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by Clearly_Irrational
Fri Feb 24, 2012 3:26 pm
Forum: Investing - Theory, News & General
Topic: Can somebody explain something to me?
Replies: 66
Views: 6105

Re: Can somebody explain something to me?

Two reasons: 1) Standard boglehead philosophy is to avoid trying to predict things as much as possible, so trying to figure out if the US is going to have problems is not really a topic of note. If you're truly worried, then the default response would be to make sure that the stock portion of your portfolio matches world market cap proportions rather than having a US tilt. 2) For me, it's because I understand modern monetary theory. The US government (a currency issuer) is not like a household or Greece (both currency users). Government debt in the US doesn't mean what you think it means. Strangely enough, for once politicians are doing what they should in a situation like this (consumer balance sheet recession) and making sure to have a la...
by Clearly_Irrational
Fri Feb 24, 2012 1:28 pm
Forum: Investing - Theory, News & General
Topic: CFP says 100% stock, wonders where "age in bonds" comes from
Replies: 85
Views: 6818

Re: CFP says 100% stock, wonders where "age in bonds" comes

staythecourse wrote:If you really think leverage and owing more money then you have if the worst happens is not an additional risk then I have nothing more to say.
Of course it's extra risk, but the position stated earlier was that maximum returns were wanted not maximum risk adjusted returns.
by Clearly_Irrational
Fri Feb 24, 2012 11:16 am
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

Problem: Real estate requires deep local knowledge, but diversification requires spreading out over multiple locations and sectors. The larger (multiple properties, but still basically individual) landlords I have known have all bought and owned property where they grew up or where they spent 10+ years. I'm sure it isn't always true, but seems to be a very strong tendency. The problem here is that this type of individual is committed to the location they know, and the community will succeed or fail without regard to the fact they've dug in there. Hazard a guess that the landlords here aren't from Detroit. (See also: survivor bias ) I think there is some truth to that, but no one said it was risk free. Those seem like issues it's possible t...
by Clearly_Irrational
Fri Feb 24, 2012 11:12 am
Forum: Investing - Theory, News & General
Topic: CFP says 100% stock, wonders where "age in bonds" comes from
Replies: 85
Views: 6818

Re: CFP says 100% stock, wonders where "age in bonds" comes

staythecourse wrote:All I am saying is there are different views to investing and somewhere MPT has taken over where folks are mixing up most efficient and aiming for the highest EXPECTED return. They are two different approaches. Neither is right or wrong.
Well if you have no consideration for risk whatsoever then stocks are the wrong place to be, you need to load up on options big time. 10:1 leverage baby and let it ride!
by Clearly_Irrational
Fri Feb 24, 2012 12:38 am
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:So suppose the global market of all investable assets satisfied the CAPM...well then the equity market by itself could not satisfy the CAPM because the assets which zig when equities zag (such as real estate, commodities, gold, fleets of tractors, inventories of chairs, etc) are not there to diversify the equities.
You appear to be conflating MPT with CAPM. CAPM doesn't require any zigging and zagging assets, it merely tells you how to price something if you know it's market sensitivity, the market expected return and the risk free interest rate.
by Clearly_Irrational
Fri Feb 24, 2012 12:13 am
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

Exactly, that's why using index funds to try to capture "risk factors" is complete and utter nonsense: -If the market is efficient then the price already reflects the book value and/or the relative size...so you don't need to tilt to small or value because you can pick out the riskier stocks from price volatility alone. -On the other hand if the FF regression coefficients are "risk factors" then there are better active strategies you could use to profit from it not being incorporated into the prices. In no case is it possible for there to be an efficient market with FF "risk factors". It's a logical impossibility. I'm not sure you understand the meaning of the word risk factor in this context. If you don't bel...
by Clearly_Irrational
Fri Feb 24, 2012 12:09 am
Forum: Investing - Theory, News & General
Topic: CFP says 100% stock, wonders where "age in bonds" comes from
Replies: 85
Views: 6818

Re: CFP says 100% stock, wonders where "age in bonds" comes

staythecourse wrote:Just remember MPT is about the best risk adjusted return, I.e. efficient. That is not every bodies goal. Some want the best shot at the highest possible return .
Right, but a pure stock portfolio isn't on the efficient frontier. The highest pure return since 1985 would have been a mix of emerging market and health care funds, but that's not risk adjusted. All the portfolios I can come up with that have the best risk adjusted returns contain bonds in addition to stocks at the very least.
by Clearly_Irrational
Thu Feb 23, 2012 11:57 pm
Forum: Investing - Theory, News & General
Topic: CFP says 100% stock, wonders where "age in bonds" comes from
Replies: 85
Views: 6818

Re: CFP says 100% stock, wonders where "age in bonds" comes

nisiprius wrote:Before 2008, I talked about the possibility of a 50% drop in the stock market, and to some extent I based my (very conservative) asset allocation on it. I did not expect to see it happen, no, not really, not in my lifetime. And I still amble along thinking, simultaneously, that it could happen again at any moment, and also that it can't possibly. Oh, sure, in theory, but, not really. Not again.
That's the stress test I use on my portfolio as well. There have been at least 10 crashes of that size in recent history. Anything bigger than that is tough to model because the circumstances would have to be so extreme.
by Clearly_Irrational
Thu Feb 23, 2012 11:52 pm
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

madbrain wrote:Demographics is certainly a good factor in favor of being a landlord. However people still move out of certain areas altogether en masse. You have to bet that your holdings are in the right location.
Quite true. I don't think that's a very hard bet though, large population changes take a long time. Barring end of the world scenarios of course (nuclear strike, bio-terrorism, zombie apocalypse etc.)
by Clearly_Irrational
Thu Feb 23, 2012 11:49 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:Value and small aren't risk stories either. If they were then you could use small capitalization and P/B as technical signals to sell before risk shocks propagated through to the price, thus, avoiding the losses.
That would only be true in a market that wasn't very efficient. In an efficient market the price would reflect that data too soon for you to take advantage of it. (barring insider trading) If you really believe in an inefficient market then indexing is not the right strategy.
by Clearly_Irrational
Thu Feb 23, 2012 11:28 pm
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

Right. Now imagine all the vacant shadow inventory gets gobbled up by investors, and they put all 2 million + properties up for rent. That won't change any of your costs. But it will surely drive rents down. That sounds like a big number but it only proportions out to 74 properties in my local area. The market here could absorb that no problem. However, if rents go down, so do investment property values, which means it's a good time for me to buy more properties. Yes, being a landlord has pains and risks but if were really as bad as some people make out then a lot fewer wealthy people would own rental property. As long as we have positive population growth and don't invent some disruptive new transportation technology I'm pretty happy with...
by Clearly_Irrational
Thu Feb 23, 2012 6:11 pm
Forum: Investing - Theory, News & General
Topic: CFP says 100% stock, wonders where "age in bonds" comes from
Replies: 85
Views: 6818

Re: CFP says 100% stock, wonders where "age in bonds" comes

staythecourse wrote:I was having more of an issue stating 100% equities with a long time horizon being unreasonable. In the OP situation either approach is reasonable... that is all I was trying to say.
Good luck.
Ok, I'll give, why would 100% equities be a good plan? Even if I wanted a beta of one or higher I wouldn't choose zero bonds.
by Clearly_Irrational
Thu Feb 23, 2012 5:50 pm
Forum: Personal Investments
Topic: Are ETFs really as bad as Cramer makes them out to be?
Replies: 6
Views: 1517

Re: Are ETFs really as bad as Cramer makes them out to be?

SSSS wrote:Do you know who Jim Cramer is?

I think they heavily sedated him for that video, but a quick look at his TV show should make it obvious whether he's worth listening to or not.
I actually learned quite a bit watching his show, you just have to realize that only the first half has any value, the second half is mostly just entertainment. Besides, Cramer is one of my market bottom indicators, if he throws in the towel you know it's time to buy since he's a perma bull and that means there is no one left to sell.
by Clearly_Irrational
Thu Feb 23, 2012 5:35 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

norookie wrote::D Well lets just think, outside the box of conventional BH's wisdom. What do people NEED, HCare, Energy, Utilities, ConsStaples(food), REITS(to a point), etc. Pick your poison, or sector if you're so inclined for a bet. SCV,.....that's another option.
I would argue that Small Cap Value is not a sector bet, it's a style bet. There is a difference, and in this case better evidence.
by Clearly_Irrational
Thu Feb 23, 2012 5:02 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

yobria wrote:Unfortunately with the Vanguard Small Growth fund we're looking at higher reward as well - the opposite of what the FF data shows. Believing in historical patterns that only half worked ex post takes a lot of faith.
True, now you have to decide whether that it is normal small sample variation consistent with the long term theory or if it breaks the model. FF doesn't show that small growth never does well, just that small value does better in comparison over the long term.
by Clearly_Irrational
Thu Feb 23, 2012 4:48 pm
Forum: Investing - Theory, News & General
Topic: CFP says 100% stock, wonders where "age in bonds" comes from
Replies: 85
Views: 6818

Re: CFP says 100% stock, wonders where "age in bonds" comes

Forget all of the other questions, just ask if he's ever heard of this little thing called Modern Portfolio Theory. Bottom line, even for people with high risk tolerance some level of bonds ownership is useful.
by Clearly_Irrational
Thu Feb 23, 2012 3:21 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

afan wrote:For example, when you have a higher turnover in VBR you are paying for every transaction- commissions, spreads, and market impact- not just taxes on the gains. So is it really worth it? As something to talk about, sure. As a real investment strategy? I wonder...
For the specific case of VBR, since inception we're looking at:

VBR 6.61% cagr, sharpe 0.26, volatility 27.2%
VTI 5.1% cagr, sharpe 0.20, volatility 21.9%

So at least during that time period, we're looking at higher reward but riskier just as predicted. Of course that's a small sample.
by Clearly_Irrational
Thu Feb 23, 2012 11:05 am
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

madbrain wrote:How is that a reasonable assumption ? The rent depends much more on supply and demand than on individual landlord's costs.
Sometimes businesses lose money.
Well, in fifteen years I've only lowered the rent once on one unit, and that was during the worst part of the crash, it was only $25 and it was just to get us to a better psychological number $975 instead of $1000. I agree that I'm definitely constrained by the market. I can't really raise it much over market rate, but that's usually not a problem.
by Clearly_Irrational
Thu Feb 23, 2012 11:00 am
Forum: Investing - Theory, News & General
Topic: Foreign equity allocation
Replies: 102
Views: 6610

Re: Foreign equity allocation

Using world market cap logic you're looking at a starting position of more like 30/70 and that seems like a very heavy international weighting Where are you getting that number? Has it ever been that skewed? Vanguard Total World Market currently stands at 46/54: http://portfolios.morningstar.com/fund/summary?t=VT&region=USA That said, it would not surprise me if the U.S. were one day only 30% of the global market. I wouldn't overweight it then either. I was looking here: http://www.bespokeinvest.com/thinkbig/2011/8/22/percentage-of-world-market-cap.html That was just the first number I found though, it could easily be something else. This one looks about the same: http://seekingalpha.com/article/194972-world-market-cap-at-46-8-trillion...
by Clearly_Irrational
Wed Feb 22, 2012 11:13 pm
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

ladders11 wrote:I agree. I see several chuckling comments here that imply landlords can just pass on costs to their tenants. This is not true. Rent is set by the market, and they can't charge more than comparable properties.

Should a landlord attempt to jack up rent because they've incurred expenses, the tenant can walk. If they even balk, the rational landlord concedes due to the turnover and vacancy costs.
Very true, but mostly this often acts in the reverse direction you're talking about. I notice that the market rate has gone up so I put another increase in the next lease. Nuisance raises are the way to go, after all who's going to want to move over $25 a month?
by Clearly_Irrational
Wed Feb 22, 2012 11:11 pm
Forum: Investing - Theory, News & General
Topic: Foreign equity allocation
Replies: 102
Views: 6610

Re: Foreign equity allocation

You both have pretty decent arguments. For me, I'm not sure whether foreign or domestic will do better so my default starts with 50/50 since the main reason I'm grabbing for foreign in the first place is that it's not perfectly correlated with domestic. Using world market cap logic you're looking at a starting position of more like 30/70 and that seems like a very heavy international weighting, basically you're predicting that international will outperform domestic. After all, you don't weight your stock/bond ratio on the size of the two markets do you?
by Clearly_Irrational
Wed Feb 22, 2012 9:11 pm
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

taurabora wrote:My rent has gone:

2008: 767
2009: 728
2010: 850
2011: 953
2012: 1200

It really is a crapshoot from year to year.
Did I mention how much I like being a landlord?
by Clearly_Irrational
Wed Feb 22, 2012 9:09 pm
Forum: Investing - Theory, News & General
Topic: REITs and Total Stock Market, 1971-2011
Replies: 31
Views: 6641

Re: REITs and Total Stock Market, 1971-2011

One alternative view would be that championed by Eric Falkenstein though, in which low volatility stocks (the aforementioned health care and utilities) actually have the unique capability for reward compared to high volatility reits (etc). Of course this view requires an extensive shift away from typical capm and sequels (fama, French) to embrace I don't think that requires you to give up on CAPM, MPT or FF. Sub-total market bets aren't as bogle-ish but I think they're still within the realm of rationality if you're choosing them based on the right criteria. In my opinion deliberately lowering your beta or volatility are still rational decisions within the modern framework. Obviously you're taking on sector risk which isn't something you'l...
by Clearly_Irrational
Wed Feb 22, 2012 7:52 pm
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

madbrain wrote:Only if you are renting a rent-controlled property. Otherwise, your rent can go up. Moving is an option, but it's possible for the rents in general to be up, and thus your costs are not really predictable.
I didn't mean to imply that they were stable, just reasonably predictable. As a renter you're not going to get a huge roof repair bill, have to pay to replace the old A/C system, deal with major plumbing costs, etc.
by Clearly_Irrational
Wed Feb 22, 2012 5:38 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

I'm losing track of this discussion increasingly, largely, I'm sure, because I know so little about investing. I thought the point of the FF model for investors was that it gives a more efficient way of diversifying a portfolio by balancing holdings in different risk classes in such a way as to minimize the risk of the portfolio as a whole. There would be no gain in increasing an investment in value stocks which increased both return and risk unless some of the risk could be diversified away by uncorrelated variability elsewhere in the portfolio. Is that a reasonable understanding? Basically it gives you a more complex view of risk types than the single axis model provided by CAPM (beta). You can then use that to do a variety of things, wh...
by Clearly_Irrational
Wed Feb 22, 2012 5:05 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

I'd advise one to use statistics' ugly cousin, game theory. :) I've got nothing against game theory, in fact I find it quite informative, but I'm not sure I see how you're going to use that to make the essential decisions that need to be made in order to setup a portfolio. Actually I devise statistical tests for a living and the reason investing interests me is because it's quite a challenge in this regard...so much so that one of my goals is to find a way to let the market devise tests for nonfinancial applications because I believe the market can do a better job at devising tests than academics or computers can (and if I'm wrong...well I can hedge against it so I win either way). If you mean predictions rather than tests then you might b...
by Clearly_Irrational
Wed Feb 22, 2012 4:13 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

Because it doesn't scale. That's the point. If someone loses $10,000 then $100,000 then $1,000,000 to you, do you think they're going to start laying off employees or getting a second mortgage so they can double down and lose more? That's not how the market works, although you wouldn't know it from studying the FF model. Well, it's pretty unlikely that you're trading with a single individual for 45,000 trades, but with the limited information you've provided I don't think there is any further intelligent discussion to be had on that subject. In order to believe in FF you need to accept that statistics has some value for analysing investments, then you need to find their particular analysis compelling and causal. If you don't accept that st...
by Clearly_Irrational
Wed Feb 22, 2012 3:42 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:The market is not a giant slot machine to be outsmarted by gamblers with statistical formulas...it's a means of trading with other investors who are often (but not always) at least as intelligent as we are.
Large numbers of participants of roughly equal capability exchanging standardized goods, sounds like a perfect case for statistical controls to me.
by Clearly_Irrational
Wed Feb 22, 2012 3:39 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:Uh, it took 45,000 trades just to get that $20,000 gain.
Ok, so if it scales then why not 450,000 trades or 4,500,000? Obviously you're not doing it by hand if it was 45,000 trades.
by Clearly_Irrational
Wed Feb 22, 2012 3:13 pm
Forum: Personal Investments
Topic: David Swensen portfolio vs PRPFX mutual fund
Replies: 13
Views: 2729

Re: David Swensen portfolio vs PRPFX mutual fund

FYI, I like the permanent portfolio concept since it's basically MPT using fundamental characteristics. I've incorporated some of the ideas into my own setup, for example using riskier components in the context of a safer overall portfolio.
by Clearly_Irrational
Wed Feb 22, 2012 3:10 pm
Forum: Investing - Theory, News & General
Topic: REITs and Total Stock Market, 1971-2011
Replies: 31
Views: 6641

Re: REITs and Total Stock Market, 1971-2011

REITs are basically a sector play. There are a number of problems with them, but for me the worst is that in order for your bet to have much value it really needs to be at least 10% of your portfolio and for me that would be 20% of my risk asset allocation which is way too heavy of a bet on a single sector. If you really must make a sector bet (and you shouldn't) why not bet on Health Care which has crushed total market returns on a risk adjusted basis for at least 27 years? (stats below) Do you really believe given US demographics that real estate is going to outperform health care over the next forty years or so? Health Care CAGR 13.16 STDEV 18.28 SHARPE 0.73 SORTINO 1.64 US Stock Market CAGR 7.06 STDEV 17.61 SHARPE 0.42 SORTINO 0.41 REIT...
by Clearly_Irrational
Wed Feb 22, 2012 2:50 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:Because I believe arbitrage opportunities are limited by dollar amount, not percentage gains. What I do with $500 can't be done with $50,000 due to market impact, which is another problem with models like FF and CAPM...they ignore market impact (although cap weighting is immune to it).

So I take whatever $100 bills I find laying on the pavement and I invest the rest in the market portfolio of stocks, bonds, commodities, real estate, etc. This is the endowment model for investing.
A fair answer, possibly even true. Must be some pretty specific opportunities if you can't roll them out into several hundred parallel trades.
by Clearly_Irrational
Wed Feb 22, 2012 2:37 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:BTW 0.3% of my portfolio is up 40,000% YTD and no I'm not telling you what it is...we can talk about the other 99% of my portfolio which I invest like a Boglehead.
So if you believe you can outperform consistently why are you wasting capital on a Boglehead strategy? If you don't think you can outperform consistently, why are you lowering your long term returns by trying to beat the market?
by Clearly_Irrational
Wed Feb 22, 2012 2:26 pm
Forum: Personal Investments
Topic: David Swensen portfolio vs PRPFX mutual fund
Replies: 13
Views: 2729

Re: David Swensen portfolio vs PRPFX mutual fund

1) Either has some merits, Swensen's tends to be more risky so it generally returns higher returns.
2) If you're comfortable betting your entire future on black, why not just go to Vegas?
3) Munis can be appropriate, just calculate their yield on an after-tax basis to do a proper comparison with other bond types.
Momus wrote:I want a really simple portfolio that gives above average return, without having to monitor it all the time AND that does not give crazy fluctuation.
Don't we all?

A) Define simple
B) Define above average return
C) Define all the time
D) Define crazy fluctuation
by Clearly_Irrational
Wed Feb 22, 2012 1:34 pm
Forum: Investing - Theory, News & General
Topic: New American Dream is renting to get rich - Reuters
Replies: 162
Views: 13474

Re: New American Dream is renting to get rich - Reuters

YDNAL wrote:I nearly fell off my chair because I couldn't stop laughing about this. :lol:
I mostly agree, the one nice thing about being a renter is that your costs are very predictable.
by Clearly_Irrational
Wed Feb 22, 2012 12:21 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

Or how about small growth stocks? I'm up almost 50% YTD real money on them too (even though the FF model says they should underperform SCV). I don't believe you. Vanguard's small cap growth (VBK) is up about 12% YTD. Either you are using Beardstown Ladies calculations or you are lying. Either way, if you are going to claim such large gains you need to post your trades real time so you have some credibility. Care to share your portfolio? Well, in theory he could be: A) Using a different index that is more growth weighted B) Using leverage C) Using options instead of stocks Still 50% YTD is big money, the real question is did he take on extra risk to do that? There are plenty of trading strategies that could generate those kinds of returns a...
by Clearly_Irrational
Wed Feb 22, 2012 12:10 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:Or are you referring to the fact that since variance (from which beta is derived) only captures the second moment of the price evolution you need something else to capture the higher moments? This is a good point, but the higher moments can obviously be derived from the prices alone...you don't need alternative measures like book value or market capitalization. Also, I believe it can be proven that these higher moments must disappear or else there will be arbitrage opportunities...so if we believe there are no arbitrage opportunities ex ante then variance should also be sufficient ex ante.
Wait, so you're suggesting that in the long run all skew and kurtosis will be arbitraged away?
by Clearly_Irrational
Wed Feb 22, 2012 11:52 am
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

Mortgasm wrote:There is a vocal bunch on this board that accept the beta explanation of risk but not the other two. I find it perplexing that one could be confident of the one, but outright reject the others.
Although I buy into the three factor model I could see how someone might think that the small and value stories are not risk factors. An argument could be made that they are existent but will disappear with arbitrage over time. I personally don't think the evidence supports that conclusion but I don't think it's a spurious argument.
by Clearly_Irrational
Wed Feb 22, 2012 11:13 am
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

moproblems wrote:If we focus more on refuting the latter it's only because we're responding to your arguments which focus on advocating the latter, but AFAIK, those who reject the "evidence" reject it, by and large, only because we consider all such evidence inadequate compared to forward looking measures like fundamentals or strategy based on present realities.
So you believe fundamental analysis is a reliable predictive strategy? That's a very un-bogle-ish position.

Personally I don't think fundamentals work well for selection, but they can be useful for confirmation, as a safety check for something you've already decided.
by Clearly_Irrational
Wed Feb 22, 2012 11:07 am
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

yobria wrote:I agree, this is in no way consistent with the regression. Is it consistent with common sense however.
That would depend on the quality and amount of data you found as well as why the bald CEOs were outperforming. If it were merely an observation (casual not causal) then of course you would want to ignore this, but if there were a long term relationship that was unlikely to change despite others finding out about it that would be a different story all-together. (perhaps bald CEOs are more intelligent due to their brain's better capacity to radiate heat?)
by Clearly_Irrational
Tue Feb 21, 2012 8:23 pm
Forum: Investing - Theory, News & General
Topic: Foreign equity allocation
Replies: 102
Views: 6610

Re: Foreign equity allocation

Noobvestor wrote:Right, but that doesn't change my suggested approach: start with global market weights then tilt based on other factors like currency.
Interesting logic, but it leads you to strange places. For example the global portfolio has a 2:1 bond to stock ratio and 9:1 derivatives to regular securities, do you hold those?
by Clearly_Irrational
Tue Feb 21, 2012 6:05 pm
Forum: Investing - Theory, News & General
Topic: Foreign equity allocation
Replies: 102
Views: 6610

Re: Foreign equity allocation

It's not a rabbit hole. Ah, I think you missed what I was trying to say. Overall what I meant was that trying to pick individual winner and loser countries is about as effective as picking individual winner and loser stocks. Perhaps not completely impossible but for the most part less effective than indexing. it's one of the two or three biggest contemporary developed economies in the world. At one point, it had a higher market cap than the US. It isn't some crazy exception, it's an illustration of a possible scenario that can't be ignored. Look, if we were talking about Greece or Argentina or something, I'd understand, but this is Japan - during the 80s it was widely believed they may will be the world superpower by this point. I remember...
by Clearly_Irrational
Tue Feb 21, 2012 3:37 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

yobria wrote:Depends, a 100% domestic strategy for a Japanese investor over the last couple of decades was a lousy idea, discipline aside. If you're going to follow your strategy faithfully, make sure it's well diversified.
Well, you do have to find the strategy that makes sense to you before you "stick with it". That was mentioned though. Of course that's also no protection against picking a strategy that makes sense to you but doesn't actually work.
by Clearly_Irrational
Tue Feb 21, 2012 2:49 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

grap0013 wrote:Dicipline is key to any investing strategy. Find a plan that makes the most sense to you and stay the course!
What he said.
by Clearly_Irrational
Tue Feb 21, 2012 1:38 pm
Forum: Investing - Theory, News & General
Topic: Foreign equity allocation
Replies: 102
Views: 6610

Re: Foreign equity allocation

I assume you tilt toward Canada and Western Europe? And avoid emerging markets? And how do you, while I'm asking everyone, account for the 'economically free' bright-green Japan returning just about nothing over the last 25 years? The problem is that when you start going that direction there is no bottom to the rabbit hole, which is why I don't do it. The methodology isn't perfect and that single piece of data would only be a starting point for that sort of analysis. I think the concept is good overall though, traditionally free people have always been more productive than slaves or serfs. If you want to get nit-picky then I'd say that members of an index can under-perform the index as a whole, that doesn't necessarily make it a bad index....
by Clearly_Irrational
Tue Feb 21, 2012 1:23 pm
Forum: Forum Issues and Administration
Topic: Suggestion for a New Forum
Replies: 21
Views: 3042

Re: Suggestion for a New Forum

The Wizard wrote:but New Split Pea Soup Recipe might get zapped...
Most tax efficient pea soup recipe for those with a small value tilted portfolio?
by Clearly_Irrational
Tue Feb 21, 2012 1:19 pm
Forum: Investing - Theory, News & General
Topic: Foreign equity allocation
Replies: 102
Views: 6610

Re: Foreign equity allocation

mwm158 wrote:How are you supposed to objectively figure this out?
If I were going to try and do that I would use this:

http://en.wikipedia.org/wiki/Index_of_Economic_Freedom

I'm not confident it's really possible to predict it that precisely though. I just started with 50/50 domestic/international, picked a broad theme that isn't highly correlated with the US (in this case emerging markets) then reduced my international exposure to account for the fact that the theme I picked was riskier than my domestic choice. I don't guarantee my choice was optimal, but it's probably decent and since the beta decision was more important than the fund selection I should do just fine over the long haul even if I'm not completely correct.
by Clearly_Irrational
Tue Feb 21, 2012 1:04 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

craigr wrote:Yet my feeling is still that it makes more sense to worry about your major asset allocation split than what stock funds are being used.
Considering that even if you believe FF, Beta accounts for 70% of the performance and small/value only 20% then of course deciding your beta exposure is more important than small/value exposure. I tend to think it's not a total waste of time, but it depends on your goals.

As for fee and tax efficiency:

VTI 0.06% fees, 5% turnover
VBR 0.12% fees, 25% turnover

I think the difference in fees is negligible. The turnover will cost you a bit in tax efficiency but even there I don't it's really that big a deal.
by Clearly_Irrational
Tue Feb 21, 2012 12:47 pm
Forum: Investing - Theory, News & General
Topic: My concerns about tilting
Replies: 126
Views: 8682

Re: My concerns about tilting

So the deep dark secret about value tilting outperformance was now being shared with me by Merril Lynch. I figure at that point the jig is up. That would only be true if they were observations rather than risk factors. The January effect for example was an observation so it went away after everyone piled into it. Stocks vs. Bonds (beta) is a risk factor so it doesn't matter how many people know about it. FF are suggesting that small and value are risk factors not observations, so if you buy their analysis then it shouldn't go away no matter how many people know about it. This is why I'm not quite as keen to load up on momentum factors the way I have on small & value despite the fact that the stock market has pretty clearly shown serial...
by Clearly_Irrational
Tue Feb 21, 2012 12:05 pm
Forum: Investing - Theory, News & General
Topic: "Can you sum-up your investing philosophy in 10 words?"
Replies: 120
Views: 11626

Re: "Can you sum-up your investing philosophy in 10 words?"

Aptenodytes wrote:My guess is we agree on all these things when communicated in hundreds of words instead of 10 words.
Agreed, stating my full philosophy would probably take at least a page or two. (and that's just to say it, if you want it explained I'd need a lot more space)