Bill Bernstein, new podcast

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scone
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Bill Bernstein, new podcast

Post by scone » Thu Apr 05, 2018 9:58 am

Hi folks, hope this has not been posted already, it's a new podcast with transcript, and mentions other podcasts:

https://www.newretirement.com/retiremen ... etirement/
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Re: Bill Bernstein, new podcast

Post by iceport » Thu Apr 05, 2018 10:45 am

Thanks for the link! It's always great to hear Bill Bernstein's thoughts.

This isn't really fair to rip this out of context, but here's my favorite soundbite:

"...a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute."
"Discipline matters more than allocation.” ─William Bernstein

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Re: Bill Bernstein, new podcast

Post by an_asker » Thu Apr 05, 2018 10:47 am

iceport wrote:
Thu Apr 05, 2018 10:45 am
Thanks for the link! It's always great to hear Bill Bernstein's thoughts.

This isn't really fair to rip this out of context, but here's my favorite soundbite:

"...a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute."
Nice soundbite, because that is the quintessence of Dave Ramsey's response to folks who disagree with him. :-)

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Re: Bill Bernstein, new podcast

Post by iceport » Thu Apr 05, 2018 10:52 am

an_asker wrote:
Thu Apr 05, 2018 10:47 am
iceport wrote:
Thu Apr 05, 2018 10:45 am
Thanks for the link! It's always great to hear Bill Bernstein's thoughts.

This isn't really fair to rip this out of context, but here's my favorite soundbite:

"...a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute."
Nice soundbite, because that is the quintessence of Dave Ramsey's response to folks who disagree with him. :-)
It's especially ironic given the fuller context:
Circling back to the young person, you might say, well the young person should invest 100% in stocks. In other words, put 100% of their money every single pay period into the stock market and that is theoretically correct. The only problem is there are very few sentient beings in this quadrant of the galaxy that can tolerate 100% stocks. It’s suboptimal if you’re a young person to invest in a lot of bonds but a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute.
Isn't Ramsey the 100% stocks guy?

I also enjoyed Bernstein's take on hedonic adaptation. He really makes a lot of sense.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Thu Apr 05, 2018 12:48 pm

I like Bill's behavioral-economics response to consumption smoothing:
Bill Bernstein in the podcast wrote:I think personally that it is much healthier to deprive yourself a little bit materially when you’re younger and then when you get to be a little wealthier when you’re older, you hum about how lucky you are.
This resembles my life path from a communal apartment in the Soviet Union, to starting out as an immigrant in the U.S., to eventually becoming an early retiree on my own terms. I marvel at how fortunate I am in comparison to where I have started.
Bill Bernstein in the podcast wrote:I certainly agree with Mike that probably your prime time for spending should be your first decade or decade and a half after retirement.
Happy to do so!

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Re: Bill Bernstein, new podcast

Post by kupuna » Thu Apr 05, 2018 1:42 pm

I always enjoy listening to the insights of Bill Bernstein.

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Thu Apr 05, 2018 1:45 pm

Why can't Bill recommend specific fund companies?
The podcast transcript wrote:Steve: ... we talked a little bit before the show, I think you were saying target date funds are actually a good thing for many folks and I wondering if you could elaborate a little bit more on kind of why you think that and maybe some of the … We talked a little about Vanguard and DFA, why you think the those particular providers are good?

Bill: Well, I don’t think they’re a good product, I think they’re a great product, a fabulous product if they’re executed in the passive low-cost manner. You just mentioned two fund companies. I’m not paranoid enough to believe the SEC is listening in on this and listening to every word I say but if someone from the SEC was listening to me and they got out of the wrong side of the bed that morning and they heard me mention the name of one of the two companies that you just mentioned, and mentioned their target date funds, they probably wouldn’t be happy. So, I’m glad you mentioned them and not me.
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Re: Bill Bernstein, new podcast

Post by bobcat2 » Thu Apr 05, 2018 1:52 pm

iceport wrote:
Thu Apr 05, 2018 10:52 am
I also enjoyed Bernstein's take on hedonic adaptation. He really makes a lot of sense.
Overall I thought it was a good interview but the part about consumption smoothing and hedonic adaption made little sense.
If you maintain an even standard of living from the time you’re 20 until the time you’re 70 or 80, you’re not going to think that life is very much fun. You’re going to have the same car and the same house and the same style of living and you won’t see any improvement.
Who drives the same car at ages 20 through 70? Unless economic progress comes to a screeching halt, the cars driven at ages 20 and 70 will be substantially different. My father drove a car in 1928. He also drove a car in 1978. They may have been cars driven by blue collar guys in both years, but they were very different.

Nor is consumption smoothing going to give you the same standard of living from your early 20s to age 70 and beyond. Almost everyone is borrowing constrained early in their careers - say under the age of 35. Relatively young people can't simply borrow against future expected income in order to smooth their current living standard to be at the same higher level they will probably be at in their 50s.

The idea of consumption smoothing is to keep the living standard progressing relatively smoothly but upward over our careers until we reach our peak earnings years in typically our 50s and then keep the living standard fairly constant over the remainder of our lives. (That way we don't live like paupers early in our lives and relative royalty later in our lives.) That's different from keeping our living standard constant over our lives, which in any case is a near impossibility for all those not born into substantial wealth.

I did enjoy Bill's pointing out that in the ST a T-bill is close to being a risk free asset. But in the LR T-bills are a risky asset and if you are investing for consumption 20-30 years from now LT TIPS are the surrogate for the risk free asset. And noting that LT TIPS are a risky asset if you are spending from that asset in the next year. Finally when discussing (implicitly) DFAs target date funds he was spot on.
Steve: Nice. That’s awesome. I want to make one quick aside here just because I had an interesting conversation and I’m not trying to contradict to you. But I’d done some work in a previous project with Bob Merton , so the Nobel Prize winner and for whatever reason I reached out to him and I actually got him on the phone last week. And we were talking and I was actually asking him about his view of target date funds and he said actually he doesn’t love them all the time because he doesn’t think they’re targeted enough for every user. Now, he may be thinking of wealthier users but his perspective was they’re good but not necessarily perfect. Anyway.

Bill: As we’re both aware, he (Merton) has designed a whole series of target date funds for one of the companies that you mentioned. And I think their design is superb because what this particular family of funds, I won’t mention their name because you already mentioned it, what they’ve done is instead of just using a bond, a total bond market type portfolio, which is what most target dates funds do, depending upon the age and the target date, they use a mix of short and long term TIPS and also even short-term nominal reserves. And if you do that judiciously, that is even a better way of doing it than a target date fund.
Exactly! :sharebeer

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Re: Bill Bernstein, new podcast

Post by azanon » Thu Apr 05, 2018 2:48 pm

How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation? His first statement was the more correct one; they're close to a risk free asset, and I would add for any length of time.

I haven't had a chance to listen to the podcast yet though. Maybe there's a context that explains that statement.

Risk-free short term, and risky long term is cash placed in a safety deposit box.

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Re: Bill Bernstein, new podcast

Post by aj76er » Thu Apr 05, 2018 3:09 pm

azanon wrote:
Thu Apr 05, 2018 2:48 pm
How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation? His first statement was the more correct one; they're close to a risk free asset, and I would add for any length of time.

I haven't had a chance to listen to the podcast yet though. Maybe there's a context that explains that statement.

Risk-free short term, and risky long term is cash placed in a safety deposit box.
High opportunity cost over the long term. You're basically betting against stocks over long time horizon and this has historically been a losing bet (at least in the U.S.)
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Bill Bernstein, new podcast

Post by azanon » Thu Apr 05, 2018 3:17 pm

aj76er wrote:
Thu Apr 05, 2018 3:09 pm
azanon wrote:
Thu Apr 05, 2018 2:48 pm
How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation? His first statement was the more correct one; they're close to a risk free asset, and I would add for any length of time.

I haven't had a chance to listen to the podcast yet though. Maybe there's a context that explains that statement.

Risk-free short term, and risky long term is cash placed in a safety deposit box.
High opportunity cost over the long term. You're basically betting against stocks over long time horizon and this has historically been a losing bet (at least in the U.S.)
It's a stretch in my opinion to imply that opportunity cost is a risk or, rephrased, to call "not betting" a risk. I would say it's the epitome of no risk to both "not bet", but also take an action that ensures that you'll sustain what you currently have. If I could place $100 in a time capsule today, and wanted the best chance that approximately $100 worth of inflation-adjusted dollars would be in there 30 years from now, buying T-bills would be a great way to approximate that, at least based on their historical performance vs. inflation.

Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.

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Re: Bill Bernstein, new podcast

Post by dbr » Thu Apr 05, 2018 3:34 pm

azanon wrote:
Thu Apr 05, 2018 3:17 pm
aj76er wrote:
Thu Apr 05, 2018 3:09 pm
azanon wrote:
Thu Apr 05, 2018 2:48 pm
How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation? His first statement was the more correct one; they're close to a risk free asset, and I would add for any length of time.

I haven't had a chance to listen to the podcast yet though. Maybe there's a context that explains that statement.

Risk-free short term, and risky long term is cash placed in a safety deposit box.
High opportunity cost over the long term. You're basically betting against stocks over long time horizon and this has historically been a losing bet (at least in the U.S.)
It's a stretch in my opinion to imply that opportunity cost is a risk or, rephrased, to call "not betting" a risk. I would say it's the epitome of no risk to both "not bet", but also take an action that ensures that you'll sustain what you currently have. If I could place $100 in a time capsule today, and wanted the best chance that approximately $100 worth of inflation-adjusted dollars would be in there 30 years from now, buying T-bills would be a great way to approximate that, at least based on their historical performance vs. inflation.

Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
These discussion will generally work better if one does not reason on what things are called but on what things are. Opportunity cost actually is a thing which some investors might want to take into account. Stocks have the property that the standard deviation of accumulated wealth increases with time even as average wealth accumulated also increases with time. How the investor wants to take account of those facts in deciding what to do is up to the investor. Whether or not one applies the word "risk" to those things is circular logic depending first on what definitions one has in mind for risk. Naturally it is possible for one and the same plan to be both very risky and of very low risk at the same time, using different properties of the plan and different listings of the consequences.

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Thu Apr 05, 2018 6:05 pm

10 April 2018 Correction:
Massachusetts Institute of Technology, also known as MIT, **IS** the top school in economics. One of my comments in the original message was a result of speed reading and looking for a 3-letter name in the left hand side of the list.

azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
MIT is not a top school in economics. According this list https://www.topuniversities.com/univers ... omics-2015 , it's not even in top 10.

More to the point:
1. You can find a prominent economist on every side of every debate.
2. "Riskier" must be defined. With time, stocks are more likely to perform better, but the magnitude of both positive and negative outcomes increases, and one can have higher losses in the long run.

Victoria
Last edited by VictoriaF on Tue Apr 10, 2018 9:20 am, edited 1 time in total.
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Re: Bill Bernstein, new podcast

Post by lazyday » Thu Apr 05, 2018 6:28 pm

azanon wrote:
Thu Apr 05, 2018 2:48 pm
How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation?
There's no guarantee they will keep up with inflation, unlike TIPS.

And have they really tracked inflation that well in the past? It looks like they fell behind quite a bit in the 40s, a little in the 70s, and of course a little in recent years if we extend the chart below.

Image
source

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Thu Apr 05, 2018 6:29 pm

bobcat2 wrote:
Thu Apr 05, 2018 1:52 pm
The idea of consumption smoothing is to keep the living standard progressing relatively smoothly but upward over our careers until we reach our peak earnings years in typically our 50s and then keep the living standard fairly constant over the remainder of our lives. (That way we don't live like paupers early in our lives and relative royalty later in our lives.) That's different from keeping our living standard constant over our lives, which in any case is a near impossibility for all those not born into substantial wealth.

BobK
Hi Bob,

I am familiar with the idea of consumption smoothing and enjoy your discussions of this concept. Intellectually, I accept it. But, in practice, it can be difficult. Consumption smoothing is a standard-economics solution, whereas Bill is describing a behavioral-economics issue.

Using Thaler's terminology, an Econ can lay out and accomplish an economically prudent plan from the first day on the job to the day of retirement.

But a Human is likely to fail. A Human may get conditioned to borrowing early in life and continue taking loans much longer than is prudent. A Human may forget that he has borrowed from himself when he was young and continue increasing his lifestyle because of the hedonic treadmill mentioned by Bill. It's very difficult to be disciplined and follow a plan over the course of 30-40 years.

And as Bill has stated in the podcast, and I mentioned in my earlier post, there is an enormous satisfaction when you start out poor and achieve solid financial independence at the start of your golden years.

Put it another way, we talk about people having high human capital early in their careers, which they progressively convert into financial capital. But young people also have a high tolerance capital. They can sleep in their cars, eat ramen noodles, and wear flip-flops in snow. The money saved on the lack of conveniences are convertible into financial capital.

Victoria
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Re: Bill Bernstein, new podcast

Post by triceratop » Thu Apr 05, 2018 6:33 pm

VictoriaF wrote:
Thu Apr 05, 2018 6:05 pm
azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
MIT is not a top school in economics. According this list https://www.topuniversities.com/univers ... omics-2015 , it's not even in top 10.

More to the point:
1. You can find a prominent economist on every side of every debate.
2. "Riskier" must be defined. With time, stocks are more likely to perform better, but the magnitude of both positive and negative outcomes increases, and one can have higher losses in the long run.

Victoria
I think I read your link very differently than you did.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Thu Apr 05, 2018 6:35 pm

triceratop wrote:
Thu Apr 05, 2018 6:33 pm
VictoriaF wrote:
Thu Apr 05, 2018 6:05 pm
azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
MIT is not a top school in economics. According this list https://www.topuniversities.com/univers ... omics-2015 , it's not even in top 10.

More to the point:
1. You can find a prominent economist on every side of every debate.
2. "Riskier" must be defined. With time, stocks are more likely to perform better, but the magnitude of both positive and negative outcomes increases, and one can have higher losses in the long run.

Victoria
I think I read your link very differently than you did.
Oops! Oops! Oops! Oops! Oops! Oops! Oops! Oops!
I scanned it for 3 letters, not for the full name.

Victoria (embarrassed)
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Re: Bill Bernstein, new podcast

Post by Jeff Albertson » Thu Apr 05, 2018 6:38 pm

VictoriaF wrote:
Thu Apr 05, 2018 6:05 pm
azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
MIT is not a top school in economics. According this list https://www.topuniversities.com/univers ... omics-2015 , it's not even in top 10.
...
Victoria
MIT may not be in the top 10, but the Massachusetts Institute of Technology is #1.
Among the department's past and current faculty and alumni are several recipients of the Nobel Prize in Economics:

Bengt Holmstrom, 2016
Jean Tirole, 2014
Robert J. Shiller, 2013
Peter A. Diamond, 2010
Oliver E. Williamson, 2009
Paul Krugman (Ph.D., 1977), 2008
Eric Maskin, 2007
Edmund Phelps, 2006
Robert J. Aumann, 2005
Robert F. Engle, 2003
George Akerlof (Ph.D., 1966) and Joseph Stiglitz (Ph.D., 1967), 2001
Daniel McFadden, 2000
Robert Mundell (Ph.D., 1956), 1999
Amartya Sen, 1998
Robert C. Merton (Ph.D, 1970), 1997
Robert Solow, 1987
Franco Modigliani, 1985
Lawrence Klein (Ph.D., 1944), 1980
Paul Samuelson, 1970
https://en.wikipedia.org/wiki/MIT_Depar ... _Laureates

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Re: Bill Bernstein, new podcast

Post by triceratop » Thu Apr 05, 2018 6:43 pm

VictoriaF wrote:
Thu Apr 05, 2018 6:35 pm
Oops! Oops! Oops! Oops! Oops! Oops! Oops! Oops!
I scanned it for 3 letters, not for the full name.

Victoria (embarrassed)
I can't let you off that easily, the 3 letters are also present. :)

Anyway, far be it for me to prop up MIT. Carry on.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Thu Apr 05, 2018 6:46 pm

triceratop wrote:
Thu Apr 05, 2018 6:43 pm
VictoriaF wrote:
Thu Apr 05, 2018 6:35 pm
Oops! Oops! Oops! Oops! Oops! Oops! Oops! Oops!
I scanned it for 3 letters, not for the full name.

Victoria (embarrassed)
I can't let you off that easily, the 3 letters are also present. :)

Anyway, far be it for me to prop up MIT. Carry on.
The second time around, I saw the 3 letters on the right. But the first time, I was scanning the left and did not bother with long lines.

Can I go now?

Victoria
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Re: Bill Bernstein, new podcast

Post by Rob't » Thu Apr 05, 2018 7:01 pm

I think being number 1 would put it in the top 10.

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Re: Bill Bernstein, new podcast

Post by dodecahedron » Thu Apr 05, 2018 7:23 pm

VictoriaF wrote:
Thu Apr 05, 2018 6:05 pm
azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
More to the point:
1. You can find a prominent economist on every side of every debate. This is certainly true, and I know there are other economists with PhDs from MIT who would disagree with Zvi about the extent to which one should rely on TIPS in one's portfolio. Indeed economists often disagree with their earlier selves. I believe even Zvi eventually became less enthusiastic about TIPS than he once was.
Last edited by dodecahedron on Thu Apr 05, 2018 7:29 pm, edited 2 times in total.

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Re: Bill Bernstein, new podcast

Post by triceratop » Thu Apr 05, 2018 7:24 pm

Victoria has admitted to misreading MIT's ranking, let's not all gang up on her. :wink:
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Bill Bernstein, new podcast

Post by Theoretical » Thu Apr 05, 2018 8:22 pm

lazyday wrote:
Thu Apr 05, 2018 6:28 pm
azanon wrote:
Thu Apr 05, 2018 2:48 pm
How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation?
There's no guarantee they will keep up with inflation, unlike TIPS.

And have they really tracked inflation that well in the past? It looks like they fell behind quite a bit in the 40s, a little in the 70s, and of course a little in recent years if we extend the chart below.

Image
source
The 1940s underperformance was because the government capped interest rates in the wake of post-WWII inflation. It was an artificial cap.

As to the 1970s, there's a gap, but in real terms they blow away both US stocks and bonds, especially bonds.

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Re: Bill Bernstein, new podcast

Post by Lieutenant.Columbo » Thu Apr 05, 2018 8:50 pm

bobcat2 wrote:
Thu Apr 05, 2018 1:52 pm
when discussing (implicitly) DFAs target date funds he was spot on.
Steve: Nice. That’s awesome. I want to make one quick aside here just because I had an interesting conversation and I’m not trying to contradict to you. But I’d done some work in a previous project with Bob Merton , so the Nobel Prize winner and for whatever reason I reached out to him and I actually got him on the phone last week. And we were talking and I was actually asking him about his view of target date funds and he said actually he doesn’t love them all the time because he doesn’t think they’re targeted enough for every user. Now, he may be thinking of wealthier users but his perspective was they’re good but not necessarily perfect. Anyway.

Bill: As we’re both aware, he (Merton) has designed a whole series of target date funds for one of the companies that you mentioned. And I think their design is superb because what this particular family of funds, I won’t mention their name because you already mentioned it, what they’ve done is instead of just using a bond, a total bond market type portfolio, which is what most target dates funds do, depending upon the age and the target date, they use a mix of short and long term TIPS and also even short-term nominal reserves. And if you do that judiciously, that is even a better way of doing it than a target date fund.
Exactly! :sharebeer
BobK, am I correct to infer that you think DFA's target funds allow saving for retirement according to the Funded Ratio?
Thank you.
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Re: Bill Bernstein, new podcast

Post by bobcat2 » Thu Apr 05, 2018 9:33 pm

Victoria,

My point about Bernstein is he appears to misunderstand the concept of consumption smoothing. He writes.
The theory that he’s talking about is something called consumption smoothing. Maybe you even borrow money when you’re young so you can live in a nice house when you’re young and you can still live in a nice house when you’re old as well because then you’re earning more money and you can pay your younger self back by doing that.
My point is that practically no economist, I'm tempted to say no economist, believes that. Part of consumption smoothing is the recognition that many households are borrowing constrained, particularly young households. What borrowing constrained means is that a young person of say age 26 cannot smooth consumption by going to the bank and saying, "You realize in 25 years I expect to be earning 50% more in real terms so lets use that earnings potential as collateral, and that way I can be spending the same amount in real terms today as I will be spending a quarter of a century from now." That isn't the way the world works and economists recognize this borrowing constraint enforced on young households. Bernstein appears to think economists don't know this. They do.

The idea of consumption smoothing is to keep the living standard progressing relatively smoothly but upward over our careers until we reach our peak earnings years in typically our 50s and then keep the living standard fairly constant over the remainder of our lives. (That way we don't live like paupers early in our lives and relative royalty later in our lives.) That's quite different from keeping our living standard nearly constant over our lives as Bernstein infers consumption smoothing attempts to accomplish, which in any case is a near impossibility for all those not born into substantial wealth.

BTW if it weren't for borrowing constraints financial planning using consumption smoothing could be done fairly simply in spreadsheets. Unfortunately borrowing constraints greatly expands the possible spending paths. So much so that it can still be done in spreadsheets but it would take weeks or months of trial and error to get anything close to a very good plan. Life-cycle planning programs such as ESPlanner use dynamic programming to dramatically shrink the number of possible spending paths so that a very good plan can be found in seconds or a few minutes.

BobK
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Re: Bill Bernstein, new podcast

Post by bobcat2 » Thu Apr 05, 2018 10:22 pm

Lieutenant.Columbo wrote:
Thu Apr 05, 2018 8:50 pm
BobK, am I correct to infer that you think DFA's target funds allow saving for retirement according to the Funded Ratio?
Thank you.
L.C.
No, they cannot possibly be based on the funded ratio for that would require knowing the size of your portfolio, how much you intend to save between now and retirement, and knowing your retirement income goal. None of this information is in any TDF and that includes DFA's TDFs. You could think of DFA's TDFs as assuming each participant has reasonable population averages for these variables so that the portfolio AA evolves in a manner consistent with a population average funded ratio approaching 1.00 at normal retirement age of about 65.

Bob Merton is mentioned in the podcast as to his opinion, of TDFs in general, including, I assume, the ones he designed for DFA. I believe what I wrote above is consistent with Merton's feelings.
Steve: I want to make one quick aside here just because I had an interesting conversation and I’m not trying to contradict to you. But I’d done some work in a previous project with Bob Merton , so the Nobel Prize winner and for whatever reason I reached out to him and I actually got him on the phone last week. And we were talking and I was actually asking him about his view of target date funds and he said actually he doesn’t love them all the time because he doesn’t think they’re targeted enough for every user.
Merton has designed arguably the best TDFs, but even he believes the best TDFs leave a lot to be desired. A TDF by design is a one size fits all strategy. That means we are trying to come up with a good average result. But really good results have to be tailored to individual circumstances - not good population average circumstances.

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Re: Bill Bernstein, new podcast

Post by bobcat2 » Thu Apr 05, 2018 11:18 pm

azanon wrote:
Thu Apr 05, 2018 2:48 pm
How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation? His first statement was the more correct one; they're close to a risk free asset, and I would add for any length of time.
The risk free asset is the asset whose return is certain over the period of time until the asset is used. In the real world we are talking about the surrogate asset to the theoretical risk free asset that is closest to providing a return that is certain over the period required.

If I want $30,000 in real income twenty years from now and I invest in 30 zero coupon 20 year TIPS, or more realistically a portfolio of TIPS duration matched to provide $30,000 in twenty years, then in those two cases I know I will have the $30,000 real in twenty years with near certainty. OTOH how much should I invest in T-bills to get $30,000 in real income in twenty years? There is no way of knowing. The real return on T-bills over 20 year periods has ranged from annual real returns below -1% per year to over 1% per year. If I want $30,000 in real income in twenty years investing in T-bills to reach that goal is much riskier than investing in TIPS.

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In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Re: Bill Bernstein, new podcast

Post by Solo Prosperity » Fri Apr 06, 2018 12:29 am

VictoriaF wrote:
Thu Apr 05, 2018 1:45 pm
Why can't Bill recommend specific fund companies?
Dr. Bernstein owns/runs a RIA. He is an investment manager and so publicly promoting fund companies is a compliance no-no.

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Re: Bill Bernstein, new podcast

Post by lazyday » Fri Apr 06, 2018 5:03 am

Theoretical wrote:
Thu Apr 05, 2018 8:22 pm
The 1940s underperformance was because the government capped interest rates in the wake of post-WWII inflation. It was an artificial cap.
Is it important that the cap was artificial? Investors in T bills lost real value.

We’re in a different time now and perhaps a rate cap is unlikely. But... we’re in a different time now and new things can happen, such as quantitative easing.

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Re: Bill Bernstein, new podcast

Post by lazyday » Fri Apr 06, 2018 5:07 am

bobcat2 wrote:
Thu Apr 05, 2018 11:18 pm
The real return on T-bills over 20 year periods has ranged from annual real returns below -1% per year to over 1% per year.
And it might look worse if we consider sequence of returns risk.

Retiring just before bills begin to lose real value means withdrawing when real price is low, spending down the portfolio too quickly. Even if bills fully recover their value, we may run out of money early.

With a well constructed TIPS ladder as a liability matching portfolio, there is theoretically no sequence risk.

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Re: Bill Bernstein, new podcast

Post by SGM » Fri Apr 06, 2018 6:33 am

Hedonic adaptation or treadmill can be decreased by variety and appreciation. Some have mastered the ability to retain happiness over what they already have. I try to feel a sense of appreciation for what I have on a daily basis. Variety makes things a little less routine. It seems as if VictoriaF has a sense of appreciation and finds ways to increase variety to extend her happiness for what she has.

Consumption smoothing is not the same thing in the way economists think of it as BobK has pointed out. I can see how it can be a good thing in terms of spending about the same each week if you have a check coming in once a month. Maybe it is not so good if you borrow a lot with the prospect of making more money in the future and put yourself behind in terms of saving for the future. I hadn't really thought much about it as an economic concept until BobK brought it up.

I am not sure if WhiteCoatInvestor's idea of living like resident after one is an attending is consumption smoothing or the opposite in the way an economist would think of the term. Either way it is a good technique for building wealth for those just out of graduate school or a residency.

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Re: Bill Bernstein, new podcast

Post by Lieutenant.Columbo » Fri Apr 06, 2018 7:24 am

SGM wrote:
Fri Apr 06, 2018 6:33 am
Some have mastered the ability to retain happiness over what they already have. I try to feel a sense of appreciation for what I have on a daily basis. Variety makes things a little less routine
I try to do/be the same. I usually think I'm lucky all I need to be content is being/observing/reading/conversation rather than doing/acquiring/owning.
Can you please give an example of "variety" as a strategy that you find helpful? Thanks.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Re: Bill Bernstein, new podcast

Post by Theoretical » Fri Apr 06, 2018 7:57 am

lazyday wrote:
Fri Apr 06, 2018 5:03 am
Theoretical wrote:
Thu Apr 05, 2018 8:22 pm
The 1940s underperformance was because the government capped interest rates in the wake of post-WWII inflation. It was an artificial cap.
Is it important that the cap was artificial? Investors in T bills lost real value.

We’re in a different time now and perhaps a rate cap is unlikely. But... we’re in a different time now and new things can happen, such as quantitative easing.
Considering how tbills worked in every other inflationary period before and after going way back on the data, I'd say it's a risk that should be considered, but no more than the same kind of risk that has people concerned about TIPS manipulation.

In other words, if the caps weren't on, the bills would have matched fairly well to inflation. That's why I say the artificial nature makes a difference, because the essential character of the asset class is very clear.

It's possible, but I'd put a lot of other investment unlikelihoods before it.

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Re: Bill Bernstein, new podcast

Post by JoMoney » Fri Apr 06, 2018 8:09 am

azanon wrote:
Thu Apr 05, 2018 2:48 pm
... How exactly are t-bills a risky asset long-term, when they historically have kept up with inflation? ...
That hasn't been the case over the past decade, and there have been longer even more dreadful periods like between 1930s-1950s
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Bill Bernstein, new podcast

Post by JoMoney » Fri Apr 06, 2018 8:18 am

iceport wrote:
Thu Apr 05, 2018 10:52 am
...Isn't Ramsey the 100% stocks guy?...
He is when it comes to investing, but then he also suggests people have an "Emergency Fund" in something like a money market account, and that business owners and people with irregular income need a larger "hill-and-valley fund". Stock owners are business owners, and definitely susceptible to irregular income... go figure...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Bill Bernstein, new podcast

Post by lazyday » Fri Apr 06, 2018 8:53 am

scone wrote:
Thu Apr 05, 2018 9:58 am
mentions other podcasts
Here they are:
Any podcasts that you really enjoy?

Bill: Oh my god, there’s not enough time in the day. Probably the biggest one is Planet Money. The only time in my life when I felt like the dumbest person in the room was when I attended one of their editorial meetings. I just think they’re absolutely brilliant. The Indicator is also pretty good, which is a spinoff. The Economist Podcast is also excellent. It’s not one podcast, of course, it’s a series of podcasts. And then in finance and economics, of course, there’s EconTalk, which gets to be very wonky and then The General Podcasts, I just love listening to On The Media is superb, and of course the New Yorker Podcasts can’t be beat as well.

There are few people in this world that I truly envy but one of them is Barry Ritholtz, who also runs an excellent podcast called Masters in Business and Barry’s podcast is successful enough that he can basically get anybody he wants on the show.
https://www.npr.org/sections/money/
https://www.npr.org/sections/money/5677 ... -indicator
https://radio.economist.com/
http://www.econtalk.org/
https://www.wnycstudios.org/series/media-podcast
https://www.newyorker.com/podcast
https://www.bloomberg.com/podcasts/masters_in_business

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Re: Bill Bernstein, new podcast

Post by SGM » Fri Apr 06, 2018 3:44 pm

Lieutenant.Columbo wrote:
Fri Apr 06, 2018 7:24 am
SGM wrote:
Fri Apr 06, 2018 6:33 am
Some have mastered the ability to retain happiness over what they already have. I try to feel a sense of appreciation for what I have on a daily basis. Variety makes things a little less routine
I try to do/be the same. I usually think I'm lucky all I need to be content is being/observing/reading/conversation rather than doing/acquiring/owning.
Can you please give an example of "variety" as a strategy that you find helpful? Thanks.
I try to use some variety in my daily activities. When we are home I find time for several hobbies, meeting with friends, classes, exercise, walks, shopping, going out for a meal, reading, researching, library visits, theater, opera, folk concerts, museums, family visits, games, tennis, ping-pong, basketball, shopping, a little outdoors work, volunteering, fishing, hunting, swimming, painting, sculpting, planning, group meetings and discussions. When I watch TV it is mostly sports. I no longer spend much time watching the news. I am considering also language study and learning to play a musical instrument. I also go to medical conferences every two weeks for some additional mental stimulation, and lunch with former colleagues. I am not saying this is exciting, but it is varied.

When we go to the beach it is usually at a location where there are a lot of other activities other than basking in the sun or swimming. We would also visits museums, flea markets and tag sales, antique stores, gardens, restaurants, museums, lectures, theaters, and historic areas, waterfalls, and covered bridges. We also get to see old friends and extended family on these visits.

We have less responsibilities so we may travel to a variety of places more frequently.

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Re: Bill Bernstein, new podcast

Post by TravelGeek » Fri Apr 06, 2018 3:52 pm

Thank you for listing them out. I just finished listening to the podcast episode during my daily walk and was going to add some of these to my subscription list.

On the actual podcast that is the topic of this thread, while I have read several of Dr. Bernstein's books (and credit them for increasing my knowledge about finance and investing by an order of magnitude), it was nice to listen to him in a more casual conversation. I had not yet come across the site and podcast, so thank you to the OP for starting this thread!

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Re: Bill Bernstein, new podcast

Post by thx1138 » Fri Apr 06, 2018 9:59 pm

Circling back to the young person, you might say, well the young person should invest 100% in stocks. In other words, put 100% of their money every single pay period into the stock market and that is theoretically correct. The only problem is there are very few sentient beings in this quadrant of the galaxy that can tolerate 100% stocks. It’s suboptimal if you’re a young person to invest in a lot of bonds but a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute.
I still don’t understand why Bernstein and others say this about 100/0. Maybe I’m out of touch since I did 100/0 from about 1995 to 2015 and really didn’t bat an eye at either the dot com implosion or the 2008/9 debacle.

But seriously was someone who was 90/10 or 80/20 really feeling any better than I was at 100/0 when the sky was falling in 2000 or 2008? Does 10 or 20% bonds really make someone feel better in a 50% crash?

“Boy I feel better that I’m only down 40% instead of 50% - sleeping better tonight because of that 20% bond allocation!” Is this something anyone has ever said or thought during a crash.

If Bernstein really believes almost no one can handle 100/0 then he’s really saying he thinks no one should be more than 50/50 or say 60/40. Those are allocations that are actually materially different from 100/0 as far as drawdown in a crash. Meanwhile target date funds like those from Vanguard are actually 90/10 until age 40 - essentially no different than 100/0 in drawdown.

Anyway not to pick on Bernstein - I love his stuff and agree on the larger point of optimality needing to include execution.

I just don’t think AA is as useful a tool as marketed in this context of avoiding self harming panic. This whole “know your risk tolerance and then pick an appropriate AA” is in itself not something likely to be executed successfully. That “bond knob” is perfectly worthless for a sound night’s sleep at any sort of reasonable young person’s AA.

Worse still risk tolerance is learned/conditioned. Don’t teach a young person to view FI as a crutch for their poor risk tolerance. Instead condition them to risk while the portfolio can tolerate it when they are young.

EDIT: and forgot to say thanks for link to the podcast, always loving hearing/reading Bernstein!

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Re: Bill Bernstein, new podcast

Post by usnaron » Sat Apr 07, 2018 1:17 am

It’s actually #1 on that link you posted....
VictoriaF wrote:
Thu Apr 05, 2018 6:05 pm
azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
MIT is not a top school in economics. According this list https://www.topuniversities.com/univers ... omics-2015 , it's not even in top 10.

More to the point:
1. You can find a prominent economist on every side of every debate.
2. "Riskier" must be defined. With time, stocks are more likely to perform better, but the magnitude of both positive and negative outcomes increases, and one can have higher losses in the long run.

Victoria

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Mon Apr 09, 2018 11:32 am

usnaron wrote:
Sat Apr 07, 2018 1:17 am
It’s actually #1 on that link you posted....
VictoriaF wrote:
Thu Apr 05, 2018 6:05 pm
azanon wrote:
Thu Apr 05, 2018 3:17 pm
Zvi Bodie says stocks get riskier with time, not less risky. With a PhD in Economics from MIT, i'm going to trust he's not mistaken.
MIT is not a top school in economics. According this list https://www.topuniversities.com/univers ... omics-2015 , it's not even in top 10.

More to the point:
1. You can find a prominent economist on every side of every debate.
2. "Riskier" must be defined. With time, stocks are more likely to perform better, but the magnitude of both positive and negative outcomes increases, and one can have higher losses in the long run.

Victoria
Right. I have already acknowledged it with multiple OOPS and punished myself by abstaining from the Forum for 3.5 days. What else can I do for the people to forget my speed-reading mistake?

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Bill Bernstein, new podcast

Post by MandyT » Tue Apr 10, 2018 7:32 am

VictoriaF wrote:
Mon Apr 09, 2018 11:32 am
What else can I do for the people to forget my speed-reading mistake?

Victoria
I have sometimes seen people edit and annotate the post with the error. In an ideal world, people would read the entire thread before responding, but, just in case they don't, something like

MIT is not a top school in economics. oops: corrected downthread

might be helpful.

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Tue Apr 10, 2018 9:21 am

MandyT wrote:
Tue Apr 10, 2018 7:32 am
VictoriaF wrote:
Mon Apr 09, 2018 11:32 am
What else can I do for the people to forget my speed-reading mistake?

Victoria
I have sometimes seen people edit and annotate the post with the error. In an ideal world, people would read the entire thread before responding, but, just in case they don't, something like

MIT is not a top school in economics. oops: corrected downthread

might be helpful.
Thank you for a recommendation. I made a correction in my original message.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Bill Bernstein, new podcast

Post by Cody » Tue Apr 10, 2018 10:14 am

VicotriaF:

I had a friend who wrote a book. While handing it out he said "I do not want to be told about any mistakes". He said asked "would you rather have a book with mistakes in it or no book at all."

People make mistakes. And, I for one, would rather have that than no mistakes at all. And the only way to stop mistakes here is to stop posting at all.

You are far to valuable to this forum to stop (even for 3.5 days :happy ). Even if in jest.

Best,
Cody

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Re: Bill Bernstein, new podcast

Post by POLO » Tue Apr 10, 2018 10:41 am

thx1138 wrote:
Fri Apr 06, 2018 9:59 pm
If Bernstein really believes almost no one can handle 100/0 then he’s really saying he thinks no one should be more than 50/50 or say 60/40. Those are allocations that are actually materially different from 100/0 as far as drawdown in a crash. Meanwhile target date funds like those from Vanguard are actually 90/10 until age 40 - essentially no different than 100/0 in drawdown.
By the same logic, no one is going to complain in a bull market and go "boo-hoo, only 80-90% of my portfolio saw gains".

Yet Bernstein himself shows, at least over history, that even a small bond allocation like that reduces quantifiable risk substantially, at very minor opportunity cost in terms of real annualized gain.

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Re: Bill Bernstein, new podcast

Post by VictoriaF » Tue Apr 10, 2018 5:29 pm

Cody wrote:
Tue Apr 10, 2018 10:14 am
VicotriaF:

I had a friend who wrote a book. While handing it out he said "I do not want to be told about any mistakes". He said asked "would you rather have a book with mistakes in it or no book at all."

People make mistakes. And, I for one, would rather have that than no mistakes at all. And the only way to stop mistakes here is to stop posting at all.

You are far to valuable to this forum to stop (even for 3.5 days :happy ). Even if in jest.

Best,
Cody
Thank you, Cody!

Now, I feel better about continuing my presence in the Bogleheads,

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Bill Bernstein, new podcast

Post by an_asker » Wed Apr 11, 2018 10:32 am

iceport wrote:
Thu Apr 05, 2018 10:52 am
an_asker wrote:
Thu Apr 05, 2018 10:47 am
iceport wrote:
Thu Apr 05, 2018 10:45 am
Thanks for the link! It's always great to hear Bill Bernstein's thoughts.

This isn't really fair to rip this out of context, but here's my favorite soundbite:

"...a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute."
Nice soundbite, because that is the quintessence of Dave Ramsey's response to folks who disagree with him. :-)
It's especially ironic given the fuller context:
Circling back to the young person, you might say, well the young person should invest 100% in stocks. In other words, put 100% of their money every single pay period into the stock market and that is theoretically correct. The only problem is there are very few sentient beings in this quadrant of the galaxy that can tolerate 100% stocks. It’s suboptimal if you’re a young person to invest in a lot of bonds but a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute.
Isn't Ramsey the 100% stocks guy?

I also enjoyed Bernstein's take on hedonic adaptation. He really makes a lot of sense.
I don't get your point. You plucked out one sentence. I just referenced that one sentence. Whether it is ironic given the fuller context has nothing to do with what I wrote. I didn't even read/see/hear the fuller context that you are now sharing.

Oh well ... :sharebeer

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Re: Bill Bernstein, new podcast

Post by iceport » Wed Apr 11, 2018 11:14 am

an_asker wrote:
Wed Apr 11, 2018 10:32 am
iceport wrote:
Thu Apr 05, 2018 10:52 am
an_asker wrote:
Thu Apr 05, 2018 10:47 am
iceport wrote:
Thu Apr 05, 2018 10:45 am
Thanks for the link! It's always great to hear Bill Bernstein's thoughts.

This isn't really fair to rip this out of context, but here's my favorite soundbite:

"...a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute."
Nice soundbite, because that is the quintessence of Dave Ramsey's response to folks who disagree with him. :-)
It's especially ironic given the fuller context:
Circling back to the young person, you might say, well the young person should invest 100% in stocks. In other words, put 100% of their money every single pay period into the stock market and that is theoretically correct. The only problem is there are very few sentient beings in this quadrant of the galaxy that can tolerate 100% stocks. It’s suboptimal if you’re a young person to invest in a lot of bonds but a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute.
Isn't Ramsey the 100% stocks guy?

I also enjoyed Bernstein's take on hedonic adaptation. He really makes a lot of sense.
I don't get your point. You plucked out one sentence. I just referenced that one sentence. Whether it is ironic given the fuller context has nothing to do with what I wrote. I didn't even read/see/hear the fuller context that you are now sharing.

Oh well ... :sharebeer
an_asker,

I'm starting to realize my statements are often misconstrued. :? Let me attempt an explanation.

My first post ripped a soundbite out of context, but I liked it because I found some similarities to the quote I use in my signature line. In my opinion, folks everywhere (here on this forum and on the outside) spend way too much time attempting to concoct some "optimal" asset allocation, and way too little effort staying the course over the long term with whatever fine asset allocation they already have and reaping the associated benefits.

I took your response as an implication that Bernstein's quote could be interpreted as somehow supportive of Dave Ramsey's views on investing. In this specific case, Bernstein was supporting a significant fixed income allocation, even for a young investor, as a means to maintaining asset allocation discipline. What little I know of Ramsey's investing advice, I don't appreciate, and I doubt Bernstein sees much merit in active management and 100% equity allocations. So I found it ironic that someone would find similarities in the messages of Bernstein and Ramsey when, in fact, they advocate very different approaches.

Also, since there was immediate confusion around the soundbite, I just figured, in fairness to Bernstein, I should provide the full quote.
"Discipline matters more than allocation.” ─William Bernstein

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Re: Bill Bernstein, new podcast

Post by an_asker » Wed Apr 11, 2018 12:59 pm

iceport wrote:
Wed Apr 11, 2018 11:14 am
an_asker wrote:
Wed Apr 11, 2018 10:32 am
iceport wrote:
Thu Apr 05, 2018 10:52 am
an_asker wrote:
Thu Apr 05, 2018 10:47 am
iceport wrote:
Thu Apr 05, 2018 10:45 am
Thanks for the link! It's always great to hear Bill Bernstein's thoughts.

This isn't really fair to rip this out of context, but here's my favorite soundbite:

"...a suboptimal strategy that you can execute is better than an optimal strategy you can’t execute."
Nice soundbite, because that is the quintessence of Dave Ramsey's response to folks who disagree with him. :-)
[...]
I also enjoyed Bernstein's take on hedonic adaptation. He really makes a lot of sense.
I don't get your point. You plucked out one sentence. I just referenced that one sentence. Whether it is ironic given the fuller context has nothing to do with what I wrote. I didn't even read/see/hear the fuller context that you are now sharing.

Oh well ... :sharebeer
an_asker,

I'm starting to realize my statements are often misconstrued. :? Let me attempt an explanation.

My first post ripped a soundbite out of context, but I liked it because I found some similarities to the quote I use in my signature line. In my opinion, folks everywhere (here on this forum and on the outside) spend way too much time attempting to concoct some "optimal" asset allocation, and way too little effort staying the course over the long term with whatever fine asset allocation they already have and reaping the associated benefits.

I took your response as an implication that Bernstein's quote could be interpreted as somehow supportive of Dave Ramsey's views on investing. In this specific case, Bernstein was supporting a significant fixed income allocation, even for a young investor, as a means to maintaining asset allocation discipline. What little I know of Ramsey's investing advice, I don't appreciate, and I doubt Bernstein sees much merit in active management and 100% equity allocations. So I found it ironic that someone would find similarities in the messages of Bernstein and Ramsey when, in fact, they advocate very different approaches.

Also, since there was immediate confusion around the soundbite, I just figured, in fairness to Bernstein, I should provide the full quote.
I hear you. I am probably as guilty as you are ;-)

What I was trying to say was this: Dave Ramsey, in defense of his snowball technique that ignores the mathematically correct idea of lower-interest-rate-loan-first, says that his technique - albeit being not the optimal approach - enable folks to stay the course because of easier behavioral adaptation.

In other words, just that one sentence that you quoted is his response to everyone (including us bogleheads) complaining that his approach is not the optimal approach to get rid of debt.

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