Search found 767 matches

by NiceUnparticularMan
Sun Apr 30, 2017 5:29 pm
Forum: Investing - Theory, News & General
Topic: A test for when risk factors have positive expected returns
Replies: 51
Views: 2988

Re: A test for when risk factors have positive expected returns

Boy I don't know about that. See the numerous indexing vs. tilting threads and all the threads on factor investing. The factor tilting people say they are passive investors too. The passive folks are thinking about portfolio tinkering too. It seems that the factor tilters come up with new "mus...
by NiceUnparticularMan
Sun Apr 30, 2017 5:12 pm
Forum: Investing - Theory, News & General
Topic: Myopic Loss Aversion
Replies: 11
Views: 703

Re: Myopic Loss Aversion

Also it's perfectly rational to measure on a log scale and regard a 20% loss as being bad in the same magnitude as a 25% gain is good, since these are inverses of each other (1-0.2)*(1+0.25)=1, or log(1-0.2)=-log(1+0.25). Also people can reasonably have some kind of non-linear utility function, and...
by NiceUnparticularMan
Sun Apr 30, 2017 5:02 pm
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

Myopic loss aversion, as I understand it, is when investors are worried about losses to the point where they pay too much attention to the short term. I think it is helpful to me a little more specific. Loss aversion in general is the idea we prefer avoiding losses more than we seek getting equival...
by NiceUnparticularMan
Sun Apr 30, 2017 4:24 pm
Forum: Investing - Theory, News & General
Topic: Myopic Loss Aversion
Replies: 11
Views: 703

Re: Myopic Loss Aversion

That's pretty much completely wrong as a description of myopic loss aversion. Indeed, you have entirely taken out both the myopia and the loss parts of that, which is why you are not getting any aversion.
by NiceUnparticularMan
Sun Apr 30, 2017 4:18 pm
Forum: Investing - Theory, News & General
Topic: A test for when risk factors have positive expected returns
Replies: 51
Views: 2988

Re: A test for when risk factors have positive expected returns

The truth about holding periods is this, we just aren't very good at making investment decisions period. The fewer transactions you have, the less chance you have screwing things up. What drags on performance the most aren't commissions or even taxes on the gains, the big drag comes from incorrect ...
by NiceUnparticularMan
Sun Apr 30, 2017 4:05 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

I think it's easy to see the value of EE bonds if you analyze possibilities before ascribing probabilities to certain outcomes. First, let's assume we only need the money after 20 years, as for earlier cash needs EE bonds are obviously incorrect. Again, that's a really, really powerful assumption, ...
by NiceUnparticularMan
Sun Apr 30, 2017 3:57 pm
Forum: Investing - Theory, News & General
Topic: Another "Why Bonds?" / Buffett 90/10 thread..
Replies: 19
Views: 2179

Re: Another "Why Bonds?" / Buffett 90/10 thread..

To be honest, if a retiree is tempted to use anything less than a 3% WR, they should probably buy an immediate annuity that will give them enough guaranteed income in order for them to use at least a 3% WR, if not higher, with their remaining assets. That's where I land too. That said, if you want ...
by NiceUnparticularMan
Sun Apr 30, 2017 3:48 pm
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

The point is that if someone is in the business of offering an expensive "solution" (i.e. professional help) for a "problem" (e.g. investor behavior), then they have a strong financial incentive to discredit the effectiveness of much cheaper options such as education. This in tu...
by NiceUnparticularMan
Sun Apr 30, 2017 3:40 pm
Forum: Investing - Theory, News & General
Topic: Please Explain Small Stock Premium on an Individual Stock Level
Replies: 7
Views: 476

Re: Please Explain Small Stock Premium on an Individual Stock Level

I think the sum has to add up to the total. So what drives the difference in returns and what is their distribution? Has it been studied in the same way as the total market? This document, particularly Section II, contains a good summary of different theories: https://www.msci.com/documents/10199/7...
by NiceUnparticularMan
Sun Apr 30, 2017 2:08 pm
Forum: Investing - Theory, News & General
Topic: Please Explain Small Stock Premium on an Individual Stock Level
Replies: 7
Views: 476

Re: Please Explain Small Stock Premium on an Individual Stock Level

All of the benefits of index investing result from a small percentage of stock gains. For the rest, it would have been better to have simply held T-Bills. There is in academic studies a benefit to small cap stocks over the long haul. What is that benefit at the unit of analysis of individual stocks...
by NiceUnparticularMan
Sun Apr 30, 2017 2:07 pm
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

There is a financial incentive to portray investors as hapless and helpless and needing an advisor to heroically ride in in their shining armor and save the day, for a fee of course. That conclusion doesn't necessarily follow from the premises. In fact the relevant "behavioral mumbo-jumbo"...
by NiceUnparticularMan
Sun Apr 30, 2017 2:05 pm
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

My questions above, however, were made in the context of understanding individual differences in determining how much risk one can or wants to take in setting up an allocation. This could, of course, tie into myopic loss aversion if one takes on too much risk and becomes myopic and focused on the s...
by NiceUnparticularMan
Sun Apr 30, 2017 2:01 pm
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

I believe there is a fourth possibility: using the knowledge of our behavior to protect ourselves. For example, the all-in-one fund. It may not make a difference to the AA and/or tax efficiency whether the investor has a 3 funds portfolio or an all-in-one fund plus one approach. But, the all-in-one...
by NiceUnparticularMan
Sun Apr 30, 2017 1:59 pm
Forum: Investing - Theory, News & General
Topic: Benefits and methods for Gradual Rebalancing
Replies: 36
Views: 2078

Re: Benefits and methods for Gradual Rebalancing

You are correct and that's a good observation. If we set the annual rebalancer to 12 months it will have a slight lead. But if we did that, I think it should be possible to correct for that by giving the accounts of investor B slightly more aggressive starting allocations that will be caught up to ...
by NiceUnparticularMan
Sun Apr 30, 2017 1:42 pm
Forum: Investing - Theory, News & General
Topic: A test for when risk factors have positive expected returns
Replies: 51
Views: 2988

Re: A test for when risk factors have positive expected returns

The strategy that you cite does contradict this because stocks migrate. Well, say you just have two dimensions--size and value. There is good reason to believe once the value part is done, the game is over and it is time to move on. Growing size IF you also still have value is maybe less of a conce...
by NiceUnparticularMan
Sun Apr 30, 2017 1:08 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

but there are scenarios with less than 0% probability in which EE Bonds could do better than stocks or other fixed income over a 20-year time period, so they could help. I am not yet persuaded to hold them in my portfolio, but I see the case for it. Assuming you meant more than 0% probability--you ...
by NiceUnparticularMan
Sun Apr 30, 2017 12:58 pm
Forum: Investing - Theory, News & General
Topic: Diversifying Power of Longer Term US Treasuries
Replies: 59
Views: 20885

Re: Diversifying Power of Longer Term US Treasuries

Theoretical wrote:Now a revolution is a different situation, but short of individually holding some German, British, Swiss and Japanese bonds or gold, no financial instrument will help.


Right, I meant a REALLY severe event. International assets might be the best negative correlation assets in such circumstances.
by NiceUnparticularMan
Sun Apr 30, 2017 10:27 am
Forum: Investing - Theory, News & General
Topic: Harry Browne Permanent Portfolio Discussion (Cont'd)
Replies: 582
Views: 133581

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Not much point continuing this discussion, because it doesn't really relate to investing today, but I'll just point out that your solution assumes you know exactly where to buy these properties, and you have the money to buy property in multiple countries. That seems unlikely for most people. Right...
by NiceUnparticularMan
Sun Apr 30, 2017 10:15 am
Forum: Investing - Theory, News & General
Topic: Benefits and methods for Gradual Rebalancing
Replies: 36
Views: 2078

Re: Benefits and methods for Gradual Rebalancing

You can see here that at the yearly rebalancing has less stocks at the start of the period than gradual rebalancing and more near the end. That can't be right. January you put $60000 in stock and $40000 in bonds. Over a month, stocks go up 1%, bonds up 0.5%. February you have $60600 in stocks and $...
by NiceUnparticularMan
Sun Apr 30, 2017 8:37 am
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

When looking at your investing goals, you should consider all the options available. Saving as much as possible is almost always a prudent choice. Although this is a heterodox view, I want to push back a little on that. I think for many people here, "saving as much as possible" is just a ...
by NiceUnparticularMan
Sun Apr 30, 2017 8:24 am
Forum: Investing - Theory, News & General
Topic: Should we treat investors' tolerance for volatility as fixed?
Replies: 86
Views: 2409

Re: Should we treat investors' tolerance for volatility as fixed?

Who does not have an emotional need for stability? And why would perceiving it in oneself amount to being held hostage to it? And why would it all lead to their detriment and not their well-being? So the reason this is sometimes called "myopic loss aversion" is that in focusing on avoidin...
by NiceUnparticularMan
Sun Apr 30, 2017 7:53 am
Forum: Investing - Theory, News & General
Topic: Another "Why Bonds?" / Buffett 90/10 thread..
Replies: 19
Views: 2179

Re: Another "Why Bonds?" / Buffett 90/10 thread..

So one way to look at this is if you already have an emergency fund, you're not really 100% stocks anyway. Presumably you won't rebalance with that, however. So, do you want to add a second fund which has a sort of dual-purpose: you could use it as a second emergency fund in a pinch, OR you could us...
by NiceUnparticularMan
Sun Apr 30, 2017 5:54 am
Forum: Investing - Theory, News & General
Topic: A test for when risk factors have positive expected returns
Replies: 51
Views: 2988

Re: A test for when risk factors have positive expected returns

My belief is that you try to buy good companies at a discount. If as a Value investor, if I hold a good company that becomes a great one, why would I sell it just because it has gone from Value to Growth? As long as valuations are reasonable and there are good prospects for the future, I would be i...
by NiceUnparticularMan
Sun Apr 30, 2017 5:38 am
Forum: Investing - Theory, News & General
Topic: Diversifying Power of Longer Term US Treasuries
Replies: 59
Views: 20885

Re: Diversifying Power of Longer Term US Treasuries

can we conclude that during a bear market caused by a financial crisis/Deflation, Long-Term US Treasuries are very likely to have the higher negative correlation to stocks compared to other types of bonds or fixed income? I'd say mostly yes, with a caveat. Generally bonds of longer duration should ...
by NiceUnparticularMan
Sat Apr 29, 2017 11:56 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

Well it's just math, and your confidence is misplaced. Start any time you want, as long as you can get four independent 20-year periods. The mean is not necessarily the same for rolling periods and independent periods covering the same time span. You very much cannot "start any time you want&q...
by NiceUnparticularMan
Sat Apr 29, 2017 11:33 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

Some folks are 100% stocks and that is fine for them; I think many people overestimate their true risk tolerance but some don't, and some can tolerate 100% stocks, and you may be one of them. I didn't say I was 100% stocks, and I am not. 15% of our portfolio is in a combination of a stable value fu...
by NiceUnparticularMan
Sat Apr 29, 2017 11:02 pm
Forum: Investing - Theory, News & General
Topic: Harry Browne Permanent Portfolio Discussion (Cont'd)
Replies: 582
Views: 133581

Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Actually, it did. You could carry it with you as you ran away and hid. Try that with a factory or a vineyard. Scenario 1: You have one estate in Locale A, and another estate in Locale B. As some disaster sweeps through Locale A, you flee to that estate in Locale B. Scenario 2: You have an estate in...
by NiceUnparticularMan
Sat Apr 29, 2017 10:49 pm
Forum: Investing - Theory, News & General
Topic: Benefits and methods for Gradual Rebalancing
Replies: 36
Views: 2078

Re: Benefits and methods for Gradual Rebalancing

Interesting theory but I'm curious why you think investor A will have a higher average time in stocks. In the month just after annual rebalancing, stocks go up by 0.5% relative to bonds. More or less, this is the central expectation. Portfolio A will let this additional allocation to stocks ride fo...
by NiceUnparticularMan
Sat Apr 29, 2017 7:53 pm
Forum: Investing - Help with Personal Investments
Topic: TSP Lifecycle Funds/G Fund Too Conservative?
Replies: 43
Views: 2431

Re: TSP Lifecycle Funds/G Fund Too Conservative?

And what happens if 10, 20 years down the road the economic forecasts change? Do they change the composition of the LifeCycle funds? Potentially yes. From the documents I have seen over time, they have a bias against making changes. But if their asset models suggested they were really off track, th...
by NiceUnparticularMan
Sat Apr 29, 2017 7:46 pm
Forum: Investing - Help with Personal Investments
Topic: TSP Lifecycle Funds/G Fund Too Conservative?
Replies: 43
Views: 2431

Re: TSP Lifecycle Funds/G Fund Too Conservative?

In particular, a backward-looking computation based on actual numbers would favor the F fund. Interest rates have declined over most of the TSP's existence, and this has caused the F fund to earn more than its yield. (Since the TSP holds index funds, it would be possible to compute hypothetical ret...
by NiceUnparticularMan
Sat Apr 29, 2017 7:41 pm
Forum: Investing - Help with Personal Investments
Topic: Am I missing something when it comes to CDs?
Replies: 3
Views: 561

Re: Am I missing something when it comes to CDs?

Not really, no. For money you think you will need in more than 2 years but less than 5, the best CD you can find may be the best you can do.
by NiceUnparticularMan
Sat Apr 29, 2017 7:34 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

As I said before, that's due to the fact that most 20 year rolling periods do not include the Great Depression. That one event has a huge impact on the data when viewed in their entirety. I'm just going to note again that if you are worried about that scenario, you really want long bonds you can us...
by NiceUnparticularMan
Sat Apr 29, 2017 7:31 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

Well, the part I underlined is easy to prove wrong. For rolling 20-year periods since 1929, the mean (expected value) of 20-year cumulative returns is 833% and the standard deviation of those returns is 470%. For the four independent 20-year periods since 1929, the mean is 599% and the SD is 591%. ...
by NiceUnparticularMan
Sat Apr 29, 2017 7:11 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

But at least you are consistent. You don't own TBM, you don't own long bonds, and I believe you said you don't own any fixed income outside of a cash emergency fund. I grant you this: EE bonds clearly make no sense for you. Actually, I own a small portion of long TIPS through a Real Return fund. I ...
by NiceUnparticularMan
Sat Apr 29, 2017 9:16 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

If you don't want to hold long term bonds, then EE bonds make no sense. But, if you hold TBM or another bond fund, then one might want to check if they are holding long bonds in their funds. To be frank, TBM doesn't make sense to me either. Again, bonds in my view are risk-management tools. Differe...
by NiceUnparticularMan
Sat Apr 29, 2017 9:07 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

This is how I designed my portfolio: 1) How much risk can I handle taking in stocks without ever freaking out? 2) Decide on my AA between stocks and bonds 3) Decide how to implement the bond and stock side of my portfolio separately. So this is indeed the approach that doesn't make sense to me. Sto...
by NiceUnparticularMan
Sat Apr 29, 2017 8:42 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

There are no scenarios of this that don't involve doing something wrong or being able to see the future. It's like saying there are some scenarios where $10 is worth more than $20. There is a large deflationary event. Long bonds significantly increase in market value while stocks crash. You want to...
by NiceUnparticularMan
Sat Apr 29, 2017 8:34 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

If you’re taking out all of the earnings, then I think you need to worry about dilution. I believe Bill Bernstein and Rob Arnott estimated (pdf) 2% dillution, and that Bernstein later posted here that dilution more recently has been 1%. Absolutely! I think in practice this means you should in fact ...
by NiceUnparticularMan
Sat Apr 29, 2017 8:20 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

So the simple answer to the OP's question is, "I think that there's a reasonable probability that stocks will return less than 3.5% over the next 20 years." You, the OP, and the other vocal critics of this view can disagree, but I don't see you changing any minds of the vocal EE bond prop...
by NiceUnparticularMan
Sat Apr 29, 2017 8:12 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

This doesn't say anything meaningful. We are now at "How many angels can dance on the head of a pin"? I quite disagree. The huge penalty for early withdrawal from EE bonds is a very important consideration. That makes them unlike other long bonds. There are no scenarios of this that don't...
by NiceUnparticularMan
Sat Apr 29, 2017 7:48 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

I don't have a strong statistics background, so can't really argue the case, but I don't think our two vocal EE-bond critics have presented a compelling argument that justify using rolling 20-year periods for a valid statistical analysis from which we can determine a statistically valid 20-year exp...
by NiceUnparticularMan
Sat Apr 29, 2017 7:40 am
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: I don't understand the case for EE bonds

letsgobobby wrote:We're nearing 10 years of low growth, low inflation.

No reason we won't have 10, or 20 more.


And compounded earnings has returned way more than 3.5% nominal in that period.
by NiceUnparticularMan
Sat Apr 29, 2017 7:37 am
Forum: Investing - Theory, News & General
Topic: Benefits and methods for Gradual Rebalancing
Replies: 36
Views: 2078

Re: Benefits and methods for Gradual Rebalancing

Let me try to give a better example. Let's say investor A invests $120,000 with a 60/40 allocation into one account, and rebalances yearly on January. Investor B also invests $120,000 with a 60/40 allocation, but spreads it over 12 accounts $10,000 each. He or she rebalances the first account every...
by NiceUnparticularMan
Sat Apr 29, 2017 7:10 am
Forum: Investing - Help with Personal Investments
Topic: Does Portfolio Size Influence Stock/Bond Allocation?
Replies: 42
Views: 3698

Re: Does Portfolio Size Influence Stock/Bond Allocation?

When many people say "bonds," they are talking about risky bonds, subject to downgrades, or long-term bonds that are exposed to a great deal of interest rate risk. These are not good proxies for risk-free investing. According to finance theory, there is an optimal proportion of your portf...
by NiceUnparticularMan
Sat Apr 29, 2017 7:05 am
Forum: Investing - Help with Personal Investments
Topic: Retirement income for 50+ years?
Replies: 126
Views: 9414

Re: Retirement income for 50+ years?

Over time a portfolio like this has been repeatedly recommended for large taxable accounts, and it makes sense to me: $2 million total stock $1 million total international stock $1 million your state muni bond index fund $1 million national muni bond index fund That's 60:40, but you could adjust it ...
by NiceUnparticularMan
Sat Apr 29, 2017 7:00 am
Forum: Investing - Help with Personal Investments
Topic: TSP Lifecycle Funds/G Fund Too Conservative?
Replies: 43
Views: 2431

Re: TSP Lifecycle Funds/G Fund Too Conservative?

I was thinking it might not be too hard to come up with an estimate for the efficient frontier for the TSP, since all one needs are the prices for the funds over time, which are available on the web. Dividends are baked into the prices. The TSP employs economic consultants who do this on a forward-...
by NiceUnparticularMan
Fri Apr 28, 2017 4:04 pm
Forum: Investing - Help with Personal Investments
Topic: Stay Out Of REITs?
Replies: 32
Views: 3502

Re: Stay Out Of REITs?

rattlenap wrote:Why would you want the TSM to exclude REITs? They are stocks anyway.


I view ordinary company stocks and REITs as different, in the same sense corporate bonds and company stocks are different (but even more so).
by NiceUnparticularMan
Fri Apr 28, 2017 3:54 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

I'll take that a step further and say that it would likely be a rare investor indeed for whom liquidity truly did not matter but volatility did. Yep. Really, the scenario would have to be something like a known nominal liability in 20 years, at which point you could maybe argue any volatility aroun...
by NiceUnparticularMan
Fri Apr 28, 2017 3:50 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

People on this board keep trying to compare EE bonds to stocks and other investments. They should only be compared to long term bonds. They are actually like none of those things, all in very important albeit different ways. On this logic you should compare them to nothing. But the practical invest...
by NiceUnparticularMan
Fri Apr 28, 2017 3:40 pm
Forum: Investing - Theory, News & General
Topic: I don't understand the case for EE bonds
Replies: 320
Views: 16032

Re: something odd regarding EE bonds

I guess you can make an argument that they beat Treasuries... what is the 20-year Treasury rate now? 2.69%. I think it's hard to reinvest Treasury interest and no guarantee of getting the same effective rate as the initial coupon... but anyway, $10,000 for 20 years at 2.69% compounded gets you $17,...

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