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Re: Market not interested in inflation protection?

The Fed and other major central banks want to keep inflation low and have the power to do so (Volcker is probably the most familiar example). Recent history shows they are willing to endure slow growth, high unemployment and possible debt crises in order to pursue this goal. This might influence the...
by richard
Thu Jul 31, 2014 2:27 pm
 
Forum: Investing - Theory, News & General
Topic: Market not interested in inflation protection?
Replies: 32
Views: 1946

Re: Medicaid look-back

I suppose the question is whether the Federal five-year look-back provision applies to in-home care. I realize there are also state issues that have to be checked. I haven't found anything that says the five-year provision applies, but I haven't found anything that clearly says it doesn't. BTW, this...
by richard
Thu Jul 31, 2014 1:45 pm
 
Forum: Personal Finance (Not Investing)
Topic: Medicaid look-back
Replies: 5
Views: 391

Medicaid look-back

Does the Medicaid five-year look back on asset transfers apply only to nursing home eligibility or does it apply generally, including to home care eligibility?
by richard
Thu Jul 31, 2014 12:07 pm
 
Forum: Personal Finance (Not Investing)
Topic: Medicaid look-back
Replies: 5
Views: 391

Re: MOM faltering? [Momentum]

If risk is always rewarded if you're patient enough, then it's not really risk. I disagree. Define "patient enough" - if there is uncertainty in the required time holding then that is a risk in of itself. Secondly, being "patient" implies your investment is effectively illiquid ...
by richard
Thu Jul 31, 2014 9:09 am
 
Forum: Investing - Theory, News & General
Topic: MOM faltering? [Momentum]
Replies: 36
Views: 2014

Re: MOM faltering? [Momentum]

<>Do we believe that risk and reward in financial markets are positively correlated or negatively correlated over that long term.<> What's the underlying economic risk for MOM? The possibility of underperformance or loss does not really count as a risk, else everything would be a risk. The usual fo...
by richard
Thu Jul 31, 2014 6:48 am
 
Forum: Investing - Theory, News & General
Topic: MOM faltering? [Momentum]
Replies: 36
Views: 2014

PE10

Earlier this year and during much of last year, I’d taken the Cyclically Adjusted Price-Earnings ratio to task for various reasons, most notably the fact that it didn’t allow for accounting changes (GAAP losses are recorded differently), structural changes in our economy (are we all still farmers?)...
by richard
Wed Jul 30, 2014 10:54 am
 
Forum: Investing - Theory, News & General
Topic: PE10
Replies: 13
Views: 1149

Re: Help with a new $5m portfolio for an old lady

Is the portfolio all taxable? If so, you might consider munis rather than taxable bonds. If not, is it IRA or Roth?

Does the $100k in spending include taxes?
by richard
Tue Jul 29, 2014 5:43 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with a new $5m portfolio for an old lady
Replies: 59
Views: 4040

Re: Do Bogleheads Feel Wealthier?

The effect of wealth in spending has been the subject of much study. Here's a popular paper by Case, Quigley and Shiller: We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods durin...
by richard
Mon Jul 28, 2014 12:59 pm
 
Forum: Personal Finance (Not Investing)
Topic: Do Bogleheads Feel Wealthier?
Replies: 57
Views: 4453

Re: Make Income the Outcome

<snip>Whether or not a more conservative portfolio is the most appropriate way to ensure a desired income stream is still open to question. We actually know that if the wanted withdrawal rate is high enough and the portfolio too conservative, that the outcome is disaster. The problem is that we als...
by richard
Sat Jul 26, 2014 7:09 am
 
Forum: Investing - Theory, News & General
Topic: Make Income the Outcome
Replies: 49
Views: 3821

Re: Make Income the Outcome

<snip>But a problem with those income numbers is that they are projections that one keeps the status quo of contributions until full retirement age. The numbers do not show what one's income would be if they stopped contributing now. Perhaps because it would be too depressing. For social security, ...
by richard
Sat Jul 26, 2014 7:02 am
 
Forum: Investing - Theory, News & General
Topic: Make Income the Outcome
Replies: 49
Views: 3821

Re: How to interpret the bond news

Ignore the article. It's pure financial porn. Notice how the article does not actually quote any Fed officials. QE was supposed to have been suppressing interest rates. In fact, rates have been declining as QE is coming to an end. Fed remarks are very widely disseminated and analyzed. The market is ...
by richard
Fri Jul 25, 2014 10:09 am
 
Forum: Investing - Help with Personal Investments
Topic: How to interpret the bond news
Replies: 5
Views: 647

Re: Profiting from Unprofitable Companies

...We have 30 years of out of sample real-world performance of DFA's attempt at a fund using a single strategy that looked good over the historical back-testing, but the out-performance certainly wasn't persistent... Yes, precisely. I sure think that's a fair way to present it. Despite protests of ...
by richard
Fri Jul 25, 2014 8:33 am
 
Forum: Investing - Theory, News & General
Topic: Profiting from Unprofitable Companies
Replies: 15
Views: 1171

Re: Profiting from Unprofitable Companies

longinvest wrote:Jo, does the growth graph account for the DFA advisor fee?

It's a standard morningstar chart. It accounts for the funds' expense ratios, but not amounts paid to advisors.
by richard
Fri Jul 25, 2014 8:29 am
 
Forum: Investing - Theory, News & General
Topic: Profiting from Unprofitable Companies
Replies: 15
Views: 1171

Re: Can I use 30-YR rolling returns to Calculate ER dispersi

The statistical method you're using is appropriate if you're taking a sufficient number of samples from a single population. A textbook example is is repeatedly drawing red and blue balls from a barrel of red and blue balls (where the underlying mix does not change each time you take a sample). Alas...
by richard
Fri Jul 25, 2014 8:27 am
 
Forum: Investing - Theory, News & General
Topic: Can I use 30-YR rolling returns to Calculate ER dispersion?
Replies: 6
Views: 524

Re: Can it be wrong to be too risk averse?

thethinker wrote:Would you tell me please, what does MCS stand for?

Monte carlo simulation. Google the phrase if you want more info.
by richard
Tue Jul 22, 2014 11:42 am
 
Forum: Investing - Theory, News & General
Topic: Can it be wrong to be too risk averse?
Replies: 49
Views: 2330

Re: Can it be wrong to be too risk averse?

He is not very risk averse, he just doesn't know that 100% bonds are more riskier than 75% stocks and 25% bonds. If he is saving for retirement, and if he has a long investment horizon, why would he worry about temporary paper losses of the principal? Standard deviation is not identical to risk. Th...
by richard
Tue Jul 22, 2014 11:41 am
 
Forum: Investing - Theory, News & General
Topic: Can it be wrong to be too risk averse?
Replies: 49
Views: 2330

Re: If you are a winner before fees, why not lower the ER?

What am I missing? The part about fleecing investors for all they're worth? Sure, they could lower their prices, but as long as people are willing to pay them, why should they? A firm which is talented enough to beat the market might well be talented enough to figure out a business model, including...
by richard
Tue Jul 22, 2014 11:31 am
 
Forum: Investing - Theory, News & General
Topic: If you consistently outperform (pre-fees), why not lower ER?
Replies: 35
Views: 1144

Re: If you are a winner before fees, why not lower the ER?

A firm which is talented enough to beat the market might well be talented enough to figure out a business model, including fees, that maximizes profits. It might even have observed the effects of pricing on its profits - it's usually the case that not all funds run by a management company have the s...
by richard
Tue Jul 22, 2014 11:03 am
 
Forum: Investing - Theory, News & General
Topic: If you consistently outperform (pre-fees), why not lower ER?
Replies: 35
Views: 1144

Re: Bond funds- your percentage of intermediate vs. short-te

You might look at the average maturity or average duration of your portfolio rather than intermediate v. short term.

Why do you want to be shorter than intermediate?
by richard
Tue Jul 22, 2014 6:56 am
 
Forum: Investing - Help with Personal Investments
Topic: Bond funds- your percentage of intermediate vs. short-term?
Replies: 12
Views: 1134

Re: Social Security Taxes?

This is an interesting question because it alludes to the basic constitutional law question of the ability of the federal government to tax interest paid by the states. I seem to remember that there was a SCOTUS decision maybe 60 or 70 years ago that said that the Feds could not tax the interest th...
by richard
Sat Jul 19, 2014 9:01 pm
 
Forum: Personal Finance (Not Investing)
Topic: Social Security Taxes?
Replies: 26
Views: 2277

Re: Social Security Taxes?

You might want to estimate how much of your Social Security will be taxed and what the tax rate would be.
by richard
Sat Jul 19, 2014 1:33 pm
 
Forum: Personal Finance (Not Investing)
Topic: Social Security Taxes?
Replies: 26
Views: 2277

Re: TIPS if the US Dollar Tanks

Is the problem that your income is in US dollars and your spending is in another currency? TIPS adjust for US inflation. If there's increased inflation, they'd pay more. They won't, however, adjust to a fall in the dollar against your currency. You might buy some US stocks. A decline in the dollar w...
by richard
Fri Jul 18, 2014 5:50 am
 
Forum: Investing - Help with Personal Investments
Topic: TIPS if the US Dollar Tanks
Replies: 12
Views: 564

Re: Very high interest rate in other countries? How come?

<> However it has been likened to 'picking up nickels in front of bulldozers'- - you make money but every so often you slip and your investment in wiped out.<> This is an image that is well worth remembering for all investing. The problem is a few years of winning tends to make people forget about ...
by richard
Thu Jul 17, 2014 6:02 am
 
Forum: Investing - Theory, News & General
Topic: Very high interest rate in other countries? How come?
Replies: 44
Views: 3204

Re: Very high interest rate in other countries? How come?

Is there some kind of equation or calculation, to factor in the currency, inflation, etc to see what 2% US equals in these high rate currencies, or vice versa? Adjust by the (expected) change in exchange rates. If $1 USD equals 100 PKR this year, and is expected to be 108 PKR next year, then PKR ra...
by richard
Thu Jul 17, 2014 5:59 am
 
Forum: Investing - Theory, News & General
Topic: Very high interest rate in other countries? How come?
Replies: 44
Views: 3204

Small cap valuations "appear to be stretched"

The Fed says house prices are within historic norms, as measured by price-to-rent ratios. However stock market valuations for small firms, social media and biotechnology firms “appear to be stretched.” Meantime risk spreads on corporate bonds have reached all-time lows, a sign of over-valuation. ht...
by richard
Tue Jul 15, 2014 12:33 pm
 
Forum: Investing - Theory, News & General
Topic: Small cap valuations "appear to be stretched"
Replies: 11
Views: 1387

Re: Does anyone expect tilts to *under*perform?

Let me flip this around on you. Do you expect equities to underperform? The simple truth is that the equity risk premium is just that, a risk premium with evidence that the risk gets rewarded. Sometimes it does. Sometimes it does not. But over the long run its been a really good bet. What I fail to...
by richard
Tue Jul 15, 2014 8:18 am
 
Forum: Investing - Theory, News & General
Topic: Does anyone expect tilts to *under*perform?
Replies: 84
Views: 5320

Re: How do negative stock PEs affect index avg PE?

Add up all the earnings both pos and neg. Then divide by capitalization total over the earnings period. It's how you get occasional negative PE's for say the S&P like we had in 2008 Q4. For individual stocks negative PEs are usually not reported. That's not how everyone reports. Some, for examp...
by richard
Tue Jul 15, 2014 6:47 am
 
Forum: Investing - Theory, News & General
Topic: How do negative stock PEs affect index avg PE?
Replies: 8
Views: 901

Re: Larry: 20 Dollar Bills and Factor Persistence

OP, Is this your argument? Since factor SV premiums have been persistent, the market is inefficient? (Sorry, if I have misinterpreted.) If yes, then what about market premium? If market is efficient, are you suggesting the market premium should not be persistent because there's no free lunch? I am ...
by richard
Mon Jul 14, 2014 8:12 am
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 9423

Re: Authorized User on CC

I'm an authorized user on my Dad's cc. In the past, I used this power to resolve a fraudulent charge. IIRC, it entailed filling out some paperwork, that I had my Dad sign. Fast forward to today. My Dad inadvertently made a duplicate charge. As the merchant phone no. was long-distance, I emailed the...
by richard
Mon Jul 14, 2014 7:40 am
 
Forum: Personal Finance (Not Investing)
Topic: Authorized User on CC
Replies: 10
Views: 1030

Re: Larry: 20 Dollar Bills and Factor Persistence

OP, Is this your argument? Since factor SV premiums have been persistent, the market is inefficient? (Sorry, if I have misinterpreted.) If yes, then what about market premium? If market is efficient, are you suggesting the market premium should not be persistent because there's no free lunch? I am ...
by richard
Mon Jul 14, 2014 7:08 am
 
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 9423

Re: Does anyone expect tilts to *under*perform?

<>I read a paper once on the DFA site where Fama stated that over any 15 year period, tilting to value gives you an 85% chance of outperforming the market.<> Can you (or anyone) provide a link? Knowing the claimed magnitude would be good. If you outperform by a bit 85% of the time and underperform ...
by richard
Sun Jul 13, 2014 6:26 pm
 
Forum: Investing - Theory, News & General
Topic: Does anyone expect tilts to *under*perform?
Replies: 84
Views: 5320

Re: Travel Converters/Adapters

Some US extension cords have a 2-prong male plug, but the 2-prog female bits allow one to plug in a 3-prong male and have the ground just stick out exposed over the edge. I use this as a teaching example for Engineers about how people kill themselves with grounded equipment. Do not do this. Especia...
by richard
Sun Jul 13, 2014 9:55 am
 
Forum: Personal Consumer Issues
Topic: Travel Converters/Adapters
Replies: 11
Views: 878

Re: Safe withdrawal rate > 4% if no heirs & ok to deplete ca

Some of the 4% SWR studies deplete capital and some don't.

They are all rules of thumb, not anything that's close to guaranteed.
by richard
Sun Jul 13, 2014 9:47 am
 
Forum: Investing - Help with Personal Investments
Topic: Safe withdrawal rate > 4% if no heirs & ok to deplete captl?
Replies: 32
Views: 3091

Re: mom wants to "sell" me her condo for estate planning

Irrevocable trusts seem popular for this purpose. Avoids probate, starts the five-year Medicaid clock, preserves the step up in basis at death, allows her to live there rent free for life, etc.

No real downside except set up costs (primarily lawyers' fees), as I understand it.
by richard
Sun Jul 13, 2014 9:42 am
 
Forum: Personal Finance (Not Investing)
Topic: mom wants to "sell" me her condo for estate planning
Replies: 23
Views: 3001

Re: Does anyone expect tilts to *under*perform?

There are generally two explanations for why SV has outperformed over some time periods. 1) A risk story. If so, and if risk means anything, you'd expect there to be long periods of underperformance, perhaps very long and very severe underperformance. 2) A behavioral story. If so, no reason SV can't...
by richard
Sun Jul 13, 2014 9:35 am
 
Forum: Investing - Theory, News & General
Topic: Does anyone expect tilts to *under*perform?
Replies: 84
Views: 5320

Re: Imputed income (rent) Owner occupied houses.

What exactly are we supposed to do about this?

Instead of thinking I need $X of annual income from my portfolio to cover expenses, I should think I need $X plus my imputed rent of $Y, but $Y is covered by house, so I only need another $X from my portfolio?
by richard
Sat Jul 12, 2014 8:32 pm
 
Forum: Investing - Theory, News & General
Topic: Imputed income (rent) Owner occupied houses.
Replies: 21
Views: 2369

Re: Do TIPS protect against increases in Food and Energy.

If anything, excluding food and energy would increase CPI.
Image
by richard
Sat Jul 12, 2014 10:51 am
 
Forum: Investing - Theory, News & General
Topic: Do TIPS protect against increases in Food and Energy.
Replies: 6
Views: 1143

Re: Do TIPS protect against increases in Food and Energy.

Does a Liability Matching Portfolio consisting of TIPS protect against inflation from food and energy? I ask because I'm under the impression that "food and energy" are not taken into account when the government calculates inflation. As most of my basic expenses consist of food and energy...
by richard
Sat Jul 12, 2014 10:35 am
 
Forum: Investing - Theory, News & General
Topic: Do TIPS protect against increases in Food and Energy.
Replies: 6
Views: 1143

Re: a close look at value and momentum

Larry, It's likely that nothing is fully priced. I don't see correlations as being any less incorporated into pricing than anything else (or less subject to limits on arbitrage, etc. for that matter). BTW, the FF 3 factor model does not include a term for correlations, that is, a barbell can have th...
by richard
Fri Jul 11, 2014 12:20 pm
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 17332

Re: Tax Efficiency of Treasuries

If your state taxes are deductible on your federal return, you keep (1 - .06)(1 - .33) = .6298, not .61, in the tax deferred account. Long version. Pay .06 to state. Deduct. Pay federal tax on .94. Federal tax is .33 (.94) = .3102. Total tax is .06 + .3102 = .3702. You keep 1 - .3702 = .6298. The s...
by richard
Fri Jul 11, 2014 12:06 pm
 
Forum: Investing - Theory, News & General
Topic: Tax Efficiency of Treasuries
Replies: 19
Views: 1613

Re: a close look at value and momentum

<snip>I'm not sure that I understand what you wrote. Are you saying that accepting the market return, with no risk of underperforming , is making a bet? Whatever you do can be viewed as making a bet. The market should be the default portfolio because it is always efficient and is the only portfolio...
by richard
Fri Jul 11, 2014 11:17 am
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 17332

Re: a close look at value and momentum

Larry,

Do you believe the market is aware of the benefits of low correlating assets and takes that into account in setting prices?
by richard
Fri Jul 11, 2014 11:14 am
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 17332

Re: a close look at value and momentum

Robert, if by risk you mean "sometimes does badly" then it would seem everything is a risk. I'd think you need a genuine underlying economic risk to call something a risk factor and it's hard to see how MOM qualifies. It's not trivial to explain the risks small and value represent - in ear...
by richard
Fri Jul 11, 2014 8:30 am
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 17332

Re: a close look at value and momentum

Larry, If you believe the logical risk explanations for value and MOM, you're getting the hope of a higher return in exchange for increased risk. You have to believe the behavioral explanations in order to get something like a free lunch (dessert), which I'd imagine is what many value and MOM invest...
by richard
Fri Jul 11, 2014 8:25 am
 
Forum: Investing - Theory, News & General
Topic: a close look at value and momentum
Replies: 259
Views: 17332

Re: Toys for a Lazy Cat

Lots of info on why canned food is better than dry:
http://www.catforum.com/forum/38-health ... -diet.html

Summary: cats don't get enough water otherwise and they are obligate carnivores.
by richard
Wed Jul 09, 2014 7:53 am
 
Forum: Personal Consumer Issues
Topic: Toys for a Lazy Cat
Replies: 46
Views: 2924

Re: Asset bubble?

Article in today's NY Times on this topic: "Welcome to the Everything Boom, or Maybe the Everything Bubble", see: http://www.nytimes.com/2014/07/08/upshot/welcome-to-the-everything-boom-or-maybe-the-everything-bubble.html?ref=business&_r=0 That article starts with "In Spain, wher...
by richard
Tue Jul 08, 2014 11:36 am
 
Forum: Investing - Theory, News & General
Topic: Asset bubble?
Replies: 8
Views: 948

Re: Asset bubble?

It's hard to believe major central banks are investing massive amounts in listed equities. If nothing else, total world equity value is about $55 trillion, so $29 trillion would be more than half. Equity investments on this scale by central banks could not be kept quiet. Many countries do have sover...
by richard
Tue Jul 08, 2014 11:29 am
 
Forum: Investing - Theory, News & General
Topic: Asset bubble?
Replies: 8
Views: 948

Re: The cost of chasing returns: around 2%/year

placeholder wrote:
DonCamillo wrote:Theoretically, the purpose of rebalancing is to reduce risk, not increase returns.

No it's to maintain a consistent risk level.

It's important to remember that a constant asset allocation does not mean a constant level of risk, although it may be a reasonable proxy.
by richard
Mon Jul 07, 2014 8:17 am
 
Forum: Investing - Theory, News & General
Topic: The cost of chasing returns: around 2%/year
Replies: 18
Views: 2034

Re: Risk Adjusted Return?

2) If you nonetheless feel you must quantify, use a better measure of risk. There are numerous multi-factor models and models which tie returns to macro-economic factors. Some of the multi-factor models do a better job of explaining past returns than stdev (and it's friend, CAPM). The Fama-French t...
by richard
Mon Jul 07, 2014 8:07 am
 
Forum: Investing - Theory, News & General
Topic: Risk Adjusted Return?
Replies: 61
Views: 4614

Re: Risk Adjusted Return?

What are you trying to do? Standard deviation is not a very good measure of risk. It's simple and easy to calculate, but doesn't match well with more intuitive notions of risk, such as not having enough money when you need it or doing badly in bad times. Unfortunately, there isn't a very good quant...
by richard
Mon Jul 07, 2014 7:59 am
 
Forum: Investing - Theory, News & General
Topic: Risk Adjusted Return?
Replies: 61
Views: 4614
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