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Re: Japan Does not Show That Stocks are Dangerous

FWIW
I have Japanese small value stock return data (not large unfortunately) for period 1990-Feb 2014
Annualized return 3.9%. Total return 151% SD 24.3

Larry
by larryswedroe
Wed Apr 16, 2014 9:16 am
 
Forum: Investing - Theory, News & General
Topic: Japan Does not Show That Stocks are Dangerous
Replies: 57
Views: 2688

Re: Asness & Fama on Bloomberg TV NOW

I believe Fama owns market like portfolio because his own investment in DFA is very heavily tilted to small and value already
Larry
by larryswedroe
Wed Apr 16, 2014 9:06 am
 
Forum: Investing - Theory, News & General
Topic: Asness & Fama on Bloomberg TV NOW
Replies: 22
Views: 996

Re: You don't want to be member of the hedge fund club

chead The way to deal with survivorship bias, which is HUGE, maybe 3-6% a year, is to use funds of hedge funds which don't tend to disappear as hedge funds themselves dos Also you're correct that hedge funds are not an asset class, but investment vehicles (that are great at transferring money from t...
by larryswedroe
Wed Apr 16, 2014 9:03 am
 
Forum: Investing - Theory, News & General
Topic: You don't want to be member of the hedge fund club
Replies: 9
Views: 1274

You don't want to be member of the hedge fund club

My first quarter update
My apologies for the size of the table, I've asked them to correct it
http://www.cbsnews.com/news/dont-be-a-member-of-the-hedge-fund-club/
Larry
by larryswedroe
Tue Apr 15, 2014 9:56 pm
 
Forum: Investing - Theory, News & General
Topic: You don't want to be member of the hedge fund club
Replies: 9
Views: 1274

Re: Another take on the "rebalancing bonus"

Browser I very much disagree. There is really no logical argument (other than frictions) IMO to not rebalance. Why would one allow the market to determine your asset allocation. That's like saying rising stocks lead you to conclude that you should take more risk and alter your AA to higher stock all...
by larryswedroe
Tue Apr 15, 2014 4:37 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 43
Views: 2298

Re: SCV premium is a history/math story, its not scientific

cowboys would you draw the same conclusion by looking at the returns of stocks vs LT Treasuries for the much longer 40 year period 69-08 when they had same returns, no ERP? Over even fairly long periods risks can show up and that's what happened over that particular 10 year period. Try the 5 year pe...
by larryswedroe
Tue Apr 15, 2014 8:48 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2208

Re: High Yield Bonds as an Annuity?

FWIW, the only kind of high yield bonds that have exhibited good risk/reward characteristics are the "fallen angels" --Once investment grade that became high yield or junk The reason they have done okay is that when they lose their investment grade status many institutional investors will ...
by larryswedroe
Tue Apr 15, 2014 8:46 am
 
Forum: Investing - Theory, News & General
Topic: High Yield Bonds as an Annuity?
Replies: 15
Views: 1018

Re: SCV premium is a history/math story, its not scientific

cowboysfan It seems that if markets are efficient, then any benefits there might be to a strategy of tilting to SCV will eventually go away as the strategy becomes more popular. If it really is possible to obtain a higher return for a given amount of risk through a combination of SCV/bonds compared ...
by larryswedroe
Mon Apr 14, 2014 11:25 pm
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2208

Re: What exactly is a risk premium?

redcat
It's priced by looking at value metrics like p/b, p/e, p/cf and p/s
The wider the spread the larger the expected premium

Larry
by larryswedroe
Mon Apr 14, 2014 11:18 pm
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 911

Re: What exactly is a risk premium?

Rick, he did not say 80% bonds and 20% stocks have higher return and lower SD than 100% stocks, but that 80% bonds and 20% stocks had higher return and lower SD than 100% bonds. That's very different. And of course it might not have held in some periods. What he said is true if you use LT (20 year b...
by larryswedroe
Mon Apr 14, 2014 11:17 pm
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 911

Re: Another take on the "rebalancing bonus"

people confuse this issue all the time, in fact most of the time should expect rebalanced portfolios (of balanced stock and bonds) will UNDERPERFORM because most of time you are selling the high expected returning asset class to buy the lower expected returning one, lowering the expected return of t...
by larryswedroe
Mon Apr 14, 2014 10:59 pm
 
Forum: Investing - Theory, News & General
Topic: Another take on the "rebalancing bonus"
Replies: 43
Views: 2298

Re: SCV premium is a history/math story, its not scientific

"Larry Swedroe says we should not confuse strategy and outcome, but IMHO it is all but impossible to evaluate strategies in any fundamental way" Consider the following The best example is someone who is married and has young kids and decides to buy life insurance to protect against prematu...
by larryswedroe
Mon Apr 14, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2208

Re: Fundamental Indexing

bernston Another problem is that because of their ANNUAL reconstitution (DFA reconstitutes eligible universe monthly, as does Bridgeway and AQR I believe) which causes the funds to lose exposure to the premiums over the course of a year, and then on reconstitution they get it back and then drift aga...
by larryswedroe
Mon Apr 14, 2014 3:16 pm
 
Forum: Investing - Theory, News & General
Topic: Fundamental Indexing
Replies: 9
Views: 759

Re: Fundamental Indexing

there have been good studies on them and they are nothing more than a size and value tilt in different package, even Arnott was "forced" to admit this basically
Now that doesn't make them bad, but this "economic footprint" idea is marketing, not finance
Larry
by larryswedroe
Mon Apr 14, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: Fundamental Indexing
Replies: 9
Views: 759

Re: SCV premium is a history/math story, its not scientific

dbr
I think that is exactly the point I made in my post, you should have a logical reason to take any risk, be it ERP or size or value or EM or term or default, or whatever
Larry
by larryswedroe
Mon Apr 14, 2014 9:41 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2208

Re: What exactly is a risk premium?

First, the risks are very different for small and value stocks, Here is list I've presented before if you're interested in the research on trying to find the explanations for the premiums 1.Baruch Lev and Theodore Sougiannis, “Penetrating the Book-to-Market Black Box,” Journal of Business Finance an...
by larryswedroe
Mon Apr 14, 2014 9:03 am
 
Forum: Investing - Theory, News & General
Topic: What exactly is a risk premium?
Replies: 14
Views: 911

Re: How can "value beats growth" be a rule?

FWIW Here's the long term returns and SD data since 1926 LG 9.5/18.7 LV 10.6/26 So no question value stocks had both higher returns and higher SD--using SD as measure of risk value stocks clearly much riskier (and by market cap large value is much higher percentage of total value stocks than small c...
by larryswedroe
Mon Apr 14, 2014 8:55 am
 
Forum: Investing - Theory, News & General
Topic: How can "value beats growth" be a rule?
Replies: 21
Views: 1321

Re: SCV premium is a history/math story, its not scientific

well I guess that it's purely a coincidence that A) After FF original study showing size and value premiums for 63-92, that we now have out of sample tests both before 63 and after 92 that show not only the same premiums but similar size B) We have the same premiums in developed markets all around t...
by larryswedroe
Mon Apr 14, 2014 8:48 am
 
Forum: Investing - Theory, News & General
Topic: SCV premium is a history/math story, its not scientific
Replies: 46
Views: 2208

Re: Can I get some alpha? (DFA / Wealthfront)

bernston Glad you found it helpful Here's another important point. While growth companies do have faster growth of earnings (and lower SD of earnings as well) the problem is that investors persistently underestimate the tendency of abnormal earnings (faster or slower than average) to RTM. Faster gro...
by larryswedroe
Sun Apr 13, 2014 2:25 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: How can "value beats growth" be a rule?

Nisiprius Your point is exactly what Fama and French wrote in their paper and have been describing---it's a preference, one that is "irrational" from a logical man perspective so it's an anomaly for the EMH which assumes people act rationally--which is why the EMH is just a model and not a...
by larryswedroe
Sun Apr 13, 2014 2:21 pm
 
Forum: Investing - Theory, News & General
Topic: How can "value beats growth" be a rule?
Replies: 21
Views: 1321

Re: How can "value beats growth" be a rule?

First, value should always be expected to beat growth, it's simple cost of capital story. Even if people crowd into the trade the result should only be a shrinking not disappearance of the premium, because it's RELATIVE, top 30% of stocks are growth and bottom are value. The wider the spread in rela...
by larryswedroe
Sun Apr 13, 2014 1:04 pm
 
Forum: Investing - Theory, News & General
Topic: How can "value beats growth" be a rule?
Replies: 21
Views: 1321

Re: Can I get some alpha? (DFA / Wealthfront)

Here are some more thoughts on risks of value companies There are many academic papers that provide simple and logic risk explanations for the value premium. For example, value companies typically are more leveraged (have higher debt-to-equity ratios), they have higher operating leverage (making the...
by larryswedroe
Sun Apr 13, 2014 9:04 am
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Value vs Growth in one sentence

Fama and French wrote paper on the subject, “Disagreement, Tastes, and Asset Prices” which showed how investor preferences for assets with “lottery-like” characteristics can lead to mispricings of assets when viewed from a rational perspective (explaining, for example, the small growth anomaly) http...
by larryswedroe
Sat Apr 12, 2014 11:15 pm
 
Forum: Investing - Theory, News & General
Topic: Value vs Growth in one sentence
Replies: 3
Views: 444

Re: Can I get some alpha? (DFA / Wealthfront)

steve First you can look at any few stocks and make a nice story. Why not choose some other growth stocks in the list and ask the question. Perhaps say a J&J and compare that to say GM. Now you can also get bubbles in growth stocks, especially in hot sectors like you mentioned, that you don't ge...
by larryswedroe
Sat Apr 12, 2014 11:12 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Can I get some alpha? (DFA / Wealthfront)

steve The fact is that value stocks have much higher volatility of earnings, more leverage, higher sd of dividends, more exposure to default risk, more irreversible capital (so hard to cut back expenses in recessions), and a fewer capital options, and they tend to do very poorly in financial crises,...
by larryswedroe
Sat Apr 12, 2014 2:04 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Can I get some alpha? (DFA / Wealthfront)

steve The fact is that value stocks have much higher volatility of earnings, more leverage, higher sd of dividends, more exposure to default risk, more irreversible capital (so hard to cut back expenses in recessions), and a fewer capital options, and they tend to do very poorly in financial crises,...
by larryswedroe
Sat Apr 12, 2014 2:03 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Can I get some alpha? (DFA / Wealthfront)

steve
FWIW IMO you should have a very good idea of whether the premiums should show up, though not with certainty, in same way you should have good idea if equity premium will show up but not certainty.
The value premium is just as persistent and pervasive as the equity premium.
Best wishes
Larry
by larryswedroe
Fri Apr 11, 2014 7:10 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Can I get some alpha? (DFA / Wealthfront)

Afan The Bridgeway funds I was referring to are the OMNI Small Value funds which were just introduced a few years ago. Just check the average market caps and p/b, p/e, p/cf of their funds and compare to DFSVX and then VISVX and you see huge differences, not minor (BOSVX is the non TM version) Also w...
by larryswedroe
Fri Apr 11, 2014 7:09 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Can I get some alpha? (DFA / Wealthfront)

steve As I have pointed out even in this thread, the last ten years have been virtually no value premium, so you get what you expected. Just happened to be period when sg and Sv had similar returns. Now look at the 15 year data and you see DFA outperforming by about 2% a year over the full 15 years....
by larryswedroe
Fri Apr 11, 2014 2:46 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Can I get some alpha? (DFA / Wealthfront)

few thoughts First, passive funds should have alphas close to zero, so that's not unexpected Second, if you believe the value premium is a free lunch (behavioral story) then you should load up on value, getting the higher returns without more risk. If you believe it's even a free stop at dessert tra...
by larryswedroe
Fri Apr 11, 2014 9:00 am
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: A Bubble in Value Stocks?

Few thoughts First some indices split things in half, but that's not by market cap, it's by stocks. So like top 250 of the S&P is S&P growth and bottom half value. But by market cap it's obviously more loaded to growth. Second many indices split value by top 30% and bottom 30% with middle 40...
by larryswedroe
Fri Apr 11, 2014 8:41 am
 
Forum: Investing - Theory, News & General
Topic: A Bubble in Value Stocks?
Replies: 31
Views: 2361

Re: emerging markets should they be in your portfolio

Bernston Join the club (:-)) I try to keep my EM at about 1/4 of international, which is about market cap weighting, but it's all EMV and EMS as premiums there should be big due to less developed banking systems---and correlations with EM large is as close to 100% as can get so might as well take th...
by larryswedroe
Thu Apr 10, 2014 5:31 pm
 
Forum: Investing - Theory, News & General
Topic: emerging markets should they be in your portfolio
Replies: 14
Views: 1421

Re: Rebalancing the whys and hows of it

Bobcat
One year or even two of returns say 5 or 6% away from your base assumption likely would not change the outcomes of MCS very much, more noise than anything else. However a year like last year does matter.
Best wishes
Larry
by larryswedroe
Thu Apr 10, 2014 8:32 am
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231

Re: Rebalancing the whys and hows of it

Bobcat
First, if you expect 7% returns and get 8% or 6% it isn't going to make any difference, that's noise.
Second, I did not state it because that point has nothing to do with rebalancing. It's about the AA decision.
Larry
by larryswedroe
Wed Apr 09, 2014 10:15 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231

Re: Rebalancing the whys and hows of it

Bobcat Your assumption that one should keep the 60/40 allocation forever is the problem. I certainly never said that, and in fact has said the exact opposite. Any time any of the assumptions you built into your plan change, including time horizon shortening should cause you to change your AA. And th...
by larryswedroe
Wed Apr 09, 2014 7:31 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231

Re: Rebalancing the whys and hows of it

Bobcat IMO you are confusing strategy with outcome. The investor choose an asset allocation because of the expected returns and risks met his goals and risk profile. Rebalancing keeps that profile, though one should also adjust over time for expected returns to make sure that the AA still meets the ...
by larryswedroe
Wed Apr 09, 2014 3:49 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231

Re: Can I get some alpha? (DFA / Wealthfront)

Just a few comments, A) Interesting that someone chooses a 10 year period when the longer period is always more valuable and it's available. DFA SV 15 years 12.93 vs 10.99 for Vanguard SV. Just so happens that for the 10-year period SG outperformed SV so since DFA more exposed to SV it should be exp...
by larryswedroe
Wed Apr 09, 2014 3:46 pm
 
Forum: Investing - Theory, News & General
Topic: Can I get some alpha? (DFA / Wealthfront)
Replies: 58
Views: 2850

Re: Favorite Investing Book?

For those interested in the latest thinking in modern finance I'd recommend these three as must reads
Expected Returns
The Physics of Wall Street and
Successful Investing is a Process

Larry
by larryswedroe
Wed Apr 09, 2014 8:56 am
 
Forum: Investing - Theory, News & General
Topic: Favorite Investing Book?
Replies: 42
Views: 3030

Re: BH Greatest Hits: PE10 predicitive power

While the 113-year mean for the CAPE 10 is 16.5, it’s mean since 1960 is a much higher 19.6. This is important because there are logical reasons to believe that over time the risk premium investors demand from U.S. stocks should have fallen. First, all else equal, the wealthier a nation, the lower t...
by larryswedroe
Wed Apr 09, 2014 8:40 am
 
Forum: Investing - Theory, News & General
Topic: BH Greatest Hits: PE10 predictive power
Replies: 39
Views: 2736

Re: Rebalancing the whys and hows of it

livesoft First, the perhaps of rebalancing isn't to generate any "bonus"--it's to control risk. Benjamin Graham had this to say, pretty smart guy: "The essence of investment management is the management of risks, not the management of returns." Second, since the purpose is contro...
by larryswedroe
Tue Apr 08, 2014 10:54 pm
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231

Re: Quality premium is global

grap First, no problem. The term spindexes is Rick's. My argument is this whole idea about market cap weighting leading to holding the most of the most overvalued assets, which Arnott makes, is just wrong. Second, if interested in a discussion on the subject follow Asness's piece which shows it's no...
by larryswedroe
Tue Apr 08, 2014 6:05 pm
 
Forum: Investing - Theory, News & General
Topic: Quality premium is global
Replies: 13
Views: 1110

Re: Quality premium is global

bernston Sorry forgot about your question I'm skeptical (though using it in our investment strategies) because the risk story is pretty "thin" The risk story can be told two ways. Highly profitable companies/industries attract more competition thus they are riskier--the reverse is true for...
by larryswedroe
Tue Apr 08, 2014 10:49 am
 
Forum: Investing - Theory, News & General
Topic: Quality premium is global
Replies: 13
Views: 1110

Re: Is Alpha Dead?

I wrote about this issue in terms of alpha has become beta as research uncovers the sources of alpha. Value investing used to be alpha as was small stock investing, before the research, and then MOM and now profitability, and also strategies like the carry trade are all implementable by low cost bet...
by larryswedroe
Tue Apr 08, 2014 10:43 am
 
Forum: Investing - Theory, News & General
Topic: Is Alpha Dead?
Replies: 38
Views: 2008

Re: Rebalancing the whys and hows of it

livesoft Glad you found it helpful Something people miss is that it's most important to rebalance when correlations are low and less so when high. So if you have costs to rebalance between say ISV and IS, or US S and SV that is less important than if you have to rebalance between stocks and bonds or...
by larryswedroe
Tue Apr 08, 2014 10:41 am
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231

My first quarter review of 2014s "sure things"

http://www.cbsnews.com/news/financial-predictions-of-2014-first-quarter-review/

I have found this to be a very useful exercise

Hope you find it helpful, reminder of how there are no clear crystal balls

Larry
by larryswedroe
Tue Apr 08, 2014 10:37 am
 
Forum: Investing - Theory, News & General
Topic: My first quarter review of 2014s "sure things"
Replies: 0
Views: 349

Rebalancing the whys and hows of it

http://seekingalpha.com/article/2130243-portfolio-rebalancing-the-whys-and-the-hows

Thought this would be of particularly interest as it also addresses some myths about rebalancing

Larry
by larryswedroe
Tue Apr 08, 2014 8:41 am
 
Forum: Investing - Theory, News & General
Topic: Rebalancing the whys and hows of it
Replies: 25
Views: 2231
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