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Re: New Vanguard White Paper: "Factor-based investing" (Apr

There is much more to factor investing than just "higher risk/higher reward". What matters is the portfolio as a whole and how its constituent parts contribute to it. Portfolio volatility is a huge drag on portfolio compounded return. By diversifying across sources of return within a portf...
by Random Walker
Sat Apr 18, 2015 9:44 pm
 
Forum: Investing - Theory, News & General
Topic: New Vanguard White Paper: "Factor-based investing" (Apr '15)
Replies: 17
Views: 1791

Re: Fact, Fiction, and Value Investing - Asness/AQR

Actually, An investor could rationally choose growth asset classes. If value stocks are higher risk and higher expected return, then growth stocks are lower risk and lower expected return. Moreover an investor is also choosing between different types of risk. Value stocks tend to do bad in bad times...
by Random Walker
Fri Apr 17, 2015 8:45 pm
 
Forum: Investing - Theory, News & General
Topic: Fact, Fiction, and Value Investing - Asness/AQR
Replies: 9
Views: 891

Re: Does the daily re-balancing undermine asset allocation?

Daily rebalancing is the purest way to maintain one's desired risk profile. But people deviate from this because of difficulty, costs, and evidence of momentum in the market. For individuals, probably makes sense to rebalance rarely: every year or two. For funds that can probably trade much cheaper,...
by Random Walker
Wed Apr 15, 2015 9:34 am
 
Forum: Investing - Theory, News & General
Topic: Does the daily re-balancing undermine asset allocation?
Replies: 13
Views: 1301

Re: AA beyond achievement of your "number"

Think you should read Bernstein's short e-book: the ages of the investor. I should reread it too! Think he addresses your dilemma. Think he basically discusses a very conservative liability matching portfolio for the money you have and will need and a separate elective or risk portfolio for money be...
by Random Walker
Sun Apr 12, 2015 3:19 pm
 
Forum: Investing - Theory, News & General
Topic: AA beyond achievement of your "number"
Replies: 22
Views: 2204

Re: Small cap premium

And I believe, when the risks for size and value shows up is relevant as well. In bad times or when liquidity dries up, lenders will cut off credit to these risky companies first. Doing bad in bad times is a unique risk that deserves a premium as well.

Dave
by Random Walker
Thu Apr 09, 2015 12:14 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap premium
Replies: 32
Views: 2362

Re: Small cap premium

The market prices risk, not returns. So the price of a small stock will not rise to equilibrate the expected return with a large stock. The price of the riskier small stock will be relatively depressed resulting in higher expected return for the smaller stock. I really like the cost of capital story...
by Random Walker
Thu Apr 09, 2015 12:05 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap premium
Replies: 32
Views: 2362

Re: Do you think Ric Edelman is correct, never pay dow mortg

I am a huge fan of paying down/off the mortgage. I've done it, and this is what I learned from the experience. 1. The mortgage interest is likely greater than the interest you'll earn from bonds in your portfolio. 2. The "return" from eliminating mortgage interest is a riskless return. 3. ...
by Random Walker
Sat Apr 04, 2015 10:36 pm
 
Forum: Investing - Theory, News & General
Topic: Do you think Ric Edelman is correct, never pay down mortgage
Replies: 209
Views: 16197

Re: Have P/E Ratios Affected Your Asset Allocation?

But it does not contradict Boglehead philosophy to alter ones AA as his circumstances change. For example, most people will be heavier equities when young amg increase the bond allocation as they near retirement. Someone may have a vague plan in their head as to how they will do that over the years....
by Random Walker
Fri Apr 03, 2015 10:31 am
 
Forum: Investing - Theory, News & General
Topic: Have P/E Ratios Affected Your Asset Allocation?
Replies: 52
Views: 2657

Re: Have P/E Ratios Affected Your Asset Allocation?

I don't know that I would call what I'm discussing market timing. Maybe it could be called long term rare market timing. As we progress through life through accumulation phase and then decumulation phase, we also get more realistic views of our own willingness, need, ability to take risk. We get bet...
by Random Walker
Fri Apr 03, 2015 10:10 am
 
Forum: Investing - Theory, News & General
Topic: Have P/E Ratios Affected Your Asset Allocation?
Replies: 52
Views: 2657

Re: Have P/E Ratios Affected Your Asset Allocation?

When I talk about adjusting the AA, I'm talking about long term, maybe once in a life time alterations. For example, a guy getting close to retirement who has been following a glide path towards 50/50 but sees the recent gains and decides to go straight to 50/50 from something more aggressive rather...
by Random Walker
Fri Apr 03, 2015 7:38 am
 
Forum: Investing - Theory, News & General
Topic: Have P/E Ratios Affected Your Asset Allocation?
Replies: 52
Views: 2657

Have P/E Ratios Affected Your Asset Allocation?

I'm rereading Meb Faber's Global Value. He focuses a lot on CAPE being predictive of future expected returns. First, I'm curious if people have any resources they go to to check out P/E's for different markets. More significantly, I'm curious if people incorporate valuations into their asset allocat...
by Random Walker
Thu Apr 02, 2015 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: Have P/E Ratios Affected Your Asset Allocation?
Replies: 52
Views: 2657

Re: An alternative to alternative investments [QSPIX]

And a small allocation, say <5%, to an expensive fund doesn't increase the overall portfolio expense very much.

Dave
by Random Walker
Mon Mar 30, 2015 10:10 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 319
Views: 39273

Re: Interest in multi asset class investing and crises

I've certainly become an asset class junkie. I've got a 66% equities/24% bonds/10% alternatives portfolio. The equities are tilted to small and value. The alternatives include 3% CCFs, 3% QSPIX,2.5% US REITs, 1.5% Int REITs. I'm a big fan of Roger Gibson's Asset Allocation. But Bernstein's Skating W...
by Random Walker
Sun Mar 29, 2015 10:38 pm
 
Forum: Investing - Theory, News & General
Topic: Interest in multi asset class investing and crises
Replies: 11
Views: 864

Re: Interest in multi asset class investing and crises

I agree with Pauliec84,
I once looked at correlations between SmB, HmL, and market during some of the bad times for equities in the French data library. The lack of correlation between market and the size and value factors held up well.

Dave
by Random Walker
Sun Mar 29, 2015 9:03 pm
 
Forum: Investing - Theory, News & General
Topic: Interest in multi asset class investing and crises
Replies: 11
Views: 864

Re: How do you invest to give back?

Totally agree with Steve M. Donating this way enables one to donate more! Especially after a strong bull market like we have had the last 5 years. One can take some money off the table, rebalance, and maximize the donation this way.

Dave
by Random Walker
Sun Mar 29, 2015 2:20 pm
 
Forum: Investing - Theory, News & General
Topic: How to invest to give back?
Replies: 30
Views: 1866

Re: How do you invest to give back?

My financial advisor enlightened me to this opportunity. An individual can open a separate donor account. Mine is through Schwab Charitable Giving. You then donate shares from your own personal investment accounts to the donor account. For the purposes of taxes, the donation is made when the shares ...
by Random Walker
Sun Mar 29, 2015 2:02 pm
 
Forum: Investing - Theory, News & General
Topic: How to invest to give back?
Replies: 30
Views: 1866

Interest in multi asset class investing and crises

For fans of multi-asset class investing, I've got a question. Does the fact that correlations go to 1 in crises diminish your interest in multi asset class investing?

Dave
by Random Walker
Fri Mar 27, 2015 8:39 pm
 
Forum: Investing - Theory, News & General
Topic: Interest in multi asset class investing and crises
Replies: 11
Views: 864

Re: Asset Class Junkie Reads Bernstein's Skating Where Puck

SimpleGift, That's a nice diagram to see. I think correlations tend to diverge when the markets turn upwards. And I do think there is benefit from even the moderately positive correlations. The contribution of an asset class to portfolio depends on expected return, volatility, correlations. And of c...
by Random Walker
Wed Mar 25, 2015 8:47 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Class Junkie Reads Bernstein's Skating Where Puck Was
Replies: 4
Views: 715

Re: Asset Class Junkie Reads Bernstein's Skating Where Puck

I just bought the AQR Style Premia Fund. It was this expensive purchase of a fund for the sake of its low correlations that made me ponder the asset class addiction and reread Skating Where The Puck Is. The more out in left field one goes with asset classes, the more expensive they get. And I'm sure...
by Random Walker
Wed Mar 25, 2015 7:26 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Class Junkie Reads Bernstein's Skating Where Puck Was
Replies: 4
Views: 715

Asset Class Junkie Reads Bernstein's Skating Where Puck Was

I've been a boglehead for about 15 years. Over this period I've evolved into an asset class junkie. I reread Bernstein's Skating Where The Puck Was over the last couple of days. First of all, like all of Bernstein's books, I recommend it highly. Anyways, the basic tenet of the book is a bit sobering...
by Random Walker
Wed Mar 25, 2015 7:08 pm
 
Forum: Investing - Theory, News & General
Topic: Asset Class Junkie Reads Bernstein's Skating Where Puck Was
Replies: 4
Views: 715

Re: Any other investors with 70/30 portfolio?

I was a little surprised when my advisor described me as 70/30. I'm 66% equities, 24% bonds, 4% REITs, 3% CCFs, 3% QSPIX. The advisor considered REITs equities and CCFs and QSPIX as more fixed income like. I suppose CCFs and QSPIX are way more risky than bonds, but I like the way they mix in the por...
by Random Walker
Fri Mar 13, 2015 10:49 pm
 
Forum: Investing - Theory, News & General
Topic: Any other investors with 70/30 portfolio?
Replies: 71
Views: 8040

Re: 3 Costs Investors Must Control

Regarding minimization of taxes in taxable accounts. Small and value funds can be relatively tax inefficient. Can anyone guesstimate the benefit of using core funds and/or tax managed funds to tilt for taxable investors? Thanks,

Dave
by Random Walker
Thu Mar 05, 2015 8:02 pm
 
Forum: Investing - Theory, News & General
Topic: 3 Costs Investors Must Control
Replies: 61
Views: 5491

Re: Understanding correlations and return

You'll want to read Roger Gibson's book Asset Allocation and possibly Rick Ferri's All About Asset Allocation. The compounded (annualized) return of a portfolio is always less than the weighted simple average return of the components. The drag on the portfolio is due to volatility. Using less than p...
by Random Walker
Mon Mar 02, 2015 1:00 pm
 
Forum: Investing - Theory, News & General
Topic: Understanding correlations and return
Replies: 10
Views: 659

Re: Vanguard Total Bond - Not reccomended by Swedroe??

I think it's fair to say that Larry's belief is that it is more efficient to take the risk on the equity side. So he likes to keep the fixed income side very low risk, which means highest credit quality and shortest duration. I believe that as one increases credit risk and duration risk, the bonds t...
by Random Walker
Fri Feb 06, 2015 5:36 pm
 
Forum: Investing - Theory, News & General
Topic: Vanguard Total Bond - Not reccomended by Swedroe??
Replies: 23
Views: 3880

Re: An alternative to alternative investments [QSPIX]

Sammy M, I agree completely. I think a person simply has to focus on the ride of the entire portfolio. The more likely someone is to focus on individual portfolio components, perhaps the less likely they are to stick with the plan. In a well diversified portfolio, some component is always underperfo...
by Random Walker
Sun Feb 01, 2015 11:56 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 319
Views: 39273

Re: An alternative to alternative investments [QSPIX]

Can't buy past performance, so doesn't make sense to look at cost per unit past performance. Unless you think past performance of an active fund will continue. Of course, no boglehead will depend so heavily on past performance of an active fund to make decisions. But cost per unit of factor exposure...
by Random Walker
Sat Jan 31, 2015 11:57 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 319
Views: 39273

Re: An alternative to alternative investments [QSPIX]

Hi, I'm looking at purchasing this fund through my Fidelity 401K. I see two different share classes: QSPIX and QSPNX. Looks like the QSPNX is a share class with no transaction fee and higher ER and QSPIX is a share class with a transaction fee but higher ER. Both share classes have stated ERs >2%. D...
by Random Walker
Sat Jan 31, 2015 9:56 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 319
Views: 39273

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: 19
Views: 1872

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: 4099

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: 4099

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: 319
Views: 39273

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: 527

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: 1840

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: 1840

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: 319
Views: 39273

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: 968

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: 1964

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: 912

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: 2758

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: 1523

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: 1523

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: 1523

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: 1523

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: 1523

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: 434

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: 319
Views: 39273

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: 2880

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: 2880

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: 2880

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: 2880
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