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Re: Aftershock investor- an anti boglehead read

At what point does one conclude that the view that QE will cause runaway inflation, gold to go to $10,000 etc. is wrong? We've been hearing that for many years now. Perhaps it would be better to take advice from those who can explain why QE has been neither inflationary nor stimulative. Prof Scott ...
by Verde
Fri Oct 25, 2013 10:51 am
 
Forum: Investing - Theory, News & General
Topic: Aftershock investor- an anti boglehead read
Replies: 17
Views: 2501

Re: Why a 2% Inflation Target by the Federal Reserve

What would be the theoretical----&/or practical---- reason(s) be behind the Fed's inflation target of 2% over the intermediate term? Part of me wonders why it wouldn't be better to target inflation at 0%? Could it be that there needs to be a certain percentage of monetary "slop" in th...
by Verde
Thu Sep 19, 2013 6:49 am
 
Forum: Investing - Theory, News & General
Topic: Why a 2% Inflation Target by the Federal Reserve
Replies: 7
Views: 808

Re: Pensions, actuaries, and stocks for the long run

If a pension fund has sufficient assets to pay its liabilities when they fall due because of good historic returns this is proof that the gdp at that time is capable of bearing the burden placed on it by these payments. It shows that there are investors who are willing and able to exchange their inc...
by Verde
Fri Aug 02, 2013 6:34 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

So what if GDP growth is zero? Assets held can still return dividends forever to pay benefits. Are you saying this infinite income should have a zero discount rate? No matter what the dividend yield, the discount rate is zero? That dividend yield is completely irrelevant to sustainability of pensio...
by Verde
Fri Aug 02, 2013 3:39 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

Gdp should obviously be allocated to the legitimate owners thereof – the rightful claims of pensioners entitle them to a portion of gdp. It can however only be paid out of income produced by the efforts of the then active economic participants – either by taxing that income or by selling assets to ...
by Verde
Thu Aug 01, 2013 4:08 pm
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

The selection of the discount rate, the estimate of investment returns, is a big deal because it can halve or double the amount of current contributions and taxes needed for sustainability, just as an individual's investment return determines how much they need to save for retirement. Individuals c...
by Verde
Thu Aug 01, 2013 3:52 pm
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

The fact is public db pensions are guaranteed. Government has the power to raise taxes in future to pay these benefits. If we expect that these future payments will make up an unsustainable % of future income(gdp) then we must conclude that pensions are underfunded. If these liabilities are sustaina...
by Verde
Thu Aug 01, 2013 5:36 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

Because some of the gdp is return on capital (profits or interest) and some of that capital is owned by retired people. If you allocate the entire gdp the active workers then retired workers are not getting any. It would indeed be theft if the entire gdp is allocated to active workers, thereby flou...
by Verde
Thu Aug 01, 2013 2:53 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

There is certainly a way to fund retirement which does not involve transfers from the economically active to pensioners: store goods. This method can, in theory, work even if there is no next generation. This has been done in the past, some homesteaders would build an enormous wood pile while they ...
by Verde
Wed Jul 31, 2013 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

A government anticipating a demographic bulge of retirees (and they are easy to anticipate) could do a lot worse than ensuring that infrastructure is in tip-top condition. This is just one way to set aside a portion of current production for future consumption. What about the 'crowding out' effect?...
by Verde
Wed Jul 31, 2013 10:37 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

A government anticipating a demographic bulge of retirees (and they are easy to anticipate) could do a lot worse than ensuring that infrastructure is in tip-top condition. This is just one way to set aside a portion of current production for future consumption. What about the 'crowding out' effect?
by Verde
Wed Jul 31, 2013 2:30 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

Individuals can sacrifice (save) current consumption to fund future consumption. If they want this future consumption to be guaranteed they should use a liability matching strategy. In simple terms the discount rate used to calculate the amount to be saved should be the real yield on long term treas...
by Verde
Tue Jul 30, 2013 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

If you subscribed to the viewpoint below – what discount rate would you regard as appropriate to value and fund public db pension liabilities? From a macro-economic perspective the payment of pension benefits always imposes a burden on the members of society who are economically active when the paym...
by Verde
Tue Jul 30, 2013 11:28 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

Taxpayers have some choices about how to raise the money to pay the debt. I disagree, taxpayers don’t get to make any decisions, voters have that privilege. I live in a country where voters make up 70% of the adult population, but taxpayers only 5%. In any event none of this means S&L governmen...
by Verde
Mon Jul 29, 2013 6:09 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Pensions, actuaries, and stocks for the long run

Great discussion, good arguments on both sides. I think this might be a case where micro (finance theory) and macro contradict each other. Bobcat2 presents proof that standard finance theory and some big names in that discipline supports the use of a risk free discount rate to value guaranteed benef...
by Verde
Mon Jul 29, 2013 5:52 am
 
Forum: Investing - Theory, News & General
Topic: Pensions, actuaries, and stocks for the long run
Replies: 155
Views: 11179

Re: Is there a long-term decline in returns on US equities?

Transaction costs have declined over this period, the after costs trend line would show less of a decline.
I agree with Statsguy, I also think markets are generally less risky due to a number of factors than 130 years ago.
by Verde
Mon Jun 24, 2013 9:28 am
 
Forum: Investing - Theory, News & General
Topic: Is there a long-term decline in returns on US equities?
Replies: 22
Views: 1916

Re: Modern Portfolio Theory

The earth shattering revelation I got from MPT was the distinction between market risk and specific risk. The fact that the market does not price the diversifiable specific risk an undiversified portfolio is exposed to. The market only discounts market risk, if you fail to diversify fully you don’t ...
by Verde
Sat Jun 22, 2013 1:27 pm
 
Forum: Investing - Theory, News & General
Topic: Modern Portfolio Theory
Replies: 89
Views: 6962

Re: Do you believe stocks are safer the longer they are held

Stocks are "less risky" in the longterm in the way people mean it -- to their portfolio. (only academics are talking about stock, in a vacuum, are more "risky"). ie, if you invested 1k in 1929 all in the equity index, you'd be feeling pretty good right about now. You wouldn't be...
by Verde
Wed May 08, 2013 9:39 am
 
Forum: Investing - Theory, News & General
Topic: Do you believe stocks are safer the longer they are held?
Replies: 80
Views: 3703

Re: Do you believe stocks are safer the longer they are held

Do you believe bonds are safer the longer they are held? I believe that what is determined by the length of the holding period is the safest asset. In the theory of portfolio selection the risk-free (safest) asset is defined as the security that offers a perfectly predictable rate of return in term...
by Verde
Wed May 08, 2013 8:37 am
 
Forum: Investing - Theory, News & General
Topic: Do you believe stocks are safer the longer they are held?
Replies: 80
Views: 3703

Re: Standard Deviation Calculation Help

To convert annual sd to monthly sd you divide by sqrt(12).
So 17.38/sqrt(12) = 5.02

Hope that helps.
by Verde
Wed May 08, 2013 4:11 am
 
Forum: Investing - Theory, News & General
Topic: Standard Deviation Calculation Help
Replies: 9
Views: 605

Re: Do you believe stocks are safer the longer they are held

Yes our estimate of the future mean return may be in error. That was the point I was making. If we knew the "true" future mean return of equities then investing in equities would involve roughly the same amount of risk regardless of the holding period, because we would be closing in on th...
by Verde
Tue May 07, 2013 10:54 am
 
Forum: Investing - Theory, News & General
Topic: Do you believe stocks are safer the longer they are held?
Replies: 80
Views: 3703

Re: Do you believe stocks are safer the longer they are held

I see Bodie's argument was mentioned (that higher option prices with longer time horizons proves that risk increases with time). So I am reposting a post of mine from years ago, maybe someone can answer my question. IIRC, Bodie concluded that the cost of insuring against earning less than the risk-f...
by Verde
Tue May 07, 2013 10:39 am
 
Forum: Investing - Theory, News & General
Topic: Do you believe stocks are safer the longer they are held?
Replies: 80
Views: 3703

Re: The Economist: Bitcoin's record price looks like a bubbl

Another example of the perils of bubble predictions. The Economist called a bubble at $80, now after wandering north of $200 it is back at $80. Will the Economist admit their prediction was wrong? Nah, they will probably take credit for accurately calling a bubble in advance. See Prof Scott Sumner's...
by Verde
Sat Apr 13, 2013 9:43 am
 
Forum: Investing - Theory, News & General
Topic: The Economist: Bitcoin's record price looks like a bubble
Replies: 20
Views: 2328

Re: Long term stock market risk

Thanks Assumer, that was very helpful.
by Verde
Sun Mar 03, 2013 4:52 pm
 
Forum: Investing - Theory, News & General
Topic: Long term stock market risk
Replies: 51
Views: 3969

Re: Long term stock market risk

The equation for risk of ruin (the chance of losing all your money at any time in the future) is: ( (1 - EV / Std) / ( 1 + EV / Std ) ) ^ ( Total_Money / Standard Deviation ). There are also equations for losing $X after Y hours, gaining $X after Y hours, or losing $X before reaching $Z, ad infinit...
by Verde
Thu Feb 28, 2013 9:00 am
 
Forum: Investing - Theory, News & General
Topic: Long term stock market risk
Replies: 51
Views: 3969

Re: 2013 BOGLEHEAD CONTEST REGISTRATION

1652.00
by Verde
Tue Jan 01, 2013 4:50 pm
 
Forum: Investing - Theory, News & General
Topic: 2013 BOGLEHEAD CONTEST REGISTRATION
Replies: 481
Views: 15409

Re: Chart: The Futility of Stock Market Prediction

If it were not possible to predict stock prices, then algorithmic program traders would not be making money. Obviously, some people have figured out in some time frames and under some defined parameters to make money predicting price movements. Isn't it enough for BH's to be happy to make money the...
by Verde
Tue Dec 04, 2012 4:17 am
 
Forum: Investing - Theory, News & General
Topic: Chart: The Futility of Stock Market Prediction
Replies: 31
Views: 2475

Experts

What exactly is a "real, productive asset"? farms, real estate, timber, goats, forklifts, etc A tenet of Boglehead philosophy is that index funds (invested in listed securities) are priced by liquid markets eliminating the need for investors to have- or hire skill to determine value. Thes...
by Verde
Mon Dec 03, 2012 5:49 am
 
Forum: Investing - Theory, News & General
Topic: Kyle Bass Letter
Replies: 44
Views: 4052

Re: Taleb is the best!!!

I think he would say that the probabilities of these rare events (black swans) are unknowable. And that anyone who says they can calculate them is a charlatan (he often uses more colorful terms!) so basically you need to position yourself to benefit from them. if you are left standing when everyone...
by Verde
Sat Dec 01, 2012 5:36 pm
 
Forum: Investing - Theory, News & General
Topic: The anti-Taleb reviews Antifragile
Replies: 197
Views: 20578

Re: Taleb is the best!!!

I think some are perhaps missing the point. Taleb does not consider himself an investor anymore, nor a statistician but a philosopher. I've just bought the book and am finding it very good so far. "And we can almost always detect antifragility (and fragility) using a simple test of asymmetry; ...
by Verde
Thu Nov 29, 2012 3:21 am
 
Forum: Investing - Theory, News & General
Topic: The anti-Taleb reviews Antifragile
Replies: 197
Views: 20578

The anti-Taleb reviews Antifragile

Eric Falkenstein resumes his long standing feud with Nassim Taleb with this lengthy but telling review of Taleb’s latest book ‘Antifragile’ http://falkenblog.blogspot.com/2012/11/taleb-mishandles-fragility.html Some excerpts: ‘His latest book Antifragile is driven by his discovery that there is not ...
by Verde
Wed Nov 28, 2012 9:38 am
 
Forum: Investing - Theory, News & General
Topic: The anti-Taleb reviews Antifragile
Replies: 197
Views: 20578

Ernie you beaut

As the only Saffer on this forum (to my knowledge) I need to gloat: Well done Ernie,you deserve it, no matter how they come! 4 Majors for SA in 5 years. Nearly another one at the Masters this year (but well done Bubba, I enjoyed your victory through my tears for Louis). We are emerging market invest...
by Verde
Sun Jul 22, 2012 6:01 pm
 
Forum: Personal Consumer Issues
Topic: Ernie you beaut
Replies: 2
Views: 579

Re: pros and cons of gold

As the article is titled ‘The arguments for and against investing in gold’, I think the argument made by Profs. Fama and French should have been included. It is the best argument against gold as an investment as far as I’m concerned. See: http://www.dimensional.com/famafrench/2010/04/qa-does-gold-be...
by Verde
Fri Jul 20, 2012 4:02 am
 
Forum: Investing - Theory, News & General
Topic: pros and cons of gold
Replies: 84
Views: 6039

Re: Are we certain there is an equity premium?

"Hoping to get a higher return" is not analogous to an equity premium. Equity premium means that stocks, matter of fact, average a higher return than bonds over the long-term. It means that for your risk you get a greater return, given an infinite time period. The expected equity risk pre...
by Verde
Thu Jun 28, 2012 11:16 am
 
Forum: Investing - Theory, News & General
Topic: Are we certain there is an equity risk premium?
Replies: 54
Views: 5186

Re: Are we certain there is an equity premium?

--Expected returns and actual returns are inversely related. When investors expect high returns (as in 1999), prices are bid up which causes future actual returns to be low. When investors expect low returns (March 2009), prices are low which causes future returns to be high. This is not the view o...
by Verde
Thu Jun 28, 2012 11:00 am
 
Forum: Investing - Theory, News & General
Topic: Are we certain there is an equity risk premium?
Replies: 54
Views: 5186

Re: Are we certain there is an equity premium?

An equity premium is optional for the typical human. This may well be true. You may not have much respect for the ability of aggregate investors to make rational decisions, but perhaps you have more faith in the world’s corporate leaders who are expected to make smart decisions in return for their ...
by Verde
Thu Jun 28, 2012 10:34 am
 
Forum: Investing - Theory, News & General
Topic: Are we certain there is an equity risk premium?
Replies: 54
Views: 5186

Re: Can a zero-return asset actually improve a portfolio?

I ran some random numbers where asset1 has a 50% probability of returning +100% or -40% in any given year and asset2 has a 50% probability of returning +100% or -50% in any given year. My results indicated a geometric mean of between 15-16%, not 27.5%. I think Wbond meant to say 'perfectly negative...
by Verde
Wed Jun 27, 2012 2:43 am
 
Forum: Investing - Theory, News & General
Topic: Can a zero-return asset actually improve a portfolio?
Replies: 155
Views: 10643

Re: Investment options for South African investors?

For JSE listed ETFs see these links. http://www.etfsa.co.za/ http://www.satrix.co.za/default.aspx http://etf.absacapital.com/Products/Exchange%20Traded%20Funds/Pages/default.aspx ERs are in the 40bps range. The major problem I find is that tax advantaged accounts charge at least an additional 1% abo...
by Verde
Mon Jun 11, 2012 11:14 am
 
Forum: Investing - Theory, News & General
Topic: Investment options for South African investors?
Replies: 12
Views: 563

Re: Seven Most Important Equations--Milevsky

BobK I had a look at the pages of the book available on Google books. If you perhaps still have the book at hand, I would appreciate if you can answer my question below: Table 7.1 in the chapter on Kolmogorov shows Lifetime Ruin Probabilities with a Balanced Portfolio. Does it mention elsewhere how ...
by Verde
Thu May 31, 2012 6:34 am
 
Forum: Investing - Theory, News & General
Topic: Seven Most Important Equations--Milevsky
Replies: 13
Views: 1949

Re: Payment calculations for a variable annuity

The formula you use for a fixed annuity is a rough approximation (in fact very rough).
See pg 2 of this thread for a better calculation method which is based on actual mortality tables.

viewtopic.php?f=10&t=95318&p=1377979#p1377979
by Verde
Sun May 06, 2012 3:01 pm
 
Forum: Investing - Theory, News & General
Topic: Payment calculations for a variable annuity
Replies: 3
Views: 345

Re: Overview of DFA Managed DC Retirement Plan

I know nothing about the DFA managed DC retirement plan, but I think I understand what they are trying to achieve – they are trying as much as possible to mimic a DB pension fund. I agree that the graph shown is a bit too optimistic for the managed plan, but the median for the managed plan could be ...
by Verde
Wed May 02, 2012 7:44 am
 
Forum: Investing - Theory, News & General
Topic: Overview of DFA Managed DC Retirement Plan
Replies: 55
Views: 3977

Re: [Poll] My philosophy on SPIAs

It's not that hard to do amateur-actuary stuff and get a ballpark estimate. On SPIAs, I figure it has got to be more like a 90% benefits/premium ratio, probably a little higher because of adverse selection. It just can't be 60%. BRK Direct EZ-Quote says, for a man born 4/1/1947 (age 65) "Your ...
by Verde
Mon Apr 30, 2012 10:07 am
 
Forum: Investing - Theory, News & General
Topic: [Poll] My philosophy on SPIAs
Replies: 65
Views: 3295

Re: Is there any proof of correlation between risk & return?

Dr. Falkenstein published this entry on his blog: http://falkenblog.blogspot.com/2012/04/who-gets-equity-risk-premium.html He seems to have changed his mind from 'The equity risk premium is zero', to 'The equity risk premium is zero for the marginal investor'. Relative risk theory only makes sense i...
by Verde
Thu Apr 26, 2012 10:14 am
 
Forum: Investing - Theory, News & General
Topic: Is there any proof of correlation between risk & return?
Replies: 212
Views: 14094

Re: Forget stocks - buy and hold annuities instead

I'd just like to remind people that getting longevity insurance via an SPIA and the asset allocation after annuitising can be decoupled, so current low bond yields are not necessarily a reason to avoid an SPIA. My favourite UK annuity product would enable me to select from a range of funds inside t...
by Verde
Wed Apr 25, 2012 9:50 am
 
Forum: Investing - Theory, News & General
Topic: Forget stocks - buy and hold annuities instead
Replies: 80
Views: 6617

Re: Forget stocks - buy and hold annuities instead

The "anatomy of annuity" chart is interesting being dated 2009. One can presume that most of the "interest" is from LT Treasuries; so when their rate drops, the total income from annuitizing early drops a lot. If LT Treasuries are at above average rates, then lock it in... The p...
by Verde
Wed Apr 25, 2012 3:15 am
 
Forum: Investing - Theory, News & General
Topic: Forget stocks - buy and hold annuities instead
Replies: 80
Views: 6617

Re: Forget stocks - buy and hold annuities instead

Due to adverse selection, SPIA's probably only offers value to less than 25% of the population (The healthiest quartile).
by Verde
Mon Apr 23, 2012 3:53 am
 
Forum: Investing - Theory, News & General
Topic: Forget stocks - buy and hold annuities instead
Replies: 80
Views: 6617

Re: from nisiprius, a 'greatest post' in case you missed it

The "risk" of equities that generates the ERP is the annual volatility. It's a complete fallacy that appears in many ways in ever discussion of equity risk on this board that the real risk of equities is some intrinsic property of the asset class, rather than being an attribute of the rel...
by Verde
Fri Mar 23, 2012 11:02 am
 
Forum: Investing - Theory, News & General
Topic: from nisiprius, a 'greatest post' in case you missed it
Replies: 147
Views: 10931

Re: from nisiprius, a 'greatest post' in case you missed it

It's assumed that the likelihood that an investor follows a plan is independent of how aggressive the plan is. All the theory assumes that investors will actually stay the course, whatever course they've chosen. Yet Chuck Jaffe claims in a throwaway remark for which I can't find a source, that in r...
by Verde
Fri Mar 23, 2012 2:55 am
 
Forum: Investing - Theory, News & General
Topic: from nisiprius, a 'greatest post' in case you missed it
Replies: 147
Views: 10931
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