What ever happened to the Larry portfolio?

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CULater
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What ever happened to the Larry portfolio?

Post by CULater » Sun Dec 24, 2017 2:21 pm

Just wondering if Larry Swedroe is still recommending the 25% SCV + 75% Bonds portfolio allocation or has moved away from it. What "bonds" fill the role best nowadays? It would seem that one of the reasons the Larry portfolio did well was the exposure to term risk with 75% in bonds. However, with interest rates on the rise I wonder if high exposure to term risk is a good idea? Choose between exposure to market risk (stocks) and term risk (bonds) - not great.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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whodidntante
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Re: What ever happened to the Larry portfolio?

Post by whodidntante » Sun Dec 24, 2017 2:27 pm

Since you're asking what he thinks about something, my suggestion is that you contact him and ask. He decided to stop posting on this particular forum, and unless he's written a recent update on this topic I don't think anyone here can know the answer to what he thinks.

dbr
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Re: What ever happened to the Larry portfolio?

Post by dbr » Sun Dec 24, 2017 2:27 pm

Larry has a phone number and e-mail listed here: http://buckinghamadvisor.com/people/larry-swedroe/

You could contact him by e-mail with whatever questions you have and see if he is willing to reply.

DaufuskieNate
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Re: What ever happened to the Larry portfolio?

Post by DaufuskieNate » Sun Dec 24, 2017 3:10 pm

Early next year, Larry is publishing a new edition of Reducing the Risk of Black Swans. I'm pretty sure his latest thinking on the Larry Portfolio will be covered in detail.

Theoretical
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Re: What ever happened to the Larry portfolio?

Post by Theoretical » Sun Dec 24, 2017 3:54 pm

The main change to the Larry Portfolio for his circumstances is to replace some of the bonds with the alts like reinsurance/alt lending/managed futures/risk premia.

So it's probably now closer to a 30/15-20/50 portfolio.

david1082b
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Re: What ever happened to the Larry portfolio?

Post by david1082b » Sun Dec 24, 2017 4:35 pm

I found this NYTimes article in a few seconds:
Named for Larry Swedroe, the director of research and a principal at BAM, a wealth management firm in Clayton, Mo., the portfolio tracks indexes that achieved nearly the same 10 percent annual return between 1970 and 2010 as a portfolio invested entirely in the Standard & Poor’s 500-stock index. And here’s the Larry Portfolio’s trick: It did so with less than a third of its money in stocks, with the rest in one-year Treasury bills.
http://www.nytimes.com/2011/12/24/your- ... folio.html

So 1 year Treasuries won't expose you to a lot of term risk. Rising rates happened in the late 1980s, in 1994 and 1999, from 2003 to 2006 as well, as well as throughout most of the 1970s. The LP term risk exposure was not a serious issue, so I don't expect it to be much of an issue this time either. A more detailed analysis of potential Larry Portfolios was done here:

viewtopic.php?t=218701

Five-year Treasuries are talked about there, based on details from books. So that is more term risk, but much less than 30-year ones for example.

stlutz
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Re: What ever happened to the Larry portfolio?

Post by stlutz » Sun Dec 24, 2017 4:51 pm

He hasn't changed his view that SV stocks will beat the market significantly over time, so the strategy still holds. By only using the stocks that you think will do the best, you have to buy less stocks.

david1082b
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Re: What ever happened to the Larry portfolio?

Post by david1082b » Sun Dec 24, 2017 5:00 pm

david1082b wrote:
Sun Dec 24, 2017 4:35 pm
I found this NYTimes article in a few seconds:
Named for Larry Swedroe, the director of research and a principal at BAM, a wealth management firm in Clayton, Mo., the portfolio tracks indexes that achieved nearly the same 10 percent annual return between 1970 and 2010 as a portfolio invested entirely in the Standard & Poor’s 500-stock index. And here’s the Larry Portfolio’s trick: It did so with less than a third of its money in stocks, with the rest in one-year Treasury bills.
http://www.nytimes.com/2011/12/24/your- ... folio.html

So 1 year Treasuries won't expose you to a lot of term risk. Rising rates happened in the late 1980s, in 1994 and 1999, from 2003 to 2006 as well, as well as throughout most of the 1970s. The LP term risk exposure was not a serious issue, so I don't expect it to be much of an issue this time either. A more detailed analysis of potential Larry Portfolios was done here:

viewtopic.php?t=218701

Five-year Treasuries are talked about there, based on details from books. So that is more term risk, but much less than 30-year ones for example.
Just like with traditional Boglehead strategies, "stay the course" would also apply to a Larry Portfolio. Rising rates is just something that happens sometimes.

kerplunk
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Re: What ever happened to the Larry portfolio?

Post by kerplunk » Sun Dec 24, 2017 5:03 pm

Personally, I don’t care what Mr. Swedroe thinks. I found myself disagreeing with his advice/philosophies more often than not. Although, it is nice to have a different perspective. The Larry Portfolio, in my eyes, is just 25% stock and 75% bonds at the end of the day.

sambb
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Re: What ever happened to the Larry portfolio?

Post by sambb » Sun Dec 24, 2017 5:49 pm

agree, dont really see how his theories add value, but respect his interest in the board

heyyou
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Re: What ever happened to the Larry portfolio?

Post by heyyou » Sun Dec 24, 2017 5:49 pm

Seems like a good preservation portfolio in retirement, since you could spend from just the bonds side while waiting for the SCV portion to grow. Reduced sequence risk if you can avoid selling any equities at reduced prices for the first decade of retirement, assuming the short term bonds would be okay in a high inflation period, maybe a short ladder of some TIPS or I-bonds.

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Kevin M
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Re: What ever happened to the Larry portfolio?

Post by Kevin M » Sun Dec 24, 2017 6:10 pm

CULater wrote:
Sun Dec 24, 2017 2:21 pm
Just wondering if Larry Swedroe is still recommending the 25% SCV + 75% Bonds portfolio allocation or has moved away from it.
This is a common misconception about what the LP is; i.e., that there's some particular stock/bond allocation ratio. With the LP, you determine the stock/bond ratio based on your ability, willingness and need to take risk, just like with any other portfolio. The main difference is that he uses mostly small-cap value stocks for the stock portion, which he believes have a higher expected return than total market stocks, and this enables a smaller allocation to stocks for the same expected portfolio return. He also believes that the left-tail risk is lower due to the lower stock allocation.

I think the confusion arises because he has used 25/75 as an example of a small-cap value oriented portfolio that has beaten the traditional 60/40 portfolio using market cap or large-cap stocks, or at least matched it in return but with less volatility and less left-tail risk. But just like 60/40 traditional is not right for everyone, a 25/75 LP is not right for everyone who believes that small-cap value stocks have higher expected returns than large-cap blend stocks.
What "bonds" fill the role best nowadays? It would seem that one of the reasons the Larry portfolio did well was the exposure to term risk with 75% in bonds.

I don't think so. The main reason is the higher returns of small-cap value stocks during the periods he uses in his analyses.

Larry has always recommended maintaining relatively short maturities for nominal bonds, typically out to about five years, and perhaps extending a bit beyond that if the yield curve is steep enough. He's been OK with going longer term with TIPS when the real yields are attractive, which they have not been in quite some time.

As already mentioned, he's switched over to lending-based fixed income alternatives in his tax-advantaged accounts, but I'm pretty sure he's stated that he's using munis in his taxable accounts.

Larry is very responsive to emails. I PM'd him the other day asking if he was still responding to PMs, and he replied the same day saying he was always willing to help, but preferred that we use his email address (which you can find on the Buckingham site, or just PM him and he'll give it to you). I followed up with a question by email, he responded within a day, and also responded quickly to a few follow-up questions.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

Random Walker
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Re: What ever happened to the Larry portfolio?

Post by Random Walker » Sun Dec 24, 2017 6:36 pm

Totally agree with Kevin M’s interpretation of the Larry Portfolio. The key point is to use the equity asset classes with the highest expected return diversified geographically, lower overall market risk, increase allocation to high quality bonds of short to intermediate maturity.

I agree that there is big value to diversifying across factors. Ironically, the importance of this diversification perhaps increases as the time horizon SHORTENS. Over a short time period, we don’t know how any factor will perform, so best to diversify. I think this strategy does help minimize sequence of return risk in withdrawl phase.

Dave

hale2
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Re: What ever happened to the Larry portfolio?

Post by hale2 » Sun Dec 24, 2017 7:50 pm

kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.

staythecourse
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Re: What ever happened to the Larry portfolio?

Post by staythecourse » Sun Dec 24, 2017 8:13 pm

hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
Agreed. Okay not to like xyz, but it is just rude to come on a thread about xyz just to say I don't like xyz. If you don't like his views no problem, but many enjoyed his POV. Personally, I did not agree with a lot of what he said either, but much appreciated his outlook and his threads discussing the new POV in financial academia.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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GreatOdinsRaven
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Re: What ever happened to the Larry portfolio?

Post by GreatOdinsRaven » Sun Dec 24, 2017 9:59 pm

hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
Agreed. I know Larry and really like Larry. We met via this forum and he has been incredibly helpful to my company. We lost out in a great resource when he decided to stop posting on this forum. Wish he’d come back.

There’s no need to be rude to Larry or anyone else.
"The greatest enemies of the equity investor are expenses and emotions." -John C. Bogle, Little Book of Common Sense Investing. | | "Winter is coming." Lord Eddard Stark.

Outafter20
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Re: What ever happened to the Larry portfolio?

Post by Outafter20 » Sun Dec 24, 2017 10:04 pm

hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
+1

hilink73
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Re: What ever happened to the Larry portfolio?

Post by hilink73 » Mon Dec 25, 2017 1:36 am

GreatOdinsRaven wrote:
Sun Dec 24, 2017 9:59 pm
hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
Agreed. I know Larry and really like Larry. We met via this forum and he has been incredibly helpful to my company. We lost out in a great resource when he decided to stop posting on this forum. Wish he’d come back.

There’s no need to be rude to Larry or anyone else.
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
The Larry Portfolio, in my eyes, is just 25% stock and 75% bonds at the end of the day.
Especially, when not even understanding what it is about.

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digarei
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Re: What ever happened to the Larry portfolio?

Post by digarei » Mon Dec 25, 2017 7:51 am

Outafter20 wrote:
Sun Dec 24, 2017 10:04 pm
hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
+1
-2

Disagreement or contrarian opinion are legitimate forms of debate. It isn’t rude to declaim one’s opinion.


My mother used to say,

“If you can’t think of anything nice to say... just don’t say anything at all.”

She was wrong about this, as well as on other subjects.

Such chastisement is tantamount to an attempt to silence someone with whom you disagree.
Connect with Bogleheads in Northern California! Click the link under my user info/avatar.

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zonto
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Re: What ever happened to the Larry portfolio?

Post by zonto » Mon Dec 25, 2017 8:03 am

There is a difference between saying, "I don't care what [insert person] thinks." and saying, "I disagree with the argument made by [insert person] because [insert counter argument]." One is is a blanket disregard for a person's arguments because of who they are and is a reverse of the appeal to authority logical fallacy. The other is how adults should discuss things.

By the way, your mom was right (and so was Thumper). One may disagree with someone and still be nice. For some reason, you've conflated disagreement with unkindness.

Merry Christmas!
“Diversification is about accepting good enough while missing out on great but avoiding terrible.” - Ben Carlson

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midareff
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Re: What ever happened to the Larry portfolio?

Post by midareff » Mon Dec 25, 2017 8:15 am

With all respect to Larry, whose books I have (4) and take very seriously, I feel the foot print of diversification being strangled by the use of a single asset class for the equity side of a portfolio. Perhaps OK for a portfolio inside a portfolio, such as 5% or 10%, or a bit more being held separately in an IRA, or Roth, or somewhere outside of the main highly diversified portfolio. I also was of the understanding it was SV and EM, not SV as a single.

Merry Christmas, Happy Holidaze and all the best in the New Year.

May your portfolio live long and prosper.

staythecourse
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Re: What ever happened to the Larry portfolio?

Post by staythecourse » Mon Dec 25, 2017 9:17 am

zonto wrote:
Mon Dec 25, 2017 8:03 am
There is a difference between saying, "I don't care what [insert person] thinks." and saying, "I disagree with the argument made by [insert person] because [insert counter argument]." One is is a blanket disregard for a person's arguments because of who they are and is a reverse of the appeal to authority logical fallacy. The other is how adults should discuss things.

By the way, your mom was right (and so was Thumper). One may disagree with someone and still be nice. For some reason, you've conflated disagreement with unkindness.

Merry Christmas!
Very well said.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

afan
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Re: What ever happened to the Larry portfolio?

Post by afan » Mon Dec 25, 2017 9:40 am

It always seemed to me that Larry gave at least as well as he got when it came to slinging insults and was often the initiator. Storming off in pique after one of these episodes and announcing that was why he was leaving was in character.

But personality is not investment performance.

On investing he brought up interesting ideas. He read the academic literature and would point to current papers. I found that he dramatically oversold the significance of certain factors, many of which I thought were classic data mining.

His portfolio advice kept changing as he brought in schemes to beat the market. For a long time it was commodities funds. That failed in spectacular fashion but rather than admit it he had some tortured explanation for why he never actually recommend them in the first place. When people quoted his posts doing exactly that he blew up.

Then it was an ever changing set of actively managed funds that targeted various p hacked factors. Plus some sort of purchase of insurance excess risk.

Once, early in my time on bogleheads and not knowing him, I asked him to provide evidence for the effectiveness of his suggestions in the form of risk adjusted returns, net of fees, as compared to simple index funds. I got lots of attitude, insults and claims that such results would be irrelevant as well as unavailable. I tried, once, to follow up with "if you don't have the data, how can you be so sure?" More insults and attitude but again no data.

Larry is not gone. He still publishes and his columns and books are as available as always.

The recommended portfolio is dynamic, so there is no way to know what it is or how it has performed even before fees and taxes. As of the time he signed off here he was recommending a set of actively managed funds that would pursue a varying set of factors. It was impossible to know what those factors would be because the managers of the funds promised to keep changing them.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Da5id
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Re: What ever happened to the Larry portfolio?

Post by Da5id » Mon Dec 25, 2017 9:42 am

digarei wrote:
Mon Dec 25, 2017 7:51 am
Outafter20 wrote:
Sun Dec 24, 2017 10:04 pm
hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
+1
-2

Disagreement or contrarian opinion are legitimate forms of debate. It isn’t rude to declaim one’s opinion.


My mother used to say,

“If you can’t think of anything nice to say... just don’t say anything at all.”

She was wrong about this, as well as on other subjects.

Such chastisement is tantamount to an attempt to silence someone with whom you disagree.
Your mom was a wise woman.

I think it is fine to say "I don't believe in factors/tilting/Larry Portfolio because XYZ". But "I don't care what Mr. Swedroe thinks" is ad hominem and rude to boot. Me responding "I don't care what kerplunk thinks" would be equally rude, don't you think? I don't agree with/fully accept/act on everything Larry Swedroe advocates, as my 3 fund portfolio would suggest. But I do like Larry's articles and regret he is gone from here. HIs articles are generally well reasoned and grounded in research that is at least plausible, and I've learned things from them. He adds value.

Anyway Merry Christmas to those who celebrate :)

Explorer
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Re: What ever happened to the Larry portfolio?

Post by Explorer » Mon Dec 25, 2017 10:02 am

digarei wrote:
Mon Dec 25, 2017 7:51 am
Outafter20 wrote:
Sun Dec 24, 2017 10:04 pm
hale2 wrote:
Sun Dec 24, 2017 7:50 pm
kerplunk wrote:
Sun Dec 24, 2017 5:03 pm
Personally, I don’t care what Mr. Swedroe thinks.
It's comments like this that drove him away. If you don't agree, that's fine, but no need to be rude.
+1
-2

Disagreement or contrarian opinion are legitimate forms of debate. It isn’t rude to declaim one’s opinion.


My mother used to say,

“If you can’t think of anything nice to say... just don’t say anything at all.”

She was wrong about this, as well as on other subjects.

Such chastisement is tantamount to an attempt to silence someone with whom you disagree.
I totally agree that chastising (or group shaming) someone who disagrees with a "so called" popular figure is perhaps more of an issue than some folks not liking/agreeing with the "so called" popular figures.

As long as disagreements are respectful/tasteful, we should allow our first amendment rights be upheld here as well. By the way "kerplunk" was not disrespectful.

Let us not try to silence others on these forums - PLEASE !

Random Walker
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Re: What ever happened to the Larry portfolio?

Post by Random Walker » Mon Dec 25, 2017 10:06 am

Some people here are critiquing Larry for “changing recommendations over time”. I would contend that Larry has shown tremendous consistency. He seems to have an unwavering belief in modern portfolio theory and improving portfolio efficiency. As finance has evolved or new products have become investable, he has adapted his recommendations accordingly. He himself says that smart people adapt to new information, and his recommendations reflect that he does that himself. I view all his recommended investment vehicles as passive: no market timing and agnostic rules based investment selection.

Dave

kerplunk
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Re: What ever happened to the Larry portfolio?

Post by kerplunk » Mon Dec 25, 2017 10:07 am

My quote was taken out of context. The complete thought, for those who care, was that although I do not agree with most of Larry Swedroe’s philosophies, I appreciated having his opinions on this forum. Having another perspective will either reaffirm your own beliefs or make you start questioning them. Nothing rude about that.

betablocker
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Re: What ever happened to the Larry portfolio?

Post by betablocker » Mon Dec 25, 2017 10:19 am

My sense is that the LP was one portfolio developed for a specific reason. There are also other portfolios Larry and his firm recommend based on a persons willingness, ability and need to take risk. Overall Larry reflected the consensus of what the research establishment has found. So you’re not arguing with Larry but the entire academic community. There is certainly an anti intellectual strain on the board. I know which side I take but fine if others believe different things. Additionally Larry’s and others evolved their recommendations as new products became available at reasonable prices and as the evidence further confirmed the evidence for factors. Again many on this board want simple truths that confirm their beliefs about the world. That to me is more of a religion than a fact based exploration of how the world works but I’ve found little utility in telling people that and I think that drove Larry up a wall sometimes.

Dottie57
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Re: What ever happened to the Larry portfolio?

Post by Dottie57 » Mon Dec 25, 2017 10:22 am

zonto wrote:
Mon Dec 25, 2017 8:03 am
There is a difference between saying, "I don't care what [insert person] thinks." and saying, "I disagree with the argument made by [insert person] because [insert counter argument]." One is is a blanket disregard for a person's arguments because of who they are and is a reverse of the appeal to authority logical fallacy. The other is how adults should discuss things.
+1

Da5id
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Re: What ever happened to the Larry portfolio?

Post by Da5id » Mon Dec 25, 2017 10:30 am

Random Walker wrote:
Mon Dec 25, 2017 10:06 am
Some people here are critiquing Larry for “changing recommendations over time”. I would contend that Larry has shown tremendous consistency. He seems to have an unwavering belief in modern portfolio theory and improving portfolio efficiency. As finance has evolved or new products have become investable, he has adapted his recommendations accordingly. He himself says that smart people adapt to new information, and his recommendations reflect that he does that himself. I view all his recommended investment vehicles as passive: no market timing and agnostic rules based investment selection.
While I like his writings, I do see a problem with the rate at which the recommendations change. In particular for a Larry type portfolio, since even if you believe in them factors require a long term commitment to achieve success (due to significant periods of under performance). I'm not a fan of changing to the latest thing, even if the latest thing is reasonable seeming and based in sound academic research. For example shortly before he left Larry was strongly advocating for (and rather dismissive of those who doubted) some reinsurance investments that had I believe 1 publicly traded mutual fund, SRRIX. I'm not a fan of rapid change in my investments, and am not sure that early adopting an alternative investment when there are no real fund alternatives or competition is a good choice. YMMV, and maybe that will turn out awesomely. I'd rather lag behind and let things get a track record, even if that means leaving money on the table...

Random Walker
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Re: What ever happened to the Larry portfolio?

Post by Random Walker » Mon Dec 25, 2017 11:12 am

Da5id,
I agree with you that investors shouldn’t change to the newest thing, and I’m pretty sure Larry would agree as well. I think Larry has been rock solid on the high tilt / lower market beta philosophy throughout his posting on this board. As CS Momentum, TS Momentum, profitability have become investable, he has incorporated those.
One issue I don’t think people understand well enough around here is the issue of “long periods of underperformance”. I think the wrong way to look at this is to think an investor may have to sit around patiently for a long time looking at his single factor in tunnel vision isolation. Any factor, including market beta, can underperform for a long time. This is a reason to diversify across factors / sources of return. All that matters is the portfolio as a whole. In fact, because any factor can underperform at any time, diversification across factors is probably more important the shorter the time frame. When Larry writes about factors, he frequently compares the individual factors performance to 1/n portfolios to demonstrate the power of diversification to improve portfolio efficiency.
I too would potentially have trepidation about jumping on something very new like reinsurance, alt lending, variance risk premium. But the strategies have been around a very long time; it’s just that they recently became investable. The logic behind them makes total intuitive sense. Given these conditions, I think being an early adopter makes reasonable sense.

Dave

afan
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Re: What ever happened to the Larry portfolio?

Post by afan » Mon Dec 25, 2017 12:11 pm

Well, the academic research community has recognized the problem of power in the tests used when there is only one dataset. Many reported factors have this problem and are most likely p hacked illusions. This is remarkably well documented in the literature.

I don't understand how the market can underperform. Underperform what? Itself? That is only possible if one pays an advisory fee to pay higher fee funds. Then your investments can underperform the market by those fees.

The market portfolio is diversified by definition. Larry would recommend NOT holding a diversified portfolio but rather overweighting some portions of the market and underweighting others. As best I could tell, the recommendations varied and the risk adjusted returns often we're not discussed, most maneuvers involved seeking out negatively skewed portfolios and ignoring risk adjustment.

Has anyone noted the dramatic drop in market beating schemes enthusiastically pitched here on bogleheads lately? Coincidence?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

smesman
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Re: What ever happened to the Larry portfolio?

Post by smesman » Mon Dec 25, 2017 12:22 pm

Random Walker wrote:
Mon Dec 25, 2017 11:12 am
I too would potentially have trepidation about jumping on something very new like reinsurance, alt lending, variance risk premium. But the strategies have been around a very long time; it’s just that they recently became investable. The logic behind them makes total intuitive sense. Given these conditions, I think being an early adopter makes reasonable sense.
I just wonder how well these funds will be able to implement these factors and whether they'll keep giving a better risk adjusted return if they become accepted.

Wouldn't it be more prudent to wait and see or is it time sensitive?

chevca
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Re: What ever happened to the Larry portfolio?

Post by chevca » Mon Dec 25, 2017 12:25 pm

Threads like this show just how close to this one, or maybe how much a forum called Swedreoheads is needed. :happy

It's not okay to say one doesn't care what Larry thinks, but feel free to say one doesn't care what Mr. Bogle or Buffett think and all is good??

No one was disrespected or treated rudely in this one. Or, experts are disrespected or treated rudely often in the forum.... just don't say a bad word about Mr. Swedroe. :confused

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Doc
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Re: What ever happened to the Larry portfolio?

Post by Doc » Mon Dec 25, 2017 12:45 pm

Kevin M wrote:
Sun Dec 24, 2017 6:10 pm
The main reason is the higher returns of small-cap value stocks during the periods he uses in his analyses.
I don't think that you are interpreting the "Black Swans" idea correctly. The basic idea is that small value has higher returns but at the cost of higher risk. By increasing your SV allocation allocation you get more return and then you increase your FI allocation to maintain the original risk. You wind up with the same risk/reward but without the fat tails.

The book is titled "Reducing the Risk of Black Swans: Using the Science of Investing to Capture Returns With Less Volatility". the "Black Swans" are the "fat tails".

Whether the market has changed in recent years in another matter entirely.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: What ever happened to the Larry portfolio?

Post by in_reality » Mon Dec 25, 2017 1:08 pm

betablocker wrote:
Mon Dec 25, 2017 10:19 am
My sense is that the LP was one portfolio developed for a specific reason. There are also other portfolios Larry and his firm recommend based on a persons willingness, ability and need to take risk. Overall Larry reflected the consensus of what the research establishment has found. So you’re not arguing with Larry but the entire academic community. There is certainly an anti intellectual strain on the board. I know which side I take but fine if others believe different things. Additionally Larry’s and others evolved their recommendations as new products became available at reasonable prices and as the evidence further confirmed the evidence for factors. Again many on this board want simple truths that confirm their beliefs about the world. That to me is more of a religion than a fact based exploration of how the world works but I’ve found little utility in telling people that and I think that drove Larry up a wall sometimes.
I don’t think that questioning whether the academic findings based on long/short portfolios translate into real results in long only funds is anti intellectual. For one thing, those results are juiced by theoretical returns from shortingstocks you couldn’t get your hands on, real trading costs, etc etc.

I see these as legitimate concerns and calling me anti intellectual is beside the point. Larry actually quit the board first 10 years ago when his recommendations for commodities weren’t accepted.

Actually, if you look at actual results in AQR’s mom funds the typical answer is well we need faith — returns may be unexplained and dominated by (negative) alpha for many live funds at the moment and factors investors need faith.
Last edited by in_reality on Mon Dec 25, 2017 1:36 pm, edited 1 time in total.

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Re: What ever happened to the Larry portfolio?

Post by dcabler » Mon Dec 25, 2017 1:33 pm

When I first came across Simba's spreadsheet, I ended up backing into something very much like LP. At the end of the day, if you take two, nearly uncorrelated assets, you can algebraically compute the proportion of each asset required such that each asset contributes the same amount of volatility. When you do so, you end up with something very much like AA used in the LP. And to maximize returns, one would choose both assets to be ones with historically high long term returns. SCV ends up being an obvious choice for stock, but it's not the only one possible. And mostly any uncorrelated bond choice would work - though of course long periods of rising or falling interest rates will do what they do. You can also use more than one stock choice (SCV and International Small Cap and/or EM are just examples), etc.

In the end, as I recall, I walked away from it for a few reasons
- As pointed out in other threads about this portfolio, and by Larry himself when discussing factors, you may have years or even decades of underperformance. Of course, if you don't care about keeping up with some other AA benchmark, then you won't suffer from tracking issues. :D
- I like to do sensitivity analysis on potential AA's and I seem to recall that returns/volatility moved around quite a bit with what I consider small changes in the AA. Don't ask me how much - I'm sure that analysis is lost among the trash heap of spreadsheets I've built over time and subsequently forgot about. :annoyed

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Re: What ever happened to the Larry portfolio?

Post by whodidntante » Mon Dec 25, 2017 1:37 pm

I personally do not see an issue with Larry changing his recommendations in the past or in the future. We have access to more types of investments than in the past, access to more research, and access to more data. He is keeping up with the research, performing his own analysis, and drawing conclusions.

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Re: What ever happened to the Larry portfolio?

Post by nedsaid » Mon Dec 25, 2017 1:43 pm

I don't know Larry Swedroe other than from interaction with him on the forum. What I found is that he has a tough exterior but is actually a very nice guy. I did have a brief e-mail exchange with him a few months ago and he answered my questions rather promptly. You would have thought I was Buckingham's #1 client rather than an anonymous avatar on the internet. He does take a lot of time answering questions. He was as nice as pie.

I am a West Coast guy and our attitudes over here are more relaxed and laid back. I remember working in the back office of a Regional Bank's brokerage. Our people hated working with a Philadelphia firm that cleared our trades as we perceived them as rude. I guess it is an East Coast thing. Larry lives in St. Louis area but comes from the Bronx. He still is at heart a New Yorker. My guess is that for a New Yorker he would be considered rather mild. In a pickup game of basketball, he is not above throwing a sharp elbow underneath the basket, a lot of us have experienced it here. I have been known to throw elbows around here too, sometimes to my regret.

It reminds me of arriving at Penn Station after an Amtrack ride from Boston. A couple of older ladies started talking about not riding the elevator alone as someone got mugged just the week before. Sure enough, I had to take an elevator to get to where I needed to go. Rolling my suitcase through the very crowed Penn Station, memories of all the Cop shows shot in New York City rolled through my brain. By the time I got to the ticket machine to get my ticket for the "E" train, I literally was shaking. I hardly could operate the machine. A New Yorker with the classic accent asked me where I was going. He boarded the train with me and showed me how the lights on the map worked. Really nice fellow, didn't have to help a nervous West Coaster like me but he did. Found that New Yorkers were actually nice people, you just have to get past the exterior.

So I suppose I put on my game face in this forum a few times, acted tough, and threw a few elbows underneath the basket. The reality was that the various dividend and value forums where we argued with Larry was more like a pie fight or a pillow fight rather than a rough pick up game. Certain things you just had to not take personally.
A fool and his money are good for business.

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Re: What ever happened to the Larry portfolio?

Post by stlutz » Mon Dec 25, 2017 1:56 pm

A few thoughts:

a) The "Larry Portfolio" has tended to get oversold as offering some type of magic. Anybody can reduce the risk of her portfolio by cutting back on stocks and adding bonds. There is nothing unique to Larry Swedroe in doing that. Anybody can look for stocks that have provided above market returns in the past and overweight those in the future expecting the same thing to occur going forward. Again, nothing unique to Larry Swedroe in doing that. Those are the two things the Larry portfolio is doing. Numerous other investors attempt to do the same thing every day.

b) The additional risk in concentrating solely in smallcap value comes from giving up on diversification. There is no additional expected return in doing that. Instead what you get is a wider possible range of outcomes through such concentration. That risk of the Larry Portfolio tends to be under-appreciated.

c) In the attempt to promote the portfolio, there tends to be an inconsistency as to whether the returns of the value factor are positively or negatively skewed. On one hand, it's claimed that value will beat the market in 80% of 10 year periods, but there are rare times where SV will underfperform in a significant way (the Great Depression being the standard example). On the other hand, there is the claim that you have to stick with the portfolio for decades to see the benefit, but then it will happen in a big way. It can't be both at the same time. Proponents need to make a decision as to which it is.

d) Along the same lines, "keeping up with new research and newly investible asset classes" and "sticking with an allocation through thick and thin" are not the same thing. They are both good things to do, but you can't fully do both at the same time. And this goes back to the question as to whether Larry Portfolio (LP) returns are positively or negatively skewed. If good things are the standard occurrence with this portfolio, then by all means it makes sense to incorporate new ideas if they come along. If you have to wait decades to see the benefit of the LP, then you throw away the benefit of the LP by incorporating new ideas.

e) Academics rarely agree about anything. There is a mis-perception among some on this board that Larry's views represent the entire academic community and therefore one is anti-intellectual if they don't invest in higher fee funds only offered through an advisor. The reality is that academics continue to debate the same subjects we do on this board. Obviously Larry would reference those whose views he found persuasive, but choosing to ignore the academics who don't agree with Larry is not the same thing as saying that they don't exist.

The Larry Portfolio is a reasonable approach to building a portfolio. However, I'd flash a caution light if you retirement depends on on a small slice of the market (small-value) beating the overall market in a significant way. If T-notes are your only other holding, you really have no other big return driver to make up the difference if SV disappoints.

Again, the portfolio is a reasonable one, but does not have any magic to it.

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nedsaid
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Re: What ever happened to the Larry portfolio?

Post by nedsaid » Mon Dec 25, 2017 2:10 pm

stlutz wrote:
Mon Dec 25, 2017 1:56 pm

e) Academics rarely agree about anything. There is a mis-perception among some on this board that Larry's views represent the entire academic community and therefore one is anti-intellectual if they don't invest in higher fee funds only offered through an advisor. The reality is that academics continue to debate the same subjects we do on this board. Obviously Larry would reference those whose views he found persuasive, but choosing to ignore the academics who don't agree with Larry is not the same thing as saying that they don't exist.


I wouldn't quite say that. There definitely is a majority and a minority opinion. I did point out Jeremy Siegel's work to Larry as I expressed some disagreement, particularly in the dividend threads. Larry just seemed to dismiss Siegel and that was disappointing to me. Pretty much he said that Siegel's association with Wisdom Tree probably colored his opinions. Sometimes, it seemed that Larry lived in a black and white world and didn't acknowledge nuance or areas of disagreement. But then again, I get accused of being wishy-washy around here.
A fool and his money are good for business.

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Re: What ever happened to the Larry portfolio?

Post by CULater » Mon Dec 25, 2017 3:32 pm

A couple posters actually tried to address the issue, which I appreciated -- Happy Holidays to You! To all the Grinches totally irrelevantly debating Larry's character, personality, and motives -- Bah, Humbug to You! Guess maybe I'll try to email him myself.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: What ever happened to the Larry portfolio?

Post by nedsaid » Mon Dec 25, 2017 4:00 pm

CULater wrote:
Sun Dec 24, 2017 2:21 pm
Just wondering if Larry Swedroe is still recommending the 25% SCV + 75% Bonds portfolio allocation or has moved away from it. What "bonds" fill the role best nowadays? It would seem that one of the reasons the Larry portfolio did well was the exposure to term risk with 75% in bonds. However, with interest rates on the rise I wonder if high exposure to term risk is a good idea? Choose between exposure to market risk (stocks) and term risk (bonds) - not great.
There are variations to the Larry portfolio. I understood it to be 30% Small-Cap Value and 70% short term treasury bonds. The Small-Cap portion was spread across US, International Developed, and International Emerging. The stock portion of the portfolio has thousands of stocks.

I personally don't favor extreme tilting like this. There are times when Large Cap outperforms Small Cap and when Growth outperforms Value, causing tracking error. You should do well with a "Larry" portfolio though you should be prepared to be patient, perhaps very patient. I would favor a milder version of Small/Value tilting myself.

Don't know Larry's latest recommendations on this portfolio but above was the latest I heard.
A fool and his money are good for business.

Random Walker
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Re: What ever happened to the Larry portfolio?

Post by Random Walker » Mon Dec 25, 2017 4:13 pm

Stlutz wrote
A few thoughts:

a) The "Larry Portfolio" has tended to get oversold as offering some type of magic. Anybody can reduce the risk of her portfolio by cutting back on stocks and adding bonds. There is nothing unique to Larry Swedroe in doing that. Anybody can look for stocks that have provided above market returns in the past and overweight those in the future expecting the same thing to occur going forward. Again, nothing unique to Larry Swedroe in doing that. Those are the two things the Larry portfolio is doing. Numerous other investors attempt to do the same thing every day.

b) The additional risk in concentrating solely in smallcap value comes from giving up on diversification. There is no additional expected return in doing that. Instead what you get is a wider possible range of outcomes through such concentration. That risk of the Larry Portfolio tends to be under-appreciated.

c) In the attempt to promote the portfolio, there tends to be an inconsistency as to whether the returns of the value factor are positively or negatively skewed. On one hand, it's claimed that value will beat the market in 80% of 10 year periods, but there are rare times where SV will underfperform in a significant way (the Great Depression being the standard example). On the other hand, there is the claim that you have to stick with the portfolio for decades to see the benefit, but then it will happen in a big way. It can't be both at the same time. Proponents need to make a decision as to which it is.

d) Along the same lines, "keeping up with new research and newly investible asset classes" and "sticking with an allocation through thick and thin" are not the same thing. They are both good things to do, but you can't fully do both at the same time. And this goes back to the question as to whether Larry Portfolio (LP) returns are positively or negatively skewed. If good things are the standard occurrence with this portfolio, then by all means it makes sense to incorporate new ideas if they come along. If you have to wait decades to see the benefit of the LP, then you throw away the benefit of the LP by incorporating new ideas.

e) Academics rarely agree about anything. There is a mis-perception among some on this board that Larry's views represent the entire academic community and therefore one is anti-intellectual if they don't invest in higher fee funds only offered through an advisor. The reality is that academics continue to debate the same subjects we do on this board. Obviously Larry would reference those whose views he found persuasive, but choosing to ignore the academics who don't agree with Larry is not the same thing as saying that they don't exist.

The Larry Portfolio is a reasonable approach to building a portfolio. However, I'd flash a caution light if you retirement depends on on a small slice of the market (small-value) beating the overall market in a significant way. If T-notes are your only other holding, you really have no other big return driver to make up the difference if SV disappoints.

Again, the portfolio is a reasonable one, but does not have any magic to it.
A) no magic, just efficient. MPT shows that less than perfectly correlated portfolio components increase portfolio efficiency. Small and market weakly correlated, value and market uncorrelated, small and value uncorrelated.

B) depends on how you define diversification. There is plenty of market beta in the SV funds. And you ignore increasing dose of high quality bonds in presence of tilting to SV. For the same expected return, a Larry type portfolio should have a smaller SD than a TSM portfolio.

C) value has higher expected return than core or growth. No idea what time periods it will be demonstrated over. That is why we diversify across factors and stick to the plan.

D) sticking with the plan and incorporating new research are not mutually exclusive. It depends why one changes the plan. Tossing out value because it has recently underperformed is not sticking with the plan. Replacing a little of bit of your SV fund (independent of recent performance) with a new alternative that the investor thinks will improve portfolio efficiency is logically evolving to a new plan for sticking to.

E) I’m not up on academic research, but I think the value premium, whether risk, behavioral, or some of both, is well established. I think size premium pretty well established too, although best seen when looking at deciles rather than top and bottom 50%.

When it comes to early retirement, sequence of returns risk is big. Although diversifying across sources of return always makes sense, it especially makes sense for short time periods and in early retirement I think.

Dave

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Re: What ever happened to the Larry portfolio?

Post by saltycaper » Mon Dec 25, 2017 5:42 pm

The wonderful thing about ideas is they don't die with their originators. Nothing "happened" to the Larry Portfolio. You can rest assured that it and its variants are alive and well.
Quod vitae sectabor iter?

betablocker
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Re: What ever happened to the Larry portfolio?

Post by betablocker » Mon Dec 25, 2017 8:22 pm

in_reality wrote:
Mon Dec 25, 2017 1:08 pm
betablocker wrote:
Mon Dec 25, 2017 10:19 am
My sense is that the LP was one portfolio developed for a specific reason. There are also other portfolios Larry and his firm recommend based on a persons willingness, ability and need to take risk. Overall Larry reflected the consensus of what the research establishment has found. So you’re not arguing with Larry but the entire academic community. There is certainly an anti intellectual strain on the board. I know which side I take but fine if others believe different things. Additionally Larry’s and others evolved their recommendations as new products became available at reasonable prices and as the evidence further confirmed the evidence for factors. Again many on this board want simple truths that confirm their beliefs about the world. That to me is more of a religion than a fact based exploration of how the world works but I’ve found little utility in telling people that and I think that drove Larry up a wall sometimes.
I don’t think that questioning whether the academic findings based on long/short portfolios translate into real results in long only funds is anti intellectual. For one thing, those results are juiced by theoretical returns from shortingstocks you couldn’t get your hands on, real trading costs, etc etc.

I see these as legitimate concerns and calling me anti intellectual is beside the point. Larry actually quit the board first 10 years ago when his recommendations for commodities weren’t accepted.

Actually, if you look at actual results in AQR’s mom funds the typical answer is well we need faith — returns may be unexplained and dominated by (negative) alpha for many live funds at the moment and factors investors need faith.
So a vague statement about aqr momentum funds proves some point? I disagree.

I do think making ad hominem attacks against consensus academic research is anti intellectual. I wouldn’t say there isn’t a role for it but that is probably the definition.

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Re: What ever happened to the Larry portfolio?

Post by Dead Man Walking » Mon Dec 25, 2017 10:19 pm

CULater wrote:
Sun Dec 24, 2017 2:21 pm
Just wondering if Larry Swedroe is still recommending the 25% SCV + 75% Bonds portfolio allocation or has moved away from it. What "bonds" fill the role best nowadays? It would seem that one of the reasons the Larry portfolio did well was the exposure to term risk with 75% in bonds. However, with interest rates on the rise I wonder if high exposure to term risk is a good idea? Choose between exposure to market risk (stocks) and term risk (bonds) - not great.
On page 254 of Rational Investing in Irrational Times (2002) Larry Swedroe states, "Own only very short-term fixed-income assets (or inflation protected securities)." He explains that the purpose of fixed-income assets is to reduce volatility of the overall portfolio. He suggests that investors buy treasury bonds directly from the Treasury and avoid bond funds. He favored one year treasuries. Following this advice should minimize term risk. Of course, cash may be an alternative.

I have invested in Vanguard short-term bond funds for about 15 years in order to lower the volatility and risk of my portfolio. The total return of my portfolio has suffered from this decision. However, I have not lost any sleep worrying about rising interest rates. Vanguard long-term and short-term treasury bond funds have suffered similar losses over the last 3 months. Your concern about term risk may be justified.

Larry's model portfolio may have changed to include more factor-based funds since he has written much about them recently. I find his research interesting, but I have learned from experience that his theories have not been relevant to the interest rate environment of the last 15 years.

DMW

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Re: What ever happened to the Larry portfolio?

Post by vesalius » Tue Dec 26, 2017 10:24 am

For those guessing or basing comments off old data on the Larry portfolio check this thread.
Email from Larry Swedroe about "Reducing the Risk of Black Swans" book 2nd ed.

Prior to moving into alternatives, Larry was recommending a simple 3 fund portfolio. Although the easiest version of that portfolio did require an advisor for access, that certainly is not an absolute requirement.

The stock side was a sliding % based on your willingness and need to take risk. He roughly correlated a 30/70 LP stock to bond ratio to a 60/40 boglehead 3 fund stock/bond portfolio. You decided your Stock/Bond % from there and it was never fixed for every investor. After describing himself as lucky enough to have already won the race, he was, at least several years ago, coasting with a 30/70, but other younger advisors still accumulating wealth he knew had taken this all the way to 100/0 in their own portfolios.

Regardless of the Stock to bond % decided on he essentially recommended breaking the stocks down into 50/50 US SV/INTL SV and the INTL could be further divided into EM/INTL SV. With direct questioning, he favored EM Value over the more limited EM Small value if this split was made.

The simplest form required only 2 stock funds:
1. DFA World ex U.S. Targeted Value Portfolio Institutional Class Shares DWUSX
2. Bridgeway Omni Small-Cap Value Fund Class N BOSVX

A cheaper iShares ETF version could be:
1. iShares Edge MSCI Multifactor USA Small-Cap ETF SMLF
2. iShares Edge MSCI Multifactor Intl Small-Cap ETF ISCF
3. iShares Edge MSCI Multifactor Emerging Markets ETF EMGF

A cheaper Scwhab version could be:
1. Schwab Fundamental U.S. Small Company Index ETF FNDA
2. Schwab Fundamental International Small Company Index ETF FNDC
3. Schwab Fundamental Emerging Markets Large Company Index ETF FNDE

CULater
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Re: What ever happened to the Larry portfolio?

Post by CULater » Tue Dec 26, 2017 11:37 am

vesalius wrote:
Tue Dec 26, 2017 10:24 am
For those guessing or basing comments off old data on the Larry portfolio check this thread.
Email from Larry Swedroe about "Reducing the Risk of Black Swans" book 2nd ed.

Prior to moving into alternatives, Larry was recommending a simple 3 fund portfolio. Although the easiest version of that portfolio did require an advisor for access, that certainly is not an absolute requirement.

The stock side was a sliding % based on your willingness and need to take risk. He roughly correlated a 30/70 LP stock to bond ratio to a 60/40 boglehead 3 fund stock/bond portfolio. You decided your Stock/Bond % from there and it was never fixed for every investor. After describing himself as lucky enough to have already won the race, he was, at least several years ago, coasting with a 30/70, but other younger advisors still accumulating wealth he knew had taken this all the way to 100/0 in their own portfolios.

Regardless of the Stock to bond % decided on he essentially recommended breaking the stocks down into 50/50 US SV/INTL SV and the INTL could be further divided into EM/INTL SV. With direct questioning, he favored EM Value over the more limited EM Small value if this split was made.

The simplest form required only 2 stock funds:
1. DFA World ex U.S. Targeted Value Portfolio Institutional Class Shares DWUSX
2. Bridgeway Omni Small-Cap Value Fund Class N BOSVX

A cheaper iShares ETF version could be:
1. iShares Edge MSCI Multifactor USA Small-Cap ETF SMLF
2. iShares Edge MSCI Multifactor Intl Small-Cap ETF ISCF
3. iShares Edge MSCI Multifactor Emerging Markets ETF EMGF

A cheaper Scwhab version could be:
1. Schwab Fundamental U.S. Small Company Index ETF FNDA
2. Schwab Fundamental International Small Company Index ETF FNDC
3. Schwab Fundamental Emerging Markets Large Company Index ETF FNDE
Many thanks. Very informative post.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

stlutz
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Re: What ever happened to the Larry portfolio?

Post by stlutz » Tue Dec 26, 2017 12:02 pm

A cheaper iShares ETF version could be:
1. iShares Edge MSCI Multifactor USA Small-Cap ETF SMLF
2. iShares Edge MSCI Multifactor Intl Small-Cap ETF ISCF
3. iShares Edge MSCI Multifactor Emerging Markets ETF EMGF

A cheaper Scwhab version could be:
1. Schwab Fundamental U.S. Small Company Index ETF FNDA
2. Schwab Fundamental International Small Company Index ETF FNDC
3. Schwab Fundamental Emerging Markets Large Company Index ETF FNDE
Just for clarification--were theses Swedroe's recommendations or possibilities that you are suggesting?

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