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Re: The volatility of premiums

tanelorn Be careful and don't make the mistake so many make re small relative to value. One reason the value premium has been larger and more persistent is that it's measured very differently. Small is top and bottom 50% while value is top and bottom 30%. Change small to that and premium goes up and...
by larryswedroe
Tue Sep 30, 2014 10:49 am
 
Forum: Investing - Theory, News & General
Topic: The volatility of premiums
Replies: 13
Views: 768

Re: Minimum volatility - simply factor exposure

Browser
Like many firms Vanguard responds to investor demands. And of course they MIGHT also believe low vol will continue. Only time of course will tell.
Larry
by larryswedroe
Tue Sep 30, 2014 10:44 am
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: Minimum volatility - simply factor exposure

Beliavsky Your points argue for avoiding high vol, not investing in low vol If you see that a strategy's returns are explained by other factors then you should IMO go after the exposure to those factors, at least the ones you want. Reason is low vol may not be exposed to those factors in future--whi...
by larryswedroe
Tue Sep 30, 2014 10:43 am
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: The volatility of premiums

stlutz and the bottom half by market cap being "small". In that case, is "small" more risky than "large". I don't think so. IMO you have an extremely hard time defending that statement. Using top and bottom half for example we find large stocks have SD of about 18 vs 27...
by larryswedroe
Tue Sep 30, 2014 9:08 am
 
Forum: Investing - Theory, News & General
Topic: The volatility of premiums
Replies: 13
Views: 768

Re: Minimum volatility - simply factor exposure

stlutz First, I'm not arguing for investing in stocks with high vol and low short interest, likely to be highly concentrated portfolio. Though I certainly would argue to avoid stocks with high vol and high short interest. In fact I'd avoid all high short interest stocks. And I'd note that there are ...
by larryswedroe
Tue Sep 30, 2014 8:56 am
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: Interview I did with Michael Covel

CFS
Note the 4.2% real depends on no mean reversion of valuations. You get that and you will get lower returns. And if it happens fast, you'll get much lower returns.
Just a note of caution.
Of course reverse can happen as well
Larry
by larryswedroe
Mon Sep 29, 2014 11:55 pm
 
Forum: Investing - Theory, News & General
Topic: Interview I did with Michael Covel
Replies: 10
Views: 921

Re: Minimum volatility - simply factor exposure

stlutz The problem is that the stocks that have high vol and low short interest have great returns shows it's likely isn't high volatility that is the problem but other factors are explaining low volatility. I'd also note the one study found that all the excess returns happened in first month after ...
by larryswedroe
Mon Sep 29, 2014 11:54 pm
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: The volatility of premiums

stlutz So what about random half, even if true? What does or would that tell you? But say you chose not some random half, but say small growth stocks, the answer would be well less than 50% and the longer the period the lower the percentage. And same thing true of a bunch of other type assets I coul...
by larryswedroe
Mon Sep 29, 2014 11:47 pm
 
Forum: Investing - Theory, News & General
Topic: The volatility of premiums
Replies: 13
Views: 768

Re: The volatility of premiums

Garland One should certainly be skeptical, healthy skepticism is good. But when you are skeptical of everything it isn't so productive and can be counterproductive To me the evidence on small value persistence and pervasiveness is just about as strong as it is for beta premium itself. And if you sti...
by larryswedroe
Mon Sep 29, 2014 4:24 pm
 
Forum: Investing - Theory, News & General
Topic: The volatility of premiums
Replies: 13
Views: 768

Re: Interview I did with Michael Covel

RE 15th book, The Incredibly Shrinking Alpha I now waiting for the editing comments back from my draft from my co-author Andrew Berkin (Director of Research at Bridgeway, and a real scientist) . He should have them back to me within a week or so. We'll then work on final editing and hopefully can ha...
by larryswedroe
Mon Sep 29, 2014 4:20 pm
 
Forum: Investing - Theory, News & General
Topic: Interview I did with Michael Covel
Replies: 10
Views: 921

Re: Interview I did with Michael Covel

cfs
Actually it's more like 6.5% nominal and about 4.2 real, that 7% was just example.
But good news is rest of developed world is higher and EM higher still--and then of course you have higher returns expected if tilt to value stocks
Larry
by larryswedroe
Mon Sep 29, 2014 1:06 pm
 
Forum: Investing - Theory, News & General
Topic: Interview I did with Michael Covel
Replies: 10
Views: 921

Re: Interview I did with Michael Covel

CFS Well I would add this, MOST forecasting is bunk A "good" forecast for say stocks would be something like this The expected (mean) return for the market is 7%, and that's unconditioned on time horizon. That 7% is just the mean of a very wide potential dispersion of returns that could oc...
by larryswedroe
Mon Sep 29, 2014 11:58 am
 
Forum: Investing - Theory, News & General
Topic: Interview I did with Michael Covel
Replies: 10
Views: 921

Re: Illmanen and AQR style premium fund +interview I did

Ketawa
I think that's reasonable. Only in tax advantaged account though

Larry
by larryswedroe
Mon Sep 29, 2014 11:55 am
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Interview I did with Michael Covel

https://player.fm/series/trend-following-with-michael-covel/ep-278-larry-swedroe-interview-with-michael-covel-on-trend-following-radio

We discuss lots of issues, like the value of forecasts, risk and expected returns, and momentum.

Hope you find it of interest

Larry
by larryswedroe
Mon Sep 29, 2014 10:21 am
 
Forum: Investing - Theory, News & General
Topic: Interview I did with Michael Covel
Replies: 10
Views: 921

The volatility of premiums

http://www.etf.com/sections/index-investor-corner/23387-swedroe-the-volatility-of-premiums.html?fullart=1&start=3 Never invest in anything you don't understand the nature of the risks, for sure enough those risks are likely to show up and you'll then be at risk of abandoning the plan, reacting ...
by larryswedroe
Mon Sep 29, 2014 10:05 am
 
Forum: Investing - Theory, News & General
Topic: The volatility of premiums
Replies: 13
Views: 768

Re: Minimum volatility - simply factor exposure

Stlutz Few more thoughts First, here's problem IMO. Stocks with low vol and HIGH SHORT interest perform miserably. It's only the low vol with low short interest that outperform. These tend to be quality stocks. Note that high vol with low short interest perform fine. During the “dot-com” bubble an e...
by larryswedroe
Mon Sep 29, 2014 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: Minimum volatility - simply factor exposure

stlutz It's not JUST value exposure but exposure to other factors, including as I mentioned term and quality/profitability (or Betting against Beta) And FWIW low vol stocks now look completely different than they used to as cash flowed in. IMO not a good bet now as they don't look anything like valu...
by larryswedroe
Sun Sep 28, 2014 10:33 pm
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: TIPS & Rick Ferri

fwiw
The BIGGEST advantage of TIPS IMO is that they allow you to earn the term premium without taking inflation risk
Larry
by larryswedroe
Sun Sep 28, 2014 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 14
Views: 2314

Re: Paul Merriman: DFA Better Than Vanguard

Just add these points to keep in mind There is significant value to having what DFA calls "core" funds, funds that own multiple asset classes in one fund. The benefits are not only in the reduced trading costs caused by migration (estimated at about 12-15bp) and more tax efficiency, but th...
by larryswedroe
Sun Sep 28, 2014 9:04 am
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman: DFA Better Than Vanguard
Replies: 13
Views: 1916

Re: Minimum volatility - simply factor exposure

Jaab I've written several pieces on low volatility Here's one http://www.etf.com/sections/index-investor-corner/23201-swedroe-look-before-a-low-vol-leap.html Here's another http://www.etf.com/sections/index-investor-corner/21245-swedroe-behind-low-vol-success.html and this http://www.etf.com/section...
by larryswedroe
Sun Sep 28, 2014 8:58 am
 
Forum: Investing - Theory, News & General
Topic: Minimum volatility - simply factor exposure
Replies: 26
Views: 1364

Re: Paul Merriman: DFA Better Than Vanguard

livesoft
Can add value to that list, especially small value, and funds with higher loadings on size and value will likely underperform in such environments
Larry
by larryswedroe
Sat Sep 27, 2014 3:05 pm
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman: DFA Better Than Vanguard
Replies: 13
Views: 1916

Re: Paul Merriman: DFA Better Than Vanguard

Lees First the issue isn't should you hire an advisor and then use DFA. The first question should be should you hire an advisor, would you benefit from the value an advisor can bring. If interested you can look at my book Think, Act and Invest Like Buffett in which I ask questions to see if at least...
by larryswedroe
Sat Sep 27, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman: DFA Better Than Vanguard
Replies: 13
Views: 1916

Re: Read too many books... help untangle

don't know if this will help but, First, IMO the best book on modern financial theory is Ilmanen's Expected Returns. Two other excellent books are The Physics of Wall Street by Weatherall and the Success Equation by Mouboussin, and finally successful Investing is a process by Lussier. Read those and...
by larryswedroe
Sat Sep 27, 2014 12:32 pm
 
Forum: Investing - Theory, News & General
Topic: Read too many books... help untangle
Replies: 35
Views: 2321

Re: Cliff Notes (new post from Asness) IMO very well worth r

jaab IMO mistake in Rekenthaler's piece For example, low-grade municipal bonds are less volatile than top-quality credits, because low-grade munis trade infrequently" This isn't correct, they only APPEAR to be less volatile due to serial correlation that results from being priced infrequently. ...
by larryswedroe
Sat Sep 27, 2014 9:02 am
 
Forum: Investing - Theory, News & General
Topic: Cliff Notes (new post from Asness) IMO very well worth readi
Replies: 20
Views: 2393

Re: Illmanen and AQR style premium fund +interview I did

Wade
Because of very high turnover it's likely to be highly tax inefficient
But perhaps not as bad as some think as it likely will be realizing lots of ST losses too.
Would be interesting to see if they ever come up with a tax aware version
But I would only consider it in tax advantaged accounts
Larry
by larryswedroe
Sat Sep 27, 2014 8:50 am
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Why do people buy annuities?

Simple reason is that you earn MORTALITY credits and you're buying insurance against outliving your assets Now insurance companies have costs of origination and distribution of product and they want a return on their capital, so there are costs, which is why generally should not buy annuities when y...
by larryswedroe
Sat Sep 27, 2014 8:48 am
 
Forum: Investing - Theory, News & General
Topic: Why do people buy annuities?
Replies: 50
Views: 3779

Re: a look at technical indicators

fourwedge Momentum is just another reason to buy and sell more often Actually a buy/hold type investor and passive funds can incorporate momentum in ways that REDUCE turnover Funds do that by incorporating MOM screens, avoiding buying stocks with negative momentum that they would otherwise buy until...
by larryswedroe
Sat Sep 27, 2014 8:45 am
 
Forum: Investing - Theory, News & General
Topic: a look at technical indicators
Replies: 16
Views: 1260

Re: rebalancing conundrum/paradox/irony

let'sgobobby Here's something you MIGHT have missed an IPS should be a LIVING document, being adjusted as life events occur and even bull or bear markets impact your ability, willingness or need to take risk In other words if the bull market has now put you ahead of your plan than you should revisit...
by larryswedroe
Sat Sep 27, 2014 8:41 am
 
Forum: Investing - Theory, News & General
Topic: rebalancing conundrum/paradox/irony
Replies: 67
Views: 3475

Re: Cliff Notes (new post from Asness) IMO very well worth r

who said anything about a free lunch? And yes taking more risk in the equity side, but that's not what portfolio construction is only about. Markowitz won a Nobel Prize for showing that In this case the trade off is not more pain but loss of potential upside, with benefit being much lower downside l...
by larryswedroe
Fri Sep 26, 2014 6:48 pm
 
Forum: Investing - Theory, News & General
Topic: Cliff Notes (new post from Asness) IMO very well worth readi
Replies: 20
Views: 2393

Re: Cliff Notes (new post from Asness) IMO very well worth r

Browser Nothing magical. Suggest you read the book Reducing the Risk of Black Swans and keep my your nightstand so you can refer to it when you forget why you should believe a tilted portfolio is likely to be more efficient (:-)) But basically diversification works here, adding more diversifiaction ...
by larryswedroe
Fri Sep 26, 2014 5:37 pm
 
Forum: Investing - Theory, News & General
Topic: Cliff Notes (new post from Asness) IMO very well worth readi
Replies: 20
Views: 2393

Re: a look at technical indicators

Beliavsky The research, not my opinion, is that moving averages have in fact developed ex-ante expenses higher risk-adjusted returns, though not higher returns. Certainly not likely to work in taxable accounts though. Nor would I invest using them. But that's what the evidence shows. As is usually/o...
by larryswedroe
Fri Sep 26, 2014 5:31 pm
 
Forum: Investing - Theory, News & General
Topic: a look at technical indicators
Replies: 16
Views: 1260

Re: Illmanen and AQR style premium fund +interview I did

wbond
don't know if Bill B has commented
And personally I think Illmanen's book is the best finance book of this century.
Larry
by larryswedroe
Fri Sep 26, 2014 5:25 pm
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Illmanen and AQR style premium fund +interview I did

random With strategies that are transparent and systematic you can estimate returns based on historical evidence using reasonable estimates of trading costs. Here you get exposure to different factors than a 50/50 stock (TSM)/bond portfolio, diversifying across different sources of returns which hav...
by larryswedroe
Fri Sep 26, 2014 10:19 am
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Cliff Notes (new post from Asness) IMO very well worth r

Spec Yes the "Larry Portfolio" has much higher than market Sharpe Ratio as about same returns with much lower SD. RE Commodities, answer depends. First, if you have a Larry Portfolio and use it to lower tail risk (instead of looking for higher returns, keeping beta exposure high) then you ...
by larryswedroe
Fri Sep 26, 2014 8:40 am
 
Forum: Investing - Theory, News & General
Topic: Cliff Notes (new post from Asness) IMO very well worth readi
Replies: 20
Views: 2393

Re: Illmanen and AQR style premium fund +interview I did

Few things First re the fund allocation, checked with them and here is the answer : value & mom are about 35% each and carry and defensive are about 15% each, reason being that we don't apply carry and defensive to all asset groups. Second the expected return based on historical evidence is equi...
by larryswedroe
Fri Sep 26, 2014 8:32 am
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Illmanen and AQR style premium fund +interview I did

Would add re M*, they seem to have problems with deriviates when they are used, so that could be it. And of course you see more than 100% because of the leverage
Larry
by larryswedroe
Thu Sep 25, 2014 9:38 pm
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Illmanen and AQR style premium fund +interview I did

couple things Most funds are long only. This is long and short. Most premiums get about half from long and half from short Since long only funds then at most can about about 0.5 on most premiums (small can get more) then your fee is to get half the premium. In this case you are getting full premium,...
by larryswedroe
Thu Sep 25, 2014 9:37 pm
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Illmanen and AQR style premium fund +interview I did

countmein
I would just suggest that M* information is worthless
Larry
by larryswedroe
Thu Sep 25, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Factor exposure and (Markowitz) diversification

Browser, disagree with your last post. First, small value is not a very high turnover strategy, it's higher than the market, but not high like MOM say. Also one can implement in a patient trading way so the relatively small amount of increased turnover will not have much impact on total costs. Secon...
by larryswedroe
Thu Sep 25, 2014 5:18 pm
 
Forum: Investing - Theory, News & General
Topic: Factor exposure and (Markowitz) diversification
Replies: 8
Views: 626

Re: Illmanen and AQR style premium fund +interview I did

Beat the Street
Think the allocations targeted at 22% defensive, 14% carry, and 32% each value and momentum
Larry
by larryswedroe
Thu Sep 25, 2014 5:11 pm
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Illmanen and AQR style premium fund +interview I did

http://www.forbes.com/sites/phildemuth/2013/12/09/the-best-investment-book-of-the-past-ten-years-is-now-a-mutual-fund-plus-q-a-with-antti-ilmanen-and-ronen-israel/?partner=yahootix good interview I think Can also if interested listen to interview I did with Jim Lang radio show http://www.paytaxesla...
by larryswedroe
Thu Sep 25, 2014 4:42 pm
 
Forum: Investing - Theory, News & General
Topic: Illmanen and AQR style premium fund +interview I did
Replies: 28
Views: 1454

Re: Factor exposure and (Markowitz) diversification

Clive Two problems IMO 1)An index of all stocks has only exposure to beta and NO OTHER FACTORS. That's a common mistake.The positive momentum stocks in TSM exactly offset the negative momentum stocks giving you no NET exposure to the factor. Same for all factors except beta. 2) while there is no gua...
by larryswedroe
Thu Sep 25, 2014 8:35 am
 
Forum: Investing - Theory, News & General
Topic: Factor exposure and (Markowitz) diversification
Replies: 8
Views: 626

Re: Factor exposure and (Markowitz) diversification

Clive Two problems IMO 1)An index of all stocks has only exposure to beta and NO OTHER FACTORS. That's a common mistake 2) while there is no guarantee of course that these factors will provide higher returns, saying that is no different than saying beta (the market) has no guarantee of higher expect...
by larryswedroe
Thu Sep 25, 2014 8:35 am
 
Forum: Investing - Theory, News & General
Topic: Factor exposure and (Markowitz) diversification
Replies: 8
Views: 626

Re: Limiting Turnover in Small/Mid Cap or Style Funds

Basically one way to cut turnover and improve tax efficiency is to widen buy and hold ranges. Also momentum screens work too as they slow down trading by waiting to buy value/small stocks that enter buy ranges with negative momentum (until it ceases) and waiting to sell value/small stocks that leave...
by larryswedroe
Wed Sep 24, 2014 10:56 pm
 
Forum: Investing - Theory, News & General
Topic: Limiting Turnover in Small/Mid Cap or Style Funds
Replies: 1
Views: 229

Re: The Paradox of Skill: Greater skill leads to more luck

The higher the skill level also the narrower dispersion of outcomes you should expect, which is what we are seeing in active fund returns as the "dumb" investors, both individual and institutional stop playing--the competition is getting tougher. And all those bright MBAs and PhDs are usin...
by larryswedroe
Wed Sep 24, 2014 5:22 pm
 
Forum: Investing - Theory, News & General
Topic: The Paradox of Skill: Greater skill leads to more luck
Replies: 11
Views: 1226

Re: Even institutions are performance chasers, and the impac

grt2boutdoors I'll agree it is often "institutional" money in the sense it's mutual funds, and some of that is manager driven, but most is likely driven by individual investors selling their fund shares forcing sales of stocks. My experience with institutional investors like endowments and...
by larryswedroe
Wed Sep 24, 2014 9:56 am
 
Forum: Investing - Theory, News & General
Topic: Even institutions are performance chasers, and the impact
Replies: 7
Views: 751

Re: Even institutions are performance chasers, and the impac

Nedsaid
No individuals don't adhere to their investment plans as well as do institutions who are generally much better at rebalancing for example and not panicked selling either. Now they still make behavioral errors and other mistakes too, but better than individuals
Larry
by larryswedroe
Wed Sep 24, 2014 8:43 am
 
Forum: Investing - Theory, News & General
Topic: Even institutions are performance chasers, and the impact
Replies: 7
Views: 751

Re: Is tax loss harvesting ever a bad idea?

Key to remember is TLH resets basis to now lower level, so unless get stepped up basis on death you get time value, interest free loan from government. So worth more in higher interest rate environments. Also then depends as others note you don't want to take losses in low tax bracket and then pay t...
by larryswedroe
Wed Sep 24, 2014 8:42 am
 
Forum: Investing - Theory, News & General
Topic: Is tax loss harvesting ever a bad idea?
Replies: 17
Views: 939
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