Memo to those who have won the game: it's time to quit playing

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
WhiteMaxima
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Re: Memo to those who have won the game: it's time to quit playing

Post by WhiteMaxima » Tue Jan 09, 2018 12:42 pm

burt wrote:
Tue Jan 09, 2018 8:12 am
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
Mr. Buffet could easily lose 50% of his assets due to a stock market "correction" and the impact to his standard of living would be zero.
I on the other hand.... being retired with modest savings, would have a significant impact to my standard of living.
30/70 stock/bond.

burt
Mr Buffet has very modest living style. He drinks sugar water and eats McDonald value burger. Live in same home purchased decades ago. Living cheap and you can do it. Use 50% off as buying opportunity. Keep some cash on hand.

johnz1001
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Re: Memo to those who have won the game: it's time to quit playing

Post by johnz1001 » Tue Jan 09, 2018 12:49 pm

dbr wrote:
Tue Jan 09, 2018 10:40 am
Again I think the needed reminder is that Bernstein is just advising people who have a lot of investment in equities that doesn't need to be such a high allocation to meet their objectives that the risk is not worth it. If he had just said that instead of trying to attract attention by using a quip, there would be much less to discuss.
Bernstein tried to quantify what he meant by an LMP and used the quip to gain attention to that concept with his drawn out examples. It would not have been sufficient to say only "if you have a lot in equities it doesn't have to so high because it may not be worth it". That's a general conclusion drawn from his LMP concept, but it's not the concept drawn out. That's important to note imo, independent of the rhetorical quip to gain attention to the concept and worth discussing in detail. I can say that the LMP concept drawn out helped me considerably whereas the general conclusion maybe not so much.

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willthrill81
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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Tue Jan 09, 2018 1:17 pm

packer16 wrote:
Tue Jan 09, 2018 7:49 am
Did you notice the start and end dates for your first source? It begins at a market top & ends at a bottom. It would be interesting to see the rolling average over that same period & find out what % of the time B&H did better than the timing system. In terms of holding when stocks are below the MA it depends upon what return they are measuring (does it include dividends) over what period of time (how many years in the future) & what bonds are yielding. If bonds are yielding the same or lower it would be worth it to holding stocks. There also appears to be contrary evidence in J. Siegel's book as he has a test going back to 1886 & in every period except the Great Depression period, B&H is better & if you exclude the 1929 to 1932 period, B&H is better in all periods. Siegel includes all trading costs including capital gains taxes & on average the trading strategy shaves 2% off returns.

Packer
Again, you are focusing on absolute returns. My point is that the risk-adjusted returns of timing over long-term periods have been far higher.

Trading costs and taxes are not applicable to tax advantaged accounts, which are where 100% of my portfolio resides. But yes, timing is less appealing in taxable accounts.
Last edited by willthrill81 on Tue Jan 09, 2018 6:21 pm, edited 1 time in total.
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visualguy
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Re: Memo to those who have won the game: it's time to quit playing

Post by visualguy » Tue Jan 09, 2018 2:40 pm

michaeljc70 wrote:
Tue Jan 09, 2018 9:35 am
Assuming you aren't making AA changed just due to perceived high valuations, are people worried abut moving money into bonds now? With rising interest rates it just doesn't seem like that it is an ideal time to do that either. I know, given enough time, you'll be fine, but the same thing can be said with stocks over the long haul.
I have the same concern. I don't see the point in buying bond funds at this time if you have access to CDs and/or a decent stable value fund. No advantage to the bond funds as far as I can see, only risks of losing principal for quite a while. No reward for the risk. The only possible exception is muni funds in taxable accounts for people in high tax brackets.

CULater
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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Tue Jan 09, 2018 7:54 pm

From Wade Pfau:
An important and frequently studied question for retirees is: what is the optimal asset allocation during retirement? This article provides a brief but simple message that conservative asset allocations in retirement are quite acceptable after all. A wide range of asset allocations tend to provide very similar results in terms of sustainable withdrawal rates for given probabilities of failure. For example, with Monte Carlo simulations based on historical data parameters, a 4.4 percent withdrawal rate for a 30-year horizon could be supported with a 10 percent chance of failure using a 50/50 asset allocation of stocks and bonds. But the range of stock allocations supporting a withdrawal rate within 0.1 percentage points of this maximum extend from 27 to 87 percent. Though asset allocation will also impact the amount which can be left as bequests, it is the case that relatively low stock allocations can support retirees just as well for a given failure rate and retirement duration.
https://digitalcommons.theamericancolle ... culty/207/

My interpretation of the above is that there isn't a strong argument for having an equity allocation greater than about 25% if you just can't give up your equity fetish in retirement. This is a case of bigger is not better unless you have a bequest motive and are playing with money you won't end up needing to live on.
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

livesoft
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Re: Memo to those who have won the game: it's time to quit playing

Post by livesoft » Tue Jan 09, 2018 8:21 pm

^My interpretation is that something around 85% equities works just as well, so why not use 85%? :twisted:

That is, at 85% equities retirees didn't run out of money in 30 years very much either, so smaller may not be better. :beer
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IlliniDave
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Re: Memo to those who have won the game: it's time to quit playing

Post by IlliniDave » Tue Jan 09, 2018 8:28 pm

I keep playing the game because that's what I do. Besides, it ain't over until it's over. I might think I've won the game ...

What it all boils down to: I just play the game a little differently now. YMMV.

I don't have the official numbers yet but I probably got a second comma in my investment portfolio today (for the first time). Been there in net worth for a while, but that's not quite the same.

Maybe I read the parable of the talents too literally.
Don't do something. Just stand there!

gsmith
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Re: Memo to those who have won the game: it's time to quit playing

Post by gsmith » Wed Jan 10, 2018 2:06 am

I just wanted to point out while the SP500 is up 21.26%, the dollar has plummeted in value, and most people have their assets denominated in USD.

Viewed from most of the developed world, the SP500 is ~11% 1 yr return, which is normal.

USD:MXN: - 11.74%
USD-EUR: -11.5%
USD-GBP: -9.96%
USD-CAD: -5.74%
USD-AUD: -5.66%

Having corporate profits so high isn't a miracle.
I'm not sure it's a bubble.
But I'm confident it is a symptom of inflation.
http://money.cnn.com/data/currencies/

If you plan to live overseas, you ain't won the game.
If your net worth hasn't increased 10% this year, you haven't even broke even.

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packer16
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Re: Memo to those who have won the game: it's time to quit playing

Post by packer16 » Wed Jan 10, 2018 8:07 am

willthrill81 wrote:
Tue Jan 09, 2018 1:17 pm
packer16 wrote:
Tue Jan 09, 2018 7:49 am
Did you notice the start and end dates for your first source? It begins at a market top & ends at a bottom. It would be interesting to see the rolling average over that same period & find out what % of the time B&H did better than the timing system. In terms of holding when stocks are below the MA it depends upon what return they are measuring (does it include dividends) over what period of time (how many years in the future) & what bonds are yielding. If bonds are yielding the same or lower it would be worth it to holding stocks. There also appears to be contrary evidence in J. Siegel's book as he has a test going back to 1886 & in every period except the Great Depression period, B&H is better & if you exclude the 1929 to 1932 period, B&H is better in all periods. Siegel includes all trading costs including capital gains taxes & on average the trading strategy shaves 2% off returns.

Packer
Again, you are focusing on absolute returns. My point is that the risk-adjusted returns of timing over long-term periods have been far higher.

Trading costs and taxes are not applicable to tax advantaged accounts, which are where 100% of my portfolio resides. But yes, timing is less appealing in taxable accounts.
Yes, the volatility adjusted returns are slightly better but folks live off absolute returns not volatility adjusted ones. If you calculate the Sharpe ratio (from Siegel's data from 1886), you get 23.8 for B&H and 22.1 for the timing strategy (including the Great Depression) and 31.3 for B&H and 24.1 for the timing strategy (excluding the Great Depression).

You also have to examine the magnitude of the differences in volatility. In this case, B&H gets 1.3% per year more return with 4% more points of standard deviation risk (21% vs. 17% for timing). My question is can you even notice an increase in 4% volatility in your portfolio? I cannot so I would take the 1.3% return for a non noticeable increase in volatility. And does it matter in the accumulation phase? If you need the money in the next 5 years why would have it in stocks anyway?

You will not have taxes but you will have transactions & trading costs. My point is that the 200 MA is the best of the TA techniques out there and it is only better if you include the Great Depression in your historical data. It will be easier & most likely better to stick with B&H and use bonds to reduce portfolio volatility if that is what you want to do.

Packer
Buy cheap and something good might happen

technovelist
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Re: Memo to those who have won the game: it's time to quit playing

Post by technovelist » Wed Jan 10, 2018 3:29 pm

1nv35t wrote:
Sun Jan 07, 2018 5:56 pm
Won the game, get out ... into what? Liability matched, SPIA's, TIPS ...etc all have risks as well. Less history, as of yet haven't been stress tested. Potentially a cost (relatively lower rewards than might otherwise have been secured) during good times, but insurance that ultimately fails when called upon. Buying the likes of Gilts/Treasury bonds is a loan to someone who can set interest rates, taxation and the rules. The rules for instance could conceptually be changed so as to appear that no default occurred, but where in practice after real inflation, costs and taxes returns were a negative for lenders. Firms providing SPIA's might have to default under extremes - left bankrupt perhaps by exceptionally high inflation and the failure of its assets/value to grow in net terms to maintain payouts.

Bonds have geopolitical risks and as such are more inclined to potentially fail than a portfolio/index of global stocks. A basket of global stocks provides FX diversification which can be as good as gold in the event of a domestic currency crisis. 100% stocks however is concentration risk. If 50/50 stock/bonds or 75/25 stock/gold or whatever helped enable you to win the game, then there's little point in adjusting that. Only if you got to win the game through concentration (and luck) is revision/diversification of that a sensible choice.
Exactly. There is no way to "get out" because every investment has risks. Maybe the risks aren't obvious, but they are always there.

So the best possible approach is to try to balance the different risks so that no one disaster can wipe you out. This means diversification not only among asset classes, including "non-traditional" ones, but among institutions and even possibly jurisdictions.
In theory, theory and practice are identical. In practice, they often differ.

technovelist
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Re: Memo to those who have won the game: it's time to quit playing

Post by technovelist » Wed Jan 10, 2018 3:38 pm

garlandwhizzer wrote:
Sun Jan 07, 2018 7:29 pm
By the numbers I have won the game but most of my portfolio is still in stocks. The underlying assumption here is that bonds have no risk. That is not always true. The two biggest risks for bonds are inflation and longevity risk, finding out in the 4th quarter of the game that you hadn't won it in the first place when you put all your eggs into low return assets. No one worries much about inflation now because it's been so low for so long. That fact has no predictive power about what inflation will be in 10 or 20 years. I lived and invested in the 1970s and 1980s and learned too well what it's like. In ever increasing and high inflation, bonds especially longer term bonds get killed in terms of real returns, the only kind that matters when you're in the withdrawal phase. Other risks can drastically change projections of future financial needs: divorces, remarriages, accidents, fires, floods, disability, lawsuits, dementia requiring round the clock care for years, strokes that do the same thing, children who run into financial disasters and need financial help, etc.. The list goes on and on. I don't believe that anyone today can accurately anticipate how much money they'll need to live the lifestyle they're accustomed to over the next 20+ years. If you're seventy you have a good chance of living for 20 years of more if you're in good health. For these reasons, I do not anticipate ever lowering my equity allocation below 50%. Volatility doesn't bother me much. I've been through it many times before. I do not panic sell. The prospect of running out of money, on the other hand, scares me a lot.

Garland Whizzer
The Harry Browne Permanent Portfolio is intended to reduce the risks of having your saving eaten up by inflation, and history shows that it does a pretty good job of that. Its lower overall volatility also increases the SWR to about 4% even though it has a slightly lower growth rate than a high-stock-allocation portfolio.
In theory, theory and practice are identical. In practice, they often differ.

Trader/Investor
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Re: Memo to those who have won the game: it's time to quit playing

Post by Trader/Investor » Mon Feb 26, 2018 11:11 pm

To me it means 100% in CD laddering or money market. Just having trouble quitting the game as old habits are hard to break. I am far from wealthy (2.3 million investable assets) But I am fortunate to live in a very low cost of living area of the country, am debt free, and most of all single and in excellent health. Albeit I know at age 71 excellent health can be fleeting. I am having a hard time wrapping my head around constantly accumulating wealth and the associated risks. After social security I need around a 1.90% return to pay my annual expenses. And those are liberal expenses such as a summer vacation home rental, unexpected home repairs, etc. A five year CD ladder will cover that and more. And money market accounts will be paying 2.25% if the Fed raises three times this year. With so many of my high school and college friends either dying or suffering serious health issues, I would much prefer to hike the remainder of my life away while not fretting about how much more money I can accumulate before I too pass on.

Edit: Just purchased a new vehicle so thst is another expense I won’t have to worry about. The vehicle could outlive me.

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