Search found 14199 matches

by larryswedroe
Tue Aug 23, 2016 9:49 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

This shows that if the market started charging a uniform cost of capital to all companies, the value premium could go away without shrinking the spread. Agreed? Don't know why it's necessary to repeat, but this is ONLY true if there is no difference in risk,PERIOD. That is something you need to und...
by larryswedroe
Tue Aug 23, 2016 9:10 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

they on average have lower expected returns (i.e. higher cost of capital). Because value stocks on average have higher risk, they on average have higher expected returns (i.e. lower cost of capital). This is EXACTLY BACKWARDS, don't know if just a mistake or failure to understand. But higher risk i...
by larryswedroe
Tue Aug 23, 2016 9:07 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

bjr Larry I meant earn the same return by holding the stock. Not earn that they earn the same net income. 10x p/e stocks earns investors 10% 20x p/e stocks earns investors 10% What if value stocks and growth stocks earned the same returns? It's not necessary to have compression of the value spread. ...
by larryswedroe
Tue Aug 23, 2016 5:18 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

bjr Ask why the companies are selling at 20 and 10 pes, especially if they earn the same. Could it be one is riskier than the other for whatever the reasons. Now as I said one can concoct artificial single company examples perhaps, but not for markets. Remember value stocks are not determined by say...
by larryswedroe
Tue Aug 23, 2016 4:16 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Few things First, as I stated as Jim Davis of DFA showed in a paper the value premium spread predicts the value premium, larger spreads predict higher returns Second, not hanging around because I've explained why backpacker is incorrect and cannot explain it better. If you believe the value story is...
by larryswedroe
Tue Aug 23, 2016 1:35 pm
Forum: Investing - Theory, News & General
Topic: "Research Highlights Active Management Shortcomings"
Replies: 2
Views: 235

Re: "Research Highlights Active Management Shortcomings"

My pleasure Taylor, glad you found it helpful
And for those interested in more of the research and the evidence and logic suggest reading The Incredible Shrinking Alpha
Best wishes
Larry
by larryswedroe
Mon Aug 22, 2016 6:19 pm
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

One more thing, a recent study found that “the duration — in terms of sensitivity to interest rates — of the portfolios increases monotonically with the dividend yields. Stocks with high dividends tend to experience decreases in returns when long term bond yields increase, while those with low divid...
by larryswedroe
Mon Aug 22, 2016 12:18 pm
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

bberris
That's great example, I've written blogs showing mutual funds exploit the preference for dividends by those who fail to understand the math.
Larry
by larryswedroe
Mon Aug 22, 2016 11:53 am
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

plannerman First, would not make that assumption. The screening for dividends can lead to loading on other factors. And as I said your finding on dividend growth having low beta is due to the loading on QUALITY. So have to consider ALL the factors. Second, I should have added that low volatility has...
by larryswedroe
Mon Aug 22, 2016 10:59 am
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

plannerman As I said, I don't see any reason why it should impact VOL or returns because divs don't matter. should not matter to returns or volatility. Bear markets are caused by rising risk premiums. So if the stocks you own are more quality then they are likely to be lower volatility and thus perf...
by larryswedroe
Mon Aug 22, 2016 8:45 am
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

plannerman/sqrt High dividend stocks perform just like value stocks, only they get lower premium. Anything with a low price to some metric will get you a value premium. And remember that a dividend doesn't impact the return to the investor, it lowers the price by the same amount of the dividend, so ...
by larryswedroe
Mon Aug 22, 2016 7:40 am
Forum: Investing - Theory, News & General
Topic: an in depth look at the low volatility factor
Replies: 9
Views: 833

Re: an in depth look at the low volatility factor

Bogleduds That's up to investors, but good example is Fidelity Magellan has been underperformer basically since Lynch left, and outflows have occurred but fund still has $15B, way down from when it was largest fund in world. But typically funds get outflows fairly quickly as investors are performanc...
by larryswedroe
Mon Aug 22, 2016 7:34 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Backpacker, I'm done, nothing more I can say except your arguments are incorrect. I've tried my best to explain why. so will not be responding any longer. But it's interesting to think that you understand the math and the financial issues better than the leading financial economists. Do you see any ...
by larryswedroe
Mon Aug 22, 2016 7:28 am
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

Illini the only issue is that investors should be aware of the behavioral preferences so they can make informed decisions, many of the decisions unfortunately are based on either myths or incorrect understanding. As the behavioralists have written there are reasons, behavioral, for some people to pr...
by larryswedroe
Sun Aug 21, 2016 3:25 pm
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

First nowhere was it said dividends are pointless. The literature is about the PREFERENCE individuals have for them, which is irrational from an economic perspective, especially for taxable investors. Dividends of course should be paid when the company doesn't have a better use for that capital, inc...
by larryswedroe
Sun Aug 21, 2016 12:24 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

nedsaid Yes I agree that it can be more complicated, so in this type discussion you assume all else equal without having to repeat it all the time. With that said, that is why we have some anomalies that get discovered, so there is the well known accrual anomaly, and that is also why people like cas...
by larryswedroe
Sun Aug 21, 2016 8:17 am
Forum: Investing - Theory, News & General
Topic: an in depth look at the low volatility factor
Replies: 9
Views: 833

Re: an in depth look at the low volatility factor

Firechief Maybe nothing unless you or your funds invest in the low vol factor. But let's assume you do. What this means is that because the low val factor has become so popular, or crowded, the valuations have been pushed so low vol stocks are now in a "growth regime" meaning that they are...
by larryswedroe
Sun Aug 21, 2016 8:08 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker Again don't know why you cannot see how your example is wrong. In your example the expected return of A at the start say is 4.8 and the return of B is 5. Now the spread predicts the expected return difference. Now they reverse, A now has expected return of 5 and B it's 4.8. The spread is ...
by larryswedroe
Sun Aug 21, 2016 7:56 am
Forum: Investing - Theory, News & General
Topic: Brilliant Quant Hedge Fund has returns of S&P 500
Replies: 11
Views: 1477

Re: Brilliant Quant Hedge Fund has returns of S&P 500

that comparison between a hedge fund and S&P may not be appropriate at all. The reason is that they may not be invested in equities or they could be long short and the result is that the return should be looked at in context of the volatility as well, so risk and return. The Sharpe Ratio is one ...
by larryswedroe
Sat Aug 20, 2016 8:28 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Backpacker You agreed with this statement below which means you must agree that the spread has narrowed. If you don't get that it's hopeless I'm afraid. But I'll give simple example, say all value stocks are trading at PE of 10 and all growth at 20 and now you correct the growth estimates and lower ...
by larryswedroe
Sat Aug 20, 2016 6:02 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

packer, forget your diagram, doesn't show anything. You just agreed the spread narrows. That should end the discussion And as to the risks none of them are diversifiable, so unless you believe it's all behavioral and it will all go away the value premium will stay and the spreads narrow under either...
by larryswedroe
Sat Aug 20, 2016 5:15 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker, sorry but that is wrong. I'll try again for you. If the market changes its forecasts the valuations MUST change. The companies with now lower growth will have lower p/es and the companies with higher growth will have higher P/Es and the spread will narrow. Very simple. What do you think ...
by larryswedroe
Sat Aug 20, 2016 4:28 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

nedsaid As far as I know they just had data, not research attempting to explain the data. Now we have many papers explaining clear and simple risk based explanations for the value premium, which I have posted the list here many times. And my new book, Your Complete Guide to Factor Based Investing wi...
by larryswedroe
Sat Aug 20, 2016 2:06 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

There really hasn't been any real historical research on why value companies have outperformed growth ones. this statement is without question false. As I have stated there are more than a dozen papers that have looked at this exact issue and provided logical and simple risk based explanations. And...
by larryswedroe
Sat Aug 20, 2016 7:47 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

stlutz I have actually said repeatedly that there is a strong risk story, with lots of research showing clear and simple risk based explanations, AND that there is also strong evidence of behavioral explanations and limits to arbitrage which prevents sophisticated investors from fully correcting err...
by larryswedroe
Sat Aug 20, 2016 7:41 am
Forum: Investing - Theory, News & General
Topic: an in depth look at the low volatility factor
Replies: 9
Views: 833

Re: an in depth look at the low volatility factor

Gundlach Based on the evidence the answer is no. The research shows that these stocks have lower volatility, thus in bear market they are likely to still have lower losses. Likely is the key word. But it is not a guarantee. I would add that the evidence is that low vol stocks have exposure to term r...
by larryswedroe
Fri Aug 19, 2016 10:06 am
Forum: Investing - Theory, News & General
Topic: Growth, Value or Both?
Replies: 19
Views: 1262

Re: Growth, Value or Both?

Garland All good points. And those issues are why, among other reasons most active funds fail. But passive funds that are intelligently designed and use patient trading, providing liquidity instead of demanding it, have very low trading costs. In fact a recent study on AQR's trading costs by Toby Mo...
by larryswedroe
Fri Aug 19, 2016 8:00 am
Forum: Investing - Theory, News & General
Topic: an in depth look at the low volatility factor
Replies: 9
Views: 833

Re: an in depth look at the low volatility factor

Nate I have significant investment in the fund so that should speak for itself. The biggest issue for me is that I have no doubt that low vol predicts low volatility, and it does so across assets. But valuations matter. And recent research shows that low vol in stocks has two regimes, one when it's ...
by larryswedroe
Fri Aug 19, 2016 7:25 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Backpacker You keep making up contrived examples which are not valid. In your example a value stock should be a growth stock and vice versa. And you continue to ignore the risks. The value premium cannot disappear if there is risk. And the there is strong evidence as I said that it is risk and uniqu...
by larryswedroe
Fri Aug 19, 2016 7:16 am
Forum: Investing - Theory, News & General
Topic: an in depth look at the low volatility factor
Replies: 9
Views: 833

an in depth look at the low volatility factor

http://www.etf.com/sections/index-investor-corner/swedroe-use-caution-low-vol-strategies

Lots of new research on this factor

What's interesting is that the low volatility and quality factors have had premiums not just in stocks, but bonds as well.
Hope you find it helpful
Larry
by larryswedroe
Thu Aug 18, 2016 7:19 pm
Forum: Investing - Theory, News & General
Topic: Growth, Value or Both?
Replies: 19
Views: 1262

Re: Growth, Value or Both?

here's another look at it using FF Research indexes which have more exposure to the factors. Data is from 92-5/16, so one month different than Taylor TSM 9.2 FF LG 9.2 FF LV 9.6 (and we now that the value premium larger in small than in large) FF SV 14.1 FF SG 6.2 And you can watch football and tilt...
by larryswedroe
Thu Aug 18, 2016 7:18 pm
Forum: Investing - Theory, News & General
Topic: Growth, Value or Both?
Replies: 19
Views: 1262

Re: Growth, Value or Both?

here's another look at it using FF Research indexes which have more exposure to the factors. Data is from 92-5/16, so one month different than Taylor

TSM 9.2
FF LG 9.2
FF LV 9.6 (and we now that the value premium larger in small than in large)
FF SV 14.1
FF SG 6.2

Best wishes
Larry
by larryswedroe
Thu Aug 18, 2016 7:11 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backerpacker Your example is just wrong. Not how it works. In your example, the first case the value company got the higher FUTURE returns. And now in the second case the value company will get the higher FUTURE returns. The spreads are the same and the expected returns are the same going forward. O...
by larryswedroe
Thu Aug 18, 2016 4:42 pm
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

Re shareholders' best interests. Yes surely there are times when companies should return capital to shareholders rather than perhaps doing bad empire building acquisitions. But the superior way to return capital is to NOT pay dividend which imposes taxes on investors but to buy back shares which doe...
by larryswedroe
Thu Aug 18, 2016 4:40 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker, sorry but your last point is just wrong on the math. In that very example the spreads shrink. And it's because the discount rates used are changing. IT's all about the discount rate used. If you don't get that there's nothing more I can say. I give up. Maybe it's my inability to explain ...
by larryswedroe
Thu Aug 18, 2016 3:47 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker, sorry but you are incorrect in your statements. ONLY PART of the value premium is due to poor forecasts. the rest is a risk premium. That's it. Nothing more to say. It's that simple. Correcting the errors of the past even if you believe that only NARROWS the premium, and it eliminates th...
by larryswedroe
Thu Aug 18, 2016 3:44 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Bertilak Here's a simple example that might help. You can try this with the regression tool at portfolio visualizer. Run the factor regression for a TSM portfolio and of course you get 1 on beta and 0 on size, value, mom, quality, and low vol if you want all those factors, or just use four or five. ...
by larryswedroe
Thu Aug 18, 2016 3:37 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Dabbling First the value effect holds just as much for other metrics, as it does for BTM and the premiums and t-stats are just as strong. And the explanatory power is high. Second, there are many logical economic reasons for value stocks to have a risk premium that are well documented in the literat...
by larryswedroe
Thu Aug 18, 2016 1:11 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker Sorry have full time job and cannot spend more time on this issue which IMO is very simple. But with that said, I will try one last time. But don't have more time to spend on this. Of course I'm not saying that some value stocks won't become growth stocks and vice versa. But that isn't th...
by larryswedroe
Thu Aug 18, 2016 1:01 pm
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Bertilak First factors are long short portfolios so TSM has no exposure to any factor except beta. Example, the small stocks in the TSM give you positive exposure to the size factor but the large stocks give you an exactly offsetting NEGATIVE exposure to the same factor. And that's true for value, m...
by larryswedroe
Thu Aug 18, 2016 12:55 pm
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

RAchip
Why do you think that is the case if that would not be in the shareholder's interests? And since anyone can create their own self dividend if they want it.
There is literature on this and it all concludes the same thing, it's just a framing problem
Best wishes
Larry
by larryswedroe
Thu Aug 18, 2016 10:55 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker sorry but that doesn't work. You cannot have it that way. You're trying way to hard to make a story work because you want it to work. At least that is what I'm thinking.The growth companies in your example are not really growth companies by your own definition as they should have been val...
by larryswedroe
Thu Aug 18, 2016 10:50 am
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

dabbling My theory was that since dividend stocks are tax-inefficient, efficient taxable investors will give them a lower valuation, resulting in more favorable valuations for tax-advantaged investors like me. Thought you would like to know that this theory was hypothesized about 40 years ago if mem...
by larryswedroe
Thu Aug 18, 2016 10:20 am
Forum: Investing - Theory, News & General
Topic: The annuity puzzle, and a suggestion
Replies: 108
Views: 6775

Re: The annuity puzzle, and a suggestion

Phil YES, there is. When a new insurer takes over the don't have to owner the terms if they show the rate was "too high" and they can lower it then I would ONLY buy annuities therefore from the HIGHEST rated companies. This is a Pascal's Wager type bet where the cost of being wrong is too ...
by larryswedroe
Thu Aug 18, 2016 10:17 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Dabble On first point, if that was correct then we would still have only a single factor CAPM model and would not need another factors. But other factors are required as they add explanatory power. And for backpacker . And the rest I already address, don't agree. The logic is as I stated, nothing mo...
by larryswedroe
Thu Aug 18, 2016 9:43 am
Forum: Investing - Theory, News & General
Topic: Dividends, and the curse of popularity
Replies: 91
Views: 6113

Re: Dividends, and the curse of popularity

Dulocracy All else equal you should prefer to avoid funds that have screen's for dividends because you get inefficient diversification. And as noted for taxable accounts it creates a disadvantage for investors who aren't in lowest brackets. But if fund is sufficiently diversified by industry and num...
by larryswedroe
Thu Aug 18, 2016 9:01 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

Backpacker, I guess anything is possible. But that seems like highly unlikely proposition. But any improvement in earnings forecasting ability lowers uncertainty and thus should lower the risk premium of all securities, so IMO that idea doesn't hold up. And on the main issue The research does show t...
by larryswedroe
Thu Aug 18, 2016 8:45 am
Forum: Investing - Theory, News & General
Topic: Better growth? Or on how the value premium ends
Replies: 117
Views: 4841

Re: Better growth? Or on how the value premium ends

backpacker So you are saying the market was inefficient in estimating earnings and or the investors will stop favoring growth companies for the behavioral reasons they did in past. First, there is still the issue of value stocks being a clear risk story, with dozens of papers showing clear risk expl...
by larryswedroe
Thu Aug 18, 2016 8:35 am
Forum: Investing - Theory, News & General
Topic: How do you know if you're taking on too much risk?
Replies: 14
Views: 1262

Re: How do you know if you're taking on too much risk?

There are three issues here, all discussed in detail if interested in The Only Guide You'll Ever Need for the Right Financial Plan. The first is your ability to take risk which is based on both investment horizon (the longer the more risk can take as can wait out bear market longer) and stability of...

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