Collective thoughts [investing mini-reference]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Collective thoughts [investing mini-reference]

Postby Robert T » Sat Oct 20, 2007 2:30 pm

.
Some integrated thoughts on various aspects of personal financial investments which may be useful to others.

0. Use a sound framework for making decisions


1. Personalize


2. Structure exposure to risks rewarded with premium returns


3. Diversify globally

4. Minimize costs


5. Policy targets and sample portfolios

    "Over the long haul, what matters is factor exposure and expense" - Bill Bernstein

    Investing for Retirement

    Image
    * The above are the same as my policy targets
    since developing an Investment Policy Statement (IPS)
    at start of 2003. Reasons for the 0.2/0.4 size/value load target (other considerations)

    Note: The factor loads used to construct the first two portfolios listed below are estimated, while those for the second two are assumed (not estimated) and therefore less precise (due to lack of available data). The annual performance of the first two portfolios is expected to be closer to each other than with the second two (as in the recent historical back-tests). Differences will likely be due to: (i) differences in factor exposure across international markets, (ii) differences in term and default exposure in fixed income markets, and (iii) the less precise determination of the portfolio factor loads for the second two portfolios. However, if the factor loads used (in above link) represent the long-term characteristics of the funds, then the long-term returns across all the portfolios are expected to be similar. The back-test returns are derived from actual fund returns when available, and the respective underlying index returns prior to fund inceptions.

    Sample portfolios to try to match above policy targets
    Portfolio sample with iShares, Vanguard, Bridgeway funds [ETF Portfolio]
    Portfolio sample with DFA Tax-Managed funds [DFA Tax-Managed Component Portfolio]

    Image
    Image
    Image
    More detail on the factor load estimates

    Likely performance dispersion of the sample ETF portfolio and acutal performance

    Image

    Image
    Image
    Image
    The RAFI data is from Arnott’s Fundamental Index book, supplemented with data from Powershares. For estimates of US RAFI value and size loads see earlier estimates Arnott (slide 27), which were similar to Bernsteins, the same are assumed for Intl markets.

    Investing for College Education

    Utah currently provides the best 529 option for those who want to use a globally diversified value tilted portfolio for investing for college education. Here is a sample portfolio that matches closely the policy targets (reflected above) of global equity diversification (50:37:13 for US:Non-US Developed:EM ); and a small cap and value tilt (0.3/0.4 size/value load) which are fairly constant across the age-based allocations. The only thing that varies is the the stock:fixed income allocation, and the composition of fixed income with a declining term exposure (increasing inflation protection) over time. This component of fixed income approximately matches the estimated first withdrawal share by the time it is due. While half of equity are in Non-US currencies, all fixed income is in US dollars, and the US dollar composition of the portfolio increased from 55% (0-3yrs) to 90% (+19yrs) when dollar payments are need.

    Utah 529 Customized Age Based Allocation

    Image

6. Ensure consistent implementation

0. Key references

Last edited by Robert T on Sun Jan 26, 2014 6:08 am, edited 55 times in total.
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Postby SmallHi » Sat Oct 20, 2007 4:11 pm

We should make this a sticky!

Great stuff, Robert!

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Re: Collective thoughts

Postby docneil88 » Mon Oct 22, 2007 12:25 am

Muchas gracias Robert T! Best, Neil
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Postby empb » Wed Sep 29, 2010 1:35 pm

Just wanted to give this a quick bump for anyone who's unaware this post exists. It's been an unbelievably helpful resource for me (among others I'm sure). If you bookmark one thread on this site, this is it.
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good post

Postby hollowcave2 » Wed Sep 29, 2010 1:47 pm

Good post with good advice.

The advice, Avoid Mistakes, is easier said than done and nearly impossible to achieve in practice. Everyone wants to avoid mistakes, but we will make them, and we'll learn from them. The best we can hope for, IMHO, is to avoid the really dumb mistakes, which can be avoided through learning and discipline.



:shock:
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Postby JimB66 » Wed Sep 29, 2010 2:31 pm

empb wrote:Just wanted to give this a quick bump for anyone who's unaware this post exists.

Thanks empb. This new forum member was in fact unaware of this post. Bookmarked.
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Postby pkcrafter » Thu Sep 30, 2010 12:27 pm

empb, thanks for bringing up this excellent piece of work from Robert T. He obviously put a lot of work and time into this post.

I looked at several links including this fascinating video on the 1929 crash. Much to learn about risk and behavior here and I highly recommend viewing it.

Here is the link. While this video is a full hour, you might skim through, but I ended up watching almost all of it. The parallel between 1929 and 2000 is remarkable. This video shows what investor sentiment/speculation can do, but it also demonstrates that while investors run with and support speculation, somewhere down inside they know they are on the top of a house of cards. When the fall began it's as if everyone knew it was going to happen and they wanted out in a panic. In other words, the fear was present, but suppressed in favor of the risk of more gains. Also interesting to see how one man tried to turn the tide by publicly buying and almost succeeded. You can't always be a contrarian and make money. You can be right and lose money if the market disagrees with you.

The behavioral experts would call what's going on irrational. We can call it normal human behavior. We have to understand the most common emotional pitfalls and learn to control them if we want to be good investors.

http://www.pbs.org/wgbh/americanexperience/films/crash/player/



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Postby daniel » Mon Oct 18, 2010 2:46 pm

Great post Robert! Thanks for sharing -- super helpful
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Postby exoilman » Mon Oct 18, 2010 3:12 pm

Thanks

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Postby 1210sda » Mon Oct 18, 2010 3:21 pm

As Small Hi said three years ago... we should make this a sticky.

What does it take to make this a sticky....a formal request ??

Personally, by means of this post, it is now in my "view your posts". Sort of my own personal sticky.

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Postby conundrum » Mon Oct 18, 2010 3:29 pm

Thanks empb for the bump and great thanks to Robert T for the original post.

Drum :lol:
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Postby Judsen » Tue Oct 19, 2010 4:22 pm

By means of this post, it is now in my "view your posts".

Or I can search the forum site for Ichabod Crane and find it.
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Postby empb » Sat Nov 06, 2010 9:14 am

pkcrafter wrote:empb, thanks for bringing up this excellent piece of work from Robert T. He obviously put a lot of work and time into this post.

I looked at several links including this fascinating video on the 1929 crash. Much to learn about risk and behavior here and I highly recommend viewing it.

Here is the link. While this video is a full hour, you might skim through, but I ended up watching almost all of it. The parallel between 1929 and 2000 is remarkable. This video shows what investor sentiment/speculation can do, but it also demonstrates that while investors run with and support speculation, somewhere down inside they know they are on the top of a house of cards. When the fall began it's as if everyone knew it was going to happen and they wanted out in a panic. In other words, the fear was present, but suppressed in favor of the risk of more gains. Also interesting to see how one man tried to turn the tide by publicly buying and almost succeeded. You can't always be a contrarian and make money. You can be right and lose money if the market disagrees with you.

The behavioral experts would call what's going on irrational. We can call it normal human behavior. We have to understand the most common emotional pitfalls and learn to control them if we want to be good investors.

http://www.pbs.org/wgbh/americanexperience/films/crash/player/



Paul

Hi Paul,

Thanks for pointing this out. The anecdote about Livermore having an apartment on the other side of the park so his wife didn't have to cross the city to get changed was especially eye-opening. Here's to hoping my SV portfolio produces similar returns!
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Postby Noobvestor » Mon Mar 28, 2011 12:47 pm

I'd like to rebump this for sheer awesomeness with a bull v bear face-off:

Image
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Postby empb » Mon Mar 28, 2011 12:55 pm

Really should be a sticky.
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Postby Cruncher » Tue Mar 29, 2011 2:55 am

Moderators,

Please sticky.

I have not had a chance to read through this all yet. Some may not apply, but wow, what work Robert has put together.

Please?


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Re: Collective thoughts

Postby ST Nathan » Mon Mar 12, 2012 6:18 pm

This is absolutely fantastic and deserves another bump. Robert, after seeing the quality of several of your other posts, I clicked through to your profile specifically hoping that you'd put together something like this, but not even imagining that it would be so comprehensive. Thank you!
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Re: Collective thoughts

Postby xram » Tue Apr 30, 2013 9:30 pm

Bump.....
VTI, VBR, VTWV, SCHH, VXUS, VEA, VWO, VSS, FM, VNQI, VBTLX, VFITX, SCHP, VWITX, IBONDS, EEBONDS, EF(EverBank), UTAH-529
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Re: Collective thoughts

Postby gkaplan » Tue Apr 30, 2013 9:34 pm

You're bumping a year-old thread.
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Re: Collective thoughts

Postby LadyGeek » Tue Apr 30, 2013 9:57 pm

It deserves the bump, as this thread is referenced in the wiki from:


It's also referenced from our sister Canadian site's wiki finiki, the Canadian financial Wiki:


I also moved this thread to the Investing - Theory, News & General forum, as the content is more appropriate here (general investing, theory).
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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Re: Collective thoughts

Postby Noobvestor » Tue Apr 30, 2013 10:03 pm

Time flies ... I can't believe I last bumped this two years ago! Still one of the most useful bookmarks I have under 'financial' ...
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Collective thoughts

Postby pkcrafter » Tue Apr 30, 2013 10:10 pm

gkaplan wrote:You're bumping a year-old thread.

Yes, but it's actually a six year old original post, and it's timeless and worth discovery by newer members.

Thanks again, Robert.


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Re: Collective thoughts

Postby LadyGeek » Tue Apr 30, 2013 10:12 pm

I agree. This thread is now a sticky.
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Re: Collective thoughts

Postby ClosetIndexer » Sun May 05, 2013 2:29 pm

I think the single most fortuitous event in my investing history was clicking on Robert T's profile (because everything I saw his name attached to was fantastic), and then finding this post linked there.
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Re: Collective thoughts

Postby hoops777 » Thu May 09, 2013 12:34 pm

AHHHHHH.What do all those guys know. :D
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Re: Collective thoughts

Postby michaelsieg » Thu Jun 20, 2013 11:28 pm

Thanks for your great contributions Robert.
This is the only thread I have bookmarked and reading your posts has changed the way I approach investing more than any book I have read. Thanks again
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Re: Collective thoughts

Postby Robert T » Sat Jun 22, 2013 6:31 am

.
Thanks to all for your kind words - pleased it is useful to you. I have just updated some of the links as some no-longer worked. I also see that with the earlier 'change over' the links are now to the relevent threads and not to the direct posts (if not the first in the thread). Anyway it seems easy enough to find the relevant posts in the respective threads.

Best,

Robert
.
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Re: Collective thoughts

Postby Blue » Sat Jun 22, 2013 10:10 am

Agree- Love, love, love Robert T's analytical approach to investing.

Curious what your view on liquidity premium is and the pros/cons of trying to capture this premium?
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Re: Collective thoughts

Postby nedsaid » Fri Jun 28, 2013 12:53 am

This is a well thought out set of thoughts and investment philosophies. I like what I read.

It is important that an investor develop certain convictions and strongly held convictions at that. These convictions should be borne out by experience and well supported research.

A few of mine:
Pay attention to valuations.
Buy good stuff and keep it.
Be broadly diversified across asset classes.
Boring is good, boring that pays a dividend is better.
In really bad markets, the only thing that goes up is correlation.
An investor makes his money during bear markets, it just doesn't feel like it at the time.
Pay attention to investor sentiment and money flows.
The buy decision is much easier than the sell decision.
Don't invest all your money in one country, even if it is your own.
Investing is mostly behavioral.

If you have strongly held convictions they will help you stick with your plan when things look bad.

The Original Poster had a great post and I will have to take more time going through it. Looks really good.
A fool and his money are good for business.
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Re: Collective thoughts

Postby garlandwhizzer » Wed Jan 08, 2014 11:37 am

nedsaid wrote:
It is important that an investor develop certain convictions and strongly held convictions at that. These convictions should be borne out by experience and well supported research.

A few of mine:
Pay attention to valuations.
Buy good stuff and keep it.
Be broadly diversified across asset classes.
Boring is good, boring that pays a dividend is better.
In really bad markets, the only thing that goes up is correlation.
An investor makes his money during bear markets, it just doesn't feel like it at the time.
Pay attention to investor sentiment and money flows.
The buy decision is much easier than the sell decision.
Don't invest all your money in one country, even if it is your own.
Investing is mostly behavioral.


I agree with every one of these.

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Re: Collective thoughts [investing mini-reference]

Postby FinancialDave » Thu Mar 20, 2014 11:55 am

I appreciate the fact that the OP has taken the time to apparently edit the chart over the last 6 years to show the tracking results.

Robert, since you like to edit, I saw just one minor thing in section 0. I believe "Write it done" should be "Write it down."

Great post

fd
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