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by Clive
Thu May 28, 2015 5:53 am
Forum: Investing - Theory, News & General
Topic: Market Capitalization Flaw in Index Funds
Replies: 9
Views: 685

Re: Market Capitalization Flaw in Index Funds

If the broad cap-weighted stock market portfolio is "distorted" then the entire market is distorted. Cap-weighting doesn't systematically over-weight or under-weight anything, it owns everything in proportion to how the market values it. Lemmings. Because more opted for one sector out of ...
by Clive
Thu May 28, 2015 5:27 am
Forum: Investing - Theory, News & General
Topic: Reducing the Black Swans
Replies: 57
Views: 5193

Re: Reducing the Black Swans

but I'd just point out that gold wasn't legally investible in the US until 1975, and the Nixon administration was playing games with the decoupling of the gold standard, devaluing of the dollar Gold has been legal tender in the UK since ... whenever. Around 1250 years ago the Anglo Saxon King of Me...
by Clive
Wed May 27, 2015 3:49 pm
Forum: Investing - Theory, News & General
Topic: Reducing the Black Swans
Replies: 57
Views: 5193

Re: Reducing the Black Swans

...The problem is he [Taleb] no longer believes that Treasuries are riskless assets and doesn't trust any bonds. I have the same thoughts about Zvi Bodie's choice of 90% inflation bonds - way too much single asset (taxflation) risk. Combine a 4x25 Permanent Portfolio with a 25/75 Larry Portfolio, 5...
by Clive
Wed May 27, 2015 12:44 pm
Forum: Investing - Theory, News & General
Topic: Reducing the Black Swans
Replies: 57
Views: 5193

Re: Reducing the Black Swans

I'm not sure about using small value in the Larry portfolio. For one, the LP seems to work even better with 2x levered ETFs. or even with 3x levered ETFs 30% 1x, 70% safe 15% 2x, 85% safe 10% 3x, 90% safe. half in 2x, half in bonds generally compares to 100% 1x if you rebalance once yearly or so. A...
by Clive
Wed May 27, 2015 8:32 am
Forum: Investing - Theory, News & General
Topic: Expense Ratio Comparison
Replies: 8
Views: 505

Re: Expense Ratio Comparison

Care has to be taken to drill down into where a fund is domiciled (and what taxes that may involve), what it holds and what if any withholding taxes that may involve. ETF holds a foreign stock that pays a 4% dividend, which is reduced by 30% withholding tax (1.2%). Fund management fee a impressively...
by Clive
Mon May 25, 2015 4:06 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 45
Views: 3904

Re: Portfolio Volatility is a Big Drag on Returns

This is an improper example. we know gains and losses from stocks are proportional to the money invested. while in your example, the gain or lose is fixed at $50, doesn't matter how much you originally have. the whole following analysis is then flawed. I was just reading a shortened version of Ilma...
by Clive
Sun May 24, 2015 7:38 am
Forum: Investing - Theory, News & General
Topic: Market Cap and Value
Replies: 46
Views: 2247

Re: Market Cap and Value

...with the Fama and French value portfolio. That portfolio is usually called high-minus-low or HML. The problem is that HML has a built-in tilt towards small stocks. Fama and French start by building six portfolios . The HML portfolio then invests 50% in big value and 50% in small value. Big stock...
by Clive
Sun May 24, 2015 7:07 am
Forum: Investing - Theory, News & General
Topic: Why government bonds at all?
Replies: 55
Views: 3914

Re: Why government bonds at all?

So my thought is, I wouldn't buy equity in government. Why would I buy bonds in government? ... With a corporate stock or corporate bond, someone on the other end is trying to create value for me. The market forces ensure that if he/she fails, he/she will be replaced by someone who can. Government ...
by Clive
Sat May 23, 2015 9:03 am
Forum: Investing - Theory, News & General
Topic: What if the US stock market was only 25% of the world by market cap?
Replies: 37
Views: 2323

Re: What if the US stock market was only 25% of the world by market cap?

Equal weighting or weighting in reflection of the level of reserve currency are perhaps better choices. http://en.wikipedia.org/wiki/Reserve_currency#Global_currency_reserves I have never heard of reserve currency methodology before. Is it related to what governments are viewing as a safe currency ...
by Clive
Sat May 23, 2015 8:27 am
Forum: Investing - Theory, News & General
Topic: Optimal Asset Allocation across Investment Horizons?
Replies: 14
Views: 1413

Re: Optimal Asset Allocation across Investment Horizons?

Whilst that broadly averages out, rebalancing to realign weightings in effect has you deploying gold when stocks are down (add-low), rebuilding gold reserves when stocks are high (reduce-high) and over time that 'trading' (capturing volatility) can produce similar benefit to as though gold earned a...
by Clive
Thu May 21, 2015 4:35 pm
Forum: Investing - Theory, News & General
Topic: What if the US stock market was only 25% of the world by market cap?
Replies: 37
Views: 2323

Re: What if the US stock market was only 25% of the world by market cap?

What if the US stock market for whatever various reasons dropped to just 25% of the global market cap? Last time that occurred was around 1990, when Japan expanded from single digit to around 50% and US dropped from around 75% down to 25%. By 2000 Japan had given back a lot of that, whilst US rebou...
by Clive
Wed May 20, 2015 5:19 am
Forum: Investing - Theory, News & General
Topic: Optimal Asset Allocation across Investment Horizons?
Replies: 14
Views: 1413

Re: Optimal Asset Allocation across Investment Horizons?

The thing with gold is, over the longer-term, I believe real returns have been close to 0 .. There was a bull market in gold, but I think it's been reverting back to its long-term average, and its value as an inflation hedge is rather debatable .. For a UK investor, the yearly inflation adjusted pu...
by Clive
Wed May 20, 2015 2:18 am
Forum: Investing - Theory, News & General
Topic: Bonds - Picking up Nickels in Front of a Steamroller?
Replies: 50
Views: 4997

Re: Bonds - Picking up Nickels in Front of a Steamroller?

My guess is that the stock purchasing power of bonds tends to spike when the value of stock plummets. If so, it would be very advantageous to be holding bonds to liquidate when it's most important to be buying stocks. Indeed it does, because primarily the stock purchase power of bonds is primarily ...
by Clive
Wed May 20, 2015 2:09 am
Forum: Investing - Theory, News & General
Topic: Optimal Asset Allocation across Investment Horizons?
Replies: 14
Views: 1413

Re: Optimal Asset Allocation across Investment Horizons?

Correlations are volatile. Best to just diversify and take what's given. For the retired who have accumulated enough a modest real gain combined with safety can suffice. Two relatively safe portfolio's are the Larry Portfolio, which might be generalised as being mostly safe, some speculative i.e. 25...
by Clive
Tue May 19, 2015 11:31 am
Forum: Investing - Theory, News & General
Topic: Bonds - Picking up Nickels in Front of a Steamroller?
Replies: 50
Views: 4997

Re: Bonds - Picking up Nickels in Front of a Steamroller?

the volatility of bonds (even long term bonds) is indeed low, relative to the kinds of risky assets you see as alternatives. I like to consider bonds as being relatively volatile relative to stock purchase power. A STT/LTT barbell for instance measuring inflation adjusted yearly changes (since 1972...
by Clive
Mon May 18, 2015 5:03 pm
Forum: Investing - Theory, News & General
Topic: Calculating the Equity Risk Premium
Replies: 12
Views: 628

Re: Calculating the Equity Risk Premium

T-Bills have taxation and inflation risk, inflation bonds have taxation risk. There is no risk-free. Equity premium over low-risk, broadly 0% (with considerable plus and negative side volatility). Where low risk is a three way equal split between business (stocks), land (own home) and reserves (bond...
by Clive
Mon May 18, 2015 10:26 am
Forum: Investing - Theory, News & General
Topic: Best Asset Allocation if you've "won the game"
Replies: 86
Views: 8497

Re: Best Asset Allocation if you've "won the game"

Is your simulation basically on a $1M starting portfolio and $40,000 represents the classic 4% rule? I would think it is because that is what the success rates roughly look like in most of the studies published. Invest 25% in stocks, 25% in gold and stuff the rest into a mattress and broadly you'll...
by Clive
Mon May 18, 2015 2:48 am
Forum: Investing - Theory, News & General
Topic: Target Allocations between equities and bonds - Is the reasoning sound?
Replies: 49
Views: 3423

Re: Target Allocations between equities and bonds - Is the reasoning sound?

Well Warren Buffett's recommended asset allocation - 90% S&P 500 tracker and 10% short-dated bonds - obviously follows the OP's logic .. and there aren't many better investors than him .. In that case the bonds achieve virtually nothing as far as cushioning downturns or providing diversificatio...
by Clive
Sun May 17, 2015 1:51 pm
Forum: Investing - Theory, News & General
Topic: The upside of living longer
Replies: 11
Views: 2223

Re: The upside of living longer

jhfenton wrote:The primary upside of living longer is living longer

Providing you have modestly good health/ability to go with it. Otherwise it could be a downside.
by Clive
Sun May 17, 2015 2:46 am
Forum: Investing - Theory, News & General
Topic: Best Asset Allocation if you've "won the game"
Replies: 86
Views: 8497

Re: Best Asset Allocation if you've "won the game"

A slightly less aggressive Larry Portfolio is 25%/75% stock/bonds. For bonds its best to diversify widely. Combine that with a Permanent Portfolio together with splitting stocks 50/50 domestic/foreign and you might allocated that as 12.5% in each of 8 assets, domestic stocks, foreign stocks, gold, l...
by Clive
Sat May 16, 2015 1:02 pm
Forum: Investing - Theory, News & General
Topic: Best Asset Allocation if you've "won the game"
Replies: 86
Views: 8497

Re: Best Asset Allocation if you've "won the game"

Short-Mid Term Treasury/TIPS depending on market for fixed income or Short-Mid Term Muni AAA/AA quality (67% of total) There is no risk free safe investment. Whilst the treasury can print more money to repay loans rather than default, that devalues all other notes in circulation. Tax and inflation ...
by Clive
Sat May 16, 2015 12:40 pm
Forum: Investing - Theory, News & General
Topic: Best Asset Allocation if you've "won the game"
Replies: 86
Views: 8497

Re: Best Asset Allocation if you've "won the game"

I respectfully disagree. You can buy a 5 year put on the U.S. Market, see below text, and puts are more expensive with time. Does it costs more to fire insure your home for 5 years than it does to fire insure for 1 year? Compared directly yes. Compared proportionately and no. Same sort of thing. If...
by Clive
Sat May 16, 2015 11:35 am
Forum: Investing - Theory, News & General
Topic: Best Asset Allocation if you've "won the game"
Replies: 86
Views: 8497

Re: Best Asset Allocation if you've "won the game"

What is true is that a 24 month put on the S&P 500 is more expensive than a one month put. How much more expensive in real (purchase power/inflation adjusted) terms? And does that account for 24 sets of trade costs to roll monthly compared to just a single trade? And if that were true then its ...
by Clive
Sat May 16, 2015 2:33 am
Forum: Investing - Theory, News & General
Topic: Best Asset Allocation if you've "won the game"
Replies: 86
Views: 8497

Re: Best Asset Allocation if you've "won the game"

When I retired 12 years ago at the age of 55, and determined that the main goal of my portfolio was capital conservation, I changed my allocation to: 30% Equities (a Global equity index fund plus small allocation of a Emerging Markets index fund) 55% Bonds (2 total return bond funds) 15% 5 year bon...
by Clive
Sat May 16, 2015 2:16 am
Forum: Investing - Theory, News & General
Topic: My thoughts on Forbes article Active vs Passive which is better?
Replies: 13
Views: 1595

Re: My thoughts on Forbes article Active vs Passive which is better?

... in the UK, if I'd gone with an index tracker when I started investing in the 90s, the largest part of my portfolio would've returned little more than a cash savings account A question I do ask myself is could I have achieved the same thing (hypothetically) with the right combination of small an...
by Clive
Wed May 06, 2015 10:52 am
Forum: Investing - Theory, News & General
Topic: Gross: stockbug alert, future investment returns will be miniscule
Replies: 67
Views: 5556

Re: Gross: stockbug alert, future investment returns will be miniscule

What's the take away? There are three main sources of rewards, price appreciation, income/dividends and volatility capture. I see no reason why volatility might decline, if anything more likely to increase. If you're overweight volatility likely rewards will continue along much the same. 10/90 with...
by Clive
Tue May 05, 2015 2:17 pm
Forum: Investing - Theory, News & General
Topic: The future of "real return" for bond funds
Replies: 11
Views: 1775

Re: The future of "real return" for bond funds

a ladder would still have provided a positive real return over the entire period With a ladder where each rung is held to maturity you know exactly what that bond will reward over its life time. For a 5 year ladder four years you're holding a 1 year remaining bond that is paying the 5 year yield (f...
by Clive
Tue May 05, 2015 8:51 am
Forum: Investing - Theory, News & General
Topic: The future of "real return" for bond funds
Replies: 11
Views: 1775

Re: The future of "real return" for bond funds

That chart starts at an awfully convenient point, I'd be interested to see the preceding 20 years. That chart was limited according to the 5 year yields data source. Using 10 year yields, calculating 10 year real yields and then forming a 10 year ladder I see http://images.investorshub.advfn.com/im...
by Clive
Tue May 05, 2015 1:23 am
Forum: Investing - Theory, News & General
Topic: The future of "real return" for bond funds
Replies: 11
Views: 1775

Re: The future of "real return" for bond funds

This provides some insight - take 5 year treasury yields and adjust for inflation. Form a 5 year ladder from such yields ignoring secondary market value and assuming each bond is held to maturity and the proceeds rolled into another 5 year treasury yield. When each rung is equally weighted the yearl...
by Clive
Mon May 04, 2015 4:50 pm
Forum: Investing - Theory, News & General
Topic: The Permanent Portfolio as an accumulation portfolio
Replies: 24
Views: 3428

Re: The Permanent Portfolio as an accumulation portfolio

...25/75 portfolio ... Fundamentally you're just comparing different types of 'bond' asset allocations. Barbell versus Bullet. Gold is a form of undated zero coupon inflation bond. The Permanent Portfolio combines that with Long dated conventional Treasury bonds and short dated treasury bills/notes...
by Clive
Mon May 04, 2015 1:55 pm
Forum: Investing - Theory, News & General
Topic: The Permanent Portfolio as an accumulation portfolio
Replies: 24
Views: 3428

Re: The Permanent Portfolio as an accumulation portfolio

Gold was illegal to own until 1975 and until the advent of gold ETFs in 2005 gold had to be purchased as bullion or coins, which carried very high spreads and storage costs that are never factored into gold returns in backtesting Net gains are also typically overlooked. In 1981 when both US long an...
by Clive
Fri May 01, 2015 10:59 am
Forum: Investing - Theory, News & General
Topic: Bridgewater (Dalio) Alum Starts a Risk Parity RoboAdvisor
Replies: 7
Views: 552

Re: Bridgewater (Dalio) Alum Starts a Risk Parity RoboAdviso

Umm okay. So how do they accomplish this? How do they make the 50/50 portfolio give the returns of 80/20 without increasing volatility? I believe by leveraging the fixed income/bonds (using Futures). If stocks 21% standard deviation, bonds 7% standard deviation then 3x bonds levels the risk. More a...
by Clive
Fri May 01, 2015 10:49 am
Forum: Investing - Theory, News & General
Topic: Bridgewater (Dalio) Alum Starts a Risk Parity RoboAdvisor
Replies: 7
Views: 552

Re: Bridgewater (Dalio) Alum Starts a Risk Parity RoboAdviso

Hmm! Balancing risk as in volatility increases dependency upon (inverse) correlations. Low beta and high beta (volatility) much less so. Two assets with one that paces inflation consistently, the other that zigzags around that, periodically rebalanced, can be expected to yield > inflation reward.
by Clive
Tue Apr 28, 2015 4:03 am
Forum: Investing - Theory, News & General
Topic: Difference between holding fixed income in bondETFs or banks
Replies: 9
Views: 925

Re: Difference between holding fixed income in bondETFs or b

Here in the UK typically High Street Bank bonds are illiquid, i.e. a three year ladder of such bonds requires that each rung is held to maturity. Treasury bonds (Gilts) can be sold in the secondary market, as can a bond ETF. Accordingly you might anticipate a element of premium on high street bank b...
by Clive
Sun Apr 26, 2015 12:28 pm
Forum: Investing - Theory, News & General
Topic: 140% Stocks (or why the Kelly criterion is cool)
Replies: 97
Views: 6120

Re: 140% Stocks (or why the Kelly criterion is cool)

the Kelly criterion is equivalent to using expected utility with a logarithmic utility function. For the higher frequency trading I used to do I used a log stochastic based approach. Identify a volatile target stock and set a high price above which you were prepared to be totally out of the stock a...
by Clive
Sun Apr 26, 2015 12:02 pm
Forum: Investing - Theory, News & General
Topic: 140% Stocks (or why the Kelly criterion is cool)
Replies: 97
Views: 6120

Re: 140% Stocks (or why the Kelly criterion is cool)

d'Alemberts betting sequence suggests betting 1 unit initially and increasing the stake by 1 unit after each losing play, reducing by 1 unit after each winning play (minimum stake 1 unit). I bet heads, 1 unit, lose I bet heads, 2 units, lose I bet heads, 3 units, win In total outlayed 6 units in bet...
by Clive
Thu Apr 23, 2015 4:01 am
Forum: Investing - Theory, News & General
Topic: Trying to beat the index is futile
Replies: 17
Views: 1940

Re: Trying to beat the index is futile

Which index Exactly. The "Dow" for instance is a common measure of historic "index" performance. Noteworthy however is that the Dow Industrial Average was just one of several indexes that Dow devised. Both the Utility Average and Transport Average indexes have broadly lagged the...
by Clive
Tue Apr 21, 2015 3:50 pm
Forum: Investing - Theory, News & General
Topic: Can't get excited about bond funds
Replies: 19
Views: 1622

Re: Can't get excited about bond funds

BeaglesRule wrote:but am having a hard time getting excited [with bonds]

Perhaps think about saving up to buy a iPad as a Christmas present to yourself and how you might then use it to buy some iBonds.
by Clive
Tue Apr 21, 2015 2:08 pm
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

...SSO (2x S&P 500). That's what the fact sheet says..... Yep, they're legally bound to stress the risks of investing the same amounts in a 2x (or 3x) as in a 1x. The two same initial amounts will compound out entirely differently as in effect you're borrowing the same amount again to buy into ...
by Clive
Tue Apr 21, 2015 1:53 pm
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

Interesting. For long-term investors, the advice I know of is "leveraged ETFs should not be traded long, only day traded, to avoid pricing differentiation". How did those portfolios perform during periods that included the 2008/09, or 2001/02 crashes? Plugging into http://www.etfreplay.co...
by Clive
Tue Apr 21, 2015 8:35 am
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

...simple and "lazy" for the purposes of those articles. We want a 3 +/- fund portfolio that would do enough diversification while making use of Ireland's tax treaties and keeping rebalancing costs low. amerk86, one simple to implement - but complicated theory, is to hold a third of the a...
by Clive
Mon Apr 20, 2015 4:56 pm
Forum: Investing - Theory, News & General
Topic: Bernstein: "If you've won the game, stop playing."
Replies: 146
Views: 15480

Re: Bernstein: "If you've won the game, stop playing."

When Bill Bernstein talks about investing in bonds he probably means short-term US Treasuries. Are those bonds risky? They were for my grandmother who lived as a widow (savings stopped when gramps died in 1970) from 1970-1991 and would only use short term "safe" fixed income investments. ...
by Clive
Sun Apr 19, 2015 2:39 pm
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

For reference this link http://www.hmrc.gov.uk/cnr/withholding-tax.pdf shows UK treaty's withholding taxes For 'foreign' investors the UK levies no withholding taxes on dividends provided the company/stock is based in the UK. Much of the UK large cap (FTSE100 index) stocks that are based out of Lond...
by Clive
Sun Apr 19, 2015 1:57 pm
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

Phrasing it differently, is it possible to buy 100 individual shares and have it be cheaper than buying a S&P 500 fund at 0.07% TER? Or even 30 stocks. Equal weighted bought and held - no changes other than enforced. One off 30 x $10 broker fees (or whatever) plus cost of dividend reinvestment/...
by Clive
Sun Apr 19, 2015 9:48 am
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

Buffett is astute in his 90/10 choice of asset allocation. We live in a topy-turvy world where 'safe' assets - Treasury Bonds, Gold etc. are much less safe than many believe and where speculative assets (stocks) are relatively safer over the longer term 1933 the US compulsory purchased investment gr...
by Clive
Sun Apr 19, 2015 9:19 am
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

Questions in mind: [*] What about Accumulating vs Distributing? Is it important to try to have accumulating funds rather than distributing in those portfolios? As a UK investor, ETF/funds that accumulate have to have excess reportable income reported to HMRC (tax office) and taxes paid accordingly ...
by Clive
Sun Apr 19, 2015 8:17 am
Forum: Investing - Theory, News & General
Topic: Converting Lazy Portfolios for no-US-treaty NRA investors
Replies: 44
Views: 2758

Re: Converting Lazy Portfolios for no-US-treaty NRA investor

Not sure, but another benefit of holding a Irish/UK domiciled ETF that holds US assets can be side-stepping US estate tax (aka death duties, inheritance tax) - or at least additional paperwork/headaches for heirs. IIRC upon the demise of a NRA with $60K or more US assets their heirs have to file for...
by Clive
Sun Apr 19, 2015 3:15 am
Forum: Investing - Theory, News & General
Topic: Asset allocation strategies at very large sums
Replies: 13
Views: 1528

Re: Asset allocation strategies at very large sums

Maynard F. Speer wrote:Japan's meltdown from the 80s could be an example)

1990's 'crash' ???

Which - like the Wall Street Crash (1930's), was precursored by massive booms ("Roaring 20's") - where stock prices doubled, doubled again and doubled yet again during the 1980's decade or so.
by Clive
Tue Apr 14, 2015 6:45 pm
Forum: Investing - Theory, News & General
Topic: Negative interest rates in Europe
Replies: 9
Views: 1407

Re: Negative interest rates in Europe

Given that you can still buy CDs with >= 1.5% rates, I am at a loss to understand why any investor would accept negative rates....what am I missing? If you have a ladder that matches future cost of living adjusted spending (via inflation bonds) then it may be desirable to pay more now for that lowe...
by Clive
Tue Apr 14, 2015 6:19 pm
Forum: Investing - Theory, News & General
Topic: This retiree is a bit confused
Replies: 21
Views: 3492

Re: This retiree is a bit confused

Generally drawing down bonds, letting stocks expand. In the context of own own home so future 'rent' pre-paid in advance; And a drawdown ladder of basic living expenses that current spans 20 years out invested in inflation bonds (so basic living expenses covered). Top slice out of the remainder (sto...

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