"Small Caps vs. Large ?"
- Taylor Larimore
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"Small Caps vs. Large ?"
"Simplicity is the master key to financial success." -- Jack Bogle
I was heavily tilted to small and mid-cap value from the late 80s through the mid 00s. There can be significant tracking error. I can tell you that the guys at work who were investing in tech in the late 90s thought I was crazy. But they are still working.
In my opinion, if you don't believe that the SV premium is persistent then you should probably stay with a total market approach. Trying to switch back and forth between large and small is not a good strategy. If you do believe in persistence then you need to stick with it for a long time. Ten years is a fairly short time period in "equity dog" years.
In my opinion, if you don't believe that the SV premium is persistent then you should probably stay with a total market approach. Trying to switch back and forth between large and small is not a good strategy. If you do believe in persistence then you need to stick with it for a long time. Ten years is a fairly short time period in "equity dog" years.
Stay hydrated; don't sweat the small stuff
True.Roy wrote:I'd say "timers" will find this article thought provoking.
I recall being told in 2005, by an advisor, that small caps had their run, and now it was time to swing to large cap.
It doesn't matter what you say, at some point you will be right. Just diversity and tune out the noise from articles like this.
- Noobvestor
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I don't really, personally, care whether significant SV out-performance is persistent *except insofar as the tax and fund costs* ... and perhaps not even that, entirely. I'm looking for diversification to sleep better at night, not to generate higher returns. I am also a young accumulator, so I'm fine with periods of under-performance that let me buy in cheaper.
In short: while I 'get' the reasons to warn people about over-tilting toward small and/or value, not everyone who goes that route is chasing higher returns. Some of us just want to not have to worry about being entirely invested in one type of thing - in this case: large cap US stocks. We therefore hold a mix, because 'tracking error' vis a vis the S&P 500 doesn't matter as much to us as feeling like we have all of our eggs in one basket.
In short: while I 'get' the reasons to warn people about over-tilting toward small and/or value, not everyone who goes that route is chasing higher returns. Some of us just want to not have to worry about being entirely invested in one type of thing - in this case: large cap US stocks. We therefore hold a mix, because 'tracking error' vis a vis the S&P 500 doesn't matter as much to us as feeling like we have all of our eggs in one basket.
Last edited by Noobvestor on Fri Nov 19, 2010 4:48 pm, edited 1 time in total.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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My substitutions in bold above.Now that the valuation tables have turned, many managers think X will deliver better returns than Y in the decade ahead. Here is what we've been hearing from a few prominent managers on the subject.
I don't see why any Boglehead would find a article with this sort of phrase in it thought-provoking. Large caps going to do well in the next decade? Great, my VTI should do well, and maybe my VTV will do even better. Doesn't mean I don't want a nice slice of VBR though.
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Precisely, Gammapoint.GammaPoint wrote:My substitutions in bold above.Now that the valuation tables have turned, many managers think X will deliver better returns than Y in the decade ahead. Here is what we've been hearing from a few prominent managers on the subject.
I don't see why any Boglehead would find a article with this sort of phrase in it thought-provoking.
This is the very sort of speculative fluff that should be ignored—no matter which "expert" says it and no matter what asset classes are being championed as upcoming winners.
[snark alert] If Bill Miller is quoted in the article as saying that Large Caps are a once-in-a-lifetime opportunity, we'd better believe him. He did so well in 2008 [/snark alert]
More seriously, if you look at each of the past few decades, at least one of the Fama-French risk factors (beta, size, book/market) has been rewarded, and at least one of them has not been rewarded. So, yes, it's absolutely possible that small caps will do no better than large caps in 2010-2019. But if you own the market, with some degree of tilting to size and value, it hasn't happened in several decades that you wouldn't have been rewarded somewhere along the way.
Brad
More seriously, if you look at each of the past few decades, at least one of the Fama-French risk factors (beta, size, book/market) has been rewarded, and at least one of them has not been rewarded. So, yes, it's absolutely possible that small caps will do no better than large caps in 2010-2019. But if you own the market, with some degree of tilting to size and value, it hasn't happened in several decades that you wouldn't have been rewarded somewhere along the way.
Brad
Most of my posts assume no behavioral errors.
Yes, really:empb wrote:Really?Indices wrote:As John Bogle has pointed out, most returns come from lower fees, not from tilting one way or the other.
http://biz.yahoo.com/funds/cs9.html
Oh, ye of little faith. I am always surprised how most of the people on this board seem to have never read Bogle's books. And yet call themselves Bogleheads.
A low expense ratio is the single most important reason why a fund does well.
-- John Bogle
The argument goes like this: if you pay more for a fund, it had better outperform. To outperform means greater risk, more volatility and less of a chance for success. When you buy funds that tilt, you pay higher prices for them. So they MUST outperform. If they don't, you make less money. Pretty basic stuff.GammaPoint wrote:I too would be curious to see how that argument goes.empb wrote:Really?Indices wrote:As John Bogle has pointed out, most returns come from lower fees, not from tilting one way or the other.
By the way, don't take my word for it, read John Bogle's Common Sense on Mutual Funds which I quote in my post above.
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From 1927-2009 small cap value stocks have outperformed the total stock market by 5.3% per year. Today, a small cap value ETF will cost you 7 more basis points that a total stock market ETF. Looks like, at least historically, you could make a whole lot more money by tilting.
For funds that cover the same sort of securities, sure, the lower cost one is going to perform better, but you must take into account what sort of securities the fund/ETF is covering. Surely a free money market fund can't outperform a total stock market fund of 1 bps over the long-term can it?
For funds that cover the same sort of securities, sure, the lower cost one is going to perform better, but you must take into account what sort of securities the fund/ETF is covering. Surely a free money market fund can't outperform a total stock market fund of 1 bps over the long-term can it?
Exactly!GammaPoint wrote:From 1927-2009 small cap value stocks have outperformed the total stock market by 5.3% per year. Today, a small cap value ETF will cost you 7 more basis points that a total stock market ETF. Looks like, at least historically, you could make a whole lot more money by tilting.
For funds that cover the same sort of securities, sure, the lower cost one is going to perform better, but you must take into account what sort of securities the fund/ETF is covering. Surely a free money market fund can't outperform a total stock market fund of 1 bps over the long-term can it?
For a real world example, consider the following:
Which one of the five TSP funds will perform the best over the next 30 years?
(hint: they all have identical expense ratios--currently about 2 bp)
Most of my posts assume no behavioral errors.
I would encourage everyone on this board read what Bogle has written in Dont Count on It and Common Sense/10th Anv, Ed. regarding reversions to the mean with large and small stocks. Also he discusses the added risks of small stocks, increased risk/volatility, and likely inaccuracy of past data regarding outperformance of small stocks.
The more a learn about these index funds the more I lean torwards the Total Market Index or Mid-cap index, based on the overspeculation of small stocks and the downside safety of owning the entire market. I have also seen some comments written by Ben Graham and even this boards leader Mel about mid-caps being the better path for the average investor as it avoids over priced large and small stocks at times. [/i]
The more a learn about these index funds the more I lean torwards the Total Market Index or Mid-cap index, based on the overspeculation of small stocks and the downside safety of owning the entire market. I have also seen some comments written by Ben Graham and even this boards leader Mel about mid-caps being the better path for the average investor as it avoids over priced large and small stocks at times. [/i]
Do they outperform over every five year rolling period? No, in fact they underperform TSM over some periods. Investing in small cap stocks is more expensive so they MUST outperform or else your portfolio will suffer. And as we all know, if everyone is "certain" that something outperforms, the secret is already out and the efficiency of the market will make this advantage disappear. And what percentage of a portfolio is supposed to be tilted? 10 per cent? 30 per cent? 100 per cent? And finally, Eugene Fama, who discovered this anomaly doesn't tilt himself.GammaPoint wrote:From 1927-2009 small cap value stocks have outperformed the total stock market by 5.3% per year. Today, a small cap value ETF will cost you 7 more basis points that a total stock market ETF. Looks like, at least historically, you could make a whole lot more money by tilting.
For funds that cover the same sort of securities, sure, the lower cost one is going to perform better, but you must take into account what sort of securities the fund/ETF is covering. Surely a free money market fund can't outperform a total stock market fund of 1 bps over the long-term can it?
But if I was a time traveler I would happily invest in a non-existent small cap index fund in 1927 and reap the benefits.
This can (and has) become the same old Small vs. Large argument. The real point in this thread, to me, is the utter worthlessness of the article cited in the OP, regarding this or any other market timing question.
Imagine, for example, if the piece were instead recommending Small Caps after a period of Large Cap outperformance; or Domestic vs. International. Such an article describing the opinions of active managers would be an equally absurd bit of speculation—worthy only of being ignored—as men such as Bogle, Swedroe, and many others, repeatedly warn us.
Imagine, for example, if the piece were instead recommending Small Caps after a period of Large Cap outperformance; or Domestic vs. International. Such an article describing the opinions of active managers would be an equally absurd bit of speculation—worthy only of being ignored—as men such as Bogle, Swedroe, and many others, repeatedly warn us.
I dunno, but my 100% tilted, globally diversified, all equity portfolio is up YTD about 16%. That's a full 6% over total stock market even with a little extra in fees.Indices wrote:Do they outperform over every five year rolling period? No, in fact they underperform TSM over some periods. Investing in small cap stocks is more expensive so they MUST outperform or else your portfolio will suffer. And as we all know, if everyone is "certain" that something outperforms, the secret is already out and the efficiency of the market will make this advantage disappear. And what percentage of a portfolio is supposed to be tilted? 10 per cent? 30 per cent? 100 per cent? And finally, Eugene Fama, who discovered this anomaly doesn't tilt himself.GammaPoint wrote:From 1927-2009 small cap value stocks have outperformed the total stock market by 5.3% per year. Today, a small cap value ETF will cost you 7 more basis points that a total stock market ETF. Looks like, at least historically, you could make a whole lot more money by tilting.
For funds that cover the same sort of securities, sure, the lower cost one is going to perform better, but you must take into account what sort of securities the fund/ETF is covering. Surely a free money market fund can't outperform a total stock market fund of 1 bps over the long-term can it?
But if I was a time traveler I would happily invest in a non-existent small cap index fund in 1927 and reap the benefits.
I think of it as 70% of a portfolio's returns are stock:bond ratio, 20% level of tilt(value/size), and 10% fees. Anybody who is not globally weight 42% U.S. and 58% international and stock bond mix is 60:40 is tilting in some direction. I'm just tilting where I think the best rewards lie.
I like these stats.
Figure 8: Equity Premiums from 1926 to 2008
Market Premium 1-Year 5-Years 10-Years 15-Years 20-Years 25-Years
Best 162.6% 35.9% 19.7% 18.0% 15.7% 15.4%
Average 8.5% 6.6% 7.1% 7.3% 7.3% 7.3%
Worst -68.9% -20.1% -5.7% -2.2% 0.2% 1.7%
Reliability 68.1% 77.2% 85.6% 94.6% 100.0% 100.0%
Value Premium 1-Year 5-Years 10-Years 15-Years 20-Years 25-Years
Best 130.4% 20.7% 12.5% 10.1% 8.5% 8.3%
Average 5.4% 4.9% 5.0% 5.2% 5.4% 5.5%
Worst -47.9% -12.8% -7.5% -3.7% 0.0% 1.2%
Reliability 64.1% 82.1% 89.6% 94.3% 100.0% 100.0%
Size Premium 1-Year 5-Years 10-Years 15-Years 20-Years 25-Years
Best 392.1% 44.9% 16.5% 17.7% 11.8% 8.5%
Average 6.4% 3.4% 3.0% 2.8% 2.7% 2.6%
Worst -62.7% -23.3% -7.3% -7.5% -3.5% -1.7%
Reliability 52.6% 56.4% 64.2% 72.5% 78.7% 87.7%
There are no guarantees, only probabilities.
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Cost of Capital
When everyone discusses the likely presence or absence of small and value premia, it seems everyone is focussing on past behavior in different time periods. The ideas that make me stick to my tilted portfolio I believe are forward looking. Small and value stocks are more risky. The companies have to pay higher interest rates to obtain capital. Higher cost of capital implies higher expected return. Of course the risk will show up at times and that is why one will diversify across risk factors and use a dose of fixed income.
Dave
Dave
I think this is a good article for an investor who has been a TSM investor for the last decade and is beginning to lose the faith. At this point it would be important to not give up and become a slice and dicer (after a decade of 0% nominal returns I'm sure there is a significant urge to chase the small cap returns). This would seem to be a terrible time to change course from TSM to slice and dice. Not sure if this is Taylor's motivation for bringing our attention to this article.
(I'm basing these comments on the understanding that TSM investors even though they "own the market" essentially hold a Large Blend index fund for their equity investment. )
(I'm basing these comments on the understanding that TSM investors even though they "own the market" essentially hold a Large Blend index fund for their equity investment. )
That article, indeed, is relevant for tilters.
In any case, even though that article is though-provoking, I think similar articles like that can be outright dangerous to undisciplined tilters. Tilters should completely ignore them and stay true to Boglehead's stay-the-course philosophy. That is, stick with your original well-thought plan.
On different notes, being a tilter exposes one to even greater noises, market timing strategies, guru sentiments than a non-tilter? If that's so, then there's some advantage being a non-tilter.
In any case, even though that article is though-provoking, I think similar articles like that can be outright dangerous to undisciplined tilters. Tilters should completely ignore them and stay true to Boglehead's stay-the-course philosophy. That is, stick with your original well-thought plan.
On different notes, being a tilter exposes one to even greater noises, market timing strategies, guru sentiments than a non-tilter? If that's so, then there's some advantage being a non-tilter.
Three-fund portfolio |
"Simplicity is the master key to financial success." John C. Bogle
If a "pro-tilting" investor had posted such an article with the tables turned (i.e., large-caps have had their run, it's time to consider small-caps again) what kind of response would it have gotten?Roy wrote:Precisely, Gammapoint.GammaPoint wrote:My substitutions in bold above.Now that the valuation tables have turned, many managers think X will deliver better returns than Y in the decade ahead. Here is what we've been hearing from a few prominent managers on the subject.
I don't see why any Boglehead would find a article with this sort of phrase in it thought-provoking.
This is the very sort of speculative fluff that should be ignored—no matter which "expert" says it and no matter what asset classes are being championed as upcoming winners.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.
- jeffyscott
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Over the last 5 years there is very little difference between the total return of small cap value and the overall stock market. Don't know if the means that everyone has discovered the out-performance and it has therefore been arbitraged away, but that is certainly one possibility.Indices wrote:...if everyone is "certain" that something outperforms, the secret is already out and the efficiency of the market will make this advantage disappear.GammaPoint wrote:From 1927-2009 small cap value stocks have outperformed the total stock market by 5.3% per year.
There certainly does not seem to be a valuation argument for small caps today. So I am not sure what exactly would lead to them beating the market from here. The idea that they are riskier, therefore they must, is not convincing to me.
I'm a "tilter", but I tilt to wherever the better values appear to be and that does not seem to be small caps right now.
That's not consistent with the data I'm looking at. A quick look showed VFINX +8.8% and VISVX +15.2% with small growth VISGX +28.9% for Nov-05 through Oct-10. So small beat large but not by a huge difference.jeffyscott wrote:...(snip)...
Over the last 5 years there is very little difference between the total return of small cap value and the overall stock market. Don't know if the means that everyone has discovered the out-performance and it has therefore been arbitraged away, but that is certainly one possibility.
- jeffyscott
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I looked had at VTSMX and VISVX on morningstar, 5 year chart shows $10,000 growing to $11,003 and $11,438 respectively.
http://quote.morningstar.com/fund/chart ... %2C0%22%7D
http://quote.morningstar.com/fund/chart ... %2C0%22%7D
Good question, Beagler! I suspect we would be hearing advice like past returns not being predictive of future returns (which is also true here of the predicted Large Cap run; after all, who knows when it, or anything else, will happen?). And such advice would be prudent. It is, of course, curious why such an admonition was not provided here.Beagler wrote:If a "pro-tilting" investor had posted such an article with the tables turned (i.e., large-caps have had their run, it's time to consider small-caps again) what kind of response would it have gotten?Roy wrote:Precisely, Gammapoint.GammaPoint wrote:My substitutions in bold above.Now that the valuation tables have turned, many managers think X will deliver better returns than Y in the decade ahead. Here is what we've been hearing from a few prominent managers on the subject.
I don't see why any Boglehead would find a article with this sort of phrase in it thought-provoking.
This is the very sort of speculative fluff that should be ignored—no matter which "expert" says it and no matter what asset classes are being championed as upcoming winners.
The main point for any disciplined investor is to ignore the predictive hoopla typified by articles such as this—no matter what is predicted. Such advice, ironically, is a viewpoint expressed by Bogle, and other respected writers here, who have long since learned the folly of speculation.
I exaggerated. Eugene believes in tilting only a little bit.empb wrote:Out of curiosity, where did you get that little nugget?Indices wrote:And finally, Eugene Fama, who discovered this anomaly doesn't tilt himself.
Source:
http://www.plansponsor.com/MagazineArti ... 6442461201
PS: Can you give us a nutshell version of your investing strategy?
Fama: When I talk to pension fund people, what I start with is the market portfolio. That's always one of the optimal portfolios one can settle on.In fact, it's perfectly rational just to hold the market portfolio as a low-cost strategy. If you want more bang for the buck, then think about a little tilt toward smaller stocks, a little tilt towards value stocks.That's basically it as far as domestic stock investing is concerned. From those tilts you can expect, over the long term, higher returns. But that's in exchange for higher risk: There's no free lunch.
This sort of quote always strike me me since others have pointed out that Small Cap Value has proved less volatile than Small Cap Blend. I also remember reading that French doesn't agree with Fama on the issue of why Small Cap outperforms; he senses it is something structural.Indices wrote:From those tilts you can expect, over the long term, higher returns. But that's in exchange for higher risk: There's no free lunch.
Of course, there's also the point that Fama's arguments rely on the assumption that the market is frictionless, which it isn't.
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Just to clarify: that article was "pension centric". Fama's advice to advisors (that I have heard him say a dozen times in conferences) is: start with a marketwide "core portfolio" (ie. Total stock, DFA Core 1, or DFA Core 2), whichever gets you as close as possible to your desired level of small and value exposure (which also includes none, for example). Then use component size and value funds to further customize your allocation. Use the same formula for diversifying internationally (he often quotes Rex Sinqufield's research on the efficiency of small/value tilts overseas to maximize international benefits). To reduce equity risk, use the absolute shortest term, highest quality bonds. He likes TIPS as well for inflation hedging, but not as much for lowering portfolio risk.
His personal portfolio (which reflects his large concentration of wealth in DFA) is fairly simple. He has at least 50% in fixed income, using almost exclusively DFA 1YR Fixed and 2YR Global. On the equity side, he is almost entirely DFA US Core 2 and Int'l Core. No emerging markets, no REITS, and no market timing. He only looks at his portfolio 1-2 per year as well.
His personal portfolio (which reflects his large concentration of wealth in DFA) is fairly simple. He has at least 50% in fixed income, using almost exclusively DFA 1YR Fixed and 2YR Global. On the equity side, he is almost entirely DFA US Core 2 and Int'l Core. No emerging markets, no REITS, and no market timing. He only looks at his portfolio 1-2 per year as well.
Roy wrote:Nothing there is a surprise and is entirely consistent with Fama's other comments on this. Indeed, in other interviews, he has understood preferences that tilts could go larger and growthier.Indices wrote:And finally, Eugene Fama, who discovered this anomaly doesn't tilt himself.
http://www.plansponsor.com/MagazineArti ... 6442461201
I do not know the details of how Fama himself is invested. Though it would not shock me if he tilted larger and growthier, if he has substantial labor capital invested in a firm that, by design, appears to recommend tilting towards Small and Value. Actually, I suppose DFA does not make recommendations (advisor do) but they do seem to possess the vehicles to exploit these additional dimensions of risk.
Where was the part in this article about how Gene himself invests?
There would likely be a hyperlink to an old Norstad paper about 'investing in total markets,' and a quote about TSM being 'Mr. Bogle's favorite fund,' and the usual chatter about the risks of deviating from the total-market [essentially large-cap performing] TSM. Thank heavens I didn't listen to any of that many years ago when perusing the old indexfunds dot com board, where Larry and Rick routinely posted. Reading Bill Bernstein and Roger Gibson was also eye-opening. Buying their books and making common-sense applications of their model portfolios was a godsend.Roy wrote:Good question, Beagler! I suspect we would be hearing advice like past returns not being predictive of future returns (which is also true here of the predicted Large Cap run; after all, who knows when it, or anything else, will happen?). And such advice would be prudent. It is, of course, curious why such an admonition was not provided here.Beagler wrote:If a "pro-tilting" investor had posted such an article with the tables turned (i.e., large-caps have had their run, it's time to consider small-caps again) what kind of response would it have gotten?Roy wrote:Precisely, Gammapoint.GammaPoint wrote:My substitutions in bold above.Now that the valuation tables have turned, many managers think X will deliver better returns than Y in the decade ahead. Here is what we've been hearing from a few prominent managers on the subject.
I don't see why any Boglehead would find a article with this sort of phrase in it thought-provoking.
This is the very sort of speculative fluff that should be ignored—no matter which "expert" says it and no matter what asset classes are being championed as upcoming winners.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.
I hear you, Beagler. I suspect you are correct.Beagler wrote:There would likely be a hyperlink to an old Norstad paper about 'investing in total markets,' and a quote about TSM being 'Mr. Bogle's favorite fund,' and the usual chatter about the risks of deviating from the total-market [essentially large-cap performing] TSM. Thank heavens I didn't listen to any of that many years ago when perusing the old indexfunds dot com board, where Larry and Rick routinely posted.Roy wrote: Good question, Beagler! I suspect we would be hearing advice like past returns not being predictive of future returns (which is also true here of the predicted Large Cap run; after all, who knows when it, or anything else, will happen?). And such advice would be prudent. It is, of course, curious why such an admonition was not provided here.
I respect some of the arguments for total markets—a perfectly valid way to go. And likewise for tilters (whichever way they may lean). I suppose I'm disappointed by the speculation piece linked by the OP. Thanks to Bogle et al for helping me learn to avoid crystal ball gazing.
Most of the authorities whose views and research we value have portfolios that are much larger by perhaps an order of magnitude then our own. That's what success brings in our economy. But while it's interesting to hear what they are personally doing (thanks MA for this post), it may not reflect what we should be doing with our nesteggs.Multifactor Advisor wrote:...(snip)...
His personal portfolio (which reflects his large concentration of wealth in DFA) is fairly simple. He has at least 50% in fixed income, using almost exclusively DFA 1YR Fixed and 2YR Global. On the equity side, he is almost entirely DFA US Core 2 and Int'l Core. No emerging markets, no REITS, and no market timing. He only looks at his portfolio 1-2 per year as well.
If I had adhered to this TSM-based approach my net worth would be a WHOLE lot less, and I can personally attest to the fact that the ER's of small-cap and value funds are by no means so high as to have made tilting unrewarding Folks have to invest in ways with which they're comfortable. If an investor wants TSM alone, good for them, to each her own.Indices wrote:It should be total market, not one cap over the other. As John Bogle has pointed out, most returns come from lower fees, not from tilting one way or the other. A small cap fund always has higher fees than a total market fund or an S&P 500 fund.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.
So now the discoverer of the small cap advantage is wrong too. I see.ftobin wrote:This sort of quote always strike me me since others have pointed out that Small Cap Value has proved less volatile than Small Cap Blend. I also remember reading that French doesn't agree with Fama on the issue of why Small Cap outperforms; he senses it is something structural.Indices wrote:From those tilts you can expect, over the long term, higher returns. But that's in exchange for higher risk: There's no free lunch.
Of course, there's also the point that Fama's arguments rely on the assumption that the market is frictionless, which it isn't.
This sounds exactly like the portfolio of John Bogle. What are the allocations of DFA US Core 2 and Int'l Core? Well I guess I was right before, he doesn't tilt at all.Multifactor Advisor wrote: His personal portfolio (which reflects his large concentration of wealth in DFA) is fairly simple. He has at least 50% in fixed income, using almost exclusively DFA 1YR Fixed and 2YR Global. On the equity side, he is almost entirely DFA US Core 2 and Int'l Core. No emerging markets, no REITS, and no market timing. He only looks at his portfolio 1-2 per year as well.
The Core portfolios are tilted away from the market. That's the whole point of them. Quite frankly, I couldn't care less what's in his personal portfolio (or Bogle's or Ferri's etc.) and neither should anyone else.
As usual, this discussion has just boiled down to a) those who believe the FF model and b) those who don't. Nothing ever gets accomplished since neither camp can accept the others' premise.
As usual, this discussion has just boiled down to a) those who believe the FF model and b) those who don't. Nothing ever gets accomplished since neither camp can accept the others' premise.
You are being callous in dismissing arguments out of hand, and should be more specific. First, French disagrees with Fama too. Second, Fama's model is a frictionless market, and taxes (among other things) imply friction.Indices wrote:So now the discoverer of the small cap advantage is wrong too. I see.Of course, there's also the point that Fama's arguments rely on the assumption that the market is frictionless, which it isn't.
I'll also point out that discovering the small and value cap premia is one thing, but explaining it is another thing entirely. Fama and French did the first fine, but the "risk" factors explaination of why the premia exist is poor. People often say "small value is more volatile than small cap" when it can be objectively noted that it isn't. Then a whole discussion appears as to what "risk" means, and there is no agreement on a quantifiable metric, something at odds with the quantifiableness of the factor premia. The "risk factors" mantra is an example of something that has been repeated often enough that people can't be dissuaded from it.
DFA US Core 2 http://tinyurl.com/26cqgyuIndices wrote:What are the allocations of DFA US Core 2 and Int'l Core?Multifactor Advisor wrote: His personal portfolio (which reflects his large concentration of wealth in DFA) is fairly simple. He has at least 50% in fixed income, using almost exclusively DFA 1YR Fixed and 2YR Global. On the equity side, he is almost entirely DFA US Core 2 and Int'l Core....
M* X-Ray overview of DFQTX
M* X-Ray overview of VTSMX
DFA Int'l Core http://tinyurl.com/2am9tto
M* X-Ray Overview of DFIEX
M* X-Ray of VGTSX
As you read the above fund descriptions and view the X-Ray overviews, do you still hold to your statement?Indices wrote:Well I guess I was right before, he doesn't tilt at all.
Really? That's an odd statement considering Mr. Bogle's recent statement on why he doesn't invest overseas: http://tinyurl.com/29knhouIndices wrote: This sounds exactly like the portfolio of John Bogle.
If he does indeed invest in DFA US Core 2 and Int'l Core, do you believe your statment to be correct?Indices wrote:Eugene Fama, who discovered this anomaly doesn't tilt himself.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.
Anyone hear a duck?
And yet...Beagler wrote: DFA US Core 2 http://tinyurl.com/26cqgyu
M* X-Ray overview of DFQTX
M* X-Ray overview of VTSMX
If he does indeed invest in DFA US Core 2 and Int'l Core, do you believe your statment to be correct?Indices wrote:Eugene Fama, who discovered this anomaly doesn't tilt himself.
How was it once phrased?
"As they say, if it quacks like a duck..."
(Yes, I know, 5 years is a short time. But still. From a distance, all I can see is a lime green line with an orange highlight and a blue shadow!)
--Pete
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I largely agree - it's another FF vs. non-FF argument. However, I'll state my position again to make this spectrum a reality: I am in between ... I don't know for sure, and I don't really care. If I TSM and it underperforms, I'll regret it. If I go all-out SC/V and it underperforms, I'll regret it. If I do *both* and one underperforms, I'll say to myself: 'see? good thing you didn't go for all of that other one!' Meanwhile, as I accumulate, I can keep buying whatever is cheaper to keep the portfolio in balance, and lower volatility.empb wrote:The Core portfolios are tilted away from the market. That's the whole point of them. Quite frankly, I couldn't care less what's in his personal portfolio (or Bogle's or Ferri's etc.) and neither should anyone else.
As usual, this discussion has just boiled down to a) those who believe the FF model and b) those who don't. Nothing ever gets accomplished since neither camp can accept the others' premise.
I am, ultimately, agnostic, and therefore tilt to small/value not reaching for higher yields but simply to hedge my bets and cover all bases. If the FF model is wrong? Well, I'll pay a bit for it, but it isn't like betting on wheat futures. If it is right? Well, maybe my returns will be higher in the end. If it is partly right, but a lot of the advantages disappears in 'real life' investing due to the various problems mentioned here? OK, then I'll end up somewhere close to if I had just TSMed all along. It ain't 'bout maximizing gain for me - it's minimizing regret
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Pete, a couple of problems with your post: first, 5 years is far too short to draw a conclusion about long-term performance. Second, the topic of my post was the asset allocation of the DFA Core 2 and DFA Core Int'l funds in regards to statements made by another poster.
If you'd like to discuss the short-term performance of DFA Core funds please start another thread.
If you'd like to discuss the short-term performance of DFA Core funds please start another thread.
“The only place where success come before work is in the dictionary.” Abraham Lincoln. This post does not provide advice for specific individual situations and should not be construed as doing so.