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Re: Thoughts on DFA equities?

For taxable investors, DFA has tax managed small and value funds. Tilting to small and value is relatively tax inefficient. DFA's tax managed value and small funds are a significant benefit to the taxable investor. VG last I checked has no such offering. Unfortunately I do not know how to quantify t...
by Random Walker
Fri Jan 30, 2015 11:24 am
 
Forum: Investing - Theory, News & General
Topic: Thoughts on DFA equities?
Replies: 12
Views: 795

Re: Why not a 2 fund portfolio like Bogle suggests

TwoByFour, You are confusing stock markets with economies. All the risks you describe are already priced into the markets. Moreover, it is good to be exposed to different kinds of risk: diversify across risk factors. Interesting tidbit of info I got from Jeremy Siegel's Future for Investors. Just li...
by Random Walker
Thu Jan 29, 2015 7:53 am
 
Forum: Investing - Theory, News & General
Topic: Why not a 2 fund portfolio like Bogle suggests
Replies: 36
Views: 3779

Re: Why not a 2 fund portfolio like Bogle suggests

I'm sure you can minimize expense ratios with a two fund portfolio. But the addition of less than perfectly correlated asset classes to the portfolio will smooth the ride of the portfolio. The portfolio's compounded return will come closer to the higher average annual return of the portfolio compone...
by Random Walker
Wed Jan 28, 2015 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: Why not a 2 fund portfolio like Bogle suggests
Replies: 36
Views: 3779

Re: An alternative to alternative investments [QSPIX]

I feel like people in this thread are looking too much at the behavior of this fund (return, SD, costs) in isolation. What really matters is how it mixes in a portfolio. What a potential addition to a portfolio contributes depends on its returns, volatility, and correlations to other portfolio compo...
by Random Walker
Wed Jan 21, 2015 10:24 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: Size + Value Premium Explained

My favorite explanation is the cost of capital story. Someone got a Nobel prize for showing that the expected return on a company is the same as it would cost for that company to borrow. I think it's intuitive that smaller and distressed value companies would have to pay higher interest rate to borr...
by Random Walker
Sun Jan 18, 2015 1:03 pm
 
Forum: Investing - Theory, News & General
Topic: Size + Value Premium Explained
Replies: 5
Views: 504

Re: Larry's New Book On Sale

Didn't mean "on sale", meant for sale / available :-)

Dave
by Random Walker
Fri Jan 16, 2015 6:20 pm
 
Forum: Investing - Theory, News & General
Topic: Larry's New Book On Sale
Replies: 10
Views: 1757

Larry's New Book On Sale

I just saw that Larry Swedroe's new book The Incredible Shrinking Alpha is available for sale at Amazon. I only saw the Kindle version on sale for download. I'm eager to read it and expect many others are too.

Dave
by Random Walker
Fri Jan 16, 2015 2:21 pm
 
Forum: Investing - Theory, News & General
Topic: Larry's New Book On Sale
Replies: 10
Views: 1757

Re: An alternative to alternative investments [QSPIX]

Since people are talking about correlations and the diversification benefits of this fund, I thought I'd repost my prior post. Re: An alternative to alternative investments [QSPIX] Postby Random Walker » Fri Dec 05, 2014 11:54 am Just saw this interesting data from the above referenced presentation ...
by Random Walker
Wed Jan 14, 2015 11:59 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: Price of Oil Dropping Good or Bad?

I too am surprised at the headlines and the stock market. The news people will always see a change in the stock market and look for a reason for it in the news. There is no guarantee at all that what the stock market has done in last couple days is related to oil prices: correlation is not causation...
by Random Walker
Tue Jan 06, 2015 4:37 pm
 
Forum: Investing - Theory, News & General
Topic: Price of Oil Dropping Good or Bad?
Replies: 15
Views: 946

Re: Real Value of Nest Egg

I agree with OP, Current valuations matter. Today's higher current valuations result in lower future expected returns. I think a reasonable way to guesstimate a withdrawl rate would to make some long term estimate of the lower future expected returns and use Monte Carlo simulation. The more I learn,...
by Random Walker
Mon Jan 05, 2015 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Real Value of Nest Egg
Replies: 24
Views: 1931

Re: best cost basis method for mutual funds

Specific lot, HIFO: highest in, first out. i believe HIFO is best. When you experience losses, you are maximizing the harvested loss for tax purposes. When you experience gains, you are minimizing the taxable gain.

Dave
by Random Walker
Sun Dec 28, 2014 3:31 pm
 
Forum: Investing - Theory, News & General
Topic: best cost basis method for mutual funds
Replies: 12
Views: 830

Re: Equal Weighted Funds - Better?

I think equal weighting just creates a value tilt compared to cap weighting.

Dave
by Random Walker
Sat Dec 27, 2014 10:36 pm
 
Forum: Investing - Theory, News & General
Topic: Equal Weighted Funds - Better?
Replies: 31
Views: 2594

Re: Correlations of Risk Factors in Down Markets

So I took stlutz's advice and calculated average SmB and HmL for all the overall market negative years 1929-2013.
Average SmB -3.4
Average HmL 5.4

And going back to the correlations in these years
Market to SmB: 0.05
Market to HmL: 0.12
SmB to HmL: 0.07

Dave
by Random Walker
Fri Dec 19, 2014 4:28 pm
 
Forum: Investing - Theory, News & General
Topic: Correlations of Risk Factors in Down Markets
Replies: 22
Views: 1508

Re: Correlations of Risk Factors in Down Markets

Yes I agree with Oneleaf,
In the bad markets all the stocks go down because of the dominance of the market factor. But the tilts to small and value (which are muted because they are long only) still show potential to soften the blows.

Dave
by Random Walker
Thu Dec 18, 2014 5:43 pm
 
Forum: Investing - Theory, News & General
Topic: Correlations of Risk Factors in Down Markets
Replies: 22
Views: 1508

Re: Correlations of Risk Factors in Down Markets

So I went through the French yearly data again. I arbitrarily decided to look at single years when the overall market was down 20% or more or any series of 3 years consecutive down markets. What popped out was 1929-1932, 1937, 1973-1974, 2000-2002, 2008. Here's the results: Market to small: 0.05 Mar...
by Random Walker
Thu Dec 18, 2014 4:56 pm
 
Forum: Investing - Theory, News & General
Topic: Correlations of Risk Factors in Down Markets
Replies: 22
Views: 1508

Re: Correlations of Risk Factors in Down Markets

Lazy day,
That same question came to my mind as I was driving to lunch. I'll muck around and give you an answer in a bit.

Dave
by Random Walker
Thu Dec 18, 2014 3:32 pm
 
Forum: Investing - Theory, News & General
Topic: Correlations of Risk Factors in Down Markets
Replies: 22
Views: 1508

Correlations of Risk Factors in Down Markets

I've played around on Excel with the French data a bit before. I got correlations that fit with what others have stated: Market to size: 0.4 Market to value: 0.14 Size to value: 0.14 Since then I've learned that part of the explanation for some risk premiums is when an asset class does poorly: doing...
by Random Walker
Thu Dec 18, 2014 2:35 pm
 
Forum: Investing - Theory, News & General
Topic: Correlations of Risk Factors in Down Markets
Replies: 22
Views: 1508

Re: Best book to learn about tilting

Here are two excellent short reads which fit very well together I believe. The first is a short 3 page essay by Larry Swedroe called Effective Diversification in a 3 Factor World. The second is a 10-12 page essay by Roger Gibson which speaks more generally on the benefits of multiassetclass class in...
by Random Walker
Tue Dec 16, 2014 11:57 am
 
Forum: Investing - Theory, News & General
Topic: Best book to learn about tilting
Replies: 4
Views: 420

Re: An alternative to alternative investments [QSPIX]

Come invest, Yes I think you are correct. An investor in a portfolio comprised of mainly equity mutual funds and QSPIX would have both long and short positions in the same stocks. But his long positions in the funds have a big dose of beta while the QSPIX position is devoid of market exposure. The Q...
by Random Walker
Mon Dec 15, 2014 4:04 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: Another Great Asness/AQR Blog Post - Perspective

I can't believe there hasn't been more talk in this thread about how a fixed rebalanced portfolio of the 3 asset classes would have performed during these 5 year periods and over the whole 45 year time period. Im thinking some number cruncher would be showing excellent value to multi asset class inv...
by Random Walker
Sat Dec 13, 2014 2:11 pm
 
Forum: Investing - Theory, News & General
Topic: Another Great Asness/AQR Blog Post - Perspective
Replies: 38
Views: 2767

Re: Another Great Asness/AQR Blog Post - Perspective

This thread really needs to be bumped. It is really worth reading this article 2 or 3 times. And when reading, really try to do the mind experiment of living through those long 5 year periods. This is effectively a lifetimes worth of investing experience described in a few short pages. I truly belie...
by Random Walker
Fri Dec 12, 2014 10:23 pm
 
Forum: Investing - Theory, News & General
Topic: Another Great Asness/AQR Blog Post - Perspective
Replies: 38
Views: 2767

Re: Another Great Asness/AQR Blog Post - Perspective

I really like this article! And I like his writing style too :-). One of the reasons I like it is that the article gives us a good feel for living through lengthy short periods (his 5 year increments) and how turbulent these can be. Great material for mind experiment to determine risk tolerance and ...
by Random Walker
Thu Dec 11, 2014 3:18 pm
 
Forum: Investing - Theory, News & General
Topic: Another Great Asness/AQR Blog Post - Perspective
Replies: 38
Views: 2767

Re: Asness: "Efficient Frontier Theory for the Long Run"

A great article! A great follow up would be an article looking at the performance of those individual asset classes versus a bogleheadish portfolio combining the three: perhaps 65% S&P 500, 30% bonds, 5% commodities. I bet it would be a strong argument for multi-asset class investing.

Dave
by Random Walker
Thu Dec 11, 2014 12:39 pm
 
Forum: Investing - Theory, News & General
Topic: Another Great Asness/AQR Blog Post - Perspective
Replies: 38
Views: 2767

Re: To Tilt or Not To Tilt, that's the question

For excellent bang for the buck reading, I strongly recommend Larrys brief essay "Effective Diversification in a 3 Factor World". Here's a link to it. http://thebamalliance.com/pdfs/Effective%20Diversification%20in%20a%20Three-Factor%20World%20-%20Larry%20Swedroe.pdf Also, an excellent boo...
by Random Walker
Tue Dec 09, 2014 10:54 am
 
Forum: Investing - Theory, News & General
Topic: To Tilt or Not To Tilt, that's the question
Replies: 52
Views: 2610

Re: Bogle on the past and future of investing

EarlyStart, No I didn't mistype. This is an important concept that I was confused on a while ago as well. The market prices risk. Riskier assets will have their price depressed, resulting in higher expected return. Safer assets will be a bit more expensive, resulting in lower future expected return....
by Random Walker
Tue Dec 09, 2014 10:19 am
 
Forum: Investing - Theory, News & General
Topic: Bogle on the past and future of investing
Replies: 15
Views: 2207

Re: Bogle on the past and future of investing

Harold,
I'll buy that. Small and value are indeed risk premiums and by no means guarantee increased return over any given time span.

Dave
by Random Walker
Mon Dec 08, 2014 7:13 pm
 
Forum: Investing - Theory, News & General
Topic: Bogle on the past and future of investing
Replies: 15
Views: 2207

Re: Bogle on the past and future of investing

Bogle doesn't sound like a believer in the future of small and value. But (and I hate to disagree with Bogle), I feel his logic is faulty. He seems to say that if small and value have potential to generate outsized returns, then the market will bid up their prices to equalize future returns with lar...
by Random Walker
Mon Dec 08, 2014 11:36 am
 
Forum: Investing - Theory, News & General
Topic: Bogle on the past and future of investing
Replies: 15
Views: 2207

Re: HML in a five-factor model

Such a bummer! I very clearly understand why HmL helps explains returns and helps diversify portfolios. "Bad" companies are more stressed, leveraged, volatile earnings, do bad in bad times. I can even handle a four factor model with market, size, value, momentum. But these two other factor...
by Random Walker
Sat Dec 06, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: HML in a five-factor model
Replies: 2
Views: 373

Re: An alternative to alternative investments [QSPIX]

Hi garlandwhizzer, The problem with a portfolio dominated by beta is exposure to only a single risk factor and subsequent volatility. The goal is to dampen portfolio volatility to bring the portfolio's annualized return closer to the weighted average annual return of the portfolio components. Volati...
by Random Walker
Fri Dec 05, 2014 2:00 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: An alternative to alternative investments [QSPIX]

Just saw this interesting data from the above referenced presentation that Cliff Asness made to the Arizona Retirement group. Correlations: Equities to bonds: 0.1 Equities to commodities: 0.2 Equities to value: 0.0 Equities to momentum: 0.0 Equities to carry: 0.3 Equities to defensive: 0.0 Bonds to ...
by Random Walker
Fri Dec 05, 2014 11:54 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: How much do additional sorts add?

Thanks for the info,
How much of the profitability factor do you think is captured in live fund that screen for it?

Dave
by Random Walker
Wed Dec 03, 2014 5:25 pm
 
Forum: Investing - Theory, News & General
Topic: How much do additional sorts add?
Replies: 2
Views: 572

Re: An alternative to alternative investments [QSPIX]

I think strong belief is necessary to stick with a plan. Every style will go out of favor at some point. Knowing historical data is not enough. One has to have confidence in a plausible risk or behavioral story to stay with a plan when it is out of favor. This sort of belief shouldn't vary much over...
by Random Walker
Tue Dec 02, 2014 12:34 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: What is Defensive Investing Strategy?

Sorry BBL, but I'm really confused :-) so would it be fair to say that the portion of the AQR fund dedicated to defensive accesses the same qualities as the profitability factor which is screened for in DFA funds? I understand that AQR would gain more pure exposure to the factor with the long/short ...
by Random Walker
Tue Dec 02, 2014 11:28 am
 
Forum: Investing - Theory, News & General
Topic: What is Defensive Investing Strategy?
Replies: 9
Views: 989

Re: What is Defensive Investing Strategy?

Thanks BBL, So my understanding is that the fund eliminates beta with the long short strategy. I've heard the term buying/selling volatility. Is defensive related to that at all? Your description of defensive sounds a bit like the profitability factor. They go long profitable companies and short the...
by Random Walker
Tue Dec 02, 2014 10:49 am
 
Forum: Investing - Theory, News & General
Topic: What is Defensive Investing Strategy?
Replies: 9
Views: 989

Re: Does a larger portfolio offer benefits when rebalancing?

Big potential advantages to multi-asset class investing. Smooth the ride and bring annualized return closer to average annual return. Strongly reccommend reading the below link: http://www.amcham-shanghai.org/amchamportal/InfoVault_Library/2008/Multiple_Asset_Class_Investing.pdf This is a short pape...
by Random Walker
Tue Dec 02, 2014 9:48 am
 
Forum: Investing - Theory, News & General
Topic: Does a larger portfolio offer benefits when rebalancing?
Replies: 12
Views: 1049

What is Defensive Investing Strategy?

Hi, I'm strongly interested in diversifying across sources of return. I've been looking at the AQR fund which employs value, carry, momentum, and defensive. I have a pretty good idea on the first 3, but don't know what defensive is. Is it related to volatility? Thanks

Dave
by Random Walker
Tue Dec 02, 2014 9:31 am
 
Forum: Investing - Theory, News & General
Topic: What is Defensive Investing Strategy?
Replies: 9
Views: 989

Re: Any Momentum Investors Out There?

I invest in momentum via the momentum screens in DFA funds and am considering the AQR style premia fund. Must admit I've turned into an asset class junkie. I strongly recommend Roger Gibson's Asset Allocation. The book will turn anyone into a multi asset class / multi sources of return investor. The...
by Random Walker
Mon Dec 01, 2014 6:19 pm
 
Forum: Investing - Theory, News & General
Topic: Any Momentum Investors Out There?
Replies: 116
Views: 13692

Re: An alternative to alternative investments [QSPIX]

Alex wrote "why would you want the factor returns but not the rebalancing bonus?" I totally agree with him there is entertaining satisfaction in rebalancing by buying what has gone down. That being said, there is potentially good reason to want factor returns without seeing the rebalancing...
by Random Walker
Mon Dec 01, 2014 4:08 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: An alternative to alternative investments [QSPIX]

Hi Larry, I previously asked a question about how CCFs would mix with this fund in a portfolio. I didn't quite understand your answer. Is there benefit to having both in a portfolio? Would they have overlapping functions in a portfolio? How do they mix? Any information on their correlations? Would t...
by Random Walker
Fri Nov 28, 2014 12:41 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: Why Alpha is getting more elusive

Trading Places said

"As for the stock market, there are two types of investors: (a) those to whom the market appears efficient, and (b) those who make the market efficient."

I really like that quote!

Dave
by Random Walker
Tue Nov 25, 2014 11:03 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3852

Re: Small cap value premium

Lee and Jo Money, Disagree with you both. Excess returns are not a free lunch. They are compensation for taking on more risk. That risk is not just measured in SD. There are many ways to view risk. For example one is doing especially badly in bad times for value companies. The equilibrium is not jus...
by Random Walker
Mon Nov 24, 2014 6:45 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 20011

Re: An alternative to alternative investments [QSPIX]

Hi Larry,
I just added a 4% allocation to CCFs in my equity rich substantially tilted portfolio. How would this fund mix?

Dave
by Random Walker
Mon Nov 24, 2014 4:12 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 272
Views: 31245

Re: Small cap value premium

The market prices risk. So in an efficient market prices adjust to reflect different perceived risks. Since risks can be qualitatively and quantitatively different, expected returns for different asset classes can be different in an efficient market. If the market priced expected return, then prices...
by Random Walker
Mon Nov 24, 2014 3:56 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 20011

Re: "Why Bother With Bonds" -- A Gem

I think a small allocation to bonds is good even for the young aggressive investor. Just a 10% allocation will have a significant effect on portfolio efficiency and probably more importantly instill disciplined behavior in the investor. Way easier to stick with a plan when one has bonds to use for r...
by Random Walker
Wed Nov 05, 2014 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: "Why Bother With Bonds" -- A Gem
Replies: 33
Views: 9214

Re: Asset Allocation by Roger Gibson

Simple Gift, I agree that I've always got the lowest cost all VG total markets portfolio in the back of my mind for comparison. I'm sure that there are decreasing marginal benefits for each additional asset class added to a portfolio. But some of the best diversifies aren't available at VG: internat...
by Random Walker
Tue Oct 28, 2014 5:32 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Allocation by Roger Gibson
Replies: 21
Views: 3087

Re: Asset Allocation by Roger Gibson

I'm curious, of those who are fans of the book and appreciate the improved portfolio efficiency achieved with multi asset class investing, have you all become tilted slice & dice multi asset class investors? For me books like this led me to accept somewhat higher portfolio maintenance costs for ...
by Random Walker
Tue Oct 28, 2014 2:22 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Allocation by Roger Gibson
Replies: 21
Views: 3087

Re: One important role of advisers? - WSJ today

I'm a pretty good boglehead. I've read several financial history books which I believe help build the psychological muscles to stick to a good plan. And I've proved to myself with real money that I can rebalance into down markets. That being said, I turned it over to an advisor in 2009 and have no r...
by Random Walker
Mon Oct 27, 2014 1:11 pm
 
Forum: Investing - Theory, News & General
Topic: Bad Stock-Market Timing Fueled Wealth Disparity
Replies: 9
Views: 1243

Re: Asset Allocation by Roger Gibson

If you don't like the price of the book, read the short summary paper he wrote.

http://www.amcham-shanghai.org/amchampo ... esting.pdf


Dave
by Random Walker
Mon Oct 27, 2014 9:10 am
 
Forum: Investing - Theory, News & General
Topic: Asset Allocation by Roger Gibson
Replies: 21
Views: 3087

Re: Asset Allocation by Roger Gibson

Wouldn't it be interesting to seen a few of those Gibson multi asset class graphs with other asset classes/styles added to the mix: reits, small value, emerging, momentum, etc?

Dave
by Random Walker
Sun Oct 26, 2014 12:57 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Allocation by Roger Gibson
Replies: 21
Views: 3087

Re: Asset Allocation by Roger Gibson

I still think Gibson's Asset Allocation is required reading. He does the best job of explaining how diversification with multiple asset class investing brings a portfolio's annualized return closer to the average return of its components. He makes the strong argument with only 4 or 5 pretty vanilla ...
by Random Walker
Sat Oct 25, 2014 8:08 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Allocation by Roger Gibson
Replies: 21
Views: 3087
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