What do you think?
Rate this book
Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests Today
There are hundreds of exhibits in the investment "factor zoo." Which ones are actually worth your time, and your money? Andrew L. Berkin and Larry E. Swedroe, co-authors of The Incredible Shrinking Alpha , bring you a thorough yet still jargon-free and accessible guide to applying one of today's most valuable quantitative, evidence-based approaches to outperforming the factor investing. Designed for savvy investors and professional advisors alike, Your Complete Guide to Factor-Based The Way Smart Money Invests Today takes you on a journey through the land of academic research and an extensive review of its 50-year quest to uncover the secret of successful investing. Along the way, Berkin and Swedroe cite and distill more than 100 academic papers on finance and introduce five unique criteria that a factor (at its most basic, a characteristic or set of characteristics common among a broad set of securities) must meet to be considered worthy of your investment. In addition to providing explanatory power to portfolio returns and delivering a premium, Swedroe and Berkin argue a factor should be persistent, pervasive, robust, investable and intuitive. By the end, you'll have learned that, within the entire "factor zoo," only certain exhibits are worth visiting and only a handful of factors are required to invest in the same manner that made Warren Buffett a legend. Your Complete Guide to Factor-Based The Way Smart Money Invests Today offers an in-depth look at the evidence practitioners use to build portfolios and how you as an investor can benefit from that knowledge, rendering it an essential resource for making the informed and prudent investment decisions necessary to help secure your financial future.
362 pages, Paperback
First published January 1, 2016
195 people are currently reading
616 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 24 of 24 reviews
October 17, 2020
The merits of this book are twofold. First, it identifies the characteristics that factors should have to be included in your portfolio: persistent (holds across long periods), pervasive (shows up in different countries and sectors), robust (holds for various definitions), investable (can be implemented in the real world and survives trading cost), and intuitive (there are risk-based or behaviour-based explanations for its existence). Second, it identifies which factors, in the authors' opinion, are worth investing in (size, value, momentum, and quality) and which are not (low-volatility). The arguments they advance for their choices are indeed persuasive.
The book's demerit is that it reads like an uncritical rehash of countless academic studies. The authors are typically uncritical of the studies they cite. They don't try to weigh one study against another, or criticise their methods. They take virtually all conclusions at face value and I found this tiring. Also, although a book on factor investing is not where one would expect great prose, the book's style is burdensome in the extreme (e.g. "Ian D'Souza, Voraphat Srichanachaichok, George Jiaguo Wang, and Chelsea Yaqiong Yao, the authors of the 2016 study 'The Enduring Effect of Time-Series Momentum on Stock Returns over Nearly 100 Years' provide evidence...", instead of just "D'Souza et al. (2016)* provide evidence... [*footnote of article's title]")
The book's demerit is that it reads like an uncritical rehash of countless academic studies. The authors are typically uncritical of the studies they cite. They don't try to weigh one study against another, or criticise their methods. They take virtually all conclusions at face value and I found this tiring. Also, although a book on factor investing is not where one would expect great prose, the book's style is burdensome in the extreme (e.g. "Ian D'Souza, Voraphat Srichanachaichok, George Jiaguo Wang, and Chelsea Yaqiong Yao, the authors of the 2016 study 'The Enduring Effect of Time-Series Momentum on Stock Returns over Nearly 100 Years' provide evidence...", instead of just "D'Souza et al. (2016)* provide evidence... [*footnote of article's title]")
December 5, 2016
I found this book very hard to read, just regurgitation of a mind-numbing number of academic studies, not well summarized.
June 13, 2019
Easy to read and makes sense.
The book highlights 7 factors that are real - beta, size, value, momentum, quality, term and carry. And analyzed them using a framework to test if they are pervasive, persistent, investable, and intuitive.
The conclusion is that the strongest factor is momentum - with annualized premium of 9.6%, and highest sharpe ratio of 0.61. Second is market beta, and then quality. But all of the above factors have positive premium.
A combination of several of these factors will reduce std dev and increase Sharpe ratio. So a successful investment strategy could be, for example, the small high quality stocks that have momentum.
But the book is a little bit dry to read and actually quite common sense. Nothing surprised me.
The book highlights 7 factors that are real - beta, size, value, momentum, quality, term and carry. And analyzed them using a framework to test if they are pervasive, persistent, investable, and intuitive.
The conclusion is that the strongest factor is momentum - with annualized premium of 9.6%, and highest sharpe ratio of 0.61. Second is market beta, and then quality. But all of the above factors have positive premium.
A combination of several of these factors will reduce std dev and increase Sharpe ratio. So a successful investment strategy could be, for example, the small high quality stocks that have momentum.
But the book is a little bit dry to read and actually quite common sense. Nothing surprised me.
July 5, 2023
Lmfao I'll admit - probs as recently as a year ago I thought I was pretty smart for 'discovering' that a vast portion of differences between returns or excess returns of diversified portfolios can be explained by their exposures to certain micro-founded, empirically sound beta risk factors. How we've probably been ascribing too much of returns to alpha rather than just plain old, albeit alternative, beta. And I thought I was pretty smart for having an idea of going beyond the beaten-to-death practice of 'asset management' - and moving to 'factor management'.
After reading this book, the thought that comes to mind is - is there even anything left to discover in academic finance and practical portfolio management? The authors put it out there, clear as day - the OG simple linear regression of CAPM, using vanilla market beta as its sole factor, explained around 2/3 of returns. Fama-French took shit to the next level by explaining ~90% of returns with the famous 3-factor model. Then Carhart chucked in the infamous momentum factor and holy moly, there you have it - financial economists have successfully explained ~95% of the differences in returns between diversified portfolios. That's why I think most of the work in financial economics has been 'finished' in the late 90s with the Carhart 4-factor model. Most of the work that comes after that - researchers furiously p-hacking those small, niche factors to try to eek out marginal gains, are just probably explaining returns at the 99% asymptote. Leaving probably only 1% alpha for those poor fuckers - active managers! And Fama-French said it best - marginal/ incremental gains/ explanatory power of factors are important. Are these new factors even aiding our understanding, nor are they improving the portfolio and making it more efficient? Debatable.
Are all the low-hanging fruit been plucked already? Idk. CAPM, Fama-French 3 factor/ 5 factor, MPT, efficient frontiers, beta replication - seems like everyone and their mother know these already.
That's why I also think the fact that the alpha pool is shrinking by the day via academics finding new factors, is also a very plausible interpretation of the EMH - active managers can beat the market for sure, but it's so incredibly difficult, or damn near impossible, to generate clean, pure alpha! As mentioned, the 4-factor model explains 95% of returns, and with all the work that has come after, probably 99% of returns have been explained as beta. The remaining 1% of alpha - meh, what if that came from pure dumb luck?
Is the only true way to innovate, to identify way in advance, future beta factors that are poised to outperform? Like what Ben Graham did, ingeniously, in the 40s. Why wasn't there a Ben Graham-like character, for the other premia - momentum or size, for example?
And factor management - allocating to value, momentum, size, whatever. What if after all that, it all converges to the S&P? Lol. Can a multi-style fund counter that problem?
After reading this book, the thought that comes to mind is - is there even anything left to discover in academic finance and practical portfolio management? The authors put it out there, clear as day - the OG simple linear regression of CAPM, using vanilla market beta as its sole factor, explained around 2/3 of returns. Fama-French took shit to the next level by explaining ~90% of returns with the famous 3-factor model. Then Carhart chucked in the infamous momentum factor and holy moly, there you have it - financial economists have successfully explained ~95% of the differences in returns between diversified portfolios. That's why I think most of the work in financial economics has been 'finished' in the late 90s with the Carhart 4-factor model. Most of the work that comes after that - researchers furiously p-hacking those small, niche factors to try to eek out marginal gains, are just probably explaining returns at the 99% asymptote. Leaving probably only 1% alpha for those poor fuckers - active managers! And Fama-French said it best - marginal/ incremental gains/ explanatory power of factors are important. Are these new factors even aiding our understanding, nor are they improving the portfolio and making it more efficient? Debatable.
Are all the low-hanging fruit been plucked already? Idk. CAPM, Fama-French 3 factor/ 5 factor, MPT, efficient frontiers, beta replication - seems like everyone and their mother know these already.
That's why I also think the fact that the alpha pool is shrinking by the day via academics finding new factors, is also a very plausible interpretation of the EMH - active managers can beat the market for sure, but it's so incredibly difficult, or damn near impossible, to generate clean, pure alpha! As mentioned, the 4-factor model explains 95% of returns, and with all the work that has come after, probably 99% of returns have been explained as beta. The remaining 1% of alpha - meh, what if that came from pure dumb luck?
Is the only true way to innovate, to identify way in advance, future beta factors that are poised to outperform? Like what Ben Graham did, ingeniously, in the 40s. Why wasn't there a Ben Graham-like character, for the other premia - momentum or size, for example?
And factor management - allocating to value, momentum, size, whatever. What if after all that, it all converges to the S&P? Lol. Can a multi-style fund counter that problem?
January 6, 2022
When first seeing the layout of the book, I thought it was strange that almost half of it is comprised of appendixes. But after reading it that makes sense.
The authors allocated chapters for the factors that they found to be reliable (according to a well-defined set of rules), and the more common unreliable ones are analyzed in the appendixes*.
This is pretty smart, because the book gets very technical at times, and those who are not interested in all the details can skip them and can almost draw the conclusions only from the chapter names :)
The only downsides of the book for me were that:
- the title of the book leads you to think that it's more of a practical guide, but its far from that; the only thing that comes close to that are two small examples of using factors together
- they didn't go into much detail about how the factors are integrated into more recent asset pricing models, like the q-factor model or the Fama-French 5-factor model; for those interested, I found a (slightly outdated but nice) blog article about it: https://alphaarchitect.com/2017/02/03...
In conclusion a very useful read if you want to have a better understanding of factor investing.
* With the exception of trend following. It is treated in an appendix, even though it is a strategy that works, because it can't be analyzed with the same criteria as the usual factors.
The authors allocated chapters for the factors that they found to be reliable (according to a well-defined set of rules), and the more common unreliable ones are analyzed in the appendixes*.
This is pretty smart, because the book gets very technical at times, and those who are not interested in all the details can skip them and can almost draw the conclusions only from the chapter names :)
The only downsides of the book for me were that:
- the title of the book leads you to think that it's more of a practical guide, but its far from that; the only thing that comes close to that are two small examples of using factors together
- they didn't go into much detail about how the factors are integrated into more recent asset pricing models, like the q-factor model or the Fama-French 5-factor model; for those interested, I found a (slightly outdated but nice) blog article about it: https://alphaarchitect.com/2017/02/03...
In conclusion a very useful read if you want to have a better understanding of factor investing.
* With the exception of trend following. It is treated in an appendix, even though it is a strategy that works, because it can't be analyzed with the same criteria as the usual factors.
January 2, 2021
Um dos melhores livros do ano. Sabe aqueles livros que vc enche de anotações? Esse foi o caso.
O livro traz excelentes compilações sobre estudos acadêmicos relacionados ao chamado "factor investing".
Os autores mostram mais de 100 trabalhos acadêmicos sobre finanças e apresentam cinco critérios exclusivos que um fator deve atender para ser considerado digno de investimento.
Segundo os autores, para fornecer poder explicativo aos retornos do portfólio e entregar um prêmio, argumentam que um fator deve ser: 1) persistente, 2) abrangente, 3) robusto, 4) investível e 5) intuitivo.
Os três fatores mais demandados são: Valor, Momento e Qualidade/Rentabilidade. Aqui talvez a gente consiga entender um pouco do racional da rotação de portfólio além do intuitivo.
O livro em si tem 198 páginas. Todavia traz apêndices super interessantes que totalizam ao redor de 325 páginas. Os apêndices são essenciais na obra na minha opinião.
Legal livros que enchem a cabeça de ideias. E mostram o longo caminho do aprendizado em nossas vidas, o quanto temos que ser humildes diante do conhecimento para absorve-lo
O livro traz excelentes compilações sobre estudos acadêmicos relacionados ao chamado "factor investing".
Os autores mostram mais de 100 trabalhos acadêmicos sobre finanças e apresentam cinco critérios exclusivos que um fator deve atender para ser considerado digno de investimento.
Segundo os autores, para fornecer poder explicativo aos retornos do portfólio e entregar um prêmio, argumentam que um fator deve ser: 1) persistente, 2) abrangente, 3) robusto, 4) investível e 5) intuitivo.
Os três fatores mais demandados são: Valor, Momento e Qualidade/Rentabilidade. Aqui talvez a gente consiga entender um pouco do racional da rotação de portfólio além do intuitivo.
O livro em si tem 198 páginas. Todavia traz apêndices super interessantes que totalizam ao redor de 325 páginas. Os apêndices são essenciais na obra na minha opinião.
Legal livros que enchem a cabeça de ideias. E mostram o longo caminho do aprendizado em nossas vidas, o quanto temos que ser humildes diante do conhecimento para absorve-lo
November 28, 2023
The author does an excellent job of explaining the concept of factor-based investing in a clear and concise manner. Factor-based investing, also known as smart beta or strategic beta, is an investment approach that allows investors to construct portfolios based on specific factors such as value, momentum, size, or quality. The book goes into detail about each factor, explains how it works, and provides real-life examples to illustrate its effectiveness
One of the things I appreciate most about this book is that it not only explains the theory behind factor-based investing, but also provides practical guidance on how to implement it. The authors provide step-by-step instructions on how to construct a factor-based portfolio, including selecting factors, choosing the right securities, and rebalancing the portfolio over time. This hands-on approach makes the book accessible to both novice and experienced investors
One of the things I appreciate most about this book is that it not only explains the theory behind factor-based investing, but also provides practical guidance on how to implement it. The authors provide step-by-step instructions on how to construct a factor-based portfolio, including selecting factors, choosing the right securities, and rebalancing the portfolio over time. This hands-on approach makes the book accessible to both novice and experienced investors
July 18, 2018
A solid book on the performance of the factor investing. Authors summarized tens of published academic papers and give you the essence of them in a short reading.
They started with Fama-French factors, one by one, added other factors, offered the academic literature on each one and provided the performance of using that factor in addition to other factors.
It's not a reading for beginners, you need to have a basic understanding of investment theories.
They started with Fama-French factors, one by one, added other factors, offered the academic literature on each one and provided the performance of using that factor in addition to other factors.
It's not a reading for beginners, you need to have a basic understanding of investment theories.
June 2, 2020
Great review of financial literature on factor investing, it's also a good start to get feet wet on factor investing and why the factors indeed exist.
The authors show rich data to demonstrate the persistence, pervasiveness, robustness and investability of the 7 most important factors. They also explain the existence and persistence using behavorial or risk-based explanations which builds confindence on the persistence of factor-investing for the future.
The authors show rich data to demonstrate the persistence, pervasiveness, robustness and investability of the 7 most important factors. They also explain the existence and persistence using behavorial or risk-based explanations which builds confindence on the persistence of factor-investing for the future.
July 5, 2021
The book provides a good explanation of what factor-based investing is and the research behind it, but I'm not sure it added much value for me. If you're already familiar with the concepts and research supporting factor-based investing, the book likely won't do much to change your existing knowledge or feelings towards it. If you don't know anything about factor-based investing, the book will explain all of the theories and research, but in a rather academic manner.
Read
December 16, 2021The authors provide a comprehensive review of many topics related to factor investing. Their analysis includes extensive discussion on current and past articles in various financial journals of repute. I liked the fact the evidence cited by authors have substantial backing in the financial literature.
November 25, 2020
Great overview of different investing factors including market beta, momentum, value, small cap, quality and why investors should use diversify across factors rather than be exposed to only one (market beta).
January 11, 2022
Very interesting book. Well researched, well written. To get the most out of the book, you need familiarity with finance and statistics, but if the title attracts you, you’re probably where you need to be! Highly recommend the book.
January 26, 2022
I was told this book would make the case for factor-based investing, but I think you would have to be a fund manager to follow the logic. Very difficult to read. But at least I know what factors ARE now.
April 19, 2018
Great summary of the factors that influence equity returns, from academic literature. Includes new factors such as the quality anomaly.
May 12, 2020
Great book on factor investing with lots of stats. Over 100 references to academic papers.
September 3, 2021
Muy interesante. Te da las bases teóricas para que tú puedas seguir indagando y ponerlas en práctica.
April 26, 2022
Good, interesting, digestible yet not sacrificing depth
August 19, 2023
Too detailed for amateurs but not deep enough for professionals. Still a very good guide for further learning.
July 22, 2025
2. Mal gelesen
Das Buch ist ein bisschen langweilig aber ein Anstoß dafür historisch funktionierende und logische Faktoren mit ins Portfolio auzunehmen, um die Rendite zu maximieren.
Weil ich das gerne extrem einfach halten will habe ich einen Multifaktor ETF mal mitreingenommen. Mal gucken ob das die kleine zusätzliche Komplexität wert ist.
Das Buch ist ein bisschen langweilig aber ein Anstoß dafür historisch funktionierende und logische Faktoren mit ins Portfolio auzunehmen, um die Rendite zu maximieren.
Weil ich das gerne extrem einfach halten will habe ich einen Multifaktor ETF mal mitreingenommen. Mal gucken ob das die kleine zusätzliche Komplexität wert ist.
This entire review has been hidden because of spoilers.
November 27, 2020
This book introduce me to the factor investing. In my opinión its a well explained book and it has many articles that supports the idea of investing in value, momentum, quality, size, etc.
This book is a good strategy in long term and can reduce the volatility in your portfolio.
This book is a good strategy in long term and can reduce the volatility in your portfolio.
December 12, 2016
This book is just a summary of several academic papers. Fairly useless read in my view.
August 3, 2025
Good review of scientific studies on factor investing. For individual investors is suited for intermediate to sophisticated understanding of markets.
April 5, 2017
Good content but probably too much information for your average person.
Displaying 1 - 24 of 24 reviews