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Re: Is 1800s stock market data even relevant?

The survivorship bias results because stocks that had a short and unhappy lifetime never got on the lists we have today. Either that, or in the 19th century there were hardly any stocks that quickly failed in the US. :D An experience quite different from that of any of over twenty stock markets for ...
by bobcat2
Wed Apr 23, 2014 11:12 pm
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Long Term Risks of Global Stock Markets

The authors don't explain how they get their result for a hypothetical global German investor. It's simple. Global returns have to be in terms of a currency. For every home currency the returns of the global stock portfolio will be different. For the Japanese investor holding the global portfolio t...
by bobcat2
Wed Apr 23, 2014 10:48 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Long Term Risks of Global Stock Markets

bernston, you are looking at time to recovery only after a 50% drop. Most countries have had 20 year periods or more of negative returns. From the authors of the data of the table you referenced. Aside from the United States, only three other equity markets (Canada, Australia, and Denmark) have neve...
by bobcat2
Wed Apr 23, 2014 7:41 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Long Term Risks of Global Stock Markets

berntson wrote. The point is that mean reversion--bad returns increasing the probability of future good returns--is not needed for it to be safer to take a bet several times than to take it just once. All you need are bets the each have a positive expected return that and for those bets to be more o...
by bobcat2
Wed Apr 23, 2014 7:11 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Is 1800s stock market data even relevant?

Your argument appears to be that while somebody who knows about the efficient market theory cannot pick stocks somebody who doesn't can. I am not saying that at all. I am saying that in the 1800s they mainly kept track of well known stocks that had done well in the past. Basically they kept track o...
by bobcat2
Wed Apr 23, 2014 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Is 1800s stock market data even relevant?

Patrick, They picked the best known successful stocks at the time they prepared the list obviously. Why wouldn't they. They wanted to pick the best stocks. They wanted to do well by picking good stocks. There were no stock indexes to tell them how well the market as a whole was doing. Since they di...
by bobcat2
Wed Apr 23, 2014 12:32 pm
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Long Term Risks of Global Stock Markets

Thanks for posting pkcrafter! For the sake of stimulating discussion, I'll try representing "the opposition." The opening argument: Mean reversion is a bad test for whether stocks are safer in the long run. We can see this by considering a simple game of chance. I hand you $1 on January 1...
by bobcat2
Wed Apr 23, 2014 12:20 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Is 1800s stock market data even relevant?

Hi Valuethinker, I didn't say the inflation numbers were off by 2%-3%. I said the combined errors on stock returns and inflation could put the real returns on stocks off by 2%-3% per year, if stock return estimates were high and inflation estimates were low. We simply don't know enough to know how b...
by bobcat2
Wed Apr 23, 2014 11:23 am
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: What's your number?

The best way to find the number is first to decide how much income you want in retirement from your porfolio. Next, see how much a real life annuity costs at your retirement age and your gender that provides that amount of income. Add to that how much in real assets you want in reserve in retirement...
by bobcat2
Wed Apr 23, 2014 10:54 am
 
Forum: Personal Finance (Not Investing)
Topic: What's your number?
Replies: 65
Views: 3880

Re: Is 1800s stock market data even relevant?

Patrick, They picked the best known successful stocks at the time they prepared the list obviously. Why wouldn't they. They wanted to pick the best stocks. They wanted to do well by picking good stocks. There were no stock indexes to tell them how well the market as a whole was doing. Since they did...
by bobcat2
Wed Apr 23, 2014 10:32 am
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Is 1800s stock market data even relevant?

Hi Patrick, You don't honestly believe that all stocks have the same chance of being omitted do you? Do you really believe that the original Dow-Jones Index was a random collection of stocks? :D If you believe that contact me immediately by PM. I own some bridges you will want to buy. Noise and no s...
by bobcat2
Wed Apr 23, 2014 12:46 am
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Is 1800s stock market data even relevant?

If a particular company issued stock from 1810-1819 and then went out of business, or was merged into another company, and all the stock price data on that company was discarded over a 150 years ago, then how are we going to know about it? That’s a form of survivorship bias and probably happened at...
by bobcat2
Tue Apr 22, 2014 11:41 pm
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Long Term Risks of Global Stock Markets

pkcrafter wrote:Bobk, thanks for copying about the same text that I tried to copy, but couldn't. How do you do it?

Paul


I copied it from an old post of mine on this paper. It's possible that on the original post I didn't copy it, but simply typed it out. :happy

BobK
by bobcat2
Tue Apr 22, 2014 11:19 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Long Term Risks of Global Stock Markets

Jorion tested for mean reversion in the stock markets of many countries using about a hundred years of monthly data. He found little evidence of LT mean reversion in stock prices in these many stock markets. We describe the distribution of long-term returns for a sample of thirty countries for which...
by bobcat2
Tue Apr 22, 2014 8:42 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Is 1800s stock market data even relevant?

... While other problems (such as missing dividend amounts) may be hard to avoid, survivorship bias is at least in principle easy to prevent. If you look at the stock prices printed in 1850 and then check their prices from 1849 you'd have survivorship bias. But if you started with the prices printe...
by bobcat2
Tue Apr 22, 2014 8:15 pm
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: Long Term Risks of Global Stock Markets

Hi Paul, Actually this paper has been discussed here several times before. It has even been mentioned on several threads on the Bogleheads site at M*. That includes this thread from nearly 11 years ago that you participated in. :) Link: https://socialize.morningstar.com/NewSocialize/forums/p/95153/1...
by bobcat2
Tue Apr 22, 2014 6:03 pm
 
Forum: Investing - Theory, News & General
Topic: Long Term Risks of Global Stock Markets
Replies: 22
Views: 1420

Re: Is 1800s stock market data even relevant?

nisiprius wrote. Setting aside the question of whether data from the 1800s is accurate ... There is no reason to set aside the issue of whether real stock market returns in the 1800s are accurate, for the simple reason that they cannot possibly be accurate. The further back we go in the 1800s the le...
by bobcat2
Tue Apr 22, 2014 10:40 am
 
Forum: Investing - Theory, News & General
Topic: Is 1800s stock market data even relevant?
Replies: 60
Views: 2761

Re: First of two parter on what is risk

I think that some people on this thread are confusing the definition of risk with particular risks. Our concerns are particular risks we take, which often have teeth, not the definition of risk. If I were trying to help someone deal with risks in her financial life, I wouldn't start with the definit...
by bobcat2
Fri Apr 18, 2014 10:10 am
 
Forum: Investing - Theory, News & General
Topic: First of two parter on what is risk
Replies: 26
Views: 1673

Re: Washington DC Area Bogleheads

Hi Victoria,

I don't know anything about the size of the other local groups. But now we can see how 20-30 people can show up at one of our regular meetings. This is a far cry from the 20 or so people that showed up at our first meeting.

BobK
by bobcat2
Thu Apr 17, 2014 10:45 pm
 
Forum: Local Chapters and Bogleheads Community
Topic: Washington DC Area Bogleheads
Replies: 163
Views: 49161

Re: Washington DC Area Bogleheads

As of tonight we have 200 members of the Washington DC Area Bogleheads. :beer

BobK
by bobcat2
Thu Apr 17, 2014 10:03 pm
 
Forum: Local Chapters and Bogleheads Community
Topic: Washington DC Area Bogleheads
Replies: 163
Views: 49161

Re: First of two parter on what is risk

The wiki has some background info: Skewness and Excess kurtosis Question: The wiki is using a definition of excess kurtosis, but everything I see (including Larry's article) only addresses kurtosis. What's the distinction (excess or not) and should the wiki be corrected? BTW, disable browser cookie...
by bobcat2
Thu Apr 17, 2014 4:58 pm
 
Forum: Investing - Theory, News & General
Topic: First of two parter on what is risk
Replies: 26
Views: 1673

Re: First of two parter on what is risk

BobK, ... Frank Knight clearly distinguishes uncertainty from risk: In economics, Knightian uncertainty is risk that is immeasurable, not possible to calculate. Knightian uncertainty is named after University of Chicago economist Frank Knight (1885–1972), who distinguished risk and uncertainty in h...
by bobcat2
Thu Apr 17, 2014 3:50 pm
 
Forum: Investing - Theory, News & General
Topic: First of two parter on what is risk
Replies: 26
Views: 1673

Re: The World Top Incomes Database

Levett wrote:I'm waiting for my copy of the book to arrive, Bob.

It's likely too heavy for me to take to Paris. ;-)

Lev


No problem Lev. Just get a French edition when you get there. :happy

BobK
by bobcat2
Thu Apr 17, 2014 1:12 pm
 
Forum: Investing - Theory, News & General
Topic: The World Top Incomes Database
Replies: 5
Views: 875

Re: First of two parter on what is risk

Definitions of risk from economic and finance textbooks. Risk is uncertainty that "matters" because it affects people's welfare. Merton et al - Financial Economics The term risk refers to the variability of the outcomes of some uncertain activity. Nicholson - Microeconomic Theory Risk is t...
by bobcat2
Thu Apr 17, 2014 9:41 am
 
Forum: Investing - Theory, News & General
Topic: First of two parter on what is risk
Replies: 26
Views: 1673

Re: First of two parter on what is risk

[OT comment removed by admin LadyGeek] Definition of risk Before defining risk we need to define the related term uncertainty. Uncertainty simply means that we are not certain what will happen in the future. or Uncertainty means more than one outcome is possible. The standard definition of risk in ...
by bobcat2
Thu Apr 17, 2014 9:31 am
 
Forum: Investing - Theory, News & General
Topic: First of two parter on what is risk
Replies: 26
Views: 1673

The World Top Incomes Database

On Tuesday I heard Thomas Piketty speak about his new book, Capital in the Twenty-First Century. One thing that was interesting during the discussion of the book was that Piketty, a French economist, spoke in English faster than any of the three American economists during the panel discussion. I was...
by bobcat2
Thu Apr 17, 2014 12:00 am
 
Forum: Investing - Theory, News & General
Topic: The World Top Incomes Database
Replies: 5
Views: 875

Re: less you need social security, earlier you should claim

Under current rules, if you haven't claimed yet, it is easy to change your mind. If you have already claimed, it is not so easy. This could be taken into account when you "make" a decision, ... :thumbsup :thumbsup Yes. There are about 95 points where if you delay at 62 you can change your...
by bobcat2
Sun Apr 13, 2014 6:22 pm
 
Forum: Investing - Theory, News & General
Topic: less you need social security, earlier you should claim
Replies: 39
Views: 2801

Re: less you need social security, earlier you should claim

Since actuarially (for a single person) SS benefits are neutral across the claiming range UTTER NONSENSE . If SS benefits were neutral across the claiming range for a single person the benefits would be different for males and females. They are not. If you are single, SS is a better deal if you are...
by bobcat2
Sun Apr 13, 2014 6:13 pm
 
Forum: Investing - Theory, News & General
Topic: less you need social security, earlier you should claim
Replies: 39
Views: 2801

Re: Rebalancing the whys and hows of it

Bobcat First, if you expect 7% returns and get 8% or 6% it isn't going to make any difference, that's noise. Second, I did not state it because that point has nothing to do with rebalancing. It's about the AA decision. Larry That's true, but expecting 7% and getting 13% or more, or 1% or less does ...
by bobcat2
Wed Apr 09, 2014 11:06 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2284

Re: Rebalancing the whys and hows of it

larryswedroe wrote. For example as you note when returns are much greater than you expected (and you're late in your career and have accumulated significant assets already) that lowers your need to take risk and you should adjust your AA to reflect that, and then rebalance from that level. It's why ...
by bobcat2
Wed Apr 09, 2014 9:26 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2284

Re: Rebalancing the whys and hows of it

Bobcat IMO you are confusing strategy with outcome. The investor choose an asset allocation because of the expected returns and risks met his goals and risk profile. Rebalancing keeps that profile, though one should also adjust over time for expected returns to make sure that the AA still meets the...
by bobcat2
Wed Apr 09, 2014 4:36 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2284

Re: What is risk tolerance?

When assessing risk we want to think in terms of risk capacity and risk tolerance, and risk capacity is primary. Briefly your risk capacity consists of objective measures of your risk profile such as do you have a lot of debt, do you have a secure job, do you have a reserve or emergency fund, are yo...
by bobcat2
Wed Apr 09, 2014 3:01 pm
 
Forum: Investing - Theory, News & General
Topic: What is risk tolerance?
Replies: 12
Views: 562

Re: Rebalancing the whys and hows of it

You are equating "controlling risk" with "reducing risk" and that's not what is meant so the Japanese investor who never rebalanced had a risk level that did not stay constant but reduced over time as the stock market fell. The Japanese investor held constant the variance in the...
by bobcat2
Wed Apr 09, 2014 1:58 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2284

Re: Rebalancing the whys and hows of it

First, the perhaps of rebalancing isn't to generate any "bonus"--it's to control risk. Benjamin Graham had this to say, pretty smart guy: "The essence of investment management is the management of risks, not the management of returns." A 30 year old Japanese investor at the end ...
by bobcat2
Wed Apr 09, 2014 11:23 am
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2284

Re: How has a Taleb-esque portolfio done recently?

Shorting treasuries is a no-brainer? Wow. This guy reminds me of Howard Ruff. Disaster is always around the corner. Very bold statements. But both turned out to be very wrong over time. These type of folks are right once at the exact right time and then are afforded undeserved guru status. The hype...
by bobcat2
Mon Apr 07, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: How has a Taleb-esque portolfio done recently?

It's funny, I came to post that same quote, but a different part that I think sums him up better... "... that’s the trade.” Taleb also recommends betting on hyperinflation using options to buy gold and silver and sell Treasuries. “You have a very small probability of making money ,” he said. “...
by bobcat2
Sun Apr 06, 2014 8:43 pm
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: How has a Taleb-esque portolfio done recently?

Nassim Talib advice given on February 4, 2010. Financial guru Nassim Taleb says everyone on earth should short Treasuries, thanks to the exploding U.S. budget deficit and potential inflation. He said at a conference that investors should keep a majority of their portfolio risk free and apply maximum...
by bobcat2
Sun Apr 06, 2014 6:01 pm
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: Wade Pfau: Lifecycle Finance

Hi learning_head, Suppose R40 didn't give a hoot about when she retired. Instead she came to you for advice in the following situation. I want very little risk in my portfolio, but I want the portfolio to consist 100% of emerging market small cap stocks. What AA advice would you give? Might you cons...
by bobcat2
Sun Apr 06, 2014 2:09 pm
 
Forum: Investing - Theory, News & General
Topic: Wade Pfau: Lifecycle Finance
Replies: 119
Views: 12262

Re: How has a Taleb-esque portolfio done recently?

Here is Taleb's investment advice given at a conference in 2013. The 20% zero-risk, 80% high-risk portfolio: Noting that advisors will find this principal the most applicable to their field, Taleb detailed his strategy for robust portfolio construction. Rather than selecting an array of medium-risk ...
by bobcat2
Sun Apr 06, 2014 1:54 pm
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: How has a Taleb-esque portolfio done recently?

A little defense of Taleb, or at least explanation as I understand it... - The main rejection, or reality he is trying to avoid, is that in stock market investing you are putting all the money at risk in order to get a small expected return. It's not roulette, where you might lose everything and yo...
by bobcat2
Sun Apr 06, 2014 12:45 pm
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: How has a Taleb-esque portolfio done recently?

Whether a 10/90 portfolio is better than a more standard 60/40 portfolio depends on the goal. If you are only a few years from retirement and on-track to reach your retirement goal without taking much risk, then a 10/90 portfolio makes a lot of sense. If you are thirty years old and intend to retire...
by bobcat2
Sun Apr 06, 2014 9:25 am
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: Wade Pfau: Lifecycle Finance

The point of the question was HOW IN PRACTICE with TODAY's products could R40 take the least amount of risk to get the $25k floor (inflation-adjusted)? The way for R40 to take the least amount of risk to get the $25k floor (inflation-adjusted) is to work longer. The fact that R40 doesn't like the l...
by bobcat2
Sun Apr 06, 2014 8:44 am
 
Forum: Investing - Theory, News & General
Topic: Wade Pfau: Lifecycle Finance
Replies: 119
Views: 12262

Taleb often changes his investment advice

One thing you have to realize about Taleb is that he frequently changes his investment advice. Taleb hasn't advocated the investment advice discussed here, 90% Treasuries-10% risky assets, for several years. Taleb's investment advice at the beginning of 2010 was not that people should own Treasuries...
by bobcat2
Sat Apr 05, 2014 11:23 am
 
Forum: Investing - Theory, News & General
Topic: How has a Taleb-esque portolfio done recently?
Replies: 34
Views: 3553

Re: Help me understand

Yesterday it was announced that Thomas Piketty, the author of the second book, Capital in the Twenty-First Century , would be speaking here in Washington later this month. I tried to register for the event a few hours after the announcement, but all the seats had already been taken. Thank you, Bob....
by bobcat2
Fri Apr 04, 2014 2:27 pm
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8817

Re: Liability Matching Portfoloio

If you are in your mid -60s this advice may be too late, but the best current liability matching strategy is to delay SS or db pension benefits. Because of the prevailing low real interest rates, these annuities are much better deals than private annuities or TIPS. SS and db pensions are based on av...
by bobcat2
Fri Apr 04, 2014 1:46 pm
 
Forum: Investing - Help with Personal Investments
Topic: Liability Matching Portfoloio
Replies: 15
Views: 874

Re: Liability Matching Portfolio

Here are additional resources at Bogleheads on the general topics of liability matching and life-cycle finance. http://www.bogleheads.org/wiki/Matching_strategy http://www.bogleheads.org/wiki/Investment_risk_management http://www.bogleheads.org/wiki/Life-cycle_finance http://www.bogleheads.org/forum...
by bobcat2
Fri Apr 04, 2014 12:30 pm
 
Forum: Investing - Help with Personal Investments
Topic: Liability Matching Portfoloio
Replies: 15
Views: 874

Help me understand

Help me understand a different question about Flash Boys . While Flash Boys in its first week of release is the #1 selling book in economics this week at Amazon, another book in economics, which is in its first week of release in english, is #3 and sold out at Amazon. The second book in its original...
by bobcat2
Fri Apr 04, 2014 9:48 am
 
Forum: Investing - Theory, News & General
Topic: Help me understand Michael Lewis' "Flash Boys"
Replies: 164
Views: 8817

Re: How did you determine your "number" for retirement

A good way to target your retirement goal is to estimate how much income you will need in retirement to fund your desired standard of living in retirement. Price what a real life annuity would cost at your retirement age to generate that amount of annual income. Add to the price of the annuity the a...
by bobcat2
Thu Apr 03, 2014 3:53 pm
 
Forum: Personal Finance (Not Investing)
Topic: How did you determine your "number" for retirement
Replies: 51
Views: 3300

Re: Wade Pfau: Lifecycle Finance

It doesn't matter what strategy you pursue or what financial products will become available in the foreseeable future. Most people are going to have low retirement income, if they want to save less than 3% of their income or retire no later than age 50. :(

BobK
by bobcat2
Thu Apr 03, 2014 3:18 pm
 
Forum: Investing - Theory, News & General
Topic: Wade Pfau: Lifecycle Finance
Replies: 119
Views: 12262

Re: Wade Pfau: Lifecycle Finance

Let's imagine a simple scenario: someone with wierd name R40 who wants to retire at 40 and provide a floor of $25k/year. grayfox's advice provides R40 with a ceiling of $25k/year, not a floor. Assuming the floor is truly a floor, R40 won't have anything like $474,000 leftover to invest in stocks. M...
by bobcat2
Thu Apr 03, 2014 2:30 pm
 
Forum: Investing - Theory, News & General
Topic: Wade Pfau: Lifecycle Finance
Replies: 119
Views: 12262
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