Search found 639 matches

by Ben Mathew
Sun Jun 16, 2019 7:54 pm
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

Ben, the problem I believe is that volatility (market beta) is only one measure of risk and not the only one people care about. Investors also care about skewness and kurtosis (and overpay for assets that have positive skew and excess kurtosis, partly explaining value premium) and also WHEN risks s...
by Ben Mathew
Sun Jun 16, 2019 1:53 pm
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

All of that would be captured in the return structure, which in turn would be captured in the market beta. High default risk of SV firms is not a valid reason for the SV premium, because high default risk should be captured as market beta. In other words, a high default risk of SV firms should show...
by Ben Mathew
Sun Jun 16, 2019 1:44 pm
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

All of that would be captured in the return structure, which in turn would be captured in the market beta. High default risk of SV firms is not a valid reason for the SV premium, because high default risk should be captured as market beta. In other words, a high default risk of SV firms should show...
by Ben Mathew
Sun Jun 16, 2019 12:08 pm
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

Ben CAPM model simply doesn't do a good enough job of explaining return differences, only about 2/3, but 3 factor model explains above 90%. That is because the stocks have different risk characteristics than AVERAGE of market. My factor book provides the various findings demonstrating unique risks,...
by Ben Mathew
Sun Jun 16, 2019 11:17 am
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

Ben CAPM model simply doesn't do a good enough job of explaining return differences, only about 2/3, but 3 factor model explains above 90%. That is because the stocks have different risk characteristics than AVERAGE of market. My factor book provides the various findings demonstrating unique risks,...
by Ben Mathew
Sun Jun 16, 2019 10:52 am
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

CAPM model simply doesn't do a good enough job of explaining return differences, only about 2/3, but 3 factor model explains above 90%. CAPM provides a solid theoretical explanation for why market beta should provide a premium. Factor models are purely an empirical relationship, with no justificati...
by Ben Mathew
Sun Jun 16, 2019 10:36 am
Forum: Investing - Theory, News & General
Topic: What is wrong with AQR?
Replies: 128
Views: 7097

Re: What is wrong with AQR?

The higher EXPECTED returns to SV (which must be true just as it is for market beta, if you believe markets are efficient as they are clearly lot more volatile and expensive to trade and much more volatile earnings and so on) The idea that we can expect small value to have a higher expected return ...
by Ben Mathew
Sat Jun 08, 2019 2:10 pm
Forum: Personal Finance (Not Investing)
Topic: Should I buy more life insurance?
Replies: 25
Views: 1315

Re: Should I buy more life insurance?

The 550K is pretax and since OP is in bay area that income leads to likely 375K or less after tax assuming reasonable deductions. The 3M + 1.75M or 4.75M if OP passes is likely well over 10 years of after tax income. I think taxes need to be considered here. Life insurance is after tax usually, no?...
by Ben Mathew
Sat Jun 08, 2019 1:26 pm
Forum: Investing - Theory, News & General
Topic: are TIPS expensive? or are they cheap?
Replies: 95
Views: 7293

Re: are TIPS expensive? or are they cheap?

But from the perspective of a borrower who is not subject to money illusion, inflation-adjusted bonds should also be more attractive because of the protection against unexpected deflation, and can therefore extract a higher real yield than nominal contracts. Did you mean to state just "unexpected d...
by Ben Mathew
Sat Jun 08, 2019 12:16 pm
Forum: Investing - Theory, News & General
Topic: Market up because of rate cut expectation - why ?
Replies: 21
Views: 2742

Re: Market up because of rate cut expectation - why ?

As other posters have noted, the fact that economy has been slowing is already known before the Fed announcement. So when Fed announces an interest rate cut, there is no new information about the economy. The only new information is about the Fed's likely response. A higher than expected rate cut dr...
by Ben Mathew
Sat Jun 08, 2019 10:18 am
Forum: Investing - Theory, News & General
Topic: are TIPS expensive? or are they cheap?
Replies: 95
Views: 7293

Re: are TIPS expensive? or are they cheap?

<snip> Under the heading "Lower Risk and Lower Expected Returns" he goes on to write: "Given that TIPS have a lower expected return than similar-maturity nominal-return coupon bonds, a question for investors is how to decide if the insurance premium is worth the price paid to hedge the risk of infl...
by Ben Mathew
Sat Jun 08, 2019 9:41 am
Forum: Personal Finance (Not Investing)
Topic: Should I buy more life insurance?
Replies: 25
Views: 1315

Re: Should I buy more life insurance?

With $3M savings + $1.75M in life insurance = $4.75M, your family would not be in bad shape financially if you die. But it would still be lower than if you continued earning $550K for another decade. An extra $2 million for the next 10 years sounds reasonable to me.
by Ben Mathew
Sat Jun 08, 2019 9:26 am
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

This from Oblivious Investor, argues that annuities with a fixed COLA actually are actually worse than nominal annuities for most people when there is high inflation: The key point here is that, the higher inflation is over this person’s lifetime, the worse the annuity with the COLA does as compare...
by Ben Mathew
Sat Jun 08, 2019 9:03 am
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

Now maybe they are charging too much for the protection but I am not sure anyone can tell you if it is a 1% or 10% chance of high inflation showing up over the next 40 years. We can use TIPS vs nominal treasuries as the benchmark to see if real annuities cost too much. Since TIPS don't cost much mo...
by Ben Mathew
Thu Jun 06, 2019 11:58 am
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Re: Older retirees: Are your expenses lower now than in early retirement?

It would be useful to know the relative prices of a) thru e). Good point. The implicit assumption I had in mind was that the all policies are available actuarially fair prices. I've now edited the OP to make that assumption explicit. Real annuities are currently more expensive. But I did not want t...
by Ben Mathew
Sat Jun 01, 2019 12:00 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

… Given that the expected yield of TIPS isn't significantly less than that of nominal bonds ..., it's not clear to me why most people choose to hold nominal bonds instead of real. TIPS offer free, or almost free, insurance against unexpected inflation. Why take a risk we don't have to? Same with re...
by Ben Mathew
Sat Jun 01, 2019 11:53 am
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Re: Older retirees: Do you have lower expenses now than you did in early retirement?

(d) a nominal annuity with a constant $ payouts (so real payouts decline with time) but also budget to buy an additional smaller annuity every five years or so to make up for the purchasing power that was lost to inflation. How does that work in real life? How does one explain the process to the "n...
by Ben Mathew
Fri May 31, 2019 1:30 am
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Re: Older retirees: Do you have lower expenses now than you did in early retirement?

So we are still pretty much at the same expense level now as we were seventeen years ago and that is very fortunate. Thanks for sharing your experience. Did your expense level stay about the same in nominal or real terms? Constant in real terms would be about 42% more dollars today compared to doll...
by Ben Mathew
Fri May 31, 2019 1:22 am
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Re: Older retirees: Do you have lower expenses now than you did in early retirement?

The Wizard wrote:
Thu May 30, 2019 9:22 pm
For instance, I'm a bit old to re-roof my house again in a while as I did 15 years ago.
Hiring out tasks that are physically hard to do as one ages seems like it would be a big consideration, especially if one doesn't downsize the home. Maid service, yard service, etc.
by Ben Mathew
Fri May 31, 2019 1:18 am
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Re: Older retirees: Do you have lower expenses now than you did in early retirement?

Sandtrap wrote:
Thu May 30, 2019 11:24 pm
Option (E)
Laddering in Annuities (SPIA) incrementally (perhaps every 5 years) beginning at age ?

j :happy
Isn't this the same as Watty's option (d)? Or am I missing something?
by Ben Mathew
Fri May 31, 2019 1:16 am
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Re: Older retirees: Do you have lower expenses now than you did in early retirement?

2. Would you recommend that a new retiree (say, age 65) seeking to purchase annuities to reduce longevity risk go with: (a) a nominal annuity with a constant $ payouts (so real payouts decline with time) (b) a nominal annuity with a 2% or 3% COLA to cover expected inflation (so real payouts are con...
by Ben Mathew
Thu May 30, 2019 9:09 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

I seriously distrust the sudden "discovery" a few years ago that suggests that spending and needed income decreases through retirement. It's "very conVEEEENient" as the Church Lady used to say. At least one of the studies that was cited explicitly said it did not include out-of-pocket healthcare sp...
by Ben Mathew
Thu May 30, 2019 9:05 pm
Forum: Personal Finance (Not Investing)
Topic: Older retirees: Are your expenses lower now than in early retirement?
Replies: 49
Views: 6211

Older retirees: Are your expenses lower now than in early retirement?

There was a discussion in this thread on annuities about whether we can expect our expenses to decline over time during retirement. This question has come up in other threads too, so I thought it would be useful to get the perspective of older retirees here as to what your experience has been. 1. We...
by Ben Mathew
Thu May 30, 2019 6:54 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

Why are "graded" (or "fixed % COLA") being so disparaged here? If one doesn't have a true COLA option, isn't having some regular increase over time still much better than no increase at all? I'm not disparaging fixed COLAs--just agreeing with JackoC that it's a misleading term. No harm if people fu...
by Ben Mathew
Thu May 30, 2019 6:47 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

Even if it's empirically true that retirees spend less over time, I wonder if it could be driven by their finances getting tighter over time. i.e. Older retirees might choose not to go out and eat as often, not necessarily because that's what they want, but because they can't (or feel they can't) a...
by Ben Mathew
Thu May 30, 2019 6:34 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

It should be immediately clear that the trajectory of this portion of spending is entirely dependent on the personal circumstances of the retiree. It could be growing in real terms, but that's unlikely for most people: it's almost always going to either be declining in real terms or declining in no...
by Ben Mathew
Thu May 30, 2019 6:22 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

I seriously distrust the sudden "discovery" a few years ago that suggests that spending and needed income decreases through retirement. It's "very conVEEEENient" as the Church Lady used to say. At least one of the studies that was cited explicitly said it did not include out-of-pocket healthcare sp...
by Ben Mathew
Thu May 30, 2019 3:06 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

An annuity with fixed % step ups is still a nominal annuity, not in any real way 'in between' a nominal and real annuity. The step ups are just a convenience to match the expected need for nominal dollars at points in the future, at the cost of a bit of loss of transparency in the pricing, and prob...
by Ben Mathew
Thu May 30, 2019 12:33 pm
Forum: Personal Investments
Topic: Retirement plan [Pension lump sum or annuity?]
Replies: 23
Views: 1500

Re: Retirement plan [Pension lump sum or annuity?]

renovator20 wrote:
Thu May 30, 2019 11:53 am
50% $2808 then $1404mo
75% $2695.00 $2021
%100 $2590.00 $2590.00
How do this reconcile with the $2,500 monthly payout that you gave in the OP? Was that an approximation of $2,590, which is the payout with 100% survivor benefits?
by Ben Mathew
Thu May 30, 2019 11:48 am
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

An annuity with fixed % step ups is still a nominal annuity, not in any real way 'in between' a nominal and real annuity. The step ups are just a convenience to match the expected need for nominal dollars at points in the future, at the cost of a bit of loss of transparency in the pricing, and prob...
by Ben Mathew
Wed May 29, 2019 12:49 pm
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

While I understand the theoretical argument, from a practical perspective is it possible to by an inflation indexed SPIA? From comments I’ve read on this forum I thought not but would be glad to be pointed in the right direction. At "immediteannuities.com" there is a variable you can put in for COL...
by Ben Mathew
Wed May 29, 2019 8:52 am
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

If annuities are "a bet on future inflation rates and should not be purchased", the same goes for bonds. I don't think Zvi Bodie would disagree? After all he wrote a book saying nearly everyone should be 100% invested in TIPS and ibonds for retirement and you shouldn't hold anything else until you ...
by Ben Mathew
Wed May 29, 2019 7:21 am
Forum: Investing - Theory, News & General
Topic: Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 176
Views: 11738

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

If annuities are "a bet on future inflation rates and should not be purchased", the same goes for bonds. I don't think Zvi Bodie would disagree? After all he wrote a book saying nearly everyone should be 100% invested in TIPS and ibonds for retirement and you shouldn't hold anything else until you ...
by Ben Mathew
Tue May 28, 2019 12:43 pm
Forum: Investing - Theory, News & General
Topic: Valuation vs. Pricing & the Value Factor
Replies: 5
Views: 282

Re: Valuation vs. Pricing & the Value Factor

I have seen statements similar to the following in the prospectus of several actively managed mutual funds. The fund purchases stocks that, in the opinion of the fund manager, are undervalued. And I guess that figures. What idiot would buy stocks they think are overpriced? A strategy based on indic...
by Ben Mathew
Tue May 28, 2019 12:00 pm
Forum: Investing - Theory, News & General
Topic: Valuation vs. Pricing & the Value Factor
Replies: 5
Views: 282

Re: Valuation vs. Pricing & the Value Factor

I think I see what you're saying. We can divide active investing into A. Strategies that view firms as real businesses, attempt to estimate future earnings, and discount to the present to value them. B. All other strategies--buying firms based on past price movements, factors, etc. If I understand y...
by Ben Mathew
Tue May 28, 2019 11:03 am
Forum: Investing - Theory, News & General
Topic: Valuation vs. Pricing & the Value Factor
Replies: 5
Views: 282

Re: Valuation vs. Pricing & the Value Factor

If you define value investing that broadly, all active investing can be thought of as value investing. Growth investors can also claim that they are value investing when they buy a company that has not yet made any money, because they believe they are paying less than what future earnings are worth....
by Ben Mathew
Tue May 28, 2019 9:09 am
Forum: Investing - Theory, News & General
Topic: I can't believe I am thinking this [Panic and Survival 2008-09]
Replies: 346
Views: 169572

Re: I can't believe I am thinking this [Panic and Survival 2008-09]

The sentiments you expressed reminds me of the argument for adopting a lifecycle investing perspective--an underappreciated strategy that is usually misconstrued as overly aggressive, when in fact it reduces risk. That lifecyle investing is, unfortunately, mocked by Thaler during his Nobel lecture....
by Ben Mathew
Fri May 24, 2019 10:09 am
Forum: Investing - Theory, News & General
Topic: Is the housing market starting to collapse?
Replies: 122
Views: 12384

Re: Is the housing market starting to collapse?

Seems to me a bit softer than last year in my neighborhood here in the Seattle metro area. Still crazy, but less so than last year.

Of course, that doesn't imply the housing market will collapse.
by Ben Mathew
Thu May 23, 2019 5:03 pm
Forum: Personal Consumer Issues
Topic: This rake is the best tool I've bought this week
Replies: 35
Views: 5368

Re: This rake is the best tool I've bought this week

Other toys for the yard: Eley hose reel Felco F-2 shears The Felco shears are nice to have, but the Eley hose reel is a game changer! The starting price for that hose reel is $272.99 without the hose. Kinda high in my book. But it is nice. The wall mount versions start at $178.49. For us, the Eley ...
by Ben Mathew
Thu May 23, 2019 4:51 pm
Forum: Personal Consumer Issues
Topic: This rake is the best tool I've bought this week
Replies: 35
Views: 5368

Re: This rake is the best tool I've bought this week

vineviz wrote:
Thu May 23, 2019 3:14 pm
The Felco pruners are excellent (I used them a lot, and they are fantastic) but I love my Bahco PXR-M2 shears even more.
That's high praise! I will try them out next time I buy shears.
by Ben Mathew
Thu May 23, 2019 2:57 pm
Forum: Personal Consumer Issues
Topic: This rake is the best tool I've bought this week
Replies: 35
Views: 5368

Re: This rake is the best tool I've bought this week

Other toys for the yard:

Eley hose reel

Felco F-2 shears

The Felco shears are nice to have, but the Eley hose reel is a game changer!
by Ben Mathew
Thu May 23, 2019 12:16 pm
Forum: Investing - Theory, News & General
Topic: Actual Experience as true measure of risk tolerance
Replies: 82
Views: 6257

Re: Actual Experience as true measure of risk tolerance

Our risk tolerance depends on our internal emotional wiring, and that wiring might become apparent only in a crash. So experiencing a bear market will help people understand themselves better. But risk tolerance also depends on our understanding of the risk involved--the internal models we use to in...
by Ben Mathew
Wed May 22, 2019 2:11 pm
Forum: Investing - Theory, News & General
Topic: Don't add currency risk on top of equity risk
Replies: 68
Views: 4769

Re: Don't add currency risk on top of equity risk

Over the long term, exchange rates reflect inflation rates (high inflation rates will weaken the currency). So exchange rate movements actually serve as a natural hedge against unpredictable inflation rates across countries. Allowing the exchange rate to vary will mean that the real return you get ...
by Ben Mathew
Wed May 22, 2019 12:43 pm
Forum: Investing - Theory, News & General
Topic: Don't add currency risk on top of equity risk
Replies: 68
Views: 4769

Re: Don't add currency risk on top of equity risk

Over the long term, exchange rates reflect inflation rates (high inflation rates will weaken the currency). So exchange rate movements actually serve as a natural hedge against unpredictable inflation rates across countries. Allowing the exchange rate to vary will mean that the real return you get f...
by Ben Mathew
Wed May 22, 2019 12:55 am
Forum: Personal Investments
Topic: $400,000 gift to stepdaughter
Replies: 76
Views: 8685

Re: $400,000 gift to stepdaughter

Vanguard Prime Market fund (VMMXX) seems too conservative. Why not go with total bond instead? Since you plan to give her all of the money eventually, the ideal AA would be the one she would choose if the money was hers. Will she have savings besides this--her own 401K etc.? That will affect the cal...
by Ben Mathew
Tue May 21, 2019 10:48 pm
Forum: Personal Finance (Not Investing)
Topic: Should I encourage my kids to work in high school/college?
Replies: 204
Views: 11301

Re: Should I encourage my kids to work in high school/college?

Interesting thread. I grew up in India, and working while in high school is not customary there, and I did not do so. But I did do some work around the house (cleaning up, car washing, etc.), was involved in the construction of our home, and did the odd occasional task on my grandparents' farm in th...
by Ben Mathew
Tue May 21, 2019 11:46 am
Forum: Personal Investments
Topic: Is an emergency just mental accounting?
Replies: 70
Views: 5656

Re: Is an emergency just mental accounting?

Emergency funds are prone to some conceptual and behavioral errors. The first is mental accounting. You don't need a separate bucket called "emergency funds". You just need a plan for you're going to live if you lose your job or have some unexpected expense. Money is fungible (for the most part). Th...
by Ben Mathew
Mon May 20, 2019 11:40 am
Forum: Investing - Theory, News & General
Topic: Valuations of International Equities vs. US Equities
Replies: 31
Views: 2882

Re: Valuations of International Equities vs. US Equities

One possibility is that accounting standards are different, so $1 of profit in international stock might actually be only $.70 of real profit. I recall Warren Buffett saying at one point that the reason he stays out of international stocks for the most part is that he is not sure he fully understand...