Bogleheads.org

+1 on Cochrane if you are into asset pricing Also, Active Portfolio Management by Grinold & Kahn is a classic on portfolio theory and management I think Qian, Hua, and Sorensen's Quantitative Equity Portfolio Management is better than Grinold & Kahn. (Though the latter is worth reading b/c ...

I don't understand this at all. Bond taxation is very confusing, but I'm going to wing an explanation from memory. (Corrections or better ways of explaining this would be appreciated.) The simple case is that you buy the bond "at par" (for the face value of the redemption) and hold it to ...

Just wondering if you guys have any thoughts on this? http://www.forbes.com/sites/baldwin/2013/03/18/dumb-idea-rebalancing-boosts-returns/?partner=yahootix Based on all the material that I have been reading previously, rebalancing seems to be recommended. Thanks. You should rebalance to stay close ...

Bogleheads: If you have considered investing in a hedge fund, this Sensible Investing video should be of interest: Hedge funds get the Hollywood treatment Best wishes. Taylor For some reason mass media simply isn't good at reporting on complex things. They never report Supreme Court cases correctly...

I'm looking to get a little more into the theory side of investing in my "free time". Can anyone suggest some good books on investing theory, ideally self-contained? I'm competent in math and can handle more applied-math texts as well. Thanks for your help. How in depth do you want to go?...

Just eyeballing this, it looks like PE10 got up around 23 approximately in 1902, 1928,1965, 1995. Each time, even though it might have gone on to higher levels, it eventually came back to single digits except for the last time, when it eventually came back to about the median value of 15. One could...

I believe hedge funds tend to have high minimum investments and have not performed that well. A couple of people have made comments like this re: hedge funds. And while it's off topic for this thread (which is about mutual funds), I think it's worth pointing out that hedge funds are not supposed to...

jeffyscott wrote:Dalbar uses a flawed methodology.

The methodology may be flawed, but academic studies that have been much more meticulous have found similarly dramatic differences between the performance of actual investors and the performance of the index. Look at any of the literature on the disposition effect.

Not earth-shattering, but a great chart showing how much actual investors have trailed the S&P 500: This has been the case for as long as this performance has been tracked, but enough people don't realize it. The main driver of this outcome seems to be the disposition effect -- retail investors...

Anyone can identify funds that have outperformed indexes in the past. What was the Kiplinger 25 a decade or two ago, and what are the size/style adjusted benchmark returns? Right. The issue is predictability. And past returns don't predict future returns. There are three simple tenants one should a...

I don't invest in any actively managed funds, I'm almost entirely invested in Vanguard index funds. However, lately I've been wondering. If actively managed funds were identified that consistently beat the index after fees over long and short time periods, what's that attributable to? Luck? http://...

I'm not sure what you mean by "nosebleed territory," but it doesn't look alarming to me: Well, simple valuation ratios (like this one) predict ~60-70% of the market's returns over the next 5+ years. So it being as high as it is means that the expected returns of the market are probably ti...

I wrote the book, The Power of Passive Investing , so you’d expect me to be the last person to say there’s no such thing as passive investing. It’s true. Passive investing in its purest form doesn’t exist. Only lesser degrees of active management exist. Passive investors shouldn’t let this get in t...

Also, everyone should be aware that moving averages also create cycles not present in the original data and hide cycles that might be, like a seashell held to the ear acts as a resonator to manufacture "the sound of the ocean" out of ambient noise in the room. This is more of an effect of...

Some nice returns for VTI-type products. http://finance.yahoo.com/blogs/michael-santoli/surprise-decent-decade-stocks-230239226.html Just keep in mind that the arithmetic average he's talking about isn't something you'd realize in practice. Depending on how you rebalance, you'd get something in bet...

Which brings up another point they should have investigated -- you can synthesize a variance swap with index options; so it's worth asking whether these futures are "better" than doing it yourself once costs are accounted for. My guess is no, DIY is likely better. Combining a price ladder...

I believe that "most financial professionals" were recommending much higher numbers then--even though the 30-year-forward period being projected included the years from 2008 on. Academics were saying the same thing then that they say now -- that it is literally impossible for the US's his...

How do you calculate this: Stocks are volatile, and even though they earned 8.6% after inflation historically, with volatility one's wealth would've only grown at a rate of 6.5%. In Excel use the GEOMEAN function. It is surprising how much the average return and the annualized (geometric mean) retu...

How do you calculate this: Stocks are volatile, and even though they earned 8.6% after inflation historically, with volatility one's wealth would've only grown at a rate of 6.5%. In Excel use the GEOMEAN function. It is surprising how much the average return and the annualized (geometric mean) retu...

I don't think a naive projection like that based on futures prices is a good demonstration because futures prices aren't unbiased estimators of future expected rates... Enlighten me, please. My knowledge of the futures market is nil. It's not really relevant for purposes of this discussion, but bas...

One thing I will mention that I believe many may be overlooking about the return forecasts is that they only to investments today, in 3/2013. It does not apply to money you will invest next year or in 2016 or 2023 or 2033 or 2043. By 2016, dividend yield and earnings yield may be double today, and ...

You can say 8% all you want, but the fact is that most financial professionals estimate about 5% and most financial economists think that 3-3.5% is more accurate. So either way you go, you are way over estimating. Estimates are just that... estimates. Nobody knows whether I am over estimating or un...

Hedging loses in an up market. It may marginally do better in a down market. The long history of the stock market trends up, not down, and therefore hedging with VIX for the very long haul is a losing strategy just as are most active strategies. This isn't "hedging" and it isn't "act...

If you haven't seen it, this chart is from a Vanguard paper. http://i42.tinypic.com/350a4d5.jpg The heavy line is what the fed funds rate actually was. The thin lines are what the futures market expected it to be, starting at different starting points. In places where the market predictions were co...

My point is that all of the academic research in the world doesn't get around a very common-sense objection to using futures, which is the existence of investors or speculators on the other side of your trades who are dumb enough to write cheap insurance against equity price falls. This isn't how f...

The total stock market index fund has an average annual return of 8.73% since 1992, the S&P 500 index fund has an average annual return of 10.65% since 1976, and the Windsor fund has an average annual return of 11.29% since 1958. All of these returns include the stock market crash of 2000, and ...

Larry's piece was excellent, and well-written to boot. I take a simpler approach: life is too short to spend time extensively testing, or even reading about, BS strategies like using the VXX to hedge stock risk. Theoretically, it makes absolutely no sense to suppose that there are stupid, greedy op...

A conundrum, to which I have no solution: Pfau says, "It is that in today's current market environment, it borderlines on ridiculous to assume that the U.S. historical averages will still apply in the future." Here's the conundrum. If I took anything at all away from William Sherden's won...

Hedging may increase returns in a down market by reducing losses. It decreases returns in an up market, one reason why the average hedge fund has underperformed TSM and S&P 500 in recent years. Warren Buffett's bet that the S&P 500 would outperform a cherry picked portfolio of hedge funds r...

recency bias alert! The "bias" lies with all the Americans who make all kinds of rosy return predictions based on the historic out-performance of US stocks. Nothing he's saying in that article is new. Financial economists have long said that the equity risk premium was much closer to 3.3%...

This thread reminded me of a couple of papers I once ran across on the CBOE site, interesting reading [to me :D ] if nothing else. They propose VIX calls as a a source of 'getting long' volatility [in addition to the futures]. Anyhow: http://www.cboe.com/micro/vix/VIXFuturesOptionsUMassFull.pdf htt...

As for hedging stock market risk, don't high quality bonds do exactly that? Do we need really need another hedge? Is this yet another financial product created by Wall Street to extract money from investors? If you're so concerned about risk, you can always lower your asset allocation to equities a...

akiva I'll take a look but don't see why Euro volatility with contango should look much different than US. In fact the winning strategy would have been to take some of equity exposure and just short the VIX--earning that contango Larry One possible explanation is based on some similar US based rese...

Furthermore, the EMH conditions not only on past values but also on all other available information. That's semi-strong form EMH. Weak form EMH conditions only on past prices and volume. If you look at the post I was responding to you'll see that he was talking about the semi-strong form. Maybe I s...

Others can chime in with theoretical arguments, but to me the biggest impediments are practical. There are not many very good ways to leverage your personal portfolio -- margin rates are high, leveraged ETFs have horrendous tracking error due to resetting daily, and most other leveraged investments...

Beware of "sophisticated" back testing software. There are a lot of "programs" out there that allow you to tweak a multitude of parameters. Oh! Buy on a 4.1% dip only returned 9.1% return. Try buying on a 4.3% dip, that works better. Keep at it. Buying on Thursdays during even m...

It is obvious to everyone that the market shows short-term irrational behavior. If that disproved the EMH, nobody would ever have bothered to state it. The efficient market hypothesis doesn't say that every price is right all the time. It doesn't state that every price is "right" in some ...

Jeff Gundlach is the guru du jour who has been getting a lot of things right lately, most notably Apple. In his victory lap he claims that Apple singlehandedly demonstrates that the market is inefficient and herd-driven. He manages the Doubleline Total Return Fund, DBLTX. IMO, he has a point. http:...

http://www.cbsnews.com/8301-505123_162-57568943/do-vix-futures-hedge-stock-market-risk/ I often get questions about using the VIX so I thought it you would find it of interest Best wishes Larry Larry, FWIW, there's an EDHEC publication using European VSTOXX volatility futures that concludes that ad...

"Random walks don't provide a reblancing bonus." It's off-topic, but your statement is absolutely false. Random walks are the classic source of a reblancing bonus. You're incorrect. Think about it. Mean-reversion ==> rebalancing bonus Random walk ==> no bonus Trend ==> rebalancing penalty...

It's important to keep this in mind when discussing mean-reversion: http://en.wikipedia.org/wiki/Regression_fallacy http://en.wikipedia.org/wiki/Regression_toward_the_mean#Misunderstandings It really depends on whether or not the "extreme" values were due to random chance, or because that...

I was reading the following article which suggests that passive investing makes sense for large and "efficient" asset classes but active investing should be considered for small/mid cap & international asset allocations. What are the bogleheads thoughts on this? Is there any room for ...

I'm way too lazy to check it out, but the observations are useless unless they lead to a specific investing strategy. A big problem is that the article refers to "a strategy," but it isn't a strategy. In order to make it into a strategy, we would have to spell out the entire investing pro...

a) "Momentum." b) "Mean reversion." These aren't technically opposites. Most people just think they are because they don't understand what "regression towards the mean" means in a statistical sense. William J. Bernstein has a paragraph or so which says that the evidenc...

Article suggests that it is better to buy/hold at new market highs than at new market lows. So much for rebalancing, eh? You might not agree with today's lesson... But it's based on numbers going back nearly 100 years. After the stock market hits a 52-week high, the compound annual gain over the ne...

Debating point. Note. I am joking. I think I am joking. If all of diversification was, in fact, due to the inclusion of Japan, then wouldn't this suggest that, rather than investing in international stocks in general, one should, for maximum diversification, heavily overweight Japan? Well if you lo...

The OP was just about the observation that the diversification benefit has gone away because U.S. and International stocks are highly correlated. And my point is that you don't have enough data to distinguish between whether it has "gone away" for reasons that would persist or simply beca...

That's fine, but the fact that it is easy to obtain this information doesn't magically make it more relevant for determining what future covariances will be. Do you think that U.S. and Total International stocks may show low, no or negative correlation in the future? The recent history of these two...

While variance and covariance are in principle predictable, you can't use simple historic values as a predictor of expected future values for a variety of reasons. And in any event you need much more data than 120 days can provide. ETGreplay gives rolling 120-day correlation between two funds, sinc...

The Japan example is an outlier, not something you plan for. Good decisions and broad diversification should help you side step some of these outliers in the unlikely (by definition) chance they prevent themselves, but they should not drive your decisions. The problem is that you don't know how muc...