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Re: [Shiller's] data set and the Facts of the Matter

If I am not mistaken, does not everybody calculate the total annualized return for the year by reinvesting the dividends and comparing the starting value on Jan 1 to the ending value on Dec 31? They do not average any price data. fd Some take starting value on July 1 and ending value on June 30th. ...
by grayfox
Thu Dec 04, 2014 4:44 pm
 
Forum: Investing - Theory, News & General
Topic: [Shiller's] data set and the Facts of the Matter
Replies: 14
Views: 1669

Re: [Shiller's] data set and the Facts of the Matter

Prices can change by a lot every day, which means that there's a lot of high-frequency information in price data. If the sample period is one month and there are frequencies of 1-week, 1-day or 1-hour, then the sample rate is much less than those high frequencies which can give erroneous results. Fi...
by grayfox
Thu Dec 04, 2014 7:06 am
 
Forum: Investing - Theory, News & General
Topic: [Shiller's] data set and the Facts of the Matter
Replies: 14
Views: 1669

Re: [Shiller's] data set and the Facts of the Matter

Thanks for all your thoughtful comments so far -- I have not seen anything on this more technical issue that I brought up. but the problem seems to stem from the standard way we apply Portfolio returns using discrete simple return data on an annualized basis vs the way Schiller "cut" up t...
by grayfox
Wed Dec 03, 2014 7:18 am
 
Forum: Investing - Theory, News & General
Topic: [Shiller's] data set and the Facts of the Matter
Replies: 14
Views: 1669

Re: Will stocks beat bonds over next 30 years?

All models are wrong, but some are useful. -- George E.P. Box If someone says that this model is wrong, it doesn't really add anything. Everyone knows the model is wrong, that point is not even debatable. The relevant question is: Is this model useful? But then you must ask: "Useful for what?&...
by grayfox
Tue Nov 25, 2014 4:13 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

http://i.imgur.com/3xGfpH2.png This charts is very interesting. I'm just looking at the blue line. If I am understanding it, it shows how much speculative return added to or subtracted from the investment return. For example, around 2000, spec return added +5% p.a. over the previous 30 years to the...
by grayfox
Tue Nov 25, 2014 3:10 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

What's that you say? You think my analysis in balderdash? Is it a joke? Ok, then you are welcome to present your own case, or pose an argument for why my case is faulty. Uncertainty only exists in the human mind - its not intrinsic to the physical world*. Your analysis is as valid as anybody's. Tha...
by grayfox
Sun Nov 23, 2014 1:54 pm
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

Here's an interesting case. I went back to December 1999 when Shiller PE was 44.19. So I used 1/PE10 (0.02262955, 0.20) for stocks. I've read that, in 1999, 30-year TIPS had real YTM = 4%. So I used (0.0400, 0.00) for bonds. Here is the output of the gordoni2's python script: stocks: gm=1.0222 am=1....
by grayfox
Sun Nov 23, 2014 12:00 pm
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

Valuation is the wild card.
I bet if I knew what the Shiller PE will be in future, I could narrow the forecast down quite a bit.
by grayfox
Sun Nov 23, 2014 11:50 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

OK, this is starting to make sense. If I run the python script with historical return for stocks (6.8%, 20%) and bond (0%, 0%), it should say what the chance was historically of getting less than 0% real return. stocks: gm=1.0674 am=1.0853 sd=0.1998 bonds: gm=1.0001 am=1.0001 sd=0.0000 elapsed years...
by grayfox
Sun Nov 23, 2014 7:56 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

The worst 30-year real return was 1.90%. Less than 1% over 30-years is not impossible, but it's not very unlikely. Nowhere near 25% chance. I am curious to see what your simulation says. I will guess less than 5% OK, I ran the python script with this change: # bonds = AssetClass(1.019, 0.10) bonds ...
by grayfox
Sat Nov 22, 2014 12:27 pm
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

I would like to know how Mr Shiller generated stock market data starting year 625 (=2012 -29 - 1358). That, or what types of Shenanigans did you do to produce 1358, 30-year periods of S&P returns. Data is monthly returns from 1871 to present. This is just the actual 30-year return for each mont...
by grayfox
Sat Nov 22, 2014 12:11 pm
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Will stocks beat bonds over next 30 years?

30-year TIPS currently have YTM = 1.00% If you buy a 30-year TIPS and hold to maturity you will get pretty close to 1.00% real return. The only variation is due to the interest-on-interest which is pretty small with coupon of 1.375. I am going to round the SD of return on TIPS to zero and say that y...
by grayfox
Sat Nov 22, 2014 5:16 am
 
Forum: Investing - Theory, News & General
Topic: Will stocks beat bonds over next 30 years?
Replies: 65
Views: 5875

Re: Small cap value premium

But you are asking about the small-cap premium. So I did the same thing for S&P 500 VFINX (mostly large cap) vs the small-cap NAESX. $1,000 invested every month since 1980. http://www.lagunabeachbikini.com/images/2014/investing/ValVFINX.NAESX1980-2014log.png Wow! Investments in small-cap stocks ...
by grayfox
Thu Nov 20, 2014 3:18 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 14740

Re: Small cap value premium

I apologize as I know this topic has been discussed in detail. But I am still having trouble wrapping my mind around why or how a particular sector or style box can outperform indefinitely. ... Why exactly should we expect SCV equities to out perform TSM? Thanks It seems to me that if equity risk p...
by grayfox
Thu Nov 20, 2014 3:10 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 14740

Re: Daily Telegraph: World War One Archive

Brooklyn Daily Eagle Thursday Nov 19, 1914 page 15 col 1 DAY IN WALL STREET Opening of Stock Exchange for Bond Transactions Delayed by Dealers Protest The Stock Exchange was closed the morning of July 31, a few minutes before 10 o'clock, the usual opening time, and there has been no trading of any ...
by grayfox
Wed Nov 19, 2014 3:57 pm
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 116
Views: 10851

Re: Jack Bogle: expect 7% annualized for the foreseeable fut

Vanguard's study of forecasting found e/p to be the most reliable method, explaining about 40% of the variation in ten year real returns. Using Shiller's ten year p/e was about as reliable. Current p/e is around 20x, so that implies a 5% real return. https://personal.vanguard.com/pdf/s338.pdf A stu...
by grayfox
Wed Nov 19, 2014 12:04 pm
 
Forum: Investing - Theory, News & General
Topic: Jack Bogle: expect 7% annualized for the foreseeable future
Replies: 42
Views: 6727

Re: Yield Curve Investigations

http://s26.postimg.org/gkwf8oypl/FRB_spot_and_n_year_forward_yield_curves_10_year.png Kevin So you could say that in the steady state that the yield curve is flat, i.e. rates are the same across all maturities. In other words, if nothing were to change, we would eventually reach the steady state of...
by grayfox
Mon Nov 17, 2014 3:39 am
 
Forum: Investing - Theory, News & General
Topic: Yield Curve Investigations
Replies: 71
Views: 7961

Re: Global Growth and Expected Returns — Why So Low?

Since you're graphing something that's expected to grow exponentially, the vertical axis should be logarithmic, not linear. Then the black curve would be a straight line, and the blue curve would have larger deviations to the left, and smaller ones to the right. (Note how the Great Depression looks...
by grayfox
Mon Nov 17, 2014 3:21 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

Now I am beginning to understand. It's starting to make sense.
by grayfox
Sun Nov 16, 2014 6:59 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

You win. Now listen to this story on npr In One Alabama County, Nearly 1 In 4 Working-Age Adults Is On Disability Factories and mills have closed and the U.S. economy has left behind millions of workers who now find themselves unfit or unqualified for the jobs that remain. For many, going on disabil...
by grayfox
Sun Nov 16, 2014 6:30 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

If they lose, both lawyer and claimant get nothing. If they win, the government awards $10,000, the lawyers is paid $4,000 and the claimant is left with $6,000 vs. the government awards the lawyer $4,000 and the the claimant is awarded $6,000 That sounds like a distinction without a difference. For ...
by grayfox
Sun Nov 16, 2014 6:05 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

Please provide a source for this incredible statement about legal fees. Fees are regulated by the government and paid out of any back award as contingent fees. I know . I am an attorney and the lawyer who handled my wife's case was paid out of the back payments. The fees are contingent and caps are...
by grayfox
Sun Nov 16, 2014 5:38 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

She should have contacted Binder & Binder. You need to listen to the 60 Minutes and NPR shows. I already provided the links.
by grayfox
Sun Nov 16, 2014 5:22 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

12 million Americans are receiving disability. See the 60 Minutes episode Disability, USA . NPR also did a special series on it: unfit for work: the startling rise of disability in america npr says it's 14 million. If your benefits are denied by SSA, just go to one of the law firms that advertise on...
by grayfox
Sun Nov 16, 2014 4:59 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Global Growth and Expected Returns — Why So Low?

In short, there are two, and only two , ways that the global economy can grow — either by 1) an increase in the (working-age) population or, 2) an increase in the productivity of that population. That's it, there is no other magic fairy dust. The simplified formula is : http://i.imgur.com/aQ3EgjP.j...
by grayfox
Fri Nov 14, 2014 8:23 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Junk bond fund NAVs

Yes, the risk premium is the Expected return minus the risk-free rate. That's why I included the 5-year CD at 2.3%. I can get 2.3% risk -free 5-year return at a bank. Then the question is what is the Expected 5-year return of VWEHX when SEC Yield = 4.71%? From looking at past SEC Yield and actual 5-...
by grayfox
Fri Nov 14, 2014 8:02 am
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 91
Views: 7188

Re: Global Growth and Expected Returns — Why So Low?

I started becoming aware of this issue, at least for the U.S., in 2011. Back in 2011, I plotted U.S. Real GDP from 1929-2010 and fitted an exponential trend line. The black line is 3.5% exponential growth trend. The blue line is the actual RGDP. http://www.lagunabeachbikini.com/images/2011/investing...
by grayfox
Fri Nov 14, 2014 5:00 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 3040

Re: Junk bond fund NAVs

3. But treasury rates are very low too, and stock (US particularly) PE10 quite high. You must have somehow gotten the idea that I am against VWEHX. All I have been looking at is the frequent claim: If you hold a bond fund for the duration, you will get approximately the SEC Yield. Often "appro...
by grayfox
Wed Nov 12, 2014 2:51 pm
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 91
Views: 7188

Re: Junk bond fund NAVs

Now you-all got me looking at VWEHX. :P Vanguard High-Yield Corporate Fund Investor Shares ( VWEHX ) Historical Returns: VWEHX Barclays US Corp High Yield Year Capital Ret Income Ret TR TR 2013 –1.31% 5.85% 4.54% 7.44% 2012 7.38% 6.97% 14.36% 15.81% 2011 –0.18% 7.31% 7.13% 4.98% 2010 4.20% 8.19% 12....
by grayfox
Wed Nov 12, 2014 3:20 am
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 91
Views: 7188

Re: astonishing performance of US markets vs others

Just one man's opinion I suspect that the international market now better reflects the structural corruption and unreliability of financial reports from many countries. the OW Bunker Bankruptcy is indicative of many of the problems since it is a mix of European and Asian operations Thsi was a billi...
by grayfox
Tue Nov 11, 2014 7:18 am
 
Forum: Investing - Theory, News & General
Topic: astonishing performance of US markets vs others
Replies: 50
Views: 5282

Re: astonishing performance of US markets vs others

When I compared veu or vwo vs spy over the past 5 years I was surprised to see how much better US markets (eg spy) have done. Have been painfully re-balancing by selling spy and buying more international markets. Would like to hear others viewpoint on whether such out-performance has happened in th...
by grayfox
Tue Nov 11, 2014 6:27 am
 
Forum: Investing - Theory, News & General
Topic: astonishing performance of US markets vs others
Replies: 50
Views: 5282

Re: Junk bond fund NAVs

Another thing about defaults in speculative bonds is that the losses come in spurts, usually during recessions. You can go for years with almost no bankruptcies and defaults. Then a recession comes and the default rate spikes up. I read somewhere that the rate jumped to 12% during the credit crisis....
by grayfox
Tue Nov 11, 2014 5:51 am
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 91
Views: 7188

Re: BND or a CD

Next set of charts is for 10-year rolling returns: http://s26.postimg.org/424sv4r7d/initial_yield_and_10_year_return_10_year_bond.png Note that R^2 is much higher at 0.90, but that there are some significant deviations of 10-year return from initial yield. Yes, this is making more and more sense. I...
by grayfox
Tue Nov 11, 2014 4:42 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

I am starting to think that my next estimate of confidence interval for VFITX 5-year return for might be something like: (SEC Yield + BIAS) +/- 1.5% If future rates trend down like they did 1994-2013, maybe BIAS = +1.5% If future rates trend up like they did 1960-1980, maybe BIAS = -1.5% If rates ar...
by grayfox
Mon Nov 10, 2014 8:01 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: Junk bond fund NAVs

One thing that I learned in Professor Rauh's Stanford course is that Expected Return of "Speculative Grade" bonds is less than the Yield-to-Maturity. Using numbers mentioned by someone upthread, if we take YTM = SEC Yield, Probability of default = 2% and Recovery Rate = 60%: The SEC Yield...
by grayfox
Mon Nov 10, 2014 7:46 am
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 91
Views: 7188

Re: BND or a CD

Another thing I have been looking at is descriptive statistics for 1-month continuously-compounded returns and 5-year cc-returns 1994-2013. For 1-month cc-returns, while there is negative skewness and some excess kurtosis, histogram and CDF look fairly close to normal distribution. Autocorrelation s...
by grayfox
Mon Nov 10, 2014 5:38 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

http://s26.postimg.org/4sxj0wtkp/initial_yield_and_5_year_return_10_year_bond.png The data I have, SEC Yield fro Vangaurd, is 1994-2013, 20 years. My limited data set shows that the actual 5-year return was usually higher than the SEC Yield. It looks like Damodaran data also shows this 1994-2008. B...
by grayfox
Mon Nov 10, 2014 5:13 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: Junk bond fund NAVs

One thing that I learned in Professor Rauh's Stanford course is that Expected Return of "Speculative Grade" bonds is less than the Yield-to-Maturity. Using numbers mentioned by someone upthread, if we take YTM = SEC Yield, Probability of default = 2% and Recovery Rate = 60%: > # VWEHX Exam...
by grayfox
Sat Nov 08, 2014 7:33 am
 
Forum: Investing - Theory, News & General
Topic: Junk bond fund NAVs
Replies: 91
Views: 7188

Re: BND or a CD

Yes. I repeat what I said above -- it's incorrect to apply random walk reasoning to bonds except maybe for periods much longer than duration. In the Brownian motion analogy, it's as if the particle remembers after each move left to bias future moves to the right and viceversa. As a result, it will ...
by grayfox
Sat Nov 08, 2014 4:29 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

I tried the calculation both ways. Example: Suppose the annual return is 10% and the annual standard deviation is 20% > r.1 <- 0.10 # annual return > sd.1 <- 0.20 # annual SD > # 1. Calculate as 5-year return (Single 5-year Period) > r.5 <- (1+r.1)^5 - 1 # 5-year return > sd.5 <- sd.1 * sqrt(5) # 5-...
by grayfox
Fri Nov 07, 2014 4:29 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

Perhaps you could clarify a bit more exactly what you are trying to calculate. Are you looking at 1-year holding period returns or 5-year holding period returns. If the former, then where does 5 years come into it? If the latter, then either calculate 5-year SD directly from your annual returns, or...
by grayfox
Thu Nov 06, 2014 4:21 pm
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: Estimating Future Investment Returns — On a Napkin

For me, the reverse approach to this seems far more viable. I would look at the long-term real growth rate of the American stock market (including dividends) and assume that is going to be the likely growth rate in the future too. Then I would subtract the current dividend rate and the current expe...
by grayfox
Thu Nov 06, 2014 4:14 am
 
Forum: Investing - Theory, News & General
Topic: Estimating Future Investment Returns — On a Napkin
Replies: 79
Views: 5877

Re: BND or a CD

My a priori estimate of the 95% confidence interval was SEC +/- 2*(2.78/sqrt(5)) = SEC +/- 2.48651% I you want to estimate 5-year standard deviation from 1-year standard deviation, don't you want to multiply by sqrt(5) instead of divide? Just like the standard is to multiply monthly SD by sqrt(12) ...
by grayfox
Thu Nov 06, 2014 3:10 am
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

Lately I've been looking into evaluating forecasting model, such as Dividend Discount Model, Earnings Yield Model, etc. to see how well they perform. Then it occurred to me that 30-Day SEC Yield is a forecast model. Everyone is using 30-Day SEC Yield to forecast the expected return of a bond over th...
by grayfox
Wed Nov 05, 2014 12:56 pm
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

I forgot to divide the 1-year SD by sqrt(5) to get the 5-year SD. So corrected that: mean = 0.02 sd = 0.0278/sqrt(5)= 0.0124325 mean +/- 2*sd = 975.91 1245.38 This kind of analysis is not exact science. All the numbers are just estimates. Nobody knows the true mean, sd or distribution. The only impo...
by grayfox
Tue Nov 04, 2014 8:45 pm
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

One other thing I will mention is that BND holds 22.41% Corporate Bonds according to M*. This effects the mean return. While the Expected Return of default-free government bonds is the YTM, for Corporate bonds E.R. is less than the YTM because of the possibility of defaults. YTM is actually only the...
by grayfox
Tue Nov 04, 2014 1:54 pm
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: BND or a CD

On 10.29.2014, the Vanguard Total Bond Index Etf (BND) SEC yield was 2% with an average duration of 2%. At the same time a 5 year CD is yielding a bit over. Further the CD is a done deal, while BND can and will fluctuate in price. Why then bogleheads prefer BND? Or do they? CD's and Bond Funds are ...
by grayfox
Tue Nov 04, 2014 12:59 pm
 
Forum: Investing - Theory, News & General
Topic: BND or a CD
Replies: 119
Views: 10218

Re: Shiller PE10 - by the numbers

This chart shows the value of $1,000 investments in made in every month since 1980, as of 10/14/2014 for S&P 500 and Vanguard GNMA fund http://www.lagunabeachbikini.com/images/2014/investing/ValVFINX.VFIIX1980-2014log.png All of the $1000 S&P 500 investments made during the Tech Bubble Episo...
by grayfox
Tue Nov 04, 2014 5:29 am
 
Forum: Investing - Theory, News & General
Topic: Shiller PE10 - by the numbers
Replies: 26
Views: 2815

Re: Shiller PE10 - by the numbers

In the previous table, look at Oct-1996 and June-2002. They both had about the same P/10 = 26.43 as last Friday. DATE P/E10 E10/P RRET10 Regress ERR 1996.10 26.48 3.78% 5.93% 4.21% 1.73% 2002.06 26.39 3.79% 2.21% 4.28% -2.06% In both cases, the regression model said 4.2% real return: Oct-1996 was at...
by grayfox
Mon Nov 03, 2014 8:56 am
 
Forum: Investing - Theory, News & General
Topic: Shiller PE10 - by the numbers
Replies: 26
Views: 2815

Re: Shiller PE10 - by the numbers

Here is the second episode, the Tech Bubble. DATE P/E10 E10/P RRET10 Regress ERR 1996.01 24.76 4.04% 6.61% 5.50% 1.11% 1996.02 25.98 3.85% 6.01% 4.57% 1.44% 1996.03 25.63 3.90% 6.19% 4.83% 1.36% 1996.04 25.43 3.93% 6.20% 4.98% 1.22% 1996.05 25.81 3.87% 5.84% 4.69% 1.15% 1996.06 25.97 3.85% 5.40% 4.5...
by grayfox
Mon Nov 03, 2014 3:10 am
 
Forum: Investing - Theory, News & General
Topic: Shiller PE10 - by the numbers
Replies: 26
Views: 2815
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