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Re: Larry: 20 Dollar Bills and Factor Persistence

nedsaid inflation good for value stocks as typically higher leverage and inflation lowers real cost o debt Deflation very bad for banks as leads economic weakness, larger loan losses, falling loan demand and flatter yield curve--also bad for value stocks as raises real cost of debt and economic risk...
by larryswedroe
Tue Jul 29, 2014 8:22 am
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 9165

Re: second piece on sv---vs midcap

it's really regulated utilities that are excluded and reits treated as separate asset class--also wouldnt want them in taxable account--most people anyway
larry
by larryswedroe
Mon Jul 28, 2014 2:34 pm
 
Forum: Investing - Theory, News & General
Topic: second piece on sv---vs midcap
Replies: 2
Views: 435

Re: Larry: 20 Dollar Bills and Factor Persistence

big john not contradictory, you are just misinterpreting relatove valuations matter- that simple but people knowing about it MAY not change them. Money flows of course do, whether risk story or not. The exact same story told abou sv could have been told about TSM, in fact that is what happened to TS...
by larryswedroe
Mon Jul 28, 2014 1:46 pm
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 9165

Re: Larry: 20 Dollar Bills and Factor Persistence

OF COURSE IF THE PRICE rises in relative terms the premium will shrink. This exact same story can be told about stocks, not just SV. Note both the ERP and the SV premium are time varying, not constant, and it depends on the relative valuations in both cases. In other words you simply cannot extrapol...
by larryswedroe
Sun Jul 27, 2014 10:03 am
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 9165

Re: Momentum Investing ?

COWBOYS Re costs, MOM just as strong in large as in small and can also be executed with patient trading --i.e., not index forced trading---so I believe the answer would have been yes. But the fact is that today there is low trading costs and specifically paper on the live trading costs on millions o...
by larryswedroe
Sat Jul 26, 2014 8:02 am
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 55
Views: 4297

Re: Momentum Investing ?

cowboys IMO you are totally misunderstanding the issue here. It has little to nothing to do about beating market, but as a factor that explains returns and a unique factor Don't know how else to show you beyond the fact that in Japan with almost no MOM premium and a huge value premium, bigger than b...
by larryswedroe
Fri Jul 25, 2014 8:45 pm
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 55
Views: 4297

Re: One of the simplest rational reasons why some should til

If you increase equity exposure to achieve higher expected returns you are taking more of the same risk you already took, beta By tilting you are taking different, unique, independent risks so you no longer have all your eggs in one risk basket. That provides diversification benefits as factors have...
by larryswedroe
Fri Jul 25, 2014 8:41 pm
 
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 42
Views: 3642

Re: Profiting from Unprofitable Companies

garland the outperformance of the factors is generally not from the entire "asset class" outperforming, but from small subset that does so well that it migrates out of the asset class and may not be there in the next period. So just because you have long period of outperformance doesn 't m...
by larryswedroe
Fri Jul 25, 2014 5:45 pm
 
Forum: Investing - Theory, News & General
Topic: Profiting from Unprofitable Companies
Replies: 15
Views: 1168

Re: Should market valuations be completely disregarded?

Bud NO, treat exactly the same way. Don't use valuations as timing, only to help set AA to meet goals based on ability, willingness and need to take risk. We do use TIPS yield vs best available bond alternative (like CDs, not treasuries) and look at breakeven inflation vs forecasted inflation to dec...
by larryswedroe
Fri Jul 25, 2014 7:09 am
 
Forum: Investing - Theory, News & General
Topic: Should market valuations be completely disregarded?
Replies: 50
Views: 3750

Re: Momentum Investing ?

Cowboys I did not ever state it might not disappear. Only that it has been known for decades and it hasn't. For example, re long only momentum, human behavior hasn't changed, with some reacting more slowly to news, so market doesn't instantly incorporate new information always. Biases can prevent th...
by larryswedroe
Thu Jul 24, 2014 11:10 pm
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 55
Views: 4297

Re: Momentum Investing ?

cowboys As you've pointed out several times long MOM isn't a risk premium and thus can't persist Sorry but that is clearly wrong--premiums can and have persisted for decades that were anomalies. There are many of them. And there are logical reasons for them, limits to arbitrage, low volatility, inst...
by larryswedroe
Thu Jul 24, 2014 9:03 pm
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 55
Views: 4297

Re: Should market valuations be completely disregarded?

Rod We are not as a firm engaged in market timing at all (what I do for myself in terms of this issue can be different--as in 1998 we simply rebalanced for clients while I sold all but value funds). We only as firm use the valuation metrics to estimate odds of success in MCS. That helps determine th...
by larryswedroe
Thu Jul 24, 2014 7:10 pm
 
Forum: Investing - Theory, News & General
Topic: Should market valuations be completely disregarded?
Replies: 50
Views: 3750

Re: Momentum Investing ?

crake Larry himself said the act of publishing a paper on a premium reduced the premium by 1/3. How much does creating a fund which captures the premium reduce it? The publication itself isn't what drives the shrinkage, it's investors trying to exploit the inefficiency by betting on it. Basically me...
by larryswedroe
Thu Jul 24, 2014 4:47 pm
 
Forum: Investing - Theory, News & General
Topic: Momentum Investing ?
Replies: 55
Views: 4297

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: 50
Views: 3750

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: 55
Views: 4297

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: 45
Views: 5366

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: 1836

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: 50
Views: 3750

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: 19
Views: 3863

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: 45
Views: 5366

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: 10
Views: 1126

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: 1836

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: 55
Views: 4297

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: 1836

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: 55
Views: 4297

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: 17201

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: 1836

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: 45
Views: 5366

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: 17201

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: 50
Views: 3750

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: 1836

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: 1836

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: 55
Views: 4297

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: 45
Views: 5366

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: 2315

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: 45
Views: 5366

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: 1529

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: 2315

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: 1160

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: 387

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: 1836

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: 1836

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: 2035

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: 17201

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: 17201

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: 17201
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