[Larry Swedroe: Small Value Stocks are Cheap, Factor Investing Works]

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stlutz
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by stlutz » Wed Aug 14, 2019 10:32 pm

Larry's article wrote:

For example, from inception in April 1993 through June 2019, the first passively managed fund to provide systematic exposure to the asset class, the DFA US Small Value Fund (DFSVX), returned 11.0% per annum (the Fama-French US Small Value Research Index returned 12.4% per annum), outperforming the Vanguard 500 Index Fund (VFINX) return of 9.4% per annum by 1.6 percentage points per annum.
Let's look at 2 portfolios that equalize volatility:

A 60/40 Total Stock / Total Bond
A 46/54 DFA SV / Total Bond

This produced almost exactly the same return with the same volatility. Even the max drawdown which is supposed to be so much better under the later portfolio isn't.

The way you got from point A to point B was slightly different, but both have ended up in the same place.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

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Past Performance and Nobel Laureates Recommendations

Post by Taylor Larimore » Wed Aug 14, 2019 10:43 pm

Bogleheads:

We have over 100 Replies to the original post that "Small Value Stocks Are Cheap." Many replies use "past performance" to argue their case.

In my opinion, "past performance" is nearly useless and often misleading. Bill Schultheis, adviser and author of The Coffeehouse Investor put it best: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

This is what five Nobel Laureates recommend:
Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."
The Three-Fund (Market) Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Past Performance and Nobel Laureates Recommendations

Post by abuss368 » Wed Aug 14, 2019 10:52 pm

Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
Bogleheads:

We have over 100 Replies to the original post that "Small Value Stocks Are Cheap." Many replies use "past performance" to argue their case.

In my opinion, "past performance" is nearly useless and often misleading. Bill Schultheis, adviser and author of The Coffeehouse Investor put it best: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

This is what five Nobel Laureates recommend:
Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."
The Three-Fund (Market) Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
Well said Taylor! Thanks.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 10:53 pm

We have family and friends that invest in Jack Bogle’s Two Fund Portfolio and are very happy and thankful for the simplicity and results.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 10:54 pm

I forgot to mention “keep investing simple”. Mr. Bogle has often said simplicity is the master key to financial success. No need for small corners of the market.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Past Performance and Nobel Laureates Recommendations

Post by abuss368 » Wed Aug 14, 2019 10:55 pm

Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
Bogleheads:

We have over 100 Replies to the original post that "Small Value Stocks Are Cheap." Many replies use "past performance" to argue their case.

In my opinion, "past performance" is nearly useless and often misleading. Bill Schultheis, adviser and author of The Coffeehouse Investor put it best: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

This is what five Nobel Laureates recommend:
Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."
The Three-Fund (Market) Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
Taylor did you ever invest in small cap funds years ago before simplifying?
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Past Performance and Nobel Laureates Recommendations

Post by willthrill81 » Wed Aug 14, 2019 11:02 pm

Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
In my opinion, "past performance" is nearly useless and often misleading.
May I then ask you how you would suggest that investors determine an appropriate asset allocation?

I personally know several individuals with a Ph.D. in finance, and, for what it's worth, none of them believe past performance to be "nearly useless." One could argue that that's because their profession will not allow such a belief, but an alternative explanation is that their belief that it can be useful is indeed accurate.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 11:08 pm

Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Past Performance and Nobel Laureates Recommendations

Post by Dialectical Investor » Wed Aug 14, 2019 11:14 pm

Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
Out of all the quotes and their missing context, meaning, and message, this is probably the most troublesome. Certainly there is no guarantee that you "win" by holding the market portfolio, or any portfolio. And if past performance is useless, so is this quote.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 11:34 pm

abuss368 wrote:
Wed Aug 14, 2019 11:08 pm
Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
But why is this excellent advice? Can we evaluate it completely apart from past performance?
Last edited by willthrill81 on Wed Aug 14, 2019 11:36 pm, edited 1 time in total.
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Re: Past Performance and Nobel Laureates Recommendations

Post by willthrill81 » Wed Aug 14, 2019 11:35 pm

Dialectical Investor wrote:
Wed Aug 14, 2019 11:14 pm
Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
Out of all the quotes and their missing context, meaning, and message, this is probably the most troublesome. Certainly there is no guarantee that you "win" by holding the market portfolio, or any portfolio. And if past performance is useless, so is this quote.
Taken alone, it does seem to suggest what I referred to earlier in the thread: a belief that TSM will provide investors with the returns needed to achieve their goals (i.e. we 'win').
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 11:38 pm

willthrill81 wrote:
Wed Aug 14, 2019 10:20 pm
To those who appear to believe that I said Warren Buffett endorsed SCV, please re-read what I actually wrote.
willthrill81 wrote:
Wed Aug 14, 2019 9:09 pm
Risk is a multi-faceted issue, and it certainly goes much farther than just volatility; that's why Warren Buffett has said that he views bonds as riskier than stocks. Volatility is primarily used as a proxy for risk as a matter of convenience and convention.
This is independent of whether an investor believes that TSM or SCV is more appropriate for them. My point was only that all of the risks that an investor faces cannot be summed up in volatility alone.
Your misquote is indeed a misquote. He said that too many conservative bonds can increase the risk of a portfolio over the long term.

Not that bonds are riskier than stocks. That's a gross misstatement.

You have both the idea and context completely wrong.

Referencing Buffett is ironic if you understand how he felt about small caps - which is separate from your statement of course.
Last edited by abc132 on Wed Aug 14, 2019 11:55 pm, edited 3 times in total.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Fryxell » Wed Aug 14, 2019 11:40 pm

nedsaid wrote:
Wed Aug 14, 2019 7:57 pm
I like Bogleheads. But with all due respect their continued infatuation with Total Stock Market Index after 30 years of underperformance relative to long term treasuries from 1982-2012 reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck
Yep, there are many factor skeptics here. But it’s curious how they adamantly believe in the equity premium (market factor) despite the fact that equities have underperformed long-term treasuries for the last 20 years. That’s a long time. Curiously, they are convinced factors can be arbitraged away, except for the equity risk premium, which they insist absolutely, cannot, under any circumstances, be arbitraged away (even though it has been absent for 20 years running).

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Wed Aug 14, 2019 11:48 pm

willthrill81 wrote:
Wed Aug 14, 2019 9:10 pm
EnjoyIt wrote:
Wed Aug 14, 2019 8:49 pm
willthrill81 wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:18 am
The beauty of Total Market funds is that we can sleep well and not have to worry about underperforming the market. No sector or style risks.
Many investors are well served by owning TSM for all of their U.S. equity exposure.

But TSM may or may not allow investors to achieve their goals. Tilting toward SCV may help them do that better. or make it more difficult to achieve those goals.
Let me correct the above for you.
That's why I said 'may', but whatever.
Ahhh, you said “may help” but completely ignored that it also may harm. Big difference.

Without the “may harm” the sentence reads that without SCV a person may have worse results and not reach their goal. It almost has a bit of fear-mongering in it which I suspect is not your intention based on discussions with you in the past.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 11:53 pm

Fryxell wrote:
Wed Aug 14, 2019 11:40 pm
nedsaid wrote:
Wed Aug 14, 2019 7:57 pm
I like Bogleheads. But with all due respect their continued infatuation with Total Stock Market Index after 30 years of underperformance relative to long term treasuries from 1982-2012 reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck
Yep, there are many factor skeptics here. But it’s curious how they adamantly believe in the equity premium (market factor) despite the fact that equities have underperformed long-term treasuries for the last 20 years. That’s a long time. Curiously, they are convinced factors can be arbitraged away, except for the equity risk premium, which they insist absolutely, cannot, under any circumstances, be arbitraged away (even though it has been absent for 20 years running).
Larry laid out what you have to believe for factor investing, and I belive he himself choose not to go after trend.

Are you berating Larry for not choosing trend? (he is trend neutral, so he also doesn't want to short it)

Or would you encourage others to think for themselves?

If you want to try for something better than TSM, you need to do your own thinking, and realize that your own thought process may be flawed, and that even the best ideas may not work out as planned. If as Larry says, the implementation of factors is important, then it is not as easy a decision as something like TSM, which you just grab and use.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Thu Aug 15, 2019 12:04 am

Let’s be honest with the subject and follow the money. Money managers need to make a living and to do so must provide something for their fees. They have momentum, factors or whatever algorithm they use to appear to provide value to their clients so that they don’t run off and invest in index funds on their own.

Are these just gimmicks or is there real value that is worth the cost of the AUM? Only the future will tell. I’m sticking with my 3 fund portfolio. Im okay with being average.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by noraz123 » Thu Aug 15, 2019 2:34 am

+1 to what Taylor said. I will take the market return with my simple 3-fund portfolio and be very happy with it. If those that tilt to small cap value beat the market, I will be happy for them, not envious. And I will not change my allocation should small cap value outperform the market for some period in the future.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by rossington » Thu Aug 15, 2019 4:14 am

Fryxell wrote:
Wed Aug 14, 2019 11:40 pm
nedsaid wrote:
Wed Aug 14, 2019 7:57 pm
I like Bogleheads. But with all due respect their continued infatuation with Total Stock Market Index after 30 years of underperformance relative to long term treasuries from 1982-2012 reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck
Yep, there are many factor skeptics here. But it’s curious how they adamantly believe in the equity premium (market factor) despite the fact that equities have underperformed long-term treasuries for the last 20 years. That’s a long time. Curiously, they are convinced factors can be arbitraged away, except for the equity risk premium, which they insist absolutely, cannot, under any circumstances, be arbitraged away (even though it has been absent for 20 years running).
Who cares about 1982-2012 or even the last 20 years? The world we live in is unequivocally different. What I see is that VTSAX https://investor.vanguard.com/mutual-fu ... file/vtsax has outperformed VUSTX https://investor.vanguard.com/mutual-fu ... file/VUSTX since 2009.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 15, 2019 6:14 am

Jack Bogle has always said don’t search for the needle in the haystack. Buy the haystack! Total market investing does just this.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Thu Aug 15, 2019 8:20 am

willthrill81 wrote:
Wed Aug 14, 2019 3:26 pm
So do you ignore all stock market data that existed before the emergence of mutual funds? I'm genuinely curious. One other person here not long ago stated that he more of less does.
Nice strawman attempt. I don't ignore all past data, I just give more weight to actual real fund performance, since that's what I invest in.
willthrill81 wrote:
Wed Aug 14, 2019 3:26 pm
If you change the starting year to 1999, the numbers are obviously different, but SCV still had a substantial lead over TSM in every way measured.
And if you change the year to 2007, SCV is lagging by 1%. What's your point? When you start any data series at or near a point following several years of significant underperformance it will almost always show better results going forward.

Watch me do it with emerging markets: https://www.portfoliovisualizer.com/bac ... 0&total3=0

Now I know emerging markets have, historically, actually returned less that developed markets over very long periods of time. But I can paint a convincing story with this graph that EM is the best long-term investment. But if I start a few years earlier, a different pictures emerges: https://www.portfoliovisualizer.com/bac ... 0&total3=0

EM looks to be only a periodically good investment now (2003-2007), and most of the time it appears to be a drag (1994-2003, 2007-2019).

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Re: Past Performance and Nobel Laureates Recommendations

Post by Howard Donnelly » Thu Aug 15, 2019 9:04 am

abuss368 wrote:
Wed Aug 14, 2019 10:52 pm
Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
Bogleheads:

We have over 100 Replies to the original post that "Small Value Stocks Are Cheap." Many replies use "past performance" to argue their case.

In my opinion, "past performance" is nearly useless and often misleading. Bill Schultheis, adviser and author of The Coffeehouse Investor put it best: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

This is what five Nobel Laureates recommend:
Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."
The Three-Fund (Market) Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
Well said Taylor! Thanks.
+1

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Whakamole » Thu Aug 15, 2019 9:11 am

abuss368 wrote:
Wed Aug 14, 2019 11:08 pm
Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
No, Bogle was 50/50 in 2015, that's not compatible at all with having a bond allocation in age: https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html

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Re: Past Performance and Nobel Laureates Recommendations

Post by abuss368 » Thu Aug 15, 2019 9:12 am

Howard Donnelly wrote:
Thu Aug 15, 2019 9:04 am
abuss368 wrote:
Wed Aug 14, 2019 10:52 pm
Taylor Larimore wrote:
Wed Aug 14, 2019 10:43 pm
Bogleheads:

We have over 100 Replies to the original post that "Small Value Stocks Are Cheap." Many replies use "past performance" to argue their case.

In my opinion, "past performance" is nearly useless and often misleading. Bill Schultheis, adviser and author of The Coffeehouse Investor put it best: "Using past performance numbers as a method for choosing mutual funds is such a lousy idea that mutual fund companies are required by law to tell you it is a lousy idea."

This is what five Nobel Laureates recommend:
Eugene Fama: "Whether you decide to tilt toward value depends on whether you are willing to bear the associated risk...The market portfolio is always efficient...For most people, the market portfolio is the most sensible decision."

Harry Markowitz: "A foolish attempt to beat the market and get rich quickly will make one's broker rich and oneself much less so."

Paul Samuelson: "The most efficient way to diversify a stock portfolio is with a low-fee index fund. Statistically, a broadly based stock index fund will outperform most actively managed equity portfolios."

William Sharpe: "You may think your opinion is superior, but it pays to be humble, investing in the market rather than trying to beat it."

Robert Shiller: "A portfolio approximating the market may be the most important portfolio."
The Three-Fund (Market) Portfolio

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "If we abandon our inevitably futile attempts to obtain an edge over other market participants and simply hold our share of the market portfolio, we win."
Well said Taylor! Thanks.
+1
:sharebeer
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 15, 2019 9:13 am

Whakamole wrote:
Thu Aug 15, 2019 9:11 am
abuss368 wrote:
Wed Aug 14, 2019 11:08 pm
Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
No, Bogle was 50/50 in 2015, that's not compatible at all with having a bond allocation in age: https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html
Not Mr. Bogle personally but rather the advice he consistently provided over the years.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Whakamole » Thu Aug 15, 2019 9:21 am

abuss368 wrote:
Thu Aug 15, 2019 9:13 am
Whakamole wrote:
Thu Aug 15, 2019 9:11 am
abuss368 wrote:
Wed Aug 14, 2019 11:08 pm
Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
No, Bogle was 50/50 in 2015, that's not compatible at all with having a bond allocation in age: https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html
Not Mr. Bogle personally but rather the advice he consistently provided over the years.
You mean like decreasing your stock holdings/increasing your bond holdings because stock prices are high? https://www.cnbc.com/2018/12/31/jack-bo ... ution.html

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Random Walker » Thu Aug 15, 2019 9:35 am

I think too many here are focusing on factors, whether market beta or size and value, in isolation. What is significant is the concept of combining uncorrelated factors in a portfolio. It’s how the factors potentially mix that is really significant.

Dave

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 9:39 am

EnjoyIt wrote:
Wed Aug 14, 2019 11:48 pm
willthrill81 wrote:
Wed Aug 14, 2019 9:10 pm
EnjoyIt wrote:
Wed Aug 14, 2019 8:49 pm
willthrill81 wrote:
Wed Aug 14, 2019 10:29 am
abuss368 wrote:
Wed Aug 14, 2019 10:18 am
The beauty of Total Market funds is that we can sleep well and not have to worry about underperforming the market. No sector or style risks.
Many investors are well served by owning TSM for all of their U.S. equity exposure.

But TSM may or may not allow investors to achieve their goals. Tilting toward SCV may help them do that better. or make it more difficult to achieve those goals.
Let me correct the above for you.
That's why I said 'may', but whatever.
Ahhh, you said “may help” but completely ignored that it also may harm. Big difference.

Without the “may harm” the sentence reads that without SCV a person may have worse results and not reach their goal. It almost has a bit of fear-mongering in it which I suspect is not your intention based on discussions with you in the past.
Then by the same token, we should use the same warning for the 3-fund portfolio every time its mentioned.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 9:48 am

asif408 wrote:
Thu Aug 15, 2019 8:20 am
willthrill81 wrote:
Wed Aug 14, 2019 3:26 pm
So do you ignore all stock market data that existed before the emergence of mutual funds? I'm genuinely curious. One other person here not long ago stated that he more of less does.
Nice strawman attempt. I don't ignore all past data, I just give more weight to actual real fund performance, since that's what I invest in.
Hold on there. You first berated my statement because the data I used didn't include only actual fund data (i.e. French's dataset). And when I then changed the start date to 1999, the first full year of Vanguard's VISVX and which PV uses as the proxy for SCV, in an effort to shift the conversation to actual fund data, you basically now accuse me of cherry picking. I genuinely did not know whether you personally choose to ignore 'pre-mutual fund' data, which is why I asked the question. I kindly ask you to not accuse me of making a strawman argument when I was simply asking for clarification as to how you choose to analyze this issue.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » Thu Aug 15, 2019 9:50 am

Fryxell wrote:
Wed Aug 14, 2019 11:40 pm
nedsaid wrote:
Wed Aug 14, 2019 7:57 pm
I like Bogleheads. But with all due respect their continued infatuation with Total Stock Market Index after 30 years of underperformance relative to long term treasuries from 1982-2012 reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck
Yep, there are many factor skeptics here. But it’s curious how they adamantly believe in the equity premium (market factor) despite the fact that equities have underperformed long-term treasuries for the last 20 years. That’s a long time. Curiously, they are convinced factors can be arbitraged away, except for the equity risk premium, which they insist absolutely, cannot, under any circumstances, be arbitraged away (even though it has been absent for 20 years running).
Look, I am not saying that Total Stock Market is a bad investment. It is my largest portfolio holding. What I am saying is that every asset class out there has periods of disappointing performance, including the stock market itself.

The period from 1982-2012 was pretty unusual. Interest rates had been driven up to very artificially high levels to kill of inflation, treasury rates got up to 14%. Interest rates did nothing but fall for 30 years and we experienced falling rates of inflation as well. We had a huge bond bull market that lasted 30 years, the stock bull market lasted from 1984-1999 and was one of the largest in history. The stock market then was flat for about twelve years, with two 50% down bear markets in between. Long treasuries beat stocks over the 30 year period but not by much, and also under circumstances we likely won't see again in our lifetimes. No one here is saying to give up on stocks but have given up on the Small Value premium after only 10 years.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 9:53 am

Whakamole wrote:
Thu Aug 15, 2019 9:21 am
abuss368 wrote:
Thu Aug 15, 2019 9:13 am
Whakamole wrote:
Thu Aug 15, 2019 9:11 am
abuss368 wrote:
Wed Aug 14, 2019 11:08 pm
Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
No, Bogle was 50/50 in 2015, that's not compatible at all with having a bond allocation in age: https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html
Not Mr. Bogle personally but rather the advice he consistently provided over the years.
You mean like decreasing your stock holdings/increasing your bond holdings because stock prices are high? https://www.cnbc.com/2018/12/31/jack-bo ... ution.html
Honestly, there were many documented instances of where Jack, great gentleman though he was, was not entirely consistent. He was the father of index funds, but he wasn't opposed to low-cost active management. He told people to 'stay the course' but timed the market on occasion. He said that he didn't like commodities and then advocated a small allocation to gold for at least one endowment fund. So it shouldn't be surprising that he advocated 'age in bonds' but then personally chose a different path.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Thu Aug 15, 2019 10:14 am

willthrill81 wrote:
Thu Aug 15, 2019 9:48 am
Hold on there. You first berated my statement because the data I used didn't include only actual fund data (i.e. French's dataset). And when I then changed the start date to 1999, the first full year of Vanguard's VISVX and which PV uses as the proxy for SCV, in an effort to shift the conversation to actual fund data, you basically now accuse me of cherry picking. I genuinely did not know whether you personally choose to ignore 'pre-mutual fund' data, which is why I asked the question. I kindly ask you to not accuse me of making a strawman argument when I was simply asking for clarification as to how you choose to analyze this issue.
Ok, I apologize since you say you weren't intending to do that.

My larger point is simply that I don't think there is anything special about SCV, or emerging markets, or US stocks, or any other asset class. Most asset classes have periods they do well and periods they don't, and looking back you will always find a long term winner, and different starting and different ending points show different winners. The question is: is the current long-term winner of the past the long-term winner of the future. I side with Taylor when he makes his post about simply holding the entire market, as that is the safest way to ensure you aren't subject to a long-term underperformance.

I actually do agree with you and Larry's piece that SCV is likely to outperform the US stock market in the future (whether it outperforms foreign markets is a separate question). One of the few fairly reliable predictions in investing is one Jack used to quote from the Bible: "The last shall be first and the first last." Of course, how long that takes to play out is a question I can't answer.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 10:27 am

asif408 wrote:
Thu Aug 15, 2019 10:14 am
willthrill81 wrote:
Thu Aug 15, 2019 9:48 am
Hold on there. You first berated my statement because the data I used didn't include only actual fund data (i.e. French's dataset). And when I then changed the start date to 1999, the first full year of Vanguard's VISVX and which PV uses as the proxy for SCV, in an effort to shift the conversation to actual fund data, you basically now accuse me of cherry picking. I genuinely did not know whether you personally choose to ignore 'pre-mutual fund' data, which is why I asked the question. I kindly ask you to not accuse me of making a strawman argument when I was simply asking for clarification as to how you choose to analyze this issue.
Ok, I apologize since you say you weren't intending to do that.

My larger point is simply that I don't think there is anything special about SCV, or emerging markets, or US stocks, or any other asset class. Most asset classes have periods they do well and periods they don't, and looking back you will always find a long term winner, and different starting and different ending points show different winners. The question is: is the current long-term winner of the past the long-term winner of the future. I side with Taylor when he makes his post about simply holding the entire market, as that is the safest way to ensure you aren't subject to a long-term underperformance.

I actually do agree with you and Larry's piece that SCV is likely to outperform the US stock market in the future (whether it outperforms foreign markets is a separate question). One of the few fairly reliable predictions in investing is one Jack used to quote from the Bible: "The last shall be first and the first last." Of course, how long that takes to play out is a question I can't answer.
I understand your logic and can easily see why many find it compelling. Larry and others believe that there are risk based reasons (i.e. not just backtesting) to expect SCV to outperform TSM over the long-term, but that is obviously theory that might be wrong. And past may not be prologue.

All roads carry risk.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Thu Aug 15, 2019 10:51 am

willthrill81 wrote:
Thu Aug 15, 2019 10:27 am
I understand your logic and can easily see why many find it compelling. Larry and others believe that there are risk based reasons (i.e. not just backtesting) to expect SCV to outperform TSM over the long-term, but that is obviously theory that might be wrong. And past may not be prologue.
There may be. My biggest skepticism with SCV and other factor strategies is that once an investment style or strategy becomes easily investable (like SCV and many other factors are now), I don't see how most of that past premium wouldn't disappear, and any future premium will be more a function of simply recent weak performance and reversion to the mean at some point in the future.

It seems to me that many of these investment strategies that outperformed in the past were also more difficult to implement in the past, and therefore carried a potentially higher premium simply because they were harder to implement.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Thu Aug 15, 2019 10:57 am

willthrill81 wrote:
Thu Aug 15, 2019 9:39 am
EnjoyIt wrote:
Wed Aug 14, 2019 11:48 pm
willthrill81 wrote:
Wed Aug 14, 2019 9:10 pm
EnjoyIt wrote:
Wed Aug 14, 2019 8:49 pm
willthrill81 wrote:
Wed Aug 14, 2019 10:29 am


Many investors are well served by owning TSM for all of their U.S. equity exposure.

But TSM may or may not allow investors to achieve their goals. Tilting toward SCV may help them do that better. or make it more difficult to achieve those goals.
Let me correct the above for you.
That's why I said 'may', but whatever.
Ahhh, you said “may help” but completely ignored that it also may harm. Big difference.

Without the “may harm” the sentence reads that without SCV a person may have worse results and not reach their goal. It almost has a bit of fear-mongering in it which I suspect is not your intention based on discussions with you in the past.
Then by the same token, we should use the same warning for the 3-fund portfolio every time its mentioned.
Sort of, but not really since the market is the benchmark and all those "strategies/tilts/gimmicks" are there to beat the market therefore the comparison is to the market. Since the 3 fund portfolio is the market plus bonds, the comparison is in essence to a 3 fund portfolio.

Any deviation from the market may help or may harm portfolio results.
Any deviation from a 3 fund portfolio may help or may harm portfolio results.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Thu Aug 15, 2019 11:03 am

asif408 wrote:
Thu Aug 15, 2019 10:51 am
willthrill81 wrote:
Thu Aug 15, 2019 10:27 am
I understand your logic and can easily see why many find it compelling. Larry and others believe that there are risk based reasons (i.e. not just backtesting) to expect SCV to outperform TSM over the long-term, but that is obviously theory that might be wrong. And past may not be prologue.
There may be. My biggest skepticism with SCV and other factor strategies is that once an investment style or strategy becomes easily investable (like SCV and many other factors are now), I don't see how most of that past premium wouldn't disappear, and any future premium will be more a function of simply recent weak performance and reversion to the mean at some point in the future.

It seems to me that many of these investment strategies that outperformed in the past were also more difficult to implement in the past, and therefore carried a potentially higher premium simply because they were harder to implement.
That last sentence is huge. Once the market finds an inefficiency, that inefficiency tends to be eaten up pretty quickly.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Forester » Thu Aug 15, 2019 11:16 am

EnjoyIt wrote:
Thu Aug 15, 2019 11:03 am
asif408 wrote:
Thu Aug 15, 2019 10:51 am
willthrill81 wrote:
Thu Aug 15, 2019 10:27 am
I understand your logic and can easily see why many find it compelling. Larry and others believe that there are risk based reasons (i.e. not just backtesting) to expect SCV to outperform TSM over the long-term, but that is obviously theory that might be wrong. And past may not be prologue.
There may be. My biggest skepticism with SCV and other factor strategies is that once an investment style or strategy becomes easily investable (like SCV and many other factors are now), I don't see how most of that past premium wouldn't disappear, and any future premium will be more a function of simply recent weak performance and reversion to the mean at some point in the future.

It seems to me that many of these investment strategies that outperformed in the past were also more difficult to implement in the past, and therefore carried a potentially higher premium simply because they were harder to implement.
That last sentence is huge. Once the market finds an inefficiency, that inefficiency tends to be eaten up pretty quickly.
Momentum & Low vol are beating market cap since the GFC / ETF explosion.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Thu Aug 15, 2019 11:18 am

SCV seems to be chugging along just fine overseas, despite the existence of international SCV funds for more than two decades.

PV LINK #1

PV LINK #2

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 15, 2019 11:28 am

Whakamole wrote:
Thu Aug 15, 2019 9:21 am
abuss368 wrote:
Thu Aug 15, 2019 9:13 am
Whakamole wrote:
Thu Aug 15, 2019 9:11 am
abuss368 wrote:
Wed Aug 14, 2019 11:08 pm
Jack Bogle has always said age in bonds or something that increases the bond allocation with age. That is excellent advice and has worked well.

Thank you Mr. Bogle!
No, Bogle was 50/50 in 2015, that's not compatible at all with having a bond allocation in age: https://www.cnbc.com/2015/10/14/jack-bo ... -rest.html
Not Mr. Bogle personally but rather the advice he consistently provided over the years.
You mean like decreasing your stock holdings/increasing your bond holdings because stock prices are high? https://www.cnbc.com/2018/12/31/jack-bo ... ution.html
His general advice which we should all be familiar with.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 15, 2019 11:30 am

The Three Fund Portfolio is an excellent choice and one that is "investing advice inspired by Jack Bogle"!
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Thu Aug 15, 2019 11:37 am

schismal wrote:
Thu Aug 15, 2019 11:18 am
SCV seems to be chugging along just fine overseas, despite the existence of international SCV funds for more than two decades.

PV LINK #1

PV LINK #2
I wouldn't call it exactly chugging along nicely, more like crawling along. SC returns are made to look better internationally because of the nearly non-existent returns from EAFE LC stocks over the last decade. When you bring in US LC stocks, it would have been better to avoid International all together except for a tiny bit of diversification, perhaps around 10%-15% and no more than 20%. Returns of 3% to 4% for Intl SC and about 7% for ISCV is nothing to brag about when US LC has been giving 15% over the last decade.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Thu Aug 15, 2019 11:44 am

Elysium wrote:
Thu Aug 15, 2019 11:37 am
I wouldn't call it exactly chugging along nicely, more like crawling along. SC returns are made to look better internationally because of the nearly non-existent returns from EAFE LC stocks over the last decade. When you bring in US LC stocks, it would have been better to avoid International all together except for a tiny bit of diversification, perhaps around 10%-15% and no more than 20%. Returns of 3% to 4% for Intl SC and about 7% for ISCV is nothing to brag about when US LC has been giving 15% over the last decade.
I don't think it makes much sense to compare international SCV funds to US LC. The point is that SCV is outperforming total stock index in some markets.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Thu Aug 15, 2019 11:59 am

Cherry picking what factor and what market will almost always show out performance.

Some of you are doing a disservice to the actual reasons for picking SCV by doing what could be done for any asset - cherry picking a time period and or country where returns look good.

I feel bad for Dave, who has made some good points in this thread.

There is no need to cheer for favorites.

List the reasons for SCV.

Is being cheap really one of them?

Are they cheap for a reason?

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Thu Aug 15, 2019 12:01 pm

Forester wrote:
Thu Aug 15, 2019 11:16 am
EnjoyIt wrote:
Thu Aug 15, 2019 11:03 am
asif408 wrote:
Thu Aug 15, 2019 10:51 am
willthrill81 wrote:
Thu Aug 15, 2019 10:27 am
I understand your logic and can easily see why many find it compelling. Larry and others believe that there are risk based reasons (i.e. not just backtesting) to expect SCV to outperform TSM over the long-term, but that is obviously theory that might be wrong. And past may not be prologue.
There may be. My biggest skepticism with SCV and other factor strategies is that once an investment style or strategy becomes easily investable (like SCV and many other factors are now), I don't see how most of that past premium wouldn't disappear, and any future premium will be more a function of simply recent weak performance and reversion to the mean at some point in the future.

It seems to me that many of these investment strategies that outperformed in the past were also more difficult to implement in the past, and therefore carried a potentially higher premium simply because they were harder to implement.
That last sentence is huge. Once the market finds an inefficiency, that inefficiency tends to be eaten up pretty quickly.
Momentum & Low vol are beating market cap since the GFC / ETF explosion.
Just curious if you know, and not to derail this thread too much, but how did momentum and low vol do leading up to and during the GFC, say 2000-2009?

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Thu Aug 15, 2019 12:16 pm

abc132 wrote:
Thu Aug 15, 2019 11:59 am
Cherry picking what factor and what market will almost always show out performance.

Some of you are doing a disservice to the actual reasons for picking SCV by doing what could be done for any asset - cherry picking a time period and or country where returns look good.
One might argue that proclaiming SCV has been underperforming for decades when that's only true domestically is -- to use your words -- cherry picking countries.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by psteinx » Thu Aug 15, 2019 12:22 pm

asif408 wrote:
Thu Aug 15, 2019 10:51 am
My biggest skepticism with SCV and other factor strategies is that once an investment style or strategy becomes easily investable (like SCV and many other factors are now), I don't see how most of that past premium wouldn't disappear, and any future premium will be more a function of simply recent weak performance and reversion to the mean at some point in the future.
That's a good point. And it's not JUST about the fact that transaction costs were higher in the past. Research costs and difficulties were much higher too. Nowadays, it's fairly easy to run screens and identify the X% of the market that meets some criteria. But doing it live, with the datasets that were readily available (even to pros) in the 1960s or 1970s, let alone the 1930s or 1940s, would likely have been rather more difficult.

Yes, SV had a very good relative run from 2000-2004 (when such data was, in fact, more readily available). But in 2000, indexing and passive represented a much smaller share of the market than it does today. There were a lot of small to medium sized investors taking a swing for the fences on assorted internet and other stocks with very little fundamentally behind them. I would guess that such investors are a much smaller % of the market now than they were ~2 decades ago. Yes, many tech stocks have high valuations now, but they also tend to have massive sales, in many cases massive earnings, and more defensible market positions now (the chances that Amazon gets quickly displaced in the market are much less, IMO, than the chances that pets.com would get displaced ca. 1999).

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Whakamole » Thu Aug 15, 2019 12:29 pm

abuss368 wrote:
Thu Aug 15, 2019 11:30 am
The Three Fund Portfolio is an excellent choice and one that is "investing advice inspired by Jack Bogle"!
I thought he didn't believe in investing in international stocks.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 12:43 pm

EnjoyIt wrote:
Thu Aug 15, 2019 10:57 am
willthrill81 wrote:
Thu Aug 15, 2019 9:39 am
Then by the same token, we should use the same warning for the 3-fund portfolio every time its mentioned.
Sort of, but not really since the market is the benchmark and all those "strategies/tilts/gimmicks" are there to beat the market therefore the comparison is to the market. Since the 3 fund portfolio is the market plus bonds, the comparison is in essence to a 3 fund portfolio.

Any deviation from the market may help or may harm portfolio results.
Any deviation from a 3 fund portfolio may help or may harm portfolio results.
That circles back to what I've said several times now: there is no guarantee or even compelling reason, IMHO, to believe that TSM (i.e. 'the market') will provide investors with the returns they need to achieve their goals.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 12:45 pm

abuss368 wrote:
Thu Aug 15, 2019 11:30 am
The Three Fund Portfolio is an excellent choice and one that is "investing advice inspired by Jack Bogle"!
I don't think that anyone in this thread has said anything to the contrary. But some of us believe that theory and data strongly suggest that investors may be able to improve upon it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Random Walker » Thu Aug 15, 2019 1:07 pm

abc132 wrote:
Thu Aug 15, 2019 11:59 am
List the reasons for SCV.

Is being cheap really one of them?

Are they cheap for a reason?
Sometimes when I start twisting my mind all up in knots, I straighten things out for myself by remembering something elegantly simple that Larry teaches: the market prices risk. Greater perceived risk means lower price and greater expected returns. We tend to focus on the greater expected returns part and ignore the increased risk part. One of the biggest points is the unique and independent nature of size and value risks from market beta risk. I think SV stocks also tend to have more market beta type risk than LCG or TSM, but there is definitely a component of risk that is unique and independent.

When one looks at a portfolio as a collection of risk exposures, the SV funds are a move more in the direction of risk parity.

Dave

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Thu Aug 15, 2019 1:15 pm

psteinx wrote:
Thu Aug 15, 2019 12:22 pm
Yes, SV had a very good relative run from 2000-2004 (when such data was, in fact, more readily available). But in 2000, indexing and passive represented a much smaller share of the market than it does today.
The thing is that, as I mentioned previously, these bouts of oupterformance tend to happen after a period of underperformance. That's why I give SCV advocates a hard time when they cite data beginning in 2000, which was literally a bottom for SCV performance. In the case of small cap value, it underperformed TSM by about 11% CAGR from April 1994 through December 1999:
https://www.portfoliovisualizer.com/bac ... 0&total3=0)

That is about 3% CAGR worse than the current underperformance, but about the same time frame: https://www.portfoliovisualizer.com/bac ... 0&total3=0

So all of the SCV "premium" showed up between 2000 and 2014, with most of it occurring between 2000 and 2006. So if an investor began investing in SCV in 1994-1996, or anytime after 2006, they have seen minimal or no benefit and, if they did see one (as was the case for those investing in SCV in the mid 1990s), had to wait many years to see it.

To me, many of the benefits highlighted using SCV past performance could also apply to US REITs during that time: https://www.portfoliovisualizer.com/bac ... total3=100

They also showed a similar pattern, with outperformance since 1994 mainly between the 2000-2006 time frame. In fact, I can't find a starting year after 2006 where either US REITs or US SCV outperformed the overall US stock market. And if you started in the 1994-1995 time frame, when these funds first were available, you had to sit through 5-10 years of underperformance until you were rewarded.

So I tend to be agnostic about the sustainable outperformance of any asset class. I am more optimistic about SCV returns in the future simply because it has performed worse in the last 5-10 years compared to the US stock market. But I can say the same thing about plenty of other asset classes as well which have underperformed even more (e.g., foreign developed and emerging markets stocks, gold, etc.). I actually can't think of any large asset class or sector that has outperformed the overall US market in the last decade, other that US tech and healthcare stocks.

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