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Re: in the past there was a period when active outperformed

The question I would have about the interest rate theory is there also a time aspect. In other words is alpha declining over time also and the two may coincidentally be correlated. With more time you have more competition and also less alpha. This was my thought also — correlation does not mean cau...
by Simplegift
Sun Dec 14, 2014 5:55 pm
 
Forum: Investing - Theory, News & General
Topic: in the past there was a period when active outperformed
Replies: 30
Views: 1580

Re: in the past there was a period when active outperformed

This idea came up in another thread , but there is at least some rationale for why actively-managed funds and hedge funds do better with rising and higher interest rates. One particular study (chart below) looked at the relationship between 5-year U.S. Treasury yields and the alpha levels of the Hed...
by Simplegift
Sun Dec 14, 2014 5:19 pm
 
Forum: Investing - Theory, News & General
Topic: in the past there was a period when active outperformed
Replies: 30
Views: 1580

Re: Global Outlook by Region

Basic demographics suggests that most of the economic growth in the coming decades will be in the emerging and frontier economies. The advanced economies, especially Japan and Europe, have rapidly aging populations today, work forces that are beginning to shrink and fast rising old-age dependency ra...
by Simplegift
Tue Dec 09, 2014 12:27 am
 
Forum: Investing - Theory, News & General
Topic: Global Outlook by Region
Replies: 5
Views: 669

Re: International Stock Diversification — A New Look

But what gives me pause is a question: to what extent are small cap stocks (domestic or international) immune to this revenue drift? Appreciate your kind words, woof755 . In researching this topic, I did run across some regional data on the percentage of foreign revenues for small cap stocks (table...
by Simplegift
Sat Dec 06, 2014 6:39 pm
 
Forum: Investing - Theory, News & General
Topic: International Stock Diversification — A New Look
Replies: 57
Views: 7707

Re: Most stocks are losers - golden swans drive returns of i

William Bernstein wrote about the "super stock" phenomenon years ago, but he happened to pick the 1989-1999 time period to analyze, when a few tech stocks were driving the majority of the index returns. It's good to see another study looking at a wider time frame (1980-2013) that comes to ...
by Simplegift
Fri Dec 05, 2014 7:29 pm
 
Forum: Investing - Theory, News & General
Topic: Most stocks are losers - golden swans drive returns of index
Replies: 21
Views: 2637

Re: Interest Rates — How Low, For How Long?

I find the increasing savings rate in emergency economies very perplexing. Essentially, what must be happening is that as wages and incomes increase, people are keeping their spending constant and putting the additional funds into savings. Unless they are export oriented economies, how can their ec...
by Simplegift
Fri Dec 05, 2014 6:04 pm
 
Forum: Investing - Theory, News & General
Topic: Interest Rates — How Low, For How Long?
Replies: 14
Views: 1681

Re: Interest Rates — How Low, For How Long?

Is Japan an example? I would say that Japan, demographically, is an example for many European countries today such as Germany, Italy, Spain and Poland, who are all expected to have old-age dependency ratios (the proportion of retired workers to active workers) that rise to well over 50% in the comi...
by Simplegift
Fri Dec 05, 2014 2:23 pm
 
Forum: Investing - Theory, News & General
Topic: Interest Rates — How Low, For How Long?
Replies: 14
Views: 1681

Re: Interest Rates — How Low, For How Long?

You are dead wrong. Everyone on this board knows for sure that interest rates have nowhere to go but up, up, up! Just kidding... It's been interesting to read about the "bond conundrum" this year. The Fed began reducing its pace of bond purchases in January 2014. From $85 billion, it has ...
by Simplegift
Fri Dec 05, 2014 12:23 pm
 
Forum: Investing - Theory, News & General
Topic: Interest Rates — How Low, For How Long?
Replies: 14
Views: 1681

Re: Interest Rates — How Low, For How Long?

Just to add: For perspective on how unprecedented and unique today's low interest rates are, the charts below show historical interest rates for three (now) advanced countries extending back 200-500 years: http://i.imgur.com/6gH0lQ8.png http://i.imgur.com/13soT9D.png Source: Deutsche Bank
by Simplegift
Fri Dec 05, 2014 10:01 am
 
Forum: Investing - Theory, News & General
Topic: Interest Rates — How Low, For How Long?
Replies: 14
Views: 1681

Interest Rates — How Low, For How Long?

Despite its title, this post is not an attempt to forecast future interest rates. Rather, it takes a deeper look at the fundamental factors that have been driving interest rates worldwide over the long term. For the sake of discussion, we can simplify the determinates of global real interest rates a...
by Simplegift
Fri Dec 05, 2014 12:14 am
 
Forum: Investing - Theory, News & General
Topic: Interest Rates — How Low, For How Long?
Replies: 14
Views: 1681

Re: Investment product idea: Splitting up Total US Stock

I thought it would be interesting to see how big each of these indexes would be relative to each other: i.e. what percentage of the Total US Stock Market Index is dividend paying vs not dividend paying. Sadly, I don't have the answer after a couple of quick searches. BUT, I did find this article wh...
by Simplegift
Thu Dec 04, 2014 1:15 pm
 
Forum: Investing - Theory, News & General
Topic: Investment product idea: Splitting up Total US Stock
Replies: 16
Views: 1508

Re: European underperformance - here to stay?

Regarding European companies' growing sales and profits in emerging markets, there was an interesting article in Foreign Affairs earlier this year, which outlined the advantages that many European companies enjoy today in becoming established in emerging countries, based on their colonial heritage i...
by Simplegift
Thu Dec 04, 2014 12:51 pm
 
Forum: Investing - Theory, News & General
Topic: European underperformance - here to stay?
Replies: 32
Views: 2401

Re: Strong Dollar Clobbers Returns of Foreign-Stock Funds

Nice chart, stratton, thanks. For a look at the same data set over the last decade:

Image
Source: Deutsche Asset Managment
by Simplegift
Wed Dec 03, 2014 6:52 pm
 
Forum: Investing - Theory, News & General
Topic: Strong Dollar Clobbers Returns of Foreign-Stock Funds
Replies: 26
Views: 2663

Re: What's your take on International Bonds?

I'm not saying the US govt is or will definitely become a shaky credit, just pointing out the implicit assumption in your idea of declining value of international bond diversification: that there won't be a reason to diversify credit exposure away from the US govt. I can see your point, if there wa...
by Simplegift
Wed Dec 03, 2014 5:56 pm
 
Forum: Investing - Theory, News & General
Topic: What's your take on International Bonds?
Replies: 9
Views: 820

Re: What's your take on International Bonds?

With the free flow of capital around the world, real (inflation-adjusted) interest rates are mostly determined globally today. In fact, world interest rates increasingly move in tandem, which suggests there's now a global real interest rate, determined by the supply and demand for capital in a globa...
by Simplegift
Wed Dec 03, 2014 2:07 pm
 
Forum: Investing - Theory, News & General
Topic: What's your take on International Bonds?
Replies: 9
Views: 820

Re: European underperformance - here to stay?

Thoughts? Is Europe going to underperform long-term? There's no doubt that the domestic economies of Europe and Japan are struggling (aging populations, shrinking workforces, declining economic growth), but the companies of Europe derive over 50% of their revenues from the U.S, emerging markets and...
by Simplegift
Wed Dec 03, 2014 12:18 pm
 
Forum: Investing - Theory, News & General
Topic: European underperformance - here to stay?
Replies: 32
Views: 2401

Re: Quantifying losses due to turnover?

raven15 wrote:My understanding is that turnover is a significant drag on a fund's performance. My question is, how much?

These are the results of one study that quantified the trading costs of equity fund turnover:

Image
Chart Source: Wall Street Journal
by Simplegift
Sun Nov 30, 2014 9:51 pm
 
Forum: Investing - Theory, News & General
Topic: Quantifying losses due to turnover?
Replies: 8
Views: 740

Re: stay the course

What happened to holding periods in the 1950s? It's hard to say exactly, as stock holding periods fluctuated in the post-war period. What's fascinating is that the 1920s and early 1930s were also a time of high stock turnover, reflecting the speculative tenor of stock investing at that time, I supp...
by Simplegift
Sun Nov 30, 2014 1:05 pm
 
Forum: Investing - Theory, News & General
Topic: stay the course
Replies: 19
Views: 2476

Re: World Stock Returns & GDP Growth, 1988-2013

Or does the intercept reflect the average portion of GWP growth generated by private businesses and not by listed stock companies? An interesting question. As Arnott and Bernstein pointed out in their 2002 paper , investors can't expect to participate in the growth of the world economy as a whole. ...
by Simplegift
Sun Nov 30, 2014 1:47 am
 
Forum: Investing - Theory, News & General
Topic: World Stock Returns & GDP Growth, 1988-2013
Replies: 10
Views: 1413

Re: stay the course

For those like Mr. Carret, who were "patient" stock investors 50 years ago, the world has certainly changed.

Image
Source: Business Insider
by Simplegift
Sat Nov 29, 2014 6:05 pm
 
Forum: Investing - Theory, News & General
Topic: stay the course
Replies: 19
Views: 2476

Re: World Stock Returns & GDP Growth, 1988-2013

In a PM, a Forum member asked about the growth-return relationship for the United States alone, since it's about one-half of global market cap and one-third of global GDP these days. Plus, I imagine there are more than a few Bogleheads with an all-U.S. equity portfolio, in line with Mr. Bogle's symp...
by Simplegift
Sat Nov 29, 2014 1:21 pm
 
Forum: Investing - Theory, News & General
Topic: World Stock Returns & GDP Growth, 1988-2013
Replies: 10
Views: 1413

Re: World Stock Returns & GDP Growth, 1988-2013

^^^ Good point. Probably like so many financial indicators it's likely only helpful at the extremes. In other words, global growth projections of 1% or 4% might be useful, but not so much anything in between.
by Simplegift
Sat Nov 29, 2014 2:17 am
 
Forum: Investing - Theory, News & General
Topic: World Stock Returns & GDP Growth, 1988-2013
Replies: 10
Views: 1413

World Stock Returns & GDP Growth, 1988-2013

This post investigates the relationship between economic (GDP) growth and stock market returns. Most of us are familiar with the past research on individual countries (from Vanguard here and Dimson, Marsh and Staunton here ) — and the first analysis below, for both developed and emerging markets, co...
by Simplegift
Sat Nov 29, 2014 12:55 am
 
Forum: Investing - Theory, News & General
Topic: World Stock Returns & GDP Growth, 1988-2013
Replies: 10
Views: 1413

Re: Effect of lower oil prices on interest rates?

Trying to predict the future direction of interest rates is mostly a fool's errand, I feel, but my sense is that much larger factors than just oil prices, such as the global supply-and-demand for capital, mostly determine real interest rates. Some folks get paid to opine on these matters, so we can ...
by Simplegift
Fri Nov 28, 2014 3:55 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of lower oil prices on interest rates?
Replies: 6
Views: 1151

Re: Things I've Learned from Gene [Fama] by Ken French

Thanks for the link to Ken French's remarks, Robert T. It's refreshing to get some insight into the personal qualities and personalities of these folks — when almost all of our other exposure to them is through their intellectual work and professional papers. A nice read indeed!
by Simplegift
Thu Nov 27, 2014 11:51 am
 
Forum: Investing - Theory, News & General
Topic: Things I've Learned from Gene [Fama] by Ken French
Replies: 1
Views: 618

Re: POLL: Attitude Towards Risk

This poll proves scientifically that Bogleheads are incapable of reaching a firm consensus about anything! :wink: Which is actually good for a discussion forum, I believe, as each individual participant then has to decide what's the right choice for them personally. The less "group think" ...
by Simplegift
Wed Nov 26, 2014 4:43 pm
 
Forum: Investing - Theory, News & General
Topic: POLL: Attitude Towards Risk
Replies: 75
Views: 3958

Re: Shiller CAPE 10 — Why So High These Days?

So you're forecasting 50 years of peace, prosperity and brotherly love then? Not quite. The market will fall significantly at some point, as all markets do — but it's difficult to see how it will fall to an extent that sustainably restores historical CAPE averages (16 or below). Of course, if we ex...
by Simplegift
Wed Nov 26, 2014 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 2955

Re: Shiller CAPE 10 — Why So High These Days?

Although it's very difficult to say what the nature of the event will be, the chance that everything will just go swimmingly is pretty low. Agreed that unforeseen disaster is much more likely than a few decades of smooth sailing. Certainly the probability of something unforeseen negatively affectin...
by Simplegift
Wed Nov 26, 2014 2:19 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 2955

Re: Shiller CAPE 10 — Why So High These Days?

One factor contributing to high CAPE 10 valuations in recent decades that hasn't been mentioned so far is the strong and growing profit margins for S&P 500 companies since 1992 (chart below). This has been a very robust trend that rebounded strongly after both the 2000 and 2008 market crashes an...
by Simplegift
Wed Nov 26, 2014 10:38 am
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 2955

Re: Shiller CAPE 10 — Why So High These Days?

Shiller PE ratio is almost useless in telling us where the market is going in the next year. But it is breath-takingly powerful in telling us what kinds of returns to expect on a five to ten year basis. And the Shiller PE ratio is telling us don't expect much return over the next five to ten years....
by Simplegift
Tue Nov 25, 2014 9:53 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 2955

Re: How did you handle the 2008 bear market ?

The 2008 market crash was unique to my experience, as it had an element of "existential fear" about the continued viability of the global financial system that I'd not personally felt before. In 1987, the market crash was brief and soon inconsequential. The 2000 tech crash had a big emotio...
by Simplegift
Tue Nov 25, 2014 4:47 pm
 
Forum: Investing - Theory, News & General
Topic: How did you handle the 2008 bear market ?
Replies: 79
Views: 6272

Re: Shiller CAPE 10 — Why So High These Days?

Historically, does the level of government bond yields help explain the level of CAPE 10? Over the long-term, there's been a fairly strong inverse relationship between PE10 and interest rates — which makes sense from the opportunity cost angle: when bond yields are relatively high, investors are le...
by Simplegift
Tue Nov 25, 2014 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 2955

Re: Safe Withdrawal Rates - Is the 4% rule still good?

Why do you assume that future asset returns for retirees today will be anything like past historical returns? For the time periods used in both the Bengen Study and the Trinity Study (the 1920s to the 1990s), the average U.S. asset returns were about 2.5% real for bonds and 8% real for stocks. Reaso...
by Simplegift
Tue Nov 25, 2014 2:26 pm
 
Forum: Investing - Theory, News & General
Topic: Safe Withdrawal Rates - Is the 4% rule still good?
Replies: 84
Views: 7965

Shiller CAPE 10 — Why So High These Days?

This post is a duplicate from a recent thread, but the points are important enough that they deserve wider exposure and discussion, I believe. It summarizes a long-winded blog post from Philosophical Economics last year, in which the author provides much needed historical context to the levels of th...
by Simplegift
Tue Nov 25, 2014 12:49 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller CAPE 10 — Why So High These Days?
Replies: 38
Views: 2955

Re: Will stocks beat bonds over next 30 years?

To continue to get positive spec return, PE has to keep going up and up. ........ I would be willing to bet that the blue line is negative at 2030. [This is just another way of saying that I think in 2030 P/E10 < 44.] Right, grayfox . From today's lofty valuations, I believe the best we can hope fo...
by Simplegift
Tue Nov 25, 2014 10:38 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5861

Re: Why Alpha is getting more elusive

IMO this is cause (selling active management) that is looking for an excuse and trying to concoct one. You may be right, Larry — but If this is the hedge fund industry looking for an excuse, then you should be prepared for their arguments. Just last week, there was another article attributing the d...
by Simplegift
Tue Nov 25, 2014 10:11 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3530

Re: Will stocks beat bonds over next 30 years?

So wondering if you feel if there are normalizing factors on historic vs modern PE ratios? Certainly yes. Due to just the changing accounting standards alone, the reported earnings numbers are not consistent across time. I'm not aware of any published CAPE data series that actually tries to incorpo...
by Simplegift
Tue Nov 25, 2014 1:05 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5861

Re: Why Alpha is getting more elusive

The logic of causation, as I understand the argument above, is that higher interest rates increase the cost of capital for businesses, leading to increased differentiation in the performance of companies with different capital structures. Companies with thin operating margins and too much leverage w...
by Simplegift
Tue Nov 25, 2014 12:45 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3530

Re: Why Alpha is getting more elusive

My first impression of the article's chart was that of the similarity of pattern to historic LIBOR. Could it be that alpha is higher in periods of relatively high interest rates, lower in periods of lower interest rates? Intriguing idea, Clive . A quick search turned up one study (chart below) that...
by Simplegift
Mon Nov 24, 2014 7:45 pm
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3530

Re: Update on the ascent of CAPE

The Shiller PE10 valuation measure just keeps trucking along. ………. Waiting and watching.... Over the last century and a quarter, the Shiller PE10 ratio has been below average in three types of environments (chart below): 1) war (destructive violence between countries or within countries) 2) high in...
by Simplegift
Mon Nov 24, 2014 3:05 pm
 
Forum: Investing - Theory, News & General
Topic: Update on the ascent of CAPE
Replies: 19
Views: 1556

Re: Will stocks beat bonds over next 30 years?

Just to test the oft-repeated forecasting assumption that "changes in stock market multiples tend to cancel out to zero over long holding periods," the chart below shows the annualized changes in PE10 over rolling 30-year and 50-year periods, using the Shiller data for the S&P 500, 188...
by Simplegift
Sun Nov 23, 2014 4:23 pm
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5861

Re: Will stocks beat bonds over next 30 years?

grayfox wrote:What would the forecast be if there was mean reversion?

Nice analysis, grayfox, thanks. But I think you've reached the limits of your forecast model — if someone told you they could predict mean reversion for either bond or stock valuations, they would not be very believable, in my view.
by Simplegift
Sun Nov 23, 2014 11:29 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5861

Re: What would be the investing strategy for a coming crash?

I think you probably agree with me that the looks-like-more-than-95% drop following World War II should not "count?" Although Dimson & al do count it, and include it when they give the real return from 1900 through 2013 as 4.1%. If you take the view that everything should "count,...
by Simplegift
Sat Nov 22, 2014 3:27 pm
 
Forum: Investing - Theory, News & General
Topic: What would be the investing strategy for a coming crash?
Replies: 82
Views: 9326

Re: What would be the investing strategy for a coming crash?

Thus, I personally think that Japan 1990-2014 should "count," but that the far worse crash, Japan 1946-1948, shouldn't. Agree that Japan 1990-2014 should count — as it can likely be seen as a precursor for many other developed nations in the coming decades. Japan has the most rapidly agin...
by Simplegift
Sat Nov 22, 2014 11:51 am
 
Forum: Investing - Theory, News & General
Topic: What would be the investing strategy for a coming crash?
Replies: 82
Views: 9326

Re: CA int municipal bond fund vs. Vanguard int muni fund

Agree with ogd here. As mentioned upthread, 50% of the bond portfolio maximum in municipals is what I've seen recommended (see "Taxable Ted" in William Bernstein's Four Pillars of Investing ). And no more than one-quarter or one-third of the bond portfolio in single-state munis. This has b...
by Simplegift
Tue Nov 18, 2014 3:19 pm
 
Forum: Investing - Help with Personal Investments
Topic: CA int municipal bond fund vs. Vanguard int muni fund
Replies: 32
Views: 2621

Re: Is investing more risky today today than before the inte

With the internet and the digital age do you feel investing is more or less risky, or the same? The behavioral risks are certainly greater. If one panics during a market correction or crash, it's much easier to sell or make portfolio changes with a few clicks of the mouse. Before the internet, one ...
by Simplegift
Tue Nov 18, 2014 10:27 am
 
Forum: Investing - Theory, News & General
Topic: Is investing more risky today today than before the internet
Replies: 30
Views: 3485

Re: Portfolio Returns — Bright Light on the Far Horizon?

fwiw, There's no evidence that demographics are destiny in terms of returns. Good point, they are not directly related. But Dimson, Marsh and Staunton in their 2014 Global Returns Yearbook report a relationship between aggregate GDP growth and real equity returns (at least for developed countries, ...
by Simplegift
Mon Nov 17, 2014 10:13 am
 
Forum: Investing - Theory, News & General
Topic: Portfolio Returns — Bright Light on the Far Horizon?
Replies: 5
Views: 1127

Re: Portfolio Returns — Bright Light on the Far Horizon?

Or will other factors intervene? Other factors often do intervene. In fact, it's common for emerging economies to experience a " middle income trap ," where they've lost their competitive edge in exporting manufactured goods (because their wages are on the rise), but they're not able to k...
by Simplegift
Sun Nov 16, 2014 8:49 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Returns — Bright Light on the Far Horizon?
Replies: 5
Views: 1127

Portfolio Returns — Bright Light on the Far Horizon?

Many recent Forum topics have focused on the "low return future" and today's historically low yields and high asset prices across the board. A few of the discussion themes have been: • Lower global GDP growth, as rates of population growth and productivity are both declining. • Low real in...
by Simplegift
Sun Nov 16, 2014 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: Portfolio Returns — Bright Light on the Far Horizon?
Replies: 5
Views: 1127

Re: Joel Greenblatt: Market Cap weighted indexes not recomme

Vanguard has nice research report showing that equal-weighted and fundamental indexes are simply more tilted to smaller stocks and value stocks than the broad market, cap-weighted indexes (chart below). If the small and value factors outperform, the alternative indexes will outperform (and vice vers...
by Simplegift
Sat Nov 15, 2014 10:12 pm
 
Forum: Investing - Theory, News & General
Topic: Joel Greenblatt: Market Cap weighted indexes not recommended
Replies: 15
Views: 2648
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