Search found 394 matches

by lee1026
Fri Dec 05, 2014 12:47 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9469

Re: "Small-Cap Performance Edge on the Wane"

Since inception on 12/23/1981, DFA US Micro Cap Portfolio (DFSCX) has returned 12.16% while the S&P 500 has returned 11.74%, a difference of 0.42%. When you consider that DFSCX has expenses of 0.52%, these small caps have outperformed by about 0.9%. However, I don't think anyone should pay an advis...
by lee1026
Thu Dec 04, 2014 11:33 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9469

Re: "Small-Cap Performance Edge on the Wane"

This discussion about the hypothetical RZV company is an interesting one because it sort of happened in the past. In the past, people really did value each unit of future cash flow* from big companies more than smaller ones. In other words, if you had two companies, each worth $100M, and you simply ...
by lee1026
Thu Dec 04, 2014 7:17 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9469

Re: "Small-Cap Performance Edge on the Wane"

If you are claiming that the risks of small and value stocks are not compensated over time, 80+ years of data suggest that you are not correct. If you place no value in historical data, why invest in stocks at all? We know that they are riskier than bonds, but what else do we know with any degree o...
by lee1026
Wed Dec 03, 2014 7:56 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9469

Re: "Small-Cap Performance Edge on the Wane"

I'm not sure why the risk of small companies as an asset class would be diversifiable and therefore uncompensated. Certainly a single small company, but there are far more small stocks than large stocks. It is pretty easy to diversify away from the small companies as an asset class - buy TSM. Imagi...
by lee1026
Wed Dec 03, 2014 6:48 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9469

Re: "Small-Cap Performance Edge on the Wane"

And if the expected return wasn't higher wouldn't you be able to improve your risk adjusted return by avoiding those asset classes? No; for example, on average, each stock in the S&P 500 is risker than the S&P 500, but as a whole, they average out to the same amount of risk. Now if you say that ris...
by lee1026
Tue Dec 02, 2014 8:30 pm
Forum: Investing - Theory, News & General
Topic: "Small-Cap Performance Edge on the Wane"
Replies: 99
Views: 9469

Re: "Small-Cap Performance Edge on the Wane"

I'm sure grap0013 understands exactly what he invests in. Your post is a perfect illustration of why many investors tilt to small value. Why would you think the market prices large stable companies with bright futures to have the same return as less desirable companies with poor futures? Risk and r...
by lee1026
Mon Dec 01, 2014 5:37 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

Either I misunderstood the original comment or I was unclear in mine. I get the impression people keep saying that for small cap value to return more than the market as a whole it requires that a ton of investors be stupid or ignoring obviously better investments. My point is the reason SCV is chea...
by lee1026
Mon Dec 01, 2014 4:02 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

...Remember that we need to explain the behavior of over half of the market. It isn't one or two people being foolish can explain away this - you need big institutional buyers to be stupid too. Right, except if it's just stupidity or "behavioral" people will wise up sooner or later. You have to rea...
by lee1026
Mon Dec 01, 2014 2:38 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I agree about the next year. I was thinking more about a series of one-year holding periods extending into the future, which I think has been mentioned as one way to think about it. I haven't actually ran the numbers on this, but if you wrote down a number for expected interest expenses at Jan 1st ...
by lee1026
Sun Nov 30, 2014 8:57 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I agree about the next year. I was thinking more about a series of one-year holding periods extending into the future, which I think has been mentioned as one way to think about it. I haven't actually ran the numbers on this, but if you wrote down a number for expected interest expenses at Jan 1st ...
by lee1026
Sun Nov 30, 2014 3:36 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

The annual SD of 1-year average FFR from 1954-2013 is 3.5% (with an arithmetic mean of 5.1%). I think that SD is too high to be used as a proxy for a risk-free rate with an SD of 0%, even for a holding period as short as one year. That is where you are wrong, the FFR is more or less 100% predictabl...
by lee1026
Wed Nov 26, 2014 6:29 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

I hate to say the past is the prologue to the future, but it's all we have. Furthermore, these premiums have been alive and kicking since their 1992 discovery. I am not sure about that. The Vanguard value funds have been abysmal since 1992. And even the good funds have only been showing gains becau...
by lee1026
Wed Nov 26, 2014 6:22 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I don't understand the logic of why LETF let you save money on taxes. Your gains will be the same regardless of whether it is eminis, margin or LETF.
by lee1026
Wed Nov 26, 2014 4:20 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

For me there are tax advantages. If I were American id use futures and letfs to plug in the holes from large futures contract sizes. I guess the only advantage of letfs is you don't get margin called in the sense that you can be stopped out of your position and then miss some of the ride back up un...
by lee1026
Wed Nov 26, 2014 3:51 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I am unsure what the advantage is over normal margin or futures.
by lee1026
Wed Nov 26, 2014 1:57 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

Taxes and transaction costs add up. Bid-ask spread isn't high, but each day....

Also, the funds themselves rebalance at the end of each day to maintain leverage. That means trading. The funds themselves are reasonably good at paying low trading costs, but it isn't quite nothing.
by lee1026
Wed Nov 26, 2014 1:02 am
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

Not sure I understand your point. Investors who have a rational preference for positive skewness might have a greater marginal utility to high wealth, i.e. want to be extremely rich and are willing to chance a lower standard of living in retirement to achieve that goal. This thread was about a mass...
by lee1026
Tue Nov 25, 2014 9:21 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

Not necessarily correct. One explanation is that there are investors who have a preference for positively skewed assets in spite of the lower expected returns. To them it's a rational preference for positive skewness.
And what is your own advice to people like that? Value and treasuries.
by lee1026
Tue Nov 25, 2014 2:53 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

It still baffles me how people insist that its not possible for a group of assets/asset class (whatever we decide to call SCV) to outperform the market in the long term. I am not saying it will outperform. I am not saying it has outperformed. Just that it can. Some people seem to be wrapped up in t...
by lee1026
Tue Nov 25, 2014 12:37 am
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

IMO the research shows that value stocks are more at risk in bad times. Bad times doesn't mean negative returns to stocks. It means negative economic growth when unemployment rises. The dot.com bust wasn't a bad economic time. In most financial crisis (and/or demand type shocks) value premium has b...
by lee1026
Mon Nov 24, 2014 7:42 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

For example, someone particularly at risk of losing his job in recession might want growth stocks to avoid job loss and portfolio extra poor performance at the same time. Two problems: 1. That is grounds for loading up on long term treasuries, not growth stocks. 2. Growth isn't any more recession p...
by lee1026
Mon Nov 24, 2014 5:17 pm
Forum: Investing - Theory, News & General
Topic: Small cap value premium
Replies: 150
Views: 25680

Re: Small cap value premium

The market prices risk. So in an efficient market prices adjust to reflect different perceived risks. Since risks can be qualitatively and quantitatively different, expected returns for different asset classes can be different in an efficient market. If the market priced expected return, then price...
by lee1026
Mon Nov 24, 2014 3:18 am
Forum: Investing - Theory, News & General
Topic: bond fund yield variation and the case for long-term fund
Replies: 19
Views: 2470

Re: bond fund yield variation and the case for long-term fun

Why not just buy a treasury of a desired duration? 100% predictable cash flow.
by lee1026
Tue Nov 11, 2014 7:47 pm
Forum: Investing - Theory, News & General
Topic: Why are people so down on bonds?
Replies: 39
Views: 8039

Re: Why are people so down on bonds?

As with any other attempt at estimating long term of returns of anything, one needs to keep in mind that we have very little data. 1929 is a bit under 90 years ago. That means that there is 9 independent data points about returns.
by lee1026
Mon Nov 10, 2014 11:52 pm
Forum: Investing - Theory, News & General
Topic: For the next year or so, why shouldn't we be in all-cash?
Replies: 54
Views: 9318

Re: For the next year or so, why shouldn't we be in all-cas

And right now there aren't too many people who see rates running up above 3+% in the intermediate term.
The bonds market is expecting 3% interest rates by 2019.
by lee1026
Thu Nov 06, 2014 10:33 pm
Forum: Personal Investments
Topic: Should I still have bonds in my portfolio if I have debt?
Replies: 6
Views: 962

Re: Should I still have bonds in my portfolio if I have debt

Suppose I have a 90/10 portfolio worth $10,000 and the market goes down 60%; I now look at my balance and see that I've got $4,600 left. Suppose I have a 100% stock portfolio worth $9,000 and the market goes down 60%; I now have $3,600 left. Yes, in my most rationale moments, I know that I used the...
by lee1026
Thu Nov 06, 2014 9:29 pm
Forum: Personal Investments
Topic: Should I still have bonds in my portfolio if I have debt?
Replies: 6
Views: 962

Re: Should I still have bonds in my portfolio if I have debt

Using bonds to pay off debt just means that you've now got a more volatile portfolio, one that goes up and down more. Is that what you want? Alternately, you could pay of the debt from both stocks and bonds in proportion to their allocation; that would keep your level of volatility right where it i...
by lee1026
Mon Nov 03, 2014 6:22 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

What do you use to obtain leverage and how much leverage do you use? I obtain leverage via a number of ways. A lot of it is futures. Some of it via shorting puts. Some via straight up margin loans. Some leverage is embedded in closed end funds. As for how much leverage I am using, well, that is one...
by lee1026
Mon Nov 03, 2014 5:34 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

And Lee and Rob, you say holding a LEFT is equivalent to having a margin call everyday as the LEFT sells when the market drops. A margin loan strategy is no different. If the market drops you too will need to reduce your expose or else your leverage will exceed x2. Ie suppose you margin loan 10k to...
by lee1026
Mon Nov 03, 2014 4:45 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I'm looking to leverage using the bond portion of my portfio. Obviously treasury futures would be ideal, but the portfolio size would be small at first. Is there a better alternative than using LETFs like UST or TYD for leverage in smaller portfolios? I would assume these ETFs are getting financing...
by lee1026
Mon Nov 03, 2014 3:07 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

Well, then, it is the same as a margin call on your whole account, regardless, as your brokerage usually doesn't care what you sell, as long as you sell something to leverage down. (Or putting in more money; your brokerage is usually fine with that too.)
by lee1026
Mon Nov 03, 2014 1:14 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I had a look at some of the papers linked in here and it seems that rebalancing largely counteracts that. Ie as the stock market drops the LEFT will sell, but you will buy more to bring your share/bond allocation back to the desired level, thus counteracting the selling by the LEFT. With what money...
by lee1026
Sun Nov 02, 2014 10:48 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I am not sure you thought though the mechanics of a LETF. When stocks fall, LETFs will automatically reduce their exposure to the stock market. Unlike many others here, I am not going say that is a bad thing, but you need to know that holding to a LETF is the same as leveraging 2-1 and having the br...
by lee1026
Sun Nov 02, 2014 12:07 am
Forum: Investing - Theory, News & General
Topic: Is there forex equivalent to Eurodollar/Treasury futures?
Replies: 0
Views: 413

Is there forex equivalent to Eurodollar/Treasury futures?

The underlying reasoning is that: 1. The term premium probably exist in other currencies. 2. There is probably good reason to assume that they won't correlate that well with the term premium in the US. Foreign bonds are tricky to buy, and ETF management fees are large. But assuming that market maker...
by lee1026
Fri Oct 31, 2014 11:10 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

You consider that "FAST"? In the previous cycle (2004-2006), Fed Funds increased at 2%/year, and that was considered gradual at the time. In 1994-5, Fed Funds jumped 3% in less than a year. Considering how well stocks did from 2004-2006, I am okay with losing small amounts of money on the bond side...
by lee1026
Fri Oct 31, 2014 10:56 pm
Forum: Investing - Theory, News & General
Topic: Yield Curve Investigations
Replies: 71
Views: 14869

Re: Yield Curve Investigations

You can save a great deal of time on this by simply looking at Treasury STRIPS. Because your current math doesn't deal well at all with coupon payments and bonds that are trading far away from par. Instead, simply take the STRIPS prices and subtract out the difference, and then annualize it based on...
by lee1026
Fri Oct 31, 2014 9:52 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

Really? History and futures are not the same thing, and again, this is not the point. The point is whether or not to consider a variable lending rate as risk-free in the CAPM model for a holding period of say 10 years. Here is a chart of annual returns for 3-month T.Bill from 1928-2013: We know wha...
by lee1026
Fri Oct 31, 2014 5:39 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

And lose money. If there is a parallel upshift in the yield curve of say 3%, you'll lose say 15% on your bond fund, and now will be paying 4% to borrow. So now you're making 5% on the bond fund and paying 4% to borrow. There ain't no such thing as a free lunch. I freely accept the concept of risk; ...
by lee1026
Fri Oct 31, 2014 12:21 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

That understanding is more or less correct. Futures have to have an implied interest rate as low as LIBOR, otherwise the big institutions with the ability to get LIBOR loans, could loan $ go long SPY and short the futures contract, resulting in a free lunch for them? More or less. Even though there ...
by lee1026
Thu Oct 30, 2014 10:55 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I think I semi understand it now. Example using made up figures: Holding the index I would pay 0.4 in borrowing and receive 2% in dividends - net of 1.6%. Holding the contract till expiry I would receive less than the 1.6% in a premium. Hence there is an implied cost to me? The part that still conf...
by lee1026
Thu Oct 30, 2014 8:47 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

Why would currency futures be the best thing to trade if currency movements were to even out? I suppose I could hedge currency exposure, problem is currency futures come in certain sizes, and my portfolio is only 64k at the moment (74k if I include NZ's equivalent to the 401k, but we can't touch ou...
by lee1026
Thu Oct 30, 2014 5:33 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

The NZ dollar is still high relative to historical levels. Our high dollar has been hurting exports so the reserve bank has been aggressively selling NZD in an attempt to devalue it. As US interest rates rise next year the USD will strengthen relative to the NZD so now seems like an ok time to get ...
by lee1026
Tue Oct 28, 2014 1:17 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

Futures are permitted for IRAs, and one can easily deploy massive leverage that way.
by lee1026
Fri Oct 24, 2014 7:58 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

In a tax advantaged account, one way to get leverage is use deep in the money (DITM) calls. I've considered a strategy of buying 2 year DITM calls, and rolling them after one year. But I came to the conclusion that the only ETF where this could work was SPY; bid ask spread on other ETFs decreased t...
by lee1026
Thu Oct 23, 2014 8:34 pm
Forum: Investing - Theory, News & General
Topic: Why do Engineers Think They’ll Be Good at Picking Stocks?
Replies: 135
Views: 14944

Re: Why do Engineers Think They’ll Be Good at Picking Stocks

Record keeping is typically done for free by a brokerage firm. And maybe I am just weird, but 17 bps per year is a lot of money to me. It would represent my single largest recurring bill.
by lee1026
Wed Oct 22, 2014 11:40 pm
Forum: Investing - Theory, News & General
Topic: Why do Engineers Think They’ll Be Good at Picking Stocks?
Replies: 135
Views: 14944

Re: Why do Engineers Think They’ll Be Good at Picking Stocks

I find it amusing that many people here are using the EMH as grounds for saying that stock picking is definitely a money losing strategy. If you can find someone who can consistently lose lots of money at trading, just start a hedge fund, hire him, and do the opposite of whatever he tells you to do....
by lee1026
Sat Oct 18, 2014 6:25 pm
Forum: Investing - Theory, News & General
Topic: How does one hedge against deflation?
Replies: 52
Views: 10592

Re: How does one hedge against deflation?

You can also short commodities futures, buy interest rate futures, take highly leveraged positions in long term government bonds.
by lee1026
Sat Oct 18, 2014 2:42 pm
Forum: Investing - Theory, News & General
Topic: Pimco vs. Jack Bogle on active management of bonds
Replies: 18
Views: 3099

Re: Pimco vs. Jack Bogle on active management of bonds

5 year sharpe ratio on SPY is 1.16.
by lee1026
Fri Oct 17, 2014 12:08 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

I'm from NZ, and the NZ dollar is relatively high at the moment in comparison to the USD, also our interest rates are very high (6% mortgage, 8% margin loan), so I was thinking of leveraging futures in the US market and using the additional cash to invest in fixed income in the NZ market. I can get...
by lee1026
Sun Oct 12, 2014 1:02 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267995

Re: Should I use margin to buy a balanced fund?

The above link gives data on the US stock market from 1988 to 2014. It divides the market into quintiles based on PE10 ratio. It relates those quintiles to the average 5 year maximum drawdown. For the cheapest quintile, the maximum drawdown is minus 5.8%; for the most expensive quintile, it's minus...