The Final, Definitive Thead on Value
The Final, Definitive Thead on Value
I think the numerous threads about the "value premium" have gotten a little old. As a public service, I thought I would put together a single post that summarized all of the views on this subject so that new people to the forum don't have to dig through the endless series of old threads.
____________
These threads can commonly start with a seeming innocuous question like, "I've been reading some of the comments about value tilting and I'm not sure. I don't really believe I can beat the market any longer, but the data seems rather convincing to me. What should I do?"
Larry Swedore will reply that yes, there is a value premium. One should be at least somewhat careful in exploiting it because value stocks are riskier, but there is also a behavioral element to it, making it more a "free stop at the dessert tray" rather than a "free lunch"
Yobria receives an alert on his smartphone anytime there is a post on Bogleheads where Larry uses the words "value", "free", and "dessert" in the same post. Upon receiving the alert he springs into action and notes that since inception, the Vanguard Small Growth Fund (a category that Larry refers to as an investing "black hole") has outperformed Small Value.
Larry responds that over a somewhat longer time period, the Fama/French Small-Value series has outperformed the S&P 500.
Someone will then opine that we should be looking at a much longer time period before making any definitive historical judgments.
Larry will then post F/F returns from 1526 to present showing that Value outperforms growth.
Someone will then criticize Larry's data, saying that data prior to 1750 is bad and that only an idiot would rely on it.
Someone will then opine that we should be looking at returns post-Fama/French, as the idea of a value premium was not well known since then. Exasperated, Larry reposts his original set of returns.
Someone will refer to John Bogle's telltale chart, which shows that value/growth funds have always reverted to the mean since the time of Christ.
Someone will then say Bogle is an idiot. Value managers actually invest in growth stocks. That's why the risky stop at the free dessert tray exists--active managers won't touch real value stocks. Hence, value stocks outperform.
Somebody will then post some S&P index returns.
Yobria will opine that you can cherry pick any period you want to, but the market is efficient and any anomalies are quickly traded away.
Larry will post more F/F returns showing value outperformance, noting that "data is data, facts are facts."
Yobria will reply that there are "lies, damn lies, and statistics."
Someone will compare Yobria to a Holocaust denier.
Someone will post some MSCI Index returns.
Stlutz will try to change the subject and claim that there is no reason to "expect" that risky investments will outperform; there is only "potential" outperformance.
Someone will tell stlutz she is and idiot and should read a first grade math textbook.
Someone will agree that stlutz is an idiot.
Someone will say that they don't care about the past, they only care about the future.
Someone will denouce Larry, claiming that he is merely trying to generate business for his firm. Moderator locks thread. Two people who had spent an hour composing what they thought were brilliant posts hit "submit" and get the message, "Thread locked." Frustrated, they go to bed.
Larry is more resourceful than the other two and starts and new thread called "Vanguard Small Value" and posts some DFA fund returns.
A DFA Advisor will say, "Great post Larry! I feel sorry for all of these idiots investing with Vanguard. They only have a 7% expected return there. If they invested with DFA value funds, their expected return would be 15%." Poster puts in 2 point font at end, "Note: expected returns and actual returns may differ."
Yobria denounces the "DFA Marketing Machine", noting that they may sell a good story but smart investors know there are no free lunches nor free stops at the dessert tray.
A new registrant to Bogleheads asks, "What's DFA?"
Larry says that DFA actually sucks and Bridgeway rules.
Nisiprius composes a long, eloquent, well thought-out post with 6 beautiful charts, concluding that if one looks at it at a portfolio level and equalizes risk between portfolios, tilting is really an uncertain proposition. Looking at historical data back to 1356 BC, you would have outperformed by about .2%, which is really just a rounding error.
Four posters will quote Nisi's entire post (including charts), and add nothing but "Great post, Nisiprius. How'd you make those charts?". Discussion resumes on page 12 of thread.
Somebody opines that Nisiprius' charts suck. He tells people to check out the really cool return listings and charts from TrevH's post on page 38 of the 276 page value thread from back in 2008 (link).
Mel Lindauer says that everyone who has posted thus far is an idiot. He posts some returns showing that the Vanguard Midcap fund has outformed both TSM and SV.
Mel's post goes unloved and gets no responses.
Yobria will post quotes from Eugene Fama and William Bernstein endorsing total market investing.
Someone will denounce Yobria and say that the aforementioned authors love value stocks more than their families.
LBill will note that has has actually read the books in question and says that both writers believe there is a value premium but they aren't particular dogmatic that people should try to capture it--TSM is great too.
Someone calls LBill an idiot.
Someone will ask about the wisdom of investing *only* in small/value stocks.
Yobria will say that the idea is idioitic. That would be no different than just picking stocks headquartered in Milwaukee.
Larry will reply that there is a risk story for value; there is not a risk story for Milwaukee companies.
Someone will reply, "Have you ever been to Milwaukee?"
Someone who rarely posts in the value debates will note that among the 10 most important things in investing, whether to tilt ranks about 8th in importance. It's much more important to focus on saving a lot, having a good plan, staying the course, etc.
Discussion comes to a halt as posters don't know how to respond to such an intelligent point.
Someone will try to get things going again by posting some Russell Index returns.
Someone will say that Yobria is an idiot for abandoning RZV after it's spectacular recovery from the 2008 crash.
Someone will question whether investors really captured all of these historical returns.
Larry replies that you could have, and posts some more DFA fund returns.
Someone else says, "No you couldn't have".
Someone else says, "Could too".
Someone asks, "Don't you all have jobs?"
End of thread.
___________________
There. That should provide an adequate replay of pretty much all of these threads. Mods.: Please make this a sticky.
____________
These threads can commonly start with a seeming innocuous question like, "I've been reading some of the comments about value tilting and I'm not sure. I don't really believe I can beat the market any longer, but the data seems rather convincing to me. What should I do?"
Larry Swedore will reply that yes, there is a value premium. One should be at least somewhat careful in exploiting it because value stocks are riskier, but there is also a behavioral element to it, making it more a "free stop at the dessert tray" rather than a "free lunch"
Yobria receives an alert on his smartphone anytime there is a post on Bogleheads where Larry uses the words "value", "free", and "dessert" in the same post. Upon receiving the alert he springs into action and notes that since inception, the Vanguard Small Growth Fund (a category that Larry refers to as an investing "black hole") has outperformed Small Value.
Larry responds that over a somewhat longer time period, the Fama/French Small-Value series has outperformed the S&P 500.
Someone will then opine that we should be looking at a much longer time period before making any definitive historical judgments.
Larry will then post F/F returns from 1526 to present showing that Value outperforms growth.
Someone will then criticize Larry's data, saying that data prior to 1750 is bad and that only an idiot would rely on it.
Someone will then opine that we should be looking at returns post-Fama/French, as the idea of a value premium was not well known since then. Exasperated, Larry reposts his original set of returns.
Someone will refer to John Bogle's telltale chart, which shows that value/growth funds have always reverted to the mean since the time of Christ.
Someone will then say Bogle is an idiot. Value managers actually invest in growth stocks. That's why the risky stop at the free dessert tray exists--active managers won't touch real value stocks. Hence, value stocks outperform.
Somebody will then post some S&P index returns.
Yobria will opine that you can cherry pick any period you want to, but the market is efficient and any anomalies are quickly traded away.
Larry will post more F/F returns showing value outperformance, noting that "data is data, facts are facts."
Yobria will reply that there are "lies, damn lies, and statistics."
Someone will compare Yobria to a Holocaust denier.
Someone will post some MSCI Index returns.
Stlutz will try to change the subject and claim that there is no reason to "expect" that risky investments will outperform; there is only "potential" outperformance.
Someone will tell stlutz she is and idiot and should read a first grade math textbook.
Someone will agree that stlutz is an idiot.
Someone will say that they don't care about the past, they only care about the future.
Someone will denouce Larry, claiming that he is merely trying to generate business for his firm. Moderator locks thread. Two people who had spent an hour composing what they thought were brilliant posts hit "submit" and get the message, "Thread locked." Frustrated, they go to bed.
Larry is more resourceful than the other two and starts and new thread called "Vanguard Small Value" and posts some DFA fund returns.
A DFA Advisor will say, "Great post Larry! I feel sorry for all of these idiots investing with Vanguard. They only have a 7% expected return there. If they invested with DFA value funds, their expected return would be 15%." Poster puts in 2 point font at end, "Note: expected returns and actual returns may differ."
Yobria denounces the "DFA Marketing Machine", noting that they may sell a good story but smart investors know there are no free lunches nor free stops at the dessert tray.
A new registrant to Bogleheads asks, "What's DFA?"
Larry says that DFA actually sucks and Bridgeway rules.
Nisiprius composes a long, eloquent, well thought-out post with 6 beautiful charts, concluding that if one looks at it at a portfolio level and equalizes risk between portfolios, tilting is really an uncertain proposition. Looking at historical data back to 1356 BC, you would have outperformed by about .2%, which is really just a rounding error.
Four posters will quote Nisi's entire post (including charts), and add nothing but "Great post, Nisiprius. How'd you make those charts?". Discussion resumes on page 12 of thread.
Somebody opines that Nisiprius' charts suck. He tells people to check out the really cool return listings and charts from TrevH's post on page 38 of the 276 page value thread from back in 2008 (link).
Mel Lindauer says that everyone who has posted thus far is an idiot. He posts some returns showing that the Vanguard Midcap fund has outformed both TSM and SV.
Mel's post goes unloved and gets no responses.
Yobria will post quotes from Eugene Fama and William Bernstein endorsing total market investing.
Someone will denounce Yobria and say that the aforementioned authors love value stocks more than their families.
LBill will note that has has actually read the books in question and says that both writers believe there is a value premium but they aren't particular dogmatic that people should try to capture it--TSM is great too.
Someone calls LBill an idiot.
Someone will ask about the wisdom of investing *only* in small/value stocks.
Yobria will say that the idea is idioitic. That would be no different than just picking stocks headquartered in Milwaukee.
Larry will reply that there is a risk story for value; there is not a risk story for Milwaukee companies.
Someone will reply, "Have you ever been to Milwaukee?"
Someone who rarely posts in the value debates will note that among the 10 most important things in investing, whether to tilt ranks about 8th in importance. It's much more important to focus on saving a lot, having a good plan, staying the course, etc.
Discussion comes to a halt as posters don't know how to respond to such an intelligent point.
Someone will try to get things going again by posting some Russell Index returns.
Someone will say that Yobria is an idiot for abandoning RZV after it's spectacular recovery from the 2008 crash.
Someone will question whether investors really captured all of these historical returns.
Larry replies that you could have, and posts some more DFA fund returns.
Someone else says, "No you couldn't have".
Someone else says, "Could too".
Someone asks, "Don't you all have jobs?"
End of thread.
___________________
There. That should provide an adequate replay of pretty much all of these threads. Mods.: Please make this a sticky.
Re: The Final, Definitive Thead on Value
stlutz wrote:Ithinkthenumerousthreadsaboutthe"valuepremium"havegottenalittleold.Asapublicservice,IthoughtIwouldputtogetherasinglepos
tthatsummarizedalloftheviewsonthissubjectsothatnewpeopletotheforumdon'thavetodigthroughtheendlessseriesofoldthreads.Thesethrea
dscancommonlystartwithaseeminginnocuousquestionlike,"I'vebeenreadingsomeofthecommentsaboutvaluetiltingandI'mnotsure.Idon'treal
lybelieveIcanbeatthemarketanylonger,butthedataseemsratherconvincingtome.WhatshouldIdo?"LarrySwedorewillreplythatyes,thereisava
luepremium.Oneshouldbeatleastsomewhatcarefulinexploitingitbecausevaluestocksareriskier,butthereisalsoabehavioralelementtoit,mak
ingitmorea"freestopatthedesserttray"ratherthana"freelunch"YobriareceivesanalertonhissmartphoneanytimethereisapostonBogleheadswh
ereLarryusesthewords"value","free",and"dessert"inthesamepost....
Nice post.
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Re: The Final, Definitive Thead on Value
Done (for now). Thank you for your service.stlutz wrote:There. That should provide an adequate replay of pretty much all of these threads. Mods.: Please make this a sticky.
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Re: The Final, Definitive Thead on Value
Ok, the whole entire top post made me laugh.
Thanks stlutz!
Thanks stlutz!
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Re: The Final, Definitive Thead on Value
I thoroughly enjoyed this post.
Now on to the historical returns for the Russell 2000....
Now on to the historical returns for the Russell 2000....
Re: The Final, Definitive Thead on Value
Right on!
Please feel encouraged to create other "Final, Definitive" threads.
Please feel encouraged to create other "Final, Definitive" threads.
Re: The Final, Definitive Thead on Value
Number of mentions in the full post:stlutz wrote:I think the numerous threads about the "value premium" have gotten a little old. As a public service, I thought I would put together a single post that summarized all of the views on this subject so that new people to the forum don't have to dig through the endless series of old threads.
...
idiot - 8
Yobria - 9
Larry - 14
Someone - 21
Someone is a clear winner of the value debate.
Victoria
Inventor of the Bogleheads Secret Handshake |
Winner of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
Re: The Final, Definitive Thead on Value
Awesome, true, and funny all in one.
Great job
Great job
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Re: The Final, Definitive Thead on Value
And that's the way it is. Very nice insight on value threads! Thank you
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Re: The Final, Definitive Thead on Value
It's not a thread,livesoft wrote:Right on! Please feel encouraged to create other "Final, Definitive" threads.
it's a thead.
A thead is a kind of snood, worn by an HTML elephant who sits at the head of a table.
And that's the definitive thead.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: The Final, Definitive Thead on Value
Aww, you forgot the part where Larry calls me "a denier", finds my post "amazing, though not surprising", and notes that "In my entire life I have never seen anyone make more a fool of themselves"
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Re: The Final, Definitive Thead on Value
Awesome ! Deserves a hourly bump !!
Hey but you forgot "markets don't consult the history books before deciding which way to move" - Yobria, 2012
Hey but you forgot "markets don't consult the history books before deciding which way to move" - Yobria, 2012
Re: The Final, Definitive Thead on Value
I realize I also omitted any mention of Ken Scislaw's paper and whether it's been to listen him or to Nobel Prize winners (the kind who ran LTCM).
- 3CT_Paddler
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Re: The Final, Definitive Thead on Value
I lol'd at this part... probably guilty of being one of those eloquent Nisiprius' post admirers.stlutz wrote:Nisiprius composes a long, eloquent, well thought-out post with 6 beautiful charts, concluding that if one looks at it at a portfolio level and equalizes risk between portfolios, tilting is really an uncertain proposition. Looking at historical data back to 1356 BC, you would have outperformed by about .2%, which is really just a rounding error.
Four posters will quote Nisi's entire post (including charts), and add nothing but "Great post, Nisiprius. How'd you make those charts?". Discussion resumes on page 12 of thread.
Boglehead Hall of Fame material by the OP!!!
- WolfpackFan
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Re: The Final, Definitive Thead on Value
thread of the year!
Re: The Final, Definitive Thead on Value
Hey now, you'll see me quoting Fama and French as much as Scislaw. I'm in complete agreement with the academic crowd. It's the marketing folks I have a beef with.stlutz wrote:I realize I also omitted any mention of Ken Scislaw's paper and whether it's been to listen him or to Nobel Prize winners (the kind who ran LTCM).
- dratkinson
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Re: The Final, Definitive Thead on Value
Wow! This is first value thread I've been able to follow from beginning to end.
You saved me a lot of time. Thanks.
P.S. Prior to this post, my takeaway had been "...it requires a 30+% SV commitment, for 20+ years, to achieve a (barely) discernible effect."
You saved me a lot of time. Thanks.
P.S. Prior to this post, my takeaway had been "...it requires a 30+% SV commitment, for 20+ years, to achieve a (barely) discernible effect."
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
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Re: The Final, Definitive Thead on Value
Awesome post , make it a wiki page .
"Everything should be as simple as it is, but not simpler." - Albert Einstein |
Wiki article link: Bogleheads® investment philosophy
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Re: The Final, Definitive Thead on Value
My hat is off to you, sir. This is hilarious, apt, and dare I add: helpful as a sticky. Hat trick + hat tip =stlutz wrote:I think the numerous threads about the "value premium" have gotten a little old. As a public service, I thought I would put together a single post that summarized all of the views on this subject so that new people to the forum don't have to dig through the endless series of old threads.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
Re: The Final, Definitive Thead on Value
If the OP is looking for ideas, how about "The Final, Definitive Thread on Risk"?livesoft wrote:Right on!
Please feel encouraged to create other "Final, Definitive" threads.
Victoria
Inventor of the Bogleheads Secret Handshake |
Winner of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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"Someone"
That "Someone" must be me. This is a link to John Bogle's telltale chart:Someone will refer to John Bogle's telltale chart, which shows that value/growth funds have always reverted to the mean since the time of Christ.
http://www.vanguard.com/bogle_site/sp20020626.html
Stlutz, for those of us who regularly visit this forum, your post is Classic!
Thank you and best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: The Final, Definitive Thead on Value
Please, first do the one on gold.VictoriaF wrote:If the OP is looking for ideas, how about "The Final, Definitive Thread on Risk"?livesoft wrote:Right on!
Please feel encouraged to create other "Final, Definitive" threads.
Victoria
Keith
Déjà Vu is not a prediction
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Re: The Final, Definitive Thead on Value
Next DCA! (Leave VA until later.)umfundi wrote:Please, first do the one on gold.VictoriaF wrote:If the OP is looking for ideas, how about "The Final, Definitive Thread on Risk"?livesoft wrote:Right on!
Please feel encouraged to create other "Final, Definitive" threads.
Victoria
Keith
Then do one with all those logic problems, You know, the first child, a son, not a daughter, picks one of three cards on a Tuesday and gets a King that's not a Spade, then decides to switch to Monty Hall problem.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
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Re: The Final, Definitive Thead on Value
OP left out the most important part of any thread - the one where chaz opines, "_______ is good."
-Grandpa |
I'd rather see where I'm going than see where I've been.
Re: The Final, Definitive Thead on Value
Yobria said:
-ingenue
Am I the only one who finds it amusing that "denier" is also a measure of linear thread density?Aww, you forgot the part where Larry calls me "a denier", finds my post "amazing, though not surprising", and notes that "In my entire life I have never seen anyone make more a fool of themselves"
-ingenue
Re: The Final, Definitive Thead on Value
it should say "read the wiki."gotherelate wrote:OP left out the most important part of any thread - the one where chaz opines, "_______ is good."
Re: The Final, Definitive Thead on Value
Spot on! I laughed so hard I choked.
Even educators need education. And some can be hard headed to the point of needing time out.
Re: The Final, Definitive Thead on Value
You mean a thread on linear regression with some dense participants?ingenue wrote:Yobria said:Am I the only one who finds it amusing that "denier" is also a measure of linear thread density?Aww, you forgot the part where Larry calls me "a denier", finds my post "amazing, though not surprising", and notes that "In my entire life I have never seen anyone make more a fool of themselves"
-ingenue
Victoria
Inventor of the Bogleheads Secret Handshake |
Winner of the 2015 Boglehead Contest. |
Every joke has a bit of a joke. ... The rest is the truth. (Marat F)
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Re: The Final, Definitive Thead on Value
We had a couple of mean-spirited replies. I'm going to lock it.