Search found 2551 matches

by Random Walker
Sun May 20, 2018 10:53 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

Longinvest, I think your critique of the above Larry recommendations is off base. Alternative histories can play out, and one goal of portfolio construction is to build a portfolio robust to different possible alternative histories playing out. CCF’s are a sort of portfolio insurance; you don’t nece...
by Random Walker
Sun May 20, 2018 2:47 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

For those interested, take a look at an excellent book: Successful Investing Is A Process by Jacques Lussier Chapter 4, pages 54-58.

Dave
by Random Walker
Sun May 20, 2018 2:43 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

As the original poster of this topic, let me try to summarize what I've learned, so far: ... Seeking higher returns by trying to bet on future asset correlations , as promoted by author Larry Swedroe (who has an awful track record), is a form of speculation , mostly driven by greed (e.g. the hope t...
by Random Walker
Sun May 20, 2018 2:42 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

Mlretired, You don't need to bother with excel to see why there is no such as thing as volatility drag. A thought experiment will suffice. Assume you have two simple portfolios each consisting of a single stock--stock A is highly volatile while stock B is a dullard-- not much volatility. You buy th...
by Random Walker
Sun May 20, 2018 2:34 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

Longinvest, I agree with you lots regarding diversification. But finance has evolved. We have diversification opportunities available that have not been available in the past. Modern portfolio theory clearly shows the benefit of diversifying across independent sources of return. We now have at our d...
by Random Walker
Sun May 20, 2018 1:31 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

MIretired, Yes it’s true. You can prove it yourself on Excel. Create two random series of returns using the Normal distribution and Random functions. Use the same arithmetic mean return for both series, but vary the standard deviations. Then calculate the actual arithmetic and geometric mean returns...
by Random Walker
Sun May 20, 2018 1:25 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

Rbaldini, Yes, what matters is the portfolio as a whole. What matters is the geometric return of the portfolio. Sounds like you know statistics better than I do, but my focus is entirely at the portfolio level: how individual assets with different expected returns, correlations, volatilities, mix at...
by Random Walker
Sun May 20, 2018 1:18 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

Hi Rick, Thanks for chiming in on this topic. I think it is your book that first got me interested in it. Isn’t avoiding the large losses a big part of the variance drain issue? A bigger portfolio compounding at a more consistent yet modest rate can accomplish lots, with or without a rebalancing bon...
by Random Walker
Sun May 20, 2018 1:01 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

Yeah, with the proliferation of articles covering valuations and expected returns I've noticed a trend of authors switching back to arithmetic averages even for their historical analyses. For example, In his book "Your complete guide to factor-based investing" Larry Swedroe exclusively uses arithme...
by Random Walker
Sun May 20, 2018 10:34 am
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

IlliniDave, I’m no math whiz, but I disagree. The issue is not just looking at past returns as you wrote above. The issue is building efficient portfolios for the future. Looking forward, each potential portfolio addition has an expected return, a simple mean with a potential dispersion of outcomes....
by Random Walker
Sat May 19, 2018 11:28 pm
Forum: Investing - Theory, News & General
Topic: Three-fund portfolio returns and variance drain
Replies: 87
Views: 7294

Re: Three-fund portfolio returns and variance drain

I believe this is a very important topic. When we create a portfolio, we look at the expected returns, volatilities, and correlations of potential portfolio additions. The expected return of an investment is an estimate of an arithmetic mean return. The expected return of a portfolio is a weighted a...
by Random Walker
Sat May 19, 2018 2:03 pm
Forum: Investing - Theory, News & General
Topic: Do I understand duration correctly?
Replies: 18
Views: 1204

Re: Do I understand duration correctly?

Dbr, I ignored the question and just basically said everything I know about bonds instead :-). Thanks for alerting me to that. People and books always make the point that there is zero difference between individual bonds and a collection of them in a bond fund. Nevertheless it still tricks me up a b...
by Random Walker
Sat May 19, 2018 11:38 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: No Need For Corp Bonds?
Replies: 35
Views: 3108

Re: Larry Swedroe: No Need For Corp Bonds?

Nisiprius makes a great comment about data. In general, longer term data has the potential to be more meaningful because it displays persistence of whatever factor one is looking at. But circumstances change, and shorter more recent data might be more relevant to our current circumstance. To really ...
by Random Walker
Sat May 19, 2018 11:20 am
Forum: Investing - Theory, News & General
Topic: Do I understand duration correctly?
Replies: 18
Views: 1204

Re: Do I understand duration correctly?

The maturity of the bond is decreasing over time. After 1 year, the maturity of a 5 year bond is 4 years. Duration is always less than maturity. As maturity shortens and a bigger proportion of the bonds total payout is the final repayment of principal, the duration comes closer to equaling maturity....
by Random Walker
Sat May 19, 2018 10:38 am
Forum: Investing - Theory, News & General
Topic: Do I understand duration correctly?
Replies: 18
Views: 1204

Re: Do I understand duration correctly?

I know of three useful working definitions for duration: 1. Weighted average time for repayment of all coupons and principal at end 2. Time at which a bond holder is indifferent to a one time change in interest rates because of reinvestment of coupons at new interest rate 3. A measure of price sensi...
by Random Walker
Fri May 18, 2018 11:02 am
Forum: Investing - Theory, News & General
Topic: Rob Arnott:index Investors Buy High, Sell Low
Replies: 35
Views: 3085

Re: Rob Arnott:index Investors Buy High, Sell Low

I think the argument stating that the use of active management to overcome these potential weaknesses of pure indexing is a bit of a straw man. The real comparison should be to passive funds that are willing to accept a little tracking error to overcome the weaknesses of pure indexes.

Dave
by Random Walker
Fri May 18, 2018 9:10 am
Forum: Investing - Theory, News & General
Topic: Rob Arnott:index Investors Buy High, Sell Low
Replies: 35
Views: 3085

Rob Arnott:index Investors Buy High, Sell Low

http://www.etf.com/sections/features-and-news/rob-arnott-index-investors-buy-high-sell-low?nopaging=1 This article is not about what you might think from the title: it’s not about bad individual investor behavior. Rather it’s about a potential weakness of typical market cap weighted index funds. Pas...
by Random Walker
Fri May 18, 2018 7:33 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: No Need For Corp Bonds?
Replies: 35
Views: 3108

Larry Swedroe: No Need For Corp Bonds?

http://www.etf.com/sections/index-investor-corner/swedroe-no-need-corp-bonds?nopaging=1 Corporate bonds are really hybrid securities: a mix of the risks found in Treasuries and stocks. Even though corporate bonds make up a substantial portion of the world fixed income market, the case for adding the...
by Random Walker
Thu May 17, 2018 10:22 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Value Premium Lives!
Replies: 39
Views: 2784

Re: Factor investing with one fund.

if people are worried about value underperformance, that is just more reason to diversify across all the known factors, including market beta: market, size, value, momentum, profitability/quality. Dave: Total Stock Market Index Fund includes all U.S. stock factors in one fund. Please read my "Simpl...
by Random Walker
Wed May 16, 2018 10:09 pm
Forum: Investing - Theory, News & General
Topic: A question concerning expected returns of model portfolio
Replies: 2
Views: 231

Re: A question concerning expected returns of model portfolio

Carol88888, I think you are calculating expected returns correctly: a weighted average of the expected returns of the individual portfolio components. I looked up the example you describe from Larry’s 2014 book. Those are actual returns data from1975-2013. As I’m sure you’ve read, expected returns a...
by Random Walker
Wed May 16, 2018 9:21 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Value Premium Lives!
Replies: 39
Views: 2784

Re: Larry Swedroe: Value Premium Lives!

Several posters seem to be looking at this as a binary choice between value tilt and all TSM. First of all, the data in the article shows that the value premium is negative about as often at each length of time as is market beta. Since value and market are uncorrelated, this is an argument to divers...
by Random Walker
Wed May 16, 2018 2:09 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Value Premium Lives!
Replies: 39
Views: 2784

Re: Larry Swedroe: Value Premium Lives!

I apologize if I misspoke. Though I do believe he has held Wellington fund, described by Morningstar as a LV fund, for a very long time. Perhaps he only holds it for sentimental reasons. I was not speaking from a source, but here is a link to a Bogle lecture on Wellington. He does describe the equit...
by Random Walker
Wed May 16, 2018 10:05 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Value Premium Lives!
Replies: 39
Views: 2784

Re: Larry Swedroe: Value Premium Lives!

But the ultimate question for investors is can active strategies outperform Bogle. Larry has some more work to do on that one... I think Larry and Bogle are way more on the same page than you think. They both ardently believe active management is a loser’s game. Both strongly advocate passive inves...
by Random Walker
Wed May 16, 2018 9:39 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Risks Of Short Selling
Replies: 8
Views: 1087

Re: Larry Swedroe: Risks Of Short Selling

But the simplest example is us individual investors; very easy for us to go long and very difficult to go short.

Dave
by Random Walker
Wed May 16, 2018 9:33 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Value Premium Lives!
Replies: 39
Views: 2784

Re: Larry Swedroe: Value Premium Lives!

Mr. Swedroe's Conclusion: "My conclusion is that the most recent 10 years of performance is likely just another of those occasionally occurring but fairly long periods in which the value premium is negative." It is difficult (and expensive) to try to "beat the market." Best wishes. Taylor In the ar...
by Random Walker
Wed May 16, 2018 8:30 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Value Premium Lives!
Replies: 39
Views: 2784

Larry Swedroe: Value Premium Lives!

http://www.etf.com/sections/index-investor-corner/swedroe-value-premium-lives?nopaging=1 In this article Larry places the last decade’s value performance in historical context and in the context of the behavior of other factors, including market beta, over different time periods. Larry briefly discu...
by Random Walker
Mon May 14, 2018 8:22 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Risks Of Short Selling
Replies: 8
Views: 1087

Larry Swedroe: Risks Of Short Selling

http://www.etf.com/sections/index-investor-corner/swedroe-risks-short-selling?nopaging=1 All of the factors are defined as long-short portfolios. One can easily correct underprocing with long only portfolios, but it is much more difficult to correct overpricing. To efficiently correct overpricing as...
by Random Walker
Sun May 13, 2018 2:35 pm
Forum: Investing - Theory, News & General
Topic: Agressive factor Investing
Replies: 44
Views: 4006

Re: Agressive factor Investing

I've read some parts of Larry swedroe's book on factor investing, If you’re only reading parts of the book, make sure you see the tables in Chapter 9 that look at the Sharpe ratios of individual factors, the likelihood of underperformance of each factor over different time periods, and the powerful...
by Random Walker
Sat May 12, 2018 10:54 pm
Forum: Investing - Theory, News & General
Topic: Muni bondholders vs. pensions
Replies: 50
Views: 2926

Re: Muni bondholders vs. pensions

Of all the bonds in the portfolio of VWITX, a total of 19.6% of the bonds are the nine states on Swedroe's "no buy" list. Illinois alone represents 6.4% of all the bonds in the portfolio. Puerto Rico ( not on Swedroe's list ) represents 0.1%. (Taken from the annual report of Oct, 2017.) I respect L...
by Random Walker
Sat May 12, 2018 10:28 pm
Forum: Investing - Theory, News & General
Topic: Agressive factor Investing
Replies: 44
Views: 4006

Re: Agressive factor Investing

Well, if all this factor stuff really works then everyone is going to know about it and either A- it won't work anymore, or B- it will continue to work and become part of the total market profile. If it's B, then I will be in on it because I hold the total market. Paul In case B, you might hold all...
by Random Walker
Sat May 12, 2018 10:22 pm
Forum: Investing - Theory, News & General
Topic: Muni bondholders vs. pensions
Replies: 50
Views: 2926

Re: Muni bondholders vs. pensions

Of all the bonds in the portfolio of VWITX, a total of 19.6% of the bonds are the nine states on Swedroe's "no buy" list. Illinois alone represents 6.4% of all the bonds in the portfolio. Puerto Rico ( not on Swedroe's list ) represents 0.1%. (Taken from the annual report of Oct, 2017.) I respect L...
by Random Walker
Fri May 11, 2018 10:53 am
Forum: Investing - Theory, News & General
Topic: Muni bondholders vs. pensions
Replies: 50
Views: 2926

Re: Muni bondholders vs. pensions

Tarkus, As I recently stated, I’m a client of Larry’s firm. So my bond ladder also excludes the states on the above mentioned list. Another advantage of having a ladder of individual bonds is that the investor can tailor it to his personal tax circumstance. For example, bonds prices rise to the leve...
by Random Walker
Fri May 11, 2018 10:24 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Thinking In Bets
Replies: 22
Views: 2204

Re: Larry Swedroe: Thinking In Bets

Those "rules of thumb" are nice, but kind of squishy. Why 85%? Is 90% conservative enough? You see the point. The reality is that the analysis will be run a number of times during a retirement and the answer to the question "How much can I safely spend?" will evolve. I do not think it's wise to run...
by Random Walker
Fri May 11, 2018 9:32 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Thinking In Bets
Replies: 22
Views: 2204

Re: Larry Swedroe: Thinking In Bets

Daufuskienate,
My advisor generally uses 85% as the recommended success rate for MCS. That being said, one can ratchet that number up or down based on one’s personal risk tolerance and what one has in reserve as Plan B for the potential unsuccessful ourptcomes.

Dave
by Random Walker
Fri May 11, 2018 9:15 am
Forum: Investing - Theory, News & General
Topic: Muni bondholders vs. pensions
Replies: 50
Views: 2926

Re: Muni bondholders vs. pensions

Virtually all of my bonds are individual municipal bonds. I’m not losing any sleep. One advantage of using an individual bond ladder over a fund is that the individual can control credit quality and maturity. By choosing only the highest quality bonds, state general obligations and essential service...
by Random Walker
Fri May 11, 2018 9:07 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Thinking In Bets
Replies: 22
Views: 2204

Larry Swedroe: Thinking In Bets

http://www.etf.com/sections/index-investor-corner/swedroe-lessons-poker-player?nopaging=1 Larry reviews a book called Thinking In Bets by Annie Duke, a former professional poker player. Larry covers a lot of ground in this discussion: confusing strategy and outcome, alternative histories, hindsight ...
by Random Walker
Thu May 10, 2018 9:35 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Ignore Investor Noise
Replies: 4
Views: 1014

Larry Swedroe: Ignore Investor Noise

http://www.etf.com/sections/index-investor-corner/swedroe-ignore-investor-noise?nopaging=1 Larry reviews data showing that investor sentiment is a contrarian predictor of stock returns. Limits to arbitrage on the short side result in less efficient correction of market over pricing than under pricin...
by Random Walker
Tue May 08, 2018 4:11 pm
Forum: Investing - Theory, News & General
Topic: Stock Returns & Volatility — A Fickle Long-Term Relationship
Replies: 5
Views: 454

Re: Stock Returns & Volatility — A Fickle Long-Term Relationship

I read something from Ilmanen’s book Expected Returns on the low volatility anomaly. He wrote (if I understood it correctly) that overall between equity asset classes, volatility and returns are positively correlated. But within an equity asset class there is no positive correlation.

Dave
by Random Walker
Mon May 07, 2018 6:51 pm
Forum: Investing - Theory, News & General
Topic: Peer-to-peer lending as an investment?
Replies: 67
Views: 7556

Re: Peer-to-peer lending as an investment?

I think garlandwhizzer is on target. For LENDX the small business, personal, and student loans are of very short maturity. So overall uncorrelated with equity. But if big unemployment hits later on in a recession, then would expect loan defaults to increase and LENDX to get hit hard. I think though ...
by Random Walker
Sun May 06, 2018 4:26 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

Oh wow, I didn't realize the AQR core bond fund had already started trading. QCPRX / QCPIX / QCPNX. Simple enough ticker, with the Q like many of their funds, and CP for core plus bond, and the share class designation. Inception April 5th, 2018. I wonder why Larry mentioned the other funds but not ...
by Random Walker
Sun May 06, 2018 1:56 pm
Forum: Investing - Theory, News & General
Topic: Fees are higher than we think
Replies: 12
Views: 2297

Re: Fees are higher than we think

I use an advisor who charges an AUM fee. The Monte Carlo Simulations he provides account for AUM fees, fund expense ratios, and expected taxes. So the anticipated withdrawals are real disposable income for me. The purpose of investing is to meet our goals. With or without an AUM fee, if the plan is ...
by Random Walker
Sat May 05, 2018 6:00 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

By the way, I’d happily post other writer’s articles on the BH site as well. I have posted one or two things I’ve found in the past from AQR or Research Affiliates, but in general the only writings I can find that I think worthwhile are from Larry. I peruse etf.com, the AQR site, Cliff Asness Perspe...
by Random Walker
Sat May 05, 2018 5:31 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

Dave, just to make certain of one thing: Do you receive any compensation for posting on behalf of Larry or his firm? I don't know if this was already asked and answered but wanted to give you a chance to state unequivocally one way or the other. It’s been brought up less directly in the past, and I...
by Random Walker
Sat May 05, 2018 2:08 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

I've boldfaced some text. Just as they have for stocks, academics have created an asset pricing model for bonds. In this case, however, the model is much simpler because we only need two factors to explain the vast majority of the difference in returns among bond portfolios: term risk (otherwise kn...
by Random Walker
Sat May 05, 2018 2:01 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

Theoretical, The expected after expenses and after tax return on the two AQR funds mentioned in the article are quite a bit higher than CDs and savings accounts. Moreover, they are basically uncorrelated to everything. Dave Would you please document the performance of the two AQR funds. Show us the...
by Random Walker
Fri May 04, 2018 11:30 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

Theoretical,
The expected after expenses and after tax return on the two AQR funds mentioned in the article are quite a bit higher than CDs and savings accounts. Moreover, they are basically uncorrelated to everything.

Dave
by Random Walker
Fri May 04, 2018 11:27 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Re: Larry Swedroe: Factors In Fixed Income

Really? I am not even convinced to use AQR for factors with equities at this point in my life. In my opinion once the "jeannie is out of the bottle" returns are not worth the extra costs going forward. That is certainly my concern. First time I read Random Walk Down Wall Street that thinking resona...
by Random Walker
Fri May 04, 2018 9:35 am
Forum: Investing - Theory, News & General
Topic: Investing is more like poker than chess
Replies: 91
Views: 6070

Re: Investing is more like poker than chess

Yes, playing the odds. Charles Ellis wrote the outstanding book Winning The Loser’s Game. I think he equates investing to amateur tennis: not what we see on tv. On tv we see spectacular winners point after point. In real life for the rest of us tennis hacks, the winner is the guy who makes fewer unf...
by Random Walker
Fri May 04, 2018 9:14 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Factors In Fixed Income
Replies: 30
Views: 2614

Larry Swedroe: Factors In Fixed Income

http://www.etf.com/sections/index-investor-corner/swedroe-factors-fixed-income?nopaging=1 Larry reviews a paper from AQR people looking at the presence of value, momentum, carry, and defensive in the bond markets. The fact that these styles are pervasive across asset classes is one big piece of evid...