Small Cap Value heads Rejoice !!!

[hdas]

While I still believe we are in the process of a turn in the ratio, today it made a new low:

Code: Select all

	        VUG	IJS	Ratio
June-3-2019	151.09	139.72	0.9247
June-4-2019	154.70	143.93	0.9304
June-5-2019	156.30	142.93	0.9145
June-6-2019	157.51	142.50	0.9047  <<------

Cheers

[rkhusky]

So much for predicting the future by seeing patterns in market returns.

[azanon]

I've been assuming this thread is just for humor. If you're using a factoring strategy, it needs to be a decision that you decided is right for you for, bare minimum, 10 years, but actually I'm thinking more career length or lifetime. If you're watching it day to day though, I dunno what i'd say to that other than maybe consider hiring an advisor, because you almost most certainly need one?

[Random Walker]

I've been assuming this thread is just for humor. If you're using a factoring strategy, it needs to be a decision that you decided is right for you for, bare minimum, 10 years, but actually I'm thinking more career length or lifetime. If you're watching it day to day though, I dunno what i'd say to that other than maybe consider hiring an advisor, because you almost most certainly need one?

I agree. My portfolio is highly tilted, factorized, alterntivized. I do look at the individual fund results daily, but mostly for entertainment value. Something will always head north and something else will always head south. The saying that “if part of your portfolio isn’t doing poorly at a given time, then you’re not diversified enough” is certainly true. What matters is the portfolio as a whole, and the timeframe is the long term.

Dave

[hdas]

A good day for the hypothesis, far from out of the woods.

Code: Select all

	          VUG	IJS	Ratio
June-2-2019	153.4	138.55	0.9032 <<----- Call
June-3-2019	151.09	139.72	0.9247 
June-4-2019	154.7	143.93	0.9304
June-5-2019	156.3	142.93	0.9145
June-6-2019	157.51	142.5	0.9047
June-7-2019	159.85	143.52	0.8978
June-10-2019	160.82	144.66	0.8995
June-11-2019	160.72	144.44	0.8987
June-12-2019	160.38	143.91	0.8973 <<------ Low
June-13-2019	161.21	145.79	0.9043

[lukestuckenhymer]

I understand the logic behind investing in the U.S. stock market or World stock market, but what is the rationale behind tilting to SCV? Is there any rationale besides past performance?

[MotoTrojan]

I understand the logic behind investing in the U.S. stock market or World stock market, but what is the rationale behind tilting to SCV? Is there any rationale besides past performance?

Smaller companies are riskier, so are companies that have low valuations. There should be a premium for this, although that doesn't necessarily mean there is a higher risk-adjusted return. I hold SCV for a higher expected return, without any belief that it will have a higher risk-adjusted return. Some do believe it actually has higher risk-adjusted as well, due to behavioral reasons.

This is an extreme example but I look at it similar to stocks and bonds; the risk-adjusted return is similar, but stocks have higher risk so they return way more. For someone that is already 100/0 the only way to boost returns is to take on more risk via leverage or riskier assets, such as small-value.

[305pelusa]

I understand the logic behind investing in the U.S. stock market or World stock market, but what is the rationale behind tilting to SCV? Is there any rationale besides past performance?

Smaller companies are riskier, so are companies that have low valuations. There should be a premium for this, although that doesn't necessarily mean there is a higher risk-adjusted return. I hold SCV for a higher expected return, without any belief that it will have a higher risk-adjusted return. Some do believe it actually has higher risk-adjusted as well, due to behavioral reasons.

This is an extreme example but I look at it similar to stocks and bonds; the risk-adjusted return is similar, but stocks have higher risk so they return way more. For someone that is already 100/0 the only way to boost returns is to take on more risk via leverage or riskier assets, such as small-value.

Not just that but that additional risk of value and cap isn't perfectly correlated with the market (that would be awfully eerie). Yet price is a one-dimensional number, so the best it can do is reflect a linear combination of these risks. Meaning, if a stock had some amount of value risk (and only value risk) and another one had some amount of beta risk (and only beta risk), they might be priced identically provided the proportion of respective risks they hold works out to the same level of risk.

But buying 1 of each would be less risky than buying 2 of either (again, because the risks aren't perfectly correlated). So there should be a diversification benefit here that would still be consistent with an efficient market that prices thing appropriately based on it's various types of risks.

It makes more sense in my head than I can describe haha. Any ways, that's why I tilt.

[MotoTrojan]

I understand the logic behind investing in the U.S. stock market or World stock market, but what is the rationale behind tilting to SCV? Is there any rationale besides past performance?

Smaller companies are riskier, so are companies that have low valuations. There should be a premium for this, although that doesn't necessarily mean there is a higher risk-adjusted return. I hold SCV for a higher expected return, without any belief that it will have a higher risk-adjusted return. Some do believe it actually has higher risk-adjusted as well, due to behavioral reasons.

This is an extreme example but I look at it similar to stocks and bonds; the risk-adjusted return is similar, but stocks have higher risk so they return way more. For someone that is already 100/0 the only way to boost returns is to take on more risk via leverage or riskier assets, such as small-value.

Not just that but that additional risk of value and cap isn't perfectly correlated with the market (that would be awfully eerie). Yet price is a one-dimensional number, so the best it can do is reflect a linear combination of these risks. Meaning, if a stock had some amount of value risk (and only value risk) and another one had some amount of beta risk (and only beta risk), they might be priced identically provided the proportion of respective risks they hold works out to the same level of risk.

But buying 1 of each would be less risky than buying 2 of either (again, because the risks aren't perfectly correlated). So there should be a diversification benefit here that would still be consistent with an efficient market that prices thing appropriately based on it's various types of risks.

It makes more sense in my head than I can describe haha. Any ways, that's why I tilt.

That makes sense to me. From a top-level this is most apparent in the correlation of the indexes themselves though, no? I suppose you can show that when risks occur (2000 crash) the correlations diverge, as they did when small-value crushed the S&P500 (and of course tech stocks) during that period.

[305pelusa]

I understand the logic behind investing in the U.S. stock market or World stock market, but what is the rationale behind tilting to SCV? Is there any rationale besides past performance?

Smaller companies are riskier, so are companies that have low valuations. There should be a premium for this, although that doesn't necessarily mean there is a higher risk-adjusted return. I hold SCV for a higher expected return, without any belief that it will have a higher risk-adjusted return. Some do believe it actually has higher risk-adjusted as well, due to behavioral reasons.

This is an extreme example but I look at it similar to stocks and bonds; the risk-adjusted return is similar, but stocks have higher risk so they return way more. For someone that is already 100/0 the only way to boost returns is to take on more risk via leverage or riskier assets, such as small-value.

Not just that but that additional risk of value and cap isn't perfectly correlated with the market (that would be awfully eerie). Yet price is a one-dimensional number, so the best it can do is reflect a linear combination of these risks. Meaning, if a stock had some amount of value risk (and only value risk) and another one had some amount of beta risk (and only beta risk), they might be priced identically provided the proportion of respective risks they hold works out to the same level of risk.

But buying 1 of each would be less risky than buying 2 of either (again, because the risks aren't perfectly correlated). So there should be a diversification benefit here that would still be consistent with an efficient market that prices thing appropriately based on it's various types of risks.

It makes more sense in my head than I can describe haha. Any ways, that's why I tilt.

That makes sense to me. From a top-level this is most apparent in the correlation of the indexes themselves though, no? I suppose you can show that when risks occur (2000 crash) the correlations diverge, as they did when small-value crushed the S&P500 (and of course tech stocks) during that period.

I'm actually not sure. If value behaves differently than the total market index, then that means growth is behaving differently in the "opposite" direction such that when you add them, you get the index back. But just because growth behaved differently to the market (and it should) doesn't mean there's a diversification benefit from tilting to growth.

Hence, just because a tilt behaves differently than the market portfolio doesn't necessarily mean that it's worth tilting for diversification benefits. At least I don't think so. Hence, the fact that small cap value diverged from the market doesn't necessarily mean it's worth tilting. I think it IS worth tilting, but I have to be careful to not fool myself by arguments that appear to make sense you know?

Unless maybe I misunderstood what you meant.

[MotoTrojan]

I'm actually not sure. If value behaves differently than the total market index, then that means growth is behaving differently in the "opposite" direction such that when you add them, you get the index back. But just because growth behaved differently to the market (and it should) doesn't mean there's a diversification benefit from tilting to growth.

Hence, just because a tilt behaves differently than the market portfolio doesn't necessarily mean that it's worth tilting for diversification benefits. At least I don't think so. Hence, the fact that small cap value diverged from the market doesn't necessarily mean it's worth tilting. I think it IS worth tilting, but I have to be careful to not fool myself by arguments that appear to make sense you know?

Unless maybe I misunderstood what you meant.

Rebalancing bonus and an overall reduction in volatility. Similar to how hedgefundie's UPRO/TMF portfolio can have a CAGR higher and volatility lower than the allocation-weighted average of UPRO & TMF alone for almost every longer time period (I posted about this recently in that thread, true even for the terrible 1955-1982 period).

[305pelusa]

I'm actually not sure. If value behaves differently than the total market index, then that means growth is behaving differently in the "opposite" direction such that when you add them, you get the index back. But just because growth behaved differently to the market (and it should) doesn't mean there's a diversification benefit from tilting to growth.

Hence, just because a tilt behaves differently than the market portfolio doesn't necessarily mean that it's worth tilting for diversification benefits. At least I don't think so. Hence, the fact that small cap value diverged from the market doesn't necessarily mean it's worth tilting. I think it IS worth tilting, but I have to be careful to not fool myself by arguments that appear to make sense you know?

Unless maybe I misunderstood what you meant.

Rebalancing bonus and an overall reduction in volatility. Similar to how hedgefundie's UPRO/TMF portfolio can have a CAGR higher and volatility lower than the allocation-weighted average of UPRO & TMF alone for almost every longer time period (I posted about this recently in that thread, true even for the terrible 1955-1982 period).

MotoTrojan,
As you know, I don't believe in any set specific correlations between different assets so by conclusion, I don't invest in factor due to "rebalancing bonuses" or other historically shown occurances. I don't agree with the notion of "reversion to the mean" or other concepts required for a rebalancing bonus. I like the random walk model for now.

That said, I do tilt to anything and everything I believe requires a risk premium. Hence, I do not tilt to strategies that worked in the past but I don't rationalize (like risk parity since I feel correlations can change)and I DO invest in strategies that haven't been shown to be compensated historically (junk bonds and corporate bonds come to mind). My risk parity is to diversify among as many sources of risk as it makes sense for me

I reiterate that just because two assets have been shown to give rebalancing bonuses or decrease volatility in the past doesn't mean anything to me. Such is the world of probability where the worst strategy might have done great and the best strategy poorly so far. All we have is intuition and sense to go off of and hope the market prices things appropriately for us.

[stocknoob4111]

SCV has underperformed for the last 15 years and more lately has been absolutely terrible, so why are SCV holders rejoicing again? Just trying to find this out?

[hdas]

SCV has underperformed for the last 15 years and more lately has been absolutely terrible, so why are SCV holders rejoicing again? Just trying to find this out?

Precisely that, the rubber band is very stretched, perhaps a snap-back is in the horizon.

[hdas]

I glance at the red tape and see:

VUG -1.04%
IJS +0.18%
XSLV + 0.23%

Ratio 0.8844

Rejoice

[Taylor Larimore]

Bogleheads:

I have been around here a long time and I have not memorized the ticker symbols of more than a few funds and ETFs.

It is helpful if we know the name of the fund together with its ticker symbol as our wiki requests.

Thank you and best wishes.
Taylor

[hdas]

Bogleheads:

I have been around here a long time and I have not memorized the ticker symbols of more than a few funds and ETFs.

It is helpful if we know the name of the fund together with its ticker symbol as our wiki requests.

Thank you and best wishes.
Taylor

Taylor,

IJS = iShares S&P Small-Cap 600 Value ETF
XSLV = Invesco S&P SmallCap Low Volatility ETF

Cheers

[Taylor Larimore]

Taylor,

IJS = iShares S&P Small-Cap 600 Value ETF
XSLV = Invesco S&P SmallCap Low Volatility ETF

Cheers

hdas:

Thank you.

Jack Bogle's Words of Wisdom (2005): "Of the 355 equity funds in 1970, fully 233 of those funds have gone out of business. Only 24 outpaced the market by more than 1% a year. These are terrible odds." -- "I favor the all-market index fund as the best choice for most investors."

Best wishes.
Taylor

[DecumulatorDoc]

SCV has underperformed for the last 15 years and more lately has been absolutely terrible, so why are SCV holders rejoicing again? Just trying to find this out?

I guess we haven't noticed:
VTI Vanguard Total Stock Market 10 yr return: 13.98%
IJS S & P Small Cap 600 Value 10 yr return: 13.16%
Do you have 15 year numbers that justify your statement? Please share them.

[hdas]

I glance at the tape and see:

VUG +0.48%
IJS +1.94%
XSLV + 1.71%

Ratio IJS/VUG = 0.9012

Rejoice

[DecumulatorDoc]

I glance at the tape and see:

VUG +0.48%
IJS +1.94%
XSLV + 1.71%

Ratio IJS/VUG = 0.9012

Rejoice

I'm starting to believe all the SCV bashing here lately may be a good thing. The Warren Buffett contrarian in me is cautiously optimistic. But then I really don't care because the Boglehead in me is staying the course.

[Mr.BB]

To really compare you need to see there performance before fees though right? Actve small cap funds have higher expenses on average.

The only number that matters is what you, the investor, receives. What if I had the secret to outperform the market by 20% year over year and I would be willing to let you in on that secret for a 21% annual fee?

+! LOL...I think that summarizes it perfectly.

[hdas]

I glance at the tape and see:

VUG +0.48%
IJS +1.94%
XSLV + 1.71%

Ratio IJS/VUG = 0.9012

Rejoice

I'm starting to believe all the SCV bashing here lately may be a good thing. The Warren Buffett contrarian in me is cautiously optimistic. But then I really don't care because the Boglehead in me is staying the course.

The main use of this forum is as sentiment gauge. Crowd psychology is transparent for the good observer.

[hdas]

First six months or the year are almost over and looking at the tickers:

VUG +0.22%
IJS +1.49%
XSLV + 1.26%

Ratio IJS/VUG = 0.9127

Rejoice

[livesoft]

I can data mine as well. YTD through yesterday of IJS, VUG, VTI, and MTUM:
12.01% IJS
21.73% VUG
17.85% VTI
18.78% MTUM

Put that in your pipe and smoke it.

[hdas]

I can data mine as well. YTD through yesterday of IJS, VUG, VTI, and MTUM:
12.01% IJS
21.73% VUG
17.85% VTI
18.78% MTUM

Put that in your pipe and smoke it.

Except that your info is worthless. The issue you seem to be missing is the attractive bet that the Small Value / Large Growth relationship has turned in June 2019. Cheers

[livesoft]

Except that your info is worthless. The issue you seem to be missing is the attractive bet that the Small Value / Large Growth relationship has turned in June 2019. Cheers

R-r-i-i-i-i-i-i-i-i-ght.

[DecumulatorDoc]

I can data mine as well. YTD through yesterday of IJS, VUG, VTI, and MTUM:
12.01% IJS
21.73% VUG
17.85% VTI
18.78% MTUM

Put that in your pipe and smoke it.

Stay in your lane bro...this is a refuge thread for SCV tilters. Its a SCV bashing-free zone. Only place left for us.

[livesoft]

Stay in your lane bro...this is a refuge thread for SCV tilters. Its a SCV bashing-free zone. Only place left for us.

I built the lane that you are driving in.

[DecumulatorDoc]

Stay in your lane bro...this is a refuge thread for SCV tilters. Its a SCV bashing-free zone. Only place left for us.

I built the lane that you are driving in.

Coming from Livesoft, I believe it. We'll let you stay... and that deserves another beer

[hdas]

A new low on a weekly basis on the Small Cap Value (IJS) / Large Growth (VUG) ratio. The prediction is not looking good. A few notes:

1. For this type of stuff I like to use the most recent data. 15 years seems sensible. The world is a dynamic place and asset pricing reflects that.
2. I also prefer to use funds not indexes. We must not underestimate the effect of access and money deployed in these style factors.
3. The descriptive chart shows that the ratio is way past 3 standard deviations stretched in favor of large growth. At this point you at least have to question in the nice stable relationship is over.



Cheers

[HippoSir]

3. The descriptive chart shows that the ratio is way past 3 standard deviations stretched in favor of large growth. At this point you at least have to question in the nice stable relationship is over.

hdas, perhaps you've posted this before, but are you willing to share your portfolio? Your viewpoints are always of interest to me so I'm curious what it looks like.

I see a graph like the above and the contrarian in me immediately wants to go all-in on SCV, but I realize that's probably an investing behavioral issue since I really don't know anything, least of all what the catalyst would be for renewed SCV overperformance.

[Alchemist]

Do you have 15 year numbers that justify your statement? Please share them.

These numbers have been talked about quite a bit lately. Below you will find VTSAX compared with IJS and DFSVX for the previous 15 years.

VTSAX: 9.00%

IJS: 8.46%

DFSVX: 7.29%

Source: https://www.portfoliovisualizer.com/bac ... total3=100

Seems that the S&P 600 funds are doing quite a bit better than the vaunted DFA 'special sauce' that also requires a hefty advisor fee. So real returns for DFA investors trailing the cheap S&P 600 fund by 1.5-2.0% and total market by >3%! Ouch. Whether you tilt or not, costs matter.

[fennewaldaj]

A new low on a weekly basis on the Small Cap Value (IJS) / Large Growth (VUG) ratio. The prediction is not looking good. A few notes:

1. For this type of stuff I like to use the most recent data. 15 years seems sensible. The world is a dynamic place and asset pricing reflects that.
2. I also prefer to use funds not indexes. We must not underestimate the effect of access and money deployed in these style factors.
3. The descriptive chart shows that the ratio is way past 3 standard deviations stretched in favor of large growth. At this point you at least have to question in the nice stable relationship is over.



Cheers

Isn't it not quite right to compare the ratio of prices between large growth and small value? Small value has higher dividends than large growth generally so the same total return equals less etf share price appreciation.

[Forester]

A new low on a weekly basis on the Small Cap Value (IJS) / Large Growth (VUG) ratio. The prediction is not looking good. A few notes:

1. For this type of stuff I like to use the most recent data. 15 years seems sensible. The world is a dynamic place and asset pricing reflects that.
2. I also prefer to use funds not indexes. We must not underestimate the effect of access and money deployed in these style factors.
3. The descriptive chart shows that the ratio is way past 3 standard deviations stretched in favor of large growth. At this point you at least have to question in the nice stable relationship is over.



Cheers

On a total return basis, from Jan 2004 to Jan 2019 has SCV beating LCG.

And since the March 2009 low, SCV was ahead as recently as 1st March this year.

[hdas]

Isn't it not quite right to compare the ratio of prices between large growth and small value? Small value has higher dividends than large growth generally so the same total return equals less etf share price appreciation.

The prices I use are adjusted for dividend. And my data is accurate. Sorry if the facts don't acomódate your preferences. Cheers

[hdas]

On a total return basis, from Jan 2004 to Jan 2019 has SCV beating LCG.

And since the March 2009 low, SCV was ahead as recently as 1st March this year.

Use tradables and not categories, I chose VUG and IJS because they are best in class and low ER. Feb 04 is VUG inception.

VUG - Vanguard Growth ETF
IJS - iShares S&P Small-Cap 600 Value ETF

Check for yourself. Cheers

[nedsaid]

I think you are right. I’ve been holding VBR for the past 10 years. I finally capitulated, changed my IPS to not tilt to SCV, and sold it last Friday.

Wow. If that isn't a buy signal for Small Value, I don't know what is.

I checked Morningstar a month or two ago and looked at the performance record of the S&P 500, Vanguard Value Index, Vanguard Growth Index, Vanguard Small-Cap Value Index, and Vanguard Small-Cap Growth Index. All of these Vanguard Index products outperformed the S&P 500 except for Vanguard Value Index. From memory, Vanguard Value Index returned 14% a year, the S&P 500 15% a year, and Vanguard Growth Index 16% a year. So the problem was with Large Value and not Small Value. It is amazing that even in a period not the best for Value that Vanguard Small Value Index about tracked the S&P 500, actually beating it by a hair. I just don't know where all this "death of Small Value" pessimism has been coming from, things haven't been that bad.

[nedsaid]

I can data mine as well. YTD through yesterday of IJS, VUG, VTI, and MTUM:
12.01% IJS
21.73% VUG
17.85% VTI
18.78% MTUM

Put that in your pipe and smoke it.

Stay in your lane bro...this is a refuge thread for SCV tilters. Its a SCV bashing-free zone. Only place left for us.

Has Taylor Larimore found this thread yet? He seems to be on a holy mission against us Small/Value heretics. Whoops, I can see that the Grand Inquisitor has already visited.

[nedsaid]

For the record, I am in the beginning stages of the "Swedroe shuffle", named after Larry's decision to take his stocks to 100% Value in 1997 or 1998. My shift will be more modest, I will never be out of the Large Mega-Cap Growth stocks, just underweight them. Last month, having been goaded by fellow Bogleheads, I hit the buy button for US Large Value, US Mid-Value, and US Small-Value. It was done mostly in jest but I do believe that a Growth to Value rebalance is in order here. I will refrain from the sound effects.

[Taylor Larimore]

Has Taylor Larimore found this thread yet? He seems to be on a holy mission against us Small/Value heretics.

It's true. I am a soldier in Jack Bogle's crusade "To give ordinary investors a fair shake."

Mr. Bogle did not believe in factor funds like Small-Cap Value. Instead, he recommended investing in the TOTAL U.S. stock market and not try to outperform by betting on high-cost individual segments promoted by the profit-seeking financial industry.

Small-Cap Value is now ranked in the BOTTOM of all 14 Morningstar style categories. If SCV fund investors cannot learn from their current sad performance (which Total Market Investors never experience), I see little hope for them.

Try to remember this is the Bogleheads forum.

Best wishes.
Taylor

[nedsaid]

Has Taylor Larimore found this thread yet? He seems to be on a holy mission against us Small/Value heretics.

It's true. I am a soldier in Jack Bogle's crusade "To give ordinary investors a fair shake."

Mr. Bogle did not believe in factor funds like Small-Cap Value. Instead, he recommended investing in the TOTAL U.S. stock market and not try to outperform by betting on high-cost individual segments promoted by the profit-seeking financial industry.

Small-Cap Value is now ranked in the BOTTOM of all 14 Morningstar style categories. If SCV fund investors cannot learn from their current sad performance (which Total Market Investors never experience), I see little hope for them.

Try to remember this is the Bogleheads forum.

Best wishes.
Taylor

I have known about Mr. Bogle since the days of Wall $treet Week with Louis Rukeyser, indeed he was on Rukeyser's Hall of Fame which included other folks like Peter Lynch and John Templeton. Lou thought a lot of Mr. Bogle as did a lot of folks. Bob Brinker on MoneyTalk was a big influence for me as well and he introduced a lot of investors to the concept of indexing, doubtlessly influenced by Bogle. So Mr. Bogle had a huge impact on the industry.

Now some comments, these aren't so much for Taylor as he already knows everything that I will bring out below. The comments will be informative to thread participants and lurkers. The performance numbers cited below are from Morningstar and anyone can check them out. The performance numbers are as of today.

Small Value, as you know, can be accessed rather cheaply. Two products I use are the Vanguard Small-Cap Value Index ETF with an expense ratio of 0.07% and the iShares S&P 600 Small Value Index which has an expense ratio of 0.25%. These are hardly high cost products.

Just a gentle reminder that Mr. Bogle created the Value Index, Growth Index, Small Value, and Small Growth index funds at Vanguard. You might say he helped pioneer factor investing! Bogle did envision that people would invest in the Growth index while working and in the Value index while retired. He told folks not to trade back and forth which they apparently did.

I have warned investors against recency bias, the broad indexes like Total Stock Market Index and the S&P 500 have outperformed the Vanguard Value Index (Large Value) by about 1% a year and that can be attributed to High Tech/Internet stocks hot performance which have in turn been led by the FAANG stocks. Again, the High Tech/Internet stocks are about 25%-26% of the S&P 500 index. Not predicting disaster by any means for Total Stock Market but just pointing out the last time the gaps in valuation between Growth and Value got so high back in 1999, the Total Stock Market was flat for about 12 years. Seeing that we aren't seeing stratospheric valuations and euphoria now that we saw in 1999, the effect I cited should be less this time. You could see Value outperform the broad indexes for a few years at whatever point market leadership changes from High Tech/Internet. This is not an apocalyptic warning for those who invest with Taylor's 3 fund portfolio, even with the 3 fund, the International stock diversification would help with the effect of High Tech/Internet/FAANG stocks.

I can see that Small-Value's relative performance has fallen off compared to the S&P 500, when I checked this a month or two ago the Vanguard Small Value Index Admiral Shares was slightly beating the S&P 500 Index over the last 10 years. Now it is trailing. Shows how even a relatively short time period can affect performance numbers.

Here are the 10 year performance numbers

S&P 500 15.49%
Value Index 14.58%
Growth Index 16.49%
Small Growth Index 16.29%
Small Value Index 14.75%

Not so bad when considering that we have had a decade long Large Growth run. Hardly surprising. Small Growth has almost equaled Large Growth's numbers. Larry Swedroe did make a comment that stocks with no earnings were trading at levels not seen for a long time, he might have said 1999, so this effect might be pumping up Small Growth. Not sure if CRSP, the indexes that Vanguard uses, screens out no earnings stocks in its indexes as S&P does. But clearly investors are preferring growth right now be it Large or Small.

I liked what Larry Swedroe said. ALL investors are factor investors. Total Market is an investment in just one factor and that is Market Beta. Small-Cap Value is an investment in three factors and that is Size, Value, and Market. I would rather have more factor diversification than less.

My case for factor tilting is a rather cautious and hedged argument. I have acknowledged the strengths and weaknesses of factor tilting. All kinds of arguments can be made. My own expectation is that a Small/Value tilted portfolio should outperform a similarly allocated 3 fund portfolio by 0.50% to 1.00% a year, much more modest expectations than presented by Merriman.

Finally, the fact that Small Value has not performed as well the last five years is an indication that perhaps investors should be buying it. The long term record of this asset class has been great and we know that the Large vs. Small and Growth vs. Value trends trade places leading the markets. What you are telling me leads me to believe that at some point there will be a reversion of the mean from Growth back to Value. When this happens, you will see the diversification benefit from Value.

[rapporteur]

Dear Mr Larimore,

We are all aware of, and grateful for, Jack Bogle’s contributions and we all remain mindful of his precepts. But I don’t believe Mr Bogle intended to form a cult of personality or would rejoice to see this forum become a Temple to Confirmation Bias, simply an echo chamber, forever frozen in amber. In short, I don’t think Jack wanted “disciples” or “true believers” – he was a bigger man than that. Instead, I believe Jack was open to honest investigation, open discussion, and even, yes (gasp), change. Evidence-based change! That’s what this forum is about.

Investing in international markets, or in factors, or many of the other investing concepts discussed here do not violate Jack’s core “Boglehead” principles:

1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course

For instance much of the “invest globally” or “invest using factors” discussions are really just a deeper exploration of Jack’s “Diversify” principle above – even when they stray from his personal opinions! And in those discussions any tensions or conflicts with other Boglehead principles such as simplicity or minimizing costs are usually brought up and thoroughly debated.

I have the deepest respect for you, Mr Larimore, both for your own contributions and for your devotion to the principles Jack espoused. But I believe you do both Jack’s principles and your own reputation a disservice by acting as “avenging angel” and swooping in to every discussion of factors or international investing, particularly when you raise issues you know to be specious, such as the underperformance of value in the last several years. Jack would be appalled to see anyone, especially you, urging abandonment of an investment strategy after a rough spot – see Jack’s own core principle of “Stay the Course”.

So, is there a role for you to occasionally remind folks here when you think the discussions are drifting too far from Boglehead principles? Yes, I believe there is - your voice should be heard.

But only occasionally and, even then, gently.

Yours respectfully,

[jhawktx]

Isn't it common knowledge that a SCV tilt has a 50.1% chance of producing 0.0001% better returns if held for a minimum of 250 years?

[nedsaid]

I want to make abundantly clear that I believe the three fund portfolio of Total Stock Market Index, Total International Stock Market Index, and Total Bond Market Index to be a very good portfolio. I have even said that the 3 fund portfolio has been outperforming the factor tilted portfolios for a decade. It isn't that factor portfolios are bad, it is that each approach has its day. There are good reasons for factor tilting and good reasons for not factor tilting. These are different schools of thought and each side has its strengths and weaknesses.

[Taylor Larimore]

Investing in international markets, or in factors, or many of the other investing concepts discussed here do not violate Jack’s core “Boglehead” principles."

rapporteur:

The above statement is incorrect. In Mr. Bogle's last interview with Morningstar he said to Christine Benz:

"I don't believe in Factor Investing."

Best wishes.
Taylor

[nedsaid]

Mr. Bogle had a remarkable consistency over his career from the time that he authored his famous paper on the mutual fund industry while he was still at Princeton. Bogle was a believer in more conservative, low cost investing and he pioneered the retail index funds. There were, however, some detours along the way and he said, did, and wrote some pretty amazing things over his career.

He had say over managing the Blair Academy Scholarship fund and he invested 5% of that portfolio in Gold! He also had a big investment (45%) in the Wellington Fund, which is a cheap but active fund. 45% was in Balanced Index. So it seemed that he liked an active/passive approach. Below is the thread:

viewtopic.php?f=10&t=270010

It is fair to say that Bogle didn't believe in factors, he probably created the Growth and Value index funds to meet investor demand. He also envisioned that folks would use Growth while working and go to the Value Index while retired. The Value Index is more conservative and generates more income, he thought it would be perfect for retirees.

[nedsaid]

If I had to guess, probably at least half of the Bogleheads are market cap weighted index investors, some of these might own legacy active funds. If I had to guess 25%-40% do the Taylor Larimore 3 fund portfolio. Probably 25% or less factor tilt. There is a smaller group of the tilters that use the Alternative Investments. A very small group that do all kinds of things. The factor tilters are the minority camp here.

There might be concern that Larry Swedroe is too influential here. But as Woody Allen said, half of life is just showing up. And Larry has showed up here and a lot. My guess is that Larry influences a lot of folks here but the majority here, including myself, don't invest like him. Rick Ferri is another influential advisor who once advocated factor tilting more than he does today, Rick's thinking is going more and more the route of the simpler 3-4 fund portfolios. Rick has posted a lot here too over the years and is a counterweight to Larry's influence.

I just don't see that this forum is being taken over by Swedroeheads if such a thing exists. I don't see a departure here from the principles that Mr. Bogle advocated for over many years. I can remember the dividend threads, the value threads, the factor threads where all of this was debated and there was no risk of the forum being derailed back then. Not sure why folks seem concerned about this all the sudden, it might have to do with Mr. Bogle's recent passing.

This is a tough crowd at Bogleheads. Larry has not received kids glove treatment here, I can remember a lot of lively exchanges on the threads.

Again, if Mr. Bogle had adopted an avatar and anonymously posted here, he would have been blasted for violating Boglehead principles. He said all kinds of surprising things in his interviews, pretty much speaking his mind and thinking aloud. But he was pretty consistent on his core principles, with detours along the way of course. His overall philosophy didn't change much over the years but he did try an awful lot of things. We like to put him in a little box and his active mind was too big to fit!

[rapporteur]

Dear Mr Larimore,

Jack was a clever man, an informed man, a judicious man. And an energetic man, one who put his convictions into practice – to the benefit of us all.

But all men may err - even Jack.

You say that Jack said in his last interview, "I don't believe in Factor Investing." Indeed, he may well have said this (I see no reason to dispute it even though I haven’t checked). But was he merely expressing a personal opinion or instead enunciating a general precept he advocated that all adopt?

If the former, he was as entitled to his personal opinion as much as the next man (and wise persons would do well to investigate his reasons). But if the latter, he was being very “unBoglehead.” Did he adduce reasons and a rationale or was it a bald unsupported assertion? Are we to accept the asseveration simply on his authority (as you, Taylor, appear to have done) or did he back it up? Recall my earlier post in which I asked whether we are “true believers” or do we think for ourselves, perhaps prompted by Jack, but ultimately guided by the weight of evidence?

Over the course of a long and very productive life, even Saint Jack said some contradictory and very silly things (1). Let us not lapse into hagiolatry

You disappoint me, Taylor. I thought that you, like I, believed that Jack’s principles were more than robust enough to be subject to close examination and hard debate without falling apart. Instead, you seem to believe they are so fragile that they need a full-time intervening bodyguard – you!

In short, I believe that the Boglehead principle “Diversify” amply justifies a thorough investigation of factor and global investing, even while we remain mindful of Jack’s personal reservations on these aspects. And while I recognize your eagerness, Taylor, to prevent investing virgins being led astray, you are veering dangerously close to becoming the “Thought Police.”

I invite you to believe that Jack’s principles can withstand hard scrutiny and robust debate and even challenges to their universality. …and that they don’t require an intervening defender at every turn!

Yours respectfully,

1) We tend to pass over in embarrassed silence the stupider assertions of otherwise great men. Aristotle, arguably the greatest of ancient philosophers, was of the opinion that women had fewer teeth than men. Apparently he never thought to look in Mrs Aristotle’s mouth and count

[palaheel]

Well, back to the issue at hand. My SCV fund, DFA Targeted Value (in my 401(k)) is up 13.2% for the first half of the year according to PortfolioVisualizer.

Unfortunately, since its high at the end of August 2018, it's still down 12.01% at the end of June.

I'm not about to sell or anything, but I'm holding off celebrating just yet.