Search found 799 matches

by rbaldini
Wed Feb 14, 2018 11:56 pm
Forum: Investing - Theory, News & General
Topic: What is the most the stock market has ever been down in 5 year period?
Replies: 16
Views: 2374

Re: What is the most the stock market has ever been down in 5 year period?

If you assume a 5% real return and a 20% standard deviation, then the standard deviation of 5-year annualized returns would be 9%. This means that 1/6 of all 5-year periods would lose more than 4% annualized (18% cumulative), and 1/40 would lose more than 13% annualized (50% cumulative). These are ...
by rbaldini
Sun Feb 11, 2018 2:11 am
Forum: Investing - Theory, News & General
Topic: Does Shiller PE imply negative returns?
Replies: 57
Views: 3190

Re: Does Shiller PE imply negative returns?

Some have made what I find to be a compelling argument that the last 26 years call into serious question how effective CAPE truly is for projecting future returns since its predictive ability has been so low for so long, interestingly almost ever since the 'discovery' of this metric. To sound like ...
by rbaldini
Tue Jan 30, 2018 7:56 pm
Forum: Personal Finance (Not Investing)
Topic: How to think about your house from a financial perspective
Replies: 89
Views: 6639

Re: How to think about your house from a financial perspective

Thinking about your house from a financial perspective is a big task. At the least, one needs to account for: -cost of purchase and/or mortgage -including the opportunity cost of a down payment, which could be invested elsewhere -and compared to cost of rent -cost to insure -cost of property taxes -...
by rbaldini
Mon Jan 29, 2018 4:38 pm
Forum: Personal Consumer Issues
Topic: Which of these mechanic-recommended services would you pay for?
Replies: 55
Views: 3712

Re: Which of these mechanic-recommended services would you pay for?

I wouldn't ignore any of them - I'd just do it myself of a fraction of the price. I might not do #4 until a leak actually starts to appear, but that's probably not the best advice. Of course, that assumes they're easy to do for your particular vehicle (which you refuse to divulge). Usually they are,...
by rbaldini
Mon Jan 29, 2018 2:26 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

batrleby wrote:
Sun Jan 28, 2018 8:53 pm
The original analysis is manifestly false, because it discounts frictional (transaction costs and short term tax consequences) to zero.
Yes, I mentioned that I left that out, and it's an important component. These frictions don't really exist for an IRA or 401k, though, right?
by rbaldini
Sun Jan 28, 2018 11:36 am
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

That logic doesn't work when it comes to trend following. The more that market participants implement it, the larger the effect will become. That sounds a bit fanciful to me. You seem to be implying that if we all just believed in trend following, we could just make money forever (forgive me if I'm...
by rbaldini
Sun Jan 28, 2018 11:21 am
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

I understand that, but that argument, namely that annual returns are "samples from a hypothetical population of all possible returns" assumes that there is indeed a population of all possible returns to draw from. I'll admit that there's some sense to it, but make no mistake that that is an unprove...
by rbaldini
Sun Jan 28, 2018 10:33 am
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

Regardless, it is undeniable, based on the data from the sample I provided, that the returns 'were what they were'. Again, this brings us back to whether this 'trend' will continue (i.e. stocks in an upward trend exhibit far less volatility than do stocks in a downward trend). I see no reason for t...
by rbaldini
Sun Jan 28, 2018 12:27 am
Forum: Investing - Help with Personal Investments
Topic: Thinking About Timing the Market
Replies: 75
Views: 5612

Re: Thinking About Timing the Market

(1) Historically, all bull markets have come to an end. In other words, it is virtually certain that there will eventually be a period of decline. True. But when will this happen? How do you know the market won't go up another 30% before it does? (2) Historically, the average bull market ended afte...
by rbaldini
Sat Jan 27, 2018 11:57 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

What about transaction costs and taxes incurred by this "strategy that decides to exit and enter the market"? I would expect those to be quite a drag over simple buy-and-hold. Yes, I think that's true. I mentioned that I conveniently ignored those in the original argument.... :D So I see 2 possibil...
by rbaldini
Sat Jan 27, 2018 11:51 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

Being a trend follower, the first thing that I'll point out is that I and many others do not believe that stock returns are random. Many in the academic community are convinced that volatility clustering is very real and have data to support that belief. Indeed. And if you believe that the market i...
by rbaldini
Sat Jan 27, 2018 11:30 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

Actually, the geometric mean is lower with the market timing; the arithmetic mean is the same. Was referring to the non-market timing case as having higher geometric return. From the approximation that geom mean = arith man - 1/2*var (or something like that). Since timing has the higher variance, i...
by rbaldini
Sat Jan 27, 2018 11:19 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

Let's stick with this for a bit. Let's say we flip a fair coin. Heads you win $1.10, loose and pay $1.00. We flip coins and get 7 heads in a row. We then survey people asking them what the odds that the next flip of the coin will be heads. Some would say heads because it is obvious that the coin to...
by rbaldini
Sat Jan 27, 2018 11:15 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

Another way to look at this is the standard deviation. Halving your stock allocation halves the standard deviation. Halving your time in the market divides the standard deviation only by the square root of 2. Now that makes sense. This would presumably imply that the expected long term return would...
by rbaldini
Sat Jan 27, 2018 10:56 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

I am not quite sure I quite get your response. I will try. First, I am going to assume that we are using the "Strong" version of EMH, that pricing is perfect and you can't beat the system. Not quite saying the system is random but close enough. This implies that the winning move is to own the marke...
by rbaldini
Sat Jan 27, 2018 10:52 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

Market timing in a random walk increases your risk, while not changing your expectation. If you keep a fixed 50% stock portfolio, you will lose 20% of your portfolio only when the stock market loses 40%. If you have no stock half the time and 100% stock half the time, you will lose 20% of your port...
by rbaldini
Sat Jan 27, 2018 10:43 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

First, no one randomly times the market. They time based on emotion, gut. This is anything but random. Again: if the market is truly random, then the feeling in your gut can have *no predictive value whatsoever* about future returns. This means that your gut can neither tend to be right nor wrong. ...
by rbaldini
Sat Jan 27, 2018 10:29 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

Re: market timing in a random walk

The errors of most market timers are behavioral and cognitive. Most people reacte to phantoms or overreact. But to be clear, this does presuppose that there is non-randomness in the market, no? Otherwise, there would be no reason why "reacting to phantoms" would tend to produce worse-than-average r...
by rbaldini
Sat Jan 27, 2018 10:04 pm
Forum: Investing - Theory, News & General
Topic: market timing in a random walk
Replies: 39
Views: 2276

market timing in a random walk

Most of us try not to time the market, because we've heard that it usually doesn't work in our favor. Specifically, it is "bad", and you'll likely end up worse off because of it. I've always taken it to mean that you'll likely get worse risk-adjusted return. The point of this post is to challenge th...
by rbaldini
Thu Jan 25, 2018 12:41 am
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

Being a trained applied statistician, I can tell you that trying to use statistics in this context is somewhat dubious. Why? Because these returns are not samples coming from a larger population; they are the actual numbers. When we're looking at population parameters, there is no need for statisti...
by rbaldini
Wed Jan 24, 2018 11:20 pm
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

IMO trying to time the market isn't *terrible*. Why? Because the market seems to be pretty close to a random walk. That means that any time you exit the market, you're just replacing a random sample of (unknown) returns with 0% return over that time period that you exit. The effects of this are ult...
by rbaldini
Wed Jan 24, 2018 10:14 pm
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

I have asked this before and haven't gotten a good answer. If you have a rules based system for market timing, and you stick with it, even when it looks like it's not working, doesn't that count as staying the course? Well... if your rule-based system is a bad one, then staying the course would be ...
by rbaldini
Wed Jan 24, 2018 5:20 pm
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

The criterion for being badly wrong isn't something else being better than the BH approach. The criterion is that the BH approach fails. You relied on it to work (because the BH portfolio always worked in the past based on firecalc, etc.), but it actually fails in the future when you are using it t...
by rbaldini
Wed Jan 24, 2018 5:10 pm
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

If it were found that, in the future, actively managed mutual funds on average DID beat common index funds, then that would be surprising and I'd conclude that I was misled by the Bogleheads. (Note that the above is not impossible, because actively managed mutual funds are not the entirety of activ...
by rbaldini
Wed Jan 24, 2018 4:48 pm
Forum: Investing - Theory, News & General
Topic: In what ways could BogleHeads be badly wrong ?
Replies: 237
Views: 20489

Re: In what ways could BogleHeads be badly wrong ?

If it were found that, in the future, actively managed mutual funds on average DID beat common index funds, then that would be surprising and I'd conclude that I was misled by the Bogleheads. (Note that the above is not impossible, because actively managed mutual funds are not the entirety of active...
by rbaldini
Wed Jan 24, 2018 4:34 pm
Forum: Investing - Theory, News & General
Topic: What are some alternative, numerical proxies for risk besides volatility?
Replies: 29
Views: 1373

Re: What are some alternative, numerical proxies for risk besides volatility?

Question - how does one calculate this number? I would suspect that it would be with standard deviation. So while it might be presented differently we are stuck with the same old number. Measure it empirically. Look at a bunch of years in the past, count up the number that are below 0, and divide b...
by rbaldini
Wed Jan 24, 2018 4:30 pm
Forum: Investing - Theory, News & General
Topic: What are some alternative, numerical proxies for risk besides volatility?
Replies: 29
Views: 1373

Re: What are some alternative, numerical proxies for risk besides volatility?

Provisionally, I think standard deviation is a perfectly reasonable measure of "risk." I think that there is a lot of deliberate obfuscation surrounding the word risk, and that very likely a more thorough examination would show that, regardless of conceptual differences, most measures of "risk" are...
by rbaldini
Wed Jan 24, 2018 4:18 pm
Forum: Investing - Theory, News & General
Topic: What are some alternative, numerical proxies for risk besides volatility?
Replies: 29
Views: 1373

Re: What are some alternative, numerical proxies for risk besides volatility?

Someone may have already said this, but... One measure that is somewhat useful is Probability of Loss Over [some time frame]. E.g. what's the probability that I'll have less money than I have now in 1 year? 5 years? etc. Generally speaking, the longer the timeframe, the smaller the number is - hence...
by rbaldini
Wed Jan 24, 2018 11:37 am
Forum: Investing - Help with Personal Investments
Topic: am I crazy to do a lump sum investment with my entire retirement in this current stock market?
Replies: 47
Views: 5802

Re: am I crazy to do a lump sum investment with my entire retirement in this current stock market?

Every day I lump sum my current savings into a mixture of stock and bonds. That is, I do the equivalent of that, which is to keep all of my invested money in the market. Try to think of it like that. Try to think: if I were already invested now, would I pull my money out? If the answer is "no", the...
by rbaldini
Sat Jan 20, 2018 12:42 pm
Forum: Investing - Theory, News & General
Topic: What "efficient market" does and doesn't mean
Replies: 29
Views: 1817

Re: What "efficient market" does and doesn't mean

The EMH assumes rational actors. Otherwise, it would be impossible for all information to be reflected in prices. There's an important distinction between "price quickly comes to reflect available information" and "prices are 'rationally' set by information." The former refers to the speed of infor...
by rbaldini
Sat Jan 20, 2018 11:05 am
Forum: Investing - Theory, News & General
Topic: What "efficient market" does and doesn't mean
Replies: 29
Views: 1817

What "efficient market" does and doesn't mean

Just yesterday I posted the question of whether Bogleheads thought the crypto market was efficient. There were a variety of answers, but mostly I was struck by how much people disagreed about the meaning of "efficient market". I'm writing to ask about that. First, investopedia's definition: The effi...
by rbaldini
Fri Jan 19, 2018 12:58 pm
Forum: Investing - Theory, News & General
Topic: Is the crypto market efficient?
Replies: 23
Views: 1372

Re: Is the crypto market efficient?

I am going to guess that your friend is going to lose, unless he picks a couple of home-run ICOs. How often are you re-balancing? I rebalance every month. For his part, he just sent me a starting allocation (x% in bitcoin, y% in ethereum, ...) and has agreed to update me whenever he wants to make a...
by rbaldini
Fri Jan 19, 2018 12:42 pm
Forum: Investing - Theory, News & General
Topic: Is the crypto market efficient?
Replies: 23
Views: 1372

Re: Is the crypto market efficient?

How did you go about creating your index? I think that if you can replicate a total market crypto fund then it will do well. I am positive that the total market cap for cryptos will be over $1T this year. Currently $580B. Could be $5T easily. The hard part is to keep up with all of the ICOs because...
by rbaldini
Fri Jan 19, 2018 11:24 am
Forum: Investing - Theory, News & General
Topic: Is the crypto market efficient?
Replies: 23
Views: 1372

Is the crypto market efficient?

Folks, Wondering what you think about this. We've all heard not to try to time the stock market. But what are your thoughts on the crypto market? Does the relative novelty of crypto, and the current widespread hysteria, provide opportunity for a smart person to take advantage of crypto market ineffi...
by rbaldini
Mon Jan 15, 2018 12:43 pm
Forum: Personal Finance (Not Investing)
Topic: why emergency savings?
Replies: 42
Views: 3842

Re: why emergency savings?

A large market downturn directly corresponds for when I'm most likely to lose my job. Thus my EF is not in the market as I don't want to be forced to sell at the bottom. I don't think that argument works. You're saying "I don't want to have to pull stock out of the market when it has dropped." So a...
by rbaldini
Mon Jan 15, 2018 12:06 pm
Forum: Investing - Help with Personal Investments
Topic: how to "know" what asset allocation is right? (crypto windfall)
Replies: 39
Views: 5017

Re: how to "know" what asset allocation is right? (crypto windfall)

Out of curiosity: how does considering this a "windfall" have any effect on what you do with it? It doesn't matter where money came from, once you have it, no?
by rbaldini
Mon Jan 15, 2018 12:02 pm
Forum: Personal Finance (Not Investing)
Topic: why emergency savings?
Replies: 42
Views: 3842

Re: why emergency savings?

So is the best argument for keeping the emergency fund "it doesn't matter anyway"? That doesn't strike me as particularly strong.
by rbaldini
Mon Jan 15, 2018 11:50 am
Forum: Personal Finance (Not Investing)
Topic: why emergency savings?
Replies: 42
Views: 3842

Re: why emergency savings?

delamer wrote:
Mon Jan 15, 2018 11:05 am
If $20,000 is such a small portion of someone’s liquid assets, then why are they worried about losing a couple percentage points in interest by keeping it in a savings account?
One less account to juggle.
by rbaldini
Mon Jan 15, 2018 11:14 am
Forum: Personal Finance (Not Investing)
Topic: why emergency savings?
Replies: 42
Views: 3842

Re: why emergency savings?

I didn't read the link the same as you. It has: Tax-advantaged account, such as 401(k) $5,000 stock funds $5,000 bond fund You're reading after the emergency amount has been pulled out. Here's before " Tax-advantaged account, such as 401(k) $5,000 money market fund <- emergency fund $5,000 bond fun...
by rbaldini
Mon Jan 15, 2018 11:10 am
Forum: Personal Finance (Not Investing)
Topic: why emergency savings?
Replies: 42
Views: 3842

Re: why emergency savings?

You are very late to the party. See: https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-advantaged_account No, I'm suggesting something different. The page you linked is still suggesting that you keep some money in a safe, separate investment - in the example, a money market fund. That bec...
by rbaldini
Mon Jan 15, 2018 11:00 am
Forum: Personal Finance (Not Investing)
Topic: why emergency savings?
Replies: 42
Views: 3842

why emergency savings?

Folks, I follow the common advice to keep a sum of cash in a savings account, for emergencies. I personally keep something like 6 months cash in Ally online savings. Let's just say this amounts to about $20k. But I wonder whether this is really necessary. Specifically, I'm wondering if I should just...
by rbaldini
Mon Jan 15, 2018 10:27 am
Forum: Personal Finance (Not Investing)
Topic: the blockchain effect
Replies: 5
Views: 724

the blockchain effect

This may be old news, but it appears that adding the term "blockchain" to your company name is a quick way to triple its value. On-line PLC -> On-line Blockchain PLC -> 394% one day increase. https://www.bloomberg.com/news/articles/2017-10-27/what-s-in-a-name-u-k-stock-surges-394-on-blockchain-rebra...
by rbaldini
Sat Dec 23, 2017 10:40 am
Forum: Investing - Help with Personal Investments
Topic: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds
Replies: 97
Views: 12056

Re: Feels dumb to hold bonds - Currently 70% Stocks 30% Bonds

FYI the Vanguard retirement target fund for your age recommends 10% bonds. Any single age-based calculation is necessarily just a rule of thumb: not all 30 year-olds should invest the same. But I consider that a decent place to start. I'm 30 and, for me, 30% is too conservative.
by rbaldini
Fri Dec 22, 2017 5:36 pm
Forum: Investing - Theory, News & General
Topic: Geometric Average vs. Arithmetic Average
Replies: 92
Views: 5035

Re: Geometric Average vs. Arithmetic Average

Here's a fun way to look at it. Say you have the option to invest in an infinite number of stocks. Each stock is the same; each has a 90% chance of returning 20% return in a year, and a 10% chance of losing half its value. All stocks are independent of each other, and the realized returns across yea...
by rbaldini
Tue Dec 19, 2017 3:02 pm
Forum: Investing - Theory, News & General
Topic: Diversification: Is there any way to produce the same returns with less risk?
Replies: 52
Views: 5293

Re: Diversification: Is there any way to produce the same returns with less risk?

Here's a simpler example than the one I showed before. It's more contrived but it shows the basic idea. There are a large number of stocks. Say that, in any given year, each has a 90% chance of achieving a 20% return, and a 10% of losing 50% of their value. If you invest in one stock, your expected ...
by rbaldini
Mon Dec 18, 2017 11:45 am
Forum: Investing - Theory, News & General
Topic: Diversification: Is there any way to produce the same returns with less risk?
Replies: 52
Views: 5293

Re: Diversification: Is there any way to produce the same returns with less risk?

Suppose you invest in a bunch of stock (doesn't have to all be stock, but whatever), each of which you adjudge to have the same risk and return. That is, each has an expected annual growth rate equal to r and, say, a yearly standard deviation (a measure of volatility, though not the only one, and ma...
by rbaldini
Fri Dec 15, 2017 11:59 am
Forum: Personal Consumer Issues
Topic: I am buying a car: Most/Least Reliable Makes?
Replies: 83
Views: 5544

Re: I am buying a car: Most/Least Reliable Makes?

http://www.dashboard-light.com/ This is the only website I know that has attempted to answer this question from a long-term perspective. Reliability tests of cars < 1 year old are sort of meaningless, IMO. You need a longer timescale; this website appears to provide it. I can't vouch for the methods...
by rbaldini
Sun Dec 03, 2017 11:35 am
Forum: Investing - Theory, News & General
Topic: Bonds Are Riskier Than People Think
Replies: 142
Views: 14044

Re: Bonds Are Riskier Than People Think

The Vanguard Total Bond Fund is often mentioned. This fund is down 4% over the past 5 years and currently yields 2.4%. Many people are happy with this performance and consider it "safe". The only way that this is "safe" to me is if you have so much money that it doesn't actually matter how your inv...
by rbaldini
Fri Dec 01, 2017 2:00 pm
Forum: Investing - Help with Personal Investments
Topic: Is investing in the stock market just like investing in a house for appreciation?
Replies: 33
Views: 1487

Re: Is investing in the stock market just like investing in a house for appreciation?

Yes, but what about: if the stock prices go down, you have to wait until they go back up. With a house, you still get consistent cash flow during the period that you can actually use to invest in other things during that time? Doesn't this beat out stocks any time? Any time? I mean, yes, in periods...
by rbaldini
Fri Dec 01, 2017 1:44 pm
Forum: Investing - Help with Personal Investments
Topic: Is investing in the stock market just like investing in a house for appreciation?
Replies: 33
Views: 1487

Re: Is investing in the stock market just like investing in a house for appreciation?

do not think in terms of 'cash flow' vs 'capital gains' - just focus on total returns of the investment. That's a good point, so let's maybe try to simplify things. You have a large chunk of cash. What do you do with it? Consider 2 options: (1) put it in a stock index fund (or mixed with bonds), an...