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Re: Another take on the "rebalancing bonus"

Rebalancing is for keeping asset allocation in the target range. Whether you end up with higher or lower risk adjusted return depends on the pattern of returns of your assets over the time in question. Since you don't know what this pattern will be, you cannot use it as a basis for rebalancing. Reba...
by afan
Wed Apr 16, 2014 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 50
Views: 2602

Re: Can I get some alpha? (DFA / Wealthfront)

steve Now Bridgeway SV is even more small and valuey than DFA so it will underperform when premiums are negative and outperform when positive, and that's what we have seen. Larry As best I can tell for BRSVX 12/01/2003 to 2/28/2014, the Bridgeway fund had much less value loading, but another near z...
by afan
Fri Apr 11, 2014 3:13 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2854

Re: Can I get some alpha? (DFA / Wealthfront)

few thoughts First, passive funds should have alphas close to zero, so that's not unexpected Exactly, which is why it is hard to see paying a higher price for zero alpha when you can get zero alpha for single digit basis point ER. Second, if you believe the value premium is a free lunch (behavioral...
by afan
Fri Apr 11, 2014 3:04 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2854

Re: "Why do investors make bad choices?"

I wonder if there is a setting on vanguard's web site where you could block out the dollars in your portfolio and only display the shares and the AA in %'s. This would allow one to confirm the most important values while only looking at the dollar balances once per year or even less frequently if d...
by afan
Thu Apr 10, 2014 5:39 pm
 
Forum: Investing - Theory, News & General
Topic: "Why do investors make bad choices?"
Replies: 23
Views: 1492

Re: Can I get some alpha? (DFA / Wealthfront)

DFA is definitely better than almost all the alternatives. I just note that once you accept the market price of stocks as the best estimate of expected risk-adjusted return, you lose interest in tilting. Then the DFA factor loads cease to be appealing. Without them, you are getting well run index fu...
by afan
Thu Apr 10, 2014 5:35 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2854

Re: Can I get some alpha? (DFA / Wealthfront)

If you accept market efficiency, and have VTI, then you have no rebalancing costs within the fund. This only arises if you want to create an undiversified portfolio in the first place. DFA would let you tilt more strongly toward small and value than would Vanguard. But is this a reasonable thing to ...
by afan
Thu Apr 10, 2014 5:32 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2854

Re: "Why do investors make bad choices?"

It is not at all clear it was a cognitive error. He had to decide how much stock risk to accept at a time when he did not know whether the market would go up or down. This is the same decision everyone must make all the time. He implied that he had a limited capacity to accept losses (current colleg...
by afan
Thu Apr 10, 2014 3:17 pm
 
Forum: Investing - Theory, News & General
Topic: "Why do investors make bad choices?"
Replies: 23
Views: 1492

Re: Can I get some alpha? (DFA / Wealthfront)

Hmmm. From 06/01/1998 to 2/28/2014 for VISVX and DFSVX, I get 3 factor alphas of - 0.02% for the DFA fund and -0.07% for the Vanguard fund. The DFA alpha is less negative by 0.05%. Of course, this is Vanguard's higher cost investor shares (currently 0.24% ER). The Admiral fund (0.09% ER) has not bee...
by afan
Thu Apr 10, 2014 2:57 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2854

Re: Do Advisors Help or Hinder?

There were two sets of advisers studied. One that worked for the brokerage firm, the other were independent. Considering whether either were fiduciaries would require an extensive discussion of German securities law that was far beyond the point of the article. Financial advisers have an uphill batt...
by afan
Sun Apr 06, 2014 3:42 pm
 
Forum: Investing - Theory, News & General
Topic: Do Advisors Help or Hinder?
Replies: 7
Views: 586

Re: Delaying Social Security - best long-term investment?

It is a very good analysis, but it did treat the future income streams as certain. It would seem better to discount each future year by an amount that reflects the declining likelihood of living that long. This would tend to extend the breakeven period and reduce the net present value since those hi...
by afan
Sun Apr 06, 2014 2:59 pm
 
Forum: Investing - Theory, News & General
Topic: Delaying Social Security - best long-term investment?
Replies: 78
Views: 3593

Re: SCV: has the small or the value kinda fallen out of favo

The problem is not making the math easier, but creating generalizable results. If risk is based on the portfolio down at some undefined point in the future, but that point differs for each investor, you have two choices. One is to do the analysis for each future time point, with investors choosing t...
by afan
Thu Apr 03, 2014 10:15 am
 
Forum: Investing - Theory, News & General
Topic: SCV: has the small or the value kinda fallen out of favor??
Replies: 28
Views: 2192

Re: The Most Critical Investment Decision: Time Horizon

If you are investing for children and, hopefully, as yet unconceived grandchildren then your time horizon barely budges as you get older. It may be 80-100+ years. Then think of it more like an endowment. You expect to need some money annualy for expenses, but you plan to grow the principle over the ...
by afan
Tue Apr 01, 2014 9:32 am
 
Forum: Investing - Theory, News & General
Topic: The Most Critical Investment Decision: Time Horizon
Replies: 10
Views: 1822

Re: SCV: has the small or the value kinda fallen out of favo

If you look at single-factor stats for small and small value funds they tend to have high beta and high R2 vs the markets. Typically betas over 1,and R2 well over 90%. So the pattern of returns will be quite similar to the market as a whole, just with higher volatility.
by afan
Sat Mar 29, 2014 10:58 am
 
Forum: Investing - Theory, News & General
Topic: SCV: has the small or the value kinda fallen out of favor??
Replies: 28
Views: 2192

Re: SCV: has the small or the value kinda fallen out of favo

Larry, Happy to take your word for it based on what the founders of the 9 10 fund have said in retrospect. That is not how I recall the marketing at the time. It was promoted as exploiting a magic hole in market efficiency with free money to those who joined in. There was speculation that the.premiu...
by afan
Sat Mar 29, 2014 10:30 am
 
Forum: Investing - Theory, News & General
Topic: SCV: has the small or the value kinda fallen out of favor??
Replies: 28
Views: 2192

Re: SCV: has the small or the value kinda fallen out of favo

Or caring at all what was the top performing stock or fund for a month, a week, or a day. FWIW today the top percentage gainer stock on the NASDAQ was Oxbridge, up 33.7% bottom was Advaxis, down 25.8%. So, from now on, we should all buy Oxbridge and and short Advaxis. At a 60% daily spread we will b...
by afan
Thu Mar 27, 2014 8:16 pm
 
Forum: Investing - Theory, News & General
Topic: SCV: has the small or the value kinda fallen out of favor??
Replies: 28
Views: 2192

Re: SCV: has the small or the value kinda fallen out of favo

More difficult to find, and less meaningful to interpret, risk adjusted returns for shorter terms. Three years is pretty short as it is, two is even worse. However, for what it is worth, three years IJS vs VTI: alpha(vs SA&P 500) Sharpe ratio IJS -1.23 1.00 VTI -0.3 1.1 The raw returns of the sm...
by afan
Thu Mar 27, 2014 7:34 pm
 
Forum: Investing - Theory, News & General
Topic: SCV: has the small or the value kinda fallen out of favor??
Replies: 28
Views: 2192

Re: SCV: has the small or the value kinda fallen out of favo

Over the last couple of years small value has outperformed TSM by ~20%. That is a huge outperformance. According to Morningstar, over the last 3 years DFSVX (small cap value) versus VTI (total stock market) alpha(vs SA&P 500) Sharpe ratio DFSVX -4.56 0.83 VTI -0.3 1.1 Looks like VTI outperforme...
by afan
Thu Mar 27, 2014 5:14 pm
 
Forum: Investing - Theory, News & General
Topic: SCV: has the small or the value kinda fallen out of favor??
Replies: 28
Views: 2192

Re: explaining the MOM premium

I suppose it depends on what one means by fundamental risk.
by afan
Wed Mar 26, 2014 5:29 pm
 
Forum: Investing - Theory, News & General
Topic: explaining the MOM premium
Replies: 25
Views: 3336

Re: Why does a Boglehead move to an adviser at 1.25% AUM?

If I could no longer handle my affairs I would either leave everything in place or have one of my children who are capable manage my investments. It will be theirs eventually anyway +1,000 They can then spend the 1.25% per year that otherwise would have gone to the advisor. And of course assuming t...
by afan
Wed Mar 26, 2014 5:21 pm
 
Forum: Investing - Theory, News & General
Topic: Why does a Boglehead move to an adviser at 1.25% AUM?
Replies: 63
Views: 4216

Re: explaining the MOM premium

Nisiprius, If one believes in market efficiency then it may be that way with all anomalies. Not really anomalous, but just products of analyses that recognize return but fail to properly account for risk. Then when one exploits the anomaly all we are doing is congratulating ourselves for ignoring ri...
by afan
Wed Mar 26, 2014 2:58 pm
 
Forum: Investing - Theory, News & General
Topic: explaining the MOM premium
Replies: 25
Views: 3336

Re: Ordering Rules at Market Open

I am not sure whether this addresses the question, but a large proportion of the orders placed are limit orders. So the market can drop dramatically on the open, compared to the prior trading day closing price, if there are a lot of limit orders to buy, but only at much lower prices than at the clos...
by afan
Sun Mar 23, 2014 6:51 pm
 
Forum: Investing - Theory, News & General
Topic: Ordering Rules at Market Open
Replies: 10
Views: 938

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

Some of the studies I cited did try to identify the advisors contribution to investment returns. It is tough, since you don't always know whether people are using advisors who tell them what to buy and sell, but the investors make the moves themselves. At least one of the studies cited discussed thi...
by afan
Sun Mar 23, 2014 2:41 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

The Finance Buff has entered this discussion so I will quote and point people to a very insightful post about the DALBAR study. It does not imply nearly as much investment results lost to performance chasing as SOME advisors like to pretend. http://thefinancebuff.com/dalbar-study-overstates-investor...
by afan
Sun Mar 23, 2014 2:24 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

Of course the best price is "already included in your expense ratio". If you have to pay extra, then in this example, $100 per year, $2500 over 25 years, would be a reasonable fee, 1 basis point. This of course assumes the advice has positive value. If the value is zero or negative, then e...
by afan
Sat Mar 22, 2014 8:54 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: Options for the medical grad but no residency

Care coordinator? I am with island on this one. That is all about practical decision making. They need people with lots of clinical experience. An MD degree without training would be pretty useless. Perhaps you could find a hospital so desperate that they might consider training an MD without this e...
by afan
Sat Mar 22, 2014 5:29 pm
 
Forum: Personal Finance (Not Investing)
Topic: Options for the medical grad but no residency
Replies: 95
Views: 7148

Re: Options for the medical grad but no residency

Docs make good money, but top half of 1% of US as a typical physician income? Hardly. There are certainly physicians in the 0.5%, but they are far from typical. Average income in the high income specialties is about the 1% threshold. Things to do without clinical training. If she can consider more s...
by afan
Sat Mar 22, 2014 5:26 pm
 
Forum: Personal Finance (Not Investing)
Topic: Options for the medical grad but no residency
Replies: 95
Views: 7148

Re: Higher Returns at Lower Risk - please comment

I am worried that using mean-variance as the performance metric, and ignoring skewness, is to misspecify true reward to risk preferences. Value has provided higher mean variance returns at the expense of negative skew.
by afan
Thu Mar 20, 2014 5:32 pm
 
Forum: Investing - Theory, News & General
Topic: Higher Returns at Lower Risk - please comment
Replies: 55
Views: 5217

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

The issue is not just recognizing and labeling a bias. The issue is proving that the bias has produced an incorrect conclusion. You need to reach an analytic solution to do that. This has nothing to do with how smart someone is. This is, as far as I can tell, a feature of how everyone thinks. Some p...
by afan
Thu Mar 20, 2014 5:22 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

So we are agreed that there is no evidence that advisors mitigate cognitive bias in financial decision making. Now we are on to how much harmful effect cognitive bias has in decision making. Again, I am finding it hard to find data on the scale of the problem. Before I assume I should pay someone to...
by afan
Thu Mar 20, 2014 12:16 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

So far, my search for articles by Kahnemann establishing the role of financial advisors in ameliorating cognitive bias has come up empty. I hope RPS can help. I did find this, not by K and T, in Journal of Management, 2008, 32:545 An Insight into Overconfidence in the Forecasting Abilities of Financ...
by afan
Wed Mar 19, 2014 7:04 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

You already dismissed three representative studies on bias blindness as allegedly irrelevant because they didn't involve financial advice. I only saw one study that you cited?? You're smarter and better than everybody else. You are too kind. But I doubt it. I just like to read the original literatu...
by afan
Wed Mar 19, 2014 6:25 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

... if cognitive bias is as ubiquitous as is thought, then it was passed on genetically because somehow it improved our odds of survival. K and T made exactly the same point. Not all system 1 thinking is in error. The subject only becomes interesting when there are examples where system 2 produces ...
by afan
Wed Mar 19, 2014 6:11 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

[quote="RPS" Textbook bias blindness, motivated reasoning and confirmation bias. We like to think that we're rational to the core, but we are really ideological through-and-through. You have an ideological opposition to investment advice that is highly unlikely to be impacted by any eviden...
by afan
Wed Mar 19, 2014 12:46 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

Or that the advisor who was doing right by you when you were able to follow the details has started exploiting your infirmity when your cognitive abilities start to slip. These concerns about advisor honesty SHOULD be largely addressable by having some third party serve as custodian. A large bank or...
by afan
Wed Mar 19, 2014 10:05 am
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

Again, why is it that advisors are free of such bias, while clients are not? That is the part that I do not accept. Of course, I accept evidence. If the data are perfectly clear, then please provide some data to support this assertion. I love reading original research. Can you cite the evidence that...
by afan
Tue Mar 18, 2014 7:04 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

Putting aside that comprehensive financial, tax and estate planning are far more complex than investment management and are vitally important.... There is also overwhelming evidence that cognitive and behavioral biases impact all of us (though we tend to deny it) and that age seriously diminishes o...
by afan
Tue Mar 18, 2014 5:01 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "How Much Should You Pay a Financial Advisor?" by Mike P

By that logic I'd do my own legal work, accounting work and would even operate on myself. Other biases include optimism bias -- we all like to think we're better than we are -- and confirmation bias -- we tend to see what we want to see. It's easy to think we should always do it ourselves. The diff...
by afan
Tue Mar 18, 2014 1:37 pm
 
Forum: Investing - Theory, News & General
Topic: "How Much Should You Pay a Financial Advisor?" by Mike Piper
Replies: 64
Views: 4835

Re: "Muni Bond Costs Hit Investors in Wallet"

Much as I prefer to do things myself, rather than pay for help, this is one where the mutual fund wins hands down. If I were to buy individual bonds, I would have to worry about spreads, about the credit worthiness of each issue, about the often arcane provisions of each bond, what short term events...
by afan
Fri Mar 14, 2014 4:11 pm
 
Forum: Investing - Theory, News & General
Topic: "Muni Bond Costs Hit Investors in Wallet"
Replies: 22
Views: 1827

Re: 24 year old in over his head: house/MBA/RSUs/tax questio

More reasons not to buy a house If you have long term plans with your girlfriend, then she will certainly want to have major input into selecting what will be the house for both of you. It may not be clear how to handle that while she remains a girlfriend, rather than a spouse, but your language imp...
by afan
Tue Mar 11, 2014 2:30 pm
 
Forum: Personal Finance (Not Investing)
Topic: 24 year old in over his head: house/MBA/RSUs/tax questions
Replies: 17
Views: 1742

Re: Diversify Fund Families

For example, Lehman Brothers. People who held assets at the firm got all their shares, bonds, etc back. Eventually. But people who had purchased Lehman Brothers securities, for example their ETNs, got hammered. The SIPC helped return assets held by Lehman Brothers in brokerage accounts. But it had n...
by afan
Mon Mar 10, 2014 10:46 am
 
Forum: Investing - Theory, News & General
Topic: Diversify Fund Families
Replies: 32
Views: 1456

Re: Diversify Fund Families

Companies can buy private insurance to cover larger losses, but, as far as I know, this has nothing to do with the SIPC. The value of the insurance entirely depends on the ability of the insurance company to cover the claim. For some $100B mutual fund, I don't know that there exists a private insura...
by afan
Mon Mar 10, 2014 10:34 am
 
Forum: Investing - Theory, News & General
Topic: Diversify Fund Families
Replies: 32
Views: 1456

Re: Diversify Fund Families

That was a surprise to me as well. As far as I know, and I am NOT an expert in securities law, the SIPC returns assets to investors when the broker dealer fails. If you had investments in Vanguard brokerage and the brokerage failed, then SIPC would try to give you back all the stocks, bonds, funds a...
by afan
Mon Mar 10, 2014 10:29 am
 
Forum: Investing - Theory, News & General
Topic: Diversify Fund Families
Replies: 32
Views: 1456

Re: Diversify Fund Families

Just a note to point out that diversifying funds to diversify custodians cannot work. Fund companies can and do change custodians for their funds. There are only a few custodians of the scale needed to serve the Fidelity's and Vanguard's of the world. So you could hold funds across multiple fund com...
by afan
Mon Mar 10, 2014 7:42 am
 
Forum: Investing - Theory, News & General
Topic: Diversify Fund Families
Replies: 32
Views: 1456

Re: Blog: Vanguard Personal Advisor Services

Will Vanguard lower the fees for their Asset Management service? If not, how will they keep people from bailing out of Asset Management to Personal Advisor Services? I think most bogleheads would say that few people need to pay for asset management, but if one really can't/does not want to do it the...
by afan
Sun Mar 09, 2014 8:54 pm
 
Forum: Investing - Theory, News & General
Topic: Blog: Vanguard Personal Advisor Services
Replies: 23
Views: 3916

Re: How much is a fair hourly fee?

So your point is that there is still a premium paid, but you don't pay it, therefore it is free? I could say the same thing for my wife, since she gets her insurance through my job. It is definitely not free. It is just not billed to her. You are able to get a "free" plan because the gover...
by afan
Wed Mar 05, 2014 9:55 pm
 
Forum: Investing - Theory, News & General
Topic: How much is a fair hourly fee?
Replies: 86
Views: 4835

Re: How much is a fair hourly fee?

Seattle, Great explanation. Thanks for getting that part of the discussion back into reality. Man, You should care what the ER doc bills. You pay for it in your insurance premium. The price of insurance depends on the price of medical services. The hospital and doctors negotiate with the insurance c...
by afan
Wed Mar 05, 2014 8:51 pm
 
Forum: Investing - Theory, News & General
Topic: How much is a fair hourly fee?
Replies: 86
Views: 4835

Re: The 4% rule is in trouble but rescue is on the way!

Two people who earned at the SS max and retire now will have that 50k in SS income. But that has nothing at all to do with how much one can withdraw without depleting savings
by afan
Wed Mar 05, 2014 5:54 pm
 
Forum: Investing - Theory, News & General
Topic: The 4% rule is in trouble but rescue is on the way!
Replies: 14
Views: 1957

Re: How much is a fair hourly fee?

They lump them together because the money is in asset management, not in financial advice. That us why places like BAM don't even offer advice without management. For people coming from overpriced advisors and high ER mutual funds, switching to a lower priced service van be a great deal. But the eff...
by afan
Wed Mar 05, 2014 6:56 am
 
Forum: Investing - Theory, News & General
Topic: How much is a fair hourly fee?
Replies: 86
Views: 4835

Re: How much is a fair hourly fee?

I do my own taxes like a true boglehead. If they were complicated enough to require someone to do them for me, let alone someone with the qualifications of a CPA, then I would pay what that service cost. But I would also consider whether the complexity was worth it. I could not imagine having a CPA ...
by afan
Tue Mar 04, 2014 2:46 pm
 
Forum: Investing - Theory, News & General
Topic: How much is a fair hourly fee?
Replies: 86
Views: 4835

Re: How much is a fair hourly fee?

The appropriate hourly fee also would depend on who provides the service. Perhaps $250 or more for a senior planner, considerably less for more routine work from lower level staff. But this also gets to Larry's point about value received. How do you quantify that? I think the discovery of the poor p...
by afan
Tue Mar 04, 2014 6:59 am
 
Forum: Investing - Theory, News & General
Topic: How much is a fair hourly fee?
Replies: 86
Views: 4835
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