DIY Financial Advisor

WESLEY R. GRAY, PHD, is the founder of Alpha Architect, LLC, where he is the executive managing member. Dr. Gray is the co-author of Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors. JACK R. VOGEL, PHD, is a managing member of Alpha Architect, LLC, where he heads the research department, writes papers on empirical asset pricing, and serves as the Chief Financial Officer. DAVID P. FOULKE is a managing member of Alpha Architect, LLC. He assists in business development, firm operations, strategic initiatives, and developing papers on quantitative investing and behavioral finance topics.

• Preface xiAcknowledgments xiiiPart One Why You Can Beat the Experts 1Chapter 1 Are Experts Trying Too Hard? 3Why Do We Rely on Experts? 6What Are the Experts’ Incentives? 9Are Experts Worthless? 11The Expert’s Hypothesis 13Summary 14Notes 15Chapter 2 Simple Models Typically Beat the Experts 17The Evidence Shows… 20A Study of All the Studies 21What if Experts Have the Model? 23But Investing Is Different, Right? 24Why Experts Fail to Beat Models 26Summary 28Notes 29Chapter 3 Experts Are Biased and Overconfident 31The Biased Brain 33Summary 47Notes 48Chapter 4 Experts Tell Us Stories, Not Facts 49Story-Based Investing 52Evidence-Based Investing 53The Recap: Why Experts Fail 60Why Not Use Models? 62Summary 63Notes 64Part Two How You Can Beat the Experts 67Chapter 5 A Framework for Investment Decisions 69Assessing an Advisor Is Difficult 71The FACTS Framework 75We’ve Got the FACTS: Now What? 86Summary 90Notes 90Chapter 6 A Simple Asset Allocation Model That Works 91Asset Allocation 95A Simple Asset Allocation Model That Works 98But Which Assets Do We Choose? 103Summary 104Notes 105Chapter 7 A Simple Risk Management Model That Works 107A Simple Risk Management Model That Works 109How Does ROBUST Work? 113Summary 121Risk Management Research (For Geeks Only) 121Notes 129Chapter 8 Simple Security Selection Models That Work 133Value Investing 134Momentum Investing 140A Simple Momentum Model That Works 146Combining Value and Momentum 148International Stocks 151Get ‘Er Done 153Summary 154Notes 154Chapter 9 The Do-It-Yourself (DIY) Solution 157Exploring a Simple Equal-Weight Five Asset Class Model 159Enhancing the Ivy 5 Concept 163Finish Strong: The Ultimate DIY Solution 171Get ‘Er Done 175Notes 176Chapter 10 Some Practical Advice 179Three Reasons We Will Not Be a DIY Investor 180Three Reasons You Might Fail 183But Don’t Lose Hope! 185Is DIY the Only Solution? 186Notes 187Appendix: Analysis Legend 189About the Companion Website 191About the Authors 193Index 195

Select Guide Rating