Search found 320 matches

by chatbotte
Sat Jun 13, 2020 3:44 am
Forum: Investing - Theory, News & General
Topic: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management
Replies: 26
Views: 2589

Re: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management

So if the S&P 500 is so darned flawed, if "necessary trading by passive investors opens the door for exploitation by active traders," why were 90.46% unable to walk through that open door and beat the S&P 500? I'm not sure on this one. Does it take account of all active funds (active positions), or...
by chatbotte
Sat Jun 13, 2020 3:24 am
Forum: Investing - Theory, News & General
Topic: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management
Replies: 26
Views: 2589

Re: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management

afan wrote:
Fri Jun 12, 2020 6:27 pm
If anything, the critique is even more damning of active managers. It says that their underperformance is not preordained. Yet they still underperform. This just takes away an excuse.
I see your point, but Pedersen doesn't assert that active managers must outperform after costs.
by chatbotte
Fri Jun 12, 2020 6:48 am
Forum: Investing - Theory, News & General
Topic: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management
Replies: 26
Views: 2589

Re: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management

Any thoughts on why stocks in IPOs sell at a discount relative to subsequent prices in the secondary market?
by chatbotte
Fri Jun 12, 2020 6:38 am
Forum: Investing - Theory, News & General
Topic: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management
Replies: 26
Views: 2589

Re: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management

Uncorrelated: Does Vanguard sell in advance of stocks being deleted from indexes as well?
by chatbotte
Thu Jun 11, 2020 9:58 am
Forum: Investing - Theory, News & General
Topic: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management
Replies: 26
Views: 2589

Re: Interesting New Article Taking A Fresh Look At Sharpe’s Arithmetic Of Active Management

Sorry to revive an old thread. The Pedersen paper (Sharpening the Arithmetic of Active Management) is quite interesting. A couple of questions: Do you think it's really that easy to make money on index reconstitutions? Pedersen seems to take it for granted. Any precautions taken by index fund manage...
by chatbotte
Thu Apr 30, 2020 11:12 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

Hi. A slightly/totally :) confused investor here. Does an active fund's return converge to the market return by the law(s) of large numbers and/or the central limit theorem? Not at all. No rules at all. There's a difference between "A Fund" as you state here and "statistics about all the funds." A ...
by chatbotte
Thu Apr 30, 2020 2:28 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

Alex Frakt: Thank you. Yes, it's quite confusing.
by chatbotte
Wed Apr 29, 2020 4:35 pm
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

Thank you all for your comments. I'm sort of inclined now to believe that an active fund's return will indeed converge on the market (will converge in distribution), but I'm having trouble reconciling that idea with the fact that the randomly selected sample of 100 stocks can lose all its value (ove...
by chatbotte
Wed Apr 29, 2020 8:55 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

grabiner: Thanks. So based on your reasoning, what would you say is the probability that a 100-stock position selected at random will outperform the market over the ten year period? What about any period, rather than a fixed period?
by chatbotte
Wed Apr 29, 2020 4:59 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

The same thing should be expected with mutual funds. A mutual fund which beat the market last year by 10% before expenses, and which you hold for another nine years, is expected to have a ten-year total return which is 10% higher than the market, but an annualized pre-expense return which is only 1...
by chatbotte
Tue Apr 28, 2020 12:21 pm
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

Thought experiment. Will a single company stock's return converge with market averages? Obviously not. Totally agree. That's pretty obvious indeed. Does it mean that returns cannot be i.i.d.? Once the value of your stock becomes zero (the log return is negative infinity), any subsequent return beco...
by chatbotte
Tue Apr 28, 2020 10:13 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

The arithmetic average will converge to the market return, before expenses. But because active funds usually have lower diversification, they have higher volatility which results in them under performing most of the time (lower geometric average). Interesting. Thanks. What about stock weights, corr...
by chatbotte
Tue Apr 28, 2020 9:59 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

retiringwhen wrote:
Tue Apr 28, 2020 9:55 am
Generally speaking, the universe of all active funds will converge in aggregate upon the market return less expenses and taxes.
I mean an arbitrary active fund. Any fund, or any active position, selected at random. Say, a 100-stock active fund with arbitrary weights vs. the market.
by chatbotte
Tue Apr 28, 2020 9:57 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Re: Does an active fund return converge to the market return?

The arithmetic average will converge to the market return, before expenses. Isn't this true ONLY if the investments of active funds in aggregate match the market weighted total market? So do the weights in the active fund matter? I'd say yes, but again, I'd be hard pressed to explain that intuition.
by chatbotte
Tue Apr 28, 2020 9:33 am
Forum: Investing - Theory, News & General
Topic: Does an active fund return converge to the market return?
Replies: 31
Views: 1103

Does an active fund return converge to the market return?

Hi. A slightly/totally :) confused investor here. Does an active fund's return converge to the market return by the law(s) of large numbers and/or the central limit theorem? I've just told a guy that an active fund's return will diverge from the market return as time goes on, but I'm no longer sure ...
by chatbotte
Mon Mar 23, 2020 3:31 pm
Forum: Investing - Theory, News & General
Topic: Why does dividend investing not work?
Replies: 186
Views: 28542

Re: Why does dividend investing not work?

TN_boy: I can see it now. Ctrl+F didn't do the magic. :) Thanks. And I see your point: it does look a bit suspicious. Assuming the chart is genuine though, what are your thoughts on the spread between the fourth quintile and non-payers? randomguy: Thanks. That's interesting, but I still don't get it...
by chatbotte
Mon Mar 23, 2020 6:14 am
Forum: Investing - Theory, News & General
Topic: Why does dividend investing not work?
Replies: 186
Views: 28542

Re: Why does dividend investing not work?

Sammie6758: Thanks for your post. I couldn't find any reference to an equal-weighted S&P500 in the article. Where in the article is it please? Assuming the chart is genuine, how do you explain the pattern?
by chatbotte
Sun Mar 22, 2020 7:02 am
Forum: Investing - Theory, News & General
Topic: Why does dividend investing not work?
Replies: 186
Views: 28542

Re: Why does dividend investing not work?

pennsylvania211: How do you explain the long-term dividend chart though? And what do you mean by overvalued and undervalued? WRT what model?
by chatbotte
Sat Mar 21, 2020 9:26 am
Forum: Investing - Theory, News & General
Topic: Why does dividend investing not work?
Replies: 186
Views: 28542

Re: Why does dividend investing not work?

What if non-payers happen to be low-risk stocks with low expected returns though, by chance? Wouldn't you see the same pattern as in the chart, over a long period of time?
by chatbotte
Mon Feb 10, 2020 2:45 pm
Forum: Non-US Investing
Topic: Need portfolio advice (Czech Republic). Local government bonds or global bond ETF? Include REIT ETF?
Replies: 3
Views: 695

Re: Need portfolio advice (Czech Republic). Local government bonds or global bond ETF? Include REIT ETF?

Hi glass: You have exposure to REITs in your stock ETFs. And firms in general are exposed to real estate volatility, so IMO no need to add that asset class. Add small caps for better diversification, and consider exposure to other known factors, such as value and/or momentum. Watch out for possible ...
by chatbotte
Mon Feb 10, 2020 2:09 pm
Forum: Investing - Theory, News & General
Topic: Let me get this straight about SCV & factor diversification
Replies: 161
Views: 36824

Re: Factor Investing

chatbotte: You have re-opened a 3-year old thread. You did, too. :) Factors such as value are essentially uncorrelated with market beta. So when market beta crashes, you can have a positive factor return, and vice versa. For example, value is long/short, so both the long and short legs can go down,...
by chatbotte
Thu May 10, 2018 4:29 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

rudeboy, Look, I don't even know what your chart is comparing. How is the global portfolio constructed? Is it equally-weighted by country/region, or equally-weighted by market caps? U.S. small caps returned much more than the S&P500 (have a look at the chart below), so adding small caps to the U.S. ...
by chatbotte
Thu May 10, 2018 7:24 am
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

Grt2bOutdoors, Vanguard recommends 20-40% allocated to international, most here choose 30% (right down the middle) and go with that. A 10% allocation is low, but if that is what you are comfortable with then go with that. This is the kind of language that drives me up the wall. So evasive. SHOULD nd...
by chatbotte
Wed May 09, 2018 7:16 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

Re higher returns on international I never stated that International would have higher returns. All I said was that adding international adds diversification. People seem to think diversification leads to greater return. It doesn't, they may still want to add International because they want more Di...
by chatbotte
Wed May 09, 2018 7:02 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

The problem with these types of threads is that everyone talks past one another. Words like best, need, even diversification are all relative. Will one be ok with only TSM? Probably. Is TSM diversified? Yes. Is adding International to TSM increasing your diversification? Yes. Does added diversifica...
by chatbotte
Wed May 09, 2018 1:37 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

So to me, not holding half of the world's companies is not necessarily the sign of a lack of diversification or the sign of a suboptimal portfolio. I think you're overextrapolating the logic of Bill Sharpe's CAPM and taking too extreme a viewpoint. Or, to put it even better, you wrongly assume that...
by chatbotte
Wed May 09, 2018 12:09 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversifi...
by chatbotte
Wed May 09, 2018 8:24 am
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

By adding international diversification an investor gets an additional 6,000 companies including great companies like Samsung and Toyota, and companies in economies that will likely be the largest in the world during this century (China and India). Not to mention that adding international diversifi...
by chatbotte
Wed May 09, 2018 7:32 am
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

0% international works for me. :beer 0% international works for me, at the moment . Fixed that for you. Would you like to explain why you think betting on one single economy is a wise strategy? Or why you think it will work for you? hilink73, I'm with you, but maybe you should be the one to do the ...
by chatbotte
Tue May 08, 2018 6:36 am
Forum: Investing - Theory, News & General
Topic: Lower expected stock returns means lower expected volatility?
Replies: 28
Views: 2929

Re: Lower expected stock returns means lower expected volatility?

amp, Okay, I'll give you that. If these variables do predict long-term expected returns, then changes in these variables translate into changes in long-term expected returns. The problem is that as you come closer to your investment horizon, these variables gradually lose predictive power, because s...
by chatbotte
Mon May 07, 2018 8:29 pm
Forum: Investing - Theory, News & General
Topic: Lower expected stock returns means lower expected volatility?
Replies: 28
Views: 2929

Re: Lower expected stock returns means lower expected volatility?

amp,
amp wrote:
Mon May 07, 2018 8:04 pm
Future investments will have different expected returns.
Now THAT's a bold statement. Prove it. Absolutely no reason why that MUST be so, in expectation.
by chatbotte
Mon May 07, 2018 5:48 am
Forum: Investing - Theory, News & General
Topic: Lower expected stock returns means lower expected volatility?
Replies: 28
Views: 2929

Re: Lower expected stock returns means lower expected volatility?

It says in the Swedroe article that financial intermediation costs went down over the years, so if investors have the same utility functions (require identical time-varying premia), valuations will go up to the extent intermediation costs went down, giving you the same after-cost expected return. I ...
by chatbotte
Sun May 06, 2018 6:30 am
Forum: Investing - Theory, News & General
Topic: Lower expected stock returns means lower expected volatility?
Replies: 28
Views: 2929

Re: Lower expected stock returns means lower expected volatility?

Or keep saving the same %, but get a more fulfilling job. :) Maybe you're just not happy with what you're doing, so quitting early seems to be the only reasonable thing to do.
by chatbotte
Fri May 04, 2018 4:49 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

Thank you for sharing this. Great doc. It seems odd to me the weighted cap by country in this study is MUCH MUCH different than what is weighted in FTSE Global All Cap Index (which is tracked by VT/VTWSX). It gives 52% to the US and your link gives 38%. Any idea why? guyesmith, I think the tangency...
by chatbotte
Fri May 04, 2018 7:33 am
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

If the return is similar, why adding the currency risk? carofe, In mean-variance analysis, idiosyncratic volatility isn't the only thing that matters, because an asset can reduce overall portfolio variance despite the asset's high volatility. Adding international stocks to your portfolio could redu...
by chatbotte
Fri May 04, 2018 6:00 am
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

If the return is similar, why adding the currency risk? carofe, In mean-variance analysis, idiosyncratic volatility isn't the only thing that matters, because an asset can reduce overall portfolio variance despite the asset's high volatility. Adding international stocks to your portfolio could redu...
by chatbotte
Thu May 03, 2018 9:02 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

Boxtrap, I'm not talking about actual (ex post or realized) returns that you can use PV to analyze, but expected (ex ante) returns. You likely are looking at a streak of very high US REIT returns relative to what investors expected before the fact. It's like looking at a series of 10 fair coin tosse...
by chatbotte
Thu May 03, 2018 8:36 pm
Forum: Investing - Theory, News & General
Topic: Why International again?
Replies: 224
Views: 39727

Re: Why International again?

Personally I prefer options that lower volatility through diversification AND increase return at the same time - like a small (10%) slice of US REIT’s. Boxtrap, I don't think this can work, because an asset that's a diversifier will have a low expected return: investors want it to the extent it is ...
by chatbotte
Wed May 02, 2018 3:25 am
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

PPP is simple to understand. The Economist's Big Mac index does it in a page. For Bogleheads I think this is the right level of complexity. If you want to engage in a discussion on a alternative theory I would be up for that. The Big Mac index is a great example of the problems with PPP, not an exa...
by chatbotte
Mon Apr 30, 2018 9:22 am
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

AlohaJoe, The economics textbook by Krugman, Obstfeld, and Melitz spends 225 pages on exchange rate theories so anyone who tries to tell you it is a simple subject with an open & shut answer is being misleading. Surely there's a theory that best describes rates. That's what you have at the moment, a...
by chatbotte
Mon Apr 30, 2018 8:45 am
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

dknightd, I would be surprised if a 10% gain in non-US stocks could result in a 10% loss in $US. But suppose it is possible. And perhaps it has happened, I don't track it carefully. It is also possible that a 10% gain in non-US stocks could result in a 15% increase in $US. TSX seems to have gained a...
by chatbotte
Mon Apr 30, 2018 4:25 am
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

Lauretta, thanks for the feedback. The Swiss franc was just an example of course. The USD was another case that was overvalued relative to my currency (the Euro) when I invested a lump sum over a yr ago. I didn't hedge and since then the dollar has lost ~10% relative to the Euro (and according to P...
by chatbotte
Mon Apr 30, 2018 4:01 am
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

Lauretta, thanks for the feedback. The Swiss franc was just an example of course. The USD was another case that was overvalued relative to my currency (the Euro) when I invested a lump sum over a yr ago. I didn't hedge and since then the dollar has lost ~10% relative to the Euro (and according to PP...
by chatbotte
Sat Apr 28, 2018 4:54 pm
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

Currency risk is bounded by Purchasing Power Parity (PPP) and thus mean reverting. This results in a atypical low risk profile. Please correct me if I am wrong, but it seems to me that PPP and mean reversion could actually be used as an argument in favour of currency hedging. If the dollar is overv...
by chatbotte
Fri Apr 27, 2018 8:04 pm
Forum: Non-US Investing
Topic: Currency Risk for ETFs [Canada]
Replies: 37
Views: 4153

Re: Currency Risk for ETFs [Canada]

Valuethinker, The issue is OP's time horizon. I agree as you get close to the retirement age you need to cut your risk. The best way to do that (to my mind) is to own the government bonds of your own country *if* that is credit risk free (at the Federal government level, we can assume that Canada's ...
by chatbotte
Fri Apr 27, 2018 7:53 pm
Forum: Investing - Theory, News & General
Topic: International Stock and Currency Issues
Replies: 41
Views: 4551

Re: International Stock and Currency Issues

In short, unhedged foreign currency exposure offers protection against unexpected inflation in one's own country. Unless the price of domestic non-tradables rises faster than the price of domestic tradables. In this scenario, PPP will hold for tradables, but you'll have domestic non-tradables infla...