Search found 672 matches

Return to advanced search

Re: Prove adding SV will lower the risk, given the same E(r)

First, don't know where got idea about SV having low beta. It's the "LP" that has the low beta allowed by tilting to SV. So reducing beta at same time. But SV doesn't have low beta. In fact both small and value stocks over the long term have high betas. Second, Re Cochrane, exactly why IM...
by acegolfer
Sat Aug 02, 2014 2:25 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prepayment on mortgage for a not-forever home?

For the most part agree, but also think there is an unwarranted bias, big generalizations, and some unintentional misinformation about prepaying mortgages on the BH forum. These types of circumstances show that it may not always be the best plan. I totally agree that prepayment is not always the be...
by acegolfer
Sat Aug 02, 2014 12:25 pm
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prove adding SV will lower the risk, given the same E(r)

Ace I clearly mentioned and even warned that the biggest con to tilting is the ability to stay the course even if the strategy appears not to be working----when you have years like 1998 and big tracking error and underperformance. And of course there is the clear risk of no risk premium ex-post. An...
by acegolfer
Sat Aug 02, 2014 11:52 am
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prepayment on mortgage for a not-forever home?

What if the prices decline by 40% in your examples? In the first one, you are underwater and lose $300k but can walk away with perhaps just some credit problems. In the second where you prepaid $100k, you lose $400k. Prepayment (and home equity in general) is not risk-free. Paraphrasing the above: ...
by acegolfer
Sat Aug 02, 2014 11:21 am
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prove adding SV will lower the risk, given the same E(r)

cowboys First, you can also find periods of underperformance But second, you do it by doing the things I wrote about in the negatives of indexing piece. There are some negatives which can be minimized or avoided. You also earn securities lending fees. You patiently trade, buying blocks sometimes at...
by acegolfer
Sat Aug 02, 2014 11:12 am
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

I didn't mention this because this thread is not about where to tilt. But the title of the thread mentions "adding SV", which is what we mean by tilting to SV. If this thread is not about tilting to SV, then what is it about? Kevin Kevin, I thought about this for a few days and now have a...
by acegolfer
Sat Aug 02, 2014 8:10 am
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

My proof is simple: the expected returns of SV is higher than TSM, and the correlation is less than 1. SV has a unique factor exposure, just as bonds exposure you to credit risk and interest rate risk. Risks are rewarded, and it's better to diversify across as many unique risks are possible to redu...
by acegolfer
Sat Aug 02, 2014 7:23 am
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Google Voice - ring lag problem

Rocketfella wrote:Is your cellphone a smartphone? If so you can install google hangouts and hear the extra three rings from the app rather than your phone.


Only works in iPhone. Android usersare waiting for this almost 1 year.
by acegolfer
Sat Aug 02, 2014 6:38 am
 
Forum: Personal Consumer Issues
Topic: Google Voice - ring lag problem
Replies: 9
Views: 1156

Re: Prepayment on mortgage for a not-forever home?

The Catch-22 is that even though you may have enough liquid funds for the 2nd downpayment on the side, you may still run into Debt to Income problems if you are applying for a mortgage for the second home before paying off the mortgage on the first... +1. Even if I qualify for another mortgage, I w...
by acegolfer
Fri Aug 01, 2014 4:52 pm
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prove adding SV will lower the risk, given the same E(r)

I still do tilt small and value because for example I have an above average ability to handle "risk that shows up at bad times", and because if I factor in pensions, social security and low debt and low need for additional income I could actually rationally increase the risk I do hold eve...
by acegolfer
Fri Aug 01, 2014 4:39 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: One of the simplest rational reasons why some should til

would add that tilting allows you to lower beta exposure and that cuts tail risk, important for those in withdrawal phase, Larry Let me try to summarize the rationale of your SV tilting strategy. (modify it if wrong or add if I missed) 1. By adding SV with higher E(R) to the MKT, one can increase t...
by acegolfer
Fri Aug 01, 2014 4:19 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 43
Views: 4165

Re: Prepayment on mortgage for a not-forever home?

A great point about actually needing the money from one house liquid to actually buy the next one.. do most people then when they move houses have the new downpayment liquidly available before selling their old place? I guess I never thought about that in detail. Something important to keep in mind...
by acegolfer
Fri Aug 01, 2014 3:12 pm
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prepayment on mortgage for a not-forever home?

first and foremost, OP has an ARM. second, additional income is always taxed at marginal rates. There can be limits on deductions taken at marginal rates (due to AMT and standard deduction, etc) and other obscure rules (what if the mortgage was more than $1M and therefore not all interest is deduct...
by acegolfer
Fri Aug 01, 2014 2:41 pm
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prepayment on mortgage for a not-forever home?

you have to consider the incremental effect due to entering or exiting tax brackets due to income/deductions--his interest deductions could be shielding income at a different tax rate than the CD interest is being taxed if he is at the cusp of entering a different bracket. Can anyone explain the ab...
by acegolfer
Fri Aug 01, 2014 2:00 pm
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prove adding SV will lower the risk, given the same E(r)

I would also note that SD is not really "risk", though is more directly risk than "value". I think all these observations and line of thinking can be generalized to risk dimensions, though without a formula to apply it is hard to draw graphs and surfaces from data. I think this ...
by acegolfer
Fri Aug 01, 2014 12:17 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prepayment on mortgage for a not-forever home?

OP, Suppose you can invest in a 5-yr 3.375% non-breakable CD. Will you invest your money? If yes, then make the mortgage prepayment because it has the same effect. If not, then don't make the prepayment. Not even close to the same in terms of risk, liquidity, or tax consequences. Condos are much mo...
by acegolfer
Fri Aug 01, 2014 11:57 am
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prove adding SV will lower the risk, given the same E(r)

Search the site on "Portfolio advice for a multifactor world, by John Cochrane" for a start. That of course will not find all such mentions of these ideas. http://www.nber.org/papers/w7170 In fact these ideas were brought up by Epsilon Data in one of your own threads as recently as July 3...
by acegolfer
Fri Aug 01, 2014 11:39 am
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Expected Future Yield Curve

I don't know much more clearly I could have stated, in both my posts, that the forward rate and the expected future spot rate are not the same thing. However the models you mentioned are not of any direct help in deriving the expected rate, which is inherently non-observable. I disagree with your 2...
by acegolfer
Fri Aug 01, 2014 11:14 am
 
Forum: Investing - Theory, News & General
Topic: Expected Future Yield Curve
Replies: 22
Views: 1396

Re: Prepayment on mortgage for a not-forever home?

OP,

Suppose you can invest in a 5-yr 3.375% non-breakable CD. Will you invest your money?

If yes, then make the mortgage prepayment because it has the same effect.
If not, then don't make the prepayment.
by acegolfer
Fri Aug 01, 2014 7:15 am
 
Forum: Personal Finance (Not Investing)
Topic: Prepayment on mortgage for a not-forever home?
Replies: 33
Views: 2308

Re: Prove adding SV will lower the risk, given the same E(r)

"adding SV and more bonds to market/bonds portfolio will increase the expected return at the same risk. Can you prove the above statement using your risk definition in Q1? "Note 1: The above statement says "will increase" not "has increased. Not sure if this was said before...
by acegolfer
Fri Aug 01, 2014 12:07 am
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

This is an assumption, but it is not needed by the theory. It is entirely possible for everybody to have a portfolio that consists only of the risk free asset and the market portfolio. Because of the nature of the market portfolio and the risk free asset the average exposure to the "tilt"...
by acegolfer
Thu Jul 31, 2014 11:24 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

That is all fine and fairly well understood by many. It has been discussed here any number of times. But that is hardly "proof" of anything in the real world which you seemed to desire. Yes, mathematically things can exist in the sense of being potentially true. Given such and such hypoth...
by acegolfer
Thu Jul 31, 2014 11:16 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

I didn't mention this because this thread is not about where to tilt. But the title of the thread mentions "adding SV", which is what we mean by tilting to SV. If this thread is not about tilting to SV, then what is it about? Kevin Thanks for pointing out that I didn't address "addin...
by acegolfer
Thu Jul 31, 2014 11:03 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

The multi-factor theory does say some (not all) should tilt because stdev is not the only measure of risk. If you have multiple measures of risk but everybody makes the same trade off you get a situation where nobody tilts, even though tilted portfolios are on the efficient frontier. It's a degener...
by acegolfer
Thu Jul 31, 2014 10:41 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

The theory doesn't say anybody should tilt. As you mention the trade off between risks is a personal choose. However choosing to optimize mean-variance in world with multiple risks is choosing to ignore those other risks. This seems a little precipitous if you don't know what those other risks are....
by acegolfer
Thu Jul 31, 2014 9:37 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Expected Future Yield Curve

1. I don't believe I made any statement about the real world that's only true of a risk neutral world. You'll have to be more specific. 2. To use the models you mentioned, we calibrate the *model* (if that's what you mean by 'calibrate the expected future rate') so that it returns the forward rate ...
by acegolfer
Thu Jul 31, 2014 8:44 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Future Yield Curve
Replies: 22
Views: 1396

Re: Prove adding SV will lower the risk, given the same E(r)

larryswedroe wrote:aCe
EMH does assume TSM is the efficient portfolio.
That's why I mentioned it.
Larry


But you stated as if I implied TSM is mean variance efficient, which I said is false.

In addition, I think you got the assumption the opposite way.

TSM being efficient assumes EMH not the other way around.
by acegolfer
Thu Jul 31, 2014 6:14 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

Ace, EMH is nice working framework and it assumes TSM is mean variance efficient. However, like all models it is wrong. We know TSM is not mean variance efficient, or at least has not been with many anomalies left unexplained, including all the lottery tickets. So one has to decide if you follow th...
by acegolfer
Thu Jul 31, 2014 6:08 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

But it's nice to know that investing in a "Total Market" portfolio has reasoning based in facts and proof beyond academic theory http://www.vanguard.com/bogle_site/sp2004AIMRefficientMrkts.html http://johncbogle.com/wordpress/wp-content/uploads/2007/03/chapter%20one.pdf Thanks for the art...
by acegolfer
Thu Jul 31, 2014 5:26 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Confessions of an Index Fund Investor

That's very common.

Even professors don't actually act on what they teach.
by acegolfer
Thu Jul 31, 2014 5:22 pm
 
Forum: Investing - Theory, News & General
Topic: Confessions of an Index Fund Investor
Replies: 8
Views: 3022

Re: Prove adding SV will lower the risk, given the same E(r)

Here are a couple dozen different risk measures, with links describing details of each: http://www.styleadvisor.com/resources/statfacts including some that you noted earlier. Some are used to judge how much to trust another statistic and are of no use on their own. Standard deviation definitely has...
by acegolfer
Thu Jul 31, 2014 5:13 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Expected Future Yield Curve

Calculating the 5 yr rate two years forward requires knowing the current 2 yr and 7yr spot rates, 5yr rate not relevant. The forward rate is not necessarily the expected rate, but the type of models you mention would in the vast majority of cases in the hands of practitioners be calibrated so that ...
by acegolfer
Thu Jul 31, 2014 5:01 pm
 
Forum: Investing - Theory, News & General
Topic: Expected Future Yield Curve
Replies: 22
Views: 1396

Re: Prove adding SV will lower the risk, given the same E(r)

...If one is a truly mean-variance investor, then he can tilt towards the top of the cone for a given stdev by adding the 3rd asset. (Imagine you slice the cone vertical to stdev dimension and move to the highest point.) To sum, it's theoretically possible to increase the expected return without ch...
by acegolfer
Thu Jul 31, 2014 4:50 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will lower the risk, given the same E(r)

Most stated that there's no proof. I cannot prove that adding SV will lower the risk, given the same E(r). But I can prove that's adding another portfolio (possibly SV) can increase the E(r) but lower stdev at the same time. In other words, there's an academic explanation for why the market portfoli...
by acegolfer
Thu Jul 31, 2014 4:27 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Individual Stocks with Perks

If one owns 100 shares of Royal Caribbean or Carnival, he can get up to $250 on-board credit.

http://www.cruisecompete.com/shareholderbenefits.php
by acegolfer
Thu Jul 31, 2014 2:50 pm
 
Forum: Investing - Theory, News & General
Topic: Individual Stocks with Perks
Replies: 21
Views: 2106

Re: Prove adding SV will increase E(r) given the same risk

Larry, once again, thanks for your prompt reply. Ok, I'll agree that there's no proof. But here are my comments to your 2nd paragraph. Sorry, I don't have time to read your book and I hope someone who read the book can give a feed back to the following comments. you have higher expected return with ...
by acegolfer
Thu Jul 31, 2014 2:33 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Prove adding SV will increase E(r) given the same risk

Google Swedroe Fat Tail TY. I googled it and read the first 10 search results. 1. I understand what fail tail risk means. 2. Most stated, Larry's portfolio will reduce the fat tail risk without affecting the expected return and the stdev. 3. Some stated, Larry's portfolio will cut off left tail mor...
by acegolfer
Thu Jul 31, 2014 1:45 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Prove adding SV will lower the risk, given the same E(r)

Lately, I have seen many posts similar to "adding SV and more bonds to market/bonds portfolio will increase the expected return at the same risk." 2 questions. 1. What do you mean by risk? Most of these posts don't explain what the risk means. Is it stdev? If not, can you provide a clear d...
by acegolfer
Thu Jul 31, 2014 1:03 pm
 
Forum: Investing - Theory, News & General
Topic: Prove adding SV will lower the risk, given the same E(r)
Replies: 79
Views: 4006

Re: Should retirement investors own small/value stocks at al

If you're willing to expose yourself to market risk by holding stocks at all, why wouldn't you also want to expose yourself to small and value factor risk as well? For every simple TSM/TBM portfolio, there exists a TSM/SV/TBM with the same risk but higher expected returns, or the same expected retu...
by acegolfer
Thu Jul 31, 2014 11:47 am
 
Forum: Investing - Theory, News & General
Topic: Should retirement investors own small/value stocks at all?
Replies: 36
Views: 2941

Re: Expected Future Yield Curve

The following is a bit technical. But I'll explain how to properly calculate the expected yields in the future. If one want to predict the future interest rate, then the best method is to use a term structure model, which explains the evolution of short rate (a very short term interest rate such as ...
by acegolfer
Thu Jul 31, 2014 10:43 am
 
Forum: Investing - Theory, News & General
Topic: Expected Future Yield Curve
Replies: 22
Views: 1396

Re: Should retirement investors own small/value stocks at al

Perhaps I misread the tone of Larry's response to me above. But I just wanted to point out that many of us are new here, and it's not easy for us to feel comfortable asking questions or weighing in, when so many of you are so far ahead of us in terms of your understanding of all of this. Just keep ...
by acegolfer
Thu Jul 31, 2014 10:10 am
 
Forum: Investing - Theory, News & General
Topic: Should retirement investors own small/value stocks at all?
Replies: 36
Views: 2941

Re: Should retirement investors own small/value stocks at al

This is from Fama, Cochrane, and Norstad: The average investor works and usually should use total market. If an investor works for a large growth company, then should consider holding SV stocks. A retiree is not average by definition (not part of the work force) and would not be increasing an exist...
by acegolfer
Tue Jul 29, 2014 5:36 pm
 
Forum: Investing - Theory, News & General
Topic: Should retirement investors own small/value stocks at all?
Replies: 36
Views: 2941

Re: How does car trade-in works?

Q: Suppose I want to upgrade from a Honda. In general, will I get more trade-in value from a Honda dealer? Or is it the same as from a Toyota dealer?
by acegolfer
Tue Jul 29, 2014 5:27 pm
 
Forum: Personal Consumer Issues
Topic: How does car trade-in work?
Replies: 71
Views: 4393

Re: bond duration and interest rate risk

See here. "Unlike a noncallable bond, a callable security’s duration, or sensitivity to interest rate changes, decreases when rates fall and increases when rates rise. - See more at: http://www.investinginbonds.com/learnmore.asp?catid=5&subcatid=76#sthash.9yumhJk0.dpuf" You are right....
by acegolfer
Tue Jul 29, 2014 10:15 am
 
Forum: Investing - Theory, News & General
Topic: bond duration and interest rate risk
Replies: 33
Views: 2864

Re: Do any boggleheads invest in individual companies?

Can we list stocks with extra perks?

100 shares of Royal Caribbean (and Carnival?) give state-room credits on their cruise.
by acegolfer
Tue Jul 29, 2014 9:53 am
 
Forum: Investing - Theory, News & General
Topic: Do any boggleheads invest in individual companies?
Replies: 95
Views: 5760

Re: bond duration and interest rate risk

Here's at least on of the posts that discusses this issue and the difference between average duration which is impact by call provisions and the average stated maturity which is not. Also contains links to other posts and useful info. Before VG started providing both numbers I starting holding at l...
by acegolfer
Tue Jul 29, 2014 9:18 am
 
Forum: Investing - Theory, News & General
Topic: bond duration and interest rate risk
Replies: 33
Views: 2864

Re: Why should stocks go up over the long term?

I will cut to the chase give you the short answer: It is from technological improvements. Without it, there would be diminishing returns from any investments and eventually growth would come to a halt. I can prove this with a few simple equations and some logical thinking, but don't have time right...
by acegolfer
Tue Jul 29, 2014 8:33 am
 
Forum: Investing - Theory, News & General
Topic: Why should stocks go up over the long term?
Replies: 34
Views: 2885

Re: Why should stocks go up over the long term?

While I have a great deal of belief that technology can continue to improve for quite a while yet, the fact is that population growth, especially in developing countries is slowing, or even going negative. This makes me believe that we are likely to see lower economic growth in the future. When of ...
by acegolfer
Mon Jul 28, 2014 8:22 pm
 
Forum: Investing - Theory, News & General
Topic: Why should stocks go up over the long term?
Replies: 34
Views: 2885

Re: Why should stocks go up over the long term?

If OP is asking about the reason for economic growth, then the following is the simplest growth theory. http://en.wikipedia.org/wiki/Exogenous_growth_model The Solow–Swan model is an exogenous growth model, an economic model of long-run economic growth set within the framework of neoclassical econom...
by acegolfer
Mon Jul 28, 2014 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: Why should stocks go up over the long term?
Replies: 34
Views: 2885
Next

Return to advanced search