Bogleheads.org

afan
Yes that is true but they also have equity like qualities
And these funds have also bought high dividend paying stocks, MLPs, REITs and so on
Larry

afan
Yes that is true but they also have equity like qualities
And these funds have also bought high dividend paying stocks, MLPs, REITs and so on
Larry

Simple The Fed buys bonds. It's balance sheet expands/ All else equal that pushes up prices and yields down. The buyers get cash which they put in banks and the banks deposit base goes up. The monetary base rises But that doesn't mean the money supply rises as the base (MB) is just part of the equat...

Bradley You are amazing 1) on TIPS funds you certainly could have posted the 5 year returns as they were available. Why not? And if DFA cannot manage bonds well how did the DFA TIPS fund beat the Vanguard fund by significant margin? Do you now change your mind? 2) even after I show you that you made...

Kelly First you can find a long and detailed chapter in The Only Guide to Alternative Investments You'll Ever Need. Second, there is no right answer to how much. I provide the questions to ask, as I do for all asset classes, in the Only Guide for the Right Financial Plan But here are some quick thin...

Bradley A few more thoughts for you First, so you really want the diehards to believe that two of the most respected people in Finance, Fama and French, are experts in stocks and commodities and thus their advice should be taken, but are dummies when it comes to bonds so their advice should be total...

Frengo Fully agree, that is why I showed the last 21 years when commodities provided returns about what was or should be expected, close to the inflation rate- at least in terms of the GSCI. What I also believe is that a) there is no reason to not believe that the individual commodities will see the...

Bradley 1) That stuff about DFA and bond funds is total BS. The same type of academic research that applies to equities is used with bonds. We have used DFA bond funds for almost 20 years, when we use bond funds, and the reason is the academic research that is used and the logic as well. So this arg...

electron
IMO looking at the yield is not the right way to analyze relative value--it's the spread that matters

Best wishes
Larry

http://www.cbsnews.com/8301-505123_162-57590036/understanding-momentum-in-stock-returns/

thought this would be of interest, taking look at when MOM does well and when it doesn't

Larry

browser Gold does provide some diversification benefits However you have to be very careful about data to be sure you understand the impact of starting and end points In the case of gold it's price was artificially supressed until it was allowed to float and then you end the period with very high hi...

Bradley I did not say advisory fees don't matter. They don't matter unless that is the only reason to hire someone. The advisor is hopefully adding value in far more ways than just investing. The papers I cited are written by well known academics, including from the very prestigious Yale Institute. ...

Lev
That's true for all asset classes. By 2000 the ERP went negative as the best example
Larry

Frengo, It's the combination of the low/negative correlation and the high volatility that is what provides the diversification benefit. And yes commodities are significantly more volatile than stocks - You can see the historical data for a couple of different periods here http://www.cbsnews.com/8301...

nedsaid I very much disagree. Generally when humans try to add value to the models they subtract value--that is finding from research on a wide variety of subjects, not just investing It's always tempting to try and outguess the models but it usually leads to bad decisions because of behavioral mist...

Kelly Few thoughts for you Bill is referring to the fact that the world changed when commodities became "institutionalized" The increased demand from institutional hedgers changed the nature of the futures market, and led to persistent contango (futures higher than spot) for a long time in...

stemikger

No simple answer--what you should be doing is investing based on the person who is inheriting the money their ability, willingness and need to take risk including their marginal utility of wealth.
These funds should be identified and a separate IPS should be developed

Hope that helps
Larry

James That's right, we now know that it was his genius--he did not have stock picking skills, but he identified this factor 40 years before academics were able to do so. See this piece I wrote on the subject http://www.cbsnews.com/8301-505123_162-57524029/how-warren-buffett-beats-the-market/ Best wi...

Bradley Okay on the costs issue but the point remains the same and you should acknowledge it--live funds can easily outperform and have done so, just as the CRSP 6-10 beat the R2K by about 1.6% a year. DFA estimates that the roll costs are at least that much in terms of avoiding the roll dates. So t...

Bradley First re the Vanguard fund you cite, it's only a matter of degree re HY, it's HY, just not junk. And if you agree with French then you would not own the fund because would only recommend A) investment grade which the fund is not B) no bonds which have calls--which the fund does own So I repe...

Bradley First re the Vanguard fund you cite, it's only a matter of degree re HY, it's HY, just not junk. And if you agree with French then you would not own the fund because would only recommend A) investment grade which the fund is not B) no bonds which have calls--which the fund does own So I repe...

There is so much about this that is wrong. Most academic works ignore the cost of implementation of theory. No e/r's, no trading costs and no investment advisory fees. Since most properly constructed portfolios have sufficient exposure to to commodities through the companies that grow, mine and prod...

Bradley I have already answered that question many times. Even presented the evidence many times. I am working now on a paper to expose seven of the criticisms as either patently wrong or irrelevant--which btw includes French's comments. Note I was present when French made his original presentation....

Some shocking data, at least to me, and another example of the dangers of active management--style drift

http://www.cbsnews.com/8301-505123_162-57589658/how-much-of-your-bond-fund-is-actually-in-stocks/

Best wishes
Larry

Richard
I understand the skepticism which is always healthy but FF looked at the data and found strong statistical significance that profitability persists out for about 7 years if memory serves.
Larry

dave
everything would depend on the amount of tilt you added.
Infinite number of possibilities.
But what the data shows clearly is that by diversifying across risk factors you create more efficient portfolios--with less tail risks

Larry

Dave I don't think it contradicts him. Remember it's still a value stock, just not quite as valuey--so you get less of the value premium but pick up the profitability premium and the net impact is significant. Same thing btw with MOM, add MOM and you get more growthy for obvious reasons--so you lose...

for those actually interested in the literature (vs just opinions and quotations without context)-here is a list of papers from my chapter on commodities in The Only Guide to Alternative Investments You'll Ever Need Paul D. Kaplan and Scott L. Lummer, “An Update: GSCI Collateralized Futures As a Hed...

Electron
check the Fed chart on Merrill Lynch's index on spreads--5% appears to be about the long term average--though with weaker convenants that the same thing as a lower spread--not being compensated for the risks
Larry

Richard Re earnings-the BIG contribution by Novy Marx was to move up the income statement, not looking at NET INCOME but gross profitability instead, avoiding many of the problems of manipulation of income--like the well known accrual problem BTW-it turns out that highly profitability companies are ...

Iorek The issue is that we cannot know the future--we can at best estimate the mean expected return and then avoid making the mistake of treating that mean as what will actually happen as opposed to that it's only a mean with a wide potential dispersion The problem arises if the left tail risk shows...

iorek The point is not to predict what you might do in 15 years but to see what if any options you have that you would actually be prepared to EXERCISE to prevent the plan from failing (if the left tail risks appears). If you don't have options that you could exercise then you should change the base...

also depends on which way rates move
Remember corporates have calls creating asymmetric risks--they don't rally like Treasuries do in falling rates

Larry

electron That certainly is true. It used to be that only companies that could put up significant collateral could issue such debt. Typically value companies, borrowing in effect against their assets. Then came the 90s and growth companies like telecom started to be able to issue HY, and convenants l...

http://www.cbsnews.com/8301-505123_162-57589635/trust-models-over-instincts/

This is why passive investing is the winning strategy

Larry

nisiprius There are several reasons why you might see divergences and you only have to look back to 2008 to see that. You can have flights to quality and/or liquidity which can cause correlations to change rapidly. Just another example of why you need to understand that correlations of most asset cl...

As you know,there has been a debate about the relative value of HY in a portfolio. Some things, as I have pointed out are just a matter of opinion. Such as Rick thinks that HY has enough unique risk to justify an allocation and I don't. That's opinion. Rick believes you should ignore the historical ...

Rick I already explained that HY tends to LEAD, which is part of the reason the correlations drift. As I explained, while the stock market is more impacted by emotional retail investors and their cash flows, bonds are more dominated by institutional players--in fact almost all bond trading is done b...

Brad
Just one comment, the purpose of the high tilt low beta portfolio is to cut tail risk, reduce volatility.
Adding LT bonds to a low beta portfolio increases the tail risks/sd. So IMO it defeats the purpose
Best wishes
Larry

Rick That's right, every single paper is wrong. Each and everyone that come to the same conclusion is wrong. None of them know what they are talking about. That is what you are telling us. Your arguments simply make no sense as I have shown. It's not relevant that one cannot predict what the exact m...

, Larry's "correlation drift" explanation of why high yield outperformed both stocks and bonds is a backward way of saying his hybrid model does not work in the real world. Saying this doesn't make it true. In fact it's sheer nonsense. As Rick notes in his own book, correlations drift, th...

One more insight from the chart If you look at it for the period just before the 10 years, the three before you see that HY spread doubled from 5 to 10 at exactly the wrong time--when the risks to stocks showed up. Another perfect illustration of the dangers of HY and how it increases tail risks and...

Frengo Of course it applies to high cost funds Your last example is like the one I use, the guy who owes money to Tony Soprano who thus wants a fat tail distribution and prays for the right side--he's dead anyway so might as well go for it. Everyone else should prefer the thin tail distribution--and...

jmk
If it was possible to give you a formula I would have.
For better or worse AA is just as much art, if not more, than science.
They key is to understand the issues so that you can decide for yourself the right AA for you. Have to know the questions to ask
Larry

Valuations matter and they matter a great deal. Low valuations predict high returns (though not guaranteed) and vice versa. The beginning of the 10 year period just happens to coincide with the beginning of the big rally in HY from point when the spread was then very high, in fact I believe it was t...

CDs certainly can be attractive and we use a lot of them for variety of reasons No credit risk if stay within limits of FDIC insurance Lost of dumb banks out there who misprice optionality (undervalue the early redemption feature--the marketing guys design these products often, not the finance guys)...

Given the debate on whether HY is a hybrid security of some type or not thought those interested in the actual literature would find these of interest The first is a fairly recent paper from the Journal of Applied Corporate Finance • Volume 21 Number 3,with some highlights on the specific issue http...

Frengo I disagree with your premise on whether investors drive up the price of these structured notes and similar products. Yes it's true the prices are set by the product purveyors, but they set them at very high prices because the demand (excessive) is there. If investors were not willing to overp...

Frengo The issue on insurance is that with investment products like structured notes they vastly overpay and it makes no sense whatsover because the same objective can be achieved with much lower cost The lottery ticket effect is simply suboptimal unless you are a real risk lover with a very high ma...

Frengo
That is exactly what a preference is about, it's what leads to skewness preferences.
Larry