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As we recorded Episode 28 on Halloween, it starts with Meb referencing his costume from the prior weekend\u2019s festivities. Can you guess what it was? He stayed true to his financial roots, dressing as Sesame Street\u2019s \u201cCount von Count.\u201d (Sorry, no photographs.)\nBut the guys jump in quickly, beginning with the subject of Larry\u2019s 15th and latest book \u2013 \u201cfactors.\u201d Larry tells us that the term \u201cfactor\u201d is confusing. He defines it as a unique source of risk and expected return. So which factors should an investor use to help him populate his portfolio? Larry believes there are 5 rules to help you evaluate factors: 1) Is the factor \u201cpersistent\u201d across long periods of times and regimes? 2) Is it \u201cpervasive\u201d? For instance, does it works across industries, regions, capital structures and so on. 3) Is it \u201crobust\u201d? Does it hold up on its own, and not as a result of data mining? 4) Is it \u201cintuitive\u201d? For instance, is there an explanation? 5) Lastly, it has to be \u201cimplementable,\u201d and able to survive trading costs.\nThe guys then switch to beta. Larry mentions how valuations have been rising over the last century. He references how CAPE has risen over a long period, and points out how some people believe this signifies a bubble. But Larry thinks this rising valuation is reasonable, and tells us why. Meb adds that investors are willing to pay a higher multiple on stocks in low-interest rate environments such as the one we\u2019re in.\nNext, Meb directs the conversation toward a sacred cow of investing \u2013 dividends. He asks about one particular quote from Larry\u2019s book: \u201cDividends are not a factor.\u201d Larry pulls no punches, saying, \u201cthere is literally no logical reason for anyone to have a preference for dividends\u2026\u201d He believes investors over overpaying for dividend stocks today. He thinks it\u2019s unfortunate the Fed has pushed investors to search for yield, inadvertently taking on far more risk. Dividend stocks are not alternatives to safe income. There\u2019s plenty more on this topic you\u2019ll want to hear.\nEventually the conversation drifts back toward market values. Larry tell us that when the PE ratio of the S&P has been around its average of 16, it has about a 7% expected return. So now that the CAPE is roughly 25, and the expected real return is around 4%, some people are shouting \u201cSell! Huge crash coming!\u201d Larry disagrees and tells us why.\nBut the guys just can\u2019t leave dividends alone. They swing back toward the topic, with Larry telling us the whole concept of investors focusing on dividends literally makes no sense. If you want a dividend, create your own by selling the commensurate number of shares.\nThere\u2019s far more in this episode that you don\u2019t want to miss: the correlation of value and momentum\u2026 trading costs\u2026 the use of CDs in your fixed income allocation\u2026 corporate bonds and an eroding risk premium\u2026 the state of the ETF industry 10 years from now\u2026 There\u2019s even a warning \u2013 if a former Miss America is pitching you a mutual fund, beware\u2026 In what weird context does that advice apply? Find out in Episode 28.\nLearn more about your ad choices. Visit megaphone.fm/adchoices