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Re: Premiums: Size, Value, Beta, Momentum

The difficulty with factor investing is that past factor premiums are not reliable predictors of future factor premiums. A factor investor must continually "upgrade" by finding new factors as other investor crowd the marketplace. some problems IMO with this statement First, This is no les...
by larryswedroe
Tue Sep 16, 2014 4:40 pm
 
Forum: Investing - Theory, News & General
Topic: Premiums: Size, Value, Beta, Momentum
Replies: 10
Views: 640

Re: A History of the Equity Risk Premium and its Estimation

Rick
Just would add that just because correlations are dynamic (true) doesn't mean the information isn't useful--it's the same thing with premiums, they are dynamic, time shifting as well. Doesn't mean that it's not useful information.
Larry
by larryswedroe
Tue Sep 16, 2014 2:57 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 18
Views: 1400

Re: John Hussman, smart guy, should you listen to his foreca

FWIW I think it's "jibberish" because the evidence shows it's not actionable in way to generate excess returns. Huffman certainly hasn't--and one study on 100 pension plans that engaged in this sort of tactical asset allocation showed that NOT A SINGLE ONE benefit. Thus to me it's jibberis...
by larryswedroe
Tue Sep 16, 2014 2:54 pm
 
Forum: Investing - Theory, News & General
Topic: John Hussman, smart guy, should you listen to his forecasts
Replies: 63
Views: 6195

Re: John Hussman, smart guy, should you listen to his foreca

James
No idea why you wrote or quoted that, to me it's basically jibberish, investment porn--especially since market prices are driven by active investors, not passive, and the idea that buy and hold hit its peak say in 1929, or 68, or 99 (leading to bubbles) is just nonsense.
Larry
by larryswedroe
Tue Sep 16, 2014 9:02 am
 
Forum: Investing - Theory, News & General
Topic: John Hussman, smart guy, should you listen to his forecasts
Replies: 63
Views: 6195

Re: Good article on style premium investing & AQR new fund

jaab
Yes they provide benchmarks and also attribution analysis when needed, but that's with us, don't know what they do publicly

I told them Asness's new piece should be called Cliff Notes

Larry
by larryswedroe
Tue Sep 16, 2014 8:54 am
 
Forum: Investing - Theory, News & General
Topic: Good article on style premium investing & AQR new fund
Replies: 67
Views: 6587

Re: Premiums: Size, Value, Beta, Momentum

Re Investment Factor When recently asked what he would do if he knew in 1992 what he knows today Fama responded I'd use a four factor model, beta, size, investment and profitability---with value and momentum being subsumed now. This explains returns while eliminating almost all the anomalies. Fama s...
by larryswedroe
Tue Sep 16, 2014 8:49 am
 
Forum: Investing - Theory, News & General
Topic: Premiums: Size, Value, Beta, Momentum
Replies: 10
Views: 640

Re: Good article on style premium investing & AQR new fund

FWIW
They will be coming out with a new version of the fund with about half the expense ratio, but targetting half the volatility. So more bond like volatility, rather than about half the stock volatility, and of course lower returns
Larry
by larryswedroe
Mon Sep 15, 2014 11:06 pm
 
Forum: Investing - Theory, News & General
Topic: Good article on style premium investing & AQR new fund
Replies: 67
Views: 6587

Re: A History of the Equity Risk Premium and its Estimation

daufuskieNate When you run an MCS you are putting in ANNUAL returns and SD and correlations. The MCS then gives you thousands of scenarios that show the impact of the volatility on annualized returns of course---along with the correlations impacts. If you only ran a single asset class, say TSM, you ...
by larryswedroe
Mon Sep 15, 2014 9:30 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 18
Views: 1400

Re: CalPERS Eliminates Hedge Fund Program

And unlike us small investors who can heavily load on factors like small/value CALPERS really is too big to do that, cannot put tens of billions into small corner of the market , so don't see how they can get there from here without lots of luck.

Larry
by larryswedroe
Mon Sep 15, 2014 9:27 pm
 
Forum: Investing - Theory, News & General
Topic: CalPERS Eliminates Hedge Fund Program
Replies: 26
Views: 1448

Re: How much value can an advisor add for the average invest

schofinator Simple ask him to show you his/her custodial account statement showing his investments. In my case always happy to do that--and if the person wants he can redact the numbers In my firm's case the offerings in our 401k plan are the same as we recommend to clients. And the sinking fund we ...
by larryswedroe
Mon Sep 15, 2014 7:42 pm
 
Forum: Investing - Theory, News & General
Topic: How much value can an advisor add for the average investor?
Replies: 67
Views: 3941

Re: A History of the Equity Risk Premium and its Estimation

well you get exactly the opposite answer here IMO the best approach is the MCS (monte carlo simulation), without which my own view is it's difficult to make any decision since you cannot see how marginal changes in any assumptions impacts odds of success. The inputs are the average annual returns, p...
by larryswedroe
Mon Sep 15, 2014 7:39 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 18
Views: 1400

Re: A History of the Equity Risk Premium and its Estimation

Rick Basically in alignment in US (though we are forecasting higher outside US due to significantly lower valuations--same methodology used) , but I would suggest that while perhaps one thinks that they are being "conservative" in not assuming premiums (don't know why one should assume ERP...
by larryswedroe
Mon Sep 15, 2014 2:42 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 18
Views: 1400

Re: A History of the Equity Risk Premium and its Estimation

Rick Think you meant to say 10% not 8% as the historic And we all agree that's way too high, we are using more like 6.5% for stocks, that 4.2% plus 2.3 estimated inflation if memory serves. But using same methodology higher for international and even higher EM, plus of course premiums as appropriate...
by larryswedroe
Mon Sep 15, 2014 2:02 pm
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 18
Views: 1400

Re: A History of the Equity Risk Premium and its Estimation

Thanks Rick for sharing Damodaran has done very good work on the ERP you can follow his blog here http://aswathdamodaran.blogspot.com/ and his paper on the subject is here http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2238064 Bottom line is that the best predictor of the "unconditional&quo...
by larryswedroe
Mon Sep 15, 2014 11:50 am
 
Forum: Investing - Theory, News & General
Topic: A History of the Equity Risk Premium and its Estimation
Replies: 18
Views: 1400

Re: How much value can an advisor add for the average invest

three simple rules that can help at least help discriminate between good and bad advice a) only work with those who provide fiduciary standard of care b) only work with those who are prepared to show you that they invest in EXACTLY the same investment vehicles they recommend--though of course percen...
by larryswedroe
Mon Sep 15, 2014 11:42 am
 
Forum: Investing - Theory, News & General
Topic: How much value can an advisor add for the average investor?
Replies: 67
Views: 3941

Why some anomalies persist

And thus why markets are perfectly efficient
http://www.etf.com/sections/index-investor-corner/23269-swedroe-why-some-anomalies-persist.html

Hope you find it helpful
Larry
by larryswedroe
Mon Sep 15, 2014 10:38 am
 
Forum: Investing - Theory, News & General
Topic: Why some anomalies persist
Replies: 0
Views: 203

Re: $1.99 Amazon Kindle Special on Larry's Book

Yes I'm afraid it was a one day sale
by larryswedroe
Sun Sep 14, 2014 11:01 am
 
Forum: Investing - Theory, News & General
Topic: $1.99 Amazon Kindle Special on Larry's Book
Replies: 3
Views: 1322

Re: 100% Small and Value Tilting

gvsycavie Now why is that more of a stomach tester than the 40 year period when large growth stocks underperformed long Treasuries? All portfolios with risky assets will put investor stomachs to the test ---and that includes TSM or S&P or whatever. IMO it's simply matter of understanding the nat...
by larryswedroe
Sun Sep 14, 2014 10:23 am
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 70
Views: 3816

Re: An Interesting Correlation

One more point I thought I'd reiterate from many previous posts on subject A) all correlations drift, so it's important to see the tendencies of when the correlations tend to rise (bad) or fall (good) B) with risky bonds the correlations are low on average but they tend to go to one at the worst pos...
by larryswedroe
Sun Sep 14, 2014 10:20 am
 
Forum: Investing - Theory, News & General
Topic: An Interesting Correlation
Replies: 22
Views: 1789

Re: 100% Small and Value Tilting

golf Personally would NEVER buy individual stocks for small or small value as need way more stocks to effectively diversify than say with large due to much higher idiosyncratic risks. And of course one should own them globally, not just US. Then no way to do that without funds gvsucavie03 FWIW start...
by larryswedroe
Sun Sep 14, 2014 9:24 am
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 70
Views: 3816

Re: An Interesting Correlation

That correlation didn't seem right to me as I've looked at this before

The ANNUAL correlation from 27-13 was -0.02
Quarterly was +0.05
Monthly +0.09

So effectively zero

Larry
by larryswedroe
Sun Sep 14, 2014 9:22 am
 
Forum: Investing - Theory, News & General
Topic: An Interesting Correlation
Replies: 22
Views: 1789

Re: 100% Small and Value Tilting

Just reminder that if you screen for value by BTM you are likely to get higher loading on value than if you load on other factors --either individually or in combination (as RAFI, and Bridgeway and AQR among others do). That's because you are using the single screen. Now it's possible that you will ...
by larryswedroe
Sat Sep 13, 2014 8:40 am
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 70
Views: 3816

Re: The dangerous practice of rebalancing...

austin
I would not change anything you were doing, if it included rebalancing
Larry
by larryswedroe
Fri Sep 12, 2014 4:19 pm
 
Forum: Investing - Theory, News & General
Topic: The dangerous practice of rebalancing...
Replies: 171
Views: 9799

Re: Let me get this straight about SCV & factor diversificat

Browser
One thing we have learned is that the value premium isn't really much in large stocks but is strong in small stocks
Larry
by larryswedroe
Fri Sep 12, 2014 1:33 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: Forecasters persistently fail us, yet we keep listening

That is also true, they are followers, and one reason is that they would rather fail "conventionally"---misery loves company
Larry
by larryswedroe
Fri Sep 12, 2014 1:31 pm
 
Forum: Investing - Theory, News & General
Topic: Forecasters persistently fail us, yet we keep listening
Replies: 6
Views: 515

Re: I've never been a fan of commodity funds

heyyou While you can buy a more fuel efficient car to protect against those costs, that won't help you much in terms of financial assets say if we had a mid-East crisis and the Gulf of Hormuz was blocked and oil went to $150 or $200 and stocks got crushed. Think oil embargo in 73-4. And we haven't h...
by larryswedroe
Fri Sep 12, 2014 1:29 pm
 
Forum: Investing - Theory, News & General
Topic: I've never been a fan of commodity funds
Replies: 28
Views: 2048

Forecasters persistently fail us, yet we keep listening

Personally I believe that people ignore the evidence because there is an all too human need to believe that there's someone who can protect us from bad things happening http://www.etf.com/sections/index-investor-corner/23253-swedroe-forecasters-persistently-fail-us.html Best wishes Larry
by larryswedroe
Fri Sep 12, 2014 11:59 am
 
Forum: Investing - Theory, News & General
Topic: Forecasters persistently fail us, yet we keep listening
Replies: 6
Views: 515

Re: 100% Small and Value Tilting

Taylor Thanks and there was also 20 year period when it underperformed (but only by small amount 91-00) Any asset class can underperform for long time. And of course we know that most of that underperformance occurred not because SV did poorly but we had growth BUBBLE--so in next three years here's ...
by larryswedroe
Fri Sep 12, 2014 11:56 am
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 70
Views: 3816

Re: The interesting friendship between Gold and SCV

few thoughts First the small value did underperform over the full period but only slightly, about 45bp Second, if you look at the first ten or about 15 years it slightly outperformed. so the underperformance was in last 5-6 years when we had growth bubble. Third, in prior 10 years you had huge outpe...
by larryswedroe
Fri Sep 12, 2014 11:50 am
 
Forum: Investing - Theory, News & General
Topic: The interesting friendship between Gold and SCV
Replies: 3
Views: 338

Re: I've never been a fan of commodity funds

IlliniDave Of course you need to consider the results but also WHY they occurred as they did. If you invest in small value stocks and they have period of underperformance was the strategy wrong? When you buy insurance and you don't collect because the risks did not show up was the strategy of buying...
by larryswedroe
Fri Sep 12, 2014 11:42 am
 
Forum: Investing - Theory, News & General
Topic: I've never been a fan of commodity funds
Replies: 28
Views: 2048

Link to webinar I did other day for our clients

It's a conversation with one or my colleagues about all the noise in the markets today and what to do about it and how to think about it
Hopefully you'll find it helpful

http://buckinghamadvisor.com/watching-the-world-how-headlines-impact-your-financial-plan/
Best wishes
Larry
by larryswedroe
Fri Sep 12, 2014 11:21 am
 
Forum: Investing - Theory, News & General
Topic: Link to webinar I did other day for our clients
Replies: 2
Views: 448

Re: 100% Small and Value Tilting

Suppose SCV under-performed the S&P 500 for the next 20 years. No matter what you tell yourself now, I bet you'ld switch your investment strategy and not stay in SCV for another 20 years waiting for mean reversion. Interesting, so how would you have done golf in the 40 years when large growth s...
by larryswedroe
Thu Sep 11, 2014 10:40 pm
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 70
Views: 3816

Re: I've never been a fan of commodity funds

Well remember if you added longer bonds if added them the longer bonds have been doing very nicely. And also they are hedge against both supply shocks and unexpected inflation --not for higher returns. And complaining about the low returns because the risks didn't show up is like complaining you was...
by larryswedroe
Thu Sep 11, 2014 9:29 pm
 
Forum: Investing - Theory, News & General
Topic: I've never been a fan of commodity funds
Replies: 28
Views: 2048

Re: 100% Small and Value Tilting

fwiw If going to do something like this IMO should a) be prepared for long periods of underperformance b) understand that it will tend to do worst during financial crises when labor capital is most at risk c) should GLOBALLY diversify, which means say 50% US, 37.5% developed and 12.5% EM And I would...
by larryswedroe
Thu Sep 11, 2014 9:27 pm
 
Forum: Investing - Theory, News & General
Topic: 100% Small and Value Tilting
Replies: 70
Views: 3816

Re: Modulating The Larry Portfolio

Freestyle While the TE issue is a very big one there really isn't any long period where very safe intermediate bonds have tanked. And especially would be the case if using TIPS which would address the issue of unexpected inflation. And while not saying it hasn't happened don't recall any 20 year per...
by larryswedroe
Thu Sep 11, 2014 3:25 pm
 
Forum: Investing - Theory, News & General
Topic: Modulating The Larry Portfolio
Replies: 34
Views: 2225

Re: Let me get this straight about SCV & factor diversificat

golf Why are you even looking at the average returns anyway? The only things that should matter are the compound returns and SD and importantly the worst case years All I can say is that I know the data I showed is correct and it clearly shows a much more efficient portfolio over which ever period I...
by larryswedroe
Thu Sep 11, 2014 8:51 am
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: Let me get this straight about SCV & factor diversificat

Lee Your statement IMO isn't accurate, it's how MUCH exposure you have, Vanguard funds just have much less, that's neither good nor bad just fact. So you get a small tilt to size and value. So you get less diversification benefit and you get lower returns as well, but less SD when viewed in isolatio...
by larryswedroe
Wed Sep 10, 2014 9:58 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: Let me get this straight about SCV & factor diversificat

golf I ran the data for your period 1928-13 and your allocations basically S&P 50/5 year 50 8.09/10.44 Then S&P 50/20-year 50 (don't have 10 year) 8.22/11.22 so 10 year likely about in middle Now FF SV ex utilities 25/75% 5 year 8.46/9.22 so higher return and lower SD And for 20 year its 8.6...
by larryswedroe
Wed Sep 10, 2014 9:54 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: Let me get this straight about SCV & factor diversificat

golf First, the data I'm using is the FF small value ex-utilities which basically matches the DFA small value fund, so investable. DFA has come close to matching it since inception. That's why IMO it's what should be used. second, 10 year Treasuries would likely have shown even better results than 5...
by larryswedroe
Wed Sep 10, 2014 6:54 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: Let me get this straight about SCV & factor diversificat

Golf Don't know where you are getting your data from but I'm assuming it's wrong., Now I don't have 10 -year treasuries, but 5 year Treasuries I do have 1927-2013 100% S&P returned 10.06 with SD of 20.3 40% FF SV (ex utilities) and 60% 5 year with annual rebalance returned 10.02 with SD of 13.9 ...
by larryswedroe
Tue Sep 09, 2014 11:17 pm
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: John Hussman, smart guy, should you listen to his foreca

First relative to performance, here is table I put together at end of last year. You can draw your own conclusions 1999-2013 5-Year Annualized Returns (%) 10-Year Annualized Returns (%) 15-Year Annualized Returns (%) Berkshire Hathaway (BRK) 13.0 7.7 6.4 Vanguard 500 Index (VFINX) 17.8 7.3 4.6 U.S. ...
by larryswedroe
Tue Sep 09, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: John Hussman, smart guy, should you listen to his forecasts
Replies: 63
Views: 6195

Re: Let me get this straight about SCV & factor diversificat

Browser Thanks, point I was making is that even if the Sharpe ratios were the same it's how the addition to portfolio impacts the returns that matters. This is what won Markowitz Nobel Prize And high quality bonds while having no correlation with stocks on average, the correlation tends to turn nega...
by larryswedroe
Tue Sep 09, 2014 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: John Hussman, smart guy, should you listen to his foreca

James First I'm not Buffett so I don't know, and don't know if he is buying or not. You only find out after the fact But the keys to me are 1) he isn't selling 2) he isn't forecasting market decline 3) he would not advise investors to sell He does like to build up cash and wait for a buying opportun...
by larryswedroe
Tue Sep 09, 2014 9:01 am
 
Forum: Investing - Theory, News & General
Topic: John Hussman, smart guy, should you listen to his forecasts
Replies: 63
Views: 6195

Re: Let me get this straight about SCV & factor diversificat

golf Again you keep repeating what IMO is the same mistake of thinking of the risk adjusted returns in isolation. It's how when you mix the assets in portfolios that mattered. So must look at portfolios, not the components. Clearly the tails were lower as I showed. Also note one should not expected ...
by larryswedroe
Tue Sep 09, 2014 8:58 am
 
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 152
Views: 7864

Re: The importance of discipline

asif I don't advocate small/value tilting, to be clear I advocate people should consider it. And one issue is tracking error regret and confusing strategy and outcome. And I've always said that choosing the strategy that you are most likely able to stick with is far more important than choosing the ...
by larryswedroe
Mon Sep 08, 2014 1:49 pm
 
Forum: Investing - Theory, News & General
Topic: The importance of discipline
Replies: 19
Views: 1359

Re: The importance of discipline

Nisprius I don't know of any such evidence that is based on changing plans in the way I suggest versus performance chasing, which is the way it's usually done. IMO a good way to think about it is to look at the relative performance of say DFAs funds which incorporates new research, or say how Vangua...
by larryswedroe
Mon Sep 08, 2014 12:38 pm
 
Forum: Investing - Theory, News & General
Topic: The importance of discipline
Replies: 19
Views: 1359

Re: John Hussman, smart guy, should you listen to his foreca

magneto Of course the market can be irrational at times. The problem is knowing when that occurs. To me only time we KNEW that was in late 90s when the PEs of Tech stocks got to levels that were possible to justify for single stocks but not entire sectors. And the E/P of market was below real yield ...
by larryswedroe
Mon Sep 08, 2014 11:33 am
 
Forum: Investing - Theory, News & General
Topic: John Hussman, smart guy, should you listen to his forecasts
Replies: 63
Views: 6195
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