Search found 2074 matches

by Random Walker
Thu Nov 23, 2017 3:12 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Taylor, I don’t know much about Sharpe. I do understand the mathematics of active management story though. I think the behavior of individual portfolios may be where we differ. I’m a huge fan of modern portfolio theory: how different less than perfectly correlated sources of return improve portfolio...
by Random Walker
Thu Nov 23, 2017 12:19 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Packer, I believe the market is super efficient. In fact I probably believe it’s more efficient than it actually is :-). The market prices risk. Small and value have been shown to be separate, unique, independent risks from the market factor. For a single stock, the market weights these unique diffe...
by Random Walker
Thu Nov 23, 2017 12:11 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

CULater, While I don’t see factor investing as a black box, you make a very good point. When a factor performs poorly for an extended period of time, is it just a bad streak or has it been permanently eradicated? No way to know until after the fact! We can only invest looking forward. That’s why sta...
by Random Walker
Thu Nov 23, 2017 12:03 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Nedsaid, Totally agree that investing is not physics. Human behavior really jacks finance up. But that is a large part of what makes investing so fascinating. That being said, it’s not all hopeless. People have looked at data, made hypotheses, and evaluated their hypotheses with out of sample data. ...
by Random Walker
Thu Nov 23, 2017 11:52 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Call me op, Have you ever used Monte Carlo simulation? I’ve found it very enlightening. The expected draw down is the output. By necessity one has to have inputs with some estimation of expected returns. How does one rationally choose a basic stock bond split much less tilts without some estimate of...
by Random Walker
Thu Nov 23, 2017 11:47 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

In_reality, I think your basic understanding of factors has a mistaken premise. You’ve mentioned that large should be uncorrelated with small, profitable uncorrelated with unprofitable, growth uncorrelated with value. That is 180 degrees off target. They are not only correlated, they are the same th...
by Random Walker
Thu Nov 23, 2017 9:13 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Call me op, It’s all linked together though. How much one tilts affects the choice of bond allocation. A person may decide on a reasonable expected return from a portfolio. He can then attempt to generate a portfolio with that expected return. If he does so with a TSM type portfolio, he will need mo...
by Random Walker
Wed Nov 22, 2017 11:14 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

In Reality, Let me give a try at clarifying my use of diversification benefit. Some people say that adding 1 stock to a portfolio of 1000 stocks increases diversification. That logic results in the philosophy that TSM is most diversified. But none of us is concerned with the world market of all fina...
by Random Walker
Wed Nov 22, 2017 5:42 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Recent Paper Swings And Misses
Replies: 12
Views: 1178

Larry Swedroe: Recent Paper Swings And Misses

http://www.etf.com/sections/index-investor-corner/swedroe-recent-paper-swings-misses?nopaging=1 In this article, Larry refutes a paper by Morgan Stanley stating that the shift to passive indexing is entering some sort of bubble status. The math doesn’t change though; on average active managers must ...
by Random Walker
Wed Nov 22, 2017 1:19 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

I would argue that accessing the CS momtum or TS Momentum premia is not alpha. They are known premia that are readily investable in a passive formulaic fashion. As Larry has written, what was once alpha has been turned into a beta.

Dave
by Random Walker
Wed Nov 22, 2017 11:53 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Triceratop, Thanks for clarifying my point. Correlations of all risky assets do strongly tend to 1 in bad bears. Bonds, which are generally uncorrelated to risky assets, have a thankful tendency for correlations to go negative at those times. I think the value premium is likely at least in part comp...
by Random Walker
Wed Nov 22, 2017 9:55 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Taylor,
Totally agree. Not only are high quality bonds the best protection, they are the cheapest as well. Everything else I discuss is decreasing marginal benefit and increasing marginal cost. This is especially true since the allocations are all quite small.

Dave
by Random Walker
Wed Nov 22, 2017 12:01 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

As I’ve written many times in the past, costs are certain and potential benefits are only just that, potential. So it’s hard to go wrong with a low cost tax efficient TSM approach. I would consider that the benchmark for comparison. But take a look at my thread on volatility drag, or Larry’s short e...
by Random Walker
Tue Nov 21, 2017 10:33 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

How do you do it, Random Walker? It's like Larry never left! It’s pretty easy to read and post an article :-) unfortunately, Larry’s absence is very much felt! I think whole threads die too early because of his absence. I think I was as hardcore efficient market, low ER, low turnover, tax efficient...
by Random Walker
Tue Nov 21, 2017 6:41 pm
Forum: Investing - Theory, News & General
Topic: Book Recommendation: Adaptive Markets:Financial Evolution At The Speed Of Thought
Replies: 5
Views: 540

Re: Book Recommendation: Adaptive Markets:Financial Evolution At The Speed Of Thought

I’m still working on the book. I wrote my initial recommendation before I got slogged down in a large neuroscience and evolutionary biology section. My view of efficient markets fits with chemical equilibrium in chemistry and perfect competition in economics. One quote has really gotten my attention...
by Random Walker
Tue Nov 21, 2017 11:53 am
Forum: Investing - Theory, News & General
Topic: Morningstar - AQR: The Vanguard of Alternative Investing?
Replies: 56
Views: 4420

Re: Morningstar - AQR: The Vanguard of Alternative Investing?

The fund expense ratio is high, but the expected equity like Pre-tax returns are after expense ratio cost. The lower after tax expected return needs to be strongly considered. Perhaps the only role for these funds in a taxable account is as an alternative to a portion of the municipal bond holdings....
by Random Walker
Tue Nov 21, 2017 11:49 am
Forum: Investing - Theory, News & General
Topic: Morningstar - AQR: The Vanguard of Alternative Investing?
Replies: 56
Views: 4420

Re: Morningstar - AQR: The Vanguard of Alternative Investing?

With an understanding of the tax inefficiency, I’ve chosen to use both the AQR Style Premia Fund and the AQR Managed Futures fund in my taxable space. I did this because I was taking from the bond side. I have a municipal bond ladder in my taxable account. My tax deferred accounts are loaded already...
by Random Walker
Mon Nov 20, 2017 11:57 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

With regard to tilting/factor investing costs. It’s important to realize that not all factor funds are created equal. For example, if a less expensive fund also has less exposure to size and value, then the investor will need more of this fund than another SV fund to gain the same portfolio factor e...
by Random Walker
Mon Nov 20, 2017 11:36 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Saltycaper, I agree with your criticisms. With regard to timeframes for data, I think we need to look multiple different timeframes: longest available, timeframe since publication and widespread knowledge, timeframe since readily investable. In each case, longer is better. Although I agree with your...
by Random Walker
Mon Nov 20, 2017 11:05 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Dead Man Walking, Like all the factors, Cross Sectional Momentum is defined as a long-short portfolio to isolate the factor and exclude the market factor. CS Momentum is RELATIVE momentum.Within an asset class, at defined time intervals, one could simply look back at the last time period and buy the...
by Random Walker
Mon Nov 20, 2017 6:01 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

CULater » Mon Nov 20, 2017 12:52 pm Factor investing seems to come a lot closer to "black box" investing. Is this a popular view of factor investing on this board? To me factor investing is just the opposite. It is passive rules based investing. Small funds target a certain market cap, value funds ...
by Random Walker
Mon Nov 20, 2017 3:15 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

I would define passive as no individual stock selection, no market timing, completely agnostic to what the individual stocks are.

Dave
by Random Walker
Mon Nov 20, 2017 2:04 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Magneto, I disagree. I think value and momentum can both be applied in a completely passive formulaic manner. For value, it can be as simple as only buying stocks with a certain BtM and holding within a range. For CS Momentum, simply buy the recent past best performers and sell the recent past worst...
by Random Walker
Mon Nov 20, 2017 12:43 pm
Forum: Investing - Theory, News & General
Topic: The negative alpha of the Value Factor
Replies: 8
Views: 1028

Re: The negative alpha of the Value Factor

What was once alpha turns into beta. Once a factor is revealed by academic research and made popular, it’s expected return will decrease but likely not disappear. The risks persist and human behavior is quite persistent. Once a factor becomes known, the appropriate benchmark changes as well. The sin...
by Random Walker
Mon Nov 20, 2017 12:06 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Azanon, I agree that such a radical decrease in the overall equity allocation seems extreme. But given the fact that behavioral finance has shown that the pain of a loss is at least twice as much as the happiness from an equal sized gain, the trade off makes lots of sense to me. As one’s portfolio i...
by Random Walker
Mon Nov 20, 2017 11:45 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

Jack Bogle: "The biggest mistake investors make is looking backward at performance and thinking it’ll recur in the future."
This can apply as much to the market factor as to any of the other factors. Pretty sure Japanese investors would agree.

Dave
by Random Walker
Mon Nov 20, 2017 11:03 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Re: Larry Swedroe: Managing Risk With Factors

I agree costs are critical, and factor investing involves increased costs. The benefits are only potential, the costs are certain. That being said, I disagree with Taylor’s point that factor investing is based almost entirely on past performance. I think the factors (at least size, value, momentum, ...
by Random Walker
Mon Nov 20, 2017 10:15 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Managing Risk With Factors
Replies: 86
Views: 5147

Larry Swedroe: Managing Risk With Factors

http://www.etf.com/sections/index-investor-corner/swedroe-managing-risk-factors?nopaging=1 If you want to understand Larry Swedroe’s philosophy of diversification across factors / sources of return, this etf.com article is an excellent place to start. Note the substantial portfolio improvement when ...
by Random Walker
Sun Nov 19, 2017 3:32 pm
Forum: Investing - Theory, News & General
Topic: Morningstar - AQR: The Vanguard of Alternative Investing?
Replies: 56
Views: 4420

Re: Morningstar - AQR: The Vanguard of Alternative Investing?

Robert, Thanks for that excellent explanation. Wouldn’t P2,4 be a superior choice to P1,3? I agree P2,4 would almost certainly be cheaper. Wouldn’t P2,4 also be more efficient? P1,3 and P2,4 have same exposures to market beta and value. But P2,4 does this with 30% risk free T-bills. P2,4 would have ...
by Random Walker
Sun Nov 19, 2017 12:15 pm
Forum: Investing - Theory, News & General
Topic: Schwab acct. security tool
Replies: 22
Views: 1419

Re: Schwab acct. security tool

I also got one of those gizmos from Schwab but have not activated it. Nice to hear that it is easy to use.

Dave
by Random Walker
Sun Nov 19, 2017 12:11 pm
Forum: Investing - Theory, News & General
Topic: Morningstar - AQR: The Vanguard of Alternative Investing?
Replies: 56
Views: 4420

Re: Morningstar - AQR: The Vanguard of Alternative Investing?

Midareff, I agree there is absolutely nothing wrong with your approach, and lots that is right! The best and cheapest diversifier of equity risk is high quality bonds. As we add complexity to our portfolios with relatively small allocations to the esoteric stuff, marginal benefit decreases and margi...
by Random Walker
Sun Nov 19, 2017 12:02 pm
Forum: Investing - Theory, News & General
Topic: Morningstar - AQR: The Vanguard of Alternative Investing?
Replies: 56
Views: 4420

Re: Morningstar - AQR: The Vanguard of Alternative Investing?

Hi Robert, Not sure I completely understood your point. Are you saying one should compare a cheaper long only tilted equity portfolio with a portfolio of equal non market factor exposure that uses some of these more expensive market neutral alternatives? Wouldn’t the portfolio using alternatives hav...
by Random Walker
Sat Nov 18, 2017 7:52 pm
Forum: Investing - Theory, News & General
Topic: annualized TLH data from Wealthfront
Replies: 7
Views: 931

Re: annualized TLH data from Wealthfront

I think that TLH is kicking the can down the road, but it’s potentially very worthwhile to do! Accumulating losses during accumulation phase allows one to offset the realized gains when one starts to make distributions in decumulation phase. So the tax burden is lessened during decumulation. More mo...
by Random Walker
Sat Nov 18, 2017 7:37 pm
Forum: Investing - Theory, News & General
Topic: Morningstar - AQR: The Vanguard of Alternative Investing?
Replies: 56
Views: 4420

Re: Morningstar - AQR: The Vanguard of Alternative Investing?

Midareff, I think it is incorrect to consider market neutral QSPIX part of an equity allocation. It invests in four styles across at least four asset classes. The styles are value, Momentum, carry, defensive. And the asset classes are equities, bonds, commodities, currencies I think. The styles with...
by Random Walker
Fri Nov 17, 2017 2:32 pm
Forum: Investing - Theory, News & General
Topic: annualized TLH data from Wealthfront
Replies: 7
Views: 931

Re: annualized TLH data from Wealthfront

I’m skeptical of the data. I signed up with an advisor in 2009, and one of the big reasons I took the advisor plunge was for effficient TLH. An Arnott and Berkin paper sometimes discussed on this site says TLH can yield about 0.5-0.7% per year. My advisor has seen very few TLH opportunities in my po...
by Random Walker
Fri Nov 17, 2017 1:38 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Why Trend Following Works
Replies: 0
Views: 409

Larry Swedroe: Why Trend Following Works

http://www.etf.com/sections/index-investor-corner/swedroe-why-trend-following-works?nopaging=1 The addition of TS Momentum to a portfolio should improve its efficiency due to it's lack of correlation to both stocks and bonds. I strongly recommend the paper from AQR that Larry links: the smile curve ...
by Random Walker
Wed Nov 15, 2017 10:28 pm
Forum: Investing - Theory, News & General
Topic: Do you subscribe to taking risk only on the equity side
Replies: 40
Views: 2320

Re: Do you subscribe to taking risk only on the equity side

Nisiprius wrote: What is the case for using investments that have an intrinsic in-between nature, rather than just adjusting the proportions of the traditional categories of security? So far, I've seen absolutely nothing to convince me that using the in-between stuff in a portfolio is very different...
by Random Walker
Tue Nov 14, 2017 9:03 pm
Forum: Investing - Theory, News & General
Topic: Do DFA advisors get kickbacks?
Replies: 11
Views: 1611

Re: Do DFA advisors get kickbacks?

I too have an independent fiduciary advisor. The company uses DFA funds in addition to a few others. To the best of my knowledge there is no financial incentive for the advisor to use the DFA funds. If there were, I expect they would have been legally obligated to reveal that to me in writing or ora...
by Random Walker
Tue Nov 14, 2017 8:45 am
Forum: Investing - Theory, News & General
Topic: "A Case Against Over Weighting International Equity"
Replies: 11
Views: 1436

Re: "A Case Against Over Weighting International Equity"

The market prices risk. The lower P/E ratios of Int and EM reflect perceived higher risk and thus higher expected return. FWIW, I think the real bang for the portfolio diversification buck is in international small value. You diversify internationally and diversify into the size and value factors. M...
by Random Walker
Mon Nov 13, 2017 10:48 pm
Forum: Investing - Theory, News & General
Topic: Value, and Slice and Dice - How Much?
Replies: 6
Views: 760

Re: Value, and Slice and Dice - How Much?

Here is why I have more faith than garlandwhizzer. The market prices risk, it doesn’t equilibrate returns. Prices of small and value should be lower because they are more risky. Lower prices implies higher expected future returns. It makes sense to me that the expected return on a company is it’s co...
by Random Walker
Mon Nov 13, 2017 3:24 pm
Forum: Investing - Theory, News & General
Topic: What is all the recent talk about a bond bubble?
Replies: 22
Views: 2309

Re: What is all the recent talk about a bond bubble?

Elb1, A bond fund is just a collection of individual bonds, so they are inherently the same. If you hold a bond to maturity, you get the principal back. But that does not mean that if bond prices fall you will not be affected. If bond prices fall, interest rates will rise. Although you will get your...
by Random Walker
Mon Nov 13, 2017 11:32 am
Forum: Investing - Theory, News & General
Topic: “Flight to Quality:” the old way of thinking?
Replies: 16
Views: 1496

Re: “Flight to Quality:” the old way of thinking?

Nsiprius makes some good points. One should expect to see the equity side of his portfolio take 1,2, maybe 3 50% declines in the course of an investing lifetime. At these times bonds will rise maybe 5%. So one could expect a 60/40 portfolio to lose about 25% under these circumstances. Even a 50/50 p...
by Random Walker
Mon Nov 13, 2017 10:50 am
Forum: Investing - Theory, News & General
Topic: “Flight to Quality:” the old way of thinking?
Replies: 16
Views: 1496

Re: “Flight to Quality:” the old way of thinking?

US government debt obligations are considered the least risky of investments. To pay back its obligations the government can always raise taxes or print more money. The short term 1 year treasuries are considered the riskless asset. When things in the investing world get scary, investors will want s...
by Random Walker
Mon Nov 13, 2017 10:45 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Active Won’t Save Your Retirement
Replies: 3
Views: 885

Re: Larry Swedroe: Active Won’t Save Your Retirement

Rkhusky, I agree that using specific numbers leads to a sense of accuracy that can be misleading. There is a WIDE dispersion of potential outcomes. I use that terminology in an attempt to clarify the trade offs: more of a higher expected return asset class, less overall equity exposure, more bonds, ...
by Random Walker
Mon Nov 13, 2017 10:40 am
Forum: Investing - Theory, News & General
Topic: Value, and Slice and Dice - How Much?
Replies: 6
Views: 760

Re: Value, and Slice and Dice - How Much?

Tracking error is totally behavioral. An investor needs to either acknowledge it in himself or more productively, educate himself to build the mental fortitude to not be subject to it. One can increase the SV tilt, decrease the overall exposure to equity market risk, increase bond allocation, keep e...
by Random Walker
Mon Nov 13, 2017 10:25 am
Forum: Investing - Theory, News & General
Topic: “Flight to Quality:” the old way of thinking?
Replies: 16
Views: 1496

Re: “Flight to Quality:” the old way of thinking?

I think the role of Short treasuries as the riskless asset is not changing anytime soon. They are basically uncorrelated with equities. What is very significant is that when equities take it on the chin, the correlation between equities and treasuries tends to turn strongly negative. This brings up ...
by Random Walker
Mon Nov 13, 2017 10:14 am
Forum: Investing - Theory, News & General
Topic: Larry Swedroe: Active Won’t Save Your Retirement
Replies: 3
Views: 885

Larry Swedroe: Active Won’t Save Your Retirement

http://www.etf.com/sections/etf-industry-perspective/swedroe?nopaging=1 Good article showing passive funds from VG and DFA outperforming active from Russell. In today’s environment of high US equity valuations and low interest rates, expected returns are modest. Active funds are unlikely to give inc...
by Random Walker
Sat Nov 11, 2017 8:02 pm
Forum: Investing - Theory, News & General
Topic: Volatility and Risk relationship
Replies: 29
Views: 1978

Re: Volatility and Risk relationship

Tyler9000 wrote The interesting impact of this effect when it comes to portfolio construction is that a portfolio with a lower average return can sometimes be more desirable (not just emotionally but also financially) than one with a higher average return because of the different underlying volatili...