Do you use the 9 style-box for AA?

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allroads
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Do you use the 9 style-box for AA?

Post by allroads » Mon Jan 12, 2015 6:05 pm

I have occasionally read posts on this forum that site the Morningstar style box. Sometimes people will share their numbers in each of the 9 boxes. Until now I have only used this as a tool for individual funds but it sounds like some use this for their whole portfolio. If so, is it used in both AA and rebalancing? Is it also used when people are tilting?

My questions may sound a bit scattered but all answers are welcomed as I hope to be educated on this topic.
Thank you.
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Re: Do you use the 9 style-box for AA?

Post by livesoft » Mon Jan 12, 2015 6:07 pm

Yes, totally, of course. And I started a recent thread about it: http://www.bogleheads.org/forum/viewtop ... 1&t=150267 in which I cited the various sites that I use.
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Re: Do you use the 9 style-box for AA?

Post by DoubleClick » Mon Jan 12, 2015 7:26 pm

Yes, in fact, I primarily use it for seeing how my entire portfolio looks. See livesoft's thread for more info. I find that morningstar works much better for me than Vanguard.

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Re: Do you use the 9 style-box for AA?

Post by LAlearning » Mon Jan 12, 2015 7:33 pm

Yes. Very important for evaluating what a fund is made of and how a fund might adjust my allocations.
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Re: Do you use the 9 style-box for AA?

Post by mhc » Mon Jan 12, 2015 9:14 pm

I only use part of the 9 style box for AA. I am pretty much a 3 fund person, but my 401k does not offer a TSM fund. I use the 9 style box to work out the ratio of Large Cap to Small Cap that I want. I figured out the ratio in a couple of minutes. Now I have no use for the 9 style box.

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Re: Do you use the 9 style-box for AA?

Post by Deep Thoughts » Mon Jan 12, 2015 9:19 pm

The other strategy is to look at the factor loadings (if available) .... I suspect this gives a far better idea of where you are allocated than the 9 style box.

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Re: Do you use the 9 style-box for AA?

Post by pascalwager » Mon Jan 12, 2015 10:16 pm

I've used the M* style box to analyze my existing portfolio, but more out of curiosity than for construction. To my knowledge, no authors employ the style box in their AA developments.

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allroads
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Re: Do you use the 9 style-box for AA?

Post by allroads » Tue Jan 13, 2015 7:19 am

mhc wrote:I only use part of the 9 style box for AA. I am pretty much a 3 fund person, but my 401k does not offer a TSM fund. I use the 9 style box to work out the ratio of Large Cap to Small Cap that I want. I figured out the ratio in a couple of minutes. Now I have no use for the 9 style box.
At work do you use an S&P 500 fund plus others to try and mimic TSM fund?
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Re: Do you use the 9 style-box for AA?

Post by heyyou » Tue Jan 13, 2015 8:54 am

I used the 9 Box when I was comparing various portfolio allocations, chose one, and haven't looked since then.

I settled on equal amounts of several equity mutual funds, a simplified version of the equities on the Callan Periodic Table. If I were starting over, Trev H's tilted four funds at VG would be my choice.

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Re: Do you use the 9 style-box for AA?

Post by mhc » Tue Jan 13, 2015 9:43 am

allroads wrote:
mhc wrote:I only use part of the 9 style box for AA. I am pretty much a 3 fund person, but my 401k does not offer a TSM fund. I use the 9 style box to work out the ratio of Large Cap to Small Cap that I want. I figured out the ratio in a couple of minutes. Now I have no use for the 9 style box.
At work do you use an S&P 500 fund plus others to try and mimic TSM fund?
Yes I do. I settled on 70% S&P500 and 30% Small Cap. It's not exact, but being exact is not that important. When I first started, I tried to match all 9 boxes, but that turned out to be a big waste of time. Close enough is good enough.

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Re: Do you use the 9 style-box for AA?

Post by livesoft » Tue Jan 13, 2015 9:55 am

mhc wrote:It's not exact, but being exact is not that important. When I first started, I tried to match all 9 boxes, but that turned out to be a big waste of time. Close enough is good enough.
YES! Close enough is definitely good enough.
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Re: Do you use the 9 style-box for AA?

Post by Toons » Tue Jan 13, 2015 9:58 am

I never have paid much attention to the 9 style box :happy
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Re: Do you use the 9 style-box for AA?

Post by nisiprius » Tue Jan 13, 2015 10:49 am

In the past, I've used it just to confirm that there are no surprises. Now that my only stock holdings are Vanguard Total Stock Market Index Fund and Vanguard Total International Stock Index fund there isn't much need to look at it. If I were doing slice-and-dice I definitely would use it, and definitely over my whole portfolio.

Of course, now that we live in a "five factor world" I think Morningstar needs to introduce an 81-block style-hypercube.
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Re: Do you use the 9 style-box for AA?

Post by scone » Tue Jan 13, 2015 11:08 am

The style box was in the back of my mind when I set up my "slice and dice" allocation, since I was looking for a lot of diversification. Fidelity uses a similar widget in its display, so I can see how the money is distributed. I don't use it for any type of market timing or reallocation. It's really just a visualization tool, nothing magical about it.
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Re: Do you use the 9 style-box for AA?

Post by backpacker » Tue Jan 13, 2015 11:56 am

No. Whoever invented the Morningstar style boxes should be boiled in his own pudding.

1) Morningstar says that a "value" company is one that is cheap and has low growth. But as a value investor, I'm not trying to avoid growth, I'm trying to buy cheap. A growing company that is also cheap is even better, from my perspective, than one that is just cheap. So Morningstar's definition of "value" does not match my investment goals.

2) The style boxes are built using a complex hodgepodge of other metrics. A full 50% of a stock's value/growth score depends on forward looking valuations and long-term growth projections. Where do those projections come from? Morningstar doesn't tell us. How are they weighted? No one knows. Should we believe that Morningstar's experts have working crystal balls? No. Garbage in, garbage out.

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Re: Do you use the 9 style-box for AA?

Post by YDNAL » Tue Jan 13, 2015 12:36 pm

allroads wrote:I have occasionally read posts on this forum that site the Morningstar style box. Sometimes people will share their numbers in each of the 9 boxes. Until now I have only used this as a tool for individual funds but it sounds like some use this for their whole portfolio. If so, is it used in both AA and rebalancing? Is it also used when people are tilting?

My questions may sound a bit scattered but all answers are welcomed as I hope to be educated on this topic.
Thank you.
Morningstar's methodology (Size, Valuation) is what it is.

That said, it provides a quick look under the hood of a FUND to better-understand what we own. We can use it for a group of funds as well.
  • 1. For the heck of it, I just looked at Vanguard S&P 500 VFINX.

    Code: Select all

                   Valuation
    Size           Value  Blend  Growth
    Large (88%)     29     29     30
    Mid (12%)       05     04     03
    Small (0%)      00     00     00  
    2. A Large Blend fund -- like the S&P 500 -- has several Mid Cap constituents and M* easily and quickly provides this info (12%). It also shows you there is no overweight on the valuation scale -- this, regardless if you buy (or don't buy) their methodology.
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Re: Do you use the 9 style-box for AA?

Post by allroads » Sat Jan 17, 2015 10:04 pm

YDNAL wrote:
allroads wrote:I have occasionally read posts on this forum that site the Morningstar style box. Sometimes people will share their numbers in each of the 9 boxes. Until now I have only used this as a tool for individual funds but it sounds like some use this for their whole portfolio. If so, is it used in both AA and rebalancing? Is it also used when people are tilting?

My questions may sound a bit scattered but all answers are welcomed as I hope to be educated on this topic.
Thank you.
Morningstar's methodology (Size, Valuation) is what it is.

That said, it provides a quick look under the hood of a FUND to better-understand what we own. We can use it for a group of funds as well.
  • 1. For the heck of it, I just looked at Vanguard S&P 500 VFINX.

    Code: Select all

                   Valuation
    Size           Value  Blend  Growth
    Large (88%)     29     29     30
    Mid (12%)       05     04     03
    Small (0%)      00     00     00  
    2. A Large Blend fund -- like the S&P 500 -- has several Mid Cap constituents and M* easily and quickly provides this info (12%). It also shows you there is no overweight on the valuation scale -- this, regardless if you buy (or don't buy) their methodology.
Would a goal of diversification be to fill all 9 boxes with some minimum number in a total portfolio? The Large line would be highest, right? As the US's total real market has more large company stocks over any other, correct?
"All Roads Lead to Rome." "Compound interest is the eighth wonder of the world" - Einstein

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Re: Do you use the 9 style-box for AA?

Post by dbr » Sat Jan 17, 2015 10:13 pm

allroads wrote: Would a goal of diversification be to fill all 9 boxes with some minimum number in a total portfolio? The Large line would be highest, right? As the US's total real market has more large company stocks over any other, correct?
You can plug a total stock market fund or ETF into M* x-ray and decide if something different from that is more or less diversified. Note, however, that the actual numbers in the squares are a result of the definitions of the categories and mean nothing fundamental.

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Re: Do you use the 9 style-box for AA?

Post by allroads » Sat Jan 17, 2015 11:12 pm

dbr wrote:
allroads wrote: Would a goal of diversification be to fill all 9 boxes with some minimum number in a total portfolio? The Large line would be highest, right? As the US's total real market has more large company stocks over any other, correct?
You can plug a total stock market fund or ETF into M* x-ray and decide if something different from that is more or less diversified. Note, however, that the actual numbers in the squares are a result of the definitions of the categories and mean nothing fundamental.
The 9 boxes for VTSAX looks like this:
24 23 25
6 6 6
3 3 3

But that's not actually how the real market looks, does it? Are small caps really that "small" of a proportion?
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Re: Do you use the 9 style-box for AA?

Post by Derek Tinnin » Sun Jan 18, 2015 12:16 am

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Re: Do you use the 9 style-box for AA?

Post by printer » Sun Jan 18, 2015 2:33 am

allroads wrote:
dbr wrote:
allroads wrote: Would a goal of diversification be to fill all 9 boxes with some minimum number in a total portfolio? The Large line would be highest, right? As the US's total real market has more large company stocks over any other, correct?
You can plug a total stock market fund or ETF into M* x-ray and decide if something different from that is more or less diversified. Note, however, that the actual numbers in the squares are a result of the definitions of the categories and mean nothing fundamental.
The 9 boxes for VTSAX looks like this:
24 23 25
6 6 6
3 3 3

But that's not actually how the real market looks, does it? Are small caps really that "small" of a proportion?
Depends on how you define "small cap". I wonder if M* uses the same definition for US as it does for ex-US and whether that results in the same market cap range for both.

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Re: Do you use the 9 style-box for AA?

Post by HongKonger » Sun Jan 18, 2015 4:26 am

No. It doesn't let me and it doesn't deal with a lot of what I hold.

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Re: Do you use the 9 style-box for AA?

Post by mhc » Sun Jan 18, 2015 11:01 am

allroads wrote:
dbr wrote:
allroads wrote: Would a goal of diversification be to fill all 9 boxes with some minimum number in a total portfolio? The Large line would be highest, right? As the US's total real market has more large company stocks over any other, correct?
You can plug a total stock market fund or ETF into M* x-ray and decide if something different from that is more or less diversified. Note, however, that the actual numbers in the squares are a result of the definitions of the categories and mean nothing fundamental.
The 9 boxes for VTSAX looks like this:
24 23 25
6 6 6
3 3 3

But that's not actually how the real market looks, does it? Are small caps really that "small" of a proportion?
That really is how the market looks. The categories are defined by M*, but that really is the market.

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Re: Do you use the 9 style-box for AA?

Post by Derek Tinnin » Sun Jan 18, 2015 11:05 am

The style box is a marketing creation and a "crude" way to build a portfolio. Factor exposure and expense is what matters, all else is noise.

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Re: Do you use the 9 style-box for AA?

Post by dbr » Sun Jan 18, 2015 11:08 am

allroads wrote:
dbr wrote:
allroads wrote: Would a goal of diversification be to fill all 9 boxes with some minimum number in a total portfolio? The Large line would be highest, right? As the US's total real market has more large company stocks over any other, correct?
You can plug a total stock market fund or ETF into M* x-ray and decide if something different from that is more or less diversified. Note, however, that the actual numbers in the squares are a result of the definitions of the categories and mean nothing fundamental.
The 9 boxes for VTSAX looks like this:
24 23 25
6 6 6
3 3 3

But that's not actually how the real market looks, does it? Are small caps really that "small" of a proportion?
Yes, that is how the real market looks according to the categories as defined. Remember this is market capitalization weighted, so a large number of small companies does not have much market cap. An alternative characterization of a portfolio would be to calculate the Fama-French factor weightings of the portfolio where the TSM has small and value weightings of zero and one can tilt from there. Whether or not tilted is more diversified is a semantic discussion of what the word means.

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