing Websites 246 General investing websites 246 Micro-factor resources 247 Other blogs that are useful for stock investors 248 Fee-Based Investment Sources 248 Exchange-Traded Funds 249 Sources for Analysis 250 Earnings and earnings estimates 250 Sector and industry analysis 251 Macro-factor resources 251 Government information 252 Appendix B Factor-Based ETFs 253 Index 269Table of Contents