Whats out of favor now?

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LH
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Whats out of favor now?

Post by LH »

One thing I have noticed is that investing in things fundamentally sound, when they are out of favor, is likely the way to go, with several caveats.

1)Its not a way to get rich quick. It may be years and years till return. Or never. Nothing is ever guaranteed.

2)It is VERY hard to do as a human being. The reason the asset is down, is because people feel they will not make money in it. It will not "feel good" investing in the asset.

3)Its primarily for diversification

Whats out of favor now is owning residential rental property.

I do not really want to be a landlord though.

Besides that, I do not know what is out of favor. Everything else seems normal to high as a result of the low interest rates. Gold seems high (yeah could go higher sure) farmland high, stocks seem valued ok, bonds seem valued ok (deflation or inflation short to medium 10 years out term, interest rate expectation, who knows).

Also, DEBT/LEVERAGE is cheap now. Thats another thing. But I do not feel like doing that much either. Quite the contrary, I feel the need to deleverage, pay off mortgage.

Being human is a funny thing.

: )
The Dark Knight
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Re: Whats out of favor now?

Post by The Dark Knight »

Tulips, stocks in the South Sea Company, Japanese real estate.
zotty
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Re: Whats out of favor now?

Post by zotty »

Vanguard Europe ETF

It's not as out-of-favor as it was in the fall, but it's still qualifies, i think.
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Re: Whats out of favor now?

Post by lws6772 »

Non skinny jeans, which is ironic, based on all the non skinny people I see everyday. :?
The Dark Knight
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Re: Whats out of favor now?

Post by The Dark Knight »

zotty wrote:Vanguard Europe ETF

It's not as out-of-favor as it was in the fall, but it's still qualifies, i think.
Question as I'm still learning...

Efficient market theory means basically everything is "priced in" right?

Of course that doesn't seem completely correct, as we've had bubbles where irrationality, greed, etc shot up the value of certain assets way beyond what could be considered "fair price" - tech stocks in 1999, residential real estate in 2006, etc.

So I'm guessing it can work the other way too where fear, irrationality, etc depresses the value of certain assets beyond what would be "fair price". And I'm guessing that's what the OP is going for.

That being said, I don't think European stocks would really count, as most of the Euro Zone faces legitimate concerns over debt that will lead to slow growth for years to come. I don't think there's anything irrational about bidding down European stocks in that climate.

Same thing for residential real estate, imo. Prices have crashed, but it seems like in most areas price/rent ratios are still hovering around the historical averages (meaning fair price but no screaming bargain). So although residential real estate is "out of favor" in a sense, I don't think it's a screaming investment either.
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Re: Whats out of favor now?

Post by VennData »

Cash. VMMXX paying 0.04%ish.

If being a landlord of residential real estate was easy, it wouldn't be so lucrative.
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Re: Whats out of favor now?

Post by 3CT_Paddler »

Euro economies (it may be a bit like catching a falling knife right now) and US residential real estate (which is not the same thing as US REITs - which have rebounded much quicker).
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Re: Whats out of favor now?

Post by RenoJay »

LH wrote:Also, DEBT/LEVERAGE is cheap now. Thats another thing. But I do not feel like doing that much either. Quite the contrary, I feel the need to deleverage, pay off mortgage.

Being human is a funny thing.

: )
Sub-Perfect Credit is out of favor. For those of us lucky enough to have good credit score, verifiable income and assets, credit is cheap. For those with even minor imperfections, credit is very, very tight. The only way I've found to take advantage is decidedly non-Bogleheadian. Sites like Prosper/LendingClub allow you to make unsecured loans with expected returns in the 8%-12% range. There are also private money lenders who will allow you to make secured loans. I'm about to make a $200k loan at 8.5% interest for a couple who's buying a $400k home. Their credit is dinged because they did a strategic default on a vacation home that was seriously underwater. Though I realize the risk I'm taking (and am comfortable with it), if they stop paying I'll foreclose on the home and own a nice, rentable asset for half the current market value. (Which is already very depressed from the peak days.) Though many Bogleheads have called me crazy for pursuing this (I started a thread a couple months ago), it strikes me as safer than buying treasuries that are almost certain to lose money to inflation over the next ten years and whose yields are well below historic averages.
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Cut-Throat
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Re: Whats out of favor now?

Post by Cut-Throat »

Bonds.

Rising interest rates are a sure thing and you are sure to lose your shirt.
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Re: Whats out of favor now?

Post by zotty »

The Dark Knight wrote: Efficient market theory means basically everything is "priced in" right?
Don't mistake me for an expert. :happy

I am in an awkward position of making a "case" for a tilt. I am not recommending it, but I did tilt 4% to Vanguard Europe over the fall, and last Friday. I timed it poorly. I bought some too early, some just right, and perhaps some too late.

It paid out a 4.5 dividend in December. The dividend might disappear.

My "thesis": I don't think the top 450 European companies are very different than the S&P 500, except for their current valuation. At some point, near or far, i think they'll outperform dramatically. I'm going to stick it out.

This could be completely idiotic, or not. It does seem to fit with the "out of favor" format of the OP.
Last edited by zotty on Tue Apr 17, 2012 6:22 pm, edited 1 time in total.
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Re: Whats out of favor now?

Post by rr2 »

RenoJay wrote:
LH wrote:Also, DEBT/LEVERAGE is cheap now. Thats another thing. But I do not feel like doing that much either. Quite the contrary, I feel the need to deleverage, pay off mortgage.

Being human is a funny thing.

: )
Sub-Perfect Credit is out of favor. For those of us lucky enough to have good credit score, verifiable income and assets, credit is cheap. For those with even minor imperfections, credit is very, very tight. The only way I've found to take advantage is decidedly non-Bogleheadian. Sites like Prosper/LendingClub allow you to make unsecured loans with expected returns in the 8%-12% range. There are also private money lenders who will allow you to make secured loans. I'm about to make a $200k loan at 8.5% interest for a couple who's buying a $400k home. Their credit is dinged because they did a strategic default on a vacation home that was seriously underwater. Though I realize the risk I'm taking (and am comfortable with it), if they stop paying I'll foreclose on the home and own a nice, rentable asset for half the current market value. (Which is already very depressed from the peak days.) Though many Bogleheads have called me crazy for pursuing this (I started a thread a couple months ago), it strikes me as safer than buying treasuries that are almost certain to lose money to inflation over the next ten years and whose yields are well below historic averages.
Typically when banks foreclose and sell the property for more than the loan balance (plus costs and fees etc.) they have to return the excess to the former owners. Do private lenders not have to do the same?
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Re: Whats out of favor now?

Post by Blister »

long term bonds are definately out of favor.
Everthing works out in the end. If it doesn't then its not the end.
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Re: Whats out of favor now?

Post by FafnerMorell »

The Dark Knight wrote: Question as I'm still learning...

Efficient market theory means basically everything is "priced in" right?
My understanding of EMT (and something that a lot of people seem to overlook) is that the price is based on the information at that "instant". A millisecond later, there may be new information which completely changes the price. Much like falling off a cliff - you're doing great up until the instant you hit the ground - then there's a BIG change in your status.
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Re: Whats out of favor now?

Post by tludwig23 »

Blister wrote:long term bonds are definately out of favor.
Gained 23% over the last 1 year. That doesn't sound out of favor.
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Re: Whats out of favor now?

Post by zotty »

Blister wrote:long term bonds are definitely out of favor.
It sure meets one requirement. Buying a long term bond right now would feel awful, like flushing money down the drain. Hmmm.
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Re: Whats out of favor now?

Post by RenoJay »

rr2 wrote:
RenoJay wrote:
LH wrote:Also, DEBT/LEVERAGE is cheap now. Thats another thing. But I do not feel like doing that much either. Quite the contrary, I feel the need to deleverage, pay off mortgage.

Being human is a funny thing.

: )
Sub-Perfect Credit is out of favor. For those of us lucky enough to have good credit score, verifiable income and assets, credit is cheap. For those with even minor imperfections, credit is very, very tight. The only way I've found to take advantage is decidedly non-Bogleheadian. Sites like Prosper/LendingClub allow you to make unsecured loans with expected returns in the 8%-12% range. There are also private money lenders who will allow you to make secured loans. I'm about to make a $200k loan at 8.5% interest for a couple who's buying a $400k home. Their credit is dinged because they did a strategic default on a vacation home that was seriously underwater. Though I realize the risk I'm taking (and am comfortable with it), if they stop paying I'll foreclose on the home and own a nice, rentable asset for half the current market value. (Which is already very depressed from the peak days.) Though many Bogleheads have called me crazy for pursuing this (I started a thread a couple months ago), it strikes me as safer than buying treasuries that are almost certain to lose money to inflation over the next ten years and whose yields are well below historic averages.
Typically when banks foreclose and sell the property for more than the loan balance (plus costs and fees etc.) they have to return the excess to the former owners. Do private lenders not have to do the same?
Yes, private lenders have the same obligation. Here's how it works technically. Suppose the borrower defaults and owes me $175k. Suppose it takes 9 months to foreclose, and during that time period I incur $25k in lost interest payment/legal fees. I take the house and bring it to the courthouse steps for $200k. If no one else bids, I get it and nothing is owed to the borrower. If it gets bid up, I have the option to join the bidding. If, for instance, the bidding war brings it up to $250k and I'm the one who bid $250k, then I'd have to return the $50k to the borrower. So I guess I overstated the benefits a little in my earlier post, but overall, I think I have a good chance of at least getting the interest that I'm promised.
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Re: Whats out of favor now?

Post by kontango »

The Dark Knight wrote:Efficient market theory means basically everything is "priced in" right?
The Efficient Market Hypothesis doesn't necessarily mean that everything is priced right. It means that you can't use pricing errors (i.e., mispricings) as signals to consistently earn positive abnormal returns (i.e., "beat the market" after adjusting for risk).
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Re: Whats out of favor now?

Post by rr2 »

RenoJay wrote:
rr2 wrote: Typically when banks foreclose and sell the property for more than the loan balance (plus costs and fees etc.) they have to return the excess to the former owners. Do private lenders not have to do the same?
Yes, private lenders have the same obligation. Here's how it works technically. Suppose the borrower defaults and owes me $175k. Suppose it takes 9 months to foreclose, and during that time period I incur $25k in lost interest payment/legal fees. I take the house and bring it to the courthouse steps for $200k. If no one else bids, I get it and nothing is owed to the borrower. If it gets bid up, I have the option to join the bidding. If, for instance, the bidding war brings it up to $250k and I'm the one who bid $250k, then I'd have to return the $50k to the borrower. So I guess I overstated the benefits a little in my earlier post, but overall, I think I have a good chance of at least getting the interest that I'm promised.
Thanks for the explanation. Understood.
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Re: Whats out of favor now?

Post by nisiprius »

Simple three-fund portfolios and target-date retirement mutual funds.
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Re: Whats out of favor now?

Post by riskonoff »

EFA and foreclosed homes in good neighberhoods.

I have several friends that are very wealthy and they are buying foreclosed homes in the Chicago area. They are doing this for investment reasons and also doing it to put people (friends and family) to work.
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Re: Whats out of favor now?

Post by renditt »

Agree with those who said European stocks are relatively cheap. I think international stocks / Emerging Markets are still ok.

Other than that
- US stocks expensive
- Bonds very expensive
- high yield bonds expensive
- cash pays nothing
- Gold not cheap
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Re: Whats out of favor now?

Post by McCharley »

Vanguard FTSE All-World ex-US Small-Cap Index Fund VFSVX -- down over 10% in the last year. I like the notion of automatically buying the worst performing index funds. I've made it a rule to always rebalance about 10% into the worst-performing index fund my 401(k) offers, and this one was the winner in January.

It was hard to make myself buy it. I'm becoming a contrarian to the point that I am neglecting my own common sense. :|
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Re: Whats out of favor now?

Post by Jerilynn »

here are also private money lenders who will allow you to make secured loans. I'm about to make a $200k loan at 8.5% interest for a couple who's buying a $400k home. Their credit is dinged because they did a strategic default on a vacation home that was seriously underwater.
Where is the other $200k coming from? You imply that they have $200k cash they are wanting to put into a $400k house, yes?
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Re: Whats out of favor now?

Post by exeunt »

Agree with renditt.

European equities yield 4%

S&P 500 yields 1.8%

10-year Treasury yields 2%

EM equities 2%

The highest expected returns are probably in distressed European stocks. High expected returns that are predictable are consistent with EMH when the returns are a function of providing some kind of service. In European equity's case, there are a lot of Europeans who are dumping equities; international investors with income streams less vulnerable to a flaring up of the eurozone crisis are well suited to provide liquidity.

Also, Shiller demonstrated that prices move far too violently to be entirely the result of changing expectations of cashflows. The true NPV of the U.S. stock market during the depths of the Great Depression wasn't actually hurt very much. Most of the changes in multiples reflect changes in discount rates.
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Re: Whats out of favor now?

Post by jidina80 »

I agree with those suggesting European and Emerging stock markets may be a good relative value now. They are cheaper than the U.S. market according to Price/Earnings and Price/Book.
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Re: Whats out of favor now?

Post by kwyjibo »

European bonds (except Germany)
Last edited by kwyjibo on Wed Jun 26, 2013 5:24 pm, edited 1 time in total.
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Re: Whats out of favor now?

Post by LH »

zotty wrote:Vanguard Europe ETF

It's not as out-of-favor as it was in the fall, but it's still qualifies, i think.
heheh, you are right.

I remember having some money to invest, looking at the spreadsheet, and needing Europe in my AA. VGK was at 38, and the yahoo finance headline was reading "apocolypse now" in europe when I bought it. Hech with spain, might well drop more.
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Re: Whats out of favor now?

Post by LH »

zotty wrote:
Blister wrote:long term bonds are definitely out of favor.
It sure meets one requirement. Buying a long term bond right now would feel awful, like flushing money down the drain. Hmmm.
yeah LT bonds certainly are out of favor.

Thats interesting to think about.

Unlike rental units, I do not see much expectantly there though.

Maybe there will be deflation, and the goverment will just quit issuing bonds all together for tens of years, and they will be the best thing ever : )
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Re: Whats out of favor now?

Post by floydtime »

Bonds in general have been out of favor for years now...and still are.
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Re: Whats out of favor now?

Post by rai »

rich people are out of favor.
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Re: Whats out of favor now?

Post by bearwolf »

rai wrote:rich people are out of favor.
Yes but where do you buy one at a reasonable price? :D

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Re: Whats out of favor now?

Post by 3CT_Paddler »

jidina80 wrote:I agree with those suggesting European and Emerging stock markets may be a good relative value now. They are cheaper than the U.S. market according to Price/Earnings and Price/Book.
Yes but Europe's crisis situation is far from over. If the Euro economic union does not remain intact, certain countries may look downright expensive at today's "cheap" prices.
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Re: Whats out of favor now?

Post by SP-diceman »

LH wrote:
Whats out of favor now


Balanced budgets, optimism. :)
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Re: Whats out of favor now?

Post by letsgobobby »

No one has mentioned nat gas, clearly waaaay out if favor.
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Re: Whats out of favor now?

Post by Johm221122 »

Blister wrote:long term bonds are definately out of favor.
+1
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Re: Whats out of favor now?

Post by zotty »

3CT_Paddler wrote: certain countries may look downright expensive at today's "cheap" prices.
I agree, except to change one thing. Vanguard Europe Fund owns no countries. it does own private companies. The bank stocks will be destroyed in your scenario, but would a drug company go out of business if they had to change currencies? Would it have to lower it's prices in the USA?

I'm not purchasing stock in Angela Merkel, Inc. In the short term, it probably appears that way.

That said, there is no real need to tilt, everyone who owns Vanguard Total International already owns a ton of European equities.

edit
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Re: Whats out of favor now?

Post by Grt2bOutdoors »

Total International ex-US

Natural Gas - very speculative, you need to be careful how you invest in this space - just look at the action in Chesapeake today (lack of disclosure, the fox is guarding the hen house). An ETF or sector fund may be more preferable than individual equity.

Oil equities - I say this because the p/e's on those companies are trading below 12 for large multi-national integrated companies that are sitting on real and growing asset bases, have a decent payout ratio and stellar balance sheets. Where is Jeremy Grantham?
Can you say quality?

Utilities - just like bonds, will get creamed when funding costs go up.

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Re: Whats out of favor now?

Post by Grt2bOutdoors »

letsgobobby wrote:No one has mentioned nat gas, clearly waaaay out if favor.
To your point, look at what the multi-national mega cap oil companies are doing, piling into natural gas in meaningful ways, picking up assets on the cheap.
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Re: Whats out of favor now?

Post by zotty »

GRT2BOUTDOORS wrote:
letsgobobby wrote:No one has mentioned nat gas, clearly waaaay out if favor.
To your point, look at what the multi-national mega cap oil companies are doing, piling into natural gas in meaningful ways, picking up assets on the cheap.

I wonder if this is because they don't have access to large oil reserves. That is, they wouldn't be diversifying so heavily into natural gas if they didn't have to.
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Re: Whats out of favor now?

Post by Grt2bOutdoors »

zotty wrote:
GRT2BOUTDOORS wrote:
letsgobobby wrote:No one has mentioned nat gas, clearly waaaay out if favor.
To your point, look at what the multi-national mega cap oil companies are doing, piling into natural gas in meaningful ways, picking up assets on the cheap.

I wonder if this is because they don't have access to large oil reserves. That is, they wouldn't be diversifying so heavily into natural gas if they didn't have to.
Investing in gas, doesn't mean dry gas, there are also what they call liquids rich "wet" gas and "condensate" which can be sold for higher margins than the dry gas you get piped to your home. The liquids stuff trades closer to oil pricing, so there are opportunities.

Actually, a number of these companies have quite a number of large liquids rich projects that will be coming onstream in the next five years, they need a place to invest their free cash flow and the money goes where the best projected long term opportunities lie - right now that is gas - utilities are switchng over, there is a move by chemical industry to redirect manufacturing here (large consumer of gas), LNG market for overseas - need gas to ship it - margins for LNG are favorable in overseas markets. The industry looks at the long-term, not the short-term, many are not producing as much even though they have the ability to pump, rather they are picking up the choice assets and sitting on it.
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Re: Whats out of favor now?

Post by zotty »

GRT2BOUTDOORS wrote:utilities are switchng over, there is a move by chemical industry to redirect manufacturing here (large consumer of gas),
It's good stuff. We actually have a cost advantage in the good ole USA. a competitive advantage. This makes me :happy for all of us.

I maintain have a list of etfs/funds that i watch. I never end up buying anything that i watch, but I like to do it.

In energy, all i've got is XOP (SPDR S&P Oil & Gas Explore & Prod) - an equal weight/mid cap producers index.
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Re: Whats out of favor now?

Post by Random Musings »

Common sense, but that's always the case.

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Re: Whats out of favor now?

Post by Easy Rhino »

LH wrote:Whats out of favor now is owning residential rental property.
Are you sure that's out of favor, that's what a lot of buyers of foreclosed properties are doing.
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Re: Whats out of favor now?

Post by staythecourse »

On the topic/ off the topic. I don't understand why there isn't a quant fund that works on contrarian objective. I always thought it would be cool to see a fund that piles money into the asset class that does poorly by a computer (so no human second guessing). The question is how to measure poorly? The worst over rolling 12 month periods? I wanted to see one that puts money into the market subasset that has the most outflow of money.

Just a thought.

Good luck.
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Re: Whats out of favor now?

Post by Jerilynn »

staythecourse wrote:On the topic/ off the topic. I don't understand why there isn't a quant fund that works on contrarian objective. I always thought it would be cool to see a fund that piles money into the asset class that does poorly by a computer (so no human second guessing). The question is how to measure poorly? The worst over rolling 12 month periods? I wanted to see one that puts money into the market subasset that has the most outflow of money.

Just a thought.

Good luck.
Speaking of which. Is there a web site which shows the amount of $$ in and $$ out of specific mutual funds?
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Re: Whats out of favor now?

Post by Snowjob »

I admit to knowing very little about residential property, but I do know a lot of people buying houses to rent out.. so I'm not quite sure how out of favor that really is.

In general European companies are trading down, some more than others. If you want to stick to ETFs im sure the European ETF wouldnt be a bad buy.
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Re: Whats out of favor now?

Post by Midpack »

Cut-Throat wrote:Bonds.

Rising interest rates are a sure thing and you are sure to lose your shirt.
Could you quantify "lose your shirt" on bonds please?

Interest rates will rise (and impact bond returns when they do), though hard to forecast much of a change before 2014 unless The Fed abruptly changes course versus their consistent guidance on interest rates. Isn't the effect on bond fund NAVs for a given duration and yield delta pretty predictable? Wouldn't losing your shirt on equity funds be multiples of losing your shirt on intermediate or especially short duration bond funds (what most investors are holding)?
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Re: Whats out of favor now?

Post by floydtime »

Midpack wrote:
Cut-Throat wrote:Bonds.

Rising interest rates are a sure thing and you are sure to lose your shirt.
Could you quantify "lose your shirt" on bonds please?

Interest rates will rise (and impact bond returns when they do), though hard to forecast much of a change before 2014 unless The Fed abruptly changes course versus their consistent guidance on interest rates. Isn't the effect on bond fund NAVs for a given duration and yield delta pretty predictable? Wouldn't losing your shirt on equity funds be multiples of losing your shirt on intermediate or especially short duration bond funds (what most investors are holding)?
I think Cut-Throat may have been being facetious. This has been a prediction by the "experts" for years now. Eventually interest rates will rise, but nobody knows when.

"Lose your shirt" on bonds means a loss of ~5%, which dividends erase in pretty short order. :beer
"Do not value money for any more nor any less than its worth; it is a good servant but a bad master" - Alexandre Dumas
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Cut-Throat
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Re: Whats out of favor now?

Post by Cut-Throat »

floydtime wrote: I think Cut-Throat may have been being facetious. This has been a prediction by the "experts" for years now. Eventually interest rates will rise, but nobody knows when.

"Lose your shirt" on bonds means a loss of ~5%, which dividends erase in pretty short order. :beer
Bingo !! ........Thanks for handling this for me.

That's what the 'Experts' have been saying for a few years now, so I guess that Bonds are 'Still out of Favor'.
gkaplan
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Re: Whats out of favor now?

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