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Re: Another take on the "rebalancing bonus"

Here is an interesting example which someone pointed out to me not too long ago. We all know that really the action in rebalancing comes during market crashes like 2008 where we get to buy shares really cheap and sell them when they rebound. It is not the little nickle and dime rebalancing that make...
by Rodc
Wed Apr 16, 2014 7:16 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Another take on the "rebalancing bonus"

It might be useful to point out to the general forum reader that this debate really does not matter one way or the other. This is one of those dancing on the head of a pin exercises we so often get into that has no real value to investors. Most of us hold a stock and bond portfolio, and most rebalan...
by Rodc
Wed Apr 16, 2014 6:49 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Another take on the "rebalancing bonus"

I did a simulation of rebalancing for the decade 2000-2009, and the bonus was quite noticeable: About 0.3% a year. I would guess there probably has been a rebalancing penalty over recent years since then. Sounds like we are in agreement, sometimes you get lucky and get a small bonus, sometimes you ...
by Rodc
Wed Apr 16, 2014 5:03 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Another take on the "rebalancing bonus"

The problem with your examples are you set them up in a non-random way, they always have some guaranteed return to the mean so you force a greater amount of buy low sell high than exists in the real world. You are arguing about a different point than I was making. Clearly you have not bothered to r...
by Rodc
Wed Apr 16, 2014 7:49 am
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Why are total bond market funds so often recommended?

I'd like to say: "On this side, we've got stocks (she knows stocks), and on this side we've got risk free government bonds." Use TBM, and I have to get into call, prepay, default, etc. risks, or leave her with a portfolio she has an incomplete understanding of. Maybe that's ok. Why you ne...
by Rodc
Wed Apr 16, 2014 7:48 am
 
Forum: Investing - Theory, News & General
Topic: Why are total bond market funds so often recommended?
Replies: 46
Views: 3328

Re: Why are total bond market funds so often recommended?

BTW, SEC Yield is only higher by 0.5% between VBTLX (2.19%) and VFIUX (1.69%). Yes, that's only a 30% differential. Nearly all bondholders would sniff at such a meager increase in income - why bother? :happy Eric Percents in and of themselves are generally not very useful. You need to know percenta...
by Rodc
Wed Apr 16, 2014 7:44 am
 
Forum: Investing - Theory, News & General
Topic: Why are total bond market funds so often recommended?
Replies: 46
Views: 3328

Re: Another take on the "rebalancing bonus"

Rodc: One manufactured point really does not mean anything. I can manufacture one going the other direction. Me: Please manufacture your own point that contradicts mine. I would be interested to see it. cost A shares A total A cost B shares B total B total no rebal $1.00 10.00 $10.00 $1.00 10.00 $1...
by Rodc
Wed Apr 16, 2014 7:31 am
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Another take on the "rebalancing bonus"

Rodc, So I was maybe imprecise. I meant do not move with a correlation coefficient of +1.0. steve_14, In my original post I divided the prices into a trend plus noise. By my definition, the noise is fluctuation about a mean. Yes, it always reverts to the mean, by definition. Any signal can be decom...
by Rodc
Tue Apr 15, 2014 8:38 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Another take on the "rebalancing bonus"

Rodc, So I was maybe imprecise. I meant do not move with a correlation coefficient of +1.0. steve_14, In my original post I divided the prices into a trend plus noise. By my definition, the noise is fluctuation about a mean. Yes, it always reverts to the mean, by definition. Any signal can be decom...
by Rodc
Tue Apr 15, 2014 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Another take on the "rebalancing bonus"

Rodc, So I was maybe imprecise. I meant do not move with a correlation coefficient of +1.0. steve_14, In my original post I divided the prices into a trend plus noise. By my definition, the noise is fluctuation about a mean. Yes, it always reverts to the mean, by definition. Any signal can be decom...
by Rodc
Tue Apr 15, 2014 7:05 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Why are total bond market funds so often recommended?

Perfection is hard to come by so TBM falls into the "pretty good" and "good enough for most uses" buckets. I don't use it myself, but it is a solid low cost well diversified choice. And frankly the different between TBM and intermediate treasury (which I prefer) falls into the ca...
by Rodc
Tue Apr 15, 2014 4:43 pm
 
Forum: Investing - Theory, News & General
Topic: Why are total bond market funds so often recommended?
Replies: 46
Views: 3328

Re: Another take on the "rebalancing bonus"

If the investments are not correlated, there will be rebalancing as they fluctuate relative to each other. And, there will be a bonus by rebalancing across the uncorrelated noise. No, if two investments move randomly, and are uncorrelated, there will be no rebalancing bonus. For example, if you hav...
by Rodc
Tue Apr 15, 2014 4:35 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 42
Views: 2260

Re: Mr. Money Mustache: Hero or Foolish?

Everyone says we need to all be consumers to keep our economy going, but what if we could all just have less stuff, all work less, and all be happier, have more time with our families and strengthen our local communities. I think this would actually make people less happy, but that's another discus...
by Rodc
Tue Apr 15, 2014 3:08 pm
 
Forum: Investing - Theory, News & General
Topic: Mr. Money Mustache: Hero or Foolish?
Replies: 225
Views: 23477

Re: What exactly is a risk premium?

This stood out to me. It seems the risk question is not so important with a long time frame to recover, but that by the time a portfolio becomes significant, there wouldn't be much risk tolerance anymore. That was not quite my point. Say you start by investing $100 a month. A year later maybe you h...
by Rodc
Mon Apr 14, 2014 9:07 pm
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 908

Re: SCV premium is a history/math story, its not scientific

well I guess that it's purely a coincidence that A) After FF original study showing size and value premiums for 63-92, that we now have out of sample tests both before 63 and after 92 that show not only the same premiums but similar size B) We have the same premiums in developed markets all around ...
by Rodc
Mon Apr 14, 2014 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2201

Re: SCV premium is a history/math story, its not scientific

"Larry Swedroe says we should not confuse strategy and outcome, but IMHO it is all but impossible to evaluate strategies in any fundamental way" Consider the following The best example is someone who is married and has young kids and decides to buy life insurance to protect against premat...
by Rodc
Mon Apr 14, 2014 8:10 pm
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2201

Re: The slackening...

Dutch wrote:It seems there's one thing pretty much consistent throughout history: older generations complaining about younger generations.

Not sure who is doing to the slackening.

Now get off my lawn!! :D


A lot of truth in that.
by Rodc
Mon Apr 14, 2014 5:38 pm
 
Forum: Personal Finance (Not Investing)
Topic: The slackening...
Replies: 55
Views: 5143

Re: Stock AA

See this first:

viewtopic.php?f=1&t=6212

More information is need before anyone can offer meaningful advice.
by Rodc
Mon Apr 14, 2014 4:04 pm
 
Forum: Investing - Help with Personal Investments
Topic: Stock AA [Asset Allocation]
Replies: 11
Views: 663

Re: TIPS and the Equity Bear

For a ladder I plan to hold to maturity I really only care about the YTM when I buy and very little to not at all what happens to value between when I buy and maturity. Agreed if you never ever ever will use your TIPS to rebalance which is why the post is titled "... and the equity bear"....
by Rodc
Mon Apr 14, 2014 4:02 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS and the Equity Bear
Replies: 20
Views: 1475

Re: TIPS and the Equity Bear

Two sort of opposite sayings: Learn from your mistakes Generals are always fighting the last war This is certainly fighting the last war, and may or may not be learning something fundamental about TIPS. For a ladder I plan to hold to maturity I really only care about the YTM when I buy and very litt...
by Rodc
Mon Apr 14, 2014 2:39 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS and the Equity Bear
Replies: 20
Views: 1475

Re: New Housing Bubble and upcoming cycle peak

FWIW: article in the Boston Globe today about the increasing use of "We''ll beat your best offer by $5000" clauses in bids on homes for sale, because it is getting so hot around here.

Seems like a sign of a bubble forming... Might go on for years. Or not.
by Rodc
Mon Apr 14, 2014 1:47 pm
 
Forum: Investing - Theory, News & General
Topic: New Housing Bubble and upcoming cycle peak
Replies: 74
Views: 6310

Re: SCV premium is a history/math story, its not scientific

pkcrafter wrote:Rodc wrote:
So the "must" is much too strong.

Ah, yes, I "must" agree.

Paul


Hi Paul,

Thought you might. :)
by Rodc
Mon Apr 14, 2014 11:10 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2201

Re: SCV premium is a history/math story, its not scientific

If they are greater risk than large stocks, they should be cheaper. I do not know the answer to this question: if the e in p/e is expected to grow faster for small companies vs for large (more stagnant?) companies then the use of past e might not be the same as the e the market is using to price sm...
by Rodc
Mon Apr 14, 2014 10:59 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2201

Re: SCV premium is a history/math story, its not scientific

Rodc, are you saying this is not true? stocks are more risky, they must pay out more than bonds to get people to take the risk of stocks. Paul Yes. Due to the fact that risk may well show up. Stocks are more risky so they are (generally) priced so that there is a reasonable statistical expectation ...
by Rodc
Mon Apr 14, 2014 10:54 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2201

Re: What exactly is a risk premium?

6) The crux of my question is this: if one prefers a whole market fund to bonds, t-bills, etc, then why not prefer a high risk asset class over time instead? One can do this. You would want to do it in a way that is very low cost and you would want to avoid too little diversification. In an ideal w...
by Rodc
Mon Apr 14, 2014 10:00 am
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 908

Re: SCV premium is a history/math story, its not scientific

stocks are more risky, they must pay out more than bonds to get people to take the risk of stocks. sounds good, but completely wrong for past 50 years. You lost me here. No one knowledgeable believes the second clause of the first sentence. Indeed as stated you have an oxymoron. A statement that is...
by Rodc
Mon Apr 14, 2014 9:53 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2201

Re: 5 yr TIPs auction announced 4/10- any takers?

2) any data on how much better rolling 4 wk treasuries do for unexpected inflation vs TIPS? I'm not sure I buy the claim. Expected inflation: Why T-bills lead The high correlation of T-bills with expected inflation rates reflects the nature of these securities—short- term, government-guaranteed deb...
by Rodc
Sat Apr 12, 2014 7:53 pm
 
Forum: Investing - Theory, News & General
Topic: 5 yr TIPs auction announced 4/10- any takers?
Replies: 29
Views: 2351

Re: 5 yr TIPs auction announced 4/10- any takers?

I confess I don't really get 5-year TIPS. I worry about inflation in the long run much more than in the short run. Sure I can roll over short TIPS, but easier to buy longer TIPS. "Easy" shouldn't be a factor. (1) The best inflation hedge would be rolling 4 wk Treasuries bills. (2) But you...
by Rodc
Fri Apr 11, 2014 7:47 pm
 
Forum: Investing - Theory, News & General
Topic: 5 yr TIPs auction announced 4/10- any takers?
Replies: 29
Views: 2351

Re: 5 yr TIPs auction announced 4/10- any takers?

I confess I don't really get 5-year TIPS.

I worry about inflation in the long run much more than in the short run.

Sure I can roll over short TIPS, but easier to buy longer TIPS.
by Rodc
Fri Apr 11, 2014 3:33 pm
 
Forum: Investing - Theory, News & General
Topic: 5 yr TIPs auction announced 4/10- any takers?
Replies: 29
Views: 2351

Re: BH Greatest Hits: PE10 predicitive power

The problem with p/e is one year is noisy. The problem with CAPE is it includes years which are no longer relevant. Vanguard found the two methods to have equal predictive power. As I mentioned up-thread: "We confirm that valuation metrics such as price/earnings ratios, or P/Es, have had an in...
by Rodc
Fri Apr 11, 2014 10:25 am
 
Forum: Investing - Theory, News & General
Topic: BH Greatest Hits: PE10 predictive power
Replies: 39
Views: 2727

Re: BH Greatest Hits: PE10 predicitive power

The problem with CAPE is it includes years which are no longer relevant. Vanguard found the two methods to have equal predictive power. I wouldn't call R^2 of 0.43 vs R^2 of 0.38 "equal". A better comparison would be to Price to Peak Earnings or Tobin's Q. While I think the comparison wit...
by Rodc
Thu Apr 10, 2014 12:46 pm
 
Forum: Investing - Theory, News & General
Topic: BH Greatest Hits: PE10 predictive power
Replies: 39
Views: 2727

Re: What next after you have enough sort of.

I'm in a similar boat. I read the other thread as well. To avoid recovering ground others have covered, I would only add that I would start making plans to fully retire in 0 years, 3 years, 6 years, 12 years, or to down shift to half time (or really half pay) in 0, 3, 6, 12 years. So run eight plann...
by Rodc
Thu Apr 10, 2014 10:46 am
 
Forum: Investing - Theory, News & General
Topic: What next after you have enough sort of.
Replies: 31
Views: 3255

Re: The case against small cap value

Boy, the thread started not to tilt then ended up okay let's tilt. Either way let me throw my two cents in. Don't assume those who tilt are avid SCV fanatics. If they were they would be 100% SCV. I think most on here who do tilt, they might not even be aware of why, do it to crease a poor mans equa...
by Rodc
Wed Apr 09, 2014 6:40 pm
 
Forum: Investing - Theory, News & General
Topic: The case against small cap value
Replies: 53
Views: 5075

Re: Rebalancing the whys and hows of it

Bobcat IMO you are confusing strategy with outcome. The investor choose an asset allocation because of the expected returns and risks met his goals and risk profile. Rebalancing keeps that profile, though one should also adjust over time for expected returns to make sure that the AA still meets the...
by Rodc
Wed Apr 09, 2014 4:54 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2222

Re: How to get parents on a better path

Best to realize this is not your problem and anyway you do not have the power to change things. As you note you have tried repeatedly with no success. Why do you think this will change? You probably just add to their woes as they don't want you to nag, and you add to your own woes because you are t...
by Rodc
Wed Apr 09, 2014 4:49 pm
 
Forum: Personal Finance (Not Investing)
Topic: How to get parents on a better path
Replies: 14
Views: 1055

Re: How to get parents on a better path

Best to realize this is not your problem and anyway you do not have the power to change things. As you note you have tried repeatedly with no success. Why do you think this will change? You probably just add to their woes as they don't want you to nag, and you add to your own woes because you are tr...
by Rodc
Wed Apr 09, 2014 3:03 pm
 
Forum: Personal Finance (Not Investing)
Topic: How to get parents on a better path
Replies: 14
Views: 1055

Re: Repainting a bathroom wall

The use of a proper primer may well help and won't hurt and is not expensive. I would suggest an interior wall paint with at least some sheen. My experience is that once you have peeling paint the area remains problematic. Before you sand I suggest you scrape. Often the surrounding paint is only wea...
by Rodc
Wed Apr 09, 2014 2:55 pm
 
Forum: Personal Finance (Not Investing)
Topic: Repainting a bathroom wall
Replies: 8
Views: 548

Re: Carbonite vs Backblaze - an ongoing comp

I had an issue with my computer and decided to just wipe it and start over. After all I had all my non-system files on Carbonite. I forget the exact size, non-trivial, but not gigantic by modern standards either. Maybe 200 or 300 gigs. Well below tera-bites. It worked but took a couple of weeks. I s...
by Rodc
Tue Apr 08, 2014 4:03 pm
 
Forum: Personal Consumer Issues
Topic: Carbonite vs Backblaze - an ongoing comp
Replies: 25
Views: 1070

Re: Anyone else very reluctant to buy right now?

Based on one of Warren Buffet's favorite metrics for determining fair market value, that is total market cap vs. GDP, the market is significantly overvalued right now. Last I checked, total market cap was sitting well over 18 trillion, with GDP closer to 15 trillion. Am I alone in being extremely r...
by Rodc
Tue Apr 08, 2014 1:17 pm
 
Forum: Investing - Theory, News & General
Topic: Anyone else very reluctant to buy right now?
Replies: 124
Views: 11441

Re: Market falling emotions

last few days Anybody who let's a few days here or there up or down get their emotions up or down is in deep trouble. This is entirely meaningless and will happen again and again and again. A few days down will happen in a long up trend and in down trends. This should sort of thing should go by unn...
by Rodc
Tue Apr 08, 2014 1:15 pm
 
Forum: Investing - Theory, News & General
Topic: Market falling emotions
Replies: 31
Views: 2069

Re: How has a Taleb-esque portolfio done recently?

jginseattle wrote:It's been some time since I've read The Black Swan, but, if I remember correctly, Taleb suggests highly leveraging the risky portion of a 90% safe/10% risky portfolio.


I think it is more accurate to use the past tense.
by Rodc
Mon Apr 07, 2014 9:15 am
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3544

Warning: Stocks Will Collapse by 50% in 2014

...How can Hyman be so sure? He has access to a secret Wall Street calendar that has beat the overall market by 250% since 1968. This calendar simply lists 19 investments (based on sectors of the market) and 38 dates to buy and sell them, and by doing so, one could turn $1,000 into as much as $300,...
by Rodc
Mon Mar 31, 2014 4:25 pm
 
Forum: Investing - Theory, News & General
Topic: Warning: Stocks Will Collapse by 50% in 2014
Replies: 21
Views: 2796

Re: Being older/younger in class -- benefits, issues?

I'm strongly in favor of the youngster being at the older range for his grade, not the younger.


That only work in Lake Wobegone.
by Rodc
Mon Mar 31, 2014 3:58 pm
 
Forum: Personal Finance (Not Investing)
Topic: Being older/younger in class -- benefits, issues?
Replies: 98
Views: 4760

Re: Automatically balanced funds. Potentially more profitabl

FWIW: Back to the OP I'm suggesting auto rebalancing actually is more efficient (in tax advantaged accounts) than having slice and dice funds that are only rebalanced yearly. Data say no. In part it depends on what "better" or "more efficient" etc mean. But often due to momentum ...
by Rodc
Mon Mar 31, 2014 3:45 pm
 
Forum: Investing - Theory, News & General
Topic: Automatically balanced funds. Potentially more profitable?
Replies: 12
Views: 810

Re: Automatically balanced funds. Potentially more profitabl

If you need to sell, for whatever awful reason, during hard financial times, you need to use some of the sales proceeds to buy more stock funds to compensate for the stock aspect of the balance fund sold, or are you selling stocks low. This adds some overhead. If the two approaches being compared a...
by Rodc
Mon Mar 31, 2014 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Automatically balanced funds. Potentially more profitable?
Replies: 12
Views: 810

Re: New Friends are the Anti-Bogleheads, what to do?

I agree with the above about focusing on what you have in common. However, you might mention that since they're considering hiring an advisor and one of them is a doctor that they might check out a webpage like...... this one: http://whitecoatinvestor.com/investing/what-you-need-to-know-about-finan...
by Rodc
Mon Mar 31, 2014 3:16 pm
 
Forum: Personal Finance (Not Investing)
Topic: New Friends are the Anti-Bogleheads, what to do?
Replies: 93
Views: 8259

Re: Automatically balanced funds. Potentially more profitabl

livesoft wrote:I will also say that balanced funds, target retirement funds, life strategy funds, etc take the investor's emotions out of it. For example, how many times do we see folks who do not want to rebalance because they have a prediction for the future?


That is indeed a benefit for many.
by Rodc
Mon Mar 31, 2014 12:13 pm
 
Forum: Investing - Theory, News & General
Topic: Automatically balanced funds. Potentially more profitable?
Replies: 12
Views: 810

Re: Is The US Stock Market Rigged? ~ 60 Minutes March 30, 20

I guess I have a lot of reading to do, but is there a short version of how one meaningfully front runs a cap weighted TSM fund with a turn over of only a few percent?
by Rodc
Mon Mar 31, 2014 12:12 pm
 
Forum: Investing - Theory, News & General
Topic: 60 Minutes 3-30-14: Michael Lewis book "Flash Boys"
Replies: 70
Views: 2445

Re: Automatically balanced funds. Potentially more profitabl

How is this in any way better than simply just buying 60% total stock and 40% total bond? A balanced fund is a smidgen less work than a two fund portfolio. You can look up the cost, but likely it is a smidgen higher. I think it is rebalanced daily, but you can probably look that up as well. The dif...
by Rodc
Mon Mar 31, 2014 11:52 am
 
Forum: Investing - Theory, News & General
Topic: Automatically balanced funds. Potentially more profitable?
Replies: 12
Views: 810

Re: Tree stump removal

Sharp ax and pick ax/mattock and just dig it up. Use mattock to dig around the roots and to lever it out. Use ax to cut any major horizontal roots. I've taken out many such stumps and with a little determination you can take out even a rather larger one. I am not large or young, but healthy, and don...
by Rodc
Sun Mar 30, 2014 7:17 pm
 
Forum: Personal Consumer Issues
Topic: Tree stump removal
Replies: 25
Views: 1722
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