Larry Swedroe: Has The Value Trade Become Overcrowded.

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Random Walker
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Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by Random Walker » Sat Jun 15, 2019 5:50 pm

https://www.advisorperspectives.com/art ... vercrowded

Larry is now writing more at Advisor Perspectives. The growth-value spread appears to have predictive value for the value premium. Current relative valuations look favorable, but trying to time the premium not likely to be productive. Larry looks at valuations of growth and value post Fama French publication in 1993, at the peak of internet bubble 1999, and end of 2018. The current similarities (can you FAANG?) to 1999-2000 are noteworthy.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by columbia » Sat Jun 15, 2019 6:15 pm

I’m a pessimist, so the next crash is always 5 minutes away. Having said, prices do not resemble 1999:
https://www.multpl.com/s-p-500-pe-ratio

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by fennewaldaj » Sat Jun 15, 2019 9:14 pm

columbia wrote:
Sat Jun 15, 2019 6:15 pm
I’m a pessimist, so the next crash is always 5 minutes away. Having said, prices do not resemble 1999:
https://www.multpl.com/s-p-500-pe-ratio
price to sales is pretty high. Could be a problem is margins go down a lot for whatever reason.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by klaus14 » Sat Jun 15, 2019 9:23 pm

fennewaldaj wrote:
Sat Jun 15, 2019 9:14 pm
columbia wrote:
Sat Jun 15, 2019 6:15 pm
I’m a pessimist, so the next crash is always 5 minutes away. Having said, prices do not resemble 1999:
https://www.multpl.com/s-p-500-pe-ratio
price to sales is pretty high. Could be a problem is margins go down a lot for whatever reason.
Margins can be cyclical. That's why CAPE looks at 10 year earnings.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by larryswedroe » Sat Jun 15, 2019 11:04 pm

The value to growth spread is not that far from 1999
Larry

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by stlutz » Sun Jun 16, 2019 12:11 am

This market is nothing like the era of Pets.com. Remember 1998 when growth outperformed value by something like 30%? Growth has been running a little bit ahead of value of late. The current valuations of "value" may be more a reflection of the market's expectations of where profits are going.

I always like to first understand what the market is saying before I say it's wrong. (And yes, I do believe that the market periodically gets it very wrong).

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Sun Jun 16, 2019 4:11 am

There are a lot of similarities to 1999 but it is a case of history rhyming and not repeating. P/E ratios are lower now than back then, interest rates are a lot lower, and we are not seeing any signs of euphoria. Indeed, interest rates have been falling again as the bond market is signaling an economic slowdown. Not reading about people quitting their jobs and taking up day trading.

Larry's recent writings have been reassuring, I had wondered if the Value trade was crowded, its not. I have thought about increasing Value tilts in my portfolio a bit in light of all of this but so far I have been sitting tight. I am not running a market timing service on this forum. We are still in a Large Growth trend in the stock market and that could continue for a while.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by lazyday » Sun Jun 16, 2019 4:28 am

klaus14 wrote:
Sat Jun 15, 2019 9:23 pm
fennewaldaj wrote:
Sat Jun 15, 2019 9:14 pm
columbia wrote:
Sat Jun 15, 2019 6:15 pm
I’m a pessimist, so the next crash is always 5 minutes away. Having said, prices do not resemble 1999:
https://www.multpl.com/s-p-500-pe-ratio
price to sales is pretty high. Could be a problem is margins go down a lot for whatever reason.
Margins can be cyclical. That's why CAPE looks at 10 year earnings.
Margins in the US have been high for over 10 years. If we expect margins to revert towards the long term mean, then PE10 (CAPE) is understating how expensive the market is. We are paying a high multiple of earnings, and those earnings are high because of high margins.

It would be nice to see a long term PS10 chart along with the PE10 chart linked above.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by larryswedroe » Sun Jun 16, 2019 9:29 am

This market is nothing like the era of Pets.com. Remember 1998 when growth outperformed value by something like 30%?

Oh really, right in my article I show the FACTS

The ratio of the P/B of U.S. small growth stocks to U.S. small value stocks had widened from 5.4 in 1993 to 5.9 at the end of 1999 – the same figure it was at the end of 2018. And it has gotten worse so far this year.

And for lazyday, I have been pointing this out for while, warning that if anything has tendency to revert to mean it's profit margins, and sure enough they are coming down as you can see, especially for mid and smaller companies in Yardeni's tables http://www.yardeni.com/pub/peacockfeval.pdf

FACTS are stubborn things.
Larry

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Sun Jun 16, 2019 11:32 am

larryswedroe wrote:
Sun Jun 16, 2019 9:29 am
This market is nothing like the era of Pets.com. Remember 1998 when growth outperformed value by something like 30%?

Oh really, right in my article I show the FACTS

The ratio of the P/B of U.S. small growth stocks to U.S. small value stocks had widened from 5.4 in 1993 to 5.9 at the end of 1999 – the same figure it was at the end of 2018. And it has gotten worse so far this year.

And for lazyday, I have been pointing this out for while, warning that if anything has tendency to revert to mean it's profit margins, and sure enough they are coming down as you can see, especially for mid and smaller companies in Yardeni's tables http://www.yardeni.com/pub/peacockfeval.pdf

FACTS are stubborn things.
Larry
Larry, again lots of similarities to 1999 but differences too which I have posted on pretty extensively. Another thing to add is that the US Stock Market has been essentially flat since January 2018 with a 20% correction in between. This is hardly euphoria. Not like the days when the NASDAQ was going up 100 points a day!

As much as I want my Value stocks to be great again, interest rates have been heading back down and there is talk of a Fed rate cut. If the economy slows again, we will be back to the slower growth, low inflation, low interest rate economy that favors the Large Growth stocks. What I am trying to say is that this Large Growth trend could continue a while longer, perhaps longer than we dare think.

Plus I want a scenario where my Value stocks go up by a lot, not merely falling less than the Growth stocks.

Markets get into a certain psychology, we saw this when Large Growth continued to lead the market even with a relatively robust economy and very low unemployment. We should be in an environment where Value shines, the facts changed but the psychology did not. It is going to take a pretty good smack across the chops to get the market psychology to change. Whatever that might be, I don't know. My number one suspect would be unexpected inflation but that just doesn't seem to be in the cards now.

This is why I don't run a market timing service on the forum. In light of what Larry has posted, this might be an opportune time to gradually increase my position in Value stocks. I particularly like Large Value but Small Value is looking great too. Larry did hint at something that might change the market psychology, I just thought of it right now, and that would be falling profit margins. Not sure that would do it, I think we might need a dramatic event.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by larryswedroe » Sun Jun 16, 2019 11:36 am

man this is getting absurd, parsing every word. Of course it's not 1999 EXACTLY--we don't have CAPE in 40s just 30 (:-)) And while not the internet craziness we had in 99 we still have companies trading at extremely high valuations with no profits even in sight for years, the kind of stocks that on average have had god awful returns. (Lottery stocks)

I was pointing out that there were similarities and I showed clearly the valuation spreads in small stocks were similar to 1999.
Larry

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Sun Jun 16, 2019 11:57 am

larryswedroe wrote:
Sun Jun 16, 2019 11:36 am
man this is getting absurd, parsing every word. Of course it's not 1999 EXACTLY--we don't have CAPE in 40s just 30 (:-)) And while not the internet craziness we had in 99 we still have companies trading at extremely high valuations with no profits even in sight for years, the kind of stocks that on average have had god awful returns. (Lottery stocks)

I was pointing out that there were similarities and I showed clearly the valuation spreads in small stocks were similar to 1999.
Larry
No Larry, this is not absurd. What I am trying to do is to get folks to really think this over. What I will say is that the numbers you cite are pretty compelling and I have been considering shifting some of my stock allocation to Value. The so-called lost decade of 2000-2009 wasn't so bad, the 2003-2007 period was actually very good for me. Loved seeing my International stocks, REITs, Mid-Caps, Value outperform the S&P 500. I would like nothing better than to see the 3 fund people humbled a bit. I am waiting for a certain author, not you, to start saying that factor investing wasn't so bad after all after having promoted it a lot years earlier.

Part of this is that I don't want to get too carried away with this and become sort of a market timer. If I make a change, it will be after a whole lot of thought. I made shifts in 2007-2008, making commitments to Small Value, Micro-Cap, International Mid/Small-Cap at precisely the wrong time. Still glad I did it because it increased the diversification of my portfolio, plus this was a refinement of what I was already doing. Not a wholesale change in philosophy. Always had a taste for those Mid/Small-Caps and for Value. Vanguard Small Value Index has actually done fairly well, last I checked it actually beat the S&P 500 very slightly over a decade.

What is happening is that my natural caution is kicking in. I am not one to make sudden moves. Did three portfolio shifts during the 2000's and lots of thought went into each of them. I am thinking about making another one.

Just pointing out that this does not feel like 1999. I am just not feeling the euphoria. I also can't just take refuge in bonds that are yielding 6%-7%. But you are right, many similarities. Recap that quickly. Value is dead, Buffett is an idiot, decade long Large Growth market led by Internet/High Tech, Vanguard Growth Fund in non-diversified status, lottery stocks doing great.

Without saying it, and even though your crystal ball is cloudy, this is about as close to a "Buy" signal as you would ever give. I have been considering a "Swedroe shuffle" for a few months now, particularly in light of your recent articles and posts. Your comments about falling profit margins are another signal that things might be ready to change.

Tell you what, if Nedsaid does the switch, you will be the first to know.
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by willthrill81 » Sun Jun 16, 2019 1:11 pm

larryswedroe wrote:
Sun Jun 16, 2019 11:36 am
man this is getting absurd, parsing every word. Of course it's not 1999 EXACTLY--we don't have CAPE in 40s just 30 (:-)) And while not the internet craziness we had in 99 we still have companies trading at extremely high valuations with no profits even in sight for years, the kind of stocks that on average have had god awful returns. (Lottery stocks)

I was pointing out that there were similarities and I showed clearly the valuation spreads in small stocks were similar to 1999.
Larry
Larry, to be frank, I believe that you need to calm down.

For the record, I agree with you that there are more differences than similarities to the market 20 years ago.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by abc132 » Sun Jun 16, 2019 1:53 pm

larryswedroe wrote:
Sun Jun 16, 2019 11:36 am
I was pointing out that there were similarities and I showed clearly the valuation spreads in small stocks were similar to 1999.
Larry
One of the tough things about providing information is that the information will often be misinterpreted and/or bent to fit the viewpoint of the reader.

Please don't take it personally when this happens, because it will happen, and should be expected to happen.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by stlutz » Sun Jun 16, 2019 5:02 pm

Returns over the past 5 years (Vanguard index funds)

LG: 11.06%
LV: 8.18%
SG: 8.67%
SV: 6.11%

So, growth has been running ahead of value by a decent but not crazy margin (for 5 years).

PE Ratio comparison (data from ETF.com):

LG: 27.3
LV: 18.81
SG: 84.0
SV: 24.9

I'm not seeing a huge divergence here either. (Yeah, the ratio between SG and SV is big, but that's kind of what happens with the "E" numbers are so small in a PE ratio). And that's the most interesting thing to me--how small earnings are overall in the smallcap space. To be honest, nothing looks like a bargain out of any of these groupings.

As I've said in other threads, whenever we have the next significant and sustained downturn in the market, I predict that value will outperform nicely just because it hasn't gone up as much--value stocks seem to be playing their more traditional role of being the less risky part of the market. I don't think we'll see a replay of 2001 when growth was way down and value was up--I view that as something that I enjoyed once in my investing lifetime that I probably won't see again.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by stlutz » Sun Jun 16, 2019 5:05 pm

And as one additional note to be clear, I am not of the view that the value trade is "overcrowded". I think that all of the research about a value return premium has helped the market price stocks more correctly such than value will not be "undercrowded" in a sustained, year-after-year fashion as it was in the past. Just providing perspective on my comments.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by skeptic42 » Sun Jun 16, 2019 5:27 pm

stlutz wrote:
Sun Jun 16, 2019 5:02 pm
As I've said in other threads, whenever we have the next significant and sustained downturn in the market, I predict that value will outperform nicely just because it hasn't gone up as much--value stocks seem to be playing their more traditional role of being the less risky part of the market.
The value factor is dynamic, a value stock could become a non-value stock. So it is meaningless that "it hasn't gone up as much", because during the next downturn other stocks could be called value.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by larryswedroe » Sun Jun 16, 2019 5:49 pm

nedsaid, all I said is that there were similarities, did not say it was the same thing, and I showed the data. Nor did I make any market timing suggestions, and I have noted value stocks can get even cheaper. AND FWIW did not take it personally, nor do I need to calm down, just sad to see

For STLUTZ, wow, you don't see any difference when SG PEG is 84 vs 25? And especially since analysts persistently overestimate earnings growth of SG and underestimate it for V. Which is part of the behavioral explanation.

BTW one other similarity --corporate debt covenants getting very loose, a very worrisome sign for corporate debt.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by stlutz » Sun Jun 16, 2019 6:01 pm

For STLUTZ, wow, you don't see any difference when SG PEG is 84 vs 25?
Those high ratios are reflection of low earnings/margins, not that smallcap stocks have been bid into the stratosphere. As such, the issue with with narrow profit margins. It doesn't take that much of a change in the profit margin of a company to move the PE from 84 to, say, 35 when the margin is narrow.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by larryswedroe » Sun Jun 16, 2019 6:20 pm

STLUTZ, the problem with that line of thinking is that there is no evidence to support your theory. On other hand, the evidence is very clear that investors persistently overestimate the growth in earnings of growth companies, especially small growth and hence the anomaly of small growth having the worst returns of any asset class. In fact small growth with low profitability and high investment has historically had NEGATIVE returns, not negative premium. That btw is the behavioral explanation along with the limits to arbitrage problem
Just look at the actual evidence I presented showing the metrics in 1999 and today for SG relative to SV. Hard to argue that it isn't similar
Larry
Last edited by larryswedroe on Sun Jun 16, 2019 6:45 pm, edited 1 time in total.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by fortyofforty » Sun Jun 16, 2019 6:30 pm

Yogi Berra would say something like value stocks are so unpopular everybody's buying them.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by Tdubs » Sun Jun 16, 2019 6:52 pm

larryswedroe wrote:
Sun Jun 16, 2019 5:49 pm

BTW one other similarity --corporate debt covenants getting very loose, a very worrisome sign for corporate debt.
So what are you doing with this information, Larry?

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by fennewaldaj » Sun Jun 16, 2019 10:37 pm

stlutz wrote:
Sun Jun 16, 2019 6:01 pm
For STLUTZ, wow, you don't see any difference when SG PEG is 84 vs 25?
Those high ratios are reflection of low earnings/margins, not that smallcap stocks have been bid into the stratosphere. As such, the issue with with narrow profit margins. It doesn't take that much of a change in the profit margin of a company to move the PE from 84 to, say, 35 when the margin is narrow.
Interestingly when you get into the small end of the mid cap space (S+P 400) the spread is less crazy
S+P 400 value P/E - 21.33
S+P 400 growth P/E - 30.09
In the S+P 600 value actually has a higher P/E than the S+P 600 growth (lots of negative earning companies I guess)
S+P 600 value P/E - 41.8
S+P 600 growth P/E - 34.64

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Sun Jun 16, 2019 11:21 pm

larryswedroe wrote:
Sun Jun 16, 2019 5:49 pm
nedsaid, all I said is that there were similarities, did not say it was the same thing, and I showed the data. Nor did I make any market timing suggestions, and I have noted value stocks can get even cheaper. AND FWIW did not take it personally, nor do I need to calm down, just sad to see

For STLUTZ, wow, you don't see any difference when SG PEG is 84 vs 25? And especially since analysts persistently overestimate earnings growth of SG and underestimate it for V. Which is part of the behavioral explanation.

BTW one other similarity --corporate debt covenants getting very loose, a very worrisome sign for corporate debt.
Hi Larry. I want to thank you for sharing the data. It wasn't too long ago that I wondered if Value was cheap but not as cheap as we thought and that Growth was expensive but not as expensive as we thought. I wondered if that was why the Value premium hadn't shown up for a decade. But your data shows the valuation gaps between Growth and Value are as wide as they were in 1999. So that allayed a concern of mine. Value is not dead.

Your comments about declining profit margins were excellent too. Also didn't know about very loose corporate debt covenants. Most of us are not experts in the bond market. So again, what you have shared has been a tremendous help to me personally. It answered questions that I had.

Probably what I will do, is take a portion of my stock allocation and shift to Value over time. No way to time this, my thoughts are that such a shift would be more about controlling risk than boosting returns. Also wondering if I should do a similar shift towards higher quality bonds, it seems US Treasuries would fit the bill nicely.

I know you don't provide timing signals and hopefully I don't either. But it seems that if you see certain things happen in the markets that maybe it is time to apply some lessons learned from the past. Again, the numbers you provided are pretty compelling to me. The least someone could do right now is not pile into the FAANG stocks, Technology Sector Funds, and Growth Indexes. Folks reading this stuff could get tempted to shift into Low Volatility stocks, but as we have said before, these stocks are not cheap and this move could actually be counterproductive.

Pretty much, I am looking at your information provided and thinking through a way to reduce risk and improve future expected returns by buying cheaper assets. This is not about trying to avoid the next bear market. The risk of doing such a shift is the old being right too early problem.

So again, not running a market timing service here. Not telling people to sell their Total Stock Market funds and going to Value Indexes. Not telling folks to run to the hills. Just laying out my thoughts here and what I am thinking about doing. My Small/Value tilts right now are pretty mild, the least I could do perhaps is increasing those tilts a bit. Selling a portion of my Total Market Index funds and buying Value indexes with the proceeds.

Pretty much, what I am doing here is an exercise in thinking aloud. If I decide such a shift is in order for me, I will follow through. The portfolio decisions that I make for myself are for my personal situation, whatever I do may not be applicable to anyone else.
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Sun Jun 16, 2019 11:27 pm

fortyofforty wrote:
Sun Jun 16, 2019 6:30 pm
Yogi Berra would say something like value stocks are so unpopular everybody's buying them.
Except that they are not. At least not yet. I doubt that I have enough street cred, even on the forum, to influence the buying of Value stocks.
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by stlutz » Sun Jun 16, 2019 11:38 pm

nedsaid wrote:
Sun Jun 16, 2019 11:27 pm
I doubt that I have enough street cred, even on the forum, to influence the buying of Value stocks.
If you would give a definitive buy signal, we could test that out! :P :P

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Sun Jun 16, 2019 11:40 pm

Well, let's calculate some odds. This is my 11,542nd post. I have been on the forum about 6 1/2 years or 78 months. If I am right about anything around here only once every six months, that means I have been correct about something 13 times. So if I give a market timing signal, you have about a 13 in 11,542 chance or a 1 in a 888 chance of being right. So taking a market signal from me gives better odds than buying a lottery ticket.

It has been 3-4 years since I told people that plain, old, boring Large Cap Value should be considered for purchase. Despite my fame, killer looks, and utter brilliance; the markets have happily ignored my "buy" signal. So my record so far on the forum regarding timing signals is O for 1. So sorry to disappoint you sports fan out there, my track record about being right about anything and my track record regarding market timing signals is rather poor.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 12:01 am

stlutz wrote:
Sun Jun 16, 2019 11:38 pm
nedsaid wrote:
Sun Jun 16, 2019 11:27 pm
I doubt that I have enough street cred, even on the forum, to influence the buying of Value stocks.
If you would give a definitive buy signal, we could test that out! :P :P
Okay, now that I have given the famous "These dangerous stunts you are watching should be performed only by highly trained professionals, do not try this at home" disclaimer, and now that my legions of adoring fans are demanding it, I will officially issue a "Buy" recommendation on the US Large Value, Mid-Value, and Small-Value indexes. Now let me do my best Jim Cramer imitation and hit the "buy" button.

Buy. Buy-Buy-Buy-Buy.
Buy. Buy-Buy-Buy-Buy.
Buy. Buy-Buy-Buy-Buy.

There you have it. The Nedsaid "Buy" signal. :wink: And yes, that is a definitive "Buy" signal.
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 12:13 am

Hopefully, Cliff Asness didn't read my "buy" recommendation on US Large Value, US Mid Value, and US Small Value and put on a big short. Stock market history could be made as we speak.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by anoop » Mon Jun 17, 2019 12:25 am

What's different this time is companies have a lot more debt and they are using that debt to buy back record amounts of stock and lower their PE. That is why interest rates (at the long end) will not be allowed to go up.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by fortyofforty » Mon Jun 17, 2019 6:33 am

nedsaid wrote:
Sun Jun 16, 2019 11:27 pm
fortyofforty wrote:
Sun Jun 16, 2019 6:30 pm
Yogi Berra would say something like value stocks are so unpopular everybody's buying them.
Except that they are not. At least not yet. I doubt that I have enough street cred, even on the forum, to influence the buying of Value stocks.
I agree. I doubt your words influence the market in any measurable way, and I didn't mean to imply that they did. I won't spend more time than that caviling about my original comment made largely in jest.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by KlangFool » Mon Jun 17, 2019 7:05 am

OP,

1) 40% of my portfolio is in the Wellington fund = 26% LV

2) 10% of my portfolio is in the SCV as part of the mini-Larry portfolio

3) I am 36% tilted to the value factor.

4) No, I do not have special insight into the market. But, the talk about FAANG is similar to the usual talk right before the Telecom bust.

5) My value tilt is not to make more money. It is to lose less money when the market went crazy. I have been through Telecom bust. I know that the market is not efficient all the time. The goal is diversification.

6) The value will not be overcrowded because it is boring. Human behavior is consistent and predictable.

KlangFool

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 10:02 am

fortyofforty wrote:
Mon Jun 17, 2019 6:33 am
nedsaid wrote:
Sun Jun 16, 2019 11:27 pm
fortyofforty wrote:
Sun Jun 16, 2019 6:30 pm
Yogi Berra would say something like value stocks are so unpopular everybody's buying them.
Except that they are not. At least not yet. I doubt that I have enough street cred, even on the forum, to influence the buying of Value stocks.
I agree. I doubt your words influence the market in any measurable way, and I didn't mean to imply that they did. I won't spend more time than that caviling about my original comment made largely in jest.
I am having some fun with this. My "buy" signal was in jest, though I believe shifting some stocks to Value over time isn't a bad idea. Larry's articles and the statistics presented are pretty compelling but every investor has to decide for him or herself whether this is actionable.
A fool and his money are good for business.

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nedsaid
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 11:24 am

I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by DaufuskieNate » Mon Jun 17, 2019 12:13 pm

nedsaid wrote:
Mon Jun 17, 2019 11:24 am
I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
Whoa! 6 shares??! Pretty high conviction trade there. Well done! :D

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 12:20 pm

DaufuskieNate wrote:
Mon Jun 17, 2019 12:13 pm
nedsaid wrote:
Mon Jun 17, 2019 11:24 am
I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
Whoa! 6 shares??! Pretty high conviction trade there. Well done! :D
More is coming, I actually plan to do some rebalancing back into Value over time. I am having a lot of fun with this. As I said, folks have to decide for themselves if Larry's recent articles about Value are actionable. I do take this forum seriously but I also don't think it is against forum policies to have a bit of fun too.
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by DaufuskieNate » Mon Jun 17, 2019 12:21 pm

nedsaid wrote:
Mon Jun 17, 2019 12:20 pm
DaufuskieNate wrote:
Mon Jun 17, 2019 12:13 pm
nedsaid wrote:
Mon Jun 17, 2019 11:24 am
I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
Whoa! 6 shares??! Pretty high conviction trade there. Well done! :D
More is coming, I actually plan to do some rebalancing back into Value over time. I am having a lot of fun with this. As I said, folks have to decide for themselves if Larry's recent articles about Value are actionable. I do take this forum seriously but I also don't think it is against forum policies to have a bit of fun too.
Agreed. My comment was offered entirely in the spirit of fun.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by fortyofforty » Mon Jun 17, 2019 4:18 pm

DaufuskieNate wrote:
Mon Jun 17, 2019 12:21 pm
nedsaid wrote:
Mon Jun 17, 2019 12:20 pm
DaufuskieNate wrote:
Mon Jun 17, 2019 12:13 pm
nedsaid wrote:
Mon Jun 17, 2019 11:24 am
I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
Whoa! 6 shares??! Pretty high conviction trade there. Well done! :D
More is coming, I actually plan to do some rebalancing back into Value over time. I am having a lot of fun with this. As I said, folks have to decide for themselves if Larry's recent articles about Value are actionable. I do take this forum seriously but I also don't think it is against forum policies to have a bit of fun too.
Agreed. My comment was offered entirely in the spirit of fun.
You'd think some people consider this a "Fun Free Zone", sometimes. :D
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

retiringwhen
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by retiringwhen » Mon Jun 17, 2019 4:24 pm

nedsaid wrote:
Mon Jun 17, 2019 11:24 am
I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
My primary concern about following your buy recommendation is just two words:

nedsaid effect

‘Nough said :shock:

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nedsaid
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 5:01 pm

retiringwhen wrote:
Mon Jun 17, 2019 4:24 pm
nedsaid wrote:
Mon Jun 17, 2019 11:24 am
I had a few hundred dollars in cash in my rollover IRA account so I just purchased 6 shares of IJS, the iShares S&P Small-Cap 600 Value Index ETF, adding to that position. Seeing that I, in jest, put a "buy" recommendation on US Large-Cap Value, US Mid-Cap Value, and US Small-Cap Value; I decided to set the example and do my small part to make Value investing great again!
My primary concern about following your buy recommendation is just two words:

nedsaid effect

‘Nough said :shock:
Yes, the Nedsaid effect is a big consideration when making portfolio changes. One reason that I make changes over a period of time rather than all at once. Even then, sometimes you wonder if you did the right thing.

The buy decision is so much easier to make than the sell decision. It seems the ratio of incorrect sell/buy decisions over the correct sell/buy decisions is 2:1 or even 3:1. What you sell most often seems to do better than what you buy to replace, at least in the short term. That is how I define the Nedsaid effect.

So what causes the Nedsaid effect? In my case, I tend to pick stocks that are Value oriented. Value is associated with negative momentum, which means a Value stock might continue to drop after you buy it. But hard to pick the exact bottom for a stock. Another cause is giving up on an investment because it hasn't done well for a while, investor impatience, giving up too soon. Being right too early is another problem. This is why you need a narrative for every investment that you buy. In other words, why did you buy it in the first place? If the underlying story hasn't changed then you probably should not sell.

If you have a set of deeply held beliefs, there will come a time when two of those beliefs will come into conflict. So my preference for cheaper assets comes into conflict with my reluctance to trade. So what wins out in this situation?

Another thing to think about is that the "Nedsaid effect" can be an excuse to do nothing when a change is in your best interest. If you are in a poor performing mutual fund weighed down by high fees and you can switch to a very low cost index fund in the very same asset class, this would seem to be an exception to a normal reticence to trade. Another exception would be rebalancing your portfolio which is selling a portion of your expensive assets to rebalance into cheaper assets.

Sometimes when you do a trade in order to do the right thing, you will often find that short term your decision will be a drag on your returns. It might take a longer time period to see the benefits of your decision. An example was my successful investment in Applied Materials, I sold 2/3 of my investment to buy three other stocks: Coke, Gilead Sciences, and Ford. I did the "right" thing but of the three only Coke, the most expensive of the three, is up. I did this because I had previously ridden a High Tech stock, Hewlett-Packard, all the way up and all the way back down. I also did this because of my belief in diversification. As Larry said above, cheap can get cheaper.

I do believe that Larry has laid out a compelling scenario, that is the gap between Growth and Value is the same as 1999. Other eery similarities which we have discussed before are in force. Hard to just ignore all of that. Larry shifted all of his stocks to Value in 1997. What I am considering is a more modest shift. But again, every individual investor needs to decide for himself or herself whether this is even actionable. If you decide this is actionable, then the question is how much?

My "buy" signal was made mostly in jest. But I am saying that I will do some modest retilts towards Value over time. What I will do could be characterized as a rebalance from Growth to Value or simply refreshing my Small/Value tilts. I am going to do something and I took my first baby step today. Probably next step is to sell a portion of my Total Stock Market Index in order to buy Value Indexes.

It could be that if I do this, all I would be doing is reducing my risk profile and not enhancing my returns. But I am okay with reducing risk.
Last edited by nedsaid on Mon Jun 17, 2019 5:16 pm, edited 3 times in total.
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by rkhusky » Mon Jun 17, 2019 5:05 pm

KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by KlangFool » Mon Jun 17, 2019 5:09 pm

rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by nedsaid » Mon Jun 17, 2019 5:20 pm

KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
KlangFool, it seems we are kindred spirits. I am wary of the FAANG stocks, still own them in my various funds but in less than market weights. I still remember the High Tech/Internet boom of the late 1990's and the bust in the early 2000's.
A fool and his money are good for business.

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by KlangFool » Mon Jun 17, 2019 6:40 pm

nedsaid wrote:
Mon Jun 17, 2019 5:20 pm
KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
KlangFool, it seems we are kindred spirits. I am wary of the FAANG stocks, still own them in my various funds but in less than market weights. I still remember the High Tech/Internet boom of the late 1990's and the bust in the early 2000's.
I lost 50% of my money in Telecom bust. I still remembered the insanity from that time. The Wellington fund is my hedge against that insanity.

KlangFool

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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by rkhusky » Mon Jun 17, 2019 7:40 pm

KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
Are you shorting FANG stocks?

KlangFool
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by KlangFool » Mon Jun 17, 2019 7:53 pm

rkhusky wrote:
Mon Jun 17, 2019 7:40 pm
KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
Are you shorting FANG stocks?
rkhusky,

No. I am tilting toward LV stock via the Wellington fund. FAANG is LG stocks.

As usual, like the Telecom bust, it is the LG stocks that lead the market irrationality.

The Wellington funs is my hedge/diversification from LG and passive indexing at the same time.

40% of my portfolio is in the Wellington fund. 40% into the 3 funds. 20% into the mini-Larry portfolio.

KlangFool

stlutz
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by stlutz » Mon Jun 17, 2019 7:57 pm

nedsaid wrote:
Mon Jun 17, 2019 12:01 am
stlutz wrote:
Sun Jun 16, 2019 11:38 pm
nedsaid wrote:
Sun Jun 16, 2019 11:27 pm
I doubt that I have enough street cred, even on the forum, to influence the buying of Value stocks.
If you would give a definitive buy signal, we could test that out! :P :P
Okay, now that I have given the famous "These dangerous stunts you are watching should be performed only by highly trained professionals, do not try this at home" disclaimer, and now that my legions of adoring fans are demanding it, I will officially issue a "Buy" recommendation on the US Large Value, Mid-Value, and Small-Value indexes. Now let me do my best Jim Cramer imitation and hit the "buy" button.

Buy. Buy-Buy-Buy-Buy.
Buy. Buy-Buy-Buy-Buy.
Buy. Buy-Buy-Buy-Buy.

There you have it. The Nedsaid "Buy" signal. :wink: And yes, that is a definitive "Buy" signal.
Well, it would appear that you indeed have no market effect. Growth was up today and value was down. :D

columbia
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by columbia » Mon Jun 17, 2019 8:01 pm

KlangFool wrote:
Mon Jun 17, 2019 7:53 pm
rkhusky wrote:
Mon Jun 17, 2019 7:40 pm
KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
Are you shorting FANG stocks?
rkhusky,

No. I am tilting toward LV stock via the Wellington fund. FAANG is LG stocks.

As usual, like the Telecom bust, it is the LG stocks that lead the market irrationality.

The Wellington funs is my hedge/diversification from LG and passive indexing at the same time.

40% of my portfolio is in the Wellington fund. 40% into the 3 funds. 20% into the mini-Larry portfolio.

KlangFool

That’s an interesting approach.

rkhusky
Posts: 6747
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Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by rkhusky » Mon Jun 17, 2019 8:47 pm

KlangFool wrote:
Mon Jun 17, 2019 7:53 pm
rkhusky wrote:
Mon Jun 17, 2019 7:40 pm
KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm
KlangFool wrote:
Mon Jun 17, 2019 7:05 am
I know that the market is not efficient all the time.
Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
Are you shorting FANG stocks?
rkhusky,

No. I am tilting toward LV stock via the Wellington fund. FAANG is LG stocks.

As usual, like the Telecom bust, it is the LG stocks that lead the market irrationality.

The Wellington funs is my hedge/diversification from LG and passive indexing at the same time.

40% of my portfolio is in the Wellington fund. 40% into the 3 funds. 20% into the mini-Larry portfolio.

KlangFool
If one has a strong conviction that the FANG stocks are significantly mispriced by the market, I would expect that one would collect the easy money by shorting the stocks. But perhaps you don't feel that the mispricing is significant enough to overcome the extra cost of shorting. Or there is not a strong conviction of mispricing.

KlangFool
Posts: 12953
Joined: Sat Oct 11, 2008 12:35 pm

Re: Larry Swedroe: Has The Value Trade Become Overcrowded.

Post by KlangFool » Mon Jun 17, 2019 9:00 pm

rkhusky wrote:
Mon Jun 17, 2019 8:47 pm
KlangFool wrote:
Mon Jun 17, 2019 7:53 pm
rkhusky wrote:
Mon Jun 17, 2019 7:40 pm
KlangFool wrote:
Mon Jun 17, 2019 5:09 pm
rkhusky wrote:
Mon Jun 17, 2019 5:05 pm

Depends what it is meant by efficient. Does it mean that public information is quickly incorporated into market prices? Or does it mean that no one can make money betting against the market? Does efficiency mean that current market prices are expected to predict future market prices?
For example, do you believe that FAANG's stock price is reasonable? I don't.

KlangFool
Are you shorting FANG stocks?
rkhusky,

No. I am tilting toward LV stock via the Wellington fund. FAANG is LG stocks.

As usual, like the Telecom bust, it is the LG stocks that lead the market irrationality.

The Wellington funs is my hedge/diversification from LG and passive indexing at the same time.

40% of my portfolio is in the Wellington fund. 40% into the 3 funds. 20% into the mini-Larry portfolio.

KlangFool
If one has a strong conviction that the FANG stocks are significantly mispriced by the market, I would expect that one would collect the easy money by shorting the stocks. But perhaps you don't feel that the mispricing is significant enough to overcome the extra cost of shorting. Or there is not a strong conviction of mispricing.
rkhusky,

You are approaching from a tactical/market timing standpoint. I am approaching from a strategic point of view. I am building a portfolio that does not require me to know anything about the current market.

I do not have to know whether LG is overvalued or now. I am tilted towards LV. If and when the LG takes over the total market and reaches an irrational level, I will make money from my passive index side. And, if and when the LG crashes, my LV side will make money for me.

I have a fixed allocation to the Wellington fund and the passive index side. As long as I buy, hold, and rebalance. I will "buy low and sell high".

This is the same as a fixed AA of 60/40 and buy, hold, and rebalance between stock and fixed income. In this case, it is between the total stock market and LV.

KlangFool

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