Bogleheads.org

Let's see... the value factor is supposed to be more persistent and positive than the size factor or the market factor. However, recent evidence suggests that MOM, a growth factor, is also persistent and positive. Now we have another positive factor, profitability, associated with growth. So two fac...

One reason I have reservations about SCV index funds in general is the high percentage of REITS, which I consider overvalued, in their portfolios. REITS have done very well indeed for more than a decade and this has provided a nice tailwind for SCV returns. They have done so well for so long that I ...

I rebalance into stocks according to my asset allocation model when the market tanks. The lower equity prices go, keeping stable percentages in asset allocation necessarily shifts assets from high quality bond instruments into riskier areas. When equities recover, shifting back into bonds according ...

I have done 100% stocks earlier in my life and even though I'm a risk taker by nature, that roller coaster got a bit too scary for me in the tech collapse of 2000-2003. I held on to all my equity positions until the market recovered, then shifted into some bonds, promising myself that I would never ...

Taylor wrote: Most of us have an investing lifetime of 40 years or more. I started investing at the age of 26 in 1950. The S&P 500 fluctuated between 17 and 20 in 1950. Today the S&P is over 1,600. Lesson learned: It doesn't matter when you invest. Do it now and stay the course. Best wishes....

Gundlach has an impressive track record recently, but like the numerous fallen hedge fund stars, Paulson comes to mind, they're all brilliant and insightful until they're not and they wind up losing a lot of money for their investors. He has in recent years taken on a lot of risk, buying non-govt. b...

For those who derive generous fees for "picking stocks" it is always a stock pickers market.

Garland Whizzer

Question: If you are holding your bonds for the long term, what does it matter if they drop in value during a equity market collapse as long as they not only come back to the value of Treasuries but in the years after the collapse they consistently surpass the value of Treasuries. In the long term r...

I think John3754 summed it up well. Long term investment money that you know you won't need for many years can remain in intermediate term funds. Money that you might need in the next 5 years might be more safe from losses in short term funds in a rising interest rate environment. I keep in my perso...

The lack on instant liquidity without incurring penalties is why I do not and will not own CDs. I don't like the idea of having my money locked up until the maturity date, unless I pay a penalty which reduces gains which are already bad in this yield-free environment. One of the main reasons I hold ...

Although investing in the stock market has risk, it clearly has rewards for those who have the stomach to ride out the downturns. Gambling on the other hand is a zero sum game where there is no expected long term return for the gambling group as a whole. By definition, winners can win no more than l...

The stock market is inherently unpredictable. As the saying goes, there are two types of investors: those who don't know where the stock market is going and those who don't know they don't know where it is going. Many large hedge fund managers (bear in mind these guys get paid in millions, tens of m...

I agree with Nisi that "there ain't no such thing as a free lunch." With all the institutional and professionally managed money chasing the unattainable paradox of low risk with high return at the same time, the market sets a price on the stock options that effectively kills all the alpha....

Below is the web address for the PBS interview with Ed Hyman who has been voted the number one economist on Wall Street for an unprecedented 33 consecutive years. Ed comes across very modest and low key but his yearly economic projections are in my opinion worth listening to for those interested in ...

Interesting post, Larry. The question is whether the increased costs of implementing such a strategy (increased turnover, more expense, less tax efficiency) outweighs the expected benefits over a P/BM strategy which has less turnover and implementation costs. The issue with value strategies it seems...

No.

Garland Whizzer

Simple question: Will all the new products competing to exploit the FF size and value premiums overgraze the available S&V premiums and reduce returns to the just the equity premium? It seems to me that most equity investments now are done by institutions and professionals, all of whom are famil...

It's not just that low down payments increase default risk (strategic defaults). The problem is that the US government, not the borrower or the lender, takes on that risk through GNMA, Freddie, Fannie, FHA, etc.. Government purchases of those mortgages shifts the risk burden to the taxpayer. If bank...

All posts, both pro-bond and pro-equity, point to one conclusion. You need both in your portfolio to balance risk aversion with long reward seeking. Each of us must decide where this balance is optimal for his own circumstances. There is no right answer in my opinion for everyone. I overweight stock...

LH quote If fundamentals matter, in any meaningful sense, then why is there not a mutual fund that exploits the "fundamentals that matter" and beat index funds. "fundamentals matter" doesnt mean anything......... Its not something one can take action on with expectant success rel...

In my opinion, the greatest risk to bonds at this point is not the default risk of corporate bonds on which most people focus. Rather it is the risk of principal loss in a rising interest rate environment (which can happen with or without increasing inflation rates. This risk correlates best with th...

I totally agree with CyberBob and SpaceCommander on this one. I have already lowered my bond allocation to 25% of my portfolio, anticipating a zero or slightly negative real return on bonds over the next decade. I am keeping some bonds as an anchor for stormy times and I plan to rebalance into stock...

I think that it can be important for some investors, myself included, to hold a core of safe money market funds plus short term-intermediate term high quality bonds in a taxable account that is sufficient to provide all living expenses for two to three years. This allows one to sleep at night when s...

Munir wrote: Why is the Short Term Investment Grade doing better YTD than Total Bond Index when interest rates have not changed much during this period- not that such a short period of time means much anyway? Because investors fearing the negative effects of rising interest rates on longer duration...

Excellent and thoughtful post, Larry.

Garland Whizzer

The video webcast can be accessed at <www.morningstar.com/Cover/videoCenter.aspx?id=590421>

Some interesting food for thought about bonds and stocks in the current environment.

Garland Whizzer

I second plannerman's opinion on gofigure's excellent post. Shiller's interview is very informative. He is very knowledgeable, unemotional, and level headed which allowed him to see through both the dot com and housing bubbles before they burst. It turns out that he is a value investor and unafraid ...

bobcat2 wrote [quote]For the most recent 13 year period 2000-2012 the real return on the total US stock market was -0.2% per year before expenses. So given the experience of the last 13 years, why are so sure that the stock market will recover from any drop in 10 years or less? True in real inflatio...

I do not accept the concept of glide paths in general and certainly not "age in bonds." For me, it has been dead for a long time. Currently although I'm 66, my bond allocation is 25%, but that is a very personal decision based on my own circumstances and my own rather high level of risk to...

I would agree that rebalancing into equities when they are at all time highs is a herd reaction, based on emotion rather than reason. The perception of risk is subjective, and it is often inversely proportional to objective risk. Objectively, the lowest risk environment for adding to equity exposure...

Two points. First investing in "house flipping" is a concentrated and leveraged bet on a tiny slice (DC area) of a market subsegment (real estate). It utterly lacks diversification and it is therefore very risky. Second, see the work of Professor Shiller at Yale on the long term inflation ...

A simple point. S and V have worked in the past over long periods of time, rewarding investors who had the patience to hold them through the inevitable occasional downdrafts relative to L and G. Does this mean with certainty that that pattern will persist indefinitely into the future? I don't think ...

nisi wrote: If interest rates rise in the absence of inflation, they rise. It hits TIPS and it hurts nominal bonds (and, of course, it also hits stocks, a point which many people seem to overlook--but I digress). It doesn't hit TIPS any worse than nominal bonds. True that inflation hits everything, ...

There is a vulnerability and a risk in TIPS that few mention. In contrast to other bonds, TIPS do offer inflationary protection, but what if interest rates rise in the absence of significant inflation? For example, if investors become disenchanted with bonds due to historically low yields from unpre...

Interesting article, not sure if his points are valid, but food for thought. Ned is a tactical asset allocator, an active manager, so not a true Boglehead. Still, his research suggests that world wide over the last 13 years neither the value nor the size premium have been either significant or persi...

There's a big difference in the asset allocation of Buffett's Pension Plans and Berkshire Hathaway, his fund. Their goals are different. BRK aims to maximize total returns for the long run, greater than a decade, and Buffett is not optimistic about long term bond returns. Fiduciary duty in a pension...

rm wrote

I can't find a good vehicle for EM small cap (apart from DFA which I don't have access to)

Check out EWX and DGS.

Garland Whizzer

lawman3966 wrote: "Moreover, I suspect this underperformance would occur due to all the long-established factors like trading costs, fees, taxes, and bad market timing decisions, with or without the advisor salaries being "egregious." The following excerpt is from an article written b...

From Yahoo: Active managers used to offer the excuse that stock performance correlations were so high, the risk-on versus risk-off pattern, and that was the reason they couldn't beat indexes. Now stock market correlations are decreasing and still active managers are underperforming. One thing hasn't...

Hedging loses in an up market. It may marginally do better in a down market. The long history of the stock market trends up, not down, and therefore hedging with VIX for the very long haul is a losing strategy just as are most active strategies. It is cost generating active trading, something most o...

Hedging may increase returns in a down market by reducing losses. It decreases returns in an up market, one reason why the average hedge fund has underperformed TSM and S&P 500 in recent years. Warren Buffett's bet that the S&P 500 would outperform a cherry picked portfolio of hedge funds ru...

"Age in years" for bond allocation worked well when Bogle first suggested it. Given today's interest rate environment, it is almost certain to substantially reduce long term portfolio returns going forward relative to a more aggressive stock/bond mix. Personally, I'll choose to tolerate th...

New research paper from Vanguard. Definitely worth reading.

personal.vanguard.com/pdf/s700.pdf

Garland Whizzer

ResNullis wrote» Tue Mar 05, 2013 6:11 pm For equity investing to make any sense at all on a buy and hold basis, then "new highs" need to happen all the time, not just once every 5 or 10 years. I don't understand your point. Over the past 10 years with dividends reinvested VTSMX has gained...

As for hedging stock market risk, don't high quality bonds do exactly that? Do we need really need another hedge? Is this yet another financial product created by Wall Street to extract money from investors? If you're so concerned about risk, you can always lower your asset allocation to equities an...

I think Nisi's got it right. Short term the market does show inefficiencies. Even so the question is: can they be consistently exploited? The evidence on this question is clear. Most who actively try to exploit them fail to do so consistently and given their higher cost structure, underperform compa...

I think DaveS hit the nail on the head. Quite simply on a fundamental basis, REITS were attractively valued years ago but this is no longer true. Due to investors frantic stretch for yield in a yield-free world and to their perceived superiority of REITS in terms of inflation risk relative to bonds,...

Leverage is fine as long as things are going up in price. In a prolonged severe bear market or a black swan event, both of which are unpredictable in onset and in severity, leverage is deadly, with the real possibility that you can get wiped out. It is also a costly strategy in terms of execution, e...

Buying extreme market dips can be profitable but is tricky because one never knows if there is another big leg to the downside waiting around the corner. I believe the best but not infallible indicator of when the risk/reward tradeoff is maximal for buying when stocks are "on sale" is dete...

I agree with Allan Roth and Rick Ferri. There is nothing magical about dividends and their recent popularity has stretched valuations of high dividend stocks in the wrong way. Total return is where the focus should be, which is certainly more tax efficient.

Garland Whizzer