Bogleheads.org

Magician, I think it is very unlikely that any actual MPT calculation based on actual data would happen to come up with exactly 50.0000% and 50.0000%. As I think I recall, but haven't been able to find the source, he was quoted as saying "I knew that I ought to calculate the covariances but......

Markowitz on how to apply MPT: Dr. Markowitz first got to choose how to divide his assets between a stock fund and a bond fund not long after publishing his pioneering article "Portfolio Selection" in the prestigious Journal of Finance. Following his own breakthroughs, he should have made...

2. MPT treats both upside and downside volatility as risk and there is a bell-shaped curve that shows the mean variance - with standard deviations - each unit above or below the mean. But, real market returns aren’t symmetrical. Stock market crashes like 1987, 2000, 2008 are supposed to be outlier ...

Frengo wrote:
magician wrote:Are those supposed to be division signs? That would be distinctly odd.

It would and they are not.

Dashes, on the other hand, would make some sense.

Sorry! I thought that as a former rocket scientist you would have confused them with subtraction signs. :^p

. . . let's say something around 0.3 ÷ 0.6, while treasuries and IG corporate are more or less uncorrelated, let's say -0.1 ÷ 0.1 . . . . Are those supposed to be division signs? That would be distinctly odd. Dashes, on the other hand, would make some sense. (As a former rocket scientist, I like to...

pkcrafter wrote:
Frengo wrote:cash is bonds, and CD's are too.
Pie charts come out prettier in 3 colors and that's why some people separate them.

Bonds are not cash. There are three generally recognized distinct asset classes--stocks, bonds, cash.

Paul

Cash is just a zero-duration bond.

nisiprius wrote:OK, I revised it to 'defines the "best" proportions for mixing 1 and 2 (best by one criterion anyway).'

OK.

nisiprius wrote:I wondered whether I could wiggle enough just by putting the word best in quotes.

It was a valiant effort, I'll grant you.

nisiprius wrote:The line from the riskless asset that's tangent to the hyperbola defines the best proportions for mixing 1 and 2.

True if the highest Sharpe ratio is the proper measure of "best". That isn't universally true.

Nisiprius No, if you are negative cash say 5% and other collateral is 105% your total collateral is 100% and there is no leverage. I don't follow this. If you have $100 in T-bills to post as collateral you can go long, say, $200 in commodity futures (with a 50% margin). If you borrow $20, and buy $...

Browser wrote:PIMCO is investing in riskier collateral in order to boost returns, it's that simple. Is it leverage? Well, if it walks like leverage and it quacks like leverage....

I believe that you have this backwards: to get leverage you borrow money; when you buy TIPS you're lending money.

No, the DOW's not going to tank.

technovelist wrote:That depends on your definition of "market".

And on what form of efficiency you mean.

When I saw this posted on Analyst Forum my reaction was almost identical to yours:

Imagine my surprise.

Clearly_Irrational wrote:. . . does more of what I wanted which is to zig when stocks zag.

What, exactly, does this mean?

I'm not too concerned about this drop, as I expect the price to continue its decade-long rise If I held an asset class that had maintained abnormally high returns for the last decade, I would be concerned, not comforted. Mean reversion and all. Maybe the last decade is the start of the mean reversi...

To draw the conversation back toward OP's question, because the treasury is the only issuer, and it limits amounts, it's hard to see how a black market could arise. Yes, this is a situation where a black market could arise, but due to nontransferability of savings bonds, it's not feasible in practi...

To draw the conversation back toward OP's question, because the treasury is the only issuer, and it limits amounts, it's hard to see how a black market could arise. Yes, this is a situation where a black market could arise, but due to nontransferability of savings bonds, it's not feasible in practi...

Phineas J. Whoopee wrote:
magician wrote:As for your comment that for I-bonds there is no sensitivity to changes in interest rates, I disagree, but it's possibly a matter of semantics: there is a sensitivity: it happens to be zero.

Your statement is better than mine, and I'll gladly sign such a declaration.
PJW

LOL!

Clearly nisiprius and company do not like models. If you do not like models you should not use them. However duration is also a model so you should not use it either. Epsilon Delta, When you say duration, what do you mean? Do you mean modified duration? That's the sensitivity of the price of the se...

Six months is an awfully short period over which to be computing correlations of returns.

I didn't notice whether these are daily, weekly, or monthly returns; did I miss something? Knowing the frequency would be really useful, I believe.

Put me in the camp that finds the conflation of interest rate risk with credit risk to be more confusing than helpful. I will say, though, that duration would be less of an art and more of a science if funds would release confevexity information as well. Without that, unscrupulous managers can alwa...

Right now rates are about 2% which is a historic low, If rates go up to a normal rate of 5% a short term bond fund with a duration of about 3 will lose 9% of it's value, an intermediate fund with a duration of about 6 will lose 18% of it's value, and a long term bond fund with a duration of 20 will...

dbr wrote:Per the two replies immediately above the article was an obfuscation of what was really going on.

Apparently - according to the article - spreads widening or narrowing is abnormal.

Good to know. I'll write that down.

Scooter57 wrote:Well the important point to take away is not to count on duration too much as a predictor of fund behavior.

I believe that knowing why it's not a good predictor is an important point as well.

It's saying that duration is mainly applicable to bonds that track the treasuries closely. It's not saying that at all. It's saying that duration applies only when all yields change by the same amount, whether they track Treasuries closely or not. If you have a portfolio of Treasuries (which track ...

If you calculate the (modified or effective) duration of a bond fund/portfolio as the (market-value) weighted average of the durations of the constituent bonds, you will find that the percentage change in value will be: %ΔP = -Dur × Δyield only when two conditions are met: 1. The change in the yield...

Rick Ferri wrote:More risk = more return.

Would that this were true.

Here's a full discussion:

viewtopic.php?f=10&t=110012

This doesn't directly answer you question, but: (1) Why do you (or your friends) want to buy individual corporate bonds, rather than hold them in a diversified, low-cost mutual fund like Vanguard Intermediate-Term Investment-Grade Fund (VFICX)? (2) Why do you (or your friends) want to buy corporate...

Floating rate bonds.

A conversation like this goes nowhere unless there is a complete and self-consistent explanation of what one means when one used the word risk. Note this explanation is useless if it consists of nothing but votes for various different, incomplete, inconsistent, or irrelevant preferences for what on...

Neither of these transactions is arbitrage; arbitrage doesn't include words like "if", "when", and "until". Unless you can execute all of the transactions simultaneously and earn a profit with no risk, it isn't arbitrage. When you have optionality, you can use the occa...

Can you want to explain to the average layperson exactly how you accomplish the following with Savings Bond. 1. Sell back the optionality and duration to the market? 2. Pocket the "portable alpha"? We're looking for clearly defined actual actionable steps any Savings Bond investor can tak...

xiosen wrote:How do I build wealth?

Save.

In short the effective duration for a bond with an option is the Macaulay duration calculated on the payments that will happen if the option holder acts rationally. This cannot possibly be true: Macaulay duration cannot be negative, but there are bonds (e.g., IO strips) that have negative duration ...

Duration is not applicable to an I-Bond. Its value has no interest rate sensitivity. Thus, its (effective) duration is zero. It's applicable, it's just zero. See nisiprius' post, above. Try it another way. Look at the formula for Macaulay duration. http://upload.wikimedia.org/math/f/4/8/f48fa464dfe...

Call_Me_Op wrote:Duration is not applicable to an I-Bond. Its value has no interest rate sensitivity.

Thus, its (effective) duration is zero. It's applicable, it's just zero.

See nisiprius' post, above.

Sumflow wrote:
protagonist wrote:It's only 30 stocks. I don't get it.

Slight of hand.

That's sleight of hand . . . and that's supposed to be my line.

Off hand, does anyone know what percentage of the S&P500 market cap is Dow stocks? I suspect at least half? The combined market cap of the Dow 30 companies is about $4.25 trillion, while the combined value of the 500 companies in the S&P more than triples that figure to nearly $14 trillion....

According to Larry Swedroe, your default tolerance level should be the lowest of need, ability, and willingness. Good advice. Additionally, if those three levels differ considerably, you need to work to reconcile them: lower one that is too high or raise one that is too low. In your IPS, this recon...

Aay - You - Em. Similar to "CPA," except with different letters. Neither's an acronym. (Now: before LadyGeek steps in, I'll ask: how is this actionable?) Depends on your definition of acronym. See http://en.wikipedia.org/wiki/Acronym for more than you probably want to know. I'm using the ...

umfundi wrote:Uncorrelation is not necessarily great, if it's a loser.

I'm pretty sure that uncorrelation isn't even a real word.

Off hand, does anyone know what percentage of the S&P500 market cap is Dow stocks? I suspect at least half? The combined market cap of the Dow 30 companies is about $4.25 trillion, while the combined value of the 500 companies in the S&P more than triples that figure to nearly $14 trillion....

About the only thing worse than investing now is not investing now.

Epsilon Delta wrote:
magician wrote:
(Now: before LadyGeek steps in, I'll ask: how is this actionable?)

By pursing ones lips and ... .

Seriously, standard terminology aids communication . . .

I agree wholeheartedly.

Epsilon Delta wrote:. . . and pronunciation is part of this.

On a keyboard-driven chat forum?

. . . but arguing that capitalization-weighted is equally as bad as share price-weighted? I defy you to find anywhere I (or anyone else) said that cap-weighting is as bad as price-weighting. I, for one, merely said that each has its biases. However, now that you bring it up, cap-weighting can be eq...

Hmmm . . . let's see: invest your cash in asset-backed securities subject to prepayment risk (yeah, right!), extension risk, default risk, credit risk, . . . .

How could that not be, like, the smartest idea ever?

bottlecap wrote:Aay - You - Em.

Similar to "CPA," except with different letters.

Neither's an acronym.

(Now: before LadyGeek steps in, I'll ask: how is this actionable?)

When you buy stocks you are buying present and future cash flows. The market cap of a stock says a heck of a lot more about a companies present and future cash flows than the price of a stock. The price of a stock means almost nothing. Yes. Well, you're buying your share of future cash flows. The m...

Even worse than only having 30 stocks is that the Dow is price-weighted, which in my opinion, is not as good as market-weighted. Each has its flaws and biases. Why do you prefer the flaws and biases of a cap-weighted index to those of a price-weighted index? Because, for example, if a company like ...

Search found 1374 matches