Sell some winners, buy SCV?

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rosalee
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Sell some winners, buy SCV?

Post by rosalee »

A few of my stock picks have increased 300-600+%, over 5 years. Now they are looking riskier, due mostly to my increased knowledge of what might happen to any individual stock/company. I'm thinking of selling some of those shares, make a profit, then reinvest in SCV, probably VBR.

I've got lots of bonds so expect no issues with big crash. But certainly would prefer to take the profits prior to such an event. And SCV is 'highly recommended' in the current economic environment. I've got VBK, and SCHD which covers some of that universe (the small and the value).

Total % of portfolio about 15% would be 'in play' (Cramer's term, not mine).
Opinions/advice welcome and thanks.
000
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Re: Sell some winners, buy SCV?

Post by 000 »

Sounds good to me. Take a look at AVUV. Of course you will owe taxes if in a taxable account.
Capitulation of bears is part of the market topping process.
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calmaniac
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Re: Sell some winners, buy SCV?

Post by calmaniac »

VBR is not as small as VIOV, another Vanguard SCV ETF. [AVUV nice as well]

Check out the Morningstar pages for VBR and VIOV . Look at style box and average market cap.

Smaller and more value-y has greater factor weighting and hence more likely to demonstrate the desired outcomes associated with SCV.

Why SCV now? Are you chasing the latest hot performer? Or have you done sufficient research to understand this is a 20 year commitment?
Last edited by calmaniac on Tue Nov 23, 2021 6:40 pm, edited 2 times in total.
AA 70/30: 30% S&P, 16% SCV&LCV, 14% intl, 10% EM, 30% short/int govt bonds. Pension now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses. What me worry?
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AAA
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Re: Sell some winners, buy SCV?

Post by AAA »

What is SCV?
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calmaniac
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Re: Sell some winners, buy SCV?

Post by calmaniac »

AAA wrote: Tue Nov 23, 2021 6:31 pmWhat is SCV?
Small cap value
AA 70/30: 30% S&P, 16% SCV&LCV, 14% intl, 10% EM, 30% short/int govt bonds. Pension now ≈60% of expenses. Taking SS @age 70--> pension+SS ≈100% of expenses. What me worry?
UpperNwGuy
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Re: Sell some winners, buy SCV?

Post by UpperNwGuy »

So you want to sell some winners and buy a loser in the hopes that it will become a winner.... because of valuations?
Jack FFR1846
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Re: Sell some winners, buy SCV?

Post by Jack FFR1846 »

This guy I found on youtube talks about this a bit, where SCV could be called smart beta. He talks a bit on buying this vs the S&P or, as we all know, the broad market.
It's a short video.

https://www.youtube.com/watch?v=YG-Q3jQ ... starEurope
Bogle: Smart Beta is stupid
BitTooAggressive
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Re: Sell some winners, buy SCV?

Post by BitTooAggressive »

Jack FFR1846 wrote: Tue Nov 23, 2021 7:09 pm This guy I found on youtube talks about this a bit, where SCV could be called smart beta. He talks a bit on buying this vs the S&P or, as we all know, the broad market.
It's a short video.

https://www.youtube.com/watch?v=YG-Q3jQ ... starEurope
The S&P 500 is different than the total market. Bogle was not very careful in his wording talking about ‘the index’ like there is a single index. He offered no proof to his assertions against smart beta whatsoever. Not sure I even understand what his idea of smart beta is.

There is very well documented research on factor investing with two of those factors being value and size.

Then he seemed to wonder off talking about index investing vs active to support his assertion against smart beta. Well you can have small cap indexes and funds that compete against active management in the small cap universe.

Mr Bogle came across as less than impressive to me in his argument.
Impatience
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Re: Sell some winners, buy SCV?

Post by Impatience »

Value is a trap. If you want to derisk, put your money into a major index or total market, don’t torch it in SCV.
BitTooAggressive
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Re: Sell some winners, buy SCV?

Post by BitTooAggressive »

Impatience wrote: Wed Nov 24, 2021 8:58 am Value is a trap. If you want to derisk, put your money into a major index or total market, don’t torch it in SCV.
So if small cap value is a trap and total garbage would a total stock market index excluding small cap value be better than the total stock market?
Somethingwitty92912
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Re: Sell some winners, buy SCV?

Post by Somethingwitty92912 »

rosalee wrote: Tue Nov 23, 2021 6:18 pm A few of my stock picks have increased 300-600+%, over 5 years. Now they are looking riskier, due mostly to my increased knowledge of what might happen to any individual stock/company. I'm thinking of selling some of those shares, make a profit, then reinvest in SCV, probably VBR.

I've got lots of bonds so expect no issues with big crash. But certainly would prefer to take the profits prior to such an event. And SCV is 'highly recommended' in the current economic environment. I've got VBK, and SCHD which covers some of that universe (the small and the value).

Total % of portfolio about 15% would be 'in play' (Cramer's term, not mine).
Opinions/advice welcome and thanks.
What’s your timeline for the SCV position?
dbr
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Re: Sell some winners, buy SCV?

Post by dbr »

The measure of smallness and valueness is the factor loading which you can find using Portfolio Visualizer. By definition total stock is 0 and 0.

The expectation for higher return from these loadings is from whatever version of the Fama-French model of investment returns that is actually a valid prediction today.

While F-F estimates expected return, returns are variable and long times can go by without realizing the expected return.

It doesn't make much sense to me to specifically identify a small cap value fund rather than a total stock fund, but it is your choice. Whether or not it is reasonable to expect a factor premium the risk will also be higher. In recent years (since 2005) the standard deviation of returns for total stock has been about 15% and for VBR about 20%. Rick Ferri has had an estimate of that risk at 19% and 26% respectively over longer times.
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burritoLover
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Re: Sell some winners, buy SCV?

Post by burritoLover »

SCV can get murdered in a crash - usually worse than the broad market. They are small risky unloved companies with problems. They tend to explode up in price when the market is in recovery because the market has a tendency to oversell them in a crises or longer bear markets. But you have to hold on to what looks like a collection of big losers for sometimes more than 10-15 years without wussing out. Rebalacing year after year after year into an asset that is declining or going nowhere fast. You have to practically be a robot to endure that pain or someone who never checks their accounts. You have to have something beyond the tolerance of 100% total market equities, which few have.
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whodidntante
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Re: Sell some winners, buy SCV?

Post by whodidntante »

BitTooAggressive wrote: Wed Nov 24, 2021 8:56 am The S&P 500 is different than the total market. Bogle was not very careful in his wording talking about ‘the index’ like there is a single index. He offered no proof to his assertions against smart beta whatsoever. Not sure I even understand what his idea of smart beta is.

There is very well documented research on factor investing with two of those factors being value and size.

Then he seemed to wonder off talking about index investing vs active to support his assertion against smart beta. Well you can have small cap indexes and funds that compete against active management in the small cap universe.

Mr Bogle came across as less than impressive to me in his argument.
Bogle's famous presentation on reversion to the mean was filled with confusion and was essentially nonsense. Or more politely, it lacked rigor and expressed an incorrect conclusion.
dbr
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Re: Sell some winners, buy SCV?

Post by dbr »

whodidntante wrote: Wed Nov 24, 2021 10:23 am

Bogle's famous presentation on reversion to the mean was filled with confusion and was essentially nonsense. Or more politely, it lacked rigor and expressed an incorrect conclusion.
I think there are probably better sources for the prospects for SCV tilts. It is always an issue how much reliance should be placed on estimates for future returns. It is also very difficult that the range of possible outcomes for different portfolios overlaps so much that there may be little practical point in investing for a possible increased expected return against as large possibility the actual result will be the opposite.
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Re: Sell some winners, buy SCV?

Post by Jack FFR1846 »

I completely agree with Jack Bogle in the video.

I watched various "smart beta" choices when the term was "made up". My simple description is "choose whatever stocks you want, consider them to be an index and call them a smart beta fund".

If Jack equates the S&P 500 to total US market, I again completely agree. The difference between the 2 is close to nothing. The biggest companies in the US dominate all. In my humble opinion, anything outside the biggest are a waste of time.

From the OP's questions, being a huge "buy and hold" advocate, I'd say yes to sell and no to buying the sector that Jack actually talked about in another video that I couldn't find. In that video, Jack talked about SCV being a new, rising sector more than a decade ago where everyone knew this, bought and drove the prices up, making the sector no longer a rising sector. If you feel you want to play games with stock or sector picking, have fun with that.
Bogle: Smart Beta is stupid
BitTooAggressive
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Re: Sell some winners, buy SCV?

Post by BitTooAggressive »

dbr wrote: Wed Nov 24, 2021 10:27 am
whodidntante wrote: Wed Nov 24, 2021 10:23 am

Bogle's famous presentation on reversion to the mean was filled with confusion and was essentially nonsense. Or more politely, it lacked rigor and expressed an incorrect conclusion.
I think there are probably better sources for the prospects for SCV tilts. It is always an issue how much reliance should be placed on estimates for future returns. It is also very difficult that the range of possible outcomes for different portfolios overlaps so much that there may be little practical point in investing for a possible increased expected return against as large possibility the actual result will be the opposite.
Me personally on the US side I hold 70% total stock market, 15% small cap value, and 15% small cap blend.

I think a mix like that gives me a chance to catch the premium, but does not expose me too much. Even if no premium exists I still probably get a lower volatility to my portfolio as a whole since small cap can, have a long run, large gap growth which is currently on a long run, can have its day….

However I still want my bulk across the entire market and market weighted.
BitTooAggressive
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Re: Sell some winners, buy SCV?

Post by BitTooAggressive »

Jack FFR1846 wrote: Wed Nov 24, 2021 10:42 am I completely agree with Jack Bogle in the video.

I watched various "smart beta" choices when the term was "made up". My simple description is "choose whatever stocks you want, consider them to be an index and call them a smart beta fund".

If Jack equates the S&P 500 to total US market, I again completely agree. The difference between the 2 is close to nothing. The biggest companies in the US dominate all. In my humble opinion, anything outside the biggest are a waste of time.

From the OP's questions, being a huge "buy and hold" advocate, I'd say yes to sell and no to buying the sector that Jack actually talked about in another video that I couldn't find. In that video, Jack talked about SCV being a new, rising sector more than a decade ago where everyone knew this, bought and drove the prices up, making the sector no longer a rising sector. If you feel you want to play games with stock or sector picking, have fun with that.
Mid caps and small caps make up about 20% of the US market. To me 20% matters but to each his own.
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willthrill81
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Re: Sell some winners, buy SCV?

Post by willthrill81 »

Over the last 50+ years, SCV has actually had lower start date sensitivity than a 60/40 AA.
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Re: Sell some winners, buy SCV?

Post by illumination »

You can make the same case for something like Large Cap Value for having a long period of "underperformance" and it being "cheap".

I can definitely follow the logic of a move to SCV (even if it's a form of market timing that's generally frowned upon) but with SCV, you have to be willing to make a multi-decade commitment in order to see the strategy bear fruit. It's not a position you really move in out of.

For me personally, I just don't think it's worth it. Even if we're going to say the past is prologue and SCV's outperformance over long time lines continues (which I have doubts about) I'd rather just have the slight less return of a total market fund.
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Harry Livermore
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Re: Sell some winners, buy SCV?

Post by Harry Livermore »

willthrill81 wrote: Wed Nov 24, 2021 11:05 am Over the last 50+ years, SCV has actually had lower start date sensitivity than a 60/40 AA.
Nice one, Will. I enjoyed your linked post earlier this year as well.
OP, I think it's fine. I have also sold some terrific winners (individual stocks) but am adding it to the cash pile at the brokerage for the moment. Even if you are market timing and are way off, I think SCV is an interesting sector that has outperformed in the past. I had my SEP in the small cap index (VSMAX), like 20 years ago, and it had a number of years where I was slightly ahead of the total market. No idea what SCV might have done during that period, although it's probably possible to plug in funds and dates and see.
Cheers
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