Death knell of Coffeehouse Investor

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
bschultheis
Posts: 207
Joined: Mon Jul 23, 2007 10:15 am

Death knell of Coffeehouse Investor

Post by bschultheis »

In today's section (yesterday on east coast) the Wall Street Journal ran two different articles in the same C section on the demise of a 60/40 Coffeehouse-type portfolio.

"New Recipe For Returns In Risk Era"
http://online.wsj.com/article/SB1000142 ... S=Guerrera

"Investors Fault A Model Portfolio For Falling Behind The Times"
http://www.marketwatch.com/story/is-inv ... 2013-04-22

On a different note, I really enjoyed connecting with Bogleheads last night in Fireside Lounge of Sorrento Hotel, and a reminder that Bogleheads are smart, funny, handsome and gorgeous.

OK, at least smart. :D

Bill Schultheis
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by nedsaid »

Sort of like the "Death of Equities" in BusinessWeek magazine.

Mr. Bogle says that future investment results will likely be muted. So folks need to save more and not expect a hot market to bail them out.

I have a hard time believing that the standard 60/40 portfolio is finished. The alternatives suggested seem awfully risky to me. Private equity. Really?
A fool and his money are good for business.
User avatar
telemark
Posts: 3389
Joined: Sat Aug 11, 2012 6:35 am

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by telemark »

Meanwhile my 60/40 portfolio is up 6% year to date. I don't think it's ready to go on the cart just yet...
User avatar
stemikger
Posts: 4950
Joined: Thu Apr 08, 2010 5:02 am

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by stemikger »

http://www.nytimes.com/2013/02/02/busin ... d=all&_r=0

After reading this, I'm going to just Stay the Course. If the pros are confused, that tells me to sit tight.
Last edited by stemikger on Wed Apr 24, 2013 4:27 am, edited 1 time in total.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
User avatar
BrandonBogle
Posts: 4467
Joined: Mon Jan 28, 2013 10:19 pm

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by BrandonBogle »

Why is your topic subject headline screaming at us?

I'd suggest editing the first post to not be in all caps as in "Internet-speak", that constitutes yelling at the forum members/readers.
User avatar
stratton
Posts: 11085
Joined: Sun Mar 04, 2007 4:05 pm
Location: Puget Sound

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by stratton »

bschultheis wrote:In today's section (yesterday on east coast) the Wall Street Journal ran two different articles in the same C section on the demise of a 60/40 Coffeehouse-type portfolio.
Bill,

You'll have to come up with a "decaf" version of the Coffehouse Portfolio.
On a different note, I really enjoyed connecting with Bogleheads last night in Fireside Lounge of Sorrento Hotel, and a reminder that Bogleheads are smart, funny, handsome and gorgeous.
What's funny is this is the first time I've met Bill in the Seattle area. All the other times were at the Bogleheads conferences.

Paul
...and then Buffy staked Edward. The end.
gordo
Posts: 185
Joined: Sun May 13, 2007 5:14 pm
Location: CA

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by gordo »

BrandonBogle wrote:Why is your topic subject headline screaming at us?
I'd suggest editing the first post to not be in all caps as in "Internet-speak", that constitutes yelling at the forum members/readers.
I take it the irony of the headline was lost on you. Bill Schultheis is the *author* of the Coffeehouse Investor.
sschullo
Posts: 2840
Joined: Sun Apr 01, 2007 8:25 am
Location: Long Beach, CA
Contact:

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by sschullo »

Death knell? My 30% equity/70 bond is up 3% ytd and I'm very happy.
Never in the history of market day-traders’ has the obsession with so much massive, sophisticated, & powerful statistical machinery used by the brightest people on earth with such useless results.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by nisiprius »

"That is because, unusually, bonds and stocks are both expensive at the same time."

Duh. That is what sometimes happens with zero correlation, which is what bonds and stocks have. I don't like it, either. But, as Larry Swedroe says, "Diversification is always working. Sometimes you will like the results and sometimes you won't." I wish I knew the source of the urban legend that bonds and stocks have negative correlation.

Stuff like this certainly doesn't help, of course. (To be fair, this was presented as an illustration of how diversification in general works, not stocks and bonds specifically. However, it is a fairly bad image, one that does more to inculcate inaccurate ideas than accurate ideas.)

Image

I don't fully understand the urge to sell stocks, stocks, stocks that has been in full progress for most of the time I've been investing. It almost seems to be ideological. Every twist and turn in the investment climate is seized on as a good reason not to buy bonds, or at least a good reason not to buy bonds now. Perhaps the cycle is: 1987 or 2008 reminds people that stocks are risky, public gets leery of them, and campaign to rehabilitate them begins. Or perhaps it is an antipathy to bonds as an asset class in which it is possible to get your money back without going to the market to do it--as if bonds were somehow not a legitimate part of the free market economy.
Last edited by nisiprius on Wed Apr 24, 2013 7:47 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
Kenkat
Posts: 9549
Joined: Thu Mar 01, 2007 10:18 am
Location: Cincinnati, OH

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by Kenkat »

Based on prior experience with these types of death knell proclamations, the 60/40 portfolio is probably poised for a resurgence and everyone will be hailing its virtues 5 years from now.

Stick to your plan - that's my plan.
User avatar
nisiprius
Advisory Board
Posts: 52211
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by nisiprius »

kenschmidt wrote:Based on prior experience with these types of death knell proclamations, the 60/40 portfolio is probably poised for a resurgence and everyone will be hailing its virtues 5 years from now.

Stick to your plan - that's my plan.
I honestly don't see any scenario in which bonds can have anything resembling a "resurgence" within five years, although I can hope. But I certainly can see scenarios in which those who abandon high-quality bonds to go whoring after strange asset classes (e.g. replacing investment-grade bonds with 50% actively managed Vanguard Equity-Income fund and 50% low-quality emerging markets bonds, as suggested by Malkiel and Ellis) may discover that there were good reasons for not investing in this portfolio all along.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by Grt2bOutdoors »

It's different this time. It's a new paradigm. It's a new wave.

Whenever I hear or read anything even remotely close to those three statements above, I run the other way.
It's not different this time, it's just no one has bothered to thoroughly research history and those making the proclaimations above are much younger than my grandparents who've really seen "tough times". Stick to your plan, go with what is tried and true, not like these "risk-parity plans" they also wrote about in that same section of the WSJ on Monday.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 5:18 pm

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by Phineas J. Whoopee »

Grt2bOutdoors wrote:It's different this time. It's a new paradigm. It's a new wave.
...
Once I speculated,
Now I'm ruined.
Brother can you paradigm?

PJW
User avatar
HardKnocker
Posts: 2063
Joined: Mon Oct 06, 2008 11:55 am
Location: New Jersey USA

Re: Death knell of Coffeehouse Investor

Post by HardKnocker »

Absolutely throw out all fundamental common sense investing principles! This is a new age!

:wink:
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett
MindBogler
Posts: 1446
Joined: Wed Apr 17, 2013 12:05 pm

Re: Death knell of Coffeehouse Investor

Post by MindBogler »

/panic
User avatar
Rick Ferri
Posts: 9707
Joined: Mon Feb 26, 2007 10:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Death knell of Coffeehouse Investor

Post by Rick Ferri »

“You should not plug in an assumption that [a 60-40 portfolio is] going to return 7% or 8%,” Mr. Brightman says. To replace the strategy, some financial professionals are turning to alternative investments—like commodities, foreign currencies, real estate or even private equity—that weren’t easily accessible or widely used when 60-40 method became popular. “Today’s tool kit is better,” says Steve Blumenthal, founder of CMG Capital Management in Philadelphia.
Better for who?

Better for Wall Street.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
User avatar
Phineas J. Whoopee
Posts: 9675
Joined: Sun Dec 18, 2011 5:18 pm

Re: Death knell of Coffeehouse Investor

Post by Phineas J. Whoopee »

MindBogler wrote:/panic
"We will not panic until I give the order to panic!"
[Crunching noises inside the submarine]
"What was that?"
"We hit the bottom of the ocean."
"PREPARE TO PANIC!" - Siegfried
-- Get Smart!
User avatar
Dale_G
Posts: 3466
Joined: Tue Feb 20, 2007 4:43 pm
Location: Central Florida - on the grown up side of 85

Re: Death knell of Coffeehouse Investor

Post by Dale_G »

There is no doubt that one or more alternatives to a 60/40 portfolio may outperform. The question is: "Which one(s) - and over what time period?

I dunno - and neither does anyone else.

Dale
Volatility is my friend
epilnk
Posts: 2717
Joined: Wed Apr 18, 2007 7:05 pm

Re: Death knell of Coffeehouse Investor

Post by epilnk »

I wish bonds would just go ahead and plunge already. I'm getting so tired of this. Plus I want to be putting new money into bonds this year.
User avatar
Rick Ferri
Posts: 9707
Joined: Mon Feb 26, 2007 10:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Death knell of Coffeehouse Investor

Post by Rick Ferri »

Better get used to it. Interest rate will likely remain low for quite some time.

On the plus side, low rates help people who are seeking to buy a home or refinance an existing mortgage. I'm saving thousands of dollars per year because I refinanced in January. The interest savings more than makes up for low income on my bond holdings.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
User avatar
wwhan
Posts: 330
Joined: Sat Mar 03, 2007 11:08 pm
Location: CA

Re: Death knell of Coffeehouse Investor

Post by wwhan »

It is a lousy time to be sitting debt free with new cash for taxable investment.

When I was in debt, the interest rates were much, much higher.

One could put taxable money in new 5yr CD accounts at Credit Unions. A few CUs have 5yr CDs at 2%, (https://www.sfcu.org/rates/certificates)
or stuff more in the Mutual Fund Stock Market index.

With the current Fed+CA marginal investable income tax of 52.7% (39.6% + 3.8% + 9.3%) California Muni GO bond risk seems somewhat
more appealing for an allocation of the fixed income portion of investment.
User avatar
Rick Ferri
Posts: 9707
Joined: Mon Feb 26, 2007 10:40 am
Location: Georgetown, TX. Twitter: @Rick_Ferri
Contact:

Re: Death knell of Coffeehouse Investor

Post by Rick Ferri »

No doubt. CA munis probably a wise choice.

Rick Ferri
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.
Jebediah
Posts: 805
Joined: Tue Aug 28, 2012 9:19 pm
Location: Austin TX

Re: Death knell of Coffeehouse Investor

Post by Jebediah »

The WSJ article says:

Mr. Asness, for one, argues that leverage and instruments such as short selling and derivatives, can be "used for good, not for evil." He has put his money, or at least $25 billion of AQR's funds where his mouth is. And over the past one, three and five years, has handily beaten a 60/40 portfolio.

So I go over to AQR's site and check out their risk parity fund, AQRIX and see that performance is identical to a 60/40 portfolio (SP500/Barclays agg):

Since inception:
10K in AQRIX is now worth $13093
10K 60/40 is now worth $13106

Standard deviations look very close as well. I don't get it.
Busting Myths
Posts: 353
Joined: Sun Oct 24, 2010 4:04 pm
Location: So Cal

Re: Death knell of Coffeehouse Investor

Post by Busting Myths »

Rick Ferri wrote:Better get used to it. Interest rate will likely remain low for quite some time.

On the plus side, low rates help people who are seeking to buy a home or refinance an existing mortgage. I'm saving thousands of dollars per year because I refinanced in January. The interest savings more than makes up for low income on my bond holdings.

Rick Ferri
Or letting people overpay for homes as they are on the wrong side of the price/yield curve. TBD.
User avatar
LadyGeek
Site Admin
Posts: 95686
Joined: Sat Dec 20, 2008 4:34 pm
Location: Philadelphia
Contact:

Re: Death knell of Coffeehouse Investor

Post by LadyGeek »

bschultheis wrote:In today's section (yesterday on east coast) the Wall Street Journal ran two different articles in the same C section on the demise of a 60/40 Coffeehouse-type portfolio.

"New Recipe For Returns In Risk Era"
http://online.wsj.com/article/SB1000142 ... S=Guerrera

"Investors Fault A Model Portfolio For Falling Behind The Times"
http://www.marketwatch.com/story/is-inv ... 2013-04-22

...Bill Schultheis
To new investors, bschultheis is Bill Schultheis

The WSJ (Wall Street Journal) link requires a subscription. However, WSJ has free access via google. New Recipe for Returns in Risk Era site:wsj.com - Google Search (2nd link down)

The 2nd link is to Marketwatch (also WSJ, no subscription required). In human readable form: Is investors’ favorite strategy doomed to fail?

Update: Perhaps the 2nd link should be: investors fault a model portfolio for falling behind the times site:wsj.com - Google Search
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
Leesbro63
Posts: 10635
Joined: Mon Nov 08, 2010 3:36 pm

Re: Death knell of Coffeehouse Investor

Post by Leesbro63 »

Rick Ferri wrote:Better get used to it. Interest rate will likely remain low for quite some time.

On the plus side, low rates help people who are seeking to buy a home or refinance an existing mortgage. I'm saving thousands of dollars per year because I refinanced in January. The interest savings more than makes up for low income on my bond holdings.

Rick Ferri
Not to be personal or nosey, but why would a successful 50something index advisor have a mortgage? Yeah, the rate is low but it's still YOU paying THEM more than SOMEONE ELSE will pay YOU (on bond interest)! This is surprising to me really. Unless it's maybe a mortgage on a large building where your business is. What am I missing?
User avatar
arcticpineapplecorp.
Posts: 15080
Joined: Tue Mar 06, 2012 8:22 pm

Re: Death knell of Coffeehouse Investor

Post by arcticpineapplecorp. »

Leesbro63 wrote:Not to be personal or nosey, but why would a successful 50something index advisor have a mortgage? Yeah, the rate is low but it's still YOU paying THEM more than SOMEONE ELSE will pay YOU (on bond interest)! This is surprising to me really. Unless it's maybe a mortgage on a large building where your business is. What am I missing?
Mark Zuckerberg got a mortgage recently. 1.05% actually....and he has enough cash to have paid outright. Why'd he do that? Think about it a bit longer. People do things for different reasons (I'm not putting Rick in Zuckerberg league...but I'm sure he has his reasons).

http://www.bloomberg.com/news/2012-07-1 ... gages.html
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
User avatar
LH
Posts: 5490
Joined: Wed Mar 14, 2007 2:54 am

Re: DEATH KNELL OF COFFEEHOUSE INVESTOR

Post by LH »

nisiprius wrote:
kenschmidt wrote:Based on prior experience with these types of death knell proclamations, the 60/40 portfolio is probably poised for a resurgence and everyone will be hailing its virtues 5 years from now.

Stick to your plan - that's my plan.
I honestly don't see any scenario in which bonds can have anything resembling a "resurgence" within five years, although I can hope. But I certainly can see scenarios in which those who abandon high-quality bonds to go whoring after strange asset classes (e.g. replacing investment-grade bonds with 50% actively managed Vanguard Equity-Income fund and 50% low-quality emerging markets bonds, as suggested by Malkiel and Ellis) may discover that there were good reasons for not investing in this portfolio all along.
How about Japan 1990?

Stocks tank 50 percent. Stay down

Coupled with

Prolonged deflation to nil inflation.

Bonds would do ok, relative to stocks at least. Would have some real growth. Heck maybe bonds beat stocks not just for 30 years but 50 :p
User avatar
LH
Posts: 5490
Joined: Wed Mar 14, 2007 2:54 am

Re: Death knell of Coffeehouse Investor

Post by LH »

Geesh

Mean I haven't looked......


But how did a 60/40 do in the 30s and the 70s????

Probably pretty [lousy --admin LadyGeek]......

I really doubt anything is changed.

Buy and hold means buy and hold through the great depression people.......

Buy and hold is hard
1) no guarantee of success
2) you are almost completely guaranteed to go through periods like this where people will say it will not work, death of equities style business week 79.........

So here we are...

Heh.

Capitulate to the next great thing, or stay the course. Ditch, of all things bonds?..... It's almost laughable were it not so sad dangerous.


Looking around when birh stocks bond tank, gold sometimes spike, but really, it's too late to add gold now for near medium term (.barring huge disaster ) you can only buy gold thinking of 20-30 years for 90 percent plus of its expected utility.

But what else?

Stocks and bonds. Stay the course.

Reits can help a bit, but when real down turns come , reits will often correlate with stocks.

Ccf, I don't understand, I mean I kind do, bu I don't understand thepossble front running issue, nor thee hole double real thing really.

It's basically buy hold stocks bond through gret depression, 70s, and.......


Now.

This is baked into the strat. Nothing substantilly new is happening.
User avatar
LH
Posts: 5490
Joined: Wed Mar 14, 2007 2:54 am

Re: Death knell of Coffeehouse Investor

Post by LH »

LH wrote:Geesh

Mean I haven't looked......


But how did a 60/40 do in the 30s and the 70s????

Probably pretty [lousy --admin LadyGeek]......

I really doubt anything is changed.

Buy and hold means buy and hold through the great depression people.......

Buy and hold is hard
1) no guarantee of success
2) you are almost completely guaranteed to go through periods like this where people will say it will not work, death of equities style business week 79.........

So here we are...

Heh.

Capitulate to the next great thing, or stay the course. Ditch, of all things bonds?..... It's almost laughable were it not so sad dangerous.


Looking around when birh stocks bond tank, gold sometimes spike, but really, it's too late to add gold now for near medium term (.barring huge disaster ) you can only buy gold thinking of 20-30 years for 90 percent plus of its expected utility.

But what else?

Stocks and bonds. Stay the course.

Reits can help a bit, but when real down turns come , reits will often correlate with stocks.

Ccf, I don't understand, I mean I kind do, bu I don't understand thepossble front running issue, nor thee hole double real thing really.

It's basically buy hold stocks bond through gret depression, 70s, and.......


Now.

Buy and hold people... Right now, and 2007, IS boglehead investing....

Sty the course, or think a while take your time, and maybe add in a bit of gold, KNOWING, it's likely gonna tank, not do well, coming up.

This is baked into the strat. Nothing substantilly new is happening.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Death knell of Coffeehouse Investor

Post by nedsaid »

What it boils down to is that investing is an act of faith. It isn't blind faith as we can see from history how asset classes have performed and can learn about the cycles in the economy and in business. We know about the equity premium of stocks over bonds but also know that stocks can experience long bear markets. We know that markets have historically rebounded from large losses but there is no guarantee that it will happen again.

But we make all kinds of decisions not knowing what the outcome will be. We have faith that somehow things will all work out. We look to the experiences of our parents and grandparents to help guide our own decisions. Perhaps how they handled past situations have relevance to our current situations, maybe they don't. But we plow on regardless.

So we look to the past to give some guidance for the future and to give us perspective.

Balanced portfolios have worked out pretty well historically. No guarantee that they will work in the future. But what we see from the past suggests that this will continue to be a good strategy.

Pretty much, good investing is grounded on an accurate understanding of human nature. There are solid principles based on that understanding that give us guidance on how to invest in the future. This explains much of what drives the Bogleheads.
A fool and his money are good for business.
Post Reply