Value, Momentum or Both?
Value, Momentum or Both?
Join SmartBe Investments Chief Strategy Officer Mr. Gavin Graham for an informative
and insightful conversation about concentrated factor investing with Dr. Wes Gray, PhD
and CEO of Alpha Architect. Regarded for their depth of academic and practical market
insights the two opine on the realities of index investing, the case for the “value” factor,
and the prudence for diversification amoung “value” and “momentum”. All this and more
in this segment of the Gavin Graham Show.
About the Speakers
About the Speakers
About Wes Gray, PhD (CEO), Alpha Architect
After serving as a Captain in the United States Marine Corps, Dr. Gray earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. Next, Wes took an academic job in his wife’s hometown of Philadelphia and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management firm dedicated to an impact mission of empowering investors through education. He is a contributor to multiple industry publications and regularly speaks to professional investor groups across the country. Wes has published multiple academic papers and four books, including Embedded (Naval Institute Press, 2009), Quantitative Value(Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016). Dr. Gray currently resides in Palmas Del Mar Puerto Rico with his wife and three children.
Mr. Graham joins SmartBe with over 30 years of experience in Canadian and international markets. A graduate of Magdalen College at the University of Oxford, Mr. Graham has directed investment strategy at numerous institutions, such as the Guardian Group of Funds in the UK and BMO Asset Management in Canada. In addition to his position at SmartBe, he serves as a contributing editor to The Income Investor, a respected online Canadian investment journal. The Gavin Graham Show is a platform for Gavin to share his wealth of knowledge with the SmartBe community, as well as engage in stimulating conversations with peers and thought leaders.
[00:00:00] Gavin: Welcome to The Gavin Graham Show, sponsored by
SmartBe. Today we are delighted to have back on the show, Wes Gray, from
Alpha Architect who are of course responsible for the factor based investing,
which SmartBe uses in its Canadian ETFs. Wes, could I just, for those who
might not be familiar with your Alpha Architect and your background, give a
very brief sort of personal history and how the firm got to where it is now.
[00:00:30] Wes: Yeah, sure. So nickel tour is my background. I was in the
military for a while and then I did my PhD, University of Chicago, in finance.
Got brainwashed by Professor Fama in the ways of efficient markets. Didn't
wanna agree with him. So ended up going out into the real world. We got seded
by a huge fan office in 2000.
[00:00:49] For our quantitative value strategy, which obviously SmartBe knows
very well. And then we just built the business up. We have, right now, we're
sitting on around probably a billion dollars in Alpha Architect assets across
SMAs and our ETFs. And then we also run an infrastructure business where we
help other people launch ETFs and that has probably also around a billion
dollars, so $2 billion in total.
[00:01:10] And we're a focus factor quant shop. Just based on our own internal
research. And, you know, what we've been studying for the past 20 years
[00:01:18] Gavin: And of course you now have a dozen years of actual track
record for the Value Strategy, almost as long as I think for the . Momentum. But
could you briefly explain for our listeners why those two factors, Value and
Momentum, are the ones that you have decided that you should use in the
products that you produce or sponsor?
[00:01:38] Wes: So we invest all of our own personal capital in our own
products. And when we originally set out to build these things, I had never been
in the industry. I just knew the deep research of, you know, the different things
that people talk about, do studies on, with respect to buying cheap stocks that
are known as Value Investing and buying winners, stocks that have done well
relative to others' past history.
[00:02:00] That's where all the evidence is. That if you're a long term investor
and you want to try to beat the market, earn excess returns. Those are the two
core strategies that you'd want to focus on. So obviously me being someone
who has got a long horizon and I'm trying to earn higher returns, we built these
portfolios with that thought in mind.
[00:02:18] And so that's why we focus on Value Momentum in particular,
because those are two factors that are just designed to try to generate excess
return, you know, over a full market cycle. That doesn't mean it happens,
obviously, every single day or every single quarter. Clearly, you know, if you've
been doing Value Investing in research memory, you know that full well. But
the concept is over a long haul
[00:02:38] Value Momentum are kind of these edged bets, not guaranteed bets,
more often than not, are going to give you opportunity to outperform.
[00:02:44] Gavin: And again, you said that is beating the market, which I know
to a lot of investors is not quite heresy, but it's very difficult to consistently beat
the market. Very few active managers do it, therefore it makes sense to actually
buy a very low cost passive investment and leave it there. Which has worked
wonderfully well for the last decade because we had a bull market.
[00:03:02] Would you now say that the more volatile markets we are seeing are
helping to maybe convince people that perhaps there is some value add to active
strategies that try to add value.
[00:03:12] Wes: Yeah, certainly in recent memory factors are terrible. And then
fast forward like here to the last year and a half, all the things that we do are
starting to work again.
[00:03:21] So I think it's like anything in life, if someone wants to have like a
big slug of passive, just kind of like throw away the key, not think about it.
That's probably reasonable. But I do think factors, specifically like Value
Momentum strategies, are just good for a broader diversification situation where
if you know there's opportunity to take advantage of different edges in the
market and you know that they're not perfectly correlated with the broad
market, it makes sense from a portfolio theory to pull those together with your
passive to try to win over the long haul.
[00:03:51] And we're seeing a perfect example of why that's the case the last
year and a half here.
[00:03:56] Gavin: Absolutely because, as you say, whether it's Value or
Momentum are not perfectly correlated with the market. Even if you're not
necessarily outperforming the market, just having something that doesn't zig in
exactly the same way as the market but maybe zags alittle will reduce the
overall volatility of your portfolio.
[00:04:11] So as you say, NPT would indicate that's a good thing to have. As
you say, the last year and a half, really since SmartBe started because I think we
are launched our factory ETFs in February 2021 up here in Canada, it's really
been a perfect example to demonstrate that passive investing is not necessarily
going always to be the best choice.
[00:04:31] Would you care to think about why that might be the case? Do you
think perhaps that the fact that we're moving out of that very low interest rate
regime that central banks have had for so long might be contributing to that?
[00:04:42] Wes: So I would say stepping back, you know, obviously you
always wanna think about like your fees and taxes and all those things, because
you know even in the best strategy in the world if you have the fees way too
high or the taxes way too wrong, you can screw it up.
[00:04:54] But, you know, assuming you're doing it reasonable like we all do,
the best way to think about a passive portfolio is through the lens of factor. And
you're looking at an index, it's usually gonna be a market cap weighted
portfolio, where essentially what that is through a factor lens is you're buying a
mega cap, slightly expensive portfolio.
[00:05:14] That's what the S&P 500 is. And so to the extent that you believe
that buying ultra mega cap, really large companies that are pretty expensive is a
good long term investment strategy. Well God bless you! You know, go on
passive portfolios because that's what you're buying is mega cap expensive
[00:05:32] But to the extent you think that maybe that's not the only game in
town. And maybe you wanna buy cheap, high quality portfolios. I.E. Value.
And you think that that might be a better way to invest longer term. Obviously
you maybe wanna tilt away from mega cap expensive and maybe buy some
value exposure, sort of like a Momentum idea.
[00:05:50] If you believe that, you know, there's humans are out there and
they'd like to chase shiny rocks all the time, and you believe in like humans
staying alive in the marketplace, which I do, you know you'd also probably
wanna have some Momentum in your portfolio, because you're kind of front
running the herd of shiny rock chasers.
[00:06:07] I just think fundamentally like being a passive investor, you can't just
say, "Oh, I'm a passive investor. Who cares?" It's like, no, you're a passive
investor and you're buying really big overpriced stocks. Do you really wanna do
that? And just think about diversifying. Now, down to your question on interest
rates and how that affects like your investment approach, fortunately there's a
strong narrative that goes as follows. If I'm buying a value stock, usually those
are firms that actually make money and their cash flows have what they call low
duration. They're like firms that are already making money. They got slow
growth, but a lot of the cash flows come pretty early in their life cycle. Whereas
like a growth company is generally a firm that, you know, they're usually losing
money today, but they got really high growth.
[00:06:49] So in the future way out, they're gonna earn their cash flows. It's
called longer duration. If you know anything about interest rates, if you have
something that's exposed to duration, longer term data cash flows. If interest
rates go up a lot, that's gonna kill gross stocks, in theory, because their cash
flows are way out on the future.
[00:07:08] And if the interest rate goes up a lot, you have to discount them a lot
harder. Right? Versus a value firm, their cash flows are supposed to be coming
out in the short term. Well, if interest rates go up a lot that stinks, obviously,
becuase like everything gets discounted harder, but it's relatively less bad if it
happened to a gross stock.
[00:07:25] So that's like the theory, right? Higher interest rates should be
beneficial relatively to value stocks versus growth stocks. And that's a great
theory. The problem is in practice that correlation is very, very noisy. So the
correlation between, like, value spreads, like how value stocks do relative to
[00:07:45] and it changes in interest rates. I think it's like 0.1 or 0.2. So there's
certainly a relationship there and in recent memory it's been very strong. And so
broadly I say the relationship's not as strong as most people think. The funny
thing is that the question is why? Because that original theory of, well if I have
short duration cash flow and I have long duration cash flow, if interest rates go
up value should crush it relative to growth.
[00:08:09] Well that's a great theory. In practice, what happens is it turns out
that when you actually try to identify the realized duration of value stocks and
growth stocks, it turns out that they're actually not that different because growth
stocks are projected to have huge duration because it's projected that they're
supposed to have all this growth and all these future cash flows.
[00:08:30] The reality is, is most people just bought a Ponzi scheme. The cash
flows actually never realize, and they don't have the growth that the market paid
for, so that the duration ends up being very similar to value stocks. And so that's
why a lot of people have tried to reconcile the theory with the empirics.
[00:08:47] It's like, well, the theory assumes that growth stocks actually grow a
lot and earn cash flows out in the future. But in reality it's usually investment
bankers sold a bill of goods to someone about how this company's gonna grow
50% a year forever and make all this money in the future, and that actually
[00:09:03] Gavin: No, not everyone turns out to be Amazon.
[00:09:05] Wes: Yes! Yeah. That's like the one in a million. But people buy
these things as if they're like high probability events and they're just not.
[00:09:11] Gavin: Now I'm shocked that you would suggest investment bankers
might take advantage of investor naivety with greed and desire to buy shiny
[00:09:18] But having said that, while I know that as a firm Alpha Architect
doesn't try to make market calls obviously, but nonetheless you said that you
felt probably value did look attractive. And this is what, back in February,
March? It certainly does seem as though that's actually played out somewhat in
the last year or so.
[00:09:35] Wes: Yeah, and I would say that Value still looks attractive. There's
certainly a relationship and so at the margin, you know, I have to bet today on
something, I do think there is a small edge. If you said gun to my head Value or
Growth right now, well Value is probably going to do better because interest
rates are, you know, been moving up. And could keep going higher.
[00:09:55] But I just want to emphasize that's not, like, the relationship is not as
strong as like a guarantee, even close. It's like an edged bet, like a 51/49 type
thing. So that's interesting as far as like why Value might be a good tilt. But
what's more compelling, it was the reason that I suggested that maybe Value
had a better chance of beating growth in particular, is really just the valuation
[00:10:19] Just a recap, what does that mean? Well that means that if you look
at, say for example, the price to earnings ratio of a basket of cheap value stocks,
that PE ratio of that basket versus the PE ratio of like the most expensive stocks,
generally consider like the gross stocks, that spread was huge. It was like 99
percentile, you know, a year ago.
[00:10:40] And like anytime it spreads at like 99 percentile, again, not that it's a
guarantee, but it's like, okay, we're at extremes. On average, it seems like it's
heavily a loaded bet to keep in Value. Well, you know, now it's not 99%, now
it's like 96%. It's still really, really high. And that's just becuase Value firms
have been earning a lot of money.
[00:11:03] They've been fundamentally doing really well, but their prices
haven't moved too much, and so if you've been doing really, really, really good
fundamentally, your ease gone up a lot, but your price hasn't like gone up
correspondingly. Spread is still gonna be large. Obviously, value stocks have
done relatively well to gross stocks.
[00:11:19] It's still the case because they're fundamentals have reached so quick,
so fast, and prices haven't moved maybe necessarily as much that the value
spread hasn't collapsed. It's not like it's a 50 percentile. It's still at super elevated
level, so betting forward, you know, even though it always feels weird to bet on
something that's done well recently. In this situation the spread is still, like, in
nose bleed levels.
[00:11:42] I think you have an edge bet with tilt towards value stocks. Even
though it's done pretty good in recent memory.
[00:11:49] Gavin: No, that's a very interesting point to find that it's still that
elevated, even though as you say, firstly it's outperformed both in a relative and
in some cases an absolute sense. And secondly, the reason being that it's been
generating enormous quantities of earnings and cash. And going from there to
sort of sector specifics. It's fair to say, I think, that the value portfolio is,
whether it's US or Canada, the Canadian portfolios have 20 stocks and the US
portfolios have 50, which are rebalanced every three months, depending on
what the methodology shows.
[00:12:19] One sort of side note that financials aren't included in Value because
the process doesn't work for them, but energy has been overwhelmingly the
largest weight for the vast majority of the last few quarters. And in fact has been
getting even bigger, which would indicate that obviously those companies are
doing really, really well.
[00:12:38] Wes: Yeah, exactly. They're really cheap. And then, as . You know,
part of quantitative value process is we don't want just cheap. We also want
really cheap stuff that's got high quality. Either making money, killing it in the
marketplace. And energy, that's what they're doing right now, right? They're
still really cheap and they're absolutely killing it fundamentally.
[00:12:57] And so we are actually at our limit. We have internal sector limits.
We're already hitting those right now. Like our systems are saying buy even
more. ,But you know, we're never gonna go over like 20% in like a particular
GICS sector. You know, the system, if you just let it go free range would
probably say you should be 50% in like energy, materials. They're so cheap and
they're just killing it fundamentally. You know, we wanna manage like the risks
who're never too overloaded in one sector.
[00:13:23] Gavin: The prices really haven't moved, although they've done well,
they really haven't fully reflected exactly how good things are. Would that be an
indication of humans in the market being reluctant to extrapolate what has
traditionally been a very cyclical sector forward because there's no certainty that
it'll continue to be this good?
[00:13:41] Wes: Yeah, so I mean, that's one of the kind of the key explanations
for the value premium in general, right? It starts off, you get these stocks that
are really cheap, beat up, nobody wants them. Baby got thrown out with the
[00:13:54] But because these were like dirtball stocks that everyone hated it's
not like they wake up tomorrow and say, "This is Amazon." It's the slow like
buildup where, "Hey, this stock is really cheap and it's got really high quality.
It's making a ton of money." But, you know, there's like, "Ah, I don't believe it.
They need to be a tech company."
[00:14:12] And so you've got this perpetual kind of under reaction to like these
strong fundamentals, even though they're clearly there. And eventually, you
know, obviously if this continues which on average it usually does. The market
just continually underreacts. But at some point, you know, you get a market
psychology shift where you're like, "Oh wow. There's this stuff called real
companies that actually like make stuff and do stuff and build stuff, and they're
making a ton of money!" These tech schemes over here, "Oh wow. Those are
unprofitable. People are just burning money to get revenue. That makes no
sense." This is like a real business and all of a sudden you could get a sentiment
change where people are like, "Oh, this is actually exciting again."
[00:14:50] And then you get valuation shifts and that's where Value really kills.
If they're fundamentally doing well and you get a sentiment shift in the
marketplace where they go from like, eh, fuddy duddy loser stocks to this is the
new shiny rock. And then that delta in the valuation gap, that's where you get
like the big value runs where you get huge out performance.
[00:15:10] Obviously we're not there yet. We're in kinda like a mini
outperformance but, you know, if this plays out you could really be onto
something. You know, over the next say 5, 10 years I would say.
[00:15:19] Gavin: Indeed, because of course we had a somewhat similar
situation back in '99, 2000 with the internet bubble, and nobody wanted all
those boring old economy stocks.
[00:15:28] Wes: Yeah, exactly.
[00:15:29] Gavin: Yeah, they were very cheap. I mean, a number of value
managers, people like Jeremy Grantham, said it was probably the most difficult
period they'd ever had in their careers because you could not give this stuff
away. And then over the next decade, they absolutely outperformed by a mile
because, as you say, firstly they were doing well.
[00:15:45] But secondly, as you say, the market psychology changed. Would it
be fair to say you think we're in a somewhat similar situation now?
[00:15:52] Wes: I do. I mean you never know how the world plays out, but I
think you have a huge edge bet in saying that this is a replay of like a 2000 time
period. It used to be the case of, like, technology dominates everything. It's all
tech everywhere. Old school, fuddy duddy money makers are losers. Why
would you wanna do that? Now you're seeing the shift and I think if that shift
continues, which I think it probably will, you could get that valuation gap and
now you create like a Jeremy Grantham epic five year track record from 2000 to
[00:16:22] I'm not saying that's a guarantee, obviously, but if I was a betting in
person, you know, you need to place your bets. I think you have an edge
towards that narrative versus alternative narratives right now.
[00:16:33] Gavin: Indeed. And it's been interesting to observe for the
Momentum side of things, that they also have a big weight in energy and
materials as well, because obviously that's the stuff that has been outperforming.
So you're getting not merely the the Valuation side, but the Momentum side too.
[00:16:50] Wes: The best way to describe it, it's like the FOMO fund, the fear
of missing out. It doesn't care who you are, it's always gonna go for what's
exciting because you're trying to get ahead of where the shiny rock players are.
You know, fast forward a year and a half, two years ago, Trillo Shopify, all
these crazy things that, they're good companies obviously, but they don't make a
lot of money.
[00:17:09] They're shiny rocks at that time. And now it's like, nope, we don't
want any of those. Those are losers. Like we would own energy stock because
they got all the momentum. Momentum is meant to kind of shift where the
FOMO is and it's gonna be where that reside. And right now, like, to your point,
it's in energy.
[00:17:24] So there's, you know, Value, Momentum are in this hybrid situation
where they have overlap. And that always happens. Like there's always like in
crossings Value, Momentum, like, they come together and then eventually
they'll have like a separation. But we're just in a crossing that occurs through
[00:17:40] Gavin: No, it's also interesting to see that Momentum is almost
completely out of IT, out of technology now. You said that a passive portfolio is
effectively a mega cap, somewhat expensive portfolio, and that's worked
enormously well for a very long time. In fact, I think it's fair to say that last
year, 2021, almost all the performance of the market was, in essence, half a
dozen stocks. It was the FANG+ stories. If that is going away, and again we've
seen some fairly severe damage done, then where will the next market
leadership come from? Is there any indication from Alpha Architect's work? I
mean, apart from obvious things like energy and the rest of it, are we moving
towards mid-cap, small cap? Anything like that in terms of what the screens are
[00:18:24] Wes: So what I would say, like obviously this is just long term,
evidence based, but that doesn't mean anything could happen the next quarter,
year, or three years. To your point, what has worked recently? Well, there's
really three things. It's mega caps, it's U.S., and it's expensive.
[00:18:41] Historically mega caps and expensive is a terrible bet, but it's had a
great run. And then geographically, like the U.S. has obviously been on fire.
And so most portfolios, you look at them, they're like, "What do you own in
your portfolio?" They're like, "Oh, I own S&P 500." Well, guess what S&P 500
is? It's U.S. centric, it's expensive, and it's mega cap.
[00:19:03] But historically, why would you ever wanna have all your money in
on that bet? You should probably have international markets, right? You should
have some geographic diversification. And then what we're discussing here, you
should also have some fundamental factor diversification where you should also
think about like cheap companies that are doing well fundamentally I.E. value
investing. You should focus on stocks that are doing relative well, like with
Momentum. Because Momentum is gonna be a chameleon and kind of move to
where the market wants to go. And those are just historic strategies that make
sense. And so even if you like passive, which there's no issues with that because
it's cheap and it benchmarks well. You do want to diversify your exposure. So, I
would think that if I had to build a strategic portfolio right now and I could just
redo it all, I would certainly shift out of U.S.
[00:19:53] I wouldn't be a hundred percent S&P 500. And yeah, does Europe
look nasty? Is it like the worst scenario on the planet that even wanna turn on
the news over there? Of course not. But investing is all about like being ahead
of a sentiment change. So I would certainly suggest like not being all in U.S. is
probably not a terrible idea.
[00:20:12] You know, shifting out international geographics and then, you
know, it sounds like a broken record, but I would also not be in just mega cap
expensive stocks called passive indices, I'd probably get value cheap and I
would focus on Momentum, but those are just evergreen ideas.
[00:20:29] Gavin: Yeah, that's true. But one of the big attractions of
concentrated actively managed portfolios like the factor ETFs, is that you are
not getting that mega cap expensive exposure, you are actually getting
something, which, one, as we already discussed, diversifies your risk because
it's not correlated. So therefore your overall portfolio volatility is reduced. But
secondly, also it's a means of differentiating yourself from the herd.
[00:20:55] Wes: Yeah, yeah, of course. If you're gonna buy active factor funds,
you wanna do things that are actually gonna be different than what we're talking
about the mega cap expensive stocks. And that's why we focus on doing more
concentrated. focus factor portfolios because they're decidedly not going to be
even close to what the passive index is doing. And you know, the downside of
that is obviously they're gonna zig and zag all over those things cuz they're very,
very different than passive indices.
[00:21:22] But also, to your point, that's kind of the point. Like you'd use those
pooled together because then they kind of yin and yang. Well you know, one's
doing terribly, one's doing great, and it smooths out the ride and helps you kind
of risk manage your exposure over time.
[00:21:36] Gavin: Would you say that's perhaps one of the major difficulties of
persuading people to invest in this type of fund? That you are gonna look
different and, as you know, sort of investors, human beings as a whole, are very
much afraid of being out of step because there'll be times when you're wrong or
you are underperforming, shall we say. Is that, would you say, perhaps a single
biggest issue that you have?
[00:21:57] Wes: Yeah, it's all behavioural and obviously the solution to that is
you try to coach people. Do not look at just the pure value strategy strategy,
because that thing's gonna make you wanna cry, right? Do not look at like pure
momentum. That's gonna also make you want to cry at some point. How about
we look at it as a collective because that's how they're designed to be used is as
a combination. And look at the combination of the thing that's gonna be more
digestible to you.
[00:22:22] But you know, that's just hard to do. Cause people naturally wanna
focus on like a single line item. It's just a behavioural thing of trying to coach
them and get them sped up that, hey, we really wanna take advantage of the fact
that these things are so noisy as individuals, because as a collective that's what's
allowing them to risk manage the thing.
[00:22:39] And so you're always trying to bring them upstream and take a
portfolio view, but that's just not like a natural thing for people to do. So it's
always a constant battle of education. Just trying to explain things to folks.
[00:22:52] Gavin: Finishing up here, Wes, and this has been, as always, a very
useful and insightful discussion, especially when you have fairly high levels,
not say, extreme levels of volatility such as we've been experiencing here
towards the end of the third quarter of 2022.
[00:23:06] Is it all the more important that the educational side of things is
stressed? Because obviously people do tend to slightly freeze in the headlights if
lots of stuff is happening.
[00:23:16] Wes: Oh yeah. And this is where, advisors and intermediaries, this is
where they earn their wealth right here, right?
[00:23:21] This is when the clients need you the most is to help them manage
their bad behavior and natural urge to be like, "I'm out! Sell it all." You know,
this is the time when you can really show your worth to your clients. About, you
know, keeping them in the seat and remind about the process, remind about why
we're doing this in the first place.
[00:23:40] Gavin: No, that's a very, very important point to finish on because,
kids don't try this at home, you really want to have an advisor there to say,
"Remember why you bought this. Remember what it was intended to do." And
to, as it were, talk through your fear, your perfectly understandable fears when
so much stuff is happening, with someone whose been through a few of these
before. So again, thank you very much indeed, Wes, that's been extremely
helpful. As always, many congratulations on the progress of Alpha Architect
and the growth in assets under management, even if the actual markets
themselves may be diminishing it a little bit at the moment.
[00:24:12] We'll talk again soon, I'm sure.
[00:24:13] Wes: Great. Look forward to it.
[00:24:21] Gavin: Thank you very much for listening to The Gavin Graham
Show sponsored by SmartBe Investments. If you would like to learn more about
the subjects discussed today, please go to our website, at
smartbinvestments.com or @smartbeinvestments on any social media platform.
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may experience a gain or loss from their investment in or sale of an ETF.
You may request a prospectus [for an ETF] from your financial advisor by
visiting www.smartbeinvestments.com, or by calling SmartBe Investments
Inc. 403-930-8693. The prospectus includes investment objectives, risks, fees,
expenses and other information that you should consider carefully before
Please consult a lawyer or tax professional regarding your specific legal or tax