Search found 967 matches

by Random Walker
Sun Aug 02, 2015 9:15 am
Forum: Investing - Theory, News & General
Topic: “If you want to make a lot of money, you need volatility, and you need volatility to go your way."
Replies: 10
Views: 1450

Re: “If you want to make a lot of money, you need volatility, and you need volatility to go your way."

Actually, portfolio volatility is a return killer. Combining weakly correlated volatile individual assets into a portfolio can improve portfolio efficiency. The compounded (annualized) return of a portfolio is the return that matters to the individual investor. This is always less than the weighted ...
by Random Walker
Sat Aug 01, 2015 8:44 am
Forum: Investing - Theory, News & General
Topic: Financial Advisor v. Bogle Approach?
Replies: 33
Views: 2520

Re: Financial Advisor v. Bogle Approach?

There are lots of good reasons to go with an advisor; I chose that path after a decade doing it myself. But 1.5% is too much. I strongly recommend you check out a short essay by Larry Swedroe on how to choose a financial advisor. The essay is titled How to Choose an Advisor You Can Trust. You can fi...
by Random Walker
Tue Jul 21, 2015 11:55 am
Forum: Investing - Theory, News & General
Topic: Is Harry Markowitz wrong? Why Optimal Portfolios Are So Difficult To Create
Replies: 33
Views: 2990

Re: Is Harry Markowitz wrong? Why Optimal Portfolios Are So Difficult To Create

Hi Rick, I haven't read the article yet, but an off the top of my head question arises from your summary. If correlations are at all less than one, wouldn't it make sense to diversify across risk factors/sources of return anyways? I guess what I'm saying is that isn't it best to bet on MPT and ackno...
by Random Walker
Mon Jul 20, 2015 7:05 pm
Forum: Investing - Theory, News & General
Topic: Paul Merriman Small Cap Value "Free Lunch"
Replies: 47
Views: 4053

Re: Paul Merriman Small Cap Value "Free Lunch"

I wouldn't call it a free lunch, but even if SV has same returns as TSM over time, the tilted portfolio can benefit from improved efficiency due to less than perfect correlations. Improved efficiency reveals itself as annualized return closer to average return. Is this worth the cost? I don't know. ...
by Random Walker
Wed Jul 15, 2015 9:32 am
Forum: Investing - Theory, News & General
Topic: diminishing liquidity premium
Replies: 4
Views: 711

Re: diminishing liquidity premium

This seems to support the thought that today's fairly lofty valuations are not a set up for a market crash; rather they represent a sort of new normal with lower long term expected equity returns.

Dave
by Random Walker
Mon Jul 13, 2015 8:56 am
Forum: Investing - Theory, News & General
Topic: Larry Portfolio Shortfall
Replies: 37
Views: 2695

Re: Larry Portfolio Shortfall

Big John, That all makes sense to me, especially since tilting entails higher expenses. I've gone all out the other direction though. One thing that is very difficult for me to guesstimate is the benefit of improved portfolio efficiency: smoother ride raising compounded return closer to average retu...
by Random Walker
Mon Jul 13, 2015 12:45 am
Forum: Investing - Theory, News & General
Topic: Larry Portfolio Shortfall
Replies: 37
Views: 2695

Re: Larry Portfolio Shortfall

Re: Big John & Skating Where The Puck Was I certainly agree with the premise of that book. But when different sources of returns are explained by logical risk stories in addition to historical data, then I think we can somewhat depend on them in the future. When they become easily investable, I ...
by Random Walker
Sun Jul 12, 2015 11:15 pm
Forum: Investing - Theory, News & General
Topic: Larry Portfolio Shortfall
Replies: 37
Views: 2695

Re: Larry Portfolio Shortfall

Maynard Speer brought up the fact that one has to make 100% to recover from a 50% loss. And for me too this is the reason to diversify as much as possible across sources of return. When an asset class declines, you need dry powder from other weakly correlated asset classesto add to it to maximize be...
by Random Walker
Sat Jul 11, 2015 9:28 pm
Forum: Investing - Theory, News & General
Topic: If You Slice and Dice
Replies: 22
Views: 2980

Re: If You Slice and Dice

I agree with staythecourse. When you have a lot of asset classes, you already know some will outperform and some will underperform in a given time period. So the tendency to tinker may be lessened.

Dave
by Random Walker
Sat Jul 11, 2015 12:22 pm
Forum: Investing - Theory, News & General
Topic: If You Slice and Dice
Replies: 22
Views: 2980

Re: If You Slice and Dice

I have become an asset class addict and this resulted in a tendency to tinker. I took on an advisor. This both opened up access for me to some more esoteric asset classes and serves as a brake on the tinkering.

Dave
by Random Walker
Mon Jun 29, 2015 10:26 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Ya, one day is meaningless but interesting nonetheless. The major indices down 2%, Foreign indices down about 2.5%, my muni bonds up 0.2%, CCFs down 0.3%, QSPIX down 0.6%. Based on this 1 day sample, CCFs and QSPIX are good diversifiers. The best diversifier, especially for the cost is bonds. Dave
by Random Walker
Sat Jun 20, 2015 9:02 pm
Forum: Investing - Theory, News & General
Topic: CFA Institute: CIPM Program Thoughts
Replies: 7
Views: 887

CFA Institute: CIPM Program Thoughts

I've been toying with the idea of pursuing the CFA certificate. This is a minimum 2 year program. Then I found the CIPM program offered by the same organization. CIPM is Certificate in Investment Performance Measurement. Anyone have any thoughts on CIPM versus CFA? This is mainly for my own educatio...
by Random Walker
Sun Jun 14, 2015 1:52 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Stlutz, Yes there is. The purpose of this fund is to diversify across sources of risk. Beta is one kind of risk. If we go long risk X and short negative risk X, then we pile on exposure to risk X but cancel out the risk that both investments have in common, the market. There is no net exposure to th...
by Random Walker
Sun Jun 14, 2015 12:30 pm
Forum: Investing - Theory, News & General
Topic: Why High Equity Allocation in Retirement
Replies: 82
Views: 10827

Re: Why High Equity Allocation in Retirement

I thought I'd put a plug in here for Monte Carlo simulations. A good simulation with reasonable forward looking expectations for one's portfolio and various withdrawl rates can be very worthwhile for answering these questions about how much risk to take in retirement.

Dave
by Random Walker
Sun Jun 14, 2015 12:19 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Stlutz, Yes, with regard to equities there are cheaper ways to get the same factor exposure. But! 1. This fund provides access to 4 different styles across multiple asset classes. 2. With regard to equities, this fund provides the factor exposure without increasing exposure to the market factor. All...
by Random Walker
Sat Jun 13, 2015 1:34 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Packer 16 asked "how do you get comfortable?". I think investing is inherently a bit uncomfortable at least! One of the only ways to gain some comfort is to diversify as broadly as possible. When one is appropriately diversified, there is always a portion of the portfolio that is relativel...
by Random Walker
Fri Jun 12, 2015 9:07 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Just thought I'd reiterate that the point of this fund is to improve portfolio efficiency. A more efficient portfolio has a compounded return closer to the weighted average annual return of the components. The benefits of a less volatile ride compound over time.

Dave
by Random Walker
Fri Jun 12, 2015 8:50 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Grap0013, I think it's worthwhile to note that for really volatile or weakly/negatively correlated asset classes, their diversification effect on a portfolio will appear to be bigger than their small % allocation would suggest. Don't remember how to calculate it, but I've seen that sort of example w...
by Random Walker
Thu Jun 11, 2015 6:50 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

I have 3% allocation and will rebalance with it same as any other asset in the portfolio.

Dave
by Random Walker
Thu Jun 11, 2015 3:51 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Wickywack, I agree with you that Skating Where The Puck Was is important reading. I also agree that when an excellent weakly correlated asset class becomes liquid and investable, future expected returns can be muted. And I agree that when crises occur, all correlations head towards one. But diversif...
by Random Walker
Thu Jun 11, 2015 10:07 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Hi Angst, I believe adding QSPIX will increase my sharpe ratio from where it is, but I have no idea what the maximum attainable sharpe ratio is or how to get there. My 3% allocation comes from individual portfolio constraints. I am about 85% taxable and 15% tax deferred. I have CCFs, REITs, Int REIT...
by Random Walker
Thu Jun 11, 2015 8:41 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

LongInvest, I take a broader view of Bogleheads: Passive investing: all index funds are passive, not all passive are index Diversification: across geographies, sources of risk, sources of return Buy, hold, rebalance, tax loss harvest Low costs: but not lowest cost at expense of value Generate a well...
by Random Walker
Wed Jun 10, 2015 10:56 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

I have no idea how much QSPIX is needed to maximize the sharpe ratio. I saw the Illmanen CFA presentation last night, and I think I remember some big chunks like 30% in sample portfolio. Moreover, no one knows where a future efficient frontier may be. I do think it is fair to say though that for us ...
by Random Walker
Tue Jun 09, 2015 8:24 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

With equity valuations generous and interest rates so low, seems like diversifying into another source of risk and expected return would be very interesting. QSPIX does fit this.

Dave
by Random Walker
Tue Jun 09, 2015 8:09 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

I believe how QSPIX affects a portfolio depends on where you take assets from to create the position. If you take from the equity side, I believe you would likely keep expected return about the same and likely decrease portfolio volatility. If you take from the bond side, you would increase expected...
by Random Walker
Mon Jun 08, 2015 11:27 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

Ketawa,
Excellent explanation of the payment of dividends on the shorts. Thanks!

Dave
by Random Walker
Sat Jun 06, 2015 6:07 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

In the 6 months I've been following QSPIX it and the market have definitely zagged and zagged very differently day to day FWIW :-)

Dave
by Random Walker
Sat Jun 06, 2015 2:18 pm
Forum: Personal Finance (Not Investing)
Topic: Financial planning for your demise
Replies: 18
Views: 2887

Re: Financial planning for your demise

Trust made sense because it gave me control over who makes decisions and where assets go if I die.

Dave
by Random Walker
Sat Jun 06, 2015 2:15 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

I also own the fund through Fidelity 401K. AQR says they cap the ER @ 1.5% but I'm not sure if it works out this way in the 401K. It's surprising how hard it can be to definitively figure out the ER within the Fidelity account.

Dave
by Random Walker
Sat Jun 06, 2015 2:07 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 394
Views: 42568

Re: QSPIX - thoughts on interesting fund

I too have climbed on the QSPIX bandwagon. I'm a big believer in looking at the portfolio as a whole and I hugely influenced by Gibson's Asset Allocation. How an additional fund impacts a portfolio depends on expected return, volatility, correlations, and costs. I've admittedly become an asset class...
by Random Walker
Sat May 30, 2015 9:48 am
Forum: Personal Finance (Not Investing)
Topic: Financial planning for your demise
Replies: 18
Views: 2887

Re: Financial planning for your demise

I responded to the thread about using an advisor. I chose to go the advisor route, and the first thing he did was insist I put a trust in place. Obviously good for the client to do, but I think it also puts the advisor in better position if something happens to client. And by the way, I think one po...
by Random Walker
Thu May 28, 2015 7:50 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

For the investor the only thing that matters is the portfolio as a whole. And for the portfolio all that matters is compounded return.
by Random Walker
Thu May 28, 2015 6:07 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

I'm not claiming that arithmetic mean can be realized. Only claiming that gap between arithmetic mean and geometric mean can be reduced.


Dave
by Random Walker
Thu May 28, 2015 5:54 pm
Forum: Investing - Theory, News & General
Topic: Any impartial advocates for the other point of view?
Replies: 32
Views: 3063

Re: Any impartial advocates for the other point of view?

One thing I'm starting to learn about investing. I'm in accumulation phase. I think though, that withdrawl phase is much more difficult to negotiate than accumulation. But how one sets up for withdrawl during accumulation can make a very big difference. I use an advisor now during accumulation, but ...
by Random Walker
Wed May 27, 2015 7:53 pm
Forum: Investing - Theory, News & General
Topic: Market Capitalization Flaw in Index Funds
Replies: 11
Views: 1231

Re: Market Capitalization Flaw in Index Funds

Market cap weighting is excellent because it represents the collective wisdom of all market participants in valueing the companies. But one potential problem with a TSM type fund is that it effectively is a large growth fund. The biggest funds get to the top partly by having higher P/E ratios. For e...
by Random Walker
Wed May 27, 2015 6:05 pm
Forum: Investing - Theory, News & General
Topic: Any impartial advocates for the other point of view?
Replies: 32
Views: 3063

Re: Any impartial advocates for the other point of view?

Well, I can make an argument for an advisor. That being said, it is a personal choice dependent on personal circumstances. So let me describe my personal circumstance a bit. I became a do it yourself investor in about 2001 after reading Bogle's Common Sense on Investing and Malkiels Random Walk. Sin...
by Random Walker
Tue May 26, 2015 10:22 pm
Forum: Investing - Theory, News & General
Topic: Reducing the Black Swans
Replies: 69
Views: 7507

Re: Reducing the Black Swans

Browser, I think you are ignoring something very important: that the sequence of returns over time is tremendously important when we enter withdrawl phase. A few bad years during the start of drawdown phase can be a portfolio killer. The portfolio can't recover if money needs to be withdrawn at a ma...
by Random Walker
Tue May 26, 2015 8:15 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

RodC, Disagree with you on a couple of points. Putting cash under bed is minimizing volatility and minimizing expected returns. What I'm talking about is diversifying across sources of return closer to the equity risk premium, with correlations less than 1, and volatilities similar to equities as we...
by Random Walker
Tue May 26, 2015 9:39 am
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

WoofWoof, What matters is the portfolio as a whole. And you are right, the geo mean will always be less than the weighted average annual return of portfolio components. But a more efficient portfolio will minimize the difference between geo mean and arithmetic mean. What I'm saying is that multiple ...
by Random Walker
Mon May 25, 2015 7:06 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

Staythecourse, Excellent post. Very hard to disagree with any of your comments. Have you by chance read William Bernstein's Skating Where The Puck Was? Basically says that correlations go to 1 when bad things happen and that once an asset class becomes investable all advantages of the asset class ar...
by Random Walker
Mon May 25, 2015 5:28 pm
Forum: Investing - Theory, News & General
Topic: Robo-Advisers and Behavioral Investing
Replies: 12
Views: 1289

Re: Robo-Advisers and Behavioral Investing

Nedsaid, Seems like you feel a tilter necessarily can't be a hard core believer in market efficiency. If we feel there are premia, if they are compensation for risk doesn't that fit with efficiency? Even some of the behavioral factors might persist in an efficient market if there are limits to arbit...
by Random Walker
Mon May 25, 2015 4:29 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

Bernstein, There are asset classes that have even higher expected returns than the market and are less than perfectly correlated to the market. So if one were to keep expected return the same and tilt away from market portfolio by increasing bond allocation while increasing tilt to small, value, mom...
by Random Walker
Mon May 25, 2015 4:20 pm
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

Daufuskie Nate, I'm not clear on the distinction between rebalancing bonus and diversification return. But I think the concepts of volatility drag, rebalancing bonus, factor returns are all implicitly related. Implicit in my post is developing a plan with a fixed asset allocation and sticking to it....
by Random Walker
Mon May 25, 2015 10:31 am
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 51
Views: 4887

Re: Portfolio Volatility is a Big Drag on Returns

Thought I'd resurrect this thread because the issue is so interesting to me. All that matters is the performance of the portfolio as a whole, and volatility drag appears to be very significant. It seems that diversifying across more sources of risk and sources of return could yield more dry powder t...
by Random Walker
Sun May 24, 2015 8:22 am
Forum: Investing - Theory, News & General
Topic: Simple (ex: DFA core) Vs Complex (S&D multiple segments)
Replies: 11
Views: 1174

Re: Simple (ex: DFA core) Vs Complex (S&D multiple segments)

I don't think the DFA core funds were a response to the simplicity of VG TSM funds. I think they represent an evolution of asset class tilted investing to become more efficient: minimize forced trading, minimize taxes, minimize rebalancing costs. Now of course, got to admit that those are all excell...
by Random Walker
Sun May 24, 2015 8:17 am
Forum: Investing - Theory, News & General
Topic: another look at dividend paying stocks and valuations
Replies: 64
Views: 5177

Re: another look at dividend paying stocks and valuations

My understanding is that total return of a stock is independent of dividend policy. The total return includes both price appreciation and dividends. But dividend paying stocks are more likely to be value stocks and perhaps higher dividend yield stocks are more valuey. So it is expected that dividend...
by Random Walker
Sat May 23, 2015 7:43 am
Forum: Investing - Theory, News & General
Topic: Simple (ex: DFA core) Vs Complex (S&D multiple segments)
Replies: 11
Views: 1174

Re: Simple (ex: DFA core) Vs Complex (S&D multiple segments)

My understanding is that the DFA Core funds maintain a fixed degree of tilt. In fact I think they maintain more pure exposure to the factors than other funds by rebalancing much more frequently, I think daily. I also believe it makes sense to add component value or small value funds to the core fund...
by Random Walker
Fri May 22, 2015 7:56 pm
Forum: Investing - Theory, News & General
Topic: Risk Factors: Variance Skewness Kurtosis
Replies: 9
Views: 1283

Re: Risk Factors: Variance Skewness Kurtosis

I think I remember reading that the data on momentum is so strong that even Fama has become a believer despite the absence of a risk story.

Dave

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