Jose Ordonez, Author at Alpha Architect

Why the 351 Exchange Might Revolutionize Investing

The 351 exchange seems to be gaining real traction. A section 351 exchange allows investors to exchange property for shares of a new company. In the case of ETFs, investors are able to exchange their appreciated holdings for shares of a new exchange-traded fund without immediately triggering capital gains, if rules and tests are met. Still, many are wondering what the basis is for using a century-old tax rule and applying it to a modern investment wrapper. More importantly, if 351 exchanges are not tools for achieving portfolio diversification, why are they being used to seed ETFs?

Mean Reversion in Play: Carry is BACK?!

Why is carry doing so well? How did this convergent strategy end up benefiting from one of the biggest geopolitical shocks in modern times? By examining this question, investors will be better informed about how to build better portfolios and whether carry should have a strategic slice of the portfolio pie.

The Return of the King: Trend Following Is Back – But Will It Last?

Trend following is finally moving while U.S. stocks are flat. And so—like with most assets or strategies that post strong returns—investors may be eyeing this particular strategy and asking: Is it time to get in? The answer, while not surprising, is definitely nuanced.

The Long Volatility Premium: Short the Market, Get Paid?

Long volatility should be considered a factor that earns positive returns over the long term. At least that's what One River Asset Management’s Patrick Kazley suggests in his piece "Heretical Thinking: The Long Volatility Premium"

Is Value Investing Dead?

After years in what can be now called one of the worst (if not the worst) period for value investing, many investors have packed their bags and called it quits. We’ve heard this be said over and over again; and yet, many of their arguments look extremely compelling. So are they in the right? Let's examine.

Is It Too Late to Buy Gold?

Gold has jumped from sleepy sideshow to dominant market narrative in a short span of time. For years, owning gold did not move the needle, and only introduced unnecessary noise to investors' portfolios. Then, in 2023, things started silently shifting in the background. Today, after a parabolic mid-summer move followed by a short correction, investors are now asking themselves: is it too late to buy gold?

Are U.S. Stocks Running Out of Steam? A Deep Dive into Valuations and Market Concentration

We're going to examine the market’s current concentration and valuation to better understand return expectations going forward. But reader beware; this isn’t some bold macro prediction to scare you away from sensible investing. It’s a reminder that markets move in cycles, valuations eventually matter, and history has a way of humbling even the most confident forecasts.

A Narrow Escape or Just a Delay? Why the Liberation Day Crash Still Matters Today

On April 2nd, President Donald Trump announced sweeping tariffs against nearly every foreign economy. A blanket 10% tariff applied to all imports, even from places like the Heard and McDonald Islands, which have no permanent residents, and up to 50% for specific countries like Lesotho, Cambodia, and Vietnam. The reaction was immediate. Stocks cratered, risk assets sold off, and confidence evaporated almost overnight. Why such a sharp response? Tariffs themselves aren’t new; countries use them all the time. But this felt different, and for investors, it raised an unsettling question: was this another 2020-style shock in the making, or just a temporary scare?

Buy and “Hold On for Dear Life”? Think Again!

Today, phrases like “HODL” and “buy the dip” have become rallying cries for equity investors. But is this mindset always correct? Could there come a time when buying dips or holding at all costs turns out to be a mistake? To dig deeper, let’s look at insights from Michael Mauboussin and Dan Callahan’s recent paper, Drawdowns & Recoveries: Base Rates for Bottoms and Bounces, and consider what the evidence tells us about the nature of drawdowns and recoveries.

Improving Buffer Strategies: Pay Attention to the Tails!

Buffer ETFs have become one of the fastest-growing product lines in finance. But what risks are buffer investors carrying without realizing it? Let's zoom in on the two areas where they fall short and propose potential solutions that seek to address these issues.

The Problem with Buffer ETFs: Cap the Upside & Expose the Downside

On the surface, buffer ETFs appear attractive: they seek to capture some upside while mitigating a portion of losses. However, this does not mean they are risk-free. In fact, under certain market conditions, these products can significantly underperform.

How Buffer ETFs Promise to Protect You (and Why They Can’t Do It All)

Buffer ETFs have moved from niche idea to mainstream product in just a few years. That’s not just growth—it’s a trend! But what’s behind it? Are buffer ETFs a breakthrough in risk management… or are they more complex and potentially riskier than they appear?

How Many Stocks Should Be In Your Portfolio? A Practical Guide to Portfolio Construction

Diversification is the only free lunch in investing. If you’ve spent even a day exploring the world of finance, you’ve likely encountered this common truism. But chances are, you’ve also heard stories of someone turning a small stake into millions by going all-in on just one or two stocks. That contrast raises a natural question for many investors: how many stocks should I actually own in my portfolio? Too many stocks, and you might be leaving opportunities on the table. Too few and you risk losing your shirt! So how do we strike a balance?

Should Investors Combine or Separate Their Factor Exposures?

If you’re a factor investor, there will come a time where you will have to choose between mom and dad: Should you combine or separate your factor exposures? And make no mistake: You will have to make a decision! While there’s no right answer, the way you structure your portfolio can have significant implications for returns, costs, and even your own behavior as an investor. Let’s walk through the logic behind both approaches.

Can Modern Portfolio Theory Still Teach Us Any Lessons Today?

Modern Portfolio Theory (MPT) has long served as a foundational framework for asset allocation and portfolio construction. This concept remains influential in both academic finance and practical investment management. But the question investors face today is not whether MPT was revolutionary—it clearly was—but whether its insights still hold up under real-world conditions, decades later.

What Is an Exchange Fund? A Way to Diversify Without Triggering a Tax Bill

Investors with large, concentrated stock positions often find themselves stuck between a rock and a hard place. On one hand, holding on to a single stock position exposes them to unnecessary risk. On the other, selling that stock can mean paying a hefty capital gains tax bill. What most investors don’t realize is that there’s a third option—a relatively obscure yet entirely legitimate strategy that can help diversify away single-stock risk without triggering immediate taxes: exchange funds.

Cut Through the Noise! These Two Factors Tend to Drive Portfolio Success

Let’s break down how to build a robust factor portfolio—without getting lost in the weeds. We investigate which equity factors have the strongest historical returns and diversification benefits from a long-only perspective.

Investing Isn’t About Being Mostly Right

Investing isn’t about being mostly right. In fact you can be mostly wrong and beat portfolios that were mostly right! Today, we’ll explore how investors can potentially improve portfolio outcomes by targeting two seemingly contradictory but deeply complementary systems as outlined in the latest Mauboussin-Callahan paper, Probabilities & Payoffs: The Practicality and Psychology of Expected Value. But understanding this counterintuitive reality requires a shift in mindset—one that embraces uncertainty and focuses on the power of diversification.

Anti-Dividend Investing: Yield Matters—But Not How You Think!

Dividends are the comfort food of investing. Who wouldn’t love feeling like they’re getting a seemingly “free” payout just for holding onto a stock? As with all good things, there's a little more—perhaps a whole lot more—to the story. Here’s why: even in a tax-free setting, selling stocks before dividend payouts can lead to abnormal returns.

What is Trend Following? A Painful Journey to Smarter Investing

Trend following, at its core, is a strategy where investors buy an asset when it's going up and sell when it’s going down. But unlike panic-driven investors who sell at the worst possible moment, trend followers adhere to a rules-based approach in an attempt to remove emotion from the equation.

About Jose Ordonez

Are You Ready to Become a Better Investor?

Important Disclosures

joseordonez

About Jose Ordonez

Are You Ready to Become a Better Investor?

Important Disclosures