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Re: What's wrong with volatility if buy&hold

The US total stock market has gone up <35% since Andrew Lo claimed buy and hold does not work any more.

So, in fact, buy and hold has worked as well as it ever did.

Here's an old thread on Lo's claim:

http://www.bogleheads.org/forum/viewtop ... 10&t=91349
by tadamsmar
Thu Jan 29, 2015 1:24 pm
 
Forum: Investing - Theory, News & General
Topic: What's wrong with volatility if buy&hold
Replies: 52
Views: 3106

Re: What is your BMI?

This seems a good time to suggest the Portfolio Diet, a diversified allocation to proven cholesterol lowering strategies:

http://www.webmd.com/cholesterol-manage ... holesterol
by tadamsmar
Thu Jan 29, 2015 12:55 pm
 
Forum: Local Chapters and Bogleheads Community
Topic: What is your BMI?
Replies: 28
Views: 1662

Re: New car safety features

The difference in safety between different vehicles is smaller today than it was in the past. It made more sense to pay attention 40 years ago when older vehicles did not have airbags, or 20 years ago when older SUVs were far less crash worthy. Actually, if one is shopping for a used pre-2012 car t...
by tadamsmar
Wed Jan 28, 2015 8:48 am
 
Forum: Personal Consumer Issues
Topic: New car safety features
Replies: 70
Views: 3550

Re: New car safety features

This assumes that all accidents are of the head on collission type involving two accidents. Far from it. Larger SUVs have their own problems -- starting with first and foremost rollover. Safety stats seem to be changing to favor of SUVs: "The rollover risk in SUVs used to outweigh their size/w...
by tadamsmar
Wed Jan 28, 2015 8:35 am
 
Forum: Personal Consumer Issues
Topic: New car safety features
Replies: 70
Views: 3550

Re: What will happen to international stocks if a Euro break

Presently, international developed market index funds have about 61% in Europe, and total international has about 45%. With the warning shot fired by the Swiss, can the breakup of the Euro be far behind? What is likely to happen to European stocks if (when) this happens, and is it maybe a good idea...
by tadamsmar
Wed Jan 21, 2015 3:18 pm
 
Forum: Investing - Theory, News & General
Topic: What will happen to international stocks if a Euro breakup?
Replies: 23
Views: 1579

Re: RMD withdrawals.

On the theory that stocks go up more often than down, I take my RMDs early in the year. I just sold a mutual fund in my IRA and immediately bought the same fund in my taxable account with the same fund company. Why would the fact that stock go up more than down cause you to do it early in the year?...
by tadamsmar
Tue Jan 20, 2015 3:27 pm
 
Forum: Personal Finance (Not Investing)
Topic: RMD withdrawals.
Replies: 42
Views: 3030

Re: RMD withdrawals.

On the theory that stocks go up more often than down, I take my RMDs early in the year. I just sold a mutual fund in my IRA and immediately bought the same fund in my taxable account with the same fund company. Why would the fact that stock go up more than down cause you to do it early in the year?...
by tadamsmar
Tue Jan 20, 2015 1:16 pm
 
Forum: Personal Finance (Not Investing)
Topic: RMD withdrawals.
Replies: 42
Views: 3030

Re: RMD withdrawals.

On the theory that stocks go up more often than down, I take my RMDs early in the year. I just sold a mutual fund in my IRA and immediately bought the same fund in my taxable account with the same fund company. Why would the fact that stock go up more than down cause you to do it early in the year?...
by tadamsmar
Tue Jan 20, 2015 11:51 am
 
Forum: Personal Finance (Not Investing)
Topic: RMD withdrawals.
Replies: 42
Views: 3030

Re: Honda Civic vs Fit Safety Question

But, other features that help avoid an accident are also important e.g. braking distance, anti lock brakes, blind spot monitoring, 4 wheel drive, back up camera, etc. Also, an excellent child's car seat installed properly. I thought I installed the seats for my grand kids properly. Our town offered...
by tadamsmar
Tue Jan 20, 2015 10:43 am
 
Forum: Personal Consumer Issues
Topic: Honda Civic vs Fit Safety Question
Replies: 55
Views: 3331

Re: Honda Civic vs Fit Safety Question

I've never noticed any sort of analysis about this, and not sure how it'd be done. But I'd guess the most effective way to improve your safety is by your ongoing behavior. Drive less (easier than most people want to admit-- combine shopping trips, for example), avoid driving in bad weather and nigh...
by tadamsmar
Mon Jan 19, 2015 1:24 pm
 
Forum: Personal Consumer Issues
Topic: Honda Civic vs Fit Safety Question
Replies: 55
Views: 3331

Re: Can you make money betting on random coin flips?

It's my own, it's a work in process, and it could possibly be buggy. It's just for my personal use. Best check I have is that when I use the same data Portfolio Visualizer uses, I get the same curves Portfolio Visualizer displays. Yes, the risk-free rate matters but of course you scale that, too. R...
by tadamsmar
Mon Jan 19, 2015 11:10 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Honda Civic vs Fit Safety Question

So we plan on buying a new car, and the Civic and Fit are highest on our list of considered vehicles. I have always assumed the Civic would be a bigger and most likely safer car than the Fit. But the latest US News Ranking shows an exceptionally high rating for the Fit, slightly higher than the Civ...
by tadamsmar
Mon Jan 19, 2015 10:43 am
 
Forum: Personal Consumer Issues
Topic: Honda Civic vs Fit Safety Question
Replies: 55
Views: 3331

Re: Honda Civic vs Fit Safety Question

With respects to the weigh argument, the weight difference between a Fit and a Civic is about 200 pounds, or approximately the size of an adult male. I don't know many people who go around concerned that they crash into a vehicle with 4 adult passengers vs a vehicle with 3 adult passengers. Also, t...
by tadamsmar
Mon Jan 19, 2015 9:47 am
 
Forum: Personal Consumer Issues
Topic: Honda Civic vs Fit Safety Question
Replies: 55
Views: 3331

Re: Can you make money betting on random coin flips?

You are right, the stand deviations are 150% and 165%. I incorrectly used the sample s.d. but the population s.d. is the correct one to use. I think the pictures would be visually similar, but not exactly quantitatively the same. There a a couple changes are not just scaling: (1) using return instea...
by tadamsmar
Mon Jan 19, 2015 8:08 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Anti- Market Timers still seem to endorse market-timing?

Let's not say that the UNDERperformers will 100% of the time OUTperform in the future. Can we just say that there MAY be a HIGHER probability of OUTperforming in the future? Unfortunately, market timers are held to a high standard on this forum. One standard they are held to is that they must be co...
by tadamsmar
Fri Jan 16, 2015 2:23 pm
 
Forum: Investing - Theory, News & General
Topic: Anti- Market Timers still seem to endorse market-timing??
Replies: 22
Views: 2741

Re: Can you make money betting on random coin flips?

The tangency point is referred to as the Market Portfolio. It's the single most optimal portfolio of the of the risky assets, not including the risk-free asset. It can be considered optimal mutual fund. If you want a less risky portfolio then you buy the optimal mutual fund with some of your capital...
by tadamsmar
Thu Jan 15, 2015 2:40 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Burton Malkiel interview

Relatively Safe? Exxon,Johnson&Johnson,Wal-Mart,Mcdonalds,Dominion Resources,Proctor Gamble,Coca-Cola :happy He's talking about the dividend return. I believe he is cognizant of the fact that equity prices are likely to be more volatile than bond prices. So, in order to make dividend substituti...
by tadamsmar
Thu Jan 15, 2015 12:01 pm
 
Forum: Investing - Theory, News & General
Topic: Burton Malkiel interview
Replies: 12
Views: 1095

Re: Rick Ferri looking to internationalize his portfolio

The Ex-US index funds underperformed actively managed funds over long periods of times and throughout multiple cycles. I don't know why anyone would believe that this would change. Why would this be different in the next 20 years than the last 20 years? Yeah, Yeah. Why would anyone believe that dis...
by tadamsmar
Thu Jan 15, 2015 11:36 am
 
Forum: Investing - Theory, News & General
Topic: Rick Ferri looking to internationalize his portfolio
Replies: 228
Views: 25907

Re: Burton Malkiel interview

...I can't believe that an investor won't be better off with a substitution... Read more at http://www.philly.com/philly/blogs/inq-phillydeals/Random-Walk-Malkiel-on-bond-woes-stocks-and-ETFs-inside-Vanguard.html#gis2t3gFosYE22vv.99 Taken literally, that's an absurd statement. I guess you have to i...
by tadamsmar
Thu Jan 15, 2015 11:29 am
 
Forum: Investing - Theory, News & General
Topic: Burton Malkiel interview
Replies: 12
Views: 1095

Re: Burton Malkiel interview

"So I have suggested a couple of things. One is to (replace) at least a part of what would have been a regular bond portfolio, with a dividend substitution portfolio of buying relatively safe stocks" Very Interesting Thought . Just after that, he suggests a dividend or dividend growth fun...
by tadamsmar
Thu Jan 15, 2015 11:24 am
 
Forum: Investing - Theory, News & General
Topic: Burton Malkiel interview
Replies: 12
Views: 1095

Re: Can you make money betting on random coin flips?

OK, I propose a bet to you. we flip a fair coin repeatedly and you pay me $1000 on each head and pay you $1 for each tail. Since there is no doubt in your mind that I can't make money betting on a coin toss because it just a random binary outcome, you have nothing to lose by taking this bet. The OP...
by tadamsmar
Thu Jan 15, 2015 10:49 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

Yes, I think I will find what you think I will find, but it's fun to do it anyway. 1. Consider 2 risky assets: (1) a triple or nothing bet on a fair coin and (2) a simultaneous 3.3-ple or nothing bet on another fair coin. Do MPT for this. I think you get a normal-looking Markowitz Bullet and you wi...
by tadamsmar
Thu Jan 15, 2015 9:22 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

I like Nisiprius' charts but I do not understand them. Although I am neither a mathematician nor a statistician, there is no doubt in my mind that we cannot make money betting on coin toss. It's just a random binary outcome. Okay, if you're so sure, perhaps you would be willing to bet some serious ...
by tadamsmar
Wed Jan 14, 2015 8:03 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

I like Nisiprius' charts but I do not understand them. Although I am neither a mathematician nor a statistician, there is no doubt in my mind that we cannot make money betting on coin toss. It's just a random binary outcome. OK, I propose a bet to you. we flip a fair coin repeatedly and you pay me ...
by tadamsmar
Wed Jan 14, 2015 7:58 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

There is an easier way to show that MPT breaks down for risky bets. The CAL line goes on to infinity. That implies that there is no harm in leveraging up a much as you want. But, Kelly analysis shows that you can't leverage up as much as you want.
by tadamsmar
Wed Jan 14, 2015 3:46 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

That straight line based on the risk free rate is called the Capital Allocation Line or CAL. Now, I just don't see any parallels to any of this in the Kelly situation. We are already using a mix of ONE risky asset A, and the riskless asset, Not only is one riskless, it is also eqivalent to the risk-...
by tadamsmar
Wed Jan 14, 2015 3:30 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

Nisi, 1. Try setting the long bond rate and risk to be identical to the rate and return of the risk-free asset. The EF will become a straight line. (or just making the long bond SD = 0 will cause the EF to be a straight line) 2. Try plotting the risk and return with the same axes for the range of Ke...
by tadamsmar
Wed Jan 14, 2015 11:48 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

http://i1381.photobucket.com/albums/ah215/nisiprius/Image_zps36aa82d7.jpg You have 5 efficient frontiers (EFs) there. The EF with the lowest sd for long bond has the tangent line crossing at the left end of the efficient frontier. When you see an efficient frontier with no tangent line, it's becaus...
by tadamsmar
Wed Jan 14, 2015 11:37 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

In the OP, you put some money in the bet and some not in the bet. How does that relate to the efficient frontier? My interpretation is: All your money is your portfolio. Some is in the bet, that is one asset. Some is not in the bet, that is the other asset, I assume that is the risk-free asset. The ...
by tadamsmar
Wed Jan 14, 2015 8:54 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

If you want 2 assets, you could have the current 2:1 bet and a 5:2 bet or something like that. First you plot all the possible combination of the 2 assets and you should get a image that looks like usual Markowitz bullet assuming you plot a single bet on the usual axis. Each bet would allocate betwe...
by tadamsmar
Wed Jan 14, 2015 3:08 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

Or, if the plot of expectation of standard deviation of log of compound growth rate versus expectation of mean of log of compound growth rate--my plot--is some kind of efficient frontier, I don't know where you put the riskless asset dot so that you can draw a tangent line from it. If the riskless ...
by tadamsmar
Tue Jan 13, 2015 8:18 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

I am not sure where nisi can up with the idea that that plot was the efficient frontier. Let me give you my view of it. I think it's exactly the same as mine, which I tried to here . In particular, the MPT stuff as I understand it involves an mixture of three assets: two risky assets and a riskless...
by tadamsmar
Tue Jan 13, 2015 4:06 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

And that raises another question. If fractional Kelly is "just as good" as full Kelly, but more than full Kelly is "not as good" as Kelly, then there ought to be a number you can calculate that is a flat, level, constant number for a percentages-of-stake of 0 to 100% of the Kell...
by tadamsmar
Tue Jan 13, 2015 2:54 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

I am not sure where nisi can up with the idea that that plot was the efficient frontier. Let me give you my view of it. The Markowitz efficient frontier has return on the y axis and sd on the x axis both expressed as percentages of the starting portfolio value. No log transforms of either. I think t...
by tadamsmar
Tue Jan 13, 2015 2:16 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

"The Kelly portfolio does not necessarily lie on the efficient frontier in a mean-variance model (Thorp, 1971)." Which, hmm... I thought in that other paper he was saying that it did ... I looked Thorp 1971, but I don't think I fully understand it. Thorp says Kelly requires the entire joi...
by tadamsmar
Tue Jan 13, 2015 11:03 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

So, as I understand it, it is still fuzzy whether a utility function plays into the presumed optimality of the Kelly criterion, It's clear to me that it does. nor we can we escape it by saying "it optimizes utility for any sensible utility function." we can't. This seems so simple to me. ...
by tadamsmar
Tue Jan 13, 2015 10:52 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

And the better-ness somehow seems to involve some kind of more -ness, some kind of assertion that in the long run, eventually, 100% bettor is virtually certain to encounter some sequence of luck so bad that he will permanently fall behind the 50% bettor. At the moment, I don't "get" it ei...
by tadamsmar
Tue Jan 13, 2015 9:17 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

guymo wrote:Pr[lim inf (as n→∞) Xn > M] = 1.


What's the difference between:

Pr[lim inf (as n→∞) Xn > M] = 1

and:

lim inf (as n→∞) Xn > M

:?:
by tadamsmar
Tue Jan 13, 2015 9:09 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

Here is another quote from Kelly's paper: It is surely true that if the game were to be stopped after A'' bets the answer to this question would depend on the relative values (to the gambler) of being broke or possessing a fortune. If we compare the fates of two gamblers, however, playing a nonterm...
by tadamsmar
Tue Jan 13, 2015 8:38 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

If K is the Kelly bet. Given ε₁, ε₂ > 0 I can pick an N so that for all n > N if we have n trials the probability is > 1- ε₂ that the best possible bets are between K-ε₁ and K+ε₁ I could, if pushed, write a closed form formula for N in terms of ε₁, ε₂, p and b Hand waving a bit, but not much, the f...
by tadamsmar
Tue Jan 13, 2015 8:23 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

If K is the Kelly bet. Given ε₁, ε₂ > 0 I can pick an N so that for all n > N if we have n trials the probability is > 1- ε₂ that the best possible bets are between K-ε₁ and K+ε₁ I not following you here. If K is the Kelly bet as a fraction, the K is the best possible bet, period. If K is in dollar...
by tadamsmar
Tue Jan 13, 2015 8:10 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

I said this earlier but no one has commented on it. I am fairly certain that this is the "intuitive" reason why the strategy that maximizes log W (or growth rate) is perceived as better in some situations. Because the logarithm compresses the dynamic range of the outcomes, it reduces the ...
by tadamsmar
Mon Jan 12, 2015 4:03 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

In contrast, with the Kelly strategy, wealth grows indefinitely and any value you choose will eventually be met and exceeded for ever more. (That's Theorem 1(i)). With the Kelly strategy wealth never exceeds any value except zero for ever more. You are confusing wealth with statistical expectation.
by tadamsmar
Mon Jan 12, 2015 3:56 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

Hence the Kelly criterion is optimal with probability one. No utility function needed. Right, that was my understanding of the situation; thank you for the confirmation. Nevertheless log-utility keeps coming up in the discussion. Hmmm. guymo, where did you get that quote for Epsilon Delta? I wanted...
by tadamsmar
Mon Jan 12, 2015 2:11 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

Here is another quote from Kelly's paper: It is surely true that if the game were to be stopped after A'' bets the answer to this question would depend on the relative values (to the gambler) of being broke or possessing a fortune. If we compare the fates of two gamblers, however, playing a nontermi...
by tadamsmar
Mon Jan 12, 2015 12:05 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

This explains the ABC thing: https://en.wikipedia.org/wiki/Expected_utility_hypothesis In particular, the Axiom of Continuity. Log utility is the simplest utility function that follows from the assumption of relative risk aversion, so it tends to pervade economics as the plain vanilla option. We di...
by tadamsmar
Mon Jan 12, 2015 11:49 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

This explains the ABC thing: https://en.wikipedia.org/wiki/Expected_utility_hypothesis In particular, the Axiom of Continuity. Log utility is the simplest utility function that follows from the assumption of relative risk aversion, so it tends to pervade economics as the plain vanilla option. We dir...
by tadamsmar
Mon Jan 12, 2015 9:41 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

To avoid negative logarithms we don't go all the way to 100%; the highest value shown is for the case of betting 99.92%, and the mean payoff, i.e. the expectation after 100 flips, is something like $10^45. I get e^45 instead of 10^45 or thereabouts. The mean includes those superskew extreme blazing...
by tadamsmar
Sun Jan 11, 2015 6:22 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

The reason to optimize geometric mean, is that (1) it is easy to calculate and more importantly (2) it simultaneously optimizes a bunch of other important things including things that can be loosely described as "maximizing the probability of success" or "minimizing the probability o...
by tadamsmar
Sun Jan 11, 2015 10:55 am
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556

Re: Can you make money betting on random coin flips?

So, then... is all this saying (merely?) that the Kelly criterion puts an upper limit on how much you should bet... that below that limit, it is a matter of personal choice, you are using a "fractional Kelly strategy" and are on the efficient frontier, but not above it? (Perhaps there is ...
by tadamsmar
Sat Jan 10, 2015 2:54 pm
 
Forum: Investing - Theory, News & General
Topic: Can you make money betting on random coin flips?
Replies: 295
Views: 16556
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