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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: 2182

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: 2182

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: 1120

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: 1120

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: 1091

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: 2251

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: 2251

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: 551

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: 3171

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: 3171

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: 1377

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: 5268

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: 882

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: 82
Views: 6735

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: 1026

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: 82
Views: 6735

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: 5268

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: 843

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: 3077

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: 2991

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: 5268

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: 2366

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: 1139

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: 1139

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: 16582

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: 1418

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: 16582

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: 16582

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: 16582

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: 16582

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: 2869

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: 930

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: 930

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: 2027

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: 4390

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: 4390

Re: Risk Adjusted Return?

Unless we (or you) can come up with a better measure of risk than stdev, unfortunately, we don't have much choice. There are at least two choices 1) Realize that the enterprise is not helpful for forward looking purposes, such as choosing an asset allocation or choosing investments to use for your ...
by richard
Sun Jul 06, 2014 4:35 pm
 
Forum: Investing - Theory, News & General
Topic: Risk Adjusted Return?
Replies: 61
Views: 4390

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 quanti...
by richard
Sun Jul 06, 2014 3:56 pm
 
Forum: Investing - Theory, News & General
Topic: Risk Adjusted Return?
Replies: 61
Views: 4390

Re: Buffett 2-fund portfolio and 75/50

Investing is not physics. The type of statistical analysis you're running, while entertaining, is not likely to produce a market beating portfolio, such as your 75/50. Past performance is not a good indicator of future returns. Really. Among other things, there aren't enough data and there's no assu...
by richard
Sun Jul 06, 2014 2:56 pm
 
Forum: Investing - Help with Personal Investments
Topic: Buffett 2-fund portfolio and 75/50
Replies: 18
Views: 2574

The cost of chasing returns: around 2%/year

"The result shows that return-chasing behavior had a significant impact on the performance of return. The buy-and-hold strategy earned an average annual return of 5.6 percent in the sample period, while return-chasing behavior only realized 3.6 percent. In other words, chasing returns caused t...
by richard
Sun Jul 06, 2014 2:09 pm
 
Forum: Investing - Theory, News & General
Topic: The cost of chasing returns: around 2%/year
Replies: 18
Views: 2027

Re: Bond Distributions

1) It really depends on the numbers and the details of the bonds held and their distributions and price movements. 2) The SEC yield can be thought of as distributions adjusted for movements toward value at maturity, adjusted as you say for interim movements. If you want a more precise answer, google...
by richard
Sat Jul 05, 2014 3:47 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Distributions
Replies: 6
Views: 619

Re: Any Bogelheads get involved in private equity?

Can ask what do you think you will get out of private equity that you cannot get for less fees using equities and possibly some leverage? Private equity is not as efficient the market, therefore there is probably alpha available if you're a sharp operator. I'm not recommending it, just pointing out...
by richard
Sat Jul 05, 2014 3:40 pm
 
Forum: Investing - Theory, News & General
Topic: Any Bogleheads get involved in private equity?
Replies: 31
Views: 3300

Re: Bond Distributions

Distribution yield depends on current price and the distribution. SEC yield, which is essentially yield to maturity, also depends on the difference between the current price and the value at maturity. For example, if the current price of a bond is $110, eventually the bond will be worth $100 (the am...
by richard
Sat Jul 05, 2014 11:42 am
 
Forum: Investing - Theory, News & General
Topic: Bond Distributions
Replies: 6
Views: 619

Re: Merton: 401(k) retirement plans face crisis

<snip>The answer is simple: who is going guarantee payments from a retirement system which requires unlimited payments for an infinite period of time in investment markets which periodically have 50% or more volatility? Only entity I know of that can guarantee such risks is the US government which ...
by richard
Fri Jul 04, 2014 2:12 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16760

Re: Merton: 401(k) retirement plans face crisis

Some posts criticize the income focused approach saying it's hard to estimate retirement spending many years before retirement. While this is most likely true, how do you set a savings rate without some estimate of retirement income? If your answer is to use some rule of thumb (e.g., save 15% of inc...
by richard
Fri Jul 04, 2014 12:59 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16760

Re: Having Doubts About My 60/40 Allocation

Changes to your asset allocation should be made slowly. Changes to your asset allocation towards something that has gone up recently should be made very slowly. Changes to your asset allocation towards something that has hit a record high should be made very very very slowly. The possible exception ...
by richard
Fri Jul 04, 2014 7:00 am
 
Forum: Investing - Help with Personal Investments
Topic: Having Doubts About My 60/40 Allocation
Replies: 43
Views: 3071

Re: Alpo risk in retirement: Overblown?

So just say that and skip all the dog food nonsense. I agree it is nonsense. That's my point. But it's widely espoused. The problem of food insecurity and other poverty issues is very real and a serious problem for tens of millions of Americans. Look at the USDA report I linked earlier. Alpo is a c...
by richard
Thu Jul 03, 2014 2:31 pm
 
Forum: Investing - Theory, News & General
Topic: Alpo risk in retirement: Overblown?
Replies: 41
Views: 2337

Re: Retirement calculator?

These calculators are only as good as their ability to predict the future. Unfortunately, there's no way to know in advance if they are any good at that. This is true whether or not you pay. The uncertainty over big picture items such future returns and expenses most likely swamps any other relevant...
by richard
Thu Jul 03, 2014 2:22 pm
 
Forum: Personal Finance (Not Investing)
Topic: Retirement calculator?
Replies: 25
Views: 3832

Re: The Risk of Short-term Bond Funds

<snip>I do find it hard to accept that any bond fund or fixed income product is the only or best choice for every age, goal or risk tolerance. Maybe that is my blind spot :oops: Standard theory is that the market portfolio is appropriate for the representative investor and that, if you are meaningf...
by richard
Thu Jul 03, 2014 2:14 pm
 
Forum: Investing - Theory, News & General
Topic: The Risk of Short-term Bond Funds
Replies: 152
Views: 10128

Re: The Risk of Short-term Bond Funds

<snip>Isn't it advantageous to own more than one bond fund so one can balance (or tilt) the bond holdings among different funds with differeing duration and credit worthiness? If one fund is close to your desired duration and credit worthiness, there's no need to complicate things. If not, then you...
by richard
Thu Jul 03, 2014 2:13 pm
 
Forum: Investing - Theory, News & General
Topic: The Risk of Short-term Bond Funds
Replies: 152
Views: 10128
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