Globe and Mail Doesn't Like Boglehead Approach

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lawman3966
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Globe and Mail Doesn't Like Boglehead Approach

Post by lawman3966 »

In this case, a reporter for the Globe and Mail (north of the border) has seen fit to ask active managers about the wisdom and/or dangers of passive investing. Shockingly, and incredibly, the active managers don't approve of an approach that would deny them much coveted income.

Aside from anything else, it shows how misguided a presentation can be and still pass for financial journalism, and how little a journalist can know about investing and still get to author a column.

http://www.theglobeandmail.com/globe-in ... e13484317/
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by tludwig23 »

I especially like their warnings against "overdiversification."

“I disagree with almost everything about the Bogle approach but agree with one thing: Many investors are overdiversified with their investments, leading them to poor returns overall,” she adds.

She points out that while some Bogle combinations consist of just three ETFs – such as a U.S. equity, a bond and an international index fund – they actually contain as many as 15,000 global securities within them, an obvious sign of drastic overdiversification. There is no risk management strategy in place, either."

15,000 global securities--obvious drastic overdiversification!
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IlliniDave
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by IlliniDave »

Interesting they could get only 3 of 12 advisers they called for the story to take the bait. Pretty shallow arguments against indexing as well.

The comments on the article are worth the read. The second or third commenter, referring to the article: "This is so stupid it makes my teeth hurt."

The Boglehead spirit seems alive and well in my second favorite nation on earth.
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Dave76
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Dave76 »

IlliniDave wrote:
The Boglehead spirit seems alive and well in my second favorite nation on earth.
What nation is your first favorite?
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by LadyGeek »

They've issued a follow-up: In defence of the ‘Boglehead’ index-fund investing philosophy

The author of this article is well respected among Canadian journalists: Preet Banerjee He's one of the good guys.

Note the Canadian version of the three-fund portfolio.

BTW, this was discussed in our sister Canadian forum, Financial Webring Forum. See: Re: Outstanding Financial Pornography (Yes, this is the appropriate title for this type of journalism.)
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by czeckers »

This was worth a chuckle. Thanks!
hedge funds are like snowflakes: No two are the same
“You cannot ignore the bond market in my mind,” Mr. Watt says.
He has a bond market in his mind??? :shock:


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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by IlliniDave »

Dave76 wrote:
IlliniDave wrote:
The Boglehead spirit seems alive and well in my second favorite nation on earth.
What nation is your first favorite?
USA.
Don't do something. Just stand there!
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Chan_va
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Chan_va »

The argument's presented in that article are so mind-numbingly stupid, it got me thinking. There must be some intelligent arguments against indexing.

Here are a couple I have heard
- Look at Warren Buffet. Retort: Survivor bias
- market cap overweights the big guys. Report: Maybe equal weight has some merits, but too expensive to setup. Small cap tilt if you are concerned.
- Indexing is a get rich slowly scheme. Wont work for someone who needs high returns. Retort: True. Risk/Reward equations cant be changed.

What is the most cogent intelligent argument against indexing you have heard?
assumer
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by assumer »

Chan_va wrote:Look at Warren Buffet. Retort: Survivor bias
Alright I'll bite and play devil's advocate here. Yes, I agree with survivorship bias. It's strong with actively managed funds. And the argument is that even if a manager is good, you can't predict ahead of time which manager will be good.

Also, if you have a whole lot of people flip a coin 30 times, odds are one of them will hit tails every time due to random chance (like survivorship bias) but others may believe that person is a skilled coin flipper.

However, having said all that, that's not to say that there aren't active managers out there with sufficient skill to beat the market! And consistently! Those are not mutually exclusive.

It may be impossible to predict, and we may not be amongst them, but I do believe there are indeed skilled managers or individuals who can invest with alpha > 1.

But that has nothing to do with the arguments presented in the article :)
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by JoMoney »

Chan_va wrote:What is the most cogent intelligent argument against indexing you have heard?
Fidelity Investments Chairman Edward Johnson was quoted as saying that he "couldn't believe that the great mass of investors are going to be satisfied with receiving just average returns".
I see this all the time on this message board as people try to jump around from sector to sector following one formula or another expecting they will somehow earn more then a fair share of market returns by doing so.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by MindBogler »

JoMoney wrote:
Chan_va wrote:What is the most cogent intelligent argument against indexing you have heard?
Fidelity Investments Chairman Edward Johnson was quoted as saying that he "couldn't believe that the great mass of investors are going to be satisfied with receiving just average returns".
I see this all the time on this message board as people try to jump around from sector to sector following one formula or another expecting they will somehow earn more then a fair share of market returns by doing so.
Average returns are all one should expect from indexing. Whether that is fair or not is relative.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by danwhite77 »

Fidelity Investments Chairman Edward Johnson was quoted as saying that he "couldn't believe that the great mass of investors are going to be satisfied with receiving just average returns".
The day that I was able to transfer my wife's retirement accounts from Fidelity to Vanguard was a very good day.

Fidelity: not even once.
"While some mutual fund founders chose to make billions, he chose to make a difference." - Dedication to Jack Bogle in 'The Bogleheads' Guide to Investing'.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by noyopacific »

Chan_va wrote:The argument's presented in that article are so mind-numbingly stupid, it got me thinking. There must be some intelligent arguments against indexing.
What is the most cogent intelligent argument against indexing you have heard?
While I'm not aware of any great rational arguments for active management over indexed mutual funds, there is some intelligent debate over indexing's first-cousin: The Efficient Market Hypothesis.

http://en.wikipedia.org/wiki/Efficient- ... al_finance

I thought the investment "professionals" quoted in the article were a sorry bunch; but there are some excellent responses in the comments section! One that I found amusing was when one suggested (jokingly I'd assume) that another commenter cut the reporter some slack because she was, after all, just a French major. I seem to recall that Eugene Fama also got his undergraduate degree in French and he even played football !
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by nedsaid »

I do read the Globe and Mail articles from time to time. Rob Carrick is a well regarded financial writer that used to write a column for them. Is he still there?

They do a lot of profiles on anonymous investors and have a financial advisor address their financial situation.

There are a lot of good articles here. This particular one was bad.

One thing that I found out was that the Canadian Mutual Fund Industry has appallingly high expense ratios. Most of their funds are purchased through advisors. Low cost ETFs are available there and there are no-load funds available there. The climate for Bogleheads isn't as good in Canada.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Valuethinker »

Yes the active fund management industry in Canada charges very high ERs by US standards.

One thing about indexing in Canada, the Canadian index TSX60 is very skewed towards banks and natural resources (between them, over 70% of the total value I believe are banks, insurance, oil and gas, mining, forestry).

So indexing is a good thing, but in Canada you have to index to S&P500 or global indices.

One classic behavioural distortion is that Canadian banks have done very well. Lots of Canadian investors sitting on huge capital gains, good dividends, from banks-- the big 5 chartered. They therefore believe that it will go on forever-- 'one decision' stocks.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by frugaltype »

IlliniDave wrote:
Dave76 wrote:
IlliniDave wrote:
The Boglehead spirit seems alive and well in my second favorite nation on earth.
What nation is your first favorite?
USA.
[OT comment removed by admin LadyGeek].
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bottlecap
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by bottlecap »

Wow, that article was shockingly bad, and not just because of the ridiculous things those interviewed said. The follow up was a good retort, I thought, that summarized our approach very well. Although it wouldn't take much to be a good retort...

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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Default User BR »

assumer wrote:Also, if you have a whole lot of people flip a coin 30 times, odds are one of them will hit tails every time due to random chance (like survivorship bias) but others may believe that person is a skilled coin flipper.
Better have a lot of people. The odds on a 30 out 30 streak is 9.31E-10.


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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Default User BR »

JoMoney wrote:I see this all the time on this message board as people try to jump around from sector to sector following one formula or another expecting they will somehow earn more then a fair share of market returns by doing so.
Could you point out some examples? Most such cases are new folks, and the main advice is to avoid such strategies. Now, there are a number of us who following a factor-tilted approach based on the extensive academic research supporting that, but that's different than what you describe.


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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Gleevec »

Valuethinker wrote:Yes the active fund management industry in Canada charges very high ERs by US standards.

One thing about indexing in Canada, the Canadian index TSX60 is very skewed towards banks and natural resources (between them, over 70% of the total value I believe are banks, insurance, oil and gas, mining, forestry).

So indexing is a good thing, but in Canada you have to index to S&P500 or global indices.

One classic behavioural distortion is that Canadian banks have done very well. Lots of Canadian investors sitting on huge capital gains, good dividends, from banks-- the big 5 chartered. They therefore believe that it will go on forever-- 'one decision' stocks.
That is because those have been the drivers of the Canadian economy the past few years along with real estate. Ill let you guess what happened to the USA the last time we overweighted banks, real estate, and natural resources.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by baw703916 »

Chan_va wrote:The argument's presented in that article are so mind-numbingly stupid, it got me thinking. There must be some intelligent arguments against indexing.

Here are a couple I have heard
- Look at Warren Buffet...
...who by the way has been saying for years that index funds are the best investment vehicle for the vast majority of investors!
Most of my posts assume no behavioral errors.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by JoMoney »

Default User BR wrote:
JoMoney wrote:I see this all the time on this message board as people try to jump around from sector to sector following one formula or another expecting they will somehow earn more then a fair share of market returns by doing so.
Could you point out some examples? Most such cases are new folks, and the main advice is to avoid such strategies. Now, there are a number of us who following a factor-tilted approach based on the extensive academic research supporting that, but that's different than what you describe.
Brian
Yes, most cases are someone new (but not all). I really don't want to gather a list and single people out making assumptions as to what their expectations are from the strategy they are following (especially not on an unrelated thread where they may not see it to give their view) . The "Investment Vices" thread has lots of instances of people showing their efforts to try and eek out extra performance.
I'm not saying it's wrong for anyone to try to. I think it's in our nature as people to desire to try to. The "profit motive" is what drives most of the capitalist parts of our economy, and what makes the idea of a "Efficient Market" possible.
I think it's this desire to achieve more that drives the academics to create these theories and strategies, "factor-tilted" or otherwise.
But ultimately, the value created in the stock market is a function of the value created by the goods and services in the businesses (which eventually gets reflected in the stock price/dividends). As a whole, the universe of stock market investors will only achieve what the market achieves as a whole. Any attempts to gain value through some other means is playing a zero-sum game, one person garners an extra share because some other investor is short that share. Some may argue that they aren't trying to garner more profit, they only want to take less "risk" and achieve the same profit. I think this is a moot point as well. My point with the original post was that Edward Johnsons's quote was quite succinct in summing up the argument against index funds.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Valuethinker »

Gleevec wrote:
Valuethinker wrote:Yes the active fund management industry in Canada charges very high ERs by US standards.

One thing about indexing in Canada, the Canadian index TSX60 is very skewed towards banks and natural resources (between them, over 70% of the total value I believe are banks, insurance, oil and gas, mining, forestry).

So indexing is a good thing, but in Canada you have to index to S&P500 or global indices.

One classic behavioural distortion is that Canadian banks have done very well. Lots of Canadian investors sitting on huge capital gains, good dividends, from banks-- the big 5 chartered. They therefore believe that it will go on forever-- 'one decision' stocks.
That is because those have been the drivers of the Canadian economy the past few years along with real estate. Ill let you guess what happened to the USA the last time we overweighted banks, real estate, and natural resources.
Be slightly careful.

I can't think the last time the US market overweighted natural resources? The 1970s oil boom?

On banks and real estate.

YES there's a housing bubble in Canada-- Toronto and Vancouver, mostly. Most other cities, even Calgary and Edmonton, nothing like. And yes, if that blows it will hurt-- Toronto is 1/6th of the national population (Greater Toronto Area). But mostly it will hurt the taxpayer-- the Central Mortgage and Housing Corporation (the owner of risk on the 20% 'risk tranche' of mortgages, ie home loans over 80% of value). And there are other macro risks (around an overvalued exchange rate, high personal debt levels).

That all IS like the US in 2006.

BUT on the banks themselves, the Canadian banks were more highly regulated than their US peers. That is a large part of why they didn't take the same level of pain after the Lehmans crash. That has not changed.

While we could see the Big 5 drop, and even drop 25-50% in a Canadian recession,they are well capitalized, conservatively managed institutions. This is not CItigroup repeated-- or at least not from any external information that we have.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by staythecourse »

JoMoney wrote:My point with the original post was that Edward Johnsons's quote was quite succinct in summing up the argument against index funds.
I don't think you reference to factor tilters vs. TSM is NOT what Johnson was referring to in his quote. He is referring, which I think he is correct, is the behavior of investors of always wanting to do better then the market. That "market" can be the SP500, Wilshire 5000, Russell 2000, etc... The reason he is probably correct is most see "winning" strategy is beating the benchmark every year. The idea of going with the flow (matching the market minus fees) vs. swimming upstream (trying to beat the market) is not a natural thought process.

Good luck.
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by JoMoney »

staythecourse wrote:
JoMoney wrote:My point with the original post was that Edward Johnsons's quote was quite succinct in summing up the argument against index funds.
I don't think you reference to factor tilters vs. TSM is NOT what Johnson was referring to in his quote. He is referring, which I think he is correct, is the behavior of investors of always wanting to do better then the market. That "market" can be the SP500, Wilshire 5000, Russell 2000, etc... The reason he is probably correct is most see "winning" strategy is beating the benchmark every year. The idea of going with the flow (matching the market minus fees) vs. swimming upstream (trying to beat the market) is not a natural thought process.

Good luck.
To me, "Factor Tilting" as a whole (maybe not all, but a big part of the theme) seems like a product sold by the financial "service" industry to try and sell to the ever growing "passive index" crowd.
Buy our book, buy our special sector fund ("see it says index in the name!... don't mind the higher expenses it's trivial"), and now actively trade it using our formula based on the time you bought in and the current market price - or better yet - pay us to actively manage the "passive index funds" for you..

If you like one specific sector for some fundamental reason, fine... but please don't actively jump in and out of it and claim it's part of a "passive index" approach, or follows the advice of John Bogle, Warren Buffet, or others who have advocated broad market low fee index funds.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Default User BR »

JoMoney wrote:Yes, most cases are someone new (but not all). I really don't want to gather a list and single people out making assumptions as to what their expectations are from the strategy they are following (especially not on an unrelated thread where they may not see it to give their view) . The "Investment Vices" thread has lots of instances of people showing their efforts to try and eek out extra performance.
There's a big difference between people admitting their personal investments quirks in a thread especially for that purpose, and generally promoting or seeking sector-hopping strategies. That doesn't go on much with most people other than the new contributors.

Unfortunately, I see that sort of behavior lumped in with factor tilting and other long-term strategies.


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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Default User BR »

JoMoney wrote:To me, "Factor Tilting" as a whole (maybe not all, but a big part of the theme) seems like a product sold by the financial "service" industry to try and sell to the ever growing "passive index" crowd.
It depends on how to define your terms. Generally around here, factor tilting is small and value, which has extensive academic backing. It's clear from your prior posts that you don't believe this, but I can't help that. For those of us following it, the strategy is not some flavor of the month hot-sector jumping around. It's long-term, consistent allocations. We don't need any new funds, books, or newsletters.


Brian
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by JoMoney »

Default User BR wrote: It depends on how to define your terms. Generally around here, factor tilting is small and value, which has extensive academic backing. It's clear from your prior posts that you don't believe this, but I can't help that. For those of us following it, the strategy is not some flavor of the month hot-sector jumping around. It's long-term, consistent allocations. We don't need any new funds, books, or newsletters.

Brian
But WHY do you follow that strategy as opposed to simply "Total Market" which is a guarantee of market returns? My understanding was that tilters are trying to outperform the market (either in "risk" or real return), and in either case I believe that Edward Johnsons quote applies. Most people are just not content with earning the market average.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by LadyGeek »

JoMoney- The topic is debated ad-nauseum in this forum. Here's a summary: Value Tilting - Stock This article doesn't answer your question, but perhaps it can provide some additional insight.

It's a matter of knowing where your comfort level lies, as well as evaluating your willingness, need, and ability to take on additional risk. Note the caveat at the top of the wiki page, it's there for a reason. Take a look at the quote by John Bogle (I underlined the important part):
John Bogle wrote:Impressed both by the long-term performance (and recent performance) of value stocks and small-cap stocks, some investors hold the all-market (or S&P 500) index fund as the core, and add a value index fund and a small-cap index fund as satellites. I'm skeptical that any kind of superior performance will endure forever. (Nothing does!) But if you disagree, it would not be unreasonable to hold, say, 85 percent in the core, another 10 percent in value, and another 5 percent in small cap. But doing so increases the risk that your return will fall short of the market's return, so don't push too far."
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by tadamsmar »

lawman3966 wrote:In this case, a reporter for the Globe and Mail (north of the border) has seen fit to ask active managers about the wisdom and/or dangers of passive investing. Shockingly, and incredibly, the active managers don't approve of an approach that would deny them much coveted income.

Aside from anything else, it shows how misguided a presentation can be and still pass for financial journalism, and how little a journalist can know about investing and still get to author a column.

http://www.theglobeandmail.com/globe-in ... e13484317/
Plenty support active, but do any have reasons for supporting it that Scott Adams failed to parody here?:

http://www.bogleheads.org/forum/viewtop ... 0&t=120828

Far as I know, the answer is "no".
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Default User BR »

JoMoney wrote:But WHY do you follow that strategy as opposed to simply "Total Market" which is a guarantee of market returns?
Why follow any strategy? Indeed, one thinks that the risk and performance expectation fit their personal objectives.

I certainly can understand if people don't want to tilt for various reasons. That doesn't mean that tilting is some sort of sub-optimal method. After all, if small and value had more risk without greater expected returns, one could improve a portfolio by tilting AWAY from them.


Brian
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by JoMoney »

Default User BR wrote:
JoMoney wrote:But WHY do you follow that strategy as opposed to simply "Total Market" which is a guarantee of market returns?
Why follow any strategy? Indeed, one thinks that the risk and performance expectation fit their personal objectives.

I certainly can understand if people don't want to tilt for various reasons. That doesn't mean that tilting is some sort of sub-optimal method. After all, if small and value had more risk without greater expected returns, one could improve a portfolio by tilting AWAY from them.


Brian
I think you're taking it out of context and trying to focus on a different topic. The question asking for quotes itself was leading the way off topic.
On this thread, I'm not arguing for or against or how optimal or not any strategy is. Just stating that I believe Edward Johnson was astute in his assumption that people will not be content with a simple market index fund.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Globe and Mail Doesn't Like Boglehead Approach

Post by Kalo »

JoMoney wrote:
Default User BR wrote: It depends on how to define your terms. Generally around here, factor tilting is small and value, which has extensive academic backing. It's clear from your prior posts that you don't believe this, but I can't help that. For those of us following it, the strategy is not some flavor of the month hot-sector jumping around. It's long-term, consistent allocations. We don't need any new funds, books, or newsletters.

Brian
But WHY do you follow that strategy as opposed to simply "Total Market" which is a guarantee of market returns? My understanding was that tilters are trying to outperform the market (either in "risk" or real return), and in either case I believe that Edward Johnsons quote applies. Most people are just not content with earning the market average.
Total Market is only a guarantee of total market. Bonds reduce returns and lowers risk but take you away from total market. Small Value hikes up returns and adds risk but takes you away from total market. None of it needs to involve market timing or active management. I only want to match total market in the portion of my portfolio that's designated to TM. My problem with active management is the added costs and the failure to add returns. I won't tilt my portfolio to actively managed small value, but I will tilt it toward low-cost indexed small value.

Kalo
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