Search found 930 matches

by docneil88
Sat Dec 16, 2023 4:47 am
Forum: Investing - Theory, News & General
Topic: The role of Authorized Participants in pricing of ETFs [Almost Entire $8 Trillion ETF Market Hinges on a Few Key Firms]
Replies: 73
Views: 11084

Re: The role of Authorized Participants in pricing of ETFs [Almost Entire $8 Trillion ETF Market Hinges on a Few Key Fir

typical.investor wrote: Sat Dec 16, 2023 4:34 am As for your claim that ETFs suffer from (2) underpricing of the shares of the fund relative to its NAV per share. So what? Again, if you are buying as you rebalance into a depreciating asset, you will be buying at a good price.
Good point.
by docneil88
Sat Dec 16, 2023 3:52 am
Forum: Investing - Theory, News & General
Topic: The role of Authorized Participants in pricing of ETFs [Almost Entire $8 Trillion ETF Market Hinges on a Few Key Firms]
Replies: 73
Views: 11084

Re: The role of Authorized Participants in pricing of ETFs [Almost Entire $8 Trillion ETF Market Hinges on a Few Key Fir

Why would anyone expect fair and accurate pricing in market turbulence? If everyone wants to “fly to safety”, risk assets will have to be priced low to find a buyer. Expecting markets makers to change that dynamic isn’t realist. Hi typical.investor, With ETFs and closed-end funds, the risks you mention are two-fold during large, fast, fear-induced market drops: (1) underpricing of the securities used to compute the NAV per share of the fund, and (2) underpricing of the shares of the fund relative to its NAV per share. Mutual funds are subject to (1) but not (2). On the other hand, ETFs have some advantages over mutual funds: they tend to (a) be more tax efficient (b) have lower expense ratios, and (c) trade for a lower costs than mutual fu...
by docneil88
Wed Nov 29, 2023 3:57 am
Forum: Investing - Theory, News & General
Topic: Understanding Long-Term Bonds within a bond fund
Replies: 16
Views: 2650

Re: Understanding Long-Term Bonds within a bond fund

I'm surprised Vanguard does not offer a total US-Treasury-bond index fund similar to iShares GOVT; if anyone's listening from Vanguard, please put my vote in for one. (Vanguard does have an index fund with yield-curve diversification for US investment-grade corporate bonds, namely VTC. But, most corporate bonds are callable, whereas no T-bonds are.) I like the yield curve diversification of GOVT and the 0.05% expense ratio, but I don't like the higher-than-expected turnover: 50% for fiscal year (FY) ending 10/31/22, 128% for FY ending 10/31/21, and 91% for FY ending 10/31/20.
by docneil88
Mon Nov 27, 2023 9:23 pm
Forum: Investing - Theory, News & General
Topic: Understanding Long-Term Bonds within a bond fund
Replies: 16
Views: 2650

Re: Understanding Long-Term Bonds within a bond fund

... I have some unease about the long-term bonds in GOVT. For example: The longest bond I could find in GOVT matures in 2052, with a coupon rate of 2.25%. (VGIT does not own anything like this.) This bond, which I find unattractive, is going to be wrapped up in GOVT until 2052. Since I would never be comfortable actually owning an individual 30-year bond like this, should this matter in deciding between the most appropriate fund for me? Hi TrustTheMarket, The closing yield for 30-year US Treasuries on April 7, 2022 was 2.7460% according to yahoo finance. No wonder the 2.25% coupon for a 30-year T-bond seemed unattractive to you on Sat, Apr 9, 2022 when you posted. However, what you are not taking into account is that the price of the 30-ye...
by docneil88
Mon Sep 26, 2022 3:14 am
Forum: Investing - Theory, News & General
Topic: Vanguard: "more expensive not to get financial advice"
Replies: 117
Views: 13597

Re: Vanguard: "more expensive not to get financial advice"

they have a vested interest in saying that because they make money from their PAS. but it's also true that for some people who are prone to panic selling, market timing, FOMO and general anxiety over volatility they probably would do better with an advisor because one boneheaded move can be much more costly than the 0.30% per year Vanguard charges for PAS. I watched a coworker sell out of stocks in late 2008. She probably lost between 20%-30% of her net worth depending upon her stock allocation. That was just one boneheaded move in one year. Can you imagine the staggering amounts of lifetime losses she will incur if she keeps getting in and out of the market at the most inopportune times?? It takes a very long time to lose that kind of mon...
by docneil88
Fri Apr 30, 2021 1:29 am
Forum: Investing - Theory, News & General
Topic: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?
Replies: 747
Views: 54118

Re: Will ex-US ever revert to good performance? Or is it just a high-risk, low-reward investment?

Morningstar tell me that the Vanguard Total World Stock ETF, VT, has 56% of its assets in the US (this is a cap weighted fund). Yet the US has only 4.2 percent of the world's 7.7 billion population. Also, 2019 US GDP is 24.4% of the world's GDP ($21.4 trillion/$87.6 trillion). I think these facts should definitely be considered while one decides what % of one's equity assets to allocate to ex-US equities.
by docneil88
Sat Jan 09, 2021 3:47 am
Forum: Investing - Theory, News & General
Topic: What is the "Quit when you won the game" portfolio?
Replies: 177
Views: 22776

Re: What is the "Quit when you won the game" portfolio?

Hi all, First, pay off any remaining mortgage on your home. Then invest the rest in a simple, low-risk, highly-diversified, ultra-low-cost, low-maintenance, low-turnover, mostly-index-based portfolio such as this: 5-25% Cash investments and/or short-term bond investments , e.g. Vanguard California Municipal Money Market Fund (VCTXX) and/or Vanguard Short-Term Tax-Exempt Fund Investor Shares (VWSTX). 75-95% Vanguard Target Retirement Income Fund (VTINX) (Total expense ratio = 0.12%). VTINX targets 30% in equity index funds and 70% in bond index funds and short-term TIPS. VTINX's current holdings according to https://finance.yahoo.com/quote/VTINX/holdings?p=VTINX : Vanguard Total Bond Market II Idx Inv VTBIX 36.93% Vanguard Total Stock Mkt Id...
by docneil88
Tue May 16, 2017 3:37 am
Forum: Investing - Theory, News & General
Topic: Best argument you've heard against passive/for active?
Replies: 49
Views: 7090

Re: Best argument you've heard against passive/for active?

In my opinion, the best argument against passive/for active is the set of arguments in favor of value index funds, which I consider active funds, due primarily to their relatively high turnover as compared to the paragons of passive investing, namely broad market index funds such as VTI/VTSMX (Vanguard Total US Stock Index Fund) and VXUS/VGTSX (Vanguard Total International Stock Index Fund).
by docneil88
Thu Sep 25, 2014 1:27 am
Forum: Investing - Theory, News & General
Topic: What's your one big takeaway from the Crash of 2008?
Replies: 380
Views: 72425

Re: What's your one big takeaway from the Crash of 2008?

Tamales wrote:As a followup question, how is it possible that an ETF like BND got thru this period pretty much unscathed (except for a downward spike in Oct 2008 that quickly recovered)? I wonder what the composition of BND was at the time.
Hi Tamales, Much of the Vanguard Total Bond Fund (BND and VBMFX) was in debt/mortgage backed securities issued and guaranteed by Government Sponsored Entities such as Fannie Mae and Freddie Mac. If not for the US Government's decision to bailout Fannie and Freddie in 2008, BND and VBMFX would have gone down much more. There was no legal requirement that the bailout be made. Best, Neil
by docneil88
Sat Sep 20, 2014 2:03 pm
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 212
Views: 27662

Re: What evidence would prove the Boglehead mentality wrong?

There is no evidence you can present to convince them that you are beating the indexes (your active beats their passive) that they cannot explain away. 40 or 50 years is not a long enough time frame to convince them that it isn't just chance- so you flipped heads 6 out of 10 times for the past 40 years; according to random distribution SOMEBODY had to do it. From an epistemological standpoint, an unfalsifiable theory is meaningless. You might as well try to prove to someone that the Abominable Snowman does NOT exist. How could you? Hi Runalong, Some Bogleheads believe there is such a thing as long-term investing skill and some don't. But generally the ones who do believe such skill exists also believe it's most prudent to not bet that inve...
by docneil88
Thu Sep 18, 2014 5:30 pm
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 212
Views: 27662

Re: What evidence would prove the Boglehead mentality wrong?

I don't believe the typical Boglehead would ever accept any evidence that they are wrong. They have already made up their minds. Hi BradMajors, The paper I referenced above, "The Arithmetic of Active Investing," presents a rather convincing argument to support the claim [believed by practically all Bogleheads] that "Properly measured, the average actively managed dollar must underperform the average passively managed dollar, net of costs." The math in his argument does seem to me to be irrefutable. The only non-mathematical premise I know of in his argument is that the costs for the average actively managed dollar must be higher than for the average passively managed dollar. If you have any reasons to doubt that claim, ...
by docneil88
Thu Sep 18, 2014 5:02 pm
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 212
Views: 27662

Re: What evidence would prove the Boglehead mentality wrong?

Doing nothing is not always cheaper than doing something. If you have a leaky roof, and don't fix it to save money, eventually you will have a rotted frame. Doing no research can lead one to invest in companies that lose money. In this case that is worse than doing research, realizing the company loses money, and staying in cash. Index funds usually have many money losing companies in their portfolio, yet the average passively managed dollar continues to beat the average actively managed dollar over any time period due to lower costs. Index fund managers still do research, e.g. research required to keep up with changes in the index they track. Some index fund managers research ways to minimize trading costs and market impact costs. Some re...
by docneil88
Thu Sep 18, 2014 3:57 pm
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 212
Views: 27662

Re: What evidence would prove the Boglehead mentality wrong?

And that is because the costs for the average actively managed dollar are higher, even in the pendulum-swing scenario above. Is this true? If an index is a zombie index, and it's obvious to Joe-on-the-street, Joe doesn't need to do much research, or even rumination, to figure out how to invest more wisely. The situation I'm proposing is one where valuable information about stocks is so cheap, because everyone is being a doofus and blindly investing in index funds without paying attention to returns, that such information is accessible to the casual investor, should he or she seek it out. Unlikely, yes, given human nature, but mass psychology has produced worse outcomes throughout history. Hi Lysander, The average passively invested dollar ...
by docneil88
Thu Sep 18, 2014 1:55 pm
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 212
Views: 27662

Re: What evidence would prove the Boglehead mentality wrong?

Index funds rely on the price discovery performed by active traders. If no one actively traded and if everyone stopped doing research and due diligence, the index would zombify. At that point active investing would outperform index investing. Active investors and passive investors are symbiotic. If the pendulum swings too far in one direction, it makes sense to switch sides. Hi Lysander, Swinging "too far" in the direction of passive investing is very unlikely to happen, because so many people think they are smart enough to outperform (or to hire someone to outperform) the average investor, even the average passive investor. As a group, they're wrong, but, as individuals, some will be right, even if only by chance. But if the pen...
by docneil88
Mon Aug 18, 2014 1:08 am
Forum: Investing - Theory, News & General
Topic: IRS: bitcoins are property for tax purposes in U.S.
Replies: 28
Views: 5250

Re: IRS: bitcoins are property for tax purposes in U.S.

Phineas J. Whoopee wrote:Speaking as a person familiar with both software and hardware, a digital computer is just an analog computer simulating a digital computer. PJW
For those interested, here's a thread I started which I believe helps explains this idea: The dependence of digital upon analog http://www.bogleheads.org/forum/viewtopic.php?p=256860 . Best, Neil
by docneil88
Thu Aug 07, 2014 1:32 pm
Forum: Investing - Theory, News & General
Topic: Dilbert Creator: If everyone indexed...
Replies: 39
Views: 8540

Re: Dilbert Creator: If everyone indexed...

If there were no trading, I wonder if some stocks would have value at all. You certainly aren't buying Brk.A for the dividend. In a world with only passive investors, there would be much less trading than there is now, but far from zero trading. Index funds generally have turnover of at least a few percent per year. However, at least for market-cap weighted index funds, that trading is not based on perceived value of that which is purchased. One of the arguments in favor of indexing is that price usually tracks true value fairly closely at any one moment of time, so it's very hard for active managers (without insider info) to overcome the various tax, trading, and management costs of active management over the long-run. The premise of that...
by docneil88
Thu Aug 07, 2014 12:44 pm
Forum: Investing - Theory, News & General
Topic: Dilbert Creator: If everyone indexed...
Replies: 39
Views: 8540

Dilbert Creator: If everyone indexed...

Scott Adams, who created Dilbert, has an MBA in economics and management from UC Berkeley. Here are some excerpts of his musings from The Scott Adams Blog dated August 4, 2014 ( http://www.dilbert.com/blog/entry/how_to_make_more_money_in_stocks/) : An investment advisor needs to justify his pay, and that means pretending to have stock-picking magical powers that science has never discovered. Every study on the topic shows that the professionals generally don’t beat the market average over time. But they do cause a lot of churn that causes a lot of unnecessary taxpaying on gains. And the professionals charge enough to take perhaps 25% of your potential annual gain in fees. Meanwhile, wise people such as you buy your market index ETFs and avo...
by docneil88
Fri Jun 13, 2014 2:52 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe Q: sequence risk
Replies: 5
Views: 1690

Re: Larry Swedroe Q: sequence risk

mlewis wrote:...don't you face a risk that SV will underperform during a critical period, such as the end of the saver's timeframe or the beginning of the retiree's? Don't you face more "sequence risk" with a smaller group of asset classes in you portfolio?
Malcolm
Hi mlewis, Those risks can be largely mitigated by dividing your SV (small value) allocation between US SV, Foreign Developed SV, and Emerging Markets SV (or Emerging Markets Value, given the dearth of Emerging Markets SV funds). Best, Neil
by docneil88
Sat Mar 22, 2014 4:37 pm
Forum: Investing - Theory, News & General
Topic: Ordering Rules at Market Open
Replies: 10
Views: 1547

Re: Ordering Rules at Market Open

Related questions: If one places an order before the open, does it matter in any way how soon before the open the order is placed? For example, is there any queue-related or price advantage or disadvantage to placing an order 10 hours before the open vs. 5 hours vs. 1 minute? Thanks. Best, Neil
by docneil88
Wed Mar 12, 2014 2:00 pm
Forum: Investing - Theory, News & General
Topic: S&P 500 10-Yr Expected Equity Risk Premium
Replies: 7
Views: 2788

Re: S&P 500 10-Yr Expected Equity Risk Premium

http://www.aqr.com/Portals/1/ResearchPapers/ShillerPECommentary_AQRCliffAsness.pdf Thanks billjohnson for that excellent link. Here's a key chart from from the article (Shiller PE = PE10): http://greenbackd.files.wordpress.com/2013/03/asness-shiller-pes.jpg Hi manwithnoname, One purpose of my post was to compare the current expected ERP (Equity Risk Pemium) with historical ERPs in order to gauge the relative attractiveness of S&P 500 equities vs. the 10 year treasury bond. As is often the case, the conclusion depends on which historical time period one thinks is most relevant; see my original post above. As for expected annualized total return of S&P 500 over the next ten years, one method to figure that would be to take the curren...
by docneil88
Mon Mar 10, 2014 8:14 pm
Forum: Investing - Theory, News & General
Topic: How to Predict the Next Decade's Bond Returns
Replies: 2
Views: 1051

Re: How to Predict the Next Decade's Bond Returns

The title of the article is "How to Predict the Next Decade's Bond Returns: Current Yields Are a Good Indicator of What You Will Earn Over Time" by Chris Gay, WSJ, March 3, 2014. It's brief, but makes some important points. The quote in the original post is a paraphrase of John Bogle. If you want to be even more sure than 92% of what you'll make over 10-years in nominal terms, then buy 10-year U.S. Treasury zero-coupon bonds. Then you won't have to worry about the interest rate at which you reinvest yearly coupon payments, because such bonds do not have periodic interest payments, or so-called "coupons". Best, Neil
by docneil88
Mon Mar 10, 2014 7:42 pm
Forum: Investing - Theory, News & General
Topic: Stock pickers' market?
Replies: 19
Views: 2079

Re: Stock pickers' market?

The Wall Street Journal has an article today wherein some market analysts suggest that we are now in a stock pickers' market. They point to statistics which suggest that the correlation between movements in the S&P 500 index and its' component stocks is declining and therefore actively managed mutual funds should be favored over indexing. The premise may be true, but it is not sufficient for the conclusion. No matter the degree of correlation between movements in the S&P 500 index and its' component stocks, active investors (whether fund managers or individual investors) will still face the uphill battle of overcoming trading, tax, and management costs that are significantly higher than the index investors face. In the long-run tho...
by docneil88
Mon Mar 10, 2014 5:38 pm
Forum: Investing - Theory, News & General
Topic: S&P 500 10-Yr Expected Equity Risk Premium
Replies: 7
Views: 2788

Re: S&P 500 10-Yr Expected Equity Risk Premium

This is a common observation, but the point of using something like PE10 is to smooth out economic cycles. It is unclear that the recent economic crisis was just part of the "cycle" in the relevant sense, so unclear how reliable PE10 is in such circumstances. My own preferred way for thinking about things is to use PE10 and PE1 to establish a range. In this case, the range is relatively narrow: 3.9% to 5% annualized real returns, or a 3.3% to 4.4% real equity premium. This compares to an average historic real equity premium of 5.9%. Hi Berntson, I am sympathetic to also considering PE1 to some degree. For simplicity, I didn't add it to the mix in my calculations above. What time period does the 5.9% "average historic real eq...
by docneil88
Mon Mar 10, 2014 4:57 pm
Forum: Investing - Theory, News & General
Topic: S&P 500 10-Yr Expected Equity Risk Premium
Replies: 7
Views: 2788

S&P 500 10-Yr Expected Equity Risk Premium

Calculating S&P 500 10-Yr Expected Annualized Equity Risk Premium (ERP) over 10-Year US Treasury Bonds Four Key Premises: (1) The expected S&P 500 ERP over 10-Year Treasury Bonds is more important and relevant to a long-term investor than the expected ERP over 3-Month T-Bills. (2) Because earnings are so volatile and cyclical from year to year, PE10 is more important and relevant to long-term investors than PE1 or any PE based on expected earnings. (Definition of PE10 from Wikipedia: "The cyclically adjusted price-to-earnings ratio, commonly known as CAPE or Shiller P/E, is a valuation measure usually applied to broad equity markets. It is defined as price divided by the average of ten years of earnings (Moving average), adjus...
by docneil88
Sun Mar 09, 2014 2:44 pm
Forum: Investing - Theory, News & General
Topic: Benjamin Graham thinks current S&P valuations are reasonable
Replies: 67
Views: 13624

Re: Benjamin Graham thinks current S&P valuations are reason

I also don't understand why you see a move into cash as a protection against unexpected inflation. If that's your concern, you should be holding TIPS. In fact, the move into cash to me seems to be one of the biggest risk increasing parts of your scheme, since it is a guaranteed real loss and since the timing of your move back into the market is far more likely to be wrong than right. I don't see the purpose of cash in a portfolio, other than for short term emergency funds. On the 3-month T-Bill rate vs. inflation, from http://www.bogleheads.org/forum/viewtopic.php?f=10&t=104565 : No doubt, T-bills will never track unexpected inflation as well as any directly inflation-linked security. There will be always be periods when T-bill investo...
by docneil88
Sun Mar 09, 2014 12:24 am
Forum: Investing - Theory, News & General
Topic: Basic Efficient Market Theory Q
Replies: 23
Views: 2672

Re: Basic Efficient Market Theory Q

claver wrote:Actually, I think you are quite right theoretically and that index investors are a source of noise in an efficient market because they are buying and (during retirement) selling stocks and thereby affecting the pricing of stocks without using any information related to the value of the individual stocks they are buying and selling. They therefore do not participate in setting efficient prices.
There are many index fund investors who are also market timers, e.g. my cousin Bill and Bob Brinker, radio personality and investment newsletter writer. Of course, none of them hangs out at bogleheads.org :P
by docneil88
Sat Mar 08, 2014 9:35 pm
Forum: Investing - Theory, News & General
Topic: The Stock Market's Relentless Bid, Explained
Replies: 22
Views: 4270

Re: The Stock Market's Relentless Bid, Explained

http://finance.yahoo.com/blogs/the-exchange/the-stock-market-s-relentless-bid--explained-163536177.html by Josh Brown Yes, a greater proportion of money is going into index funds and managed accounts with assets under management (AUM) fees. But one cannot conclude from that that there will be a relentless bid under the market causing it to go up or to catch itself before a downturn gets too nasty. Index investors (whether individuals or investment managers) can still get spooked by headlines and market downturns. When that happens they may move money from stock index funds to bond index funds or cash equivalents. Also, individuals with managed accounts may pull their money out of managed accounts to get into cash equivalents or bonds. Stil...
by docneil88
Sat Mar 08, 2014 9:31 pm
Forum: Investing - Theory, News & General
Topic: The Stock Market's Relentless Bid, Explained
Replies: 22
Views: 4270

Re: The Stock Market's Relentless Bid, Explained

this ties into something i mentioned in another thread.. if everyone woke up tomorrow a boglehead, and implemented a buy-and-hold index fund strategy, i feel like something terrible would happen, economically speaking. i have no evidence to support that though. And the answer is the same as always. If everyone woke up tomorrow implementing a buy-and-hold index fund strategy the more enterprising among them would change their minds prior to market open (not that there is one any more in our globally connected world) and immediately begin to extract free money from the wildly inefficient prices that would result. It's self correcting. No matter what percentage of investors are indexing, the active investors will still face the uphill battle ...
by docneil88
Sat Mar 08, 2014 9:22 pm
Forum: Investing - Theory, News & General
Topic: "The Stock Market's Relentless Bid" Duplicate Thread--ended
Replies: 3
Views: 1490

Re: "The Stock Market's Relentless Bid, Explained"

ERMD wrote:duplicate thread.
Hi ERMD, You're right, the other thread is here: http://www.bogleheads.org/forum/viewtop ... st=1984277. Sorry. Before starting my thread, I did a search for the author's name "Josh Brown" within bogleheads.org, and this article didn't come up (the OP of that other thread did not include Josh Brown's name in the thread). I should have also searched for "relentless bid." I don't know how to delete the thread I started. Moderators, feel free to do so. I am adding my comments at the end of my original post to the other thread. Best, Neil
by docneil88
Sat Mar 08, 2014 9:10 pm
Forum: Investing - Theory, News & General
Topic: "The Stock Market's Relentless Bid" Duplicate Thread--ended
Replies: 3
Views: 1490

"The Stock Market's Relentless Bid" Duplicate Thread--ended

"The Stock Market's Relentless Bid, Explained" by Josh Brown, CEO of Ritholz Wealth Management and commentator on CNBC's Fast Money http://finance.yahoo.com/blogs/the-exchange/the-stock-market-s-relentless-bid--explained-163536177.html Excerpts from the article: ...In 2005, fee-based accounts directly managed by financial advisors and brokers totaled $198 billion. As of year-end 2013, that figure had soared to over $1.29 trillion – more than a sextupling in under a decade. It is safe to say that, while some of these fee-based accounts are managed actively (brokers picking stocks, selling options and whatnot), the vast majority are not. Most of this money is being run more passively – in the absence of a transactional commission in...
by docneil88
Fri Mar 07, 2014 4:17 am
Forum: Investing - Theory, News & General
Topic: Can Vanguard Become Too Big?
Replies: 24
Views: 5180

Re: Can Vanguard Become Too Big?

While Vanguard's secular growth continues, its periods of net-fund-outflows are minimized in length and size. This increases the likelihood that 50 years from now, unrealized gains in Vanguard's low turnover index funds will be a massive percentage of the fund. And some of those gains will be 50 years old or more. This increases the likelihood of a software glitch or lost information calling into question what the correct cost basis is for long-kept assets of a fund. Best, Neil
by docneil88
Fri Mar 07, 2014 4:02 am
Forum: Investing - Theory, News & General
Topic: Can Vanguard Become Too Big?
Replies: 24
Views: 5180

Re: Can Vanguard Become Too Big?

Yes. Vanguard can become too big. All of the math that says that chasing alpha doesn't matter and you shouldn't do it depends on other people chasing alpha. If no one else is chasing alpha, then indexing becomes the wrong thing to do, and stock picking is the way to achieve maximum return. No matter what percentage of investors are indexing, the active investors will still face the uphill battle of overcoming trading, tax, and management costs that are significantly higher than the index investors face. In the long-run those increased costs are generally very difficult to overcome. On the other hand, as the percentage of active investors decreases, the efficiency of the market will decrease, thereby increasing the performance gap between f...
by docneil88
Sun Mar 02, 2014 7:57 pm
Forum: Investing - Theory, News & General
Topic: How much is a fair hourly fee?
Replies: 86
Views: 8001

Re: How much is a fair hourly fee?

Assume you or someone you know wants professional investment help and is willing to pay an hourly fee plus expenses (similar to the billing arrangements of an attorney). What do you think a fair hourly fee would be? I'm going to throw out a number that I believe is a fair starting point for this conversation: $250 per hour. I think the appropriate number depends a lot on credentials and location. Still, $250/hour seems high to me assuming the advisor has average credentials and a rate that is median for the country. The US Bureau of Labor Statistics says the median pay for "personal financial advisors" (which probably includes both hourly and non-hourly advisors) is $67,520/year, assuming the advisor has at least a Bachelor's deg...
by docneil88
Tue Feb 18, 2014 6:11 pm
Forum: Investing - Theory, News & General
Topic: Maximum upside of bonds?
Replies: 14
Views: 2000

Re: Maximum upside of bonds?

The US 10-year note yield has never gone negative. So that limits the upside price of a 10-year. There's also the maximum downside to consider. The US 10-year note yield reached over 14% in 1982. That would wreak utter havoc on prices. And it's not inconceivable that the US government credit quality drops dramatically or that the gov't defaults on 10-year notes in the next 10 years. With the 10-year US Treasury yield now at 2.75%, there's a lot more downside potential than upside potential. Best, Neil
by docneil88
Thu Feb 06, 2014 10:29 pm
Forum: Investing - Theory, News & General
Topic: "How Vanguard Funds Stacked Up"
Replies: 16
Views: 3212

Re: "How Vanguard Funds Stacked Up"

The Vindication of Simplicity! Simple in the way that a computer's graphical user interface is simple: simple for the user/customer, but that masks a deep complexity beneath the surface. For example, if you buy a single fund, the Vanguard Total Stock Market Index Fund ( VTSMX and VTI ) (the world's largest mutual fund with $302 billion in assets), you are getting a fund with over 3500 stocks that stays basically fully invested across the relevant index through periods of net inflows and periods of net outflows. Over 3500 stocks in one fund is the ultimate in US market diversification compared to any other fund, active or passive. And Vanguard's average expense ratio is the lowest in the industry. Lots of trading, accounting, economizing, g...
by docneil88
Mon Feb 03, 2014 9:09 pm
Forum: Investing - Theory, News & General
Topic: Jason Zweig: When a Giant Gain Causes Pain
Replies: 14
Views: 3778

Re: Jason Zweig: When a Giant Gain Causes Pain

Levett wrote:Conjugal allocation.
Ha! Or perhaps "love and friendship allocation." Don't direct too much of your emotional energy towards one person. Faithful marriage can be wonderful, but be sure to have some close friends and perhaps one or more beloved children or grandchildren.
by docneil88
Sun Feb 02, 2014 11:42 pm
Forum: Investing - Theory, News & General
Topic: misguided interest in div strategies
Replies: 200
Views: 23101

Re: misguided interest in div strategies

in http://seekingalpha.com/article/1900721-misguided-interest-in-dividend-paying-stocks : DFA's March 2013 study, "Global Dividend-Paying Stocks: A Recent History," studied the data from 23 developed markets over the period 1991-2012. The following is a summary of their findings: The simple average annual returns were 9.1 percent for dividend payers and 11.1 percent for nonpayers. However, the standard deviation of the returns of nonpayers was higher than for dividend payers. The net result was that the annualized returns were the same - 7.6 percent for both dividend payers and nonpayers. ... In my opinion, the simple average annual return numbers matter little if at all compared to the annualized return numbers. DFA is saying th...
by docneil88
Tue Jan 28, 2014 1:47 am
Forum: Investing - Theory, News & General
Topic: Jason Zweig: When a Giant Gain Causes Pain
Replies: 14
Views: 3778

Re: Jason Zweig: When a Giant Gain Causes Pain

Levett wrote:As Terrance Odean, a behavioral-finance professor at the University of California, Berkeley, puts it: “Investors should diversify emotionally as well as financially."
Is Odean making an argument for polygamy?
by docneil88
Fri Jan 17, 2014 8:59 pm
Forum: Personal Finance (Not Investing)
Topic: Coverage for funds stolen via unauthorized transactions
Replies: 0
Views: 602

Coverage for funds stolen via unauthorized transactions

I am in search of an insurance policy that will cover at least $1 million of funds stolen via unauthorized/fraudulent transactions in my accounts. I know that US financial institutions often cover such losses for their customers, but what about cases in which they, for whatever reason, do not. I want coverage for that event. I hear it's often an uphill battle to get financial institutions to cover losses due to unauthorized/fraudulent transactions. Many homeowner's insurance plans and identity theft plans will pay for "recovery services" (e.g. legal and administrative services), but cover little if any of the $1,000,000 potential theft itself that I'm trying to cover. If you know of a plan that fits the bill, please could you post...
by docneil88
Sun Dec 22, 2013 6:58 pm
Forum: Investing - Theory, News & General
Topic: Commodities Funds: A Decade of Disaster
Replies: 196
Views: 26788

Re: Commodities Funds: A Decade of Disaster

What would be a good fund or ETF that represents 'global commodity producers'? I am currently looking at GNR, are there any other comparable ones? Vanguard's funds seem to be either Energy or Precious Metals centric, that too within US. Fidelity recently introduced some sector specific ETF's but they are all US centric. Hi pop77, Another alternative worth considering is GNAT, WisdomTree's Global Natural Resources Fund, which is an index fund that attains a value tilt by weighting large and mid cap natural resources companies based on their dividend yields. GNAT does not have as much exposure to publicly traded agriculture companies as GNR, but GNAT does have more exposure to publicly traded natural resource companies in emerging markets. T...
by docneil88
Sun Dec 22, 2013 6:14 pm
Forum: Investing - Theory, News & General
Topic: Commodities Funds: A Decade of Disaster
Replies: 196
Views: 26788

Re: Commodities Funds: A Decade of Disaster

Careful: what you're describing is not realized contango, but something else, what some call "trader's contango," the difference between the *current* spot and the current futures price. But that's not what counts, which is realized contango: the difference between the *future* spot and the futures price. The former is observable but irrelevant. The latter is relevant, unobservable before the fact, and what determines your return. ...return = commodities price + roll + collateral; if the roll continues to be negative several percent per year, that wipes out, in the long term, the other two terms, and then some. Thank you Dr. B for sharing that very interesting distinction between "trader's contango" and "realized c...
by docneil88
Fri Dec 20, 2013 3:47 am
Forum: Investing - Theory, News & General
Topic: residential real estate as an investment,
Replies: 78
Views: 11199

Re: residential real estate as an investment,

100% sure residential real estate gets you better return than market under these conditions: * you buy 20% under market after all rehab costs * 20% leverage with fixed rate loan * 2-3% positive spread between net rent and mortgage interest, including management fee allowance and capital reserve allowance * you buy in a growing city All of these things are absolutely doable fairly easily. If you do the opposite.. Pay retail, pay cash, declining city, you are better buying market. I have large real estate portfolio and have analyzed numbers over and over. Main thing that makes real estate better is stable leverage for fixed rate residential loans. If you could buy stocks on margin and not have to worry about mark to market margin call risk, ...
by docneil88
Thu Dec 12, 2013 1:32 am
Forum: Investing - Theory, News & General
Topic: residential real estate as an investment,
Replies: 78
Views: 11199

Re: residential real estate as an investment,

Clearly_Irrational wrote:In my opinion stocks come pre-leveraged, whereas with real estate you have to do it yourself.
Agreed, though with a 20% down payment on a home, one's leverage upon purchase is 5 to 1. Only a small percentage of stocks have built-in leverage that high or higher. (My measure of the true built-in leverage of a stock is the enterprise value divided by the market cap.) Also, only a minority of public companies can borrow at rates as low as the average home loan with a similar maturity date. (Lenders make highly leveraged home loans partly because the loan is secured by the property and partly because the buyer's income is sufficient to cover the mortgage and other standard living expenses.) Best, Neil
by docneil88
Sat Dec 07, 2013 1:02 am
Forum: Investing - Theory, News & General
Topic: Is there a new size of small, mid and large caps???
Replies: 4
Views: 1059

Re: Is there a new size of small, mid and large caps???

According to Morningstar's "style box" methodology, they use a floating system that's designed to avoid being significantly affected by market movements: Rather than a fixed number of "large cap"or "small cap" stocks, Morningstar uses a flexible system that isn't adversely affected by overall movements in the market. Large-cap stocks are defined as the group that accounts for the top 70% of the capitalization of each geographic area; mid-cap stocks represent the next 20%; and small-cap stocks represent the balance. Source: Morningstar Glossary With that floating system, the number of companies in each category will not be significantly affected by market movements, but the dollar value of the breakpoints betwe...
by docneil88
Mon Dec 02, 2013 7:02 pm
Forum: Investing - Theory, News & General
Topic: The 'Hold Bonds to Maturity' Problem
Replies: 65
Views: 5870

Re: The 'Hold Bonds to Maturity' Problem

As Bogleheads often write, bond funds are equivalent to rolling ladders of the same credit quality and average duration. Assets have market values, whether or not their owners want to pay attention to them. Posters who claim they're avoiding risk by buying and rolling a ladder with each bond held to maturity are under an illusion. The problem is, you can't hold all of them to maturity unless you pick an end date. Otherwise you have to keep rolling them and rolling them until eventually you go on a journey far far away where bonds will be of no use. Individual investors often opt for a CD ladder, which is similar to a bond ladder, except that CDs usually have a sizable penalty if you do not hold till maturity. Sometimes one must cash out ea...
by docneil88
Sun Dec 01, 2013 10:04 pm
Forum: Investing - Theory, News & General
Topic: Testosterone, Cortisol, and Investing
Replies: 4
Views: 1038

Testosterone, Cortisol, and Investing

Just read an interesting 2011 article from The Economist (I searched bogleheads.org and didn't find any prior reference to it): "Rogue Hormones" http://www.economist.com/node/21530111 , and here's an excerpt talking about research by John Coates, a neuroscientist at Cambridge University and a former derivatives trader: His work suggests that hormones drive investment decisions to a far greater extent than economists or bank executives realise. When traders are on a winning streak, their testosterone levels surge, sparking such euphoria that they underestimate risk. When they are acutely stressed, the adrenal cortex produces a flood of cortisol, a hormone that can make them overly fearful and risk-averse. ...In past experiments con...
by docneil88
Tue Nov 26, 2013 12:53 pm
Forum: Investing - Theory, News & General
Topic: Bill Bernstein: "Take risk off the table"
Replies: 207
Views: 34384

Re: Bill Bernstein: "Take risk off the table"

Even Dr. Bill is noticing the market craziness these days: And if you’re like me, you like leaning even more against the wind, so that when you see valuations like this, you want your equity allocation to be less than it was two years ago. So if you were 55 percent/45 percent two years ago, maybe today you want to be 45 percent/55 percent or at least 50/50. Believe me, this is not rocket science. It’s really a problem in engineering. If the stock market goes up X percent, you want to decrease your asset allocation by Y percent. What’s the ratio between X and Y? If the market goes up 50 percent, maybe I want to reduce my stock allocation by 4 percent. So there’s a 12.5 ratio between those two numbers. Well, that’s what it really all boils d...
by docneil88
Sun Nov 24, 2013 9:36 pm
Forum: Investing - Theory, News & General
Topic: Equal Location or Asset Location?
Replies: 42
Views: 4386

Re: Equal Location or Asset Location?

umfundi wrote:While we are here, a pop quiz: Who said
If you do own your own home, you will probably find that the house you live in is the best investment you ever made in your life
?
Just googled that expression and the only hit I got for that string was your post above.
by docneil88
Fri Nov 22, 2013 11:07 pm
Forum: Investing - Theory, News & General
Topic: Equal Location or Asset Location?
Replies: 42
Views: 4386

Re: Equal Location or Asset Location?

I voted yes for asset location, but almost all of my 20% allocation to bonds is in taxable accounts, and almost none of it is in my tax advantaged accounts. I do this partly for easy access (without an early withdrawal penalty) to low risk, highly liquid assets. But I also do this because bonds are yielding so little, and the long term annual nominal return I expect from equities (about 6-7%) is much higher than the 2.7% current yield on the the 10-year treasury. That means my lowest tax cost in dollars will likely be with my current out-of-the-mainstream asset location, despite the fact that interest is currently taxed at a significantly higher rate than cap gains or dividends. Best, Neil
by docneil88
Sun Nov 17, 2013 6:18 pm
Forum: Investing - Theory, News & General
Topic: Delete Wiki [Article] on Tax-Efficient Asset Location
Replies: 285
Views: 43586

Re: Delete Wiki on Tax-Efficient Asset Location

Only if those returns aren't significantly different. I think the whole point is that one general rule does not hold for all circumstances. I was providing a counter-example to demonstrate that your "self-evident" statement is false. For example, there's no benefit in putting bonds earning 1% in tax-advantaged while putting equities earning 20% in taxable. True, the general rule doesn't hold for all circumstances. However, bonds earning 1% while equities earn 20% is not a good example. The difference in expected returns is never that large, and you can't know ex ante what it will be. Hi jimbojones and Ketawa, Interesting debate. In my opinion, the best decision is the one with the best results, not the one with the best expected ...