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Re: Active bond funds better than indexes? Pimco thinks so

Re: Oppenheimer We noted in recent reports that this fund's managers' bets on some higher-quality corners of the bond market, including nonagency mortgage bonds and the long-term debt of large banks, were holding it back relative to peers. I can't find anything on Schwab total bond back in '08 but I...
by Doc
Fri Oct 24, 2014 6:27 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: So do we care more about change in bond price or bond yi

Note for example the first two rows. Same duration, 13 basis point drop in yield, 7.75 point drop in coupon, and 0.87 year drop in term to maturity. We need more examples. I notice the spread is different. The older higher coupon may have some liquidity issues. Could there be a "bid duration&q...
by Doc
Fri Oct 24, 2014 6:01 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

I think it looks better than the previous chart.

Kevin M wrote:Image


Maybe there is too much data. Is there anything that the "spikes" have in common? Are they random or is there something else in there that we can speculate about?
by Doc
Fri Oct 24, 2014 5:17 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: Active bond funds better than indexes? Pimco thinks so

One thing the 2008 GFC taught me was to be wary of excessive returns in bonds over the benchmark. No matter when you learned it being "wary of excessive returns in bonds over the benchmark" is the best advice I have read in this thread. I would only add that one should make sure that the ...
by Doc
Fri Oct 24, 2014 5:10 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: Active bond funds better than indexes? Pimco thinks so

Doc, imagine a bright, ambitious, novice investor, who isn't content to assemble a portfolio by choosing from Vanguard funds that have the word "total" in them. How would you suggest spotting the rare rotten apples like Oppenheimer Core Bond Fund, Schwab Total Bond Market Fund, and Fideli...
by Doc
Fri Oct 24, 2014 3:18 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: So do we care more about change in bond price or bond yi

A common interpretation of YTM is the annualized rate of return you would earn if you reinvested all coupons at a rate equal to the YTM. That is a common interpretation but it isn't actually true. If you look at the equation to determine YTM it is the present value equation which in non bond speak ...
by Doc
Fri Oct 24, 2014 2:43 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: Active bond funds better than indexes? Pimco thinks so

What makes me queasy about actively managed bond funds is not that the manager's choices are different from the contents of the Barclay's Aggregate Index. It is that the actively managed bond funds I've looked at are so sophisticated that I literally cannot understand what is in them. A lot of talk...
by Doc
Thu Oct 23, 2014 11:54 am
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: Active bond funds better than indexes? Pimco thinks so

Uh huh ... even index funds can be subject to manager risk at times, as was TBM back then. Index funds greatly minimize the risk - and when they err, it tends to be a small tracking error, not a 40%-50% drop. The article is about bonds funds. I know - that's what I was talking about. I was addressi...
by Doc
Thu Oct 23, 2014 8:55 am
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: So do we care more about change in bond price or bond yi

stlutz & Kevin You guys are quick. It took me 'til 04:52 local time Thursday to realize the "duration connection". What's especially frustrating was that I went to the "zero" analogy several days ago to avoid the maturity/duration problem and then didn't realize it when it ca...
by Doc
Thu Oct 23, 2014 8:52 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

I didn't notice because of the way my data is lined up in the spreadsheet, and the wiggles are actually a bit understated in the graph since each point is an average of yields for that maturity date. Use the "chart" display on Fido's site. I understand that people don't like premium bonds...
by Doc
Wed Oct 22, 2014 8:45 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

Note that there are many more maturities for non-zeros (hence the gaps in the red curve), and note the little wiggles in the curve for non-zeros. I don't see any obvious reason for the wiggles, e.g., due to different coupons. It looks like they are older bonds with very high coupons. I looked at th...
by Doc
Wed Oct 22, 2014 6:13 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: Active bond funds better than indexes? Pimco thinks so

The article is about bonds funds. Check the end of the article -- they decided to make their case for active stock management as well ! Finally, should we just restrict our use of active managers to bonds given the evidence Bogle, Malkiel and many others present? Not so fast … In “Can Mutual Fund ‘...
by Doc
Wed Oct 22, 2014 3:19 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: Active bond funds better than indexes? Pimco thinks so

Uh huh ... even index funds can be subject to manager risk at times, as was TBM back then. Index funds greatly minimize the risk - and when they err, it tends to be a small tracking error, not a 40%-50% drop. The article is about bonds funds. However, there are reasons why the simple arithmetic doe...
by Doc
Wed Oct 22, 2014 2:58 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: Active bond funds better than indexes? Pimco thinks so

However, there are reasons why the simple arithmetic does not work out as cleanly in the bond world. I have reached a similar conclusion about bond index funds over the past several years. But the problem is not index versus active so much as it's the indices themselves. Index investing only works ...
by Doc
Wed Oct 22, 2014 2:18 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: Why do Engineers Think They’ll Be Good at Picking Stocks

technovelist wrote: +1. Engineers are great.
As a "software engineer", I'm not a real engineer, but I could probably play one on TV.


No, in my experience software "engineers" only speak Greek so you can't be on TV unless you are playing one on a cable business channel. :beer
by Doc
Wed Oct 22, 2014 1:46 pm
 
Forum: Investing - Theory, News & General
Topic: Why do Engineers Think They’ll Be Good at Picking Stocks?
Replies: 108
Views: 6204

Re: Active bond funds better than indexes? Pimco thinks so

The big danger in this is manager risk - the risk that the manager of your active bond fund will do something really stupid. This is not just theoretical - it happens a lot. That's a very good point. Come to think of it, that's exactly what Bill Gross did, at PIMCO (!), back in 2011. And something ...
by Doc
Wed Oct 22, 2014 12:33 pm
 
Forum: Investing - Theory, News & General
Topic: Active bond funds better than indexes? Pimco thinks so
Replies: 35
Views: 1903

Re: Why do Engineers Think They’ll Be Good at Picking Stocks

In engineering numbers are only useful as data if there is a covering law that explains the relationship between or among the numbers. Gravity is a covering law. The strengths of materials is a covering law. We don't know if earthquakes have a covering law. And we certainly don't know what it is. S...
by Doc
Wed Oct 22, 2014 12:21 pm
 
Forum: Investing - Theory, News & General
Topic: Why do Engineers Think They’ll Be Good at Picking Stocks?
Replies: 108
Views: 6204

Re: So do we care more about change in bond price or bond yi

And Kevin it is very possible to accurately do the discounted cash flow equations in your head if you had taken the time to memorize the data in the log table book when you were in high school which is very helpful if you are now of the age that you have to relearn Excel every time you load it. :be...
by Doc
Tue Oct 21, 2014 7:08 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

Also, if I download the quotes from Fidelity I don't have to interpolate to get the yields for maturities not reported on treasury.gov. I think the Treasury.gov charts are from the constant maturity calculation which is a multi (5?) factor spline fit. They changed their method just about the time o...
by Doc
Tue Oct 21, 2014 6:36 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: Pimco vs. Jack Bogle on active management of bonds

In the latest salvo of a surprisingly public debate between two of the biggest names in fund management, Bogle said the underperformance of Pimco's flagship Total Return mutual fund provides a timely reminder that for most investors, index funds are the way to go. Wasn't it less than a year ago tha...
by Doc
Tue Oct 21, 2014 11:16 am
 
Forum: Investing - Theory, News & General
Topic: Pimco vs. Jack Bogle on active management of bonds
Replies: 18
Views: 1973

Re: DOW Watchers Stomach Syndrome

JoMoney wrote:But the DOW ended "up" for the day... So should it be don't SELL near the opening bell?


Yea I fixed my post. I realized later that I meant "trade" not "buy".

Whether the "trade" mans sell or buy is only important to market timers.
by Doc
Tue Oct 21, 2014 11:01 am
 
Forum: Investing - Theory, News & General
Topic: DOW Watchers Stomach Syndrome
Replies: 25
Views: 2085

Re: DOW Watchers Stomach Syndrome

Doc, you've been here for a while. I don't recall you having such a visceral reaction to market noise. There really is more to life than focusing on the DOW intraday. Sometimes I get drawn in, realize what is occurring and fight tooth and nail to ward it off. It is what it is. I don't. I just happe...
by Doc
Mon Oct 20, 2014 12:58 pm
 
Forum: Investing - Theory, News & General
Topic: DOW Watchers Stomach Syndrome
Replies: 25
Views: 2085

Re: DOW Watchers Stomach Syndrome

Call_Me_Op wrote:Just noise.

Agreed but really LOUD noise.
by Doc
Mon Oct 20, 2014 10:12 am
 
Forum: Investing - Theory, News & General
Topic: DOW Watchers Stomach Syndrome
Replies: 25
Views: 2085

DOW Watchers Stomach Syndrome

As I walk away from watching the recorded news each morning I put on FOX business channel so DW can't mess up my recording inadvertently. This morning I noted that the DOW was down about 9 pts and as I reached the coffee pot I heard Maria Bartiromo say "IBM must not have opened yet. Oh it just ...
by Doc
Mon Oct 20, 2014 9:47 am
 
Forum: Investing - Theory, News & General
Topic: DOW Watchers Stomach Syndrome
Replies: 25
Views: 2085

Re: So do we care more about change in bond price or bond yi

I'll continue to use zero-coupon bonds since all return is from price-change, so it's easier to see the offsetting effects on price of maturation and yield-curve change. Kevin, first what are you doing up at 3 O'clock in the AM posting about bond yields. I have also been awake at that time but have...
by Doc
Sun Oct 19, 2014 1:00 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Personally my investment philosophy is not to buy assets that have negative prospective real returns. So for me the risk would be getting shut out of the tips market for a substantial period of time. This is basically my argument for not buying the thirty now. You don't need to shut yourself out of...
by Doc
Sun Oct 19, 2014 11:13 am
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 93
Views: 6447

Re: So do we care more about change in bond price or bond yi

My summary of the simplified case used for illustration. Five year zero with 2% YTM. Original cost ~$900. Straight yield curve - slope is 0.4% per year. Two funds with different strategies. "F0-5" fund: A zero to five year fund - buy at auction and hold to maturity. Duration 2.5 years. YTM...
by Doc
Sat Oct 18, 2014 10:56 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

The statement is absolutely right and it's easy to prove. First, with a single bond: if I invested $10K four years ago in a zero coupon at about the current 1.45% yield (example works the same with 2% or any other number, edit: and it works the same with coupon bonds currently sitting at a premium)...
by Doc
Fri Oct 17, 2014 6:11 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

Doc: the simple risk story that I believe you're looking for is this: the 5-to-zero fund has a fifth of its assets in Treasuries in their final year making 0.09% yield; these Treasuries are, for the purposes of the individual investor with 1% bank accounts, deadbeats. The 5-to-1 fund doesn't, and i...
by Doc
Fri Oct 17, 2014 4:02 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Another approach to the same result is to buy a ten and roll it three times or some combination of the same. That way you don't lock in the low 1% yield for thirty years. Doesn't this violate the no-arbitrage condition of market equilibrium? Are you assume the market is in disequilibrium? It seems ...
by Doc
Fri Oct 17, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 93
Views: 6447

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Re amortization of (market) bond premium You don't have to amortize each year. You could ignore the purchase premium. Or you could wait until 2044 to deduct it. Maybe I have this backwards? You have to accrete Original Issue Discount (which is also the TIPS inflation increase). You have the choice o...
by Doc
Fri Oct 17, 2014 3:33 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 93
Views: 6447

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Just placed my order. Here is a guide to help decide how much each bond will likely cost at auction: 1) Bloomberg shows the current price on the secondary at 113 + 8/32 = 113.25 2) The inflation factor is 1.02062 3) The accrued interest per bond is 2.936 per $1,000 of face or 0.2936 per $100 of fac...
by Doc
Thu Oct 16, 2014 7:20 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 93
Views: 6447

Re: So do we care more about change in bond price or bond yi

Kevin I don't have the time to go through your detailed post but let me clarify a couple of points. By a static yield curve I mean that it doesn't shift during the time period under consideration but only for purposes of the discussion to try separate the different pieces of the "puzzle". ...
by Doc
Thu Oct 16, 2014 7:14 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

In reply to Kevin, we are in agreement except maybe for some of the tax aspects of amortization/accretion accounting and that not worth worrying about. The price change will depend on the steepness of the yield curve between the two points, or more simply, on the YTMs of the bond at the two points. ...
by Doc
Thu Oct 16, 2014 10:53 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

Kevin, I have not spent enough time analyzing your response but intend to later. What I am attempting to do is to simplify the problem as much as possible so that we can get away from what Vanguard does or what the shape of the yield curve is now or what it will be tomorrow. This is based on the cra...
by Doc
Wed Oct 15, 2014 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

Let me set up a trivial example in order to try to understand what this is all about. We have two Treasury funds that invest only in a minimum number of five year zero coupon Treasuries. The yield curve does not change during our analysis. Fund 0-5 invests in five zero coupon securities and holds th...
by Doc
Wed Oct 15, 2014 11:59 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: "Vanguard converting mutual fund accounts to brokerage?

Anyone that converted had any issues with agent authorization settings transferring over? Maybe. (This is really screwy.) OK we haven't switched because Vanguard has issues. One was that our joint mutual fund account did not have an associated brokerage account. So I added one - still nothing in it...
by Doc
Wed Oct 15, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 76
Views: 8818

Re: So do we care more about change in bond price or bond yi

I think the investopedia definition (first quote) refers to interest rate futures specifically. A consequence is it doesn't have to deal with bonds of various coupons and this might be why it only talks about capital gains. We're not interested in futures over here (well, not me / Kevin / stlutz as...
by Doc
Tue Oct 14, 2014 1:25 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: So do we care more about change in bond price or bond yi

Question only. Most of this discussion is above my pay grade and I don't want to take sides. My understanding of "riding the yield curve" was that the benefit was always there if the yield curve had a positive slope but that the benefit might not be enough to cover the trading costs. We ha...
by Doc
Tue Oct 14, 2014 12:29 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 172
Views: 11654

Re: Tax efficiency of short term bonds

I suppose that tax-efficiency boils down how much taxes one would pay on the total return of an investment. I would state it as follows. Tax efficiency is the ratio of taxes paid to total realized or realizable return. No tax (in)efficiency is the ratio of taxes paid (and accrued) to the total amou...
by Doc
Tue Oct 14, 2014 11:12 am
 
Forum: Investing - Theory, News & General
Topic: Tax efficiency of short term bonds
Replies: 10
Views: 601

Re: Market corrections and rebalancing band

Thanks everyone for their remarks. It's been helpful if somewhat confusing at times. There are a lot of good rebalancing methods that work in normal times. Let's hope that the current ISIL/ISIS, North Korea, Ukraine, Ebola, Ferguson Missouri and the upcoming elections don't lead us to another Lehman...
by Doc
Tue Oct 14, 2014 10:59 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4068

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

However, I've decided that the life cycle approach has merit and slowly started building a floor for retirement since it's about 10 years away. If you buy an annuity to fund all or part of your retirement there is some "insurance" cost that you pay to the annuity company to cover the risk...
by Doc
Tue Oct 14, 2014 10:51 am
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 93
Views: 6447

Re: TIPS & Rick Ferri

The topic of "phantom income" is of interest to me because the only place I have available for TIPS is my taxable account. I currently hold a small number of TIPS there - and will add if real rates become attractive. Just remember that it is a cash flow problem not a return problem as in ...
by Doc
Tue Oct 14, 2014 10:41 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4920

Re: TIPS & Rick Ferri

... circumventing the "phantom income problem?" Do we ever worry about the "phantom reinvestment of dividends problem"? Can you clarify? A lot of us reinvest dividends. If so we have to pay taxes on money we never get in the year the taxes are paid. The OID has the same effect. ...
by Doc
Mon Oct 13, 2014 4:05 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4920

Re: Market corrections and rebalancing band

Have settled on, and written into our IPS, what might be called 'Equal Percentage' (of deviation) Rebalancing, an idea borrowed from Process Control (Integral/Reset Action) where system stability is paramount. OMG, shades of a prior life - like 1975. But it may work. I'll give it some thought to my...
by Doc
Mon Oct 13, 2014 12:06 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4068

Re: Market corrections and rebalancing band

Sure. Going back to 50/50 illustration, your goal is to build a 100/100 portfolio - twice as much as you have today. Your first goal is eventual 4% withdrawal insulated as best as possible from *Stock* market volatility. You have other goals for the riskier assets - but they would be nonetheless th...
by Doc
Mon Oct 13, 2014 10:55 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4068

Re: TIPS & Rick Ferri

Call_Me_Op wrote:... circumventing the "phantom income problem?"


Do we ever worry about the "phantom reinvestment of dividends problem"?
by Doc
Mon Oct 13, 2014 9:40 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4920

Re: Market corrections and rebalancing band

Doc, you should consider a couple of things to incorporate in your plan (IPS). 1. Floor in safe assets. That limits the dollar amount of safer assets to stop rebalancing during steep and sudden market drops. 2. Tighter bands. The one potential cost here may be clipping the benefit from momentum in ...
by Doc
Mon Oct 13, 2014 9:30 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4068

Re: Market corrections and rebalancing band

i rebalance only on my birthday, which is probably silly and illogical and maybe even an emotional act that is forbidden under Boglehead law. And for the last 20 years or so, it's worked like a charm . How did you make out in the fall of '08 or is your birthday in October maybe? :happy If you are g...
by Doc
Mon Oct 13, 2014 8:08 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4068

Re: TIPS & Rick Ferri

Hi Doc, Do you invest in the Vanguard TIPS fund? No. Short term fund: I don't see any benefit from short term TIPS. The risk of unexpected inflation in the short term is low simply because we should be able to predict inflation fairly well in the near term. Further the penalty for that risk actuall...
by Doc
Mon Oct 13, 2014 7:59 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4920
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