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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: 12
Views: 1701

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: 683

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: 838

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: 58
Views: 5033

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: 80
Views: 5129

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: 58
Views: 5033

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: 80
Views: 5129

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: 58
Views: 5033

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: 58
Views: 5033

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: 80
Views: 5129

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: 683

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

Here's an interesting quote re the null hypothesis “Standard predictive regressions fail to reject the hypothesis that the party of the U.S. President, the weather in Manhattan, global warming, El Ni˜no, sunspots, or the conjunctions of the planets, are significantly related to anomaly performance.&...
by larryswedroe
Fri Nov 21, 2014 6:49 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

Re: Small cap value premium

Rick
Thanks for that example which makes my point exactly
There was 40 year period when S&P underperformed the 20 year Treasury yet NO ONE I know mentions that you might have to wait a lifetime to earn an ERP relative to long term Treasuries. So more than twice as along
Best wishes
Larry
by larryswedroe
Fri Nov 21, 2014 6:43 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

Re: Small cap value premium

Rick
Thanks for that example which makes my point exactly
There was 40 year period when S&P underperformed the 20 year Treasury yet NO ONE I know mentions that you might have to wait a lifetime to earn an ERP relative to long term Treasuries. So more than twice as along
Best wishes
Larry
by larryswedroe
Fri Nov 21, 2014 6:42 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

Re: Small cap value premium

rhusky That is exactly right. Whatever your allocation you have to be prepared for that. What I find interesting is that so many will point to a period where say small value underperforms and then make some "claim" and ignore the fact that beta premium has been at best no more persistent. ...
by larryswedroe
Fri Nov 21, 2014 6:01 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

why do investors buy overpriced stocks?

http://mutualfunds.com/expert-analysis/why-individual-investors-buy-overpriced-stocks-larry-swedroe/?preview=cb268e90-78d0-4abc-80ab-9d04e2217993 Jackpot effect at work again Hope you find it of interest Investors could greatly improve results simply by avoiding these "lottery tickets" wh...
by larryswedroe
Fri Nov 21, 2014 3:25 pm
 
Forum: Investing - Theory, News & General
Topic: why do investors buy overpriced stocks?
Replies: 4
Views: 838

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

Victoria My apologies if you felt it was that way, that certainly was not my intent Just was trying to point out that often people (not you specifically) can become too skeptical of ideas and then they believe nothing except what they already believe, you get confirmation bias coming into play. Also...
by larryswedroe
Fri Nov 21, 2014 3:18 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

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

frugal The data on small caps and value stocks extends now to 1926, and it exists around the globe though not as for long as periods. UK for example is back about 60 years. For some that will be enough. Others won't think so. Plus I would add that there are very good simple and logical risk-based ex...
by larryswedroe
Fri Nov 21, 2014 12:27 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

Re: Why Alpha is getting more elusive

Call Me Op Glad you enjoyed it. I don't think that effect is on the factors or betas. Quality of competition impacts alpha. Now factors can shrink in premium produced because of "oversupply" as more investors chase them. That certainly can happen. But nothing unique about that, beta (marke...
by larryswedroe
Fri Nov 21, 2014 10:48 am
 
Forum: Investing - Theory, News & General
Topic: Why Alpha is getting more elusive
Replies: 12
Views: 1701

Re: Small cap value premium

few things R2D2, my pleasure. Glad to be of help. It's unfortunate that our education system has so failed the public on such an important area. Most of us learn more about amoebas than investing and the latter knowledge in almost all cases will prove to be more important (and much of what we "...
by larryswedroe
Fri Nov 21, 2014 10:39 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

Re: Explaining muni bond spreads

SailingAway I don't have experience with Vanguard's bond desk so cannot answer, but my assumption/guess would be that likely at least can trust them but assume they aren't operating for free. So spreads will be there but not like if you went to typical broker. I used a different bond broker in past ...
by larryswedroe
Fri Nov 21, 2014 9:04 am
 
Forum: Investing - Theory, News & General
Topic: Explaining muni bond spreads
Replies: 40
Views: 3477

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

Caduceus Basically your view is that of an ACTIVE manager, it's judgment that determines whether something is "value " or not. The research on the other hand shows that you can define value using simple metrics of price to something, be it book, sales, earnings, cash flow, ebitda, etc. In ...
by larryswedroe
Fri Nov 21, 2014 8:57 am
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

Re: Small cap value premium

R2D2 Does Jack Bogle's remark about French data being too period dependent (i.e. if they had gone further back, the value premium goes away) concern you? Is he just wrong about that? Secondly, it looks like you're claiming: 1. Value beat growth over a certain period, and 2. Value *funds* and growth ...
by larryswedroe
Fri Nov 21, 2014 8:30 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

Re: An alternative to alternative investments [QSPIX]

Oneleaf All good points. I consider AQR fund passive because there are rules that are implemented in transparent, systematic, mechanistic way that is replicable. The trading costs are not as high as you would think because they aren't buyers of liquidity, using patient trading strategies. And yes on...
by larryswedroe
Thu Nov 20, 2014 8:14 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

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

Caduceus First, the way many academic papers get written is that the author(s) observes some managers or styles of investing that are generating "alpha", beating the market. So they try to identify the source of that outperformance. In Buffett's case (Graham and Dodd) he had made clear for...
by larryswedroe
Thu Nov 20, 2014 6:59 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

Re: An alternative to alternative investments [QSPIX]

Browser You can find if if it was beneficial by doing what you suggest. Look at return of old portfolio vs. new one with the new fund. But have to be careful about that, especially with very short period results like not just one year but a few. And don't want to make mistake of confusing strategy w...
by larryswedroe
Thu Nov 20, 2014 5:09 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

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

crake Almost all the studies on most factors look at only US data and one asset class, stocks. Thus you can have issues with data mining Thus to overcome that problem you look for factors where you have studies showing the same effects work across the globe and across asset classes. So very differen...
by larryswedroe
Thu Nov 20, 2014 1:20 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

Re: An alternative to alternative investments [QSPIX]

Runningrad If were going to do managed futures would want passive strategy. Meaning it's relying on the historical evidence, in this case for things like momentum and value and carry type strategies. Not people's opinions. Most managed futures are trend following, either relative or absolute momentu...
by larryswedroe
Thu Nov 20, 2014 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: An alternative to alternative investments [QSPIX]

dimdum
That's matter of perspective. And certainly the larger the size of the portfolio the more significant the 3% figure gets.
In my case I would say 3% is significant which is why I used that term.
Larry
by larryswedroe
Thu Nov 20, 2014 12:52 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: An alternative to alternative investments [QSPIX]

Nisiprius Good summary of the way I think about it. And I certainly understand the concern on expenses, was difficult "pill" for me to swallow, but in end I reminded myself of these two points which we can lose sight of a) in the end it's not about cost but value added b) millions of peopl...
by larryswedroe
Thu Nov 20, 2014 12:50 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: An alternative to alternative investments [QSPIX]

Browser That's a very personal question with no one right answer. I would say this, with a higher equity allocation I would suggest taking from the equity side. With a very low one already and given current real bond yields, I think it's fine to take a small allocation from the bond side. And of cou...
by larryswedroe
Thu Nov 20, 2014 11:45 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: An alternative to alternative investments [QSPIX]

Nisiprius It was for me anyway until the fund became available and it was way for me to diversify the sources of returns in the portfolio which IMO is a very good idea in general. In my case I used it lowering my bond allocation a bit, given the extremely low expected real returns---but not wanting ...
by larryswedroe
Thu Nov 20, 2014 11:03 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: An alternative to alternative investments [QSPIX]

Robert The leverage as I stated is expected to be in the range of 3-4. That gets you as you stated the 7% expected return Victoria As I said the fund is not actively managed in the ways that matter, or should, to an investor --there is no judgment on which stocks/asset classes to buy nor any on mark...
by larryswedroe
Thu Nov 20, 2014 9:17 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

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

Victoria Sorry but totally lost me. When you look say at momentum and it exists in US for say 80 years with a high tstat, then find the same evidence in EM, that is out of sample test with also statistical significance. That greatly lowers odds of it being lucky outcome. Now do the same thing in ano...
by larryswedroe
Wed Nov 19, 2014 5:20 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

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

Richard Now let's assume the data is found with a tstat of 2 for US stocks. Then you do the data for emerging market stocks and find the same thing. And then for developed markets and then for currencies and then for interest rates/bonds and then for commodities and all the data shows statistical si...
by larryswedroe
Wed Nov 19, 2014 4:32 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 58
Views: 5033

Re: Small cap value premium

JoMoney That is not correct. Investors could have bought the stocks that were truly value stocks or small value stocks. There just weren't index funds that did that over the time period Bogle looked at. But today there are and have been now for say 20 years. And we know the funds can replicate the i...
by larryswedroe
Wed Nov 19, 2014 4:29 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

Re: An alternative to alternative investments [QSPIX]

Browser yes I agree, don't invest in something you don't understand is something I have said for years. Having said that the explanations are there and it isn't all that complex and there is very good literature/papers on all of the premium. But it does take time to invest in understanding. If worki...
by larryswedroe
Wed Nov 19, 2014 4:27 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: Small cap value premium

Taylor
With all due respect to Saint Jack, and I mean that seriously, I have the greatest respect for him, but this is clear case of him simply making mistake in drawing the wrong conclusions. The data is not in question. Anyone can see it on Ken French's website.
Larry
by larryswedroe
Wed Nov 19, 2014 9:18 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

a detailed look at the carry trade

http://www.etf.com/sections/index-investor-corner/23857-swedroe-the-risks-of-carry-trade.html?fullart=1&start=4 Note that the carry trade is one of the factors/styles of the AQR multi-style fund, QSPIX, and this piece provides some of the evidence supporting it. Hope you find it helpful Larry
by larryswedroe
Wed Nov 19, 2014 8:13 am
 
Forum: Investing - Theory, News & General
Topic: a detailed look at the carry trade
Replies: 1
Views: 544

Re: Small cap value premium

Why people keep bringing up the Telltale Chart when it is completely incorrect in its conclusions is beyond by grasp. All it showed was that ACTIVE value managers did not outperform ACTIVE growth managers. It did not show what people think it shows that value stocks did not outperform growth stocks....
by larryswedroe
Wed Nov 19, 2014 8:10 am
 
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 80
Views: 5129

Re: An alternative to alternative investments [QSPIX]

alex That characterization is simply incorrect. Their holdings are as I described them. For example how people can easily misunderstand the fund, the fund has no exposure to stock market risk, no exposure to interest risk and no exposure to currency risk, as it is long short. They aren't bets as you...
by larryswedroe
Wed Nov 19, 2014 8:07 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: another look at private equity

tanelorn That paper makes the same nonsensical mistake of comparing PE to S&P when the companies are typically nothing like S&P large companies that are publicly traded and perfectly liquid. A much better benchmark IMO is publicly available small value companies and then adjust for leverage ...
by larryswedroe
Wed Nov 19, 2014 8:00 am
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1820

Re: another look at private equity

tanelorn
Lots of PE companies use lots of leverage. Swensen even noted this in his analysis of private equity.
Larry
by larryswedroe
Tue Nov 18, 2014 10:58 pm
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1820

Re: An alternative to alternative investments

Dad/friar AQR, like DFA, has business model that is directed at working with advisors not directly with retail investors. That's their decision. I personally have significant investment in the fund for the reasons explained in the piece, excellent diversifier of risks of both stocks and bonds--and d...
by larryswedroe
Tue Nov 18, 2014 3:55 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: another look at private equity

tanelorn
Leverage
by larryswedroe
Tue Nov 18, 2014 3:50 pm
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1820

Re: Joel Greenblatt: Market Cap weighted indexes not recomme

lazy
Haven't used it to look at international funds yet
Larry
by larryswedroe
Tue Nov 18, 2014 9:41 am
 
Forum: Investing - Theory, News & General
Topic: Joel Greenblatt: Market Cap weighted indexes not recommended
Replies: 15
Views: 2314

An alternative to alternative investments [QSPIX]

http://www.valuewalk.com/2014/11/aqrs-new-fund-adds-value-alternative-approach-alternatives/

An explanation of AQR's new multi-style premium fund, and how to use it
Hope you find it helpful
Larry
by larryswedroe
Tue Nov 18, 2014 9:14 am
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 77
Views: 4691

Re: Explaining muni bond spreads

Garland Vanguard deserves your trust. But there are clear advantages to separate account management if you have sufficient assets to diversify. All the principles you state about Vanguard are what you should demand from any money manager. And would add that there is very little in way of active mana...
by larryswedroe
Mon Nov 17, 2014 1:35 pm
 
Forum: Investing - Theory, News & General
Topic: Explaining muni bond spreads
Replies: 40
Views: 3477
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