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Why finance research is often wrong - the jelly bean problem

http://timharford.com/2014/11/finance-and-the-jelly-bean-problem/ has a good explanation for why finance reasearch is often wrong. Imagine a test that determines that a result is meaningful if there's less than a 1 in 20 chance that the results are due to chance and that you test 40 factors. The odd...
by richard
Wed Nov 19, 2014 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: Why finance research is often wrong - the jelly bean problem
Replies: 80
Views: 6310

Re: another look at private equity

The main point is that SOX compliance costs are not significant in this context. CEO motivation could well be a significant factor. PE owners may not be as forgiving as public company boards if things don't go as planned, although the rewards for success can be higher. The psychological research sh...
by richard
Wed Nov 19, 2014 7:07 am
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1857

Re: another look at private equity

A word of caution is warranted when it comes to implementing a strategic asset allocation to the private equity asset class with listed private equity. This is a macro-inconsistent investment policy. All listed private equity companies are part of the broad equity benchmarks. As a result, listed pr...
by richard
Wed Nov 19, 2014 7:03 am
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1857

Re: Apple Stores - do they try to be awful?

Apple stores have the highest sales per square foot of any retailer in the US. That's a good sign that people like to shop and buy in their stores.
by richard
Tue Nov 18, 2014 7:09 pm
 
Forum: Personal Consumer Issues
Topic: Apple Stores - do they try to be awful?
Replies: 41
Views: 2904

Re: another look at private equity

The main point is that SOX compliance costs are not significant in this context. CEO motivation could well be a significant factor. PE owners may not be as forgiving as public company boards if things don't go as planned, although the rewards for success can be higher.
by richard
Tue Nov 18, 2014 1:49 pm
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1857

Re: Jack Bogle: expect 7% annualized for the foreseeable fut

Vanguard's study of forecasting found e/p to be the most reliable method, explaining about 40% of the variation in ten year real returns. Using Shiller's ten year p/e was about as reliable. Current p/e is around 20x, so that implies a 5% real return. https://personal.vanguard.com/pdf/s338.pdf A stud...
by richard
Tue Nov 18, 2014 1:46 pm
 
Forum: Investing - Theory, News & General
Topic: Jack Bogle: expect 7% annualized for the foreseeable future
Replies: 42
Views: 6038

Re: Landlord wants us to sign an entirely new contract!

I wonder if the landlord would suggest an entirely new contract if the signed contract was in the landlord's favor rather than the tennant's.
by richard
Tue Nov 18, 2014 6:42 am
 
Forum: Personal Finance (Not Investing)
Topic: Landlord wants us to sign an entirely new contract!
Replies: 51
Views: 5836

Re: another look at private equity

With PE, the amount of activity and money that goes into M&A - in particular leveraged buyouts - far exceeds the money going into VC funding. The investment banks that orchestrate an LBO take on very little risk - they saddle the acquired company with the debt obligations of buying out the stoc...
by richard
Tue Nov 18, 2014 6:34 am
 
Forum: Investing - Theory, News & General
Topic: another look at private equity
Replies: 25
Views: 1857

Re: Global Growth and Expected Returns — Why So Low?

"Productivity growth remains by far the most significant driver of GDP growth" This is a tautology. You could as easily say GDP growth is the most significant driver of productivity. Inputs to production, including technology, labor and materials, would seem a better explanation. What was...
by richard
Fri Nov 14, 2014 10:25 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2564

Re: Global Growth and Expected Returns — Why So Low?

"Productivity growth remains by far the most significant driver of GDP growth" This is a tautology. You could as easily say GDP growth is the most significant driver of productivity. Inputs to production, including technology, labor and materials, would seem a better explanation. A full di...
by richard
Fri Nov 14, 2014 6:49 am
 
Forum: Investing - Theory, News & General
Topic: Global Growth and Expected Returns — Why So Low?
Replies: 35
Views: 2564

Re: astonishing performance of US markets vs others

The US has had better economic performance following the collapse of the housing bubble and financial crisis. The market may not have expected this. The market has now reacted, including seeing the policy responses. In other words market pricing already takes all we know into account. There's no goo...
by richard
Tue Nov 11, 2014 4:56 pm
 
Forum: Investing - Theory, News & General
Topic: astonishing performance of US markets vs others
Replies: 50
Views: 4963

Re: Savings rate of -2% for those under 35 - WSJ

Phineas J. Whoopee wrote:Yes, the most important thing is for all of us to stereotype one another's generations.

Kids today!

Get off my lawn!

Better now?

PJW

Probably not. It seems that too many are having too much fun attributing decadence to others so they can feel better.
by richard
Mon Nov 10, 2014 10:01 pm
 
Forum: Personal Finance (Not Investing)
Topic: Savings rate of -2% for those under 35 - WSJ
Replies: 69
Views: 4288

Re: Savings rate of -2% for those under 35 - WSJ

Americans who were under 35 in 1995—often labeled Generation X—earned wages that were 9% higher than today after adjusting for inflation.

This is not good, especially when combined with increasing student loan debt.
by richard
Mon Nov 10, 2014 9:56 pm
 
Forum: Personal Finance (Not Investing)
Topic: Savings rate of -2% for those under 35 - WSJ
Replies: 69
Views: 4288

Re: Great camera to take pics?

I'm not understanding the comparisons of Sony rx100s. An first-gen or ii is a completely different camera from an iii. I can see where some people might prefer an ii or iii (not quite clear why anybody would want a first-gen model), but the feature set is completely different. Features rarely make ...
by richard
Sun Nov 09, 2014 2:53 pm
 
Forum: Personal Consumer Issues
Topic: Great camera to take pics?
Replies: 44
Views: 4665

Re: 1276% toll admin fee from Dollar. 86% of rental cost

I believe it's a mistake to looks at these things as percentages (1276% and 86%). You should look at the number of dollars.

A 10,000% increase on a penny is not going to make a meaningful difference to many. A 5% increase on $100,00 is a notable amount of money.
by richard
Sun Nov 09, 2014 11:24 am
 
Forum: Personal Finance (Not Investing)
Topic: 1276% toll admin fee from Dollar.
Replies: 89
Views: 7274

Re: Supreme Court Blues

If you can afford insurance without subsidy, why would it matter? Health insurance existed before the ACA, it would continue to exist without it. Pricing could change. Who knows what else the Supreme Court might decide to do? They have essentially unfettered discretion. Even if there were to be an ...
by richard
Sat Nov 08, 2014 11:37 am
 
Forum: Personal Finance (Not Investing)
Topic: Supreme Court Blues
Replies: 34
Views: 2198

Re: 22, I want to be rich, looking for a high reward fund

The consumer solar energy market is an uneconomical boondogle driven by two things: government and regulation. OK, thats one thing. If the government pulls the rug out, all these companies are busted. Costs of solar power have been plummeting. Is this due to government and regulation? If so, it's a...
by richard
Sat Nov 08, 2014 7:38 am
 
Forum: Investing - Help with Personal Investments
Topic: 22, I want to be rich, looking for a high reward fund
Replies: 67
Views: 6161

Re: The Sky is Falling

Not that it matters as everyone here is diversified and buy/hold investors, but..... I told myself that next time we were in a crazy stock bubble, I would realize it. Now I look at the crazy IPO's going on with companies that have no earnings or chance of earnings for a long time raising millions. ...
by richard
Fri Nov 07, 2014 2:22 pm
 
Forum: Investing - Theory, News & General
Topic: The Sky is Falling
Replies: 36
Views: 5101

Re: investment lessons from QE

<>So what does all this mean to me as an average investor? Since economists and forecasts can't deliver reliable forecasts, the only safe route is to keep spending reined in, keep to my very conservative plan, and save more. This attitude doesn't help the economy much. :( Since total spending in an...
by richard
Fri Nov 07, 2014 1:02 pm
 
Forum: Investing - Theory, News & General
Topic: investment lessons from QE
Replies: 34
Views: 3104

Re: Why stay in intermediate term bonds?

I see no reason not to take some money out of bonds at the moment. Interest rates must go up from here, it is a certainty. In addition to the previous comments, it matters when they go up. You could easily earn enough in interest between now and a rate increase to more than make up for any lose of ...
by richard
Thu Nov 06, 2014 6:11 pm
 
Forum: Investing - Theory, News & General
Topic: Why stay in intermediate term bonds?
Replies: 38
Views: 3699

Re: Why stay in intermediate term bonds?

Tell me why I should? I know to stay the course and all that, but with the threat of rising rates and current low yields.. it is tempting to move to other strategies, such as unconstrained, total return, high yield, MLP, etc. Any statistics to prove this out would be of great help I've heard "...
by richard
Thu Nov 06, 2014 12:30 pm
 
Forum: Investing - Theory, News & General
Topic: Why stay in intermediate term bonds?
Replies: 38
Views: 3699

Re: investment lessons from QE

Does anyone believe that QE is over? I don't. Look at what the BOJ has started doing - buying stocks now in addition to bonds. Soon others will follow or watch their currencies rise and hurt their global competitiveness. Stay tuned - QE forever. Have we gone from "don't debase the currency&quo...
by richard
Wed Nov 05, 2014 2:14 pm
 
Forum: Investing - Theory, News & General
Topic: investment lessons from QE
Replies: 34
Views: 3104

Re: investment lessons from QE

Good article. It should be noted that the Keynesian economists, most publicly Paul Krugman, got it right. They vociferously argued that QE would not result in high interest rates or runaway inflation. Perhaps interestingly, those who got it wrong refuse to admit that there is any problem with their ...
by richard
Wed Nov 05, 2014 2:10 pm
 
Forum: Investing - Theory, News & General
Topic: investment lessons from QE
Replies: 34
Views: 3104

Re: iBonds at zero % fixed

We are in a deflationary mode right now - low overall inflation on a global developed basis right now. Until there is a sustained countercyclical spending mechanism instituted, it's going to be a slow grind. You can only save so much and I'd say we're in a pretty risky environment as it is. But tha...
by richard
Wed Nov 05, 2014 1:08 pm
 
Forum: Investing - Theory, News & General
Topic: iBonds at zero % fixed
Replies: 84
Views: 8955

Re: Christine Benz Interviews Bill Bernstein

Good point about most having nothing. What's changed is life expectancies. Life expectancy in 1936 when Roosevelt signed Soc Sec into law was 62. Now it's almost 20 years longer. We Bogleheads will be the most prepared for the retirement crisis...I just hope we're not penalized too badly for the re...
by richard
Wed Nov 05, 2014 5:52 am
 
Forum: Investing - Theory, News & General
Topic: Christine Benz Interviews Bill Bernstein
Replies: 33
Views: 3856

Re: Shiller PE10 - by the numbers

<>What exactly are these "high" PE10 ratios predicting? That I'm going to get nearly 8% return over the next 10-15 years? I'm not sure why these past episodes are supposed to make me scared of investing in stocks today... Even if 8% isn't the long-term average of 10%, it still sounds pret...
by richard
Tue Nov 04, 2014 5:27 am
 
Forum: Investing - Theory, News & General
Topic: Shiller PE10 - by the numbers
Replies: 26
Views: 2743

Re: canceled flight on AA: premium seat fee not refunded

Before i had elite status on AA, I ate plenty of seat upgrade fees changing my work flights (i paid for the upgrade myself, couldn't justify making work pay for it). Basically, at 6'8", if i can't book bulkhead or exit row, I don't take the flight. Now that I have status i don't have to worry ...
by richard
Wed Oct 29, 2014 6:57 pm
 
Forum: Personal Consumer Issues
Topic: canceled flight on AA: premium seat fee not refunded
Replies: 30
Views: 2319

Re: canceled flight on AA: premium seat fee not refunded

Is there any airline that will refund the premium seat fee if you cancel?
by richard
Wed Oct 29, 2014 6:52 pm
 
Forum: Personal Consumer Issues
Topic: canceled flight on AA: premium seat fee not refunded
Replies: 30
Views: 2319

Re: QE Ending, how does it affect Total Bond Fund?

If real interest rates increase, I will be delighted. I don't expect that though. There are a whole lot more borrowers than there are lenders, and zero real rates are apparently required to keep the borrowers afloat. Financial repression is not dead. Dale What borrowers really want is unexpected in...
by richard
Wed Oct 29, 2014 5:21 pm
 
Forum: Investing - Theory, News & General
Topic: QE Ending, how does it affect Total Bond Fund?
Replies: 8
Views: 1434

Re: QE Ending, how does it affect Total Bond Fund?

The market adjusted to the end of QE some time ago. Whether TBM increases or decreases in price will depend on what happens in the future. Generally markets only move on news, not things already known. Most likely yields will increase if the economy performs better than the market currently expects,...
by richard
Wed Oct 29, 2014 3:25 pm
 
Forum: Investing - Theory, News & General
Topic: QE Ending, how does it affect Total Bond Fund?
Replies: 8
Views: 1434

Re: How should we invest if interest rates never go up?

couple things, first ignore rate forecasts--100% of economists were wrong about rates this year and most have been wrong for many years. A group of economists surveyed by Bloomberg were all wrong. Many other economists got it right and have been consistently predicting low rates and low inflation f...
by richard
Wed Oct 29, 2014 10:45 am
 
Forum: Investing - Theory, News & General
Topic: How should we invest if interest rates never go up?
Replies: 17
Views: 1788

Re: A Backtest of the Dividend Growth Model, 1871-2010

Larry, I'm asking if there is any evidence that projecting returns with an accuracy of +/- 8% improves on starting out with some arbitrary model (e.g., save 15% of income) and adjusting based on whether you're on track. Is there any empirical work at all in this area (not evidence regarding the accu...
by richard
Tue Oct 28, 2014 12:21 pm
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4460

Re: If holding cash, do you want a Great Depression?

Those who held cash during the Weimar republic in Germany were in a Depression, and the cash didn't help them one bit. I remember a picture of a wheelbarrow full of Reichmarks, it took an entire wheelbarrow to purchase one loaf of bread. The root cause of that was vicious inflation, and it was not ...
by richard
Tue Oct 28, 2014 10:30 am
 
Forum: Investing - Theory, News & General
Topic: If holding cash, do you want a Great Depression?
Replies: 50
Views: 4062

Re: Fed Quantitative Easing

"The end of QE" which seems to be accepted as the simple turning off the spigot that has been dripping millions into a bucket now brimming with trillions, is truly old news and surely already priced into the market. But to me, it's those trillions that constitute the elephant in the room....
by richard
Tue Oct 28, 2014 9:43 am
 
Forum: Investing - Theory, News & General
Topic: Fed Quantitative Easing
Replies: 15
Views: 1210

Re: Fed Quantitative Easing

Larry has it exactly right. Available information is already priced in. The only way you can do better (other than by sheer luck) is to figure out exactly what the market anticipates, do a better job of forecasting and figure out how the market will react to what actually happens. Just doing a good ...
by richard
Tue Oct 28, 2014 8:46 am
 
Forum: Investing - Theory, News & General
Topic: Fed Quantitative Easing
Replies: 15
Views: 1210

Re: A Backtest of the Dividend Growth Model, 1871-2010

Richard Even in your example how do you know how much to adjust based on what return you need if you don't estimate returns? Impossible. You have to know how much to adjust. And I would add not 4% as that is too high today for a 65 year old because yields are lower and valuations higher. 3% is the ...
by richard
Tue Oct 28, 2014 8:41 am
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4460

Re: Who says a stock is either "value" or "growth"?

<>Current assets like inventories are held at cost, not salable value Fixed assets are subject to depreciation or amortisation (for intangibles) and therefore are reducing in value all the time Own brands (eg Coke, Disney) are not valued on the BS, only acquired brands. So much of the value of a co...
by richard
Tue Oct 28, 2014 6:21 am
 
Forum: Investing - Theory, News & General
Topic: Who says a stock is either "value" or "growth"?
Replies: 25
Views: 2124

Re: Do stocks have an intrinsic fundamental value?

<>Do you agree that stocks have an objective intrinsic value, or do you agree with the Efficient Market Theory, that the market is always accurate in incorporating all present infortmation? What do you mean by "objective intrinsic value"? Current efficient market theory is that the market...
by richard
Tue Oct 28, 2014 6:00 am
 
Forum: Investing - Theory, News & General
Topic: Do stocks have an intrinsic fundamental value?
Replies: 31
Views: 2137

Re: A Backtest of the Dividend Growth Model, 1871-2010

<>As to no value, there is simply no logical way to determine an AA without having expected returns. In fact without them there is no reason to invest in stocks period. And there is no way to determine the need to take risk.<> You could start at 50/50, then adjust based on risk aversion and needed ...
by richard
Tue Oct 28, 2014 5:47 am
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4460

Re: A Backtest of the Dividend Growth Model, 1871-2010

<> The problem: Using the historic average 140-year growth rate as the projected growth rate in effect gives your hypothetical historical investor a crystal ball. How would I, for example, go about figuring out the average growth rate for the US economy between now and 2150?<> This is a major probl...
by richard
Tue Oct 28, 2014 5:36 am
 
Forum: Investing - Theory, News & General
Topic: A Backtest of the Dividend Growth Model, 1871-2010
Replies: 70
Views: 4460

Re: If holding cash, do you want a Great Depression?

Why stop at a great depression? Consider the benefits of a major war or large scale disaster. If you survive, think of how much cheaper everything would be. I am sure you can work out why, if not then PM me. I will not reply to anything like that in this thread because otherwise this thread will be...
by richard
Mon Oct 27, 2014 5:48 pm
 
Forum: Investing - Theory, News & General
Topic: If holding cash, do you want a Great Depression?
Replies: 50
Views: 4062

Re: If holding cash, do you want a Great Depression?

Why stop at a great depression? Consider the benefits of a major war or large scale disaster. If you survive, think of how much cheaper everything would be.
by richard
Mon Oct 27, 2014 4:03 pm
 
Forum: Investing - Theory, News & General
Topic: If holding cash, do you want a Great Depression?
Replies: 50
Views: 4062

Re: One important role of advisers? - WSJ today

The article provides no data on the magnitude of sales or whether sales were due to panic rather than economic necessity. The evidence for panic selling is mostly of the form "I know people who panicked and sold". This is hardly reliable statistical methodology. It's important to remember ...
by richard
Mon Oct 27, 2014 2:08 pm
 
Forum: Investing - Theory, News & General
Topic: Bad Stock-Market Timing Fueled Wealth Disparity
Replies: 9
Views: 1125

Re: Yield Curve Investigations

I believe conventional wisdom is that the most recently auctioned treasuries (on the run) are used for consistent comparison to earlier yield curves (changing methodology would obviously hurt the ability to compare) and because they are regarded as more liquid than older treasuries. A side effect is...
by richard
Mon Oct 27, 2014 2:02 pm
 
Forum: Investing - Theory, News & General
Topic: Yield Curve Investigations
Replies: 71
Views: 6962

Re: Airline Ticket Price Differences

All of the major airlines and many travel sites offer guarantees that they have the lowest fares. Google "airline price guarantee." I therefore find it hard to believe that there's widespread price disparity, although there are some cases. The usual explanation is that there are different ...
by richard
Mon Oct 27, 2014 1:33 pm
 
Forum: Personal Consumer Issues
Topic: Airline Ticket Price Differences
Replies: 6
Views: 1044

Re: Bad Stock-Market Timing Fueled Wealth Disparity

It's not clear how much stock had been owned by those who sold. Given the concentrated nature of stock ownership in this country, it's possible those who sold didn't own much to begin with. The article acknowledges that we don't know the magnitude of the issue: "Wealth inequality in the U.S. ha...
by richard
Mon Oct 27, 2014 1:28 pm
 
Forum: Investing - Theory, News & General
Topic: Bad Stock-Market Timing Fueled Wealth Disparity
Replies: 9
Views: 1125

Re: What funds are negatively correlated with stocks?

Often people look for funds that are negatively correlated because they believe that they can construct a portfolio that will do better than the market portfolio - either higher return with the same risk or the same return with lower risk. If not, why are you looking for funds with negative correlat...
by richard
Mon Oct 27, 2014 4:26 am
 
Forum: Investing - Theory, News & General
Topic: What funds are negatively correlated with stocks?
Replies: 24
Views: 3020

Re: Who says a stock is either "value" or "growth"?

There have been empirical studies showing that companies with high "book to market" (btm) values outperform companies with low btm values. "Value" is shorthand for high btm and "growth" is shorthand for low btm. It is a continuum. Studies have shown that high btm compa...
by richard
Mon Oct 27, 2014 4:14 am
 
Forum: Investing - Theory, News & General
Topic: Who says a stock is either "value" or "growth"?
Replies: 25
Views: 2124

Re: Who says a stock is either "value" or "growth"?

Thanks for the replies everyone. I have read that small-cap value stocks have outperformed TSM ~2% over the last 100+ years; so does this mean that if you were to have invested in stocks w/a lower P/E or Price:book ratio compared to their peers that you would have done better than the TSM over this...
by richard
Mon Oct 27, 2014 4:07 am
 
Forum: Investing - Theory, News & General
Topic: Who says a stock is either "value" or "growth"?
Replies: 25
Views: 2124

Re: Google Docs

For my TaxAide group we maintain a series of folders in a Google Doc account with various content (IRS pubs, training doc etc.) that replicate automatically to all the PCs in the group (approximately 40). It is a good system once you learn how it work. If you're a member of a Google group then yes ...
by richard
Mon Oct 27, 2014 3:59 am
 
Forum: Personal Consumer Issues
Topic: Google Docs [to share a spreadsheet publicly]
Replies: 12
Views: 1550
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