Elon Musk, Mark Cuban and this Guy…

by Investing Reimagined

The educational portion of this week’s newsletter covers factor investing

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It was only a matter of time before Guy Fieri stood amongst these two billionaires

In 3:18 seconds, you will learn:

  • 5 headlines that pretty much sum up the week
  • Which restaurant is giving away free burritos to health care workers
  • An introduction to factor investing
  • Our rec of the week

This happened...

Five headlines that sum up the week 🚀 📈

1. Apple’s Q1 earnings were significantly higher than forecasted

Apple’s Q1 earnings beat all expectations across the board. Its revenue was $89.58 –  a 54% increase from the previous year – beating Wall Street’s expectations of $77.36 billion. Additionally, Apple has authorized $90 billion in share buybacks and is  increasing its dividend by 7% to $0.22 per share. The white knight of Q1 was definitely the iPad, which saw a 78.9% year-over-year increase in revenue.

2. Alphabet announces third straight quarter of record-breaking profits

The parent company of Google announced on Tuesday that its revenue for Q1 was $55.31 billion – an increase of 34% in comparison to the previous year. The primary source of this record success can be credited to its advertising business, in which its revenue increased by 32%. Looking at YouTube ads specifically, which was $16 billion last quarter, it grew by 49%. Naturally, its shares have jumped.

3. Ascend Wellness raised $80 million for its upcoming IPO

As more states have moved to legalize marijuana, investors can expect to see IPOs from cannabis companies like Ascend Wellness, which recently filed in both the U.S. and Canada. As of this week, its IPO on the Canadian Securities Exchange has been priced at $8 per share under the ticker symbol AAWH. You won’t find AAWH listed on the NYSE, however. Investors will only be able to find the stock in U.S. over-the-counter (aka penny stock) markets. Whether its initial offering will come at $8 a piece is still unknown – Ascend is currently in the process of being quoted by OTC Markets Group (OTCQX). We will know more shortly after May 4, when the offering closes.

4. The F.D.A wants to ban menthol-flavored cigarettes

Yesterday, the F.D.A. announced its plans to propose a ban on menthol-flavored cigarettes. Currently, menthol is the last remaining flavored cigarette available for purchase in the U.S. If passed, it is expected to have huge effects on the tobacco industry, as nearly one third of all cigarettes sold in the U.S. are menthol.

5. Amazon will increase wages for 500,000 workers

Does this mean that the $15 minimum wage will finally become a thing? Not exactly. However, the company did decide to reschedule its annual fall pay review its for customer, fulfillment, delivery, an package sortation teams as it plans to roll out $0.50 to $3 pay increases in May. This has been timed to align with its massive hiring spur of an additional 500,000 employees.

ICYMI: Chipotle is giving out free burritos to health care workers

Whether they’re collabing with E.L.F. cosmetics or simply giving it away for free, Chipotle knows just how much we love its burritos. Health care workers can sign up for a free burrito by visiting its Chipotle Gives website. The company plans to give out a total of 250,000 burritos. Customers are also invited to submit notes of thanks on a virtual “Wall of Gratitude.” 

This move only boosts customer loyalty. With 21 million already enrolled in Chipotle’s loyalty program, the company has been able to expand its revenue, retain existing customers and maximize communication efforts with those who are the most engaged.

It’s clearly effective. Chipotlet’s Q1 earnings reported a 17.2% increase in same-store sales and a 133.9% year-over-year growth in digital sales. CEO Brian Niccol credits its loyalty program – which, by the way, has only been around for 25 months.

Chipotle is not the only company to offer complimentary food to health care workers. In fact, McDonald’s started giving “Thank You Meals” to responders, health care workers and police officers just last week. According to this Thrillist article, Krispy Kreme, Cumberland Farms, Nando’s PERi-PERi, Bonefish Grill, Delta Sonic and Steak N’ Shake are also giving away free meals. Considering these individuals risk their lives everyday to help save as many lives as possible, covering the tab is the least we can do.

Today I learned...

Why factor investing can help keep your emotions in check

Factor investing meme

TL;DR

Factor investing is a rules-based approach that aims to remove unintended biases and subjective judgment calls. Done correctly, a multi-factor investment strategy can lead to broader diversification, lower security-specific risk over extended time frames, and the potential for greater long-term profits.

Factor investing is an investment approach that selects securities based on factors historically linked with high returns and lowered risk. In particular, factor investing provides a targeted method to enhance diversification and mitigate losses due to asset correlation.

While the approaches may vary, the goal of each is the same: to increase diversification, generate higher returns, and reduce risk.

GIF about factor investing

What is factor investing?

Think of factor investing like a filter for potential securities. You start by selecting a factor, such as low volatility, value, or momentum. Then, you pour prospective investments in – and see what filters into your portfolio.

In this way, factor investing allows investors to either streamline their portfolios toward specific outcomes or target broader – but still well-defined – goals.

Regardless of the specifics of your desired outcome, the overarching goals of factor investing often remain the same:

  • Outperform the broader market
  • Enhance or contribute to diversification strategies
  • Control or reduce risks
  • Lower overall portfolio costs

Historical performance of factor investing ETFs

Source: Visual Capitalist

The “Factors” of investing

There are literally hundreds of factors you can consider in building a factor investing strategy. These are the “big five” systematic factors upon which many factor approaches are founded.

  • Value: Aims to capture returns from undervalued stocks
  • Momentum: Filters out those securities that outperform the market in the past three to twelve months – while tossing the underperformers by the wayside
  • Size: Helps you determine which stocks have greater growth potential according to a company’s market capitalization
  • Low volatility: Tends to yield greater risk-adjusted returns than high-volatility assets (though, admittedly, they’re less exciting)
  • Quality: Simply put companies that generate superior profits, maintain low debt, and demonstrate strong corporate governance often prove more consistent in the long-term

Why factor investing?

Factor investing aims to remove unintended biases and subjective judgment calls in favor of a rules-based approach. Instead of picking strategies that fit your stock selection, you’re screening stocks by strategy. Stocks that meet the baseline characteristics based on objective, quantitative data and performance make the cut – and everything else falls by the wayside.

Done correctly, a multi-factor investment strategy can lead to broader diversification, lower security-specific risk over extended time frames, and the potential for greater long-term profits.

The bottom line

Factor investing can lead to higher returns, more diversification and, most importantly, a decision-making process that eliminates the dreaded emotional sell-off many investors experience when we see a sudden decline or a fear-inducing headline. If you’re curious about factor investing but don’t want to manage your own portfolio, adding a Factor ETF to your portfolio is always an option at your disposal. 

The future of factor investing

Source: Visual Capitalist

Visit our Learning Center for the full “Investing Explained” resource

Learn more about factor investing

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