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Re: Should market valuations be completely disregarded?

countmein Economists when using pricing models don't consider horizon. Doesn't matter what the horizon--it's an unconditional forecast. That's true because you are not forecasting any change in the ERP, or what Bogle called the speculative return (change in valuations). If you forecast say an RTM of...
by larryswedroe
Thu Jul 24, 2014 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Should market valuations be completely disregarded?
Replies: 30
Views: 1728

Re: Momentum Investing ?

Big John Just because someone wrote something, even someone as smart as Bill doesn't make it factually correct. In fact the evidence demonstrates IMO that it is an incorrect statement. IMO Bill is saying things can change, premiums can shrink, including ERP btw, but that doesn't mean that either the...
by larryswedroe
Thu Jul 24, 2014 9:54 am
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 33
Views: 2611

Re: Will baby boomers retiring spell doom for the markets

Dandy Sorry but disagree with every one of your statements there. There is no proof that you can offer I believe that supports any of the statements. How is the market by definition unaware? If it was unaware we would see persistent evidence of smart investors outperforming the dumb market. As to pr...
by larryswedroe
Thu Jul 24, 2014 9:45 am
 
Forum: Investing - Theory, News & General
Topic: Will baby boomers retiring spell doom for the markets
Replies: 43
Views: 3979

Re: not all value metrics are equal

Bernston We know that models that use BtM and not PE have high explanatory power I certainly don't know it and I know FF chose BtM not for the reason you state but simply more stable and thus less turnover in a fund If have a study that shows your statement is correct would appreciate your sharing i...
by larryswedroe
Wed Jul 23, 2014 11:42 pm
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: Should market valuations be completely disregarded?

Countmein We use two methods to estimate returns to TSM, and average the two. the first is the well known Gordon Model and the second uses Shiller's CAPE 10, with adjustments for the lagged 5 year average. Simple metric investors can use might be today's yield plus 2% or 2.5% for the growth side. So...
by larryswedroe
Wed Jul 23, 2014 7:15 pm
 
Forum: Investing - Theory, News & General
Topic: Should market valuations be completely disregarded?
Replies: 30
Views: 1728

Re: "What Has Time Taught Bill Bernstein?"

Thanks for sharing Taylor

Larry
by larryswedroe
Wed Jul 23, 2014 6:48 pm
 
Forum: Investing - Theory, News & General
Topic: "What Has Time Taught Bill Bernstein?"
Replies: 6
Views: 1507

Re: Will baby boomers retiring spell doom for the markets

Dandy So please show me the evidence that supports your statement that investors persistently misprice assets because they are unaware of the risks. Also it's the institutional investors now that do as much as 90% of the trading and thus setting the prices. Are you saying they are unaware and thus d...
by larryswedroe
Wed Jul 23, 2014 6:44 pm
 
Forum: Investing - Theory, News & General
Topic: Will baby boomers retiring spell doom for the markets
Replies: 43
Views: 3979

my quarterly hedge fund update

http://www.etf.com/sections/index-investor-corner/22730-swedroe-enough-with-the-hedge-fund-hype.html?start=1

To me one of the great anomalies in finance is why assets keep pouring in given the miserable performance.

Larry
by larryswedroe
Wed Jul 23, 2014 6:18 pm
 
Forum: Investing - Theory, News & General
Topic: my quarterly hedge fund update
Replies: 0
Views: 164

Re: not all value metrics are equal

Beliavsky
Completely agree
medium dividend payers may also give you exposure to quality factor, though I'm guessing. The high dividend payers I would assume market believes are at risk of cutting them

Larry
by larryswedroe
Wed Jul 23, 2014 10:13 am
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: Momentum Investing ?

First Almost everything that Steve made as declarative statement (his usual way of saying things) is not true: here's a value premium...but only in small, mostly illiquid stocks. There's no momentum premium, unless you pair with with the value premium. In small, illiquid stocks. But only in Japan. A...
by larryswedroe
Wed Jul 23, 2014 8:51 am
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 33
Views: 2611

Re: not all value metrics are equal

daufuskie I looked on Ken French's website http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/Data_Library/det_port_form_dp.html , and in his definition of the premium it appears he puts 0 dividend stocks in a separate bucket and then does high 30% - low 30% among only dividend payers to get pre...
by larryswedroe
Wed Jul 23, 2014 8:33 am
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: Momentum Investing ?

What's interesting to me is how dismissive people are when the MOM premium is at least as persistent and pervasive as any factor, including beta perhaps, and is persistent and pervasive across not only stocks and regions but everywhere we look like currencies and commodities and interest rates. And ...
by larryswedroe
Tue Jul 22, 2014 10:58 pm
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 33
Views: 2611

Re: a close look at value and momentum

snowskier
All their funds do (except the one index fund the large company fund), and now all value funds include profitability screens--at least to my knowledge
Larry
by larryswedroe
Tue Jul 22, 2014 10:55 pm
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 16681

Re: not all value metrics are equal

daufuskie
Here's what we do know, the factor models which do NOT include dividends as a factor do an excellent job of explaining returns without considering dividends. Which can then lead you to infer that dividends have very little if any additional explanatory power in returns.
Larry
by larryswedroe
Tue Jul 22, 2014 10:52 pm
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: Will baby boomers retiring spell doom for the markets

dansnad Sorry but that isn't true. People would buy and sell stocks for all kinds of reasons having nothing to do with listening to noise. Even corporations would be trading if you will, buying and selling companies. But more importantly the question isn't what would happen if we all ignored the noi...
by larryswedroe
Tue Jul 22, 2014 8:37 pm
 
Forum: Investing - Theory, News & General
Topic: Will baby boomers retiring spell doom for the markets
Replies: 43
Views: 3979

Re: a close look at value and momentum

Robert
Another alternative is to invest in value funds that screen out negative momentum and use hold ranges that benefit from positive MOM. DFA and Bridgeway have value funds that with the screens employed have lowered their negative loadings on MOM quite a bit.
Larry
by larryswedroe
Tue Jul 22, 2014 8:34 pm
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 16681

Re: Should market valuations be completely disregarded?

Few thoughts First only fools IMO ignore valuations. They matter a great deal. But it's how you use them that matters. The most important way to use them is not for timing, but to estimate future returns. Valuation metrics are the best, if far from perfect, metrics we have for estimating returns, ex...
by larryswedroe
Tue Jul 22, 2014 8:32 pm
 
Forum: Investing - Theory, News & General
Topic: Should market valuations be completely disregarded?
Replies: 30
Views: 1728

Re: not all value metrics are equal

daufuskie
As far as I know the data considers all stocks when ranking by D/P
Larry
by larryswedroe
Tue Jul 22, 2014 8:26 pm
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: not all value metrics are equal

Beliavsky Yes as I stated dividend payers give you a value premium, thus outperforming. And of course non payers then typically go the other way, especially the small growth stocks which tend to not pay dividends, nor do IPOs which are poor performers, nor penny stocks. But there are far better valu...
by larryswedroe
Tue Jul 22, 2014 8:25 pm
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: Momentum Investing ?

There's a wonderful paper by Cliff Asness which I am writing up on 30 years of failure of MOM in Japan. Yet he found that when combined with value, which had huge 10% premium, much larger than in US or anywhere else, when MOM was close to zero, an ex post optimizer would have put 30% in MOM. The mis...
by larryswedroe
Tue Jul 22, 2014 8:20 pm
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 33
Views: 2611

Re: Will baby boomers retiring spell doom for the markets

letsgobobby We should all be "concerned" which is why you should develop plans to deal with the left tail of the potential distribution of returns in case it shows up. But other than that doesn't mean that you should do anything, as you noted. I'm concerned about lots of things like too mu...
by larryswedroe
Tue Jul 22, 2014 12:53 pm
 
Forum: Investing - Theory, News & General
Topic: Will baby boomers retiring spell doom for the markets
Replies: 43
Views: 3979

Re: Can it be wrong to be too risk averse?

the thinker MCS is a TOOL that helps you ESTIMATE the odds of success, which is the best we can do. But it's far better than treating an estimated return in a deterministic way (you are going to get the mean of the potential dispersion of returns that might occur). And it allows you to see how adjus...
by larryswedroe
Tue Jul 22, 2014 12:50 pm
 
Forum: Investing - Theory, News & General
Topic: Can it be wrong to be too risk averse?
Replies: 49
Views: 2269

Re: Will baby boomers retiring spell doom for the markets

What's important to recognize is that it is NOISE, even though the arguments sound credible it's likely to be noise because have to ask "am I only one who knows this?" Even if correct doesn't market already incorporate the information into prices. That's the point of the piece, it should b...
by larryswedroe
Tue Jul 22, 2014 10:33 am
 
Forum: Investing - Theory, News & General
Topic: Will baby boomers retiring spell doom for the markets
Replies: 43
Views: 3979

Re: Blog:Vanguard index fund security lending in 2013

Barry has it correct. From tax perspective the fund will use the income to first offset fund expenses, otherwise it's taxed as ordinary income. Once it exceeds fund expenses it is taxed that way. That's why it's possible to see someday funds with no costs. Few other points Securities lending generat...
by larryswedroe
Tue Jul 22, 2014 8:49 am
 
Forum: Investing - Theory, News & General
Topic: Blog:Vanguard index fund security lending in 2013
Replies: 16
Views: 1504

Re: Can it be wrong to be too risk averse?

Few thoughts It's not possible to be too risk averse----you are what you are. Now having said that, you must recognize that your actions have consequences and you must be prepared to live with the consequences. Being highly conservative means you are accepting a lower potential dispersion of returns...
by larryswedroe
Tue Jul 22, 2014 8:34 am
 
Forum: Investing - Theory, News & General
Topic: Can it be wrong to be too risk averse?
Replies: 49
Views: 2269

Re: Reduce / Eliminate Emerging Market in Retirement?

Another thought for you is this, assuming you believe EM is riskier and has higher expected returns (certainly current valuations indicate higher expected returns to EM vs US) than the less EM you hold the more equity risk you will need to hold to achieve the same expected return, and that beta risk...
by larryswedroe
Tue Jul 22, 2014 8:28 am
 
Forum: Investing - Theory, News & General
Topic: Reduce / Eliminate Emerging Market in Retirement?
Replies: 11
Views: 1137

Re: Qualified Longevity Annuity Contracts (QLACs)

IMO these are good products for those a) who have few if any acceptable options to exercise if the left tail of the distribution of potential returns shows up---as it cuts that tail risk as trade off of losing right tail opportunity b) typically breakeven going to be mid or even late 70s, to cover t...
by larryswedroe
Mon Jul 21, 2014 5:38 pm
 
Forum: Investing - Theory, News & General
Topic: Qualified Longevity Annuity Contracts (QLACs)
Replies: 3
Views: 371

Re: not all value metrics are equal

Beliavsky that finding I wrote about as well based upon paper by Jim Davis of DFA in 2007 https://my.dimensional.com/insight/purely_academic/23940 / for those with access. But here's summary from piece I wrote Davis noted that studies have found that when the spread in book-to-market ratios between ...
by larryswedroe
Mon Jul 21, 2014 4:49 pm
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: not all value metrics are equal

Steve First the data is right there for everyone to look at. Second, as was pointed it it's about explaining returns. Now you can decide if it's then predictive, depending on tstats. Of course any value metric will have some predictive/explanatory value since price is in the metric. Question is whic...
by larryswedroe
Mon Jul 21, 2014 2:31 pm
 
Forum: Investing - Theory, News & General
Topic: not all value metrics are equal
Replies: 36
Views: 1687

Re: My quarterly update on 2014's sure things

Nisi
Personally I think that is one of the value adds provided by advisor---humans are especially prone to making this mistake when the forecast is aligned with their own personal views/fears---known as confirmation bias.
Larry
by larryswedroe
Mon Jul 21, 2014 11:13 am
 
Forum: Investing - Theory, News & General
Topic: My quarterly update on 2014's sure things
Replies: 6
Views: 2025

Re: a close look at value and momentum

cowboys First, you are missing several key points. A) transactions costs in terms of bid offer spreads can be low but cost of shorting can be high B) there is still fear of margin and shorting with unlimited losses Second, personally, I don't feel as strongly about MOM as I do about value premium wh...
by larryswedroe
Mon Jul 21, 2014 8:21 am
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 16681

Re: a close look at value and momentum

cowboys First, the quants have already shown that Buffett's Alpha is fully explained by leverage and factor exposure. Second, at the time the literature I had read was that the cost of trading momentum would be too high, but screening out negative MOM actually reduced trading costs and holding posit...
by larryswedroe
Sun Jul 20, 2014 8:15 pm
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 16681

Re: a close look at value and momentum

cowboys Just as FF built the first model with value as factor doesn't mean value investing wasn't known for decades. Graham and Dodd and many others have preached and taught in Business Schools value investing for 6 decades before FF. In fact that is typically the way it works, real world investors ...
by larryswedroe
Sun Jul 20, 2014 5:11 pm
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 16681

Re: Faber: S&P 500 an Active Fund in Drag

Phineas
FWIW, I don't buy that argument by S&P. If that was their purpose they could simply have made it the top 500 stocks by market cap.
Larry
by larryswedroe
Sun Jul 20, 2014 10:44 am
 
Forum: Investing - Theory, News & General
Topic: Faber: S&P 500 an Active Fund in Drag
Replies: 45
Views: 3414

Re: Jeremy Grantham pokes holes in EMH

Nedsaid You would think that is correct, which is why I'm somewhat skeptical of the profitability factor. There is a risk story but IMO it's bit of stretch, not as clear as value story for example. With that said there is plenty of evidence on the premium and it's persistent and pervasive. Question ...
by larryswedroe
Sun Jul 20, 2014 8:49 am
 
Forum: Investing - Theory, News & General
Topic: Jeremy Grantham pokes holes in EMH
Replies: 16
Views: 2139

Re: Jeremy Grantham pokes holes in EMH

Staythecourse "We" listen because we are unaware of the research showing there are no good forecasters. We listen because we are human beings and subject to behavioral mistakes like confirmation bias. In other words, if we have same concerns that Grantham or any expert is ranting about the...
by larryswedroe
Sun Jul 20, 2014 8:42 am
 
Forum: Investing - Theory, News & General
Topic: Jeremy Grantham pokes holes in EMH
Replies: 16
Views: 2139

Re: If no access to DFA, Small Value worth it?

Blue As I noted on the other thread on this if you estimated returns using loadings on the three factors you miss the negative impact of loadings on MOMENTUM, which are negative for value funds. DFA and Bridgeway use screens to attempt to minimize that impact, getting their loadings close to zero. A...
by larryswedroe
Sun Jul 20, 2014 8:37 am
 
Forum: Investing - Theory, News & General
Topic: If no access to DFA, Small Value worth it?
Replies: 20
Views: 2417

Re: Faber: S&P 500 an Active Fund in Drag

Faber is clearly correct as committee is actively choosing. It's not the 500 largest stocks which would be passive But the 500 has pretty much matched TSM over the years. What's interesting was study was done while ago and it found that at the time if the components had never changed since 1957 it w...
by larryswedroe
Sun Jul 20, 2014 8:27 am
 
Forum: Investing - Theory, News & General
Topic: Faber: S&P 500 an Active Fund in Drag
Replies: 45
Views: 3414

Re: a close look at value and momentum

cowboys First, there is clearly crash risk in MOM. (But only in long-short not long only) And even strategies to minimize that risk by scaling MOM. You have bigger positions when volatility is low and lesser positions when it is high. That's in the literature. That avoids or minimizes the risk of th...
by larryswedroe
Sun Jul 20, 2014 8:25 am
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 16681

Re: If no access to DFA, Small Value worth it?

Blue Don't take issue with that way of doing things only pointing out the answer made no sense to me as A) BOSVX is much smaller than DFA and by BtM similar B) but using other metrics Bridgeway much more valuey, check P/E, PCF as examples, both of which have higher premiums than P/B, DFA you would e...
by larryswedroe
Sat Jul 19, 2014 4:19 pm
 
Forum: Investing - Theory, News & General
Topic: If no access to DFA, Small Value worth it?
Replies: 20
Views: 2417

Re: Jeremy Grantham pokes holes in EMH

tanelorn That's the huge problem with active managers ==you lose total control over the most important determinant of the risk and expected return of the portfolio. And there isn't evidence that they add value by timing. In fact one study on pension plans that used tactical allocation found that not...
by larryswedroe
Sat Jul 19, 2014 1:49 pm
 
Forum: Investing - Theory, News & General
Topic: Jeremy Grantham pokes holes in EMH
Replies: 16
Views: 2139

Re: If no access to DFA, Small Value worth it?

Blue Don't know how you calculated the expected returns but don't see how it can be correct as the Bridgeway fund is MUCH Smaller (and much deeper value metrics once look beyond BTm) One issue might be that your calculations look at value solely through BtM metric---which is what DFA fund does in sc...
by larryswedroe
Sat Jul 19, 2014 1:46 pm
 
Forum: Investing - Theory, News & General
Topic: If no access to DFA, Small Value worth it?
Replies: 20
Views: 2417

Re: Do any bogleheads hold the "Larry Portfolio?"

Packer First, you need to use CURRENT valuations to estimate future returns. So that means using today's bond yields, not historical levels. Second, the very same issue is true no matter what your allocation is---we can only estimate returns for any asset class, including TSM. And in fact the only r...
by larryswedroe
Sat Jul 19, 2014 10:21 am
 
Forum: Investing - Theory, News & General
Topic: Do any bogleheads hold the "Larry Portfolio?"
Replies: 18
Views: 2369

Re: Jeremy Grantham pokes holes in EMH

Tanelorn Those comments are definitely worth considering--likely GMO would do worse in terms of raw returns as does hold cash. But if market was so inefficient he should be easily able to outperform holding cash because he knows market is overvalued. Also most investors spread assets across asset cl...
by larryswedroe
Sat Jul 19, 2014 9:11 am
 
Forum: Investing - Theory, News & General
Topic: Jeremy Grantham pokes holes in EMH
Replies: 16
Views: 2139

Re: If no access to DFA, Small Value worth it?

The Guggenheim Small Value fund is one that has pretty high tilt to small and value and there are others. And it's not black or white. Grey is okay, but the more grey you go the more equity risk you do have to take to get same expected return. On other hand it will still be less than if you go white...
by larryswedroe
Sat Jul 19, 2014 9:08 am
 
Forum: Investing - Theory, News & General
Topic: If no access to DFA, Small Value worth it?
Replies: 20
Views: 2417

Re: Larry: 20 Dollar Bills and Factor Persistence

cowboys, not that I know of and don't know if that would be a good investment even if there was such a thing. Costs of shorting can be very high. In fact the evidence is very strong that the stocks with the biggest short positions tend to perform very poorly and the market prices the lending rates a...
by larryswedroe
Sat Jul 19, 2014 9:06 am
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 82
Views: 6743

Re: Do any bogleheads hold the "Larry Portfolio?"

Tamales First, the world doesn't have to be black or white, shades of grey are fine too. It's all personal. Second, the more you tilt the less overall equity you need to achieve the same EXPECTED return, and the more tracking error risk you take (irrelevant to me because I don't confuse strategy and...
by larryswedroe
Sat Jul 19, 2014 9:01 am
 
Forum: Investing - Theory, News & General
Topic: Do any bogleheads hold the "Larry Portfolio?"
Replies: 18
Views: 2369

Re: Do any bogleheads hold the "Larry Portfolio?"

Pascal It varies some in the tax advantaged accounts, shifting to TIPS when real yields higher and back to shorter term nominals when real rates lower On the taxable side it's munis 4-6 year average depending on curve steepness. Move to 4 when flatter and move to 6 when longer. Also only AAA/AA and ...
by larryswedroe
Fri Jul 18, 2014 9:00 pm
 
Forum: Investing - Theory, News & General
Topic: Do any bogleheads hold the "Larry Portfolio?"
Replies: 18
Views: 2369
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