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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: 23
Views: 1247

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: 23
Views: 1247

Re: POLL: My home is worth less/more in 2014 than in 2007?

Zillow does not know condition of the house or remodel work. It depends largely on numerical data like sq footage. I think this is true, in general. But zillow also accounts for other factors, if available. Here's one example. I live in a community with tens of identical floor plan houses. In my st...
by acegolfer
Mon Jul 28, 2014 2:30 pm
 
Forum: Personal Finance (Not Investing)
Topic: POLL: My home is worth less/more in 2014 than in 2007?
Replies: 82
Views: 3824

Re: Florida Retirement Communities advice/thoughts

The Villages have a program where you can go and try it for up to a week. We plan on doing that, as well as checking out other properties in FL. I've noticed also that there are lots of homes available for rent on VRBO, so there seems to be lots of options for going down and trying out different pr...
by acegolfer
Mon Jul 28, 2014 12:01 pm
 
Forum: Personal Consumer Issues
Topic: Florida Retirement Communities advice/thoughts
Replies: 18
Views: 1850

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

I am not sure I would categorize SCV as small crappy businesses. These firms many times have market caps of $1 billion and have decent margins with average growth (which is higher than GDP growth). There are some of the basket cases (leverage firms in declining industries) in this bin also but base...
by acegolfer
Mon Jul 28, 2014 11:11 am
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

Firstly, when you say "To compensate for this added risk, these stocks need to offer premium" That is true to get rational investors to buy them. But do they offer a premium at this time? It seems that they may be priced too high (high valuations) to offer a premium. Or do you just assume...
by acegolfer
Mon Jul 28, 2014 8:14 am
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

Re: POLL: My home is worth less/more in 2014 than in 2007?

Everybody keeps saying Zillow is awful.

If Zillow is really bad, why not suggest a different website so that one can estimate the value? If there's no other website, then can you propose a method to estimate the values in 2007 and 2014?

Since I don't know what else to do, I used Zillow.
by acegolfer
Mon Jul 28, 2014 7:54 am
 
Forum: Personal Finance (Not Investing)
Topic: POLL: My home is worth less/more in 2014 than in 2007?
Replies: 82
Views: 3824

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

nedsaid,

That's a great story and is consistent with the LSV's interpretation of small, value premium.
by acegolfer
Sun Jul 27, 2014 10:38 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

I'm not sure what you are getting at. The main argument in my reply to steve was that some investors are not just mean-variance investors. They also care about other things. That is the crux of the matter. I think variance is a fair approximation, good enough for many purposes. As is beta. But it i...
by acegolfer
Sun Jul 27, 2014 7:00 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

Your OP implied to me that you thought SV stocks, for example, might have a higher "distress risk" than SG stocks, and so had a higher expected risk/return profile. Do you believe that? I'm saying - if you're going to make that claim, you're going to have to show why, and also show why SG...
by acegolfer
Sun Jul 27, 2014 5:02 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

I guess in those cases of individual stocks. But if you're declaring a whole sector of the market has some unique risk that isn't reflected in volatility, you're going to have to show two things 1) That this "dark matter risk" exists, and 2) That no such risks exist in other bits of the m...
by acegolfer
Sun Jul 27, 2014 3:03 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

Re: Larry: 20 Dollar Bills and Factor Persistence

OP, SV is not clearly a risk. It may be a proxy for some underlying risk, such as distress, but is not itself a risk. Therefore, the answers to both questions don't have to be the same. They might be or they might not be. The efficient market claim is not that risk and return are commensurate. If m...
by acegolfer
Sun Jul 27, 2014 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 112
Views: 8927

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

Right, this does not affect the expected return, but the standard deviations of returns of individual stocks is much higher than that of a collection of stocks. In that sense it does cause the price to move; indeed it affects the very definition of the price moving. This is the best and most basic ...
by acegolfer
Sun Jul 27, 2014 2:34 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

Re: bond duration and interest rate risk

So to summarize, if interest rates stay same: long term wins by 0.8% . If interest rates spike, intermediate may or may not win. Looking at historical performance chart, this appears to be the case( long term fund is ahead most of the time, except when they both dip, it dips more). So if I know tha...
by acegolfer
Sun Jul 27, 2014 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: bond duration and interest rate risk
Replies: 15
Views: 775

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

If it's a risk that does not cause the price to move (if such a thing exists), it will not be something investors care about or price in. Isn't idiosyncratic risk an example of such risk? 1. In asset pricing theory, idiosyncratic risk doesn't affect the expected return. 2. But investors will care a...
by acegolfer
Sat Jul 26, 2014 10:41 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

If the goal is to get higher returns with lower std dev, has anyone considered using leverage on a lower-risk balanced fund? We've been discussing this in a different topic( Should I use margin to buy a balanced fund? ). For example, going 2x on Wellesley (VWINX) would give you about a net 13% annu...
by acegolfer
Sat Jul 26, 2014 2:06 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

It would help if someone could define what the other notions of risk are and how to measure them. dbr, Those questions are very important in asset pricing theory. Specifically, to calculate the expected returns, one needs to know what the risk factor (f) is and how to measure the risk (b). On the o...
by acegolfer
Sat Jul 26, 2014 1:58 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

Re: If FF3 model is a true risk model, does it follow to buy

I do believe that for the same expected return, StDev is lower on after adding SV and intl SV . I believe the correlations would prove this out in the historical data of anyone was inclined to do the work. More importantly, I believe this view has a sound basis in theory going forward. Perhaps, I m...
by acegolfer
Fri Jul 25, 2014 7:06 pm
 
Forum: Investing - Theory, News & General
Topic: If FF3 model is a true risk model, does it follow to buy SV?
Replies: 17
Views: 858

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

In the end there is only return. So risks like these that are significant to certain sets of assets must eventually affect the return of those assets, as you say. But return is complicated. FF says that a portfolio more heavily loaded on the small and value factors has a higher expected return. But...
by acegolfer
Fri Jul 25, 2014 6:29 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

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

It seems your assumption is that SCV offers more reward for more risk. Couldn't your hypothetical wealthy and retired investor simply increase the equity portion of their portfolio if they want to take on more risk? This could be done at a lower cost and with less complexity than adding a SCV tilt ...
by acegolfer
Fri Jul 25, 2014 2:38 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

One of the simplest rational reasons why some should tilt

First, this applies to only some investors not everyone. Second, I'm still an index investor because this or other reasons for tilting don't apply to me. Here it goes. There are firms that are negatively affected more in times of financial distress such as recessions. Small firms and value firms (hi...
by acegolfer
Fri Jul 25, 2014 1:05 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3596

Re: Bonds beat stocks over the last 15 years

I didn't suggest comparing DCA vs Buy and Hold. My suggestion was to compare between DCA stocks vs DCA bonds, which is easy to do. A invests $10k every year (DCA) to stocks in the last 15 years B invests $10k every year (DCA) to bonds in the last 15 years Compare the portfolio balances at the end. ...
by acegolfer
Fri Jul 25, 2014 11:32 am
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7471

Re: Should market valuations be completely disregarded?

Absolutely not.

Suppose you know how to predict the long term returns. Will you not use such information, even if you are index investor? It is widely known that D/P, P/E, M/B can predict long term returns.

However I'm a DCA index investor because I want to keep everything simple.
by acegolfer
Fri Jul 25, 2014 11:22 am
 
Forum: Investing - Theory, News & General
Topic: Should market valuations be completely disregarded?
Replies: 50
Views: 3718

Re: Bonds beat stocks over the last 15 years

Interesting thread. Can anyone compare dollar cost average (DCA) outcomes of stocks and bonds using the same 15-yr period? My intuition says even if bonds beat stocks with buy and hold, DCA stocks will beat DCA bonds. I'd be interested in doing such an analysis, I'm just not sure how to approach it...
by acegolfer
Fri Jul 25, 2014 10:40 am
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7471

Re: If FF3 model is a true risk model, does it follow to buy

Note2: If the answer is high risk, high return, then we don't need FF3 to explain that. Everyone knows SV are riskier and have higher returns. Perhaps everyone knows that because the research of FF told us so. OTOH, what has higher risk, but not higher returns? Would that be something to invest in,...
by acegolfer
Fri Jul 25, 2014 10:34 am
 
Forum: Investing - Theory, News & General
Topic: If FF3 model is a true risk model, does it follow to buy SV?
Replies: 17
Views: 858

Re: Bonds beat stocks over the last 15 years

Interesting thread. Can anyone compare dollar cost average (DCA) outcomes of stocks and bonds using the same 15-yr period?

My intuition says even if bonds beat stocks with buy and hold, DCA stocks will beat DCA bonds.
by acegolfer
Fri Jul 25, 2014 7:44 am
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7471

If FF3 model is a true risk model, does it follow to buy SV?

Sorry creating another SV related topic. I have read posts saying something like "I believe FF3 factor model is correct hence I am buying SV." If SMB and HML are true risk factors, why does it follow that one should buy SV? Note1: I'll appreciate if you explain why FF3 leads to SV investin...
by acegolfer
Fri Jul 25, 2014 7:32 am
 
Forum: Investing - Theory, News & General
Topic: If FF3 model is a true risk model, does it follow to buy SV?
Replies: 17
Views: 858

Re: Bonds beat stocks over the last 15 years

Perhaps I am missing something. 1. Equity premium = stock return - riskfree rate =\= stock return - bond return. 2. It's certainly possible to find a 15-yr window when the realized stock return < bond return. I'm surprised that you didn't find a 30-yr window with the same result. 3. After all, what ...
by acegolfer
Thu Jul 24, 2014 3:13 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds beat stocks over the last 15 years
Replies: 93
Views: 7471

Re: 2014 Honda Civic EX-L vs 2014 Acura ILX(Base)

prn27 wrote:Thanks. Its actually 11 years old now


Sorry again. Misread it. Apparently, I'm having a bad day today.
by acegolfer
Thu Jul 24, 2014 1:26 pm
 
Forum: Personal Consumer Issues
Topic: 2014 Honda Civic EX-L vs 2014 Acura ILX(Base)
Replies: 44
Views: 2670

Re: 2014 Honda Civic EX-L vs 2014 Acura ILX(Base)

Thank you for your feedback. I currently own a 2003 Infiniti G35, which I bough pre-owned in 2010 and love it. But for my next car, I have a list of features that I would like and the premium brand isn't really that important. Sorry for my wrong assumption. G35 is an excellent car. I'm surprised to...
by acegolfer
Thu Jul 24, 2014 8:11 am
 
Forum: Personal Consumer Issues
Topic: 2014 Honda Civic EX-L vs 2014 Acura ILX(Base)
Replies: 44
Views: 2670

Re: 2014 Honda Civic EX-L vs 2014 Acura ILX(Base)

Since you are considering Acura, it sounds like you have not owned Lexus/Acura/Infiniti level cars but interested in these brands. If you want to own that type of brand at least once in your life, ILX will be a cheaper option. If you find out that it's not worth owning such brand, then you will not ...
by acegolfer
Wed Jul 23, 2014 11:49 pm
 
Forum: Personal Consumer Issues
Topic: 2014 Honda Civic EX-L vs 2014 Acura ILX(Base)
Replies: 44
Views: 2670

Re: A case against Index Funds in India

AFAIK, market inefficiency (semi strong EMH) implies the current price does not reflects all the public information. Then it's possible for an expert fund (not all funds) to outperform the market consistently. The question is, how do you know which fund is the expert fund? Someone is knowingly on t...
by acegolfer
Wed Jul 23, 2014 4:42 pm
 
Forum: Investing - Theory, News & General
Topic: A case against Index Funds in India
Replies: 32
Views: 1690

Re: A case against Index Funds in India

However, I will not use indexing in emerging markets with corruptions (I'm not saying India is. I have no idea.). One of the key requirements for indexing to work is efficient market. If not, it's easy to beat the market and indexing (even with diversification effect) will not work. This is not tru...
by acegolfer
Wed Jul 23, 2014 3:31 pm
 
Forum: Investing - Theory, News & General
Topic: A case against Index Funds in India
Replies: 32
Views: 1690

Re: Is there any downside to investing in bond futures?

Perhaps I was being a bit hasty there, but the risk of the interest rates shifting is always there for any bond investment, and that part is extremely well documented. But if we make the assumptions that none of us have a crystal ball with respect to interest rates, it makes sense to talk about two...
by acegolfer
Wed Jul 23, 2014 2:42 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

lee1026 wrote:Sure, but "assume interest rates are unchanged" is part of any bond investment for anything but money market investments.


Any source to verify your statement?
by acegolfer
Wed Jul 23, 2014 2:19 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

I don't know what it is going to be, but I am counting on the fact that the yield curve is usually upwards sloping, and that inverted yield curves are fairly rare. Upward slope is irrelevant in your example. To make 2.52% gain as you predicted, you need assume the 3-yr zero rate will stay the same ...
by acegolfer
Wed Jul 23, 2014 1:32 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

To see how big that difference is, consider buying the 4 year STRIPS, holding for a year, and then selling it as a 3 year STRIPS. The difference in price is 2.52%. You will have to buy very long yielding munis to have a comparable yield and open yourself up for far more interest rate risk. How do y...
by acegolfer
Wed Jul 23, 2014 12:34 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

The conversion factors for bonds deliverable against a T-Bond futures contract adjust for the difference between the market price of the actual bond and the theoretical price of a 20-year-to-maturity, 6% coupon, noncallable T-Bond. The theoretical underlying is the 20-year, blah, blah, blah, bond, ...
by acegolfer
Wed Jul 23, 2014 11:31 am
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

The price is the future price, decreased by the future value of the coupons you won't receive. I covered that. The underlying is a theoretical, 20-years-to-maturity, 6% coupon, noncallable T-Bond. The futures price is S0 × (1+r)^T, where S0 is the (theoretical) price for the (theoretical) underlyin...
by acegolfer
Wed Jul 23, 2014 10:50 am
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

The price of a bond futures will be (surprise, surprise!) the future value of today's price on the bond, increased at the risk-free rate for the term of the futures contract. F0 = Future value of today's price increased at the Rf? What do you mean by future value of today's price? How do you know w...
by acegolfer
Wed Jul 23, 2014 10:39 am
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: International Allocation in some funds...

@OP I found the description of S&P 500 companies from fool.com As the name suggests, the S&P 500 consists of 500 companies from a diverse range of industries. Contrary to a popular misconception, the S&P 500 is not a simple list of the largest 500 companies by market capitalization or by...
by acegolfer
Wed Jul 23, 2014 7:50 am
 
Forum: Investing - Theory, News & General
Topic: International Allocation in some funds...
Replies: 18
Views: 791

Re: A case against Index Funds in India

@OP, Those 3 points against indexing are not just for India in particular. I have seen similar arguments against indexing in U.S. However, I will not use indexing in emerging markets with corruptions (I'm not saying India is. I have no idea.). One of the key requirements for indexing to work is effi...
by acegolfer
Wed Jul 23, 2014 7:41 am
 
Forum: Investing - Theory, News & General
Topic: A case against Index Funds in India
Replies: 32
Views: 1690

Re: Is there any downside to investing in bond futures?

The price of a bond futures will be (surprise, surprise!) the future value of today's price on the bond, increased at the risk-free rate for the term of the futures contract. F0 = Future value of today's price increased at the Rf? What do you mean by future value of today's price? How do you know w...
by acegolfer
Wed Jul 23, 2014 7:18 am
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

As long as you don't overexpose yourself by trading more notional than you have cash in the account it is essentially unlevered. Can you elaborate this using an example? AFAIK, to be unlevered, the amount deposited in your margin account must be the same as the underlying asset price, which never h...
by acegolfer
Tue Jul 22, 2014 11:03 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

There is no unlimited liability for buying a fully collateralized bond future. You pay whatever market price is at the time and when the future matures, someone owes you a $100k face treasury bond. It's true that for US treasuries, the margin requirements for futures are tiny, often around only 2% ...
by acegolfer
Tue Jul 22, 2014 11:03 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Is there any downside to investing in bond futures?

Sure, but in theory, if a person puts $N dollars into a futures account, and trade on a bond future worth $N, it would be the same as if that person never leveraged, right? No. That's not how futures works. When you long or short a futures contract, you have to deposit cash into your margin account...
by acegolfer
Tue Jul 22, 2014 10:45 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Best Way to Show Google Docs via Wi-Fi on a TV: Chromeca

Yes, it works. I also tested casting Slides (powerpoint) in full screen mode with automatic play and it works.

2 issues that I don't know the answer to.

1. No auto loop. Once it reaches the end, it stays at the last slide.
2. Adjusting auto play speed.
by acegolfer
Tue Jul 22, 2014 10:28 pm
 
Forum: Personal Consumer Issues
Topic: Best Way to Show Google Docs via Wi-Fi on a TV: Chromecast?
Replies: 6
Views: 557

Re: Is there any downside to investing in bond futures?

All derivatives have leverage effects that increases the risk and magnifies the returns. To many investors, increased risk is the downside to investing in futures.
by acegolfer
Tue Jul 22, 2014 10:14 pm
 
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 73
Views: 1801

Re: Any Regulation on Mutual Fund ER Change?

Thanks for the SEC regulation. It is accompanied by a numerical example that illustrates the total dollar amounts that an investor could expect to pay on a $10,000 investment if he or she received a 5% annual return and remained invested in the fund for various time periods. Using ER, one can calcul...
by acegolfer
Tue Jul 22, 2014 10:09 pm
 
Forum: Investing - Theory, News & General
Topic: Any Regulation on Mutual Fund ER Change?
Replies: 3
Views: 440

Any Regulation on Mutual Fund ER Change?

To my understanding, ER is not fixed. And today's ER only affects today's fee not over the next 1 year. I presume a fund can arbitrary increase the management fee, which results in higher ER. Q: Is there a regulation to prevent funds from arbitrary increasing the fees/ER? For example, do they have t...
by acegolfer
Tue Jul 22, 2014 5:48 pm
 
Forum: Investing - Theory, News & General
Topic: Any Regulation on Mutual Fund ER Change?
Replies: 3
Views: 440
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