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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: 107
Views: 6722

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: 80
Views: 6241

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: 80
Views: 6241

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: 107
Views: 6722

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: 125
Views: 7618

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: 107
Views: 6722

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: 3243

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: 4
Views: 523

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: 125
Views: 7618

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: 4
Views: 523

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: 3243

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: 4
Views: 523

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: 3243

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: 608

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: 125
Views: 7618

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: 107
Views: 6722

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: 125
Views: 7618

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: 125
Views: 7618

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: 125
Views: 7618

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: 3243

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: 608

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: 107
Views: 6722

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: 608

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: 3243

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: 737

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: 864

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: 80
Views: 6241

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: 125
Views: 7618

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: 80
Views: 6241

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: 125
Views: 7618

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: 80
Views: 6241

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: 80
Views: 6241

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: 125
Views: 7618

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: 737

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: 80
Views: 6241

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: 125
Views: 7618

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: 125
Views: 7618

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: 125
Views: 7618

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: 864

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: 80
Views: 6241

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: 80
Views: 6241

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: 28
Views: 3243

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: 125
Views: 7618

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: 3492

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: 80
Views: 6241

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: 125
Views: 7618

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: 107
Views: 6722

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: 80
Views: 6241

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: 107
Views: 6722
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