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Re: Individual investors behaving badly

bpp Yes the motivation matters. The reason is selling from fear is behavioral error. Selling for tax loss harvesting is RATIONAL, the right thing, not a mistake. And with TLH you intend to buy in 30 days regardless of what market does (or swap immediately if a fund) and no such plan exists if sellin...
by larryswedroe
Thu Oct 30, 2014 11:08 am
 
Forum: Investing - Theory, News & General
Topic: Individual investors behaving badly
Replies: 11
Views: 1839

Re: Individual investors behaving badly

bpp Re selling, no TLH is not because it isn't motivated by the sell because you think the stock is going down or fear driving it. And the intent is to buy back in 30 days. Now that's another reason to not buy individual stocks anyway (there are many reasons one shouldn't)--unlike with a fund where ...
by larryswedroe
Thu Oct 30, 2014 8:41 am
 
Forum: Investing - Theory, News & General
Topic: Individual investors behaving badly
Replies: 11
Views: 1839

Re: your advisor should act like a good doctor

Tamales First, the issue of RIA being the firm not the advisor has been repeated over and over again. You hire a firm, your agreement, you sign an advisory agreement, is with a firm, not an advisor. Second, Yes the term fiduciary is broad, but I simply ask why anyone would choose to not work with so...
by larryswedroe
Thu Oct 30, 2014 8:36 am
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: “Risk and Return Within the Stock Market: What Works Bes

Countmein Definitely no Here's my take, there is really no low vol phenomenon. There is an anomaly in that high vol (and high beta) is awful. So that's how you get the low minus high premium. If you break things by quintile or quartile, low vol doesn't have higher returns than anything but the most ...
by larryswedroe
Thu Oct 30, 2014 8:31 am
 
Forum: Investing - Theory, News & General
Topic: “Risk and Return Within the Stock Market: What Works Best?”
Replies: 13
Views: 1305

Re: A Backtest of the Dividend Growth Model, 1871-2010

TJSI
Just as the dividend is dividend per share, the earnings growth in Gordon model is earnings per share, so yes buybacks impact EPS as they lead to fewer shares
Larry
by larryswedroe
Wed Oct 29, 2014 8:44 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: Individual investors behaving badly

bpp
You should harvest losses when they are significant and ST, as they can be more valuable than long term losses. While with funds you can buy a very similar fund with stocks you have to sit it out 31 days
Larry
by larryswedroe
Wed Oct 29, 2014 8:42 pm
 
Forum: Investing - Theory, News & General
Topic: Individual investors behaving badly
Replies: 11
Views: 1839

Re: your advisor should act like a good doctor

Nisiprius As promised I asked our compliance guy who is top notch. Here is his answer to my questions There are many different definitions of the term (Google comes up with plenty), but the one I liked the most comes from Wikipedia: A fiduciary is a legal or ethical relationship of trust between two...
by larryswedroe
Wed Oct 29, 2014 8:40 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: your advisor should act like a good doctor

Afan As good example, FF paper on small and value published 92, covering period beginning in 63. But then they did out of sample tests after "data mining" accusations. They found same results basically going back to 1926. Then we have basically the same results since 92. And then they did ...
by larryswedroe
Wed Oct 29, 2014 8:37 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: “Risk and Return Within the Stock Market: What Works Bes

Ignatious
No, but I would say nothing really changed in last 30 years, in fact harder today to go public than 30 years ago because costs are much higher.
Larry
by larryswedroe
Wed Oct 29, 2014 1:57 pm
 
Forum: Investing - Theory, News & General
Topic: “Risk and Return Within the Stock Market: What Works Best?”
Replies: 13
Views: 1305

Re: expected returns and Black Swans

Simplegift
One of the benefits to me of posting here is that the discussions often lead me to write up pieces. If Bogleheads are thinking about these things so are other people
Best
Larry
by larryswedroe
Wed Oct 29, 2014 12:32 pm
 
Forum: Investing - Theory, News & General
Topic: expected returns and Black Swans
Replies: 5
Views: 859

Re: A Backtest of the Dividend Growth Model, 1871-2010

simple gift
Yes buybacks help but even without them more earnings retention should lead to faster earnings growth. More sure though with buybacks
Larry
by larryswedroe
Wed Oct 29, 2014 12:31 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: “Risk and Return Within the Stock Market: What Works Bes

Ignacious Well we very much disagree. Technology isn't changing liquidity in any meaningful way, at least not in terms of raising funding for the kind of companies that are public. As to your other issues, yes the world is always changing but whatever you know is already embedded in prices. Those tr...
by larryswedroe
Wed Oct 29, 2014 12:30 pm
 
Forum: Investing - Theory, News & General
Topic: “Risk and Return Within the Stock Market: What Works Best?”
Replies: 13
Views: 1305

Re: How should we invest if interest rates never go up?

couple things, first ignore rate forecasts--100% of economists were wrong about rates this year and most have been wrong for many years. Stay disciplined and take advantage of term premiums, especially when curve is steep--that is when term risk has been best rewarded And as noted, have to lower exp...
by larryswedroe
Wed Oct 29, 2014 10:09 am
 
Forum: Investing - Theory, News & General
Topic: How should we invest if interest rates never go up?
Replies: 17
Views: 1544

Re: Paul Merriman criticism?

Rick For what it's worth, the term additional beta I don't think is an accurate one. Better term would be different beta ---different loadings on the factors or sources of returns. Now that might be smart (avoiding jackpot stocks for example IMO is smart and gives you different beta with much higher...
by larryswedroe
Wed Oct 29, 2014 8:56 am
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman criticism?
Replies: 49
Views: 2792

Re: A Backtest of the Dividend Growth Model, 1871-2010

simplegift As I have pointed out while we have long term earnings growth IMO you need to make adjustment, assuming a higher growth rate. Today only about 30% of companies pay dividends and the total payout rate is way down. At least in theory that should produce faster earnings growth. FWIW, that pr...
by larryswedroe
Wed Oct 29, 2014 8:52 am
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: Individual investors behaving badly

JoMoney
That's not right, they do the same thing with mutual funds that they do with stocks---making mistakes of recency and following the herd

DonCamillo
Yes it's actionable, don't do what they do. Avoid the mistakes. And be contra investor by rebalancing whenever have new cash to invest.
Larry
by larryswedroe
Wed Oct 29, 2014 8:48 am
 
Forum: Investing - Theory, News & General
Topic: Individual investors behaving badly
Replies: 11
Views: 1839

Re: “Risk and Return Within the Stock Market: What Works Bes

Nedsaid Just one comment. The academics don't agree on value as risk story. That's one of great debates, risk vs. behavioral. My own view which I have discussed here is that it's some of both, not free lunch but free stop at dessert tray. One reason for the free dessert is that small growth does so ...
by larryswedroe
Wed Oct 29, 2014 8:46 am
 
Forum: Investing - Theory, News & General
Topic: “Risk and Return Within the Stock Market: What Works Best?”
Replies: 13
Views: 1305

Individual investors behaving badly

http://mutualfunds.com/expert-analysis/retail-investors-behaving-badly-larry-swedroe/

They exhibit perverse stock picking skills

I'm sure no Boglehead engages in such behavior

Best wishes
Larry
by larryswedroe
Tue Oct 28, 2014 10:07 pm
 
Forum: Investing - Theory, News & General
Topic: Individual investors behaving badly
Replies: 11
Views: 1839

Re: A Backtest of the Dividend Growth Model, 1871-2010

simplegift Note I pointed out that what Illmanen does is exactly what we do (:-)) My personal problem with the Gordon model is that you need to make adjustments to it because far fewer companies are paying dividends than ever before, and at least in theory that means earnings growth should be higher...
by larryswedroe
Tue Oct 28, 2014 4:51 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: your advisor should act like a good doctor

Victoria of course that is true, but it doesn't mean that hypotheses are not thought of BEFORE you run the data, and that you can run out of sample tests and apply the very same mathematical techniques as used in science/medicine. In fact today many if not most finance researchers are Ph.Ds in scien...
by larryswedroe
Tue Oct 28, 2014 3:24 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: Paul Merriman criticism?

Yes Rick that is what it means in a strict sense. But that doesn't mean it's a bad term which you seem to be making it out to be. It is actually means more than that though. Evidence based should mean that there is statistically significant evidence that is persistent and pervasive enough to have su...
by larryswedroe
Tue Oct 28, 2014 2:16 pm
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman criticism?
Replies: 49
Views: 2792

Re: your advisor should act like a good doctor

Nisiprius I find it strange But I would send that right back and just ask directly But if they are an RIA then by definition they are fiduciary. That's rule of RIA. Being salaried and not commissioned doesn't make you a fiduciary however, it just makes you fee only advisor. And not being a technical...
by larryswedroe
Tue Oct 28, 2014 2:12 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: A Backtest of the Dividend Growth Model, 1871-2010

Richard
All I know is that the research shows that if you look at all the typical suspects everyone finds that CAPE is about best and current valuation is very close
Larry
by larryswedroe
Tue Oct 28, 2014 2:09 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: your advisor should act like a good doctor

Victoria Sorry but I totally disagree. While data mining does happen--they find a correlation and then look for an explanation---that isn't not only always true, no good researcher does that. Fama and French for example don't and neither do any of the people I know in the industry who are respected....
by larryswedroe
Tue Oct 28, 2014 12:59 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: Paul Merriman criticism?

Rick FWIW IMO you are WAY off base on this one. First many people use that term. You yourself make decisions based on the evidence from peer reviewed journals. All it means is that the advice isn't based on opinions, but evidence, facts. It's totally different than smart beta which is purely a marke...
by larryswedroe
Tue Oct 28, 2014 12:55 pm
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman criticism?
Replies: 49
Views: 2792

Re: “Risk and Return Within the Stock Market: What Works Bes

Leesbro, It might be, But when you add tests out of sample by countries, regions, and asset classes I'd say yes it is enough to draw conclusions that are likely to hold up. But longer is better of course.
Larry
by larryswedroe
Tue Oct 28, 2014 10:52 am
 
Forum: Investing - Theory, News & General
Topic: “Risk and Return Within the Stock Market: What Works Best?”
Replies: 13
Views: 1305

Re: A Backtest of the Dividend Growth Model, 1871-2010

Richard, so you think that guessing without any basis for that is better than making an informed estimate? Is that what you are really saying? I'd add that a simple rule like 3% is fine ONCE you are there for it will likely work for most AAs (though perhaps not the most extremes) But that isn't help...
by larryswedroe
Tue Oct 28, 2014 10:50 am
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: Fed Quantitative Easing

The answer is simple--Are you the only one that knows the Fed will end tapering (likely). Of course not. Thus that information is already in prices and useless information. What drives prices is surprises which by definition are not forecastable. And remember that 100% of economists believed that ra...
by larryswedroe
Tue Oct 28, 2014 9:25 am
 
Forum: Investing - Theory, News & General
Topic: Fed Quantitative Easing
Replies: 15
Views: 1166

Re: A Backtest of the Dividend Growth Model, 1871-2010

Richard Even in your example how do you know how much to adjust based on what return you need if you don't estimate returns? Impossible. You have to know how much to adjust. And I would add not 4% as that is too high today for a 65 year old because yields are lower and valuations higher. 3% is the n...
by larryswedroe
Tue Oct 28, 2014 9:23 am
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: Paul Merriman criticism?

FWIW I have known Paul for a long time and he truly is one of the good guys. He devotes much of his time (retired now) to educating people. And the strategies he recommends are quite simple, not complex at all. This idea of complexity is way overdone. As simple example, you can implement a multi-ass...
by larryswedroe
Tue Oct 28, 2014 9:20 am
 
Forum: Investing - Theory, News & General
Topic: Paul Merriman criticism?
Replies: 49
Views: 2792

Re: your advisor should act like a good doctor

Tamales Yes human behavior is often a hurdle to overcoming mistakes and avoiding them in first place. And you can only bring a horse to water but you cannot make it drink. I have seen many examples of the type behavior you describe, and they are examples of human beings not always acting in their ow...
by larryswedroe
Tue Oct 28, 2014 9:12 am
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: your advisor should act like a good doctor

Tamales Yes, RIA must provide fiduciary standard of care. As to stuck in brokerage, that is just nonsense. No one is stuck. You can simply transfer the holdings to an RIA who will arrange for the transfer of holdings to another custodian. Nothing else must happen. There's little to no inconvenience....
by larryswedroe
Mon Oct 27, 2014 11:29 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: A Backtest of the Dividend Growth Model, 1871-2010

hornet I suggest you read the literature on this stuff. Damodaran has the best paper I believe. As to higher r-squared. Let's say model was perfect predictor. Then there would be no risks in stocks at all. IF there is no risk, you knew the return ahead of time, then stock prices would be bid up to t...
by larryswedroe
Mon Oct 27, 2014 11:25 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: A Backtest of the Dividend Growth Model, 1871-2010

backpacker The fact that you have an rsquared as high as 40 means that there is valuable information there. It's not like it's 0 or .1 It's really as simple as that As to D10 as I have said the really isn't as much logic to Gordon Model (except it does great job of explaining returns ex post) becaus...
by larryswedroe
Mon Oct 27, 2014 9:22 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: A Backtest of the Dividend Growth Model, 1871-2010

IMO the critics are totally off base on this issue, failing to understand that the higher the r-squared the less risk there would be and the ERP would be TINY!!!!! The fact that we cannot forecast returns with high degree of accuracy is simply a function of the fact that the future is unknowable and...
by larryswedroe
Mon Oct 27, 2014 8:20 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 66
Views: 3322

Re: your advisor should act like a good doctor

Thanks CFS, glad you enjoyed. And yes a lot of work went into, helped by my co-author Andrew Berkin, director of research at Bridgeway. Andy is also the co-author of a paper that will be published in next Summer's edition of the Journal of Investing: Is Investing a Science. And he is also the co-aut...
by larryswedroe
Mon Oct 27, 2014 4:30 pm
 
Forum: Investing - Theory, News & General
Topic: your advisor should act like a good doctor
Replies: 29
Views: 2107

Re: new interesting piece by Asness on hedge funds

Daffy fwiw, I am not fan of "risk parity" though I am fan of the basic idea of diversifying the sources of returns much more than typical portfolios accomplish. And that's the basic idea behind risk parity. Each person should decide for themselves which factors they want exposure to and ho...
by larryswedroe
Mon Oct 27, 2014 11:05 am
 
Forum: Investing - Theory, News & General
Topic: new interesting piece by Asness on hedge funds
Replies: 26
Views: 2171

Re: Do stocks have an intrinsic fundamental value?

Value investing is basically buying stocks with low prices to some metric, like earnings, cash flow, dividends, sales, book. That means that the discount rate applied is high and expected returns low. You don't know what "intrinsic value" a company has --it changes based on what assumption...
by larryswedroe
Sun Oct 26, 2014 6:28 pm
 
Forum: Investing - Theory, News & General
Topic: Do stocks have an intrinsic fundamental value?
Replies: 31
Views: 1908

Re: new interesting piece by Asness on hedge funds

Yesterday In 2008 private equity produced very large losses. Also there is much phony reporting in private equity because of failure to mark to market appropriately securities that are illiquid. Depending on the study the evidence is that private equity has performed about same as S&P or beaten ...
by larryswedroe
Sun Oct 26, 2014 8:27 am
 
Forum: Investing - Theory, News & General
Topic: new interesting piece by Asness on hedge funds
Replies: 26
Views: 2171

Re: What funds are negatively correlated with stocks?

As noted any short equity fund will be by definition negatively correlated, as will an investment in the VIX (volatility is negatively correlated with beta) Basically all equity funds will have positive correlation because the biggest risk they have in common which is beta. High quality bonds have n...
by larryswedroe
Sun Oct 26, 2014 8:24 am
 
Forum: Investing - Theory, News & General
Topic: What funds are negatively correlated with stocks?
Replies: 24
Views: 2861

Re: How to think about expected returns--continuing discussi

James 1) Sure you need discipline to wait,. but the problem is you don't know when to buy in middle of crisis. How do you know that it won't get worse? Just think Japan which was at 40,000 in Nikkei, and went to 20,000, was that time to buy? Down 50%? and then it went to 8,000? Sorry but when stocks...
by larryswedroe
Sun Oct 26, 2014 8:15 am
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 105
Views: 8284

Re: How to think about expected returns--continuing discussi

Oneleaf First, re your currency question, that is what is well known as the carry trade, and part of the QSPIX strategy. And note it's like value strategy, buy cheap and sell expensive. Similar in commodities, going long backwardation and short contango, and currencies, long the high yield and short...
by larryswedroe
Sat Oct 25, 2014 6:01 pm
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 105
Views: 8284

Re: new interesting piece by Asness on hedge funds

Few things Nisiprius, There is a very strong statistically significant negative correlation between value and momentum. And it is also quite logical. And there is also logically negative correlation between CCF and nominal bonds. So there's at least two. There are others that aren't as strongly nega...
by larryswedroe
Sat Oct 25, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: new interesting piece by Asness on hedge funds
Replies: 26
Views: 2171

Re: new interesting piece by Asness on hedge funds

Leesbro Already gave you many examples. There are funds now that provide access to strategies or sources of returns long restricted to hedge fund land, like MOM. There are ETFs that access it. There are many funds that incorporate at least screens if not direct exposure. There are long short funds t...
by larryswedroe
Sat Oct 25, 2014 2:20 pm
 
Forum: Investing - Theory, News & General
Topic: new interesting piece by Asness on hedge funds
Replies: 26
Views: 2171

Re: How to think about expected returns--continuing discussi

grayfox There is a big difference between forecasts based on the "science" (valuations) vs those like Grantham's based on pure opinions. And IMO you are mixing the two together. Second, fwiw, 1982 assuming the posted CAPE 10 of 7 is right, the forecast would be for 14% real returns. Well n...
by larryswedroe
Sat Oct 25, 2014 2:16 pm
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 105
Views: 8284

Re: new interesting piece by Asness on hedge funds

Jaab First, yes there is more competition but that doesn't mean funds cannot add value. One of the funds we use for example has over 80% of their buys below the midpoint of bid-offer, as one example. And securities lending fees are down as rates are near zero. Not because there is supposedly more co...
by larryswedroe
Sat Oct 25, 2014 11:53 am
 
Forum: Investing - Theory, News & General
Topic: new interesting piece by Asness on hedge funds
Replies: 26
Views: 2171

Re: How to think about expected returns--continuing discussi

Hank
Anyone using the valuation methods standard in finance would have predicted very high returns, well above historical averages
Larry
by larryswedroe
Sat Oct 25, 2014 11:45 am
 
Forum: Investing - Theory, News & General
Topic: How to think about expected returns--continuing discussion
Replies: 105
Views: 8284
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