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by larryswedroe
Mon Feb 08, 2016 6:37 pm
Forum: Investing - Theory, News & General
Topic: A look at the small cap premium
Replies: 11
Views: 1026

Re: A look at the small cap premium

The S&P 500 is like CRSP 1-2, midcaps are like 3-5 and small 6-10
Larry
by larryswedroe
Mon Feb 08, 2016 8:51 am
Forum: Investing - Theory, News & General
Topic: Dividend Reliability Studies
Replies: 14
Views: 1032

Re: Dividend Reliability Studies

Kalo Unfortunately, IMO that article chose to do what many do which is to limit the data to the post 63 period, ignoring the fact that the very period where value risk is most likely to show up, the Great Depression, gets missed, and the data is there. Include the period and you see that value has b...
by larryswedroe
Mon Feb 08, 2016 8:41 am
Forum: Investing - Theory, News & General
Topic: A look at the small cap premium
Replies: 11
Views: 1026

A look at the small cap premium

http://www.etf.com/sections/index-investor-corner/swedroe-small-caps-still-outperforming
Debunking the claims of an article claiming the small cap premium had disappeared, and then went on to claim, but you can time it to your benefit
Hope you find it helpful.
Larry
by larryswedroe
Sun Feb 07, 2016 7:34 pm
Forum: Investing - Theory, News & General
Topic: Dividend Reliability Studies
Replies: 14
Views: 1032

Re: Dividend Reliability Studies

Kalo Value stocks are the stocks of RISKIER COMPANIES. And in fact their SD of price is also higher both in large and in small, another measure of risk---when you use the longest data series we have. They have lower prices to book market or earnings, etc. That is what he meant by margin of safety. T...
by larryswedroe
Sun Feb 07, 2016 7:22 pm
Forum: Investing - Theory, News & General
Topic: Dividend Reliability Studies
Replies: 14
Views: 1032

Re: Dividend Reliability Studies

what I can say is that the research found that the SD of dividends of value stocks (along with the SD of earnings) is much higher for value than for growth---and that is a simple risk story for the value premium
Larry
by larryswedroe
Sun Feb 07, 2016 9:19 am
Forum: Investing - Theory, News & General
Topic: CAPM & inability to borrow at riskfree rate
Replies: 3
Views: 347

Re: CAPM & inability to borrow at riskfree rate

Few thoughts, First, the CAPM was the first factor model, and like all models they are flawed, or wrong, otherwise they would be laws, like we have in physics. Now that doesn't mean they don't have value because a model can help advance our understanding of how markets work. Second, among the flaws ...
by larryswedroe
Sat Feb 06, 2016 4:34 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Rod Again we are in complete agreement, in fact I always explain that outcomes of MCS are NOT the odds, we don't know the exact odds. They are only our best ESTIMATES of the odds and one should treat them as such. In addition one should have plan B's already decided on, the actions you will take if ...
by larryswedroe
Sat Feb 06, 2016 9:02 am
Forum: Investing - Theory, News & General
Topic: AQR's Asness on Fama on Momentum
Replies: 4
Views: 512

Re: AQR's Asness on Fama on Momentum

Just to add this, As noted long only MOM does not have crash problems---because it's the short side that gets hurt in reversals, with the worst performing stocks being high beta stocks when falling but they go way up in reversal. However, if you SCALE momentum you also minimize the effect---reducing...
by larryswedroe
Fri Feb 05, 2016 6:31 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Rod completely agree and we explicitly warn clients/investors to EXPECT randomly several more of these in their lifetimes making it critical that they don't take more risk than they have the ability, willingness or need to take. And showing them the bottom 5% of MCS results is a good way to do that ...
by larryswedroe
Fri Feb 05, 2016 10:52 am
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Rod I think most people would say that events like the oil embargo of 73-74, the Asian Contagion of 1998, the events around 911 and the financial crisis were all "black swans"--highly significant events that were basically not forecasted. Now that doesn't mean we could not have a much bigg...
by larryswedroe
Thu Feb 04, 2016 5:59 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

edge actually only at short horizons are markets not LOG normally distributed--they cannot be normally distributed. at longer horizons like even a year they are pretty log normally distributed Also as others have noted,-- MCS can easily account for non normal distributions And finally the three larg...
by larryswedroe
Thu Feb 04, 2016 3:18 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

as fyi, most would consider 2008 a "black swan" type event in terms of what you would worry about and that was in the bottom 5% of outcomes in our MCS runs
Larry
by larryswedroe
Thu Feb 04, 2016 3:14 pm
Forum: Investing - Theory, News & General
Topic: Do value stocks outperform growth when rates rise?
Replies: 4
Views: 398

Re: Do value stocks outperform growth when rates rise?

really depends on WHY rates rising If it's Fed tightening to slow economy/fight inflation that would be BAD for value stocks if it's moderately rising inflation that is good as value stocks more leveraged and inflation reduces cost of debt in real terms if it's due to higher demand, so real rates ri...
by larryswedroe
Wed Feb 03, 2016 5:20 pm
Forum: Investing - Theory, News & General
Topic: a look at floating rate note funds
Replies: 5
Views: 676

Re: a look at floating rate note funds

sorry Sandra, had problem with my little netpad using when traveling, and it pasted the wrong link, I've corrected it
Larry
by larryswedroe
Wed Feb 03, 2016 5:17 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

gmaynardkrebs A MCS is a useful tool to help show the ESTIMATED odds of success based on the estimated potential dispersion of returns. That also allows you to analyze the impact of using various asset allocations and spending rates on the marginal odds of success. Personally I don't know how you ca...
by larryswedroe
Wed Feb 03, 2016 11:37 am
Forum: Investing - Theory, News & General
Topic: a look at floating rate note funds
Replies: 5
Views: 676

a look at floating rate note funds

http://mutualfunds.com/news/2016/02/02/floating-rate-note-funds-too-good-to-be-true/

My take on this "alternative" bond strategy. Hope you find it helpful
Larry
by larryswedroe
Wed Feb 03, 2016 11:27 am
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 1078
Views: 116920

Re: QSPIX - thoughts on interesting fund

Yes I disagree, VAR is a tool that like all tools is neither good nor bad. Used correctly it is highly useful, misused or abused it is dangerous. Remember the person most easily fooled is yourself and that's what happens when people misuse models. This is really simple concept of leveraging low risk...
by larryswedroe
Wed Feb 03, 2016 11:23 am
Forum: Investing - Theory, News & General
Topic: how limits to arbitrage allow mispricings to persist
Replies: 0
Views: 249

how limits to arbitrage allow mispricings to persist

http://www.etf.com/sections/index-investor-corner/swedroe-arbitrage-limits-cause-mispricing

A new paper on the subject and my summary of its findings and the research overall

Hope you find it helpful
Larry
by larryswedroe
Tue Feb 02, 2016 7:31 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 1078
Views: 116920

Re: QSPIX - thoughts on interesting fund

Nisiprius There are simple VAR based measures which can be used, like a simple one might be volatility. So you can leverage something like a one one bill which has almost no volatility more than you can leverage large caps which have vol of say 20 and small caps which have vol of say 35. It's like a...
by larryswedroe
Tue Feb 02, 2016 5:38 pm
Forum: Investing - Theory, News & General
Topic: QSPIX - thoughts on interesting fund
Replies: 1078
Views: 116920

Re: QSPIX - thoughts on interesting fund

I learned that they do not believe that this issue will be resolved for perhaps two years, as the people drawing up the rules are lawyers and don't understand the differences of leverage based on risk, so leveraging a one month bill is very different than leveraging a 30 year bond or stocks. The ind...
by larryswedroe
Mon Feb 01, 2016 11:48 am
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

cottonseed We review a client's AA allocation on a regular basis as life events happen and time passes and also valuations and interest rates move causing expected returns to change. Higher than expected returns allows one to lower their equity exposure if they are well into their accumulation phase...
by larryswedroe
Mon Feb 01, 2016 10:19 am
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Homer This is about as simple an issue as there is in finance. When you buy a bond the expected return is the interest rate MINUS any "expected" default losses. With Treasuries, that's zero. When you buy a stock it works the same way, only instead of interest rate/price you get earnings yi...
by larryswedroe
Mon Feb 01, 2016 9:14 am
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Rodc Well we'll have to disagree. IMO you "guys" are the ones misusing the information. Any financial economist knows that when a forecast is made it's not a "deterministic" forecast--a single number that they know the market will return. It's just the mean of a wide potential di...
by larryswedroe
Mon Feb 01, 2016 9:03 am
Forum: Investing - Theory, News & General
Topic: Make your retirement money last
Replies: 36
Views: 7503

Make your retirement money last

http://www.etf.com/sections/index-investor-corner/swedroe-make-your-retirement-money-last

A review of Jane Bryant Quinn's latest book, which is excellent resource

Larry
by larryswedroe
Sun Jan 31, 2016 6:37 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Edge
Where do you get the idea that it creates any sense of certainty? Exactly the opposite is the case. IMI you are just misusing the information
Larry
by larryswedroe
Sun Jan 31, 2016 5:08 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Homer
the problem is that when financial economists state the term expected return they mean that it's just the mean of a wide potential dispersion. It's the investors who make the mistake of treating it with precision that isn't meant to be.
Larry
by larryswedroe
Sun Jan 31, 2016 9:27 am
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

Edge That answer IMO misses the point totally. You still need to know two things when making a plan. You need to estimate returns (the mean) or else you have no way to intelligently decide on your AA and you need to also know the potential dispersion of outcomes so you can determine the appropriate ...
by larryswedroe
Sat Jan 30, 2016 6:55 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

edge I very much disagree with the idea that -8/+8 isn't useful. It's very useful in understanding that stocks are very risky and that a wide dispersion of possible outcomes is possible, and that the expected is just the mean. That should cause one to develop plans (Plan Bs) for what actions they sh...
by larryswedroe
Sat Jan 30, 2016 9:13 am
Forum: Investing - Theory, News & General
Topic: Hold risk constant or hold return constant?
Replies: 132
Views: 6399

Re: Hold risk constant or hold return constant?

Don't know what the debate is about because the evidence shows it isn't a random walk, relatively high vol is predictive of continued relatively high vol, and vice versa. AQR uses this information to manage some of their funds.
by larryswedroe
Sat Jan 30, 2016 9:11 am
Forum: Investing - Theory, News & General
Topic: wrap up of my annual lessons the market taught us
Replies: 3
Views: 973

Re: wrap up of my annual lessons the market taught us

First, value has been more volatile when you include data back to 1926 Second, research has shown some very simple risk characteristics that value stocks tend to have ---here's four big ones, and you don't need more. a) higher SD of earnings and dividends b) higher financial leverage c) higher opera...
by larryswedroe
Fri Jan 29, 2016 8:55 am
Forum: Investing - Theory, News & General
Topic: Hold risk constant or hold return constant?
Replies: 132
Views: 6399

Re: Hold risk constant or hold return constant?

Johno sorry have been traveling and don't have time to read the whole thread but Yes, I'm in complete agreement that the evidence/literature shows that you can scale risk because vol is predictive of future vol That is exactly what AQR does in running QSPIX and also their momentum funds (they scale ...
by larryswedroe
Fri Jan 29, 2016 8:50 am
Forum: Investing - Theory, News & General
Topic: wrap up of my annual lessons the market taught us
Replies: 3
Views: 973

wrap up of my annual lessons the market taught us

http://www.etf.com/sections/index-investor-corner/swedroe-final-investor-lessons-2015

The last few lessons
And as sure as the sun rises in the east 2016 will provide both some remedial courses and perhaps some new lessons

Larry
by larryswedroe
Thu Jan 28, 2016 11:23 am
Forum: Investing - Theory, News & General
Topic: Hold risk constant or hold return constant?
Replies: 132
Views: 6399

Re: Hold risk constant or hold return constant?

beliavsky
I would say it differently, the higher VIX than realized reflects the risk premium investors are willing to pay, just as the yield curve doesn't only reflect investor expectations about future interest rates, but includes a risk premium for the unexpected
Larry
by larryswedroe
Wed Jan 27, 2016 4:02 pm
Forum: Investing - Theory, News & General
Topic: a laundry list of excuses for active managers
Replies: 2
Views: 439

a laundry list of excuses for active managers

http://mutualfunds.com/news/2016/01/26/a-laundry-list-of-excuses-for-active-managers/

Enjoy the list, I'm sure you can come up with some more to add for my column next year explaining why they failed again

Larry
by larryswedroe
Wed Jan 27, 2016 9:17 am
Forum: Investing - Theory, News & General
Topic: part II of 2015 lessons from the markets
Replies: 1
Views: 432

part II of 2015 lessons from the markets

http://www.etf.com/sections/index-investor-corner/swedroe-more-2015-investor-lessons

Part two covering more of the 11 lessons I'll cover
Hope you find them helpful

Larry
by larryswedroe
Tue Jan 26, 2016 5:03 pm
Forum: Investing - Theory, News & General
Topic: Hold risk constant or hold return constant?
Replies: 132
Views: 6399

Re: Hold risk constant or hold return constant?

nisiprius Don't have time to read the whole thread but unfortunately you cannot keep risk constant as risk is TIME VARYING. Now you can attempt to keep risk constant, as AQR does with its fund QSPIX by trying managing to a 10% volatility. They do this by changing the leverage they use to gain exposu...
by larryswedroe
Mon Jan 25, 2016 4:50 pm
Forum: Investing - Theory, News & General
Topic: my annual lessons the market taught us blog
Replies: 4
Views: 1021

Re: my annual lessons the market taught us blog

Hodor and JCE, glad you found them helpful

Larry
by larryswedroe
Mon Jan 25, 2016 4:49 pm
Forum: Investing - Theory, News & General
Topic: The failure of valuation predictions
Replies: 123
Views: 7484

Re: The failure of valuation predictions

the problem isn't with the Shiller CAPE as a model to predict returns, btw, the model is e/p. The problem is in how the output is stated. What Shiller should have stated was that he was forecasting a mean real return of say 0 with a dispersion of from -8% to +8%. The model does have explanatory powe...
by larryswedroe
Mon Jan 25, 2016 12:37 pm
Forum: Investing - Theory, News & General
Topic: is it time to raise cash
Replies: 3
Views: 1363

Re: is it time to raise cash

JS
you are absolutely correct, had bad case of "dyslexia" in my writing, will get that fixed, and my apologies.
Larry
by larryswedroe
Mon Jan 25, 2016 8:12 am
Forum: Investing - Theory, News & General
Topic: is it time to raise cash
Replies: 3
Views: 1363

is it time to raise cash

my rebuttal to a recent article warning investors
http://mutualfunds.com/news/2016/01/18/is-it-time-to-raise-cash/

hope you find it helpful
Larry
by larryswedroe
Mon Jan 25, 2016 7:46 am
Forum: Investing - Theory, News & General
Topic: my annual lessons the market taught us blog
Replies: 4
Views: 1021

my annual lessons the market taught us blog

http://www.etf.com/sections/index-investor-corner/swedroe-11

I review 10 lessons from the market, as usual some are remedial lessons

Larry
by larryswedroe
Thu Jan 21, 2016 9:18 am
Forum: Investing - Theory, News & General
Topic: It sure looks like a good time to invest in oil
Replies: 80
Views: 7746

Re: It sure looks like a good time to invest in oil

Just a note, if memory serves in 1986 the price of oil was in January 28, within a few months it was like 12 We are literally awash in oil, it's supply excess that's causing prices to drop, not drop in demand. In fact demand is up about 1mm barrels a day from year ago. As always my crystal ball is a...
by larryswedroe
Thu Jan 21, 2016 9:09 am
Forum: Investing - Theory, News & General
Topic: My final review of hedge fund performance in 2015
Replies: 16
Views: 1840

Re: My final review of hedge fund performance in 2015

Be careful here, many hedge funds aren't equity funds (they are bond, or other asset classes), and many are long-short with no or low beta exposures. It's one reason I also look at the returns vs. a standard 60/40 portfolio. For any hedge fund you'd have to run a factor analysis to be able to determ...
by larryswedroe
Tue Jan 19, 2016 7:42 pm
Forum: Investing - Theory, News & General
Topic: why do investors prefer cash dividends
Replies: 272
Views: 16237

Re: why do investors prefer cash dividends

linenfort There's no argument that they underperform, so don't know where you got that idea. It's that they don't OUTperform and thus you sacrifice diversification benefits by screening for them without any offsetting ECONOMIC benefit, though perhaps psychological ones, which can be real nonetheless...
by larryswedroe
Tue Jan 19, 2016 6:17 pm
Forum: Investing - Theory, News & General
Topic: Downside protection
Replies: 19
Views: 1817

Re: Downside protection

day9 The historical relationship between Treasuries and stocks is ZERO ON AVERAGE. But when markets get in crisis the relationship tends to turn sharply negative. Good illustration of why it's important to understand not only long term correlations but also to understand when correlations tend to ri...
by larryswedroe
Tue Jan 19, 2016 3:27 pm
Forum: Investing - Theory, News & General
Topic: Interesting study on "dumb" indexes
Replies: 25
Views: 3059

Re: Interesting study on "dumb" indexes

Garland
We all make mistakes, what distinguishes the smart people from the pack is they don't repeat the same ones!
Larry
by larryswedroe
Tue Jan 19, 2016 3:25 pm
Forum: Investing - Theory, News & General
Topic: Is it time to raise cash?
Replies: 1
Views: 943

Is it time to raise cash?

Hopefully this will help to serve as another reminder about the prudent strategy

http://mutualfunds.com/news/2016/01/18/is-it-time-to-raise-cash/

Best wishes
Larry

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