Lauretta wrote: ↑
Sat Jul 28, 2018 10:44 am
JoMoney wrote: ↑
Sat Jul 28, 2018 9:35 am
Because I'm not interested in increasing expenses that comes with the trading involved with other weighting schemes.
Yes I agree with this point. In fact I do use market cap weigthted index funds; I must confess that the reason is that when I started investing I just relied on the theories of famous academics like Sharpe - after all they got the Nobel prize so I thought that those theories must be respectable... Since then, as I have given some thought to the matter, I have personally become more and more convinced that Taleb is making some very good points in this piece:
Anyway, since I now have market cap weighted ETFs, I am sticking with them even though I don't agree with much of the rationale behind them, and I tell myself that they are allright after all because of the low turnover anD minimal costs.
However, as far a my geographical allocation is concerned, it's much close to EW (ie I roughly equally weight Europe, US, Pacific+Japan and EM).
I think you want to tinker -- your posts are very much along that line? Straight market weight indexing is too "easy"? You experience regret
when that straight indexation strategy underperforms? You will know that Kahneman, Thaler and Tversky (& Ariely) have observed these human behavioural biases and in fact predict them. The tendency to see
patterns in numbers where they do not necessarily exist ie where the reality is one of randomness, to attribute causation
where there is none; the tendency to frame average performance as a "loss" for which you experience regret, etc. Also you feel you do not deserve
investing success if all you do is index to global markets with a market cap weighting? Financial markets, you feel, is like physics, we should be able to divine the underlying physical principles?
If you believe Taleb, then you should hold mostly safe fixed income, as well as option strategies which exploit large moves (up or down) in markets, which Mandelbrot tells you are much more common than the assumption of Gaussian distribution of returns would predict?
That is the strategy I believe Taleb has pursued via his hedge fund. I also understand that that fund has shut down?
You are aware that a small number of super stocks has driven much of the last part of this rally -- big cap stocks which have done very well? They happen to be US listed. If you were not in those stocks, you underperformed. So much for a 1/ N strategy. Given the different sectoral weightings of different stock markets, a 1/N strategy is not a 1/N strategy. At the very least, it's an anti technology tilt.