Key differences between investing philosophies: Swedroe vs. Bogle

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Ron Scott
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Key differences between investing philosophies: Swedroe vs. Bogle

Post by Ron Scott » Wed Oct 03, 2018 11:13 am

There always seems to be a thread promoting a financial advisor named Larry Swedroe here on the Bogleheads board.

I’m sure there are many points of agreement between him and Jack Bogle.

Question: What are the key differences between them and who is right, in your opinion?
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Rick Ferri
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Rick Ferri » Wed Oct 03, 2018 11:16 am

Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by David Jay » Wed Oct 03, 2018 11:20 am

Ron Scott wrote:
Wed Oct 03, 2018 11:13 am
...who is right...?
Right about what?

I'm going with Rick's analysis of the two philosophies above, here are my thoughts on the implications:
1. Larry may well be able to provide slightly better growth over time.
2. The average investor is likely better served by simplicity.

That probably means they are both "right" in their own ways.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HEDGEFUNDIE » Wed Oct 03, 2018 11:24 am

Even Vanguard offers a multifactor fund these days, you can invest in that one fund just as "simply" as TSM.

The fundamental difference appears to be that Jack stopped his financial theory education in the 70s...

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Ron Scott » Wed Oct 03, 2018 11:29 am

David Jay wrote:
Wed Oct 03, 2018 11:20 am
Ron Scott wrote:
Wed Oct 03, 2018 11:13 am
What are the key differences between them and who is right, in your opinion?
Right about what?

I'm going with Rick's analysis of the two philosophies above, here are my thoughts on the implications:
1. Larry may well be able to provide slightly better growth over time.
2. The average investor is likely better served by simplicity.

That probably means they are both "right" in their own ways.
Not sure I follow your response to my question.

So the key difference between them is that Larry’s philosophy yield better results over time? But that is somehow not good for the “average investor“?

Confused...
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Rick Ferri » Wed Oct 03, 2018 11:29 am

HEDGEFUNDIE wrote:
Wed Oct 03, 2018 11:24 am
The fundamental difference appears to be that Jack stopped his financial theory education in the 70s...
And has outperformed 90% of all complex strategies since.

Complexity begets cost;
Cost begets increased risk of underperformance;
Underperformance begets changes and more complexity.

The next 40 years will not be any different. Keep it simple.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HEDGEFUNDIE » Wed Oct 03, 2018 11:35 am

Rick Ferri wrote:
Wed Oct 03, 2018 11:29 am
HEDGEFUNDIE wrote:
Wed Oct 03, 2018 11:24 am
The fundamental difference appears to be that Jack stopped his financial theory education in the 70s...
And has outperformed 90% of all complex strategies since.

Complexity begets cost
Cost begets increased risk of underperformance
Underperformance begets more changes and more complexity

The next 40 years will not be any different. Keep it simple.

Rick Ferri
Vanguard U.S. Multifactor Fund Admiral (VFMFX) costs 0.18%. The Fidelity ZERO fund costs...zero, I guess.

So basically I am betting that the accumulated financial learnings of the past forty years has produced investment best practices that will outperform the total market by at least 0.2% per year. Whether that's a good bet for you, is up to you.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Rick Ferri » Wed Oct 03, 2018 11:39 am

I am betting that the accumulated financial learnings of the past forty years has produced investment best practices that will outperform the total market by at least 0.2% per year.
Well, I can safely say a complex strategy will cost more and has more risk; whether it outperforms remains to be seen. In theory, yes, in practice, ???

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HEDGEFUNDIE » Wed Oct 03, 2018 11:44 am

Rick Ferri wrote:
Wed Oct 03, 2018 11:39 am
I am betting that the accumulated financial learnings of the past forty years has produced investment best practices that will outperform the total market by at least 0.2% per year.
Well, I can safely say a complex strategy will cost more and has more risk; whether it outperforms remains to be seen. In theory, yes, in practice, ???

Rick Ferri
We will have to wait for the next downturn to find out...

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by marcopolo » Wed Oct 03, 2018 11:47 am

Rick Ferri wrote:
Wed Oct 03, 2018 11:29 am
HEDGEFUNDIE wrote:
Wed Oct 03, 2018 11:24 am
The fundamental difference appears to be that Jack stopped his financial theory education in the 70s...
And has outperformed 90% of all complex strategies since.

Complexity begets cost;
Cost begets increased risk of underperformance;
Underperformance begets changes and more complexity.

The next 40 years will not be any different. Keep it simple.

Rick Ferri
I agree with the above analysis.

I have followed most of the discussions about these complex (and expensive) strategies. One thing that keeps popping up is that the promise of these complex strategies is just that, promises.

The argument for them seems to be basically, "yeah, this strategy has under performed, but there is a lot of theoretical reason why it should do better, you just have to be patient and the strategy will obviously pay off. You would have to be a fool not to believe that."

I have to admit aside from the expense and complexity, the sentiment of the final sentence also turns me off quite a bit to these approaches.

So, I see the difference as a simple strategy that has a long proven track record, versus a complex, expensive one that has theoretical promise.
Some of the theoretical arguments do have merit, but it is not clear how they will play out in the real world.
For now, I am sticking with the simpler approach.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by livesoft » Wed Oct 03, 2018 11:48 am

But Rick Ferri, you have written and published entire books in the past that have essentially validated a strategy similar to that espoused by Larry Swedroe. I realize that one can change, but just dropping in on this thread and not covering your past ... is that fair and honest?

Should we be burning your old books now?
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by vineviz » Wed Oct 03, 2018 11:50 am

Rick Ferri wrote:
Wed Oct 03, 2018 11:39 am
I am betting that the accumulated financial learnings of the past forty years has produced investment best practices that will outperform the total market by at least 0.2% per year.
Well, I can safely say a complex strategy will cost more and has more risk; whether it outperforms remains to be seen. In theory, yes, in practice, ???

Rick Ferri
If a complex strategy is riskier yet somehow fails to have a higher return then the fundamental underpinnings of our investment theories will have been falsified.

I’m betting that is NOT the outcome.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HomerJ » Wed Oct 03, 2018 11:51 am

marcopolo wrote:
Wed Oct 03, 2018 11:47 am
The argument for them seems to be basically, "yeah, this strategy has under performed, but there is a lot of theoretical reason why it should do better, you just have to be patient and the strategy will obviously pay off. You would have to be a fool not to believe that."

I have to admit aside from the expense and complexity, the sentiment of the final sentence also turns me off quite a bit to these approaches.
This.
So, I see the difference as a simple strategy that has a long proven track record, versus a complex, expensive one that has theoretical promise.
Some of the theoretical arguments do have merit, but it is not clear how they will play out in the real world.
For now, I am sticking with the simpler approach.
I agree.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by lostdog » Wed Oct 03, 2018 11:55 am

Rick Ferri wrote:
Wed Oct 03, 2018 11:29 am
HEDGEFUNDIE wrote:
Wed Oct 03, 2018 11:24 am
The fundamental difference appears to be that Jack stopped his financial theory education in the 70s...
And has outperformed 90% of all complex strategies since.

Complexity begets cost;
Cost begets increased risk of underperformance;
Underperformance begets changes and more complexity.

The next 40 years will not be any different. Keep it simple.

Rick Ferri
I choose simplicity. We plow as much as we can into VT(Vanguard Total World Equity Index). Later in life we'll add BNDW(Vanguard Total World Bond Index). Buy the haystack and stay the course.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by MathWizard » Wed Oct 03, 2018 12:05 pm

Ron Scott wrote:
Wed Oct 03, 2018 11:29 am
David Jay wrote:
Wed Oct 03, 2018 11:20 am
Ron Scott wrote:
Wed Oct 03, 2018 11:13 am
What are the key differences between them and who is right, in your opinion?
Right about what?

I'm going with Rick's analysis of the two philosophies above, here are my thoughts on the implications:
1. Larry may well be able to provide slightly better growth over time.
2. The average investor is likely better served by simplicity.

That probably means they are both "right" in their own ways.
Not sure I follow your response to my question.

So the key difference between them is that Larry’s philosophy yield better results over time? But that is somehow not good for the “average investor“?

Confused...
I agree with Rick, but I believe a key principle in why the simpler approach is better for the average investor is
that a more complicated strategy is harder to hold fast to when times get rough. Of the things that we can control,
both cost and behavior are the most important. A simple plan can be done cheaply, and is less likely to succumb to panic
selling.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Elysium » Wed Oct 03, 2018 12:17 pm

livesoft wrote:
Wed Oct 03, 2018 11:48 am
But Rick Ferri, you have written and published entire books in the past that have essentially validated a strategy similar to that espoused by Larry Swedroe. I realize that one can change, but just dropping in on this thread and not covering your past ... is that fair and honest?

Should we be burning your old books now?
I think he has been failry honest. While true he has supported a slice & dice type of portffolio with smalll value etc it has never been the crazier variant with CCF, MultiAlternatives, Reinsurance, and all that high cost low return madness.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Elysium » Wed Oct 03, 2018 12:21 pm

Difference between Jack's advice and Larry's, I will put it this way:

Bogle's advice is timeless and it will stand the test of time. Swedroe's advice is flavor of the decade, it may not stand the test of time. Question one need to ask, do I feel lucky?

Full disclosure: I do not own a 3-fund portfolio, but I am not an active investor in the sense I buy & hold low cost funds with intention of forever, in this regard I am following Jack's advice.
Last edited by Elysium on Wed Oct 03, 2018 12:24 pm, edited 1 time in total.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by MotoTrojan » Wed Oct 03, 2018 12:24 pm

Ron Scott wrote:
Wed Oct 03, 2018 11:29 am
David Jay wrote:
Wed Oct 03, 2018 11:20 am
Ron Scott wrote:
Wed Oct 03, 2018 11:13 am
What are the key differences between them and who is right, in your opinion?
Right about what?

I'm going with Rick's analysis of the two philosophies above, here are my thoughts on the implications:
1. Larry may well be able to provide slightly better growth over time.
2. The average investor is likely better served by simplicity.

That probably means they are both "right" in their own ways.
Not sure I follow your response to my question.

So the key difference between them is that Larry’s philosophy yield better results over time? But that is somehow not good for the “average investor“?

Confused...
Larry's strategy requires more portfolio complexity and potential for lagging major indices; both of which (especially when combined) can result in the average investor making strategy changes too frequently and ending up worse off than either strategy.

I do not follow the full Larry method (no treasuries) but I do use small-value.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HomerJ » Wed Oct 03, 2018 12:24 pm

vineviz wrote:
Wed Oct 03, 2018 11:50 am
Rick Ferri wrote:
Wed Oct 03, 2018 11:39 am
I am betting that the accumulated financial learnings of the past forty years has produced investment best practices that will outperform the total market by at least 0.2% per year.
Well, I can safely say a complex strategy will cost more and has more risk; whether it outperforms remains to be seen. In theory, yes, in practice, ???

Rick Ferri
If a complex strategy is riskier yet somehow fails to have a higher return then the fundamental underpinnings of our investment theories will have been falsified.

I’m betting that is NOT the outcome.
The new theories could be wrong, or there could be the "everyone knows about it, now it no longer works" effect. Those are risks that are not automatically compensated by a higher return.

What fundamental underpinnings are you talking about? Are you stating that higher risk always equals higher returns, regardless of risk type? Over what time period?
Last edited by HomerJ on Wed Oct 03, 2018 12:26 pm, edited 1 time in total.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Random Walker » Wed Oct 03, 2018 12:25 pm

Well, I’m the guy who posts his articles. Just to be clear, I’m not promoting him or his business. I’m promoting the education he provides. As you wrote, there is overwhelming agreement between Swedroe and Bogle. They both certainly agree that markets are highly efficient, costs matter tremendously, high quality bonds are the best diversifier of equity risk, and active management is a loser’s game.

I don’t know John Bogle’s philosophy as well. But let’s assume that it’s dominated by his cost matters hypothesis and reduces to a Bogleheadish 2 or 3 Fund TSM/TBM type portfolio. I don’t know how much Bogle buys into modern portfolio theory.

I think Bogle lets his cost matters hypothesis dominate his recommended approach to investing, and this certainly makes a lot of sense. Costs are the only known quantity in investing. Larry focuses on portfolio efficiency and cost per unit value added. A more efficient portfolio can be constructed with less than perfectly correlated, noncorrelated, and negatively correlated components; Larry believes this increased efficiency is worth some increased cost. Larry has promoted increased international allocation, tilting to size and value, other factors, and alternatives. Bogle generally believes in none of this. I think he is softening up on international a bit, and many would argue that his telltale logic on size and value was errant because he looked at active funds.

Very tough to say who is “right”. The answer will vary from individual to individual because “right” is the philosophy that provides the investor with the fortitude to stick to a plan. If one takes TSM approach, he is placing all his bets on a single equity market factor, but can be confident that his costs are rock bottom low. If one goes more with a Larry approach, he can be confident that in an uncertain world, he is much more diversified across independent sources of return, but at increased cost.

One way to decide which philosophy is right for you is to do a mind experiment. Imagine a bad equity bear such as 73-74, 2000-2002, 2007-2008. When things have been bad and the future is unknown, what will give you the strength to “stay the course”. Is it faith in the single market factor and low costs, or is it broad diversification in as many dimensions as possible for us individual investors? A potential advantage of Larry’s approach is that if we have two portfolios, a Swedroe portfolio and a Bogle portfolio, both with the same expected return, the Swedroe portfolio will enter the bad equity bear with a significantly bigger allocation to safe bonds.

Dave

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by David Jay » Wed Oct 03, 2018 12:30 pm

Ron Scott wrote:
Wed Oct 03, 2018 11:29 am
David Jay wrote:
Wed Oct 03, 2018 11:20 am
Ron Scott wrote:
Wed Oct 03, 2018 11:13 am
What are the key differences between them and who is right, in your opinion?
Right about what?

I'm going with Rick's analysis of the two philosophies above, here are my thoughts on the implications:
1. Larry may well be able to provide slightly better growth over time.
2. The average investor is likely better served by simplicity.

That probably means they are both "right" in their own ways.
Not sure I follow your response to my question.

So the key difference between them is that Larry’s philosophy yield better results over time? But that is somehow not good for the “average investor“?

Confused...
I am giving Larry (a very bright guy) the benefit of the doubt. He may be able to generate some slight additional value. Who knows what will happen over your investing lifetime?

Simplicity and CMH can be accessed by the average investor and likely to perform in the top 20% of investment strategies (SPIVA scorecard).
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Elysium » Wed Oct 03, 2018 12:32 pm

Just wanted to point out the obvious, before this gets out of hand. This comparison is a farce, as they are not equals.

Bogle is a titan of the industry who started a revolution and built the most successful and largest investment company in the world. He has made it possible for millions of ordinary investors reach their goals and dreams.

With all due respect to Larry, he is not on the same level as Bogle.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by JoMoney » Wed Oct 03, 2018 12:32 pm

Larry suggests strategies that are more active, but systematic in an 'index' like way, using low-cost index funds, trying to beat the broad averages or at least fit a 'risk profile' that some individuals may prefer to the risk profile the broad averages give.

Bogle is more passive, and more skeptical of strategies like Larry suggests trying to beat the broad averages.

I tend towards Bogle's advice. I wouldn't say either of them are wrong (especially since there many differences between individuals situations). "Many roads to Dublin"
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by steve321 » Wed Oct 03, 2018 12:37 pm

Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Tycoon » Wed Oct 03, 2018 12:40 pm

steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by vineviz » Wed Oct 03, 2018 12:41 pm

HomerJ wrote:
Wed Oct 03, 2018 12:24 pm

The new theories could be wrong, or there could be the "everyone knows about it, now it no longer works" effect.
I’m not sure which theories you think are “new”, so it’s difficult to address your concerns.


I can say that I’m glad that our understanding of financial economics wasn’t frozen in 1976 with the inception of VFINX.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by steve321 » Wed Oct 03, 2018 12:44 pm

Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
why not? Do you believe their conclusions are false? Also, isn't the idea of owning the market through index funds based on academic ideas? I saw a video in which Bogle said he developed the first index fund after reading an academic article by Prof Samuelson.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HomerJ » Wed Oct 03, 2018 12:49 pm

steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
Economics isn't a real science. Too many variables, not enough data points, can't repeat experiments, hard to isolate independent variables, etc.

Then throw in human emotions and changing laws, etc.

Imagine how hard it would be to quantify anything in physics if Congress could change variables with laws, or if enough people got spooked, the gravitational constant could change year to year.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Random Walker » Wed Oct 03, 2018 12:51 pm

steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
Not going to get much argument from me! But, as Rick has pointed out in the past, all the evidence is only backward looking. Markets are ruthlessly efficient at stomping out anomalies, the efficient market hypothesis only gets stronger the more it is tested, and the only certainty is costs. Despite all that, I’ve still gone to the factorhead side. I think there is true risk based explanation to size and value, and human behavior is highly persistent. Of the 5 criteria Larry describes for a factor in his book, only “intuitive” is forward looking. Moreover we only invest looking forward. Looking forward with strong intuitive rationale behind one’s choice of portfolio components is important, and it’s also important to have persistent and pervasive academic data from the past to support that outlook.

Dave

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Tycoon » Wed Oct 03, 2018 12:51 pm

steve321 wrote:
Wed Oct 03, 2018 12:44 pm
Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
why not? Do you believe their conclusions are false? Also, isn't the idea of owning the market through index funds based on academic ideas? I saw a video in which Bogle said he developed the first index fund after reading an academic article by Prof Samuelson.
The most compelling argument I can present is the fate of Long-Term Capital Management.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HEDGEFUNDIE » Wed Oct 03, 2018 12:54 pm

Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
Is this what you say to your doctor?

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by chisey » Wed Oct 03, 2018 12:55 pm

HomerJ wrote:
Wed Oct 03, 2018 12:49 pm
Economics isn't a real science. Too many variables, not enough data points, can't repeat experiments, hard to isolate independent variables, etc.

Then throw in human emotions and changing laws, etc.

Imagine how hard it would be to quantify anything in physics if Congress could change variables with laws, or if enough people got spooked, the gravitational constant could change year to year.
No, it certainly isn't. But it is a social science and, if we're careful, we can learn a lot from social science research. Findings in this area are rarely concrete and almost never exact, but they can tell us a lot about how people tend to behave and why. Don't ignore social science research, but view it somewhat skeptically.

When it comes to investing, there's so much we don't know that it's easy to distrust any kind of conclusions from academic studies. I still think there's much that can be learned from them if you're paying attention.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by cheezit » Wed Oct 03, 2018 12:57 pm

I think casting Bogle's philosophy as pure simplicity and Swedroe's as pure complexity is overstating the case.

If we were to rank asset allocation advice in terms of complexity where 1 is least complex and 10 is most complex, we might see something like

1 - "Warren Buffet" portfolio consisting of 90% S&P 500, 10% short term treasuries (the name is a bit of a misnomer)
2 - "Jack Bogle" portfolio consisting of (100 - age)% total US stock market and (age)% of total US bond market, plus an adjustment that accounts for the net present value of future social security payments and reduces the bond allocation accordingly
3 - "Taylor Larrimore" portfolio consisting of ((110 - age) / 2)% of total US stock market, ((110 - age) / 2)% of ex-US total stock market, and (age - 10)% in total US bond market
Also 3 - "Larry Swedroe" portfolio consisting of 30% small-cap value stocks and 70% 10-year US treasuries.
4 - Various slice-n-dice portfolios, including things that look like "Jack Bogle" portfolios with one or two funds added to achieve a tilt, things that look like "Taylor Larrimore" portfolios with one or two funds added to achieve a tilt, 1/n portfolios where n is not large, and so on
7 - the typical allocation that an AUM advisor would put you in
10 - the allocation that Edward Jones would put you in

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Tycoon
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Tycoon » Wed Oct 03, 2018 1:09 pm

HEDGEFUNDIE wrote:
Wed Oct 03, 2018 12:54 pm
Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
Is this what you say to your doctor?
You make a good point. Do current academic studies claim that coffee is good or bad for me? What about eggs? What about cholesterol?

This academic study claims that most published research findings are false. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1182327/
Appeal to Pity:When pity is envoked to support a statement | Appeal to Popular Sentiment:Appealing to unrelated prejudices and attitudes | Hasty Generalization:Too little evidence to support the conclusion

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JoMoney
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by JoMoney » Wed Oct 03, 2018 1:14 pm

Tycoon wrote:
Wed Oct 03, 2018 1:09 pm
HEDGEFUNDIE wrote:
Wed Oct 03, 2018 12:54 pm
Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
Is this what you say to your doctor?
You make a good point. Do current academic studies claim that coffee is good or bad for me? What about eggs? What about cholesterol?

This academic study claims that most published research findings are false. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1182327/
At least when we're talking about nutrition and medicine there is science involved, and there are can be controlled studies on the effects. "Research" on the stock market is data mining... but Economics is not a science.
"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: Key differences between investing philosophies: Swedroe vs. Bogle

Post by steve321 » Wed Oct 03, 2018 1:20 pm

message deleted because published twice, please see below
Last edited by steve321 on Wed Oct 03, 2018 1:24 pm, edited 1 time in total.
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by HomerJ » Wed Oct 03, 2018 1:21 pm

cheezit wrote:
Wed Oct 03, 2018 12:57 pm
I think casting Bogle's philosophy as pure simplicity and Swedroe's as pure complexity is overstating the case.

If we were to rank asset allocation advice in terms of complexity where 1 is least complex and 10 is most complex, we might see something like

1 - "Warren Buffet" portfolio consisting of 90% S&P 500, 10% short term treasuries (the name is a bit of a misnomer)
2 - "Jack Bogle" portfolio consisting of (100 - age)% total US stock market and (age)% of total US bond market, plus an adjustment that accounts for the net present value of future social security payments and reduces the bond allocation accordingly
3 - "Taylor Larrimore" portfolio consisting of ((110 - age) / 2)% of total US stock market, ((110 - age) / 2)% of ex-US total stock market, and (age - 10)% in total US bond market
Also 3 - "Larry Swedroe" portfolio consisting of 30% small-cap value stocks and 70% 10-year US treasuries.
4 - Various slice-n-dice portfolios, including things that look like "Jack Bogle" portfolios with one or two funds added to achieve a tilt, things that look like "Taylor Larrimore" portfolios with one or two funds added to achieve a tilt, 1/n portfolios where n is not large, and so on
7 - the typical allocation that an AUM advisor would put you in
10 - the allocation that Edward Jones would put you in
Good breakdown, but the "Larry Swedroe" portfolio no longer "consists of 30% small-cap value stocks and 70% 10-year US treasuries."

He's moved up to at least a 4, and maybe a 5, with his various factor and reinsurance recommendations.

Which is still fine for many people on this board.
The J stands for Jay

zwzhang
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by zwzhang » Wed Oct 03, 2018 1:22 pm

HomerJ wrote:
Wed Oct 03, 2018 11:51 am
marcopolo wrote:
Wed Oct 03, 2018 11:47 am
The argument for them seems to be basically, "yeah, this strategy has under performed, but there is a lot of theoretical reason why it should do better, you just have to be patient and the strategy will obviously pay off. You would have to be a fool not to believe that."

I have to admit aside from the expense and complexity, the sentiment of the final sentence also turns me off quite a bit to these approaches.
This.
So, I see the difference as a simple strategy that has a long proven track record, versus a complex, expensive one that has theoretical promise.
Some of the theoretical arguments do have merit, but it is not clear how they will play out in the real world.
For now, I am sticking with the simpler approach.
I agree.
+1 I agree too.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by steve321 » Wed Oct 03, 2018 1:22 pm

Tycoon wrote:
Wed Oct 03, 2018 1:09 pm
HEDGEFUNDIE wrote:
Wed Oct 03, 2018 12:54 pm
Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
Is this what you say to your doctor?
You make a good point. Do current academic studies claim that coffee is good or bad for me? What about eggs? What about cholesterol?

This academic study claims that most published research findings are false. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1182327/
Like I said before, the idea of index funds was based on Samuelson's academic work, see here at 25:50
https://www.youtube.com/watch?v=3uJbHREmUs4
Bogle also says in that video that he reads academic papers regularly, but often does not understand them.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Tycoon
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by Tycoon » Wed Oct 03, 2018 1:32 pm

steve321 wrote:
Wed Oct 03, 2018 1:22 pm
Tycoon wrote:
Wed Oct 03, 2018 1:09 pm
HEDGEFUNDIE wrote:
Wed Oct 03, 2018 12:54 pm
Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm


Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
Is this what you say to your doctor?
You make a good point. Do current academic studies claim that coffee is good or bad for me? What about eggs? What about cholesterol?

This academic study claims that most published research findings are false. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1182327/
Like I said before, the idea of index funds was based on Samuelson's academic work, see here at 25:50
https://www.youtube.com/watch?v=3uJbHREmUs4
Bogle also says in that video that he reads academic papers regularly, but often does not understand them.
I read them too, but I don't put much weight in them. Blind faith and all that jazz...
Appeal to Pity:When pity is envoked to support a statement | Appeal to Popular Sentiment:Appealing to unrelated prejudices and attitudes | Hasty Generalization:Too little evidence to support the conclusion

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by David Jay » Wed Oct 03, 2018 1:39 pm

steve321 wrote:
Wed Oct 03, 2018 12:44 pm
Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
why not? Do you believe their conclusions are false?
Man, you haven't been keeping up with the news...
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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by vineviz » Wed Oct 03, 2018 1:55 pm

Tycoon wrote:
Wed Oct 03, 2018 12:40 pm
steve321 wrote:
Wed Oct 03, 2018 12:37 pm
Rick Ferri wrote:
Wed Oct 03, 2018 11:16 am
Jack believes in portfolio simplicity.
Larry believes in portfolio complexity.
I believe in Jack.

Rick Ferri
Why do you believe in a person rather than in the evidence? As far as I've understood, Swedroe's advice is based on the evidence provided by academic studies. Shouldn't peer reviewed studies carry more weight than someone's authority?
I wouldn't put much weight in academic studies. Peer reviewed or otherwise.
There is a certain absurd elegance in arguing that its a shame we don't know more about financial economics while simultaneously suggesting that we not pay attention to any research about it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by garlandwhizzer » Wed Oct 03, 2018 2:06 pm

vineviz wrote:

If a complex strategy is riskier yet somehow fails to have a higher return then the fundamental underpinnings of our investment theories will have been falsified.

I’m betting that is NOT the outcome.
I believe that is the point: it is a bet, not a certainty. There are many reasons to be suspicious of the results of academic studies. I have personally been involved in academic studies in the medical field and have seen how those who finance these studies, drug companies and medical device makers, have a great deal of influence on the reported academic results which seemingly always endorse new expensive treatments over older less expensive options. As long as there is a financial tie to the authors of an academic study, the reported results can be systematically misleading IMO. Much of factor research for example seems to be produced by AQR, RAFI, DFA, etc., or those in academia who have financial relationships with these firms. In this setting one would expect research to consistently shine a positive light on these new approaches. The proof in the pudding is not IMO in academic studies but how real funds managed by these companies using their strategies perform, not in the distant past but since factors were widely known and widely pursued. There is a wide chasm between the very positive outcomes in academic studies and factor performance in the past decade or so as factor funds have proliferated and markets have become more professionally dominated. Is this just an expected periodic spell of factor underperformance or does it signify that the market itself has changed and that factors going forward will find it difficult to outperform after costs? I don't know and I don't think anyone does with certainty.

Like vineviz said, it is a bet. A few things you know about a simple 3 fund portfolio. You will not underperform the market by more the ridiculously low cost structure. You will, over all significant time periods, outperform after costs the average of those who choose alternate approaches whatever they be. No alternate approach will have a lower cost structure. Costs are a certainty. Outperformance is a bet. Sometimes factor enthusiasts on the Forum present this situation as if you are somehow old fashioned, dull, or slow witted if you choose a 3 fund approach. I believe that overstates the case. Warren Buffett and Jack Bogle are the opposite of dull and slow witted and both are fans of simple low cost cap weighted index approach.

Garland Whizzer

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by sillysaver » Wed Oct 03, 2018 2:10 pm

MathWizard wrote:
Wed Oct 03, 2018 12:05 pm
Ron Scott wrote:
Wed Oct 03, 2018 11:29 am
David Jay wrote:
Wed Oct 03, 2018 11:20 am
Ron Scott wrote:
Wed Oct 03, 2018 11:13 am
What are the key differences between them and who is right, in your opinion?
Right about what?

I'm going with Rick's analysis of the two philosophies above, here are my thoughts on the implications:
1. Larry may well be able to provide slightly better growth over time.
2. The average investor is likely better served by simplicity.

That probably means they are both "right" in their own ways.
Not sure I follow your response to my question.

So the key difference between them is that Larry’s philosophy yield better results over time? But that is somehow not good for the “average investor“?

Confused...
I agree with Rick, but I believe a key principle in why the simpler approach is better for the average investor is
that a more complicated strategy is harder to hold fast to when times get rough. Of the things that we can control,
both cost and behavior are the most important. A simple plan can be done cheaply, and is less likely to succumb to panic
selling.
I would add that the more complex strategy introduces the potential for tracking error, which increases the chance for behavioral errors.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by vineviz » Wed Oct 03, 2018 2:13 pm

garlandwhizzer wrote:
Wed Oct 03, 2018 2:06 pm
Sometimes factor enthusiasts on the Forum present this situation as if you are somehow old fashioned, dull, or slow witted if you choose a 3 fund approach. I believe that overstates the case.
I don't happen to think there is anything " old fashioned, dull, or slow witted" about those who choose a 3 fund approach.

There's a difference, though, between expressing an appreciation for simplicity and thinking simplistically. I find it tiresome that (some) people so fervently argue that things they don't understand must be untrue.
garlandwhizzer wrote:
Wed Oct 03, 2018 2:06 pm
Warren Buffett and Jack Bogle are the opposite of dull and slow witted. . . .
That's debatable, wouldn't you say?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by azanon » Wed Oct 03, 2018 2:20 pm

I'm reminded of the primary lesson from Mebane Faber's book, "Global Asset Allocation". He compared numerous lazy portfolios, including those that would be consistent with both Bogle and Swedroe's views, and found that the difference between the long-term performance of the best performing portfolio and the worst one, was less than 1%. So I recall he reasoned that as long as you don't pay too much for whatever portfolio strategy that you're using, and you stick with your chosen strategy, your time is better spent playing golf and living life than anguishing over which is better.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by galeno » Wed Oct 03, 2018 2:21 pm

I start with Jack (simplicity).

2 ETF portfolio: FTSE all world equity + TBM.

Then do a bit of Larry (complexity).

The TBM we have available costs 0.25%. Substituting Interm US treas + Corp Bonds lowers the cost to 0.12%. Now we have a cheaper 3 ETF port.

I believe in using TIPS when the equity allocation drops below 55%. Since we're at 40% equities we hold 15% of port in TIPS. Now we have a 4 ETF port.

40% FTSE + 20% Int US treas + 20% Corp bonds + 15% TIPS + 5% CASH.

Mostly Jack with a bit of Larry.
AA = 40/55/5. Expected CAGR = 3.8%. GSD (5y) = 6.2%. USD inflation (10 y) = 1.8%. AWR = 4.0%. TER = 0.4%. Port Yield = 2.82%. Term = 33 yr. FI Duration = 6.0 yr. Portfolio survival probability = 95%.

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by azanon » Wed Oct 03, 2018 2:30 pm

Random Walker wrote:
Wed Oct 03, 2018 12:25 pm
Well, I’m the guy who posts his articles. Just to be clear, I’m not promoting him or his business. I’m promoting the education he provides. As you wrote, there is overwhelming agreement between Swedroe and Bogle. They both certainly agree that markets are highly efficient, costs matter tremendously, high quality bonds are the best diversifier of equity risk, and active management is a loser’s game.

Dave

Sent from my iPad
Is Larry's never-ending research only for new investors who haven't yet selected a portfolio that they're trying to adhere to, or would Larry recommend that investors adjust their portfolio every time some new improvement is discovered by him that may earn them a few more bps? Stated another way, when can an investor feel comfortable that he/she has a strategy that she can stick with for a long duration, and then just tune out the new noise? Do you recommend that investors monitor this research, at the potential risk of not staying the course for the portfolio that they already have?

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by vineviz » Wed Oct 03, 2018 2:42 pm

azanon wrote:
Wed Oct 03, 2018 2:30 pm
Is Larry's never-ending research only for new investors who haven't yet selected a portfolio that they're trying to adhere to, or would Larry recommend that investors adjust their portfolio every time some new improvement is discovered by him that may earn them a few more bps?
Larry isn't conducting any research that I'm aware of. Mostly he is writing about research that others have conducted, making it accessible to investors who don't follow things at their primary source.
azanon wrote:
Wed Oct 03, 2018 2:30 pm
Stated another way, when can an investor feel comfortable that he/she has a strategy that she can stick with for a long duration, and then just tune out the new noise?
That's a question only an investor can only answer for themselves, I'd say.

High-quality financial research is not appearing at such a rapid pace that an investor who is taking it all in would be radically altering their portfolio with high frequency, even if they were inclined to do so. Most new research in financial economics is incremental, not revolutionary, just like in other scientific fields.

Plus, I'd argue that a true student of research is likely to have a fundamental understanding of markets and portfolio dynamics that will pre-dispose them to recognize fads and trends more readily. I don't know Larry, but my guess is that his personal portfolio isn't dramatically different in composition from what it was 10 or 15 years ago. Mine certainly isn't, even though some of the theories I use to think about my portfolio have been refined in the last 10 -12 years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Key differences between investing philosophies: Swedroe vs. Bogle

Post by FIREchief » Wed Oct 03, 2018 2:43 pm

HomerJ wrote:
Wed Oct 03, 2018 12:49 pm
Economics isn't a real science. Too many variables, not enough data points, can't repeat experiments, hard to isolate independent variables, etc.

Then throw in human emotions and changing laws, etc.

Imagine how hard it would be to quantify anything in physics if Congress could change variables with laws, or if enough people got spooked, the gravitational constant could change year to year.
Very well put! :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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