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Re: Why finance research is often wrong - the jelly bean pro

CFM I don't see anything inconsistent either. Leeraar Again I don't see anything inconsistent with what we wrote in the article and what I have said here. I have clearly stated that finance/economics isn't like the physical sciences but that you can apply the basic principles of the scientific metho...
by larryswedroe
Thu Nov 27, 2014 9:45 am
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: An alternative to alternative investments [QSPIX]

fyi
Would add that turnover might not be as high as one might think because of netting of positions. By that I mean let's say a stock would be a buy based on value factor but a sell based on momentum factor. The fund would net the two positions and not trade.
Larry
by larryswedroe
Thu Nov 27, 2014 9:34 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: An alternative to alternative investments [QSPIX]

oneleaf
Sorry don't know the answer to that one.
Larry
by larryswedroe
Wed Nov 26, 2014 10:56 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Why finance research is often wrong - the jelly bean pro

First let me say that IMO there is plenty of evidence supporting the existence of the premiums, as I have stated, both persistently and pervasively. If one wants for example read the paper Value and Momentum Everywhere http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2174501 If there are people wh...
by larryswedroe
Wed Nov 26, 2014 10:55 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: An alternative to alternative investments [QSPIX]

afan Why do you ignore the repeated statements about the past data on long short funds being irrelevant as they have nothing to do with this strategy as they are active and not passive funds? That's why it should be ignored. It's as I said like drawing conclusions about Vanguard index funds from act...
by larryswedroe
Wed Nov 26, 2014 7:54 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: An alternative to alternative investments [QSPIX]

Afan To repeat, you cannot use the real world experience of ACTIVE funds and come to conclusions about what a passive fund would have done, which is what you are doing. So we don't agree. I tried to make that clear. This fund is passive, not active. Second, I don't expect the fund to change strategy...
by larryswedroe
Wed Nov 26, 2014 3:44 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Why it's important to understand risks and have discipli

Leif That's fine, only suggest that you consider that if you don't tilt you have a big "bet" on beta. The Larry Portfolio is diversified by geography just as much as Total Market Portfolio and is more diversified by sources of returns than typical portfolio which are typically concentrated...
by larryswedroe
Wed Nov 26, 2014 3:27 pm
 
Forum: Investing - Theory, News & General
Topic: Why it's important to understand risks and have discipline
Replies: 11
Views: 1217

Re: An alternative to alternative investments [QSPIX]

Robert
Thanks for the analysis, what it shows is basically what I have stated that roughly you get about half the premiums from the long and half from the short side. Not surprising since the factors are long-short.
Larry
by larryswedroe
Wed Nov 26, 2014 2:48 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Why it's important to understand risks and have discipli

Professor
Completely agree that there is difference, this is what Knight talked about.
Larry
by larryswedroe
Wed Nov 26, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Why it's important to understand risks and have discipline
Replies: 11
Views: 1217

Re: "Two Key Lessons You Can Learn From Academic Research"

Methedras
Diversification across factors has the same logic as diversification across asset classes that you refer to rightly as that "free lunch"-- if you have factors that are truly unique/independent and have premiums
Larry
by larryswedroe
Wed Nov 26, 2014 2:39 pm
 
Forum: Investing - Theory, News & General
Topic: "Two Key Lessons You Can Learn From Academic Research"
Replies: 9
Views: 1307

Re: Why finance research is often wrong - the jelly bean pro

backpaper First of course I have nothing to do with DFA marketing material (:-)) I would add that the two top investment officers at DFA are scientists, Eduardo Repetto and Gerard O'Reilly. Second, there are physical sciences and social sciences, IMO finance, economics are social sciences and rightl...
by larryswedroe
Wed Nov 26, 2014 1:25 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Why finance research is often wrong - the jelly bean pro

Victoria I certainly agree with your last point about society. In fact I have had that very conversation with some of them----I understand why they might want to apply their skills to make money sufficient to have a good lifestyle and financial security, but once they have already won that game why ...
by larryswedroe
Wed Nov 26, 2014 1:00 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Why finance research is often wrong - the jelly bean pro

Protoganist
FWIW, as I said I know many physicists and other scientists and mathematicians who would disagree with your conclusions and those of Victoria. Which is fine, people can disagree.
Larry
by larryswedroe
Wed Nov 26, 2014 11:22 am
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: An alternative to alternative investments [QSPIX]

AFan IMO you are off base on some of these points First, long short strategies you refer to are almost all ACTIVE funds, based on individual's opinions. This fund has nothing to do with it as it is passively managed in sense it is implemented in transparent and systemic way so it can be replicated. ...
by larryswedroe
Wed Nov 26, 2014 9:57 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Why finance research is often wrong - the jelly bean pro

Hypothesis: Value stocks have a higher expected sharp ratio than the total market in any give year. Null-Hyopthesis: Value stocks do not have a higher expected sharp ratio than the total market in any give year. The question IMO should be do value stocks have a higher expected return, not higher Sh...
by larryswedroe
Wed Nov 26, 2014 9:35 am
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: An alternative to alternative investments [QSPIX]

Protagonist Those who focus solely on expenses miss out on superior vehicles IMO. The only time expenses should be ONLY consideration is when things being considered are commodities, like an S&P 500 fund. But yes one has to make judgments about what is sufficient evidence to justify investment s...
by larryswedroe
Tue Nov 25, 2014 8:21 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Why finance research is often wrong - the jelly bean pro

PJW I never attacked your personal judgment and sorry if you think I did and sorry if you think I deflected and I never mind discussions about issues as I hope I have demonstrated over the years. But I don't see any point in the discussing it further,. and as I noted I know physicists, other scienti...
by larryswedroe
Tue Nov 25, 2014 8:18 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Why finance research is often wrong - the jelly bean pro

FWIW, this argument is so off base. Just because investing isn't exact physical science doesn't mean the same tools and principles cannot be applied and add value in decision making. Of course one must be "humble" about the outputs, understanding that they are only the best estimates of wh...
by larryswedroe
Tue Nov 25, 2014 7:25 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: An alternative to alternative investments [QSPIX]

afan Sorry but there are no ways to obtain the exposures you get in this fund for 1/15 the price. You get beta and that's it for that price I was trying to show that you get more value than if you paid 1.5% for a long only fund. To me so many people are so focused on expenses that they cannot see va...
by larryswedroe
Tue Nov 25, 2014 7:22 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Small cap value premium

JoMoney Right, except if it's just stupidity or "behavioral" people will wise up sooner or later Not necessarily correct. One explanation is that there are investors who have a preference for positively skewed assets in spite of the lower expected returns. To them it's a rational preferenc...
by larryswedroe
Tue Nov 25, 2014 6:00 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: An alternative to alternative investments [QSPIX]

Few thoughts First, if you had a long only portfolio you would have $1,000 invested and have loading (or exposure to) of about one half of the factor and expense of 1.5% Here you have $,1000 of long exposure and $1,000 of short giving you a loading of 1 on the factor for the 1.5% expense. Clearly wh...
by larryswedroe
Tue Nov 25, 2014 5:57 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Why Alpha is getting more elusive

RandomWalker
Actually there are those individual investors who think the market is inefficient and make it inefficient, overpaying for these lottery type stocks, while limits to arbitrage, institutional constraints, and fear and costs of shorting allow the inefficiency to continue
Larry
by larryswedroe
Tue Nov 25, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3323

Re: why do individual investors buy overpriced stocks

great2beoutdoors First, these Lottery stocks or jackpots are all relatively small parts of market, so not going to have too much effect on TSM portfolio. Second, one of benefits of indexing is simplicity and no tracking error. Once you have exclusions you will have tracking error and have to explain...
by larryswedroe
Tue Nov 25, 2014 11:42 am
 
Forum: Investing - Theory, News & General
Topic: why do individual investors buy overpriced stocks
Replies: 5
Views: 887

Re: Small cap value premium

asif FWIW, IMO that is the biggest benefit of tilting, allowing one to cut potential dispersion of returns and because of the correlations you tend to cut the left tail risk more than the right tail. Reason being that in bad times high quality bonds tend to do well, but in good times they don't nece...
by larryswedroe
Tue Nov 25, 2014 10:47 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: why do individual investors buy overpriced stocks

Call me op
That is exactly the behavioral argument, people overpay for growth stocks persistently. And the biggest anomaly is small unprofitable companies

Larry
by larryswedroe
Tue Nov 25, 2014 10:44 am
 
Forum: Investing - Theory, News & General
Topic: why do individual investors buy overpriced stocks
Replies: 5
Views: 887

Re: Why Alpha is getting more elusive

simple AS I said IMO it's total garbage Correlations have both risen and fallen over the last two decades and yet alpha continues to shrink. And correlations are not really the important issue anyway as it's more about dispersion of returns and every year there are massive dispersions of returns amo...
by larryswedroe
Tue Nov 25, 2014 10:39 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3323

why do individual investors buy overpriced stocks

http://mutualfunds.com/expert-analysis/why-individual-investors-buy-overpriced-stocks-larry-swedroe/

Another example of the lottery ticket or jackpot effect at work, and example of market inefficiency that persists in small pockets of the market.
Larry
by larryswedroe
Tue Nov 25, 2014 9:27 am
 
Forum: Investing - Theory, News & General
Topic: why do individual investors buy overpriced stocks
Replies: 5
Views: 887

Re: Why Alpha is getting more elusive

simplegift IMO this doesn't make sense either. Higher rates don't drive greater dispersion necessarily. In fact the reverse might easily be the case. If real rates rising due to strong economy that reduces risks of doing business and dispersions might narrow (less risks of defaults,etc). Also if rat...
by larryswedroe
Tue Nov 25, 2014 9:18 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3323

Re: a look at the size premium and BtM

lazyday Sorry but I have no idea why that convention about 30% value, 40% core and 30% growth is used, but small and large and 50/50. As to your question on differences in HML. First the difference goes up and down, it's not constant. The difference greatly widened in late 90s in the growth bubble a...
by larryswedroe
Tue Nov 25, 2014 9:11 am
 
Forum: Investing - Theory, News & General
Topic: a look at the size premium and BtM
Replies: 5
Views: 682

Re: Small cap value premium

Lee I would not call the dot.com crash a demand "shock" though it obviously had some impact. The UE was 4% when the dot.com bubble burst in March and at year end it was 3.9. And by August of 2011 it was up, but only 1% to 4.9%. That's not much of a shock. Then the events of 911 provided a ...
by larryswedroe
Tue Nov 25, 2014 9:00 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: An alternative to alternative investments [QSPIX]

Robert/DaufuskieNate QPSIX has no net exposure to commodities. What it does have is long positions and offsetting short positions. So long positive momentum and short negative momentum. Long backwardation and short contango. Same type thing in currencies, where no net positions, but long high yieldi...
by larryswedroe
Tue Nov 25, 2014 8:49 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

Re: Small cap value premium

stlutz Few thoughts First I don't know anyone that would say the small value premium is certain if long enough horizon. I know I never said it, nor would, and Random Walker didn't say it. Second, I don't believe the second statement about value premium being larger in down markets is a correct state...
by larryswedroe
Mon Nov 24, 2014 11:13 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: Small cap value premium

Backpacker That idea that prices should have converged isn't correct because stocks migrate across asset classes. Just as it's true that much of the size premium comes from very few stocks that migrate to become large stocks, much of the value comes from stocks that migrate and become growth stocks....
by larryswedroe
Mon Nov 24, 2014 10:37 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: Small cap value premium

Lee IMO the research shows that value stocks are more at risk in bad times. Bad times doesn't mean negative returns to stocks. It means negative economic growth when unemployment rises. The dot.com bust wasn't a bad economic time. In most financial crisis (and/or demand type shocks) value premium ha...
by larryswedroe
Mon Nov 24, 2014 10:32 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: Why Alpha is getting more elusive

simplegift
IMO that idea of libor is correlation without any logic for causation. In fact, one might argue that say 2008 would be the best example of time when alpha or skill should have shown up, but it didn't.
Larry
by larryswedroe
Mon Nov 24, 2014 10:20 pm
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3323

Re: a look at the size premium and BtM

Blue
Yes, exactly right. The higher the t-stat the less likelihood it was a random outcome.

Larry
by larryswedroe
Mon Nov 24, 2014 10:18 pm
 
Forum: Investing - Theory, News & General
Topic: a look at the size premium and BtM
Replies: 5
Views: 682

Re: An alternative to alternative investments [QSPIX]

Random Personally if I had to choose one or the other I would choose this fund. Having said that currently own both. If you take from the equity allocation and buy QSPIX my expectation is about same returns but less vol, so higher SR and less downside risk. For those with moderate to high equity all...
by larryswedroe
Mon Nov 24, 2014 7:35 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 137
Views: 8862

a look at the size premium and BtM

http://www.etf.com/sections/index-investor-corner/23885-swedroe-book-to-market-a-size-premium.html?fullart=1&start=4

Thought this would be of interest, especially in light of the discussions on the size premium
Best wishes
Larry
by larryswedroe
Mon Nov 24, 2014 8:59 am
 
Forum: Investing - Theory, News & General
Topic: a look at the size premium and BtM
Replies: 5
Views: 682

Re: Why Alpha is getting more elusive

gips
Think the strategy is self evident, don't try to generate alpha.
Larry
by larryswedroe
Sat Nov 22, 2014 11:14 pm
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 28
Views: 3323

Re: interesting paper: facts and fantasies on factor investi

Some interesting things, like the value issue re US vs. Japan (but value premium exists in both countries) basically the same things discussed in the book Expected Returns by Illmanen and the Physics of Wall Street by Weatheral (two great books IMO). There are some unique factors or sources of retur...
by larryswedroe
Sat Nov 22, 2014 10:51 am
 
Forum: Investing - Theory, News & General
Topic: interesting paper: facts and fantasies on factor investing
Replies: 5
Views: 749

Re: why do investors buy overpriced stocks?

Lazy
Here is what I know. These stocks tend to get crushed in the bear markets. Then they tend to be the best performers when you get a sharp reversal. This is what I believe happened for example in March of 2009.
Larry
by larryswedroe
Sat Nov 22, 2014 8:05 am
 
Forum: Investing - Theory, News & General
Topic: why do investors buy overpriced stocks?
Replies: 4
Views: 871

Re: Why finance research is often wrong - the jelly bean pro

leerar Completely agree. Which is why for example when I discuss the outcomes of Monte Carlo Simulations I am very careful to explain that the outcomes are just ESTIMATES of the odds of success, not the true odds which we cannot know. It is based on our inputs which are based on the best information...
by larryswedroe
Sat Nov 22, 2014 8:04 am
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Small cap value premium

Rick I think you are really trying hard here. It's accepted in the language of finance that small value is an asset class within the broader equity asset class. It's not a strategy, but an asset class. A strategy would be to tilt to it or away from it. Now there we agree that tracking error risk is ...
by larryswedroe
Sat Nov 22, 2014 8:01 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: Why finance research is often wrong - the jelly bean pro

PJW Yes, it clearly has existed, that's fact, not opinion. Now one can decide if there is enough evidence to decide if it was just random outcome or not. But it has existed. You certainly can decide that there's not enough evidence to convince you that it's likely to persist. I believe there is. And...
by larryswedroe
Fri Nov 21, 2014 10:33 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Small cap value premium

Farmer I would be careful about any analysis with Vanguard small index fund when go way back because for much if not the majority of its life its benchmark was the R2K which was awful index to use (and why Vanguard eventually dropped it). The r2k underperforrmed the similar CRSP 6-10 index by about ...
by larryswedroe
Fri Nov 21, 2014 10:25 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

Re: Why finance research is often wrong - the jelly bean pro

Sorry PJW Have totally lost me. I have no clue what you think I chose to ignore There are plenty of academic papers which provide the explanations and the data for the factors to have premiums and their existence. If you don't find that compelling enough I don't know what else I can say. The rationa...
by larryswedroe
Fri Nov 21, 2014 7:54 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Why finance research is often wrong - the jelly bean pro

PJW here's the link http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2524547 AS to your other comments, I have confidence to invest because there is well documented in peer reviewed academic journals support for the premiums and that the evidence as I said is persistent and pervasive. And I know w...
by larryswedroe
Fri Nov 21, 2014 7:28 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 114
Views: 8334

Re: Small cap value premium

Rick
You're kidding right, small cap value stocks are not an asset class?
Larry
by larryswedroe
Fri Nov 21, 2014 7:23 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 140
Views: 9100

interesting paper: facts and fantasies on factor investing

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2524547 warning, pretty technical, Facts and Fantasies About Factor Investing Zélia Cazalet Lyxor Asset Management Thierry Roncalli Lyxor Asset Management October 31, 2014 Abstract: The capital asset pricing model (CAPM) developed by Sharpe (1964) ...
by larryswedroe
Fri Nov 21, 2014 6:54 pm
 
Forum: Investing - Theory, News & General
Topic: interesting paper: facts and fantasies on factor investing
Replies: 5
Views: 749
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