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Re: Software for Own Investing Plan/Rebalance

I like the idea of a spreadsheet a lot! It takes all the emotion out of rebalancing decisions. You can incorporate rebalancing bands into the spreadsheet as well. I think it's an excellent exercise for an individual to build their own with Excel, especially if they don't have a lot of Excel experien...
by Random Walker
Sun Apr 13, 2014 3:19 pm
 
Forum: Investing - Theory, News & General
Topic: Software for Own Investing Plan/Rebalance
Replies: 11
Views: 670

Re: How can "value beats growth" be a rule?

Kid fresh,
I once had the same dilemma/question as you, then Larry straightened me out. The market doesn't equilibrate returns by adjusting prices. The market prices risk.

Dave
by Random Walker
Sun Apr 13, 2014 2:15 pm
 
Forum: Investing - Theory, News & General
Topic: How can "value beats growth" be a rule?
Replies: 21
Views: 1327

Re: Can I get some alpha? (DFA / Wealthfront)

Berntson, I think you'll find this interesting. A finance professor at UC Berkely named Terrance Odean wanted to look at the effects of overconfidence on investor behavior. He chose a surrogate measure for overconfidence, SEX! He compared the average results of males and females. Males on the whole ...
by Random Walker
Sun Apr 13, 2014 2:06 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2879

Re: If not dollar cost averaging...then what?

You are doing the right thing. You are in accumulation phase. So save and invest as much as possible and as early as possible. The expected return on equities, although bigger or smaller at various times, is always positive. So the earlier you invest money, the more opportunity to grow. By having a ...
by Random Walker
Sun Apr 13, 2014 12:22 pm
 
Forum: Investing - Theory, News & General
Topic: If not dollar cost averaging...then what?
Replies: 15
Views: 776

Re: Portfolio Volatility is a Big Drag on Returns

But one can add asset classes that have the same or close to the same expected returns and less than perfect correlation: emerging markets, international, international value, international small value, REITs, international REITs. And dare I mention CCFs? Most people will comfortably add a total int...
by Random Walker
Sun Apr 13, 2014 8:52 am
 
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 25
Views: 1827

Re: The market portfolio vs. value tilts

I don't think tilters look only at historical data. To stick with a plan in bad times, one needs to believe in a plausible risk or behavioral story to look forward and stay the course.

Dave
by Random Walker
Sat Apr 12, 2014 9:37 pm
 
Forum: Investing - Theory, News & General
Topic: The market portfolio vs. value tilts
Replies: 66
Views: 3100

Re: Portfolio Volatility is a Big Drag on Returns

I agree with most all you said Stay the Course. So the way I see it, there is the camp of minimize cost at all costs TSM or 3Fund portfolio investors and the pay a bit more slice and dicers. How would you categorize yourself? When things go down the tubes all the correlations go to 1 and the only sa...
by Random Walker
Sat Apr 12, 2014 9:28 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 25
Views: 1827

Re: Portfolio Volatility is a Big Drag on Returns

I would think the more weakly correlated asset classes available in the portfolio to rebalance, the better. That is pretty much the point I'm making. A whole markets index fund approach composed of just a few funds may not be nearly as efficient as a more complex portfolio composed of say 5-10 funds...
by Random Walker
Sat Apr 12, 2014 7:44 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 25
Views: 1827

Portfolio Volatility is a Big Drag on Returns

I was just reading a shortened version of Ilmanen's Expected Returns and came across this statistic. The arithmetic average equity premium from 1802-2009 was 4.17% but the compounded equity premium over the same period was only 2.68%. The compounded return is a full 1.5% less than the average return...
by Random Walker
Sat Apr 12, 2014 7:26 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Volatility is a Big Drag on Returns
Replies: 25
Views: 1827

Re: Can I get some alpha? (DFA / Wealthfront)

I think DFA and advisor deserves a particularly serious consideration from the taxable investor interested in tilting. Tax managed value funds and core funds effectively decrease cost differences between VG and DFA for the taxable tilter. Unfortunately I don't have a clue what the quantitative impro...
by Random Walker
Sat Apr 12, 2014 3:12 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2879

Re: Can I get some alpha? (DFA / Wealthfront)

Leonard, It's not quite that simple. There would be two ways to increase risk for potentially more reward. The first is to simply add more of the same risk: market. The other is to add different kinds of risk that are weakly or uncorrelated to the market: small and value. The diversification across ...
by Random Walker
Sat Apr 12, 2014 3:05 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2879

Re: The market portfolio vs. value tilts

Quincy, Not sure I'm qualified to answer all your thoughts, sort of at the limits of my knowledge. ButI can address one or two. Look at charts of TSM v. S&P500 performance. They virtually overlap. And the correlation is like 0.98 or something. The point is that although TSM is highly diversified...
by Random Walker
Fri Apr 11, 2014 3:46 pm
 
Forum: Investing - Theory, News & General
Topic: The market portfolio vs. value tilts
Replies: 66
Views: 3100

Re: The market portfolio vs. value tilts

Tilting does not necessarily mean more risk. The risk of an individual asset class in isolation isn't really very meaningful. What matters is how an asset class contributes to a portfolio / how it mixes with other portfolio components. What matters are expected returns, volatility, correlations to o...
by Random Walker
Fri Apr 11, 2014 1:17 am
 
Forum: Investing - Theory, News & General
Topic: The market portfolio vs. value tilts
Replies: 66
Views: 3100

Re: Can I get some alpha? (DFA / Wealthfront)

I thought I would just note that there are other things to consider in the DIY VG v. Advisor DFA choice. A DFA portfolio comprised of core funds and asset class funds to fine tune the tilt to a person's taste would minimize rebalancing costs, be more tax efficient, yield a more efficient portfolio, ...
by Random Walker
Thu Apr 10, 2014 4:53 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2879

Re: Favorite Investing Book?

And for those who want to really want to be convinced of the significance of multi asset class investing on bringing compounded return closer to average annual return, I'd recommend reading Ferri's All About Asset Allocation followed by Gibson's Asset Allocation: Balancing Financial Risk. And for th...
by Random Walker
Wed Apr 09, 2014 1:48 am
 
Forum: Investing - Theory, News & General
Topic: Favorite Investing Book?
Replies: 42
Views: 3137

Re: Favorite Investing Book?

I second the William Bernstein vote. But for me it was The Intelligent Asset Allocator. The material is basically the same as 4 Pillars, but IAA uses some math with graphs, charts, SD, correlation coefficients and 4 Pillars tries to avoid all that. For people who understand a little math and statist...
by Random Walker
Wed Apr 09, 2014 1:41 am
 
Forum: Investing - Theory, News & General
Topic: Favorite Investing Book?
Replies: 42
Views: 3137

Re: What next after you have enough sort of.

Check out William Bernstein's e-book The Ages of the Investor: A Critical Look at Lifecycle Investing. It's a really short and cheap read, and if I remember talks a lot about liability matching portfolios. I'm going to reread it myself.

Dave
by Random Walker
Tue Apr 08, 2014 12:42 am
 
Forum: Investing - Theory, News & General
Topic: What next after you have enough sort of.
Replies: 31
Views: 3310

Re: What next after you have enough sort of.

I'm struggling with this issue as well. I'm sure StarbuxInvestor appreciates this, but thought I'd point it out anyways because of the way his question is written. Short time to retirement doesn't mean short time horizon for the portfolio. The portfolio needs to exist and be maintained potentially f...
by Random Walker
Mon Apr 07, 2014 6:28 pm
 
Forum: Investing - Theory, News & General
Topic: What next after you have enough sort of.
Replies: 31
Views: 3310

Re: Buffett hasn't beaten the market regularly since '07

I too am bewildered by those who would consider buying BRKB instead of a diversified collection of mutual funds. Buffet and his company may be an amazing business. But the performance of a company's stock can be very different from the business. The man and his company have got to be one of the most...
by Random Walker
Sun Apr 06, 2014 2:57 am
 
Forum: Investing - Theory, News & General
Topic: Buffett hasn't beaten the market regularly since '07
Replies: 20
Views: 2364

Re: Three-fund portfolio returns and variance drain

I feel this is a topic that is not discussed here. I remember getting a feel for it first from Ferri's All About Asset Allocation. Portfolio volatility will always cause the compounded return of a portfolio to fall short of the average weighted return of the portfolio components. And one goal in por...
by Random Walker
Sun Apr 06, 2014 2:46 am
 
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 39
Views: 2429

Re: William Bernstein-When you've won the game, why keep pla

I saw the initial question "if you've won the game, why keep playing?" and had to add my thought because I want to hear other's opinions. I didn't read any of the intervening posts, so I'm sorry if I'm going over territory that was already discussed. I'm 51 and am close to the 25X number, ...
by Random Walker
Tue Mar 11, 2014 4:38 pm
 
Forum: Investing - Theory, News & General
Topic: William Bernstein-When you've won the game, why keep playing
Replies: 241
Views: 24781

Bond Ladder v Bond Fund:differences in portfolio management?

We use bonds to dampen the risk of our portfolios. Many people are worried that even high quality bonds will take a hit in the future. This would show up in the share price of a bond fund and the daily price of an individual bond. My question is whether owning a ladder individual bonds, same quality...
by Random Walker
Wed Jan 01, 2014 5:32 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Ladder v Bond Fund:differences in portfolio management?
Replies: 1
Views: 174

Re: DFA TA funds - distributed cap gains

I hold TA US Core too. I'm very interested in this thread. The size of the capital gain and the return relative to TSM are certainly relevant. Also, anyone who would own DFA TA US core 2 would probably also own other tax managed or tax advantaged value funds through DFA that are not accessible throu...
by Random Walker
Sun Dec 15, 2013 5:47 pm
 
Forum: Investing - Theory, News & General
Topic: DFA TA funds - distributed cap gains + non-qualified div
Replies: 11
Views: 648

Re: Good article on style premium investing & AQR new fund

Larry, One could also get more tilt beyond core funds by adding additional specific small and value oriented funds. Would this strategy add anything beyond that? Illmanens talks about asset classes, styles, sources of risk. Does this fund add any of the style or risk source diversification beyond th...
by Random Walker
Sun Dec 15, 2013 5:33 pm
 
Forum: Investing - Theory, News & General
Topic: Good article on style premium investing & AQR new fund
Replies: 36
Views: 3120

Re: What matters over long haul is factor exposure and expen

Robert,
Your point about alpha indirectly reflecting many of the hidden costs, and zero alpha reflecting the likely lowest costs makes very good sense to me. With costs being certain and excess gains always questionable, zero alpha is a strong prerequisite in a fund. Thanks for the input.

Dave
by Random Walker
Sun Dec 15, 2013 11:28 am
 
Forum: Investing - Theory, News & General
Topic: What matters over long haul is factor exposure and expense
Replies: 37
Views: 3523

Re: Good article on style premium investing & AQR new fund

If a person has a DFA portfolio already diversified nicely across geography, size, value, how would this new fund mix with the portfolio? Especially since the DFA funds screen for momentum and profitability. The long-short aspect is intriguing. Thanks,

Dave
by Random Walker
Sun Dec 15, 2013 11:20 am
 
Forum: Investing - Theory, News & General
Topic: Good article on style premium investing & AQR new fund
Replies: 36
Views: 3120

Re: What matters over long haul is factor exposure and expen

"What matters over the long run is factor exposure and expense". I agree. But the expense ratio is the easiest expense to quantify. How do we measure which funds yield factor exposure at the lowest total expense? Other expenses include taxes, bid-ask spreads, cash drag, and I'm sure other ...
by Random Walker
Sat Dec 14, 2013 10:23 am
 
Forum: Investing - Theory, News & General
Topic: What matters over long haul is factor exposure and expense
Replies: 37
Views: 3523

Re: Did gaining knowledge alter your risk tolerance?

Knowledge has definitely made me more aware of the issue of risk tolerance. As Taylor wrote, knowledge helps build the fortitude to stay the course. I strongly recommend every Boglehead read at least one book on financial history in addition to all the more common Boglehead books. Knowledge of histo...
by Random Walker
Thu Dec 05, 2013 5:07 pm
 
Forum: Investing - Theory, News & General
Topic: Did gaining knowledge alter your risk tolerance?
Replies: 79
Views: 3176

Re: Your retirement needs met, what makes more sense?

As Larry says, AA depends on ability, willingness, need to take risk. Retiring implies need is low. Retiring relatively young places you at higher risk of the corrosive nature of inflation. If you're willing to continue taking some risk, I like staying at 60/40 or maybe cooling off to 50/50. Pension...
by Random Walker
Thu Nov 28, 2013 12:57 pm
 
Forum: Investing - Theory, News & General
Topic: Your retirement needs met, what makes more sense?
Replies: 18
Views: 2112

Re: Share the (real) ways you do financial arithmetic mental

I think in terms of monthly living expenses. So when I think about financial goals, I start with some odd numbers like 120k or 1.2M (multiples of 12). Then when I work backwards and divide by 12 months per year, I get some pretty round numbers to ballpark with.

Dave
by Random Walker
Tue Nov 26, 2013 10:19 am
 
Forum: Personal Finance (Not Investing)
Topic: Share the (real) ways you do financial arithmetic mentally
Replies: 48
Views: 2177

Re: Thoughts on mortgage as a negative bond

Grabiner, I would assume the mortgage rate you are paying is greater than the return on the bonds you now have. Why have you decided against no mortgage and 100% equity as you build up bonds once again in your portfolio? I know from your posts that you are very savvy, so really looking forward to yo...
by Random Walker
Sun Nov 24, 2013 1:20 pm
 
Forum: Investing - Theory, News & General
Topic: Thoughts on mortgage as a negative bond
Replies: 53
Views: 3565

Re: who here is tempted to pullback on stocks?

I think this is a very interesting question. Buy, hold, rebalance, TLH does not mean avoid changing the AA ever. As people progress through accumulation phase and get closer to retirement, they should consider getting less aggressive with the AA. If ones goals are much closer to being attained do to...
by Random Walker
Wed Nov 20, 2013 10:18 pm
 
Forum: Investing - Theory, News & General
Topic: who here is tempted to pullback on stocks?
Replies: 104
Views: 7870

Re: "Slice and Dicers"

First I am a Boglehead, so I am interested in Expense ratio Tax efficiency Diversification Turnover Secondly I have become one of Bernstein's Asset Class Junkies. So using the above as a starting point, I am interested in improving portfolio efficiency, smoothing the ride, bringing compounded return...
by Random Walker
Wed Nov 20, 2013 5:21 pm
 
Forum: Investing - Theory, News & General
Topic: "Slice and Dicers"
Replies: 39
Views: 2919

Re: Examining the purity analysis with 3 US SV funds

One of the points of the post is to point out that buying more of the weak tea to get same factor load is not as efficient as using less of strong tea because the weak tea portfolio would require more of the already plentiful market (beta) risk. Of course the weak tea is cheaper: trade off between r...
by Random Walker
Wed Nov 20, 2013 12:21 am
 
Forum: Investing - Theory, News & General
Topic: Examining the purity analysis with 3 US SV funds
Replies: 25
Views: 1712

Re: Examining the purity analysis with 3 US SV funds

Hi Rick, thanks for the response. I'm curious, why is small cheaper to access than value? Thanks,
Dave
by Random Walker
Tue Nov 19, 2013 7:37 pm
 
Forum: Investing - Theory, News & General
Topic: Examining the purity analysis with 3 US SV funds
Replies: 25
Views: 1712

Re: Examining the purity analysis with 3 US SV funds

The goal is to increase portfolio efficiency by diversifying across risk factors. Beta, size, and price are weakly correlated with each other. All portfolios with substantial equity have substantial beta exposure. So the goal is to increase the relative exposure to size and price risk factors. The m...
by Random Walker
Tue Nov 19, 2013 1:47 pm
 
Forum: Investing - Theory, News & General
Topic: Examining the purity analysis with 3 US SV funds
Replies: 25
Views: 1712

Re: Bayes theorum

That is an excellent description. I also think a lot about interpreting tests. I always say that the result of a test needs to be evaluated in light of the pre-test probability of the result. I like that the author modestly started with a pre test likelihood of 10%. :happy

Dave
by Random Walker
Tue Nov 19, 2013 11:58 am
 
Forum: Investing - Theory, News & General
Topic: Bayes theorem
Replies: 12
Views: 1983

Re: Historic Small Cap Returns May be Inflated

History is important. But we can only earn future returns. Looking forward, it intuitively makes sense that smaller companies are more risky. And they do have higher costs of capital. Thus they have higher expected returns. It's important to have an historical record to support decisions regarding i...
by Random Walker
Sun Nov 17, 2013 3:58 pm
 
Forum: Investing - Theory, News & General
Topic: Historic Small Cap Returns May be Inflated
Replies: 15
Views: 1384

Re: Expected Returns by Antti Ilmanen

Stay the course, Keep your eyes open at page 187. The author cites an article by Ilmanen and Kizer. Kizer works with Larry Swedroe. It seems to be related to efficient portfolio design by diversifying across risk factors. But I get the impression it goes way beyond geography, size, price, beta. I th...
by Random Walker
Wed Nov 13, 2013 12:55 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns by Antti Ilmanen
Replies: 55
Views: 6052

Re: Expected Returns by Antti Ilmanen

Stay the Course, I too am reading Successful Investing Is A Process. Started a thread on it a while ago. It's easier for me than Ilmanen's book, but I'm still slogging. Been working on it for 2 months and starting to skip some pages here and there. I get confused by terminology like some distinction...
by Random Walker
Wed Nov 13, 2013 11:40 am
 
Forum: Investing - Theory, News & General
Topic: Expected Returns by Antti Ilmanen
Replies: 55
Views: 6052

Re: Expected Returns by Antti Ilmanen

Haven't seen the short book. But I usually plow through bogle heads books really fast. I got bogged down in this one even though Larry Swedroe recommends it so strongly. So without even seeing the shorter version I'm going to recommend it, at least for starters. One can always go to the long book if...
by Random Walker
Wed Nov 13, 2013 12:45 am
 
Forum: Investing - Theory, News & General
Topic: Expected Returns by Antti Ilmanen
Replies: 55
Views: 6052

Re: "There is a rebalancing bonus ... false"

Keith, A portfolio composed of 2 or more asset classes. Volatility results in a geometric mean portfolio return less then the weighted average annual return of the portfolio components. More weakly or negatively correlated and volatile asset classes added to a portfolio can dampen overall portfolio ...
by Random Walker
Tue Nov 12, 2013 5:53 pm
 
Forum: Investing - Theory, News & General
Topic: "There is a rebalancing bonus ... false"
Replies: 188
Views: 12872

Re: "There is a rebalancing bonus ... false"

Why would you say the difference between arithmetic mean and geometric mean is irrelevant for investment strategy purposes? I think one of the key concepts for portfolio design is an effort to bring the geometric mean closer to the arithmetic mean. Improving portfolio efficiency in this way by dampe...
by Random Walker
Tue Nov 12, 2013 2:04 pm
 
Forum: Investing - Theory, News & General
Topic: "There is a rebalancing bonus ... false"
Replies: 188
Views: 12872

Re: The key to investment success

This is how I take the advice. If I'm in early accumulation territory, stick with my AA and rebalance if indicated. If have significant assets accumulated or near retirement, then maybe personal circumstance has changed significantly enough to make a one time change towards a more conservative AA. I...
by Random Walker
Mon Nov 11, 2013 4:55 pm
 
Forum: Investing - Theory, News & General
Topic: The key to investment success
Replies: 33
Views: 2958

Re: Does an allocation less than 5% ever make sense?

The contribution of an asset class to a portfolio depends on its expected return, it's correlations to other portfolio components, and its volatility. If an asset class has very low correlation and high volatility, even small amounts around 5% can have a meaningful effect on portfolio efficiency. CC...
by Random Walker
Fri Nov 08, 2013 11:54 pm
 
Forum: Investing - Theory, News & General
Topic: Does an allocation less than 5% ever make sense?
Replies: 34
Views: 3087

Re: A twist on dollar cost averaging

Value averaging is really meant for a lump sum of money. For those of us investing savings from a current income, regular contributions make sense. Because the market prices risk, the expected return of equities is always positive, just sometimes bigger than others. So regular contributions make sen...
by Random Walker
Wed Nov 06, 2013 4:51 pm
 
Forum: Investing - Theory, News & General
Topic: A twist on dollar cost averaging
Replies: 9
Views: 1611

Re: DFA - Where's the alpha?

I'm curious if people feel the advisor/DFA versus DIY/VG decision is at all affected by whether the assets to be invested are predominantly in taxable or tax deferred accounts. To me, it seems the more an individual interested in slicing and dicing is in taxable accounts the more one might consider ...
by Random Walker
Thu Oct 31, 2013 11:40 am
 
Forum: Investing - Theory, News & General
Topic: DFA - Where's the alpha?
Replies: 96
Views: 8649

Re: Average outperformance

Well, I'm sorry I don't know a specific study. But this is a good opportunity to reaffirm a Boglehead point. The funds that do beat benchmarks do so by pretty small amounts (maybe 1-2% on average I believe), but the average underperformance of under performers is much larger. Another strong reason t...
by Random Walker
Thu Oct 24, 2013 1:27 am
 
Forum: Investing - Theory, News & General
Topic: Average outperformance
Replies: 29
Views: 2609

Re: why you need a financial plan

For me a plan amounts to an Excel spreadsheet with target allocations to the various asset classes. I've created columns with calculated amounts to add to each asset class whenever I have new money to add to the portfolio and columns with targets for rebalancing. The spreadsheet truly removes emotio...
by Random Walker
Wed Oct 23, 2013 11:24 am
 
Forum: Investing - Theory, News & General
Topic: why you need a financial plan
Replies: 7
Views: 1195

Re: Charlie Ellis's Investment Letter to his Grandchildren

Another opportunity to recommend his outstanding book Winning The Losers Game. Every time I read it, I want to increase my equity allocation. I have not read this letter, but I'm sure it's consistent with his book. He feels the real long term enemy is inflation, and equities are required to overcome...
by Random Walker
Tue Oct 22, 2013 2:43 pm
 
Forum: Investing - Theory, News & General
Topic: Charlie Ellis's Investment Letter to his Grandchildren
Replies: 2
Views: 878
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