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Re: Likely impact on equities of interest rate increase

Love the chart. So your opinion is that we could see several rate hikes before the party is over with the S&P 500? It's possible — but there's just too much variation in the relationship between rising interest rates and stock prices to know for sure. The chart below shows what the distribution...
by Simplegift
Sun Mar 01, 2015 12:01 pm
 
Forum: Investing - Theory, News & General
Topic: Likely impact on equities of interest rate increase
Replies: 6
Views: 461

Re: Likely impact on equities of interest rate increase

There's been a few recent studies that identified a "threshold effect," with rising stock prices correlated with rising interest rates up to about 5%-6%, then falling stock prices above 6%. From a New York Times article in June 2013: Doug Ramsey, chief investment officer at the Leuthold Gr...
by Simplegift
Sun Mar 01, 2015 10:27 am
 
Forum: Investing - Theory, News & General
Topic: Likely impact on equities of interest rate increase
Replies: 6
Views: 461

Re: Does More Indexing Mean Less Stock Trading?

Out of curiosity, I looked up a chart of trading volume for the S&P 500 over the past 25 years (below). It does appear that trading volume has decreased significantly since the 2000 tech run-up and crash, even as the market has gone on to reach new highs. I doubt the shrinking trading volume has...
by Simplegift
Sat Feb 28, 2015 7:42 pm
 
Forum: Investing - Theory, News & General
Topic: Does More Indexing Mean Less Stock Trading?
Replies: 8
Views: 646

Does More Indexing Mean Less Stock Trading?

Much has been written in the past few years about the fast-growing percentage of equity fund assets that is passively invested in index funds and ETFs (chart below). Their market share has grown to over 25% of U.S. equity funds and over 15% of global equity funds in the last 20 years. Many commentat...
by Simplegift
Sat Feb 28, 2015 5:37 pm
 
Forum: Investing - Theory, News & General
Topic: Does More Indexing Mean Less Stock Trading?
Replies: 8
Views: 646

Re: Aging Populations and Stock/Bond Market Returns

RAFI have a site with interactive tools - dedicated to demographics and markets http://www.researchaffiliates.com/Our%20Ideas/Insights/DemographicsMarkets/Pages/Home.aspx Very instructive, thanks for the link. Research Affiliates seems to be at the forefront of current research on global aging and ...
by Simplegift
Fri Feb 27, 2015 4:48 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: Aging Populations and Stock/Bond Market Returns

Just for fun, we can make a simple test of the Arnott-Chaves population/return model in the OP by comparing the relative interest rates for the six major countries we've been following in this thread (chart below). Just as the model predicts, those countries with the fastest growing working-age popu...
by Simplegift
Fri Feb 27, 2015 11:17 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: Aging Populations and Stock/Bond Market Returns

Another interesting chart would show the population that is beyond working age, greater than the 70 which is picked as the arbitrary cutoff to estimate retirement. I suspect that all developed economies including the US would show a dramatic increase in numbers of retired over the next decade or so...
by Simplegift
Fri Feb 27, 2015 2:36 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: Aging Populations and Stock/Bond Market Returns

http://i.imgur.com/lDEHWU6.png Data Source: United Nations Population Division After an evening of reflection, what strikes me most strongly about this chart is that our entire known history of stock and bond returns — including the Dimson, Marsh and Staunton global database since 1899, the Shiller...
by Simplegift
Thu Feb 26, 2015 11:58 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: Aging Populations and Stock/Bond Market Returns

So does this mean emerging markets is the place to invest? Not exclusively, no. As part of a globally-diversified equity portfolio, yes — as emerging markets are about 15% of total international market capitalization today (ex-US). There's little doubt that the emerging economies are going to be en...
by Simplegift
Thu Feb 26, 2015 5:33 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: Aging Populations and Stock/Bond Market Returns

I am skeptical of tying a healthy economy to the population growth. Economy should rely on a greater productivity, not on a greater number of workers. You're of course right, Victoria , that a healthy economy depends on BOTH productivity growth and population growth (and here I'm borrowing from a p...
by Simplegift
Thu Feb 26, 2015 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: Is it actually impossible to time market crashes?

Let's face it — the majority of investors are unfortunately performance chasers, buying high and selling low (chart below). While the Boglehead mantra of low cost, passive investing appears to be generally winning the day, the principle of "staying the course" has a long way to go to wides...
by Simplegift
Thu Feb 26, 2015 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: Is it actually impossible to time market crashes?
Replies: 56
Views: 2963

Re: Aging Populations and Stock/Bond Market Returns

Thanks for the post. Lot of good work here and in the article. You're welcome! For those interested in more discussion on this subject, we've had similar Forum topics recently on the effects of aging populations on interest rates around the world here , and its effects on future global GDP growth h...
by Simplegift
Thu Feb 26, 2015 10:45 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Aging Populations and Stock/Bond Market Returns

In 2012, Rob Arnott and Denis Chaves of Research Affiliates published perhaps the largest study ever conducted on the effect on stock and bond returns from changes in the age distribution of populations worldwide. They used 60 years of historical data across more than 100 countries to see what effec...
by Simplegift
Thu Feb 26, 2015 12:57 am
 
Forum: Investing - Theory, News & General
Topic: Aging Populations and Stock/Bond Market Returns
Replies: 31
Views: 3182

Re: 10 Interesting facts about the S&P500

So, when you download the Shiller data that lists price, dividend, and earnings for the S&P composite back to 1871, what exactly is it really showing? From The Hidden History of the S&P 500 : • S&P originally tracked 233 stocks, but it was too hard to maintain daily or hourly quotes on ...
by Simplegift
Wed Feb 25, 2015 9:48 pm
 
Forum: Investing - Theory, News & General
Topic: 10 Interesting facts about the S&P500
Replies: 28
Views: 3521

Re: International PE10 Update

Nice charts, backpacker , thanks! Very clear and informative. There is often the temptation to slightly adjust one's equity allocation (say 5%-10%), based on much lower valuations internationally compared to historical averages, plus the corresponding higher valuations in the U.S. However, I need to...
by Simplegift
Wed Feb 25, 2015 7:38 pm
 
Forum: Investing - Theory, News & General
Topic: International PE10 Update
Replies: 28
Views: 2430

Re: Is it actually impossible to time market crashes?

Or is it still impossible because huge crashes always occur for different reasons that come out of nowhere? The economic contexts for market crashes seldom show any commonality. Most recently, think about the oil embargo in 1973, inflation and the double dip recessions of the 1980s, and the global ...
by Simplegift
Wed Feb 25, 2015 10:12 am
 
Forum: Investing - Theory, News & General
Topic: Is it actually impossible to time market crashes?
Replies: 56
Views: 2963

Re: How do you invest in Frontier Markets?

Since the original post the MSCI reclassification of Qatar/UAE from frontier to emerging has completed. The FM ETF no longer includes these countries, and as a result it has less concentration in the Middle East than it used to. The re-classification of UAE and Qatar also reduced the market cap ava...
by Simplegift
Tue Feb 24, 2015 8:21 pm
 
Forum: Investing - Theory, News & General
Topic: How do you invest in Frontier Markets?
Replies: 51
Views: 2712

Re: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015

Thank you for this - are there corresponding charts for ex-US investing and the impact of the US Dollar for US investors? That would help graphically show currency risk IMO which is talked about but remains a fairly ambiguous topic at least for me... The impact of the U.S. dollar on unhedged intern...
by Simplegift
Tue Feb 24, 2015 3:58 pm
 
Forum: Investing - Theory, News & General
Topic: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015
Replies: 4
Views: 610

Re: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015

Via PM, a Forum member asked about the U.S. dollar/U.S. stock relationship during the 1970s and 1980s (the "super dollar" era). Data for this period wasn't readily available from FRED, but a quick search turned up a relevant study by Mark Hulbert. For the 40 year period from 1974 to 2014, ...
by Simplegift
Tue Feb 24, 2015 11:04 am
 
Forum: Investing - Theory, News & General
Topic: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015
Replies: 4
Views: 610

Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015

There's been several good Forum discussions on the effect of currency fluctuations on our unhedged international stock index funds (for example, here and here ) — but not much on their effect on our domestic U.S. stock holdings. In this post, we'll look briefly at the relationship between changes in...
by Simplegift
Mon Feb 23, 2015 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: Impact of U.S. Dollar on U.S. Stock Returns, 1995-2015
Replies: 4
Views: 610

Re: Worst case scenario

I don't know I'd conclude that. A 90% drop in my stocks, followed by a 150% increase in my stocks, gets me nowhere near even. It gets me to a 75% loss. So I don't think this data really proves the lesson you've identified. Your math may be correct for a single year, but the larger point here is tha...
by Simplegift
Sun Feb 22, 2015 4:34 pm
 
Forum: Investing - Theory, News & General
Topic: Worst case scenario
Replies: 16
Views: 1798

Re: Risk--Again. The common stepping stone

How often do you go into the dictionary to look up a word, and find that only one meaning is listed next to it? Practically never. Technically, almost every word has multiple meanings — and the word "risk" isn't any different, as best I can tell. The dictionary: Risky: Accompanied by or i...
by Simplegift
Sun Feb 22, 2015 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Risk--Again. The common stepping stone
Replies: 57
Views: 3084

Re: Risk--Again. The common stepping stone

How often do you go into the dictionary to look up a word, and find that only one meaning is listed next to it? Practically never. Technically, almost every word has multiple meanings — and the word "risk" isn't any different, as best I can tell.
by Simplegift
Sun Feb 22, 2015 1:45 pm
 
Forum: Investing - Theory, News & General
Topic: Risk--Again. The common stepping stone
Replies: 57
Views: 3084

Re: The Distribution of Individual Stock Returns, 1983-2006

Well, maybe one can look at it from a probabilistic standpoint. Can't say I remember my statistics classes very well, but I do remember that it doesn't take such large number for a sample to be representative of the whole trend. So if the US is the sample, and *IF* we have an equal distribution of ...
by Simplegift
Sun Feb 22, 2015 10:23 am
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1751

Re: The Distribution of Individual Stock Returns, 1983-2006

Upon reflection, the distribution of individual stock returns, in both the OP and the DFA study upthread, reminds me of "the law of the vital few" — otherwise known as the 80-20 rule or the Pareto Principle . It states that, for many events, roughly 80% of the effects come from 20% of the ...
by Simplegift
Sun Feb 22, 2015 8:09 am
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1751

Re: Worst case scenario

These are the worst one-year performances of stock markets around the world since 1900, including an equal-weighted All-World portfolio (from the Dimson, Marsh and Staunton global database). Note these are real (inflation-adjusted) returns. The drops are dramatic, mostly due to world wars or energy ...
by Simplegift
Sat Feb 21, 2015 8:35 pm
 
Forum: Investing - Theory, News & General
Topic: Worst case scenario
Replies: 16
Views: 1798

Re: The Distribution of Individual Stock Returns, 1983-2006

Even at 5% of a portfolio a single stock isn't making much of an impact. By the time you get a dozen or so stocks in a portfolio almost all of the idiosyncratic factors unique to that company hardly play a role. Well, is that really true? If 25% of the companies are the ones making the real returns...
by Simplegift
Sat Feb 21, 2015 8:13 pm
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1751

The Distribution of Individual Stock Returns, 1983-2006

Ever wonder what's going on "under the hood" of your total stock market index fund? Ever been curious about the distribution of winning and losing stocks over time, or the number of super-performers versus the number of duds? While doing other research, I recently ran across this interesti...
by Simplegift
Sat Feb 21, 2015 1:49 pm
 
Forum: Investing - Theory, News & General
Topic: The Distribution of Individual Stock Returns, 1983-2006
Replies: 20
Views: 1751

Re: Correlations Between Human Population and Market Cap?

One of the more intriguing recent studies that looked at the shifting composition of nations' populations and their GDP growth and capital markets was by Rob Arnott and Denis Chaves of Research Affiliates from 2011: Demographic Changes, Financial Markets and the Economy This paper studies the effect...
by Simplegift
Sat Feb 21, 2015 2:21 am
 
Forum: Investing - Theory, News & General
Topic: Correlations Between Human Population and Market Cap?
Replies: 1
Views: 315

Re: Full Faith and Credit

What is the payout of these swaps? Standard CDS contracts include a 40% recovery assumption, I believe, but investors' eventual recovery isn't decided until the auction at default. As you can see below, there is quite a lot of variation in recovery rates from specific country default events: http:/...
by Simplegift
Fri Feb 20, 2015 10:49 pm
 
Forum: Investing - Theory, News & General
Topic: Full Faith and Credit
Replies: 37
Views: 2321

Re: Full Faith and Credit

Whenever questions about "full faith and credit" come up, just for fun, it's interesting to check the market's opinion of the chances of government bond defaults by looking at sovereign debt default swaps (found here ). These are today's prices on the open market of insurance against defau...
by Simplegift
Fri Feb 20, 2015 7:13 pm
 
Forum: Investing - Theory, News & General
Topic: Full Faith and Credit
Replies: 37
Views: 2321

Re: A case for long term government bonds

In a recent article, Mr. Shilling makes a case for long term government bonds based on his premise that we are in a deflationary mode. Apologies for recycling my recent post, but the table below summarizes asset returns during the six deflationary periods since 1900. Surprisingly, even 3-month Trea...
by Simplegift
Thu Feb 19, 2015 2:51 pm
 
Forum: Investing - Theory, News & General
Topic: A case for long term government bonds
Replies: 40
Views: 3083

Re: Mutual fund expense ratios: graphs

I'd like to know what percent of total invested assets are invested in funds with ER above 1%, 2% etc, but couldn't find an easy way to get that data. This chart of active and passive U.S. equity funds will give you a rough idea of the distribution of assets by expense ratio. If current trends hold...
by Simplegift
Thu Feb 19, 2015 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Mutual fund expense ratios: graphs
Replies: 7
Views: 814

Re: Deflation protection

Though there aren't many empirical studies of deflationary shocks in the U.S. economy, the table below summarizes asset returns during the six deflationary periods since 1900. Surprisingly, even 3-month Treasury bills and 10-year Treasury bonds proved to be decent deflation hedges — so holding 30-ye...
by Simplegift
Wed Feb 18, 2015 3:17 pm
 
Forum: Investing - Theory, News & General
Topic: Deflation protection
Replies: 23
Views: 1456

Re: Over the long-run, are there any poor-performing sectors

Image
Source: Credit Suisse Investment Returns Yearbook 2015

Looks like it's been a rough century for U.S. shipbuilders and textile manufacturers!
by Simplegift
Tue Feb 17, 2015 8:17 pm
 
Forum: Investing - Theory, News & General
Topic: Over the long-run, are there any poor-performing sectors?
Replies: 13
Views: 954

Re: Long term bonds in VBTLX/VBMFX

There's no doubt that the duration of Vanguard's Total Bond Index has risen over the past few years as more long-term bonds are included in the Barclay's Aggregate Bond Index (chart below). The duration has gone from under 4 years in 2008 to 5.6 years today. However, for many of us who invest in thi...
by Simplegift
Mon Feb 16, 2015 2:56 pm
 
Forum: Investing - Theory, News & General
Topic: Long term bonds in VBTLX/VBMFX
Replies: 12
Views: 795

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

How do you like it? Nice chart! Honestly, siamond , I think this is about the best we are ever going to do with these simple forecast models. The way they are used by Bogle, Bernstein and others, as a tool to roughly frame investors' expectations for future returns, I believe they are helpful and h...
by Simplegift
Mon Feb 16, 2015 1:28 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1055

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Another key finding (hardly surprising) is that the speculative return is significantly superior to the fundamental return. Rather than applying a "corrective factor" to the basic DDM model — to account for the variation between the valuation of the day and a mean valuation — what are the...
by Simplegift
Mon Feb 16, 2015 12:39 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1055

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Bravo, siamond ! Your extra work in providing these side-by-side comparisons is much appreciated. Looking over the results from the various models, the following observations stood out. Kindly correct me if I've misunderstood anything. I focused particularly on the results from the 1951-2000 period,...
by Simplegift
Mon Feb 16, 2015 1:54 am
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1055

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Feel free to elaborate on what scenarios you'd like to be compared. If it's just a matter of changing a few formulas in a few cells within Excel, then the more scenarios you can produce and compare, the better, in my view. I realize you don't want to create an exhaustive treatise on the subject — b...
by Simplegift
Sun Feb 15, 2015 1:53 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1055

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Siamond, is there a way that you can report the results of all the forecasting models you backtested, so viewers can see an easy side-by-side comparison? It doesn't have to be fancy charts (like the Kitces comparisons below), but could just be a simple table of R^2 values that shows the various fore...
by Simplegift
Sun Feb 15, 2015 12:10 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1055

Re: Expected Returns Spreadsheet (DDM, 1/PE and more)

Thanks for posting the results of all your hard work, siamond. What a monumental amount of backtesting! When I have more time, I'd like to look over your spreadsheets in more detail — but for now, kudos!
by Simplegift
Sat Feb 14, 2015 6:30 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Returns Spreadsheet (DDM, 1/PE and more)
Replies: 16
Views: 1055

Re: Corruption pays (when investing internationally)

Interesting results. I suppose corporate corruption can take many forms, but one subtle form that bothers me greatly, as an investor in emerging market indexes, is massive share dilution. Despite the rapid pace of profit growth in many emerging market companies, their equity base (the number of shar...
by Simplegift
Sat Feb 14, 2015 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Corruption pays (when investing internationally)
Replies: 10
Views: 1281

Re: Future Stock Returns in an Aging World?

The actionable information here is not to change ones well thought out asset allocation plan, but simply to consider revising future return expectations. Longer lifespans plus lower investment returns translates into working longer, saving and investing more, and spending less both pre- and post-re...
by Simplegift
Sat Feb 14, 2015 2:07 pm
 
Forum: Investing - Theory, News & General
Topic: Future Stock Returns in an Aging World?
Replies: 24
Views: 2293

Re: Future Stock Returns in an Aging World?

Not saying now is a rosy time, but that graph does not appear to be the best guide to predicting future growth and stock market returns. A couple of comments: • GDP growth is the sum of productivity growth PLUS population growth. The world population growth rate was 50% higher in 1980 than it is to...
by Simplegift
Sat Feb 14, 2015 11:38 am
 
Forum: Investing - Theory, News & General
Topic: Future Stock Returns in an Aging World?
Replies: 24
Views: 2293

Re: Future Stock Returns in an Aging World?

For perspective on today's productivity growth rates, it's instructive to look at their recent history (chart below). Productivity in mature economies has been trending downward since the 2000 tech crash and in emerging countries since the 2008 financial crisis. In the U.S. (not shown), it's current...
by Simplegift
Sat Feb 14, 2015 8:52 am
 
Forum: Investing - Theory, News & General
Topic: Future Stock Returns in an Aging World?
Replies: 24
Views: 2293

Re: Future Stock Returns in an Aging World?

Todd, I like these series you put together. I missed the one you link to in the OP, showing the relationship between global GDP growth and stock returns. I think estimating causality is tricky in these situations. Thanks. I agree that estimating causality based on simple demographics is tricky — th...
by Simplegift
Sat Feb 14, 2015 12:41 am
 
Forum: Investing - Theory, News & General
Topic: Future Stock Returns in an Aging World?
Replies: 24
Views: 2293

Future Stock Returns in an Aging World?

In a previous discussion , we found that world stock returns, in aggregate, fairly closely tracked and anticipated the year-ahead world GDP growth rate (since equity markets are forward looking). Though there's been little correlation between individual countries' stock returns and their GDP growth,...
by Simplegift
Fri Feb 13, 2015 7:17 pm
 
Forum: Investing - Theory, News & General
Topic: Future Stock Returns in an Aging World?
Replies: 24
Views: 2293

Re: Buffett/Hedge Fund Bet - Protege Partners' Excuses!

The thing I wonder is the expectations of those investing in hedge funds. Do they expect to earn above-market returns over the long run? What is their weighting in hedge funds relative to other assets, and how many do they use? According to a Forbes article from last Fall, the super-rich, high-net-...
by Simplegift
Thu Feb 12, 2015 7:47 pm
 
Forum: Investing - Theory, News & General
Topic: Buffett/Hedge Fund Bet - Protege Partners' Excuses!
Replies: 34
Views: 2514

Re: PriceStats Index Drops to Level Last Seen in 2008

It depends entirely on whether the current drop in consumer prices is temporary or whether it leads to more prolonged deflation. Since the current plunge in inflation is due almost entirely to the plunge in oil prices (chart below), chances are that the drop in inflation will be temporary — especial...
by Simplegift
Thu Feb 12, 2015 5:18 pm
 
Forum: Investing - Theory, News & General
Topic: PriceStats Index Drops to Level Last Seen in 2008
Replies: 3
Views: 412
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