Search found 394 matches

by lee1026
Sun Jul 27, 2014 10:01 pm
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 13699

Re: Larry: 20 Dollar Bills and Factor Persistence

But "buy this hot fund that have had great 5 and 15 (but not 10) year performance" is never going to be something that people do based on human nature?
by lee1026
Sun Jul 27, 2014 10:20 am
Forum: Investing - Theory, News & General
Topic: Factor investing - A parody
Replies: 42
Views: 4624

Re: Factor investing - A parody

Stocks are most certainly a dangerous thing to invest in, even over the very long run. Ask anyone from Japan. An theoretical asset with around 7% return and 20% standard deviation will underperform 10% of the time, even over 30 years. We don't have enough data to know whether that is the case or not...
by lee1026
Sun Jul 27, 2014 12:00 am
Forum: Investing - Theory, News & General
Topic: Larry: 20 Dollar Bills and Factor Persistence
Replies: 113
Views: 13699

Re: Larry: 20 Dollar Bills and Factor Persistence

I don't buy the "shorting is expensive" theory. Short e-minis, and buy doubles of everything that your theory tell you to buy. Eminis are super liquid and have basically no transaction costs.
by lee1026
Sat Jul 26, 2014 9:44 pm
Forum: Investing - Theory, News & General
Topic: AMZN's magical status
Replies: 26
Views: 3667

Re: AMZN's magical status

If EC2 were to be spurn out to be its own company, it would be worth quite a fortune. That is a very valuable asset, whether it is on Amazon's balance sheet or not. And that is only one example out of very many sub business that is worth very real money at amazon.
by lee1026
Sat Jul 26, 2014 7:57 pm
Forum: Investing - Theory, News & General
Topic: AMZN's magical status
Replies: 26
Views: 3667

Re: AMZN's magical status

P/E is hardly the only way to judge a company. Suppose you have a company that doesn't do anything other then issue (and buy back) shares, and buys (and sells) gold. When the price of gold is lower then the share price, it buys some gold and sell some shares. When the reverse is true, the company se...
by lee1026
Sat Jul 26, 2014 6:14 pm
Forum: Investing - Theory, News & General
Topic: Factor investing - A parody
Replies: 42
Views: 4624

Factor investing - A parody

[All of the rest should be taken as a joke, but it should rang familiar with you from this forum] I think I have stumbled upon the perfect tilt that everyone should be doing. Everyone should be investing into the Apple tilt. The Apple index [consisting only of the stock AAPL] have consistently outpe...
by lee1026
Sat Jul 26, 2014 2:54 pm
Forum: Investing - Theory, News & General
Topic: One of the simplest rational reasons why some should tilt
Replies: 43
Views: 5284

Re: One of the simplest rational reasons why some should til

Here's a similar example. Many ppl suggest one should hold less stocks of the company he works for or the industry he is in, to reduce risk. IMO, this is a rational explanation. But I don't know anyone can measure this risk he is exposed to. Since we can't measure this risk, do you argue that the a...
by lee1026
Fri Jul 25, 2014 8:21 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Also, getting 100K in an IRA is non-trivial. It takes 20 years to get there. Getting 100K in just stock allocation is even harder.
by lee1026
Fri Jul 25, 2014 6:18 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

A home loan do have much longer terms then anything else a normal person have access to, as we can't issue bonds.
by lee1026
Fri Jul 25, 2014 11:21 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

If we ever get past the point where people think that this is "a bad idea", I would love to talk about taxes. This strategy can only be done in a taxable account and uses a lot of bonds which will be throwing off plenty of dividends. You're right that the loan interest will mostly offset the bond d...
by lee1026
Thu Jul 24, 2014 10:56 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

You may want to run the numbers for 4x leverage, rebalancing both ways to account for the inevitable margin calls.
by lee1026
Thu Jul 24, 2014 7:10 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

I agree that higher borrowing rates will lower the upside, but does it change the conclusion that leveraging a balanced portfolio is a safer bet than 100% stocks? No. That is basic CAPM. But still, run the numbers properly so that you are not surprised when the real world happens. Measure twice and...
by lee1026
Thu Jul 24, 2014 6:28 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Federal funds rate wasn't zero for most of the period under discussion. Adding that in changed my backtesting a lot when I ran the same math. Also, whatever what your rebalance strategy is (when do you lever up more as your leverage falls due to the fund going up?), write it down and backtest it! (I...
by lee1026
Thu Jul 24, 2014 12:40 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Interactive brokers is pretty good at protecting itself, I wouldn't worry too much about it.
by lee1026
Wed Jul 23, 2014 11:59 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Do keep in mind that Wellesley and Wellington have had massive alpha in their history. That may or may not continue into the future, even though they are old enough that it just might be sustainable.
by lee1026
Wed Jul 23, 2014 11:17 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

I don't have the hard numbers to prove this, as I don't have an easy way of accessing stock and bond TR before the existence of SPY and TLT, but I suspect the balanced portfolio would be absolutely devastated in the bear market of 60s and 70s. I can only find S&P 500 index levels and yield curves, b...
by lee1026
Wed Jul 23, 2014 10:16 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

If you qualify for portfolio margin, you can leverage around 6-7x before the margin call, which would give you a bit of breathing room for drops before being margin called.
by lee1026
Wed Jul 23, 2014 7:32 pm
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

And you ignored the 2nd part in your strategy. That is the interest rate risk, which is the fundamental risk of fixes income securities. I did. I was comparing between rolling treasuries to buy a much longer dated muni fund. Rolling the 5 year treasury seems to offer around the same yield as the 20...
by lee1026
Wed Jul 23, 2014 1:31 pm
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

Perhaps I was being a bit hasty there, but the risk of the interest rates shifting is always there for any bond investment, and that part is extremely well documented. But if we make the assumptions that none of us have a crystal ball with respect to interest rates, it makes sense to talk about two ...
by lee1026
Wed Jul 23, 2014 12:40 pm
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

Sure, but "assume interest rates are unchanged" is part of any bond investment for anything but money market investments.
by lee1026
Wed Jul 23, 2014 11:53 am
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

A long-term municipal bond fund, like a long-term Treasury bond fund, will sell bonds with durations much lower than its target and replace them with longer duration bonds. Vanguard does not. https://personal.vanguard.com/us/funds/snapshot?FundId=0100&FundIntExt=INT#tab=2 How do you know what the 3...
by lee1026
Wed Jul 23, 2014 10:48 am
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

I looked into that first, but alas, TLT does not have a super liquid options market. If I were to go that route, I would be paying out the nose on the bid-ask spread.
by lee1026
Wed Jul 23, 2014 10:32 am
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

Also, from what I can tell, Muni funds like to hold to maturity because liquidity is so poor. So the yield to maturity is about the returns you will get. Treasuries, on the other hand, is liquid enough for you to make money by buying the higher yielding, longer duration bonds, and then selling the l...
by lee1026
Wed Jul 23, 2014 9:36 am
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

Can't munis default? I'm just trying to understand the mechanics, not trying to predict doom!
As far as I can tell, the only liquid futures are all on treasuries. And given the tax treatment, you wouldn't want to buy munis via futures.
by lee1026
Wed Jul 23, 2014 9:28 am
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

If treasuries default, I have bigger problems then the state of my brokerage account. The takeaway is: unless you're planning to take advantage of the leverage offered (and apart from the differing tax treatment), buying (i.e., taking the long position in) a bond futures contract is exactly the same...
by lee1026
Tue Jul 22, 2014 10:18 pm
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

I agree that the interest is kind of low, but that is the same in a bond fund. Bond contracts are standardized, and are overseen by a regulatory agency that ensures a certain level of equality and consistency. However, this form of derivative can be risky because it involves trading at a future date...
by lee1026
Tue Jul 22, 2014 9:19 pm
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Re: Is there any downside to investing in bond futures?

Sure, but in theory, if a person puts $N dollars into a futures account, and trade on a bond future worth $N, it would be the same as if that person never leveraged, right?
by lee1026
Tue Jul 22, 2014 9:08 pm
Forum: Investing - Theory, News & General
Topic: Is there any downside to investing in bond futures?
Replies: 89
Views: 7534

Is there any downside to investing in bond futures?

Relative to investing in bond funds, that is. From what I can see, there are a lot of upsides to futures vs bond funds, such as tax treatment of gains (capital gains rather then ordinary income), the amount leverage that you are potentially able to deploy, and lower fees because you are not paying a...
by lee1026
Sat Jul 19, 2014 9:46 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Leveraged ETFs are not all good or all bad. It really depends on how much volatility there is. For example, if you brought SSO (2x S&P 500) at the market bottom in March 2009, you would have made gains 552% by now. Whereas if you brought SPY on 2x margin and never rebalanced, you would have only mad...
by lee1026
Sat Jul 19, 2014 1:11 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

You understand MPT perfectly. The difference here is that you are talking about long term bonds, and you are quoting someone who is talking about short term bonds. Very different returns. Basically, T-bills have a return of 0 and risk of 0. It is closer to the risk less asset from MPT then anything ...
by lee1026
Sat Jul 19, 2014 12:11 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Forget about balanced funds vs. stocks and bonds. Here is an argument for why leverage is not a great idea in general. The issue is that you need to consider a sequence of probabilities across time, not one across the whole time period. Let's simplify the problem. Consider a theoretical asset, whic...
by lee1026
Thu Jul 17, 2014 10:19 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Homework question #1: What happens if the fund you pick DOES drop more than 37%? Is the extra potential return worth a chance of losing it all? Losing 37% in a 2x leveraged fund does not mean losing everything.... it just means that you are being forced to deleverage. You lose 74%, which is very di...
by lee1026
Thu Jul 17, 2014 12:56 am
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Buying funds on margin seems to have a flavor of seeking a free lunch. That does not seem to be a Boglehead thing to do. Essentially as a young person you are investing your human capital (your future earnings in the form of borrowings) alongside your present earnings. The biggest argument against ...
by lee1026
Wed Jul 16, 2014 11:20 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Well, a balanced fund won't rebalance your leverage for you. If you rebalance daily, keep in mind that volatility will eat into your returns big time. Look at how much that cost a fund like TBT or UBT, which hold treasuries, which is probably the least volatile assets in the planet, lose to this eff...
by lee1026
Wed Jul 16, 2014 10:06 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267957

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

Well, how often do you plan on rebalancing? If the answer is never, then consider that if you made the investment in 2007 in 2x leveraged stocks, it would go to zero in the great recession, and you would never recover. If the answer is to rebalance, then you will lose to the same compounding forces ...
by lee1026
Wed Jul 16, 2014 12:55 am
Forum: Investing - Theory, News & General
Topic: Persistence of SV performance
Replies: 72
Views: 6444

Re: Persistence of SV performance

Real funds have to deal with slippage and transaction costs, that will reduce returns even though it won't show up in an index. Large caps are generally super liquid, and small caps less so. Only looking at indexes will make small cap look better then it should. A fair response would be to find a di...
by lee1026
Sun Jul 13, 2014 6:48 pm
Forum: Investing - Theory, News & General
Topic: Does anyone expect tilts to *under*perform?
Replies: 84
Views: 7557

Re: Does anyone expect tilts to *under*perform?

Part of the problem with arguing that they will or are being arbitraged away is that it takes so much data to tell if the small-value premium is actually gone. There is so much standard deviation in the small-value index (because much of the premium is based on the idea that you are taking on much m...
by lee1026
Sun Jul 13, 2014 1:15 am
Forum: Investing - Theory, News & General
Topic: Does anyone expect tilts to *under*perform?
Replies: 84
Views: 7557

Re: Does anyone expect tilts to *under*perform?

I suspect that small-value will badly under perform in the future. My suspicion comes from the following. 1. There is in truth very little data that tells us that there is small-value premium in the long run. 2. Small-value stocks have been looking more and more expensive on every single valuation m...
by lee1026
Thu Jul 03, 2014 4:52 pm
Forum: Personal Investments
Topic: 401k: If parents dont need the $, do an aggressive AA
Replies: 16
Views: 1668

Re: 401k: If parents dont need the $, do an aggressive AA

Considering that the pension is essentially a very long term bond, their actual assets should be mostly stocks if we are targeting any kind of percent based asset allocation.
by lee1026
Wed Jul 02, 2014 9:51 pm
Forum: Personal Investments
Topic: Bond Funds and its Relationship to Interest Rates..
Replies: 7
Views: 926

Re: Bond Funds and its Relationship to Interest Rates..

Companies often have bonds that are long term loans, so the e in p/e may not change. Also, interest rates tend to go up when the economy is booming, which is by usually good for profits.
by lee1026
Wed Jul 02, 2014 1:30 am
Forum: Personal Investments
Topic: Help With Costless Collar Option Implementation
Replies: 17
Views: 1844

Re: Help With Costless Collar Option Implementation

Also not mentioned here - the bid-ask spread on options is huge, and that alone might be enough to destroy your plan.
by lee1026
Mon Jun 30, 2014 10:32 am
Forum: Investing - Theory, News & General
Topic: Expected returns of closed-end muni bond funds
Replies: 15
Views: 2458

Re: Expected returns of closed-end muni bond funds

I plan on holding them indefinitely. But I think it is uncorrelated risk to the general stock market, and thus a good buy for parts of a much larger plan.
by lee1026
Sun Jun 29, 2014 10:44 pm
Forum: Investing - Theory, News & General
Topic: Expected returns of closed-end muni bond funds
Replies: 15
Views: 2458

Re: Expected returns of closed-end muni bond funds

I wouldn't say that they are bad investments since I have been buying them recently, but you do have to be careful. Most of them use leverage, and they generally hold the super long term bonds to increase the yield. In other words, you can expect them to lose a lot of value if 20-30 year rates go up...