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

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YRT70
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by YRT70 » Thu Aug 15, 2019 1:26 pm

stlutz wrote:
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
I think the main strength of the Larry style portfolio is that it cuts tail risk. In your comparison the worst year for that DFA portfolio was 14%, while it was 20% for the TSM portfolio.

But the Larry style portfolio uses intermediate treasury instead of total bond and international diversification for the equity portion.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Thu Aug 15, 2019 3:22 pm

willthrill81 wrote:
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. any strategy will guarantee anything.
Let me fix the above for you once again.

We live in the church of market returns. We believe and we hope returns will be positive. Some investors/financial advisors believe they can beat the market by using some kind of trickery. Maybe they will be right, maybe they will be wrong. Maybe they will be right because of luck or maybe their trickery has some merit and the only way we will know is 100+ years from now when enough data is in to maybe make a conclusion.

But to come back around again, you can not tilt in any particular sector unless you first start with "the market" Therefore, again, the market is the backbone to any sound investing strategy. Anything an investor does outside of that is with the goal of beating said market.

To put it another way. You can invest in the market without tilting, but you can not tilt without investing in the market and then making adjustments.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 3:29 pm

EnjoyIt wrote:
Thu Aug 15, 2019 3:22 pm
willthrill81 wrote:
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. any strategy will guarantee anything.
Let me fix the above for you once again.

We live in the church of market returns. We believe and we hope returns will be positive. Some investors/financial advisors believe they can beat the market by using some kind of trickery. Maybe they will be right, maybe they will be wrong. Maybe they will be right because of luck or maybe their trickery has some merit and the only way we will know is 100+ years from now when enough data is in to maybe make a conclusion.

But to come back around again, you can not tilt in any particular sector unless you first start with "the market" Therefore, again, the market is the backbone to any sound investing strategy. Anything an investor does outside of that is with the goal of beating said market.

To put it another way. You can invest in the market without tilting, but you can not tilt without investing in the market and then making adjustments.
You find 'the market' to be a compelling default choice. I do not. It's purely a matter of opinion.

But regardless of what your default choice is, you're correct that there is no guarantee that TSM, SCV, both, or any other combination of asset classes will provide investors their needed returns.
“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 nps » Thu Aug 15, 2019 4:55 pm

schismal wrote:
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.
Are these easily investable? I honestly don't know but some on this thread have made the assertion that US SCV performance could be significantly diminished by broad, low cost access. For the US-based investor at least, my understanding is that outside of advisor funds like DFA there are no good options that combine international, small cap, and value. If that's not the case I'd be interested to know.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Thu Aug 15, 2019 4:56 pm

willthrill81 wrote:
Thu Aug 15, 2019 3:29 pm
EnjoyIt wrote:
Thu Aug 15, 2019 3:22 pm
willthrill81 wrote:
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. any strategy will guarantee anything.
Let me fix the above for you once again.

We live in the church of market returns. We believe and we hope returns will be positive. Some investors/financial advisors believe they can beat the market by using some kind of trickery. Maybe they will be right, maybe they will be wrong. Maybe they will be right because of luck or maybe their trickery has some merit and the only way we will know is 100+ years from now when enough data is in to maybe make a conclusion.

But to come back around again, you can not tilt in any particular sector unless you first start with "the market" Therefore, again, the market is the backbone to any sound investing strategy. Anything an investor does outside of that is with the goal of beating said market.

To put it another way. You can invest in the market without tilting, but you can not tilt without investing in the market and then making adjustments.
You find 'the market' to be a compelling default choice. I do not. It's purely a matter of opinion.

But regardless of what your default choice is, you're correct that there is no guarantee that TSM, SCV, both, or any other combination of asset classes will provide investors their needed returns.
Interesting, then what is your default choice?

schismal
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Thu Aug 15, 2019 5:05 pm

nps wrote:
Thu Aug 15, 2019 4:55 pm
Are these easily investable? I honestly don't know but some on this thread have made the assertion that US SCV performance could be significantly diminished by broad, low cost access. For the US-based investor at least, my understanding is that outside of advisor funds like DFA there are no good options that combine international, small cap, and value. If that's not the case I'd be interested to know.
SCZ and ISCF are very easily investable, and are available on any half-decent ETF trading platform. I posted the DFA comparison only because they've been around longer.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 5:10 pm

EnjoyIt wrote:
Thu Aug 15, 2019 4:56 pm
willthrill81 wrote:
Thu Aug 15, 2019 3:29 pm
EnjoyIt wrote:
Thu Aug 15, 2019 3:22 pm
willthrill81 wrote:
Thu Aug 15, 2019 12:43 pm
EnjoyIt wrote:
Thu Aug 15, 2019 10:57 am


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. any strategy will guarantee anything.
Let me fix the above for you once again.

We live in the church of market returns. We believe and we hope returns will be positive. Some investors/financial advisors believe they can beat the market by using some kind of trickery. Maybe they will be right, maybe they will be wrong. Maybe they will be right because of luck or maybe their trickery has some merit and the only way we will know is 100+ years from now when enough data is in to maybe make a conclusion.

But to come back around again, you can not tilt in any particular sector unless you first start with "the market" Therefore, again, the market is the backbone to any sound investing strategy. Anything an investor does outside of that is with the goal of beating said market.

To put it another way. You can invest in the market without tilting, but you can not tilt without investing in the market and then making adjustments.
You find 'the market' to be a compelling default choice. I do not. It's purely a matter of opinion.

But regardless of what your default choice is, you're correct that there is no guarantee that TSM, SCV, both, or any other combination of asset classes will provide investors their needed returns.
Interesting, then what is your default choice?
From the perspective of evaluating whether an asset class and/or investment strategy will enable me to reach my goals, I don't have a default choice. I won't derail the thread, but my trend following strategy specifically allows for this.

But even for a buy-and-hold investor, I don't find TSM to be a compelling default choice. I don't see it as inherently more likely to provide higher absolute returns or even risk-adjusted returns than other asset classes/conceptualizations. Yes, TSM holds more stocks, but the 858 stocks held in Vanguard's VISVX, for instance, seems more than adequate to me. Yes, there is a risk that a factor fund will return less than TSM, but it may outperform it as well.

If there was a good reason to believe that TSM would enable me to achieve my investment goals, then I might view it as a good default. But I don't believe that such a reason exists. Based on the backtested data that I've seen, it seems that SCV has actually had less downside risk than TSM for long-term investors.
“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 nps » Thu Aug 15, 2019 6:25 pm

schismal wrote:
Thu Aug 15, 2019 5:05 pm
nps wrote:
Thu Aug 15, 2019 4:55 pm
Are these easily investable? I honestly don't know but some on this thread have made the assertion that US SCV performance could be significantly diminished by broad, low cost access. For the US-based investor at least, my understanding is that outside of advisor funds like DFA there are no good options that combine international, small cap, and value. If that's not the case I'd be interested to know.
SCZ and ISCF are very easily investable, and are available on any half-decent ETF trading platform. I posted the DFA comparison only because they've been around longer.
Thanks. SCZ looks like small blend, and ISCF looks like small multifactor (value, quality and momentum)

guyinlaw
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by guyinlaw » Thu Aug 15, 2019 7:48 pm

SCZ country wise allocation is quite different than VXUS.

Japan 29%
UK 17%
Rest of Europe 24%

https://etfdb.com/etf/SCZ/

Japan 17%
UK 11%
Rest of Europe 33%

ttps://etfdb.com/etf/VXUS/

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Fryxell » Thu Aug 15, 2019 8:04 pm

abc132 wrote:
Wed Aug 14, 2019 11:53 pm

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.
I don’t know where you are getting that I am berating Larry for not going after trend. I’m not a big fan of trend myself.

I’m just pointing out the inconsistency that is so common among factor skeptics—they are not skeptical at all about the equity premium.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by LadyGeek » Thu Aug 15, 2019 8:09 pm

I removed an off-topic interchange regarding members who quote a post, then modify the content.

The best approach is to PM a moderator with your question. Or, report the post and express your concerns.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 15, 2019 8:57 pm

Fryxell wrote:
Thu Aug 15, 2019 8:04 pm
I’m just pointing out the inconsistency that is so common among factor skeptics—they are not skeptical at all about the equity premium.
That certainly appears to be inconsistent to me as well. Do they believe that theory supports the equity premium but no other premia? Is it because we have a longer history of the equity premium than the value premium, for instance?
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Thu Aug 15, 2019 9:19 pm

Fryxell wrote:
Thu Aug 15, 2019 8:04 pm
I’m just pointing out the inconsistency that is so common among factor skeptics—they are not skeptical at all about the equity premium.
I think they hold bonds for that very reason.

If anything they are too skeptical of this premium, and tend towards too many bonds.

Where exactly did you get this idea?

There is a wisdom to understanding what you can and can't control.

Disparaging a philosophy in the 90th percentile of all investing decisions seems a little silly, when your crystal ball is not clear enough to judge what will do best moving forward.

I've seen far more irrational reasons for looking down on TSM than irrational reasons for supporting it.

Read through this thread and look at some of the less than reasonable reasons for supporting SCV.
- I found a chart with better performance
- I don't like TSM
- I'm cheering for SCV over TSM
- I'm going to time the market

Poor judgement abounds outside of those using TSM, so its not a bad choice. Larry even recommends TSM for some people. So when you quote Larry, you need to understand why a choice is good or bad, and accept that the correct choice may be different for different people. TSM certainly falls under a pretty good plan - certainly good enough for the people SCV proponents have quoted in this thread (Buffett, Bogle, Larry).

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Thu Aug 15, 2019 9:44 pm

schismal wrote:
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.
In that case it doesn't make very much sense to compare ISCV funds to EAFE LC funds either, does it. The point it that they are performing very poorly, 3% returns for Intl SC is not much of an outperformance over anything.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by stlutz » Thu Aug 15, 2019 11:10 pm

YRT70 wrote:
Thu Aug 15, 2019 1:26 pm
stlutz wrote:
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
I think the main strength of the Larry style portfolio is that it cuts tail risk. In your comparison the worst year for that DFA portfolio was 14%, while it was 20% for the TSM portfolio.

But the Larry style portfolio uses intermediate treasury instead of total bond and international diversification for the equity portion.
Changing the bond fund to intermediate treasuries doesn't change the results. They still end up in the same place. Regarding the 2007-2009 drop, the max drawdown covers this entire time period. Again they are very close to each other (value got hit a lot more in 2007 which makes it look better in 2008).

The better argument against what I did is that the choice of dates may not be legit. I have a period where growth stocks outperformed in a big way, a period when value stocks outperformed in a big way, a period when they were about equal, and then a period when growth outperformed in a moderate way. I think the problem is obvious.

Now, in defense of myself, I didn't pick the dates; I was reacting to the straight-up returns comparison between a much more volatile investment vs. a less volatile one without looking at them on a risk-equalized basis. It was convenient that these two portfolio ended up in the same place for the purposes of my illustration, but overall I'd question those starting and ending dates as being the best period to measure.

In order for a Larry Portfolio to deliver the promised benefits (higher returns with less tail risk) the SV portion of the portfolio has to knock it out of the park from a Sharpe Ratio perspective. Since inception, the DFA fund has not done that. I've commonly seen a 30/70 Larry portfolio proposed as an alternative to a traditional 60/40 allocation. Over the time period the DFA fund has been in existence, a 30/70 Larry Portfolio has delivered on the lower risk and less tail risk vs standard 60/40, but it's also delivered lower returns (on the order of 1%/yr.). Still a pretty darn good result; just not as good as sometimes advertised.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by White Coat Investor » Thu Aug 15, 2019 11:31 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).
Ugh....this is getting old, just like it was in 2010.

Yes, they might have outperformed over the last 20 years, but what about the last 19? Or 21? Or 18? Or 22? Oh, they didn't? Just the last 20. I wonder why that is.....
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Fri Aug 16, 2019 12:12 am

willthrill81 wrote:
Thu Aug 15, 2019 8:57 pm
Fryxell wrote:
Thu Aug 15, 2019 8:04 pm
I’m just pointing out the inconsistency that is so common among factor skeptics—they are not skeptical at all about the equity premium.
That certainly appears to be inconsistent to me as well. Do they believe that theory supports the equity premium but no other premia? Is it because we have a longer history of the equity premium than the value premium, for instance?
They responded that it doesn't matter when you are choosing a good enough portfolio.

It's not a necessary distinction.

This is very straight forward and nothing to be confused about, or cause misrepresentations.

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Good decision makers only need enough information to make a good decision, and they can separate information that is relevant from information that is not. Bogle was an extremely good decision maker - the thought process and ability to separate relevant from irrelevant are everywhere in his remarks.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by YRT70 » Fri Aug 16, 2019 2:08 am

stlutz wrote:
Thu Aug 15, 2019 11:10 pm
Changing the bond fund to intermediate treasuries doesn't change the results.
It cuts tail risk further. Using the asset allocation you choose the worst year for the SCV portfolio went from 14.2% to 9.7%.
stlutz wrote:
Thu Aug 15, 2019 11:10 pm
In order for a Larry Portfolio to deliver the promised benefits (higher returns with less tail risk) the SV portion of the portfolio has to knock it out of the park from a Sharpe Ratio perspective. Since inception, the DFA fund has not done that. I've commonly seen a 30/70 Larry portfolio proposed as an alternative to a traditional 60/40 allocation. Over the time period the DFA fund has been in existence, a 30/70 Larry Portfolio has delivered on the lower risk and less tail risk vs standard 60/40, but it's also delivered lower returns (on the order of 1%/yr.). Still a pretty darn good result; just not as good as sometimes advertised.
Have you checked that using international diversification? The Larry portfolio includes international small cap value and emerging markets value.
Last edited by YRT70 on Fri Aug 16, 2019 6:58 am, edited 1 time in total.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Fri Aug 16, 2019 4:43 am

Elysium wrote:
Thu Aug 15, 2019 9:44 pm
In that case it doesn't make very much sense to compare ISCV funds to EAFE LC funds either, does it.
Which is why that isn't the only comparison I showed.
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
The point it that they are performing very poorly, 3% returns for Intl SC is not much of an outperformance over anything.
The outperformance of VTI over VIOV has been less than 3% since inception. You're not being very consistent.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Fri Aug 16, 2019 6:36 am

schismal wrote:
Fri Aug 16, 2019 4:43 am
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
In that case it doesn't make very much sense to compare ISCV funds to EAFE LC funds either, does it.
Which is why that isn't the only comparison I showed.
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
The point it that they are performing very poorly, 3% returns for Intl SC is not much of an outperformance over anything.
The outperformance of VTI over VIOV has been less than 3% since inception. You're not being very consistent.
Huh? VTI and VIOV are US funds, you quoted me stating Intl SC returning 3% as not a significant outperformance over its LC counterpart, then call in VTI and VIOV in response. Who is not being consistent here :shock: Anyway, time to move on, Value has not done well lately very much anywhere, just check EM Value while we are at it. Someday the trend may reverse, until then betting all on small and value has been a bad idea.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Fri Aug 16, 2019 7:56 am

Elysium wrote:
Fri Aug 16, 2019 6:36 am
schismal wrote:
Fri Aug 16, 2019 4:43 am
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
In that case it doesn't make very much sense to compare ISCV funds to EAFE LC funds either, does it.
Which is why that isn't the only comparison I showed.
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
The point it that they are performing very poorly, 3% returns for Intl SC is not much of an outperformance over anything.
The outperformance of VTI over VIOV has been less than 3% since inception. You're not being very consistent.
Huh? VTI and VIOV are US funds, you quoted me stating Intl SC returning 3% as not a significant outperformance over its LC counterpart, then call in VTI and VIOV in response. Who is not being consistent here :shock: Anyway, time to move on, Value has not done well lately very much anywhere, just check EM Value while we are at it. Someday the trend may reverse, until then betting all on small and value has been a bad idea.
When shown a >3% outperformance in international markets, you say 3% above the total market is insignificant. When SCV is shown to be lagging less than 3% in the US market, you claim this is a significant difference -- "value has not done well lately."

But you're right, this discussion is tiring and I am done with it.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Fri Aug 16, 2019 10:09 am

Vanguard investment experts recommend a Four Fund Portfolio that includes U.S. and International stocks and bonds. Everything else is noise and will revert to the mean.

Keep investing simple.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Random Walker » Fri Aug 16, 2019 10:44 am

abuss368 wrote:
Fri Aug 16, 2019 10:09 am
Vanguard investment experts recommend a Four Fund Portfolio that includes U.S. and International stocks and bonds. Everything else is noise and will revert to the mean.

Keep investing simple.
What mean? If size and value represent additional risk factors with associated premia beyond market beta, will their returns revert to their mean above and beyond the market? That sounds like a potential reason to invest in them to me.

Dave

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by matjen » Fri Aug 16, 2019 10:48 am

Random Walker wrote:
Fri Aug 16, 2019 10:44 am
abuss368 wrote:
Fri Aug 16, 2019 10:09 am
Vanguard investment experts recommend a Four Fund Portfolio that includes U.S. and International stocks and bonds. Everything else is noise and will revert to the mean.

Keep investing simple.
What mean? If size and value represent additional risk factors with associated premia beyond market beta, will their returns revert to their mean above and beyond the market? That sounds like a potential reason to invest in them to me.

Dave
Well stated. Hoisted on his own petard. :P
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Fri Aug 16, 2019 11:55 am

schismal wrote:
Fri Aug 16, 2019 7:56 am
Elysium wrote:
Fri Aug 16, 2019 6:36 am
schismal wrote:
Fri Aug 16, 2019 4:43 am
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
In that case it doesn't make very much sense to compare ISCV funds to EAFE LC funds either, does it.
Which is why that isn't the only comparison I showed.
Elysium wrote:
Thu Aug 15, 2019 9:44 pm
The point it that they are performing very poorly, 3% returns for Intl SC is not much of an outperformance over anything.
The outperformance of VTI over VIOV has been less than 3% since inception. You're not being very consistent.
Huh? VTI and VIOV are US funds, you quoted me stating Intl SC returning 3% as not a significant outperformance over its LC counterpart, then call in VTI and VIOV in response. Who is not being consistent here :shock: Anyway, time to move on, Value has not done well lately very much anywhere, just check EM Value while we are at it. Someday the trend may reverse, until then betting all on small and value has been a bad idea.
When shown a >3% outperformance in international markets, you say 3% above the total market is insignificant. When SCV is shown to be lagging less than 3% in the US market, you claim this is a significant difference -- "value has not done well lately."

But you're right, this discussion is tiring and I am done with it.
Well, the big point is that International has lagged US really badly, EAFE LC returns are about 1% or so according to a link you have posted, and the same link shows Intl SC returns as 3%, so yes on paper an outperformance of 2% over total intl mkt, but does it matter when the returns on absolute terms are really that poor whether value done slightly better? I think Growth has done better internationally and in the US. These conversations get tiring because people have a bias towards value, as if nothing else exists, other than value and total markets.

This forum has ignored Growth as a legitimate factor to invest in, as if it is something to be avoided all together, but if you check the stats then you can see Growth has done as good as Value but over different time periods. A good comparison is between Growth and Value, not just Total markets.

I have both Growth and Value funds, so I don't miss anything really, and expect them both to do well over long periods.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Fri Aug 16, 2019 12:15 pm

See data here, Growth has outperformed value both internationally and in US:

EAFE Value, Growth, Blend
https://www.portfoliovisualizer.com/bac ... total3=100

US Large Value, Growth, Blend
https://www.portfoliovisualizer.com/bac ... total3=100

US Small Value, Growth, Blend
https://www.portfoliovisualizer.com/bac ... total3=100

US data goes all the way to 1993 shows that Growth has done as well or outperformed Value. Yet, on this forum you keep hearing somehow value needs to be overweighted.

Based on actual performance available, you can either hold a balanced portfolio of both Growth and Value funds, or you could use the blend approach of Total Market Funds.

Where is the merit for over weighting value? There is in fact a case of over weighting Growth one would imagine based on actual performance, but we know that wouldn't be wise as Growth will cool off at some point, same applies to Value.

If one must hold separate Value funds, then it seems only rational to balance it out with Growth funds, not just total market funds as that would simply over weight one factor.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by LadyGeek » Fri Aug 16, 2019 12:22 pm

I removed an off-topic post and reply. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
I also removed a duplicate post.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by garlandwhizzer » Fri Aug 16, 2019 2:21 pm

Elysium wrote:

Where is the merit for over weighting value? There is in fact a case of over weighting Growth one would imagine based on actual performance, but we know that wouldn't be wise as Growth will cool off at some point, same applies to Value.
1+

The argument for overweighting value is based on "expected" returns. What actually happens is called real returns and those clearly may not be in tune with expectations based on factor models. Elysium backs up this statement with the real results below, showing that in the real world (no cost-free long/short portfolios, everyone knows about factors, much trading dominated by professionals/algorithms), LCG has outperformed LCV, and SCG has outperformed SCV since 1993, a 26 year time span, at least as Vanguard Index measures growth and value. Not only outperformed but did so with less maximal drawdown, less volatility, and a higher Sharpe ratio. 26 years is long enough for something that is supposed to be reliable to show up. Factor enthusiasts may argue that Vanguard doesn't know the special sauce for picking value portfolios. The same can be said for active management. There are always some (less than 50%) of actively managed funds that outperform comparable indexes but that doesn't prove that active management is a better strategy. The question isn't whether we can find a SCV or LCV fund that outperformed. The question is if you pick a value fund are you likely to outperform in a risk adjusted manner. These results argue against that assumption.

EAFE Value, Growth, Blend https://www.p ... total3=100

Furthermore while value funds have struggled in the US for 15 years, factor enthusiasts insist that it has worked internationally during that time frame. Again, Elysium has shown the results of real value funds, growth funds, and blend funds over the last 13.5 years with indexes defined by iShares, which like Vanguard is a highly reputable firm. Once again in the LC space INTL growth outperformed value by a wide margin, and did so with less maximal drawdown, lower volatility, and a 40% higher Sharpe ratio.

These examples don't fit nicely into factor theory. A wide margin exists between the "expected" returns of value investing and the real returns of real value funds. Factor theory is based on academic models that have never existed in the real world and on backtesting in the distant past in inefficient markets when no one knew about the existence factors. That clearly does not automatically translate into positive results in the real world of investing these days.

Garland Whizzer

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by jdilla1107 » Fri Aug 16, 2019 2:34 pm

willthrill81 wrote:
Thu Aug 15, 2019 5:10 pm
But even for a buy-and-hold investor, I don't find TSM to be a compelling default choice. I don't see it as inherently more likely to provide higher absolute returns or even risk-adjusted returns than other asset classes/conceptualizations. Yes, TSM holds more stocks, but the 858 stocks held in Vanguard's VISVX, for instance, seems more than adequate to me. Yes, there is a risk that a factor fund will return less than TSM, but it may outperform it as well.
This isn't why TSM is the default choice. TSM is not the default choice because of any reason having to do with returns.

TSM is the default choice because it correctly balances across all revenue streams in the economy. It prices these revenue streams based on market prices. Here is a simple example of how it is very logical.

Let's say we have a single mid cap business composed of two business units:

BizUnit 1 - Would qualify as small cap value, if it were separate
Bizunit 2 - Would also qualify as small cap value, if it were separate

As a midcap stock, SCV choses not to hold it. (Dumb thing number 1.)

Now, the mngmt of this company decides to split in two. TSM does nothing. SCV says "WOOOOAAAH THERE! We need to change the index because this is an impactful change!". (Dumb thing number 2)

Nothing really changed.

The idea is that by holding all revenue streams, by their market weights, you derive the overall return from the economy. Doing anything else is inherently trying to outsmart the return of the overall economy. TSM is the default because it is the most representative instrument we have for the US economy.
Last edited by jdilla1107 on Fri Aug 16, 2019 2:50 pm, edited 8 times in total.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » Fri Aug 16, 2019 2:35 pm

Dialectical Investor wrote:
Wed Aug 14, 2019 8:40 pm
Taylor Larimore wrote:
Wed Aug 14, 2019 2:24 pm
whodunit wrote: So we agree that TSM does not provide factor exposure (other than market beta) then?
whodunit:

Sorry, I do not agree. We know factor proponents like to say "TSM does not provide factor exposure." Nevertheless, it is obvious that TSM (Total U.S. Stock Market) holds nearly every U.S. stock including all U.S factor stocks (small-cap, small-cap value, mid-cap, momentum, quality) etc..

You can read my opinion about factors HERE

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: " By and large I do not approve of factor funds."
While we are all entitled to our own opinions about investing strategy and methodology, we are not entitled to our own facts. Your "disagreement" is not a disagreement at all--it is a misunderstanding--and the logic behind your position rests on false assumptions: namely, that the cap-weighting of stocks is the same as the cap-weighting of factors. It has nothing to do with being a "factor proponent," whatever you take that to be. Indeed, there are many arguments one can make against the strategies espoused by those you may call "factor proponents." But before one can form a credible argument against a position, one must understand the reality of the situation first. Alas, this opinion is not credible, because it rests on false assumptions.
I have to admit that I have gotten irritated with Taylor straightening out us factor tilting sinners on thread after thread. However, I do have to speak in his defense here, he has read many investment books including Larry Swedroe's work. Taylor is pretty well informed when it comes to investment topics, it is pretty much a difference in core beliefs and philosophy. Beliefs affect perception.

My corny example of my neighbor pulling up one day in a Subaru Outback Station Wagon. I was not a Subaru Outback unbeliever, I just had never seen one before. Funny thing, after seeing my neighbor's recent purchase, I saw the darned things all over the place. It seemed like every other car on the road afterwards was a Subaru Outback Station Wagon. So what had previously been invisible to me became visible and obvious, I believed and then I saw. Probably saw a kazillion of those things before but never gave it a thought, they may as well have been invisible.

In a way, schools of thought almost become their own religions because the views are so passionately held. An attack on someone's foundational belief regarding investing would be like criticizing the Virgin Mary. So passions can and have run hot here. So I was a Subaru Outback Station Wagon unbeliever until I had that next to my parking space experience, I believed and like St. Paul, the scales fell from my eyes. If the foundational belief isn't there, mountains of evidence are not going to be persuasive as the mountains of evidence have to be perceived first. You believe and then you perceive. One reason these discussions are often folks shouting past each other.

So I suppose we factor sinners are doomed to underperformance hades or at least an investment form of purgatory. I will have to make a purchase of a Total Stock Market Index fund as penance. Or maybe us factor people are in the right and the market cap weighted index people are the sinners. So far we have lived in sort of an understanding that both camps can live under one roof, no evidence of a schism yet. No need yet for a separate factors forum.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Dialectical Investor » Fri Aug 16, 2019 3:06 pm

nedsaid wrote:
Fri Aug 16, 2019 2:35 pm
Dialectical Investor wrote:
Wed Aug 14, 2019 8:40 pm
Taylor Larimore wrote:
Wed Aug 14, 2019 2:24 pm
whodunit wrote: So we agree that TSM does not provide factor exposure (other than market beta) then?
whodunit:

Sorry, I do not agree. We know factor proponents like to say "TSM does not provide factor exposure." Nevertheless, it is obvious that TSM (Total U.S. Stock Market) holds nearly every U.S. stock including all U.S factor stocks (small-cap, small-cap value, mid-cap, momentum, quality) etc..

You can read my opinion about factors HERE

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: " By and large I do not approve of factor funds."
While we are all entitled to our own opinions about investing strategy and methodology, we are not entitled to our own facts. Your "disagreement" is not a disagreement at all--it is a misunderstanding--and the logic behind your position rests on false assumptions: namely, that the cap-weighting of stocks is the same as the cap-weighting of factors. It has nothing to do with being a "factor proponent," whatever you take that to be. Indeed, there are many arguments one can make against the strategies espoused by those you may call "factor proponents." But before one can form a credible argument against a position, one must understand the reality of the situation first. Alas, this opinion is not credible, because it rests on false assumptions.
I have to admit that I have gotten irritated with Taylor straightening out us factor tilting sinners on thread after thread. However, I do have to speak in his defense here, he has read many investment books including Larry Swedroe's work. Taylor is pretty well informed when it comes to investment topics, it is pretty much a difference in core beliefs and philosophy. Beliefs affect perception.

My corny example of my neighbor pulling up one day in a Subaru Outback Station Wagon. I was not a Subaru Outback unbeliever, I just had never seen one before. Funny thing, after seeing my neighbor's recent purchase, I saw the darned things all over the place. It seemed like every other car on the road afterwards was a Subaru Outback Station Wagon. So what had previously been invisible to me became visible and obvious, I believed and then I saw. Probably saw a kazillion of those things before but never gave it a thought, they may as well have been invisible.

In a way, schools of thought almost become their own religions because the views are so passionately held. An attack on someone's foundational belief regarding investing would be like criticizing the Virgin Mary. So passions can and have run hot here. So I was a Subaru Outback Station Wagon unbeliever until I had that next to my parking space experience, I believed and like St. Paul, the scales fell from my eyes. If the foundational belief isn't there, mountains of evidence are not going to be persuasive as the mountains of evidence have to be perceived first. You believe and then you perceive. One reason these discussions are often folks shouting past each other.

So I suppose we factor sinners are doomed to underperformance hades or at least an investment form of purgatory. I will have to make a purchase of a Total Stock Market Index fund as penance. Or maybe us factor people are in the right and the market cap weighted index people are the sinners. So far we have lived in sort of an understanding that both camps can live under one roof, no evidence of a schism yet. No need yet for a separate factors forum.
Many of Taylor's statements regarding factor investing are, quite simply, wrong, and that assessment has nothing to do with the merits of any particular strategy. I think it is in the best interest of the forum to point out when incorrect information is posted, regardless of the source or topic. There is no need to mince words about it. It is very difficult to have an intelligent conversation otherwise. I do not consider myself belong to a "camp." Neither this topic, nor any other, should be framed as Us vs. Them. I find that to be counterproductive, and it only pushes people to defend their arguments with vagaries, half-truths, fallacies, or simply by changing the focus of the conversation--none of which are very productive, and all of which are the cause of many contentious disagreements and locked threads. There's no need to try to smooth things over, or come to someone's defense, when we could just discuss the actual subject at hand. Or, perhaps that simply is not possible.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Fri Aug 16, 2019 3:20 pm

garlandwhizzer wrote:
Fri Aug 16, 2019 2:21 pm
Elysium backs up this statement with the real results below, showing that in the real world (no cost-free long/short portfolios, everyone knows about factors, much trading dominated by professionals/algorithms), LCG has outperformed LCV, and SCG has outperformed SCV since 1993, a 26 year time span, at least as Vanguard Index measures growth and value.
Domestic SCV is ahead of SCG every single year between 2000 and 2018. Growth pulls ahead in only 2 of the 21 years measured. Domestic LCG only wins 4 of the 26 years in Elysium's analysis.
Last edited by schismal on Fri Aug 16, 2019 3:35 pm, edited 1 time in total.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » Fri Aug 16, 2019 3:22 pm

Dialectical Investor wrote:
Fri Aug 16, 2019 3:06 pm


Many of Taylor's statements regarding factor investing are, quite simply, wrong, and that assessment has nothing to do with the merits of any particular strategy. I think it is in the best interest of the forum to point out when incorrect information is posted, regardless of the source or topic. There is no need to mince words about it. It is very difficult to have an intelligent conversation otherwise. I do not consider myself belong to a "camp." Neither this topic, nor any other, should be framed as Us vs. Them. I find that to be counterproductive, and it only pushes people to defend their arguments with vagaries, half-truths, fallacies, or simply by changing the focus of the conversation--none of which are very productive, and all of which are the cause of many contentious disagreements and locked threads. There's no need to try to smooth things over, or come to someone's defense, when we could just discuss the actual subject at hand. Or, perhaps that simply is not possible.
Want to make it clear that I believe the academic research and that I have been a factor investor for a long time. Mainly, I prefer cheap stocks to expensive stocks but still am looking out for quality. So I am Value oriented but perhaps not strictly a Value investor.

There is a good argument that says that the academic research is correct but that we cannot draw definitive conclusions from 93 years of data. The sample size might not be big enough. Also lots of changes in the economy and the markets since 1926, good arguments can be made about making comparisons of data from different eras.

Yes, I am trying to smooth things over. And yes, I believe that Taylor is acting in good faith. Not productive to challenge someone else's motives.

I told my corny story about my neighbor's Subaru Outback Station Wagon to illustrate a point. Beliefs do affect perception. You also have the issue that two people can look at the same data set and draw different conclusions. One also needs to consider that in any discipline, there are different schools of thought.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Fri Aug 16, 2019 3:26 pm

jdilla1107 wrote:
Fri Aug 16, 2019 2:34 pm
TSM is the default because it is the most representative instrument we have for the US economy.
I wouldn't really dispute that. But even if it's true, it doesn't mean that it is necessarily the optimal equity instrument for any specific investor to reach his/her goals. As an analogy, TBM could just as easily be argued to be the most representative instrument of U.S. debt, but it has been demonstrated by others, such as vineviz in a recent thread, to be sub-optimal for certain investor goals, such as reducing volatility in an otherwise stock-heavy portfolio. The same could certainly be true of TSM vs. other equity instruments.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Dialectical Investor » Fri Aug 16, 2019 3:31 pm

nedsaid wrote:
Fri Aug 16, 2019 3:22 pm
Dialectical Investor wrote:
Fri Aug 16, 2019 3:06 pm


Many of Taylor's statements regarding factor investing are, quite simply, wrong, and that assessment has nothing to do with the merits of any particular strategy. I think it is in the best interest of the forum to point out when incorrect information is posted, regardless of the source or topic. There is no need to mince words about it. It is very difficult to have an intelligent conversation otherwise. I do not consider myself belong to a "camp." Neither this topic, nor any other, should be framed as Us vs. Them. I find that to be counterproductive, and it only pushes people to defend their arguments with vagaries, half-truths, fallacies, or simply by changing the focus of the conversation--none of which are very productive, and all of which are the cause of many contentious disagreements and locked threads. There's no need to try to smooth things over, or come to someone's defense, when we could just discuss the actual subject at hand. Or, perhaps that simply is not possible.
Want to make it clear that I believe the academic research and that I have been a factor investor for a long time. Mainly, I prefer cheap stocks to expensive stocks but still am looking out for quality. So I am Value oriented but perhaps not strictly a Value investor.

There is a good argument that says that the academic research is correct but that we cannot draw definitive conclusions from 93 years of data. The sample size might not be big enough. Also lots of changes in the economy and the markets since 1926, good arguments can be made about making comparisons of data from different eras.

Yes, I am trying to smooth things over. And yes, I believe that Taylor is acting in good faith. Not productive to challenge someone else's motives.

I told my corny story about my neighbor's Subaru Outback Station Wagon to illustrate a point. Beliefs do affect perception. You also have the issue that two people can look at the same data set and draw different conclusions. One also needs to consider that in any discipline, there are different schools of thought.
It's nothing to do with questioning motives. Each reader can do that on their own. Statements such as "TSM includes all factors" is simply incorrect. Why someone would repeat such things is anyone's guess. The subjective interpretation of how well informed someone is about investing and how many books they've read is not at all relevant.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Fri Aug 16, 2019 3:36 pm

nedsaid wrote:
Fri Aug 16, 2019 3:22 pm
Dialectical Investor wrote:
Fri Aug 16, 2019 3:06 pm


Many of Taylor's statements regarding factor investing are, quite simply, wrong, and that assessment has nothing to do with the merits of any particular strategy. I think it is in the best interest of the forum to point out when incorrect information is posted, regardless of the source or topic. There is no need to mince words about it. It is very difficult to have an intelligent conversation otherwise. I do not consider myself belong to a "camp." Neither this topic, nor any other, should be framed as Us vs. Them. I find that to be counterproductive, and it only pushes people to defend their arguments with vagaries, half-truths, fallacies, or simply by changing the focus of the conversation--none of which are very productive, and all of which are the cause of many contentious disagreements and locked threads. There's no need to try to smooth things over, or come to someone's defense, when we could just discuss the actual subject at hand. Or, perhaps that simply is not possible.
Want to make it clear that I believe the academic research and that I have been a factor investor for a long time. Mainly, I prefer cheap stocks to expensive stocks but still am looking out for quality. So I am Value oriented but perhaps not strictly a Value investor.

There is a good argument that says that the academic research is correct but that we cannot draw definitive conclusions from 93 years of data. The sample size might not be big enough. Also lots of changes in the economy and the markets since 1926, good arguments can be made about making comparisons of data from different eras.

Yes, I am trying to smooth things over. And yes, I believe that Taylor is acting in good faith. Not productive to challenge someone else's motives.

I told my corny story about my neighbor's Subaru Outback Station Wagon to illustrate a point. Beliefs do affect perception. You also have the issue that two people can look at the same data set and draw different conclusions. One also needs to consider that in any discipline, there are different schools of thought.
The bigger issue I have with some recent posts from multiple posters, who come across strongly as being anti-factor, in 'factor threads' is that the information provided often has no direct bearing on the specific issue being presented. Instead, generic appeals to authority, the 'past performance...' argument, and entreaties for 'simplicity', as though a 3- or 4-fund portfolio is simple but a 5-funds is too complex, are made instead.

Don't get me wrong; experts' views on a topic can be helpful. Past performance does not define the future. And all else being equal, simplicity is better than complexity. But if a thread's topic does not directly address one or more of those factors, then simply saying the same thing over and over like a mantra does not move the conversation forward. Rather, it tends to do the opposite, and that doesn't serve the purpose of the forum well, IMHO.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Fri Aug 16, 2019 3:40 pm

Dialectical Investor wrote:
Fri Aug 16, 2019 3:31 pm
It's nothing to do with questioning motives. Each reader can do that on their own. Statements such as "TSM includes all factors" is simply incorrect. Why someone would repeat such things is anyone's guess. The subjective interpretation of how well informed someone is about investing and how many books they've read is not at all relevant.
I believe that many here believe that TSM and TBM truly are the 'best' choices going forward in literally every conceivable meaning of the word, and investing in almost anything else is an 'active gamble' that may work but probably won't.
nedsaid wrote:
Fri Aug 16, 2019 2:35 pm
In a way, schools of thought almost become their own religions because the views are so passionately held.
Yes, it certainly seems to be like a religion to some.
Last edited by willthrill81 on Fri Aug 16, 2019 3:44 pm, edited 1 time in total.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » Fri Aug 16, 2019 3:41 pm

Dialectical Investor wrote:
Fri Aug 16, 2019 3:31 pm
nedsaid wrote:
Fri Aug 16, 2019 3:22 pm
Dialectical Investor wrote:
Fri Aug 16, 2019 3:06 pm


Many of Taylor's statements regarding factor investing are, quite simply, wrong, and that assessment has nothing to do with the merits of any particular strategy. I think it is in the best interest of the forum to point out when incorrect information is posted, regardless of the source or topic. There is no need to mince words about it. It is very difficult to have an intelligent conversation otherwise. I do not consider myself belong to a "camp." Neither this topic, nor any other, should be framed as Us vs. Them. I find that to be counterproductive, and it only pushes people to defend their arguments with vagaries, half-truths, fallacies, or simply by changing the focus of the conversation--none of which are very productive, and all of which are the cause of many contentious disagreements and locked threads. There's no need to try to smooth things over, or come to someone's defense, when we could just discuss the actual subject at hand. Or, perhaps that simply is not possible.
Want to make it clear that I believe the academic research and that I have been a factor investor for a long time. Mainly, I prefer cheap stocks to expensive stocks but still am looking out for quality. So I am Value oriented but perhaps not strictly a Value investor.

There is a good argument that says that the academic research is correct but that we cannot draw definitive conclusions from 93 years of data. The sample size might not be big enough. Also lots of changes in the economy and the markets since 1926, good arguments can be made about making comparisons of data from different eras.

Yes, I am trying to smooth things over. And yes, I believe that Taylor is acting in good faith. Not productive to challenge someone else's motives.

I told my corny story about my neighbor's Subaru Outback Station Wagon to illustrate a point. Beliefs do affect perception. You also have the issue that two people can look at the same data set and draw different conclusions. One also needs to consider that in any discipline, there are different schools of thought.
It's nothing to do with questioning motives. Each reader can do that on their own. Statements such as "TSM includes all factors" is simply incorrect. Why someone would repeat such things is anyone's guess. The subjective interpretation of how well informed someone is about investing and how many books they've read is not at all relevant.
Yes, the statement TSM includes all factors is incorrect. I have pointed this out myself. John Bogle said he didn't believe in factors but he did acknowledge that cheap stocks have higher future expected returns than expensive stocks. As often discussed here, Bogle sold off much of his stocks when he considered them to be too expensive. Foggy memory recalls that he told a Morningstar Conference about this. So in a backhand sort of way, Bogle did believe in the Value Premium. I have also pointed this out. I guess Taylor hasn't seen his neighbor pull up in a Subaru Outback Station Wagon yet, so no sense in debating him about the existence of Subaru Outbacks. I have been over and over this stuff with folks, believe me.
A fool and his money are good for business.

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willthrill81
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Fri Aug 16, 2019 3:50 pm

nedsaid wrote:
Fri Aug 16, 2019 3:41 pm
John Bogle said he didn't believe in factors but he did acknowledge that cheap stocks have higher future expected returns than expensive stocks. As often discussed here, Bogle sold off much of his stocks when he considered them to be too expensive. Foggy memory recalls that he told a Morningstar Conference about this. So in a backhand sort of way, Bogle did believe in the Value Premium. I have also pointed this out.
Far too often, some of Bogle's statements are treated like dogma by many. But when you delve further into his large body of work, you find that he was not always as dogmatic in his stance on many issues as he sometimes appeared to be. He was not necessarily against low-cost active investing. He paid some attention to valuations in making investment decisions. He recommended a small allocation to gold in at least one instance. He even timed the market on occasion.

Frankly, all of that makes the man just that: a genuine, real, honest human being who was often open to new ideas. If he wasn't, he probably wouldn't have become the father of index investing.
“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

nps
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nps » Fri Aug 16, 2019 5:52 pm

schismal wrote:
Fri Aug 16, 2019 3:20 pm
garlandwhizzer wrote:
Fri Aug 16, 2019 2:21 pm
Elysium backs up this statement with the real results below, showing that in the real world (no cost-free long/short portfolios, everyone knows about factors, much trading dominated by professionals/algorithms), LCG has outperformed LCV, and SCG has outperformed SCV since 1993, a 26 year time span, at least as Vanguard Index measures growth and value.
Domestic SCV is ahead of SCG every single year between 2000 and 2018. Growth pulls ahead in only 2 of the 21 years measured. Domestic LCG only wins 4 of the 26 years in Elysium's analysis.
Are you saying Elysium's analysis is incorrect?

Also what funds are you using? The funds in Elysium's analysis are VISVX (Vanguard Small Value) and VISGX (Vanguard Small Growth), and results in Domestic SCG ahead of SCV for 10 of the 19 years between 2000 and 2018. This is very different than your conclusion.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by whodidntante » Fri Aug 16, 2019 6:04 pm

I bought more cheap SCV today because I'm stupid.

schismal
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Fri Aug 16, 2019 7:03 pm

nps wrote:
Fri Aug 16, 2019 5:52 pm
Are you saying Elysium's analysis is incorrect?

Also what funds are you using? The funds in Elysium's analysis are VISVX (Vanguard Small Value) and VISGX (Vanguard Small Growth), and results in Domestic SCG ahead of SCV for 10 of the 19 years between 2000 and 2018. This is very different than your conclusion.
I was initially comparing the annual portfolio balance, reasoning that this would be a more apt metric for the buy-and-hold investor since prior years' return fluctuations would be accounted for. After a mid-afternoon coffee, I realized this was too sensitive to start and end points, so your method (annual return percentage) is better, and I agree with your count.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by desafinado » Fri Aug 16, 2019 8:47 pm

jdilla1107 wrote:
Tue Aug 13, 2019 9:39 pm
I disagree completely. Let's say I have 50 businesses all making money and let's say I have two options:

1) Create a single large cap corporation to run all 50 businesses under one umbrella.
2) Create 50 separate small cap corporations.

To me, corporate organization makes little difference in diversification. Whether I chose 1 or 2, I am equally diversified.

The idea that #2 is FUNDAMENTALLY different than #1 is silly, in my opinion. It's just corporate structure.
Kind of, but lets consider what happens when the fortunes of the businesses change. Suppose initially every business had cashflows of $10m/yr and the market p/e is 20. In both scenarios, the market cap of all the businesses is $10bn, but we arrive at that with ((50*10m) * 20) in scenario 1 and (50 * (10m * 20)) in scenario 2.

Now suppose just one of the sub-businesses runs into trouble. Its cashflows go from +10m/yr to -20m yr. What happens to the market cap?

In scenario 1, the market cap becomes ((49 * 10m) - (20m)) * 20 = 9.4bn. In scenario 2, the stock in that particular business goes to 0, so the market cap is 49 * (10m * 20) = 9.8bn.

Organizing the companies differently has actually created more value for equity investors, because the equity loss in a given company is capped.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Sat Aug 17, 2019 1:02 am

whodidntante wrote:
Fri Aug 16, 2019 6:04 pm
I bought more cheap SCV today because I'm stupid.
Is the term “cheap SCV” redundant?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by whodidntante » Sat Aug 17, 2019 1:07 am

FIREchief wrote:
Sat Aug 17, 2019 1:02 am
whodidntante wrote:
Fri Aug 16, 2019 6:04 pm
I bought more cheap SCV today because I'm stupid.
Is the term “cheap SCV” redundant?
No! It's extra cheap! Someone didn't read the article. :happy

abc132
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Sat Aug 17, 2019 1:34 am

willthrill81 wrote:
Fri Aug 16, 2019 3:50 pm
Far too often, some of Bogle's statements are treated like dogma by many.
I think you are inventing problems here.

People blindly following Bogle's advice is hardly a problem - they could do much worse on their own, or even with a paid adviser.

Understanding the wisdom of the Boglehead philosophy should be trivial for someone educated in investing.

Why do you continue to bemoan a very good investing philosophy?

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by YRT70 » Sat Aug 17, 2019 4:24 am

From 1999 to 2009 US small value has outperformed small growth. From 2009 to 2019 small growth has outperformed small value. Here's some data on the preceding decades.

Image
source: https://www.marketwatch.com/story/8-les ... 2014-11-19

Data from 1928 to 2019.
Image

SV: US small cap value
SG: US small cap growth
source: https://www.ifa.com/portfolios/100
Elysium wrote:
Fri Aug 16, 2019 12:15 pm
Where is the merit for over weighting value?
The factor premia are based on all available data, not just the recent data. While it's certainly true that US small growth has had a great decade, the decades before that show a different picture, as can be seen in the images above.

Consider what Larry wrote in his article:
"The decade-long underperformance of small value stocks, even though by a relatively small amount, has caused many to question the ongoing existence of the small value premium.

All risky assets experience long periods of underperformance

Before you jump to any conclusions, it’s important to recognise that the premiums to all risky assets are time varying. In fact, the S&P 500 Index has experienced three periods of at least 13 years over which it underperformed riskless one-month Treasury bills (1929-43, 1966-82, and 2000-12). Thus, while the underperformance of small value over the past decade was unexpected, it should not have been be a surprise. If this did not occasionally occur, there would be no risk, and the risk premium would disappear! The three long periods when the equity risk premium was negative (i.e., bonds outperformed stocks) also demonstrates that even 10 years of underperformance of a risky asset class is likely nothing but noise. They also explain why investors demand a large equity risk premium!

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Sat Aug 17, 2019 7:59 am

YRT70 wrote:
Sat Aug 17, 2019 4:24 am
Elysium wrote:
Fri Aug 16, 2019 12:15 pm
Where is the merit for over weighting value?
The factor premia are based on all available data, not just the recent data. While it's certainly true that US small growth has had a great decade, the decades before that show a different picture, as can be seen in the images above.
We do not have live mutual fund data prior to that using retail index funds from Vanguard, iShares, SPDR etc, and that's pretty much the only reliable information we can use. Other data is purely for academic theory based on databases built for theory, which hasn't resulted in matching real life performance. For too long this has been pushed on Bogleheads, and many people just bought it without question. But now we know the folly of accepting academic theory based data as an indicator of real life returns. In the period where we have real mutual fund data available using retail index funds, Small Growth and Small Value out performed each other in different periods, with SCG coming ahead slightly for the entire period.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Sat Aug 17, 2019 2:11 pm

whodidntante wrote:
Sat Aug 17, 2019 1:07 am
FIREchief wrote:
Sat Aug 17, 2019 1:02 am
whodidntante wrote:
Fri Aug 16, 2019 6:04 pm
I bought more cheap SCV today because I'm stupid.
Is the term “cheap SCV” redundant?
No! It's extra cheap! Someone didn't read the article. :happy
You got me! I hadn't read the article. :P

But, you shamed me into going back and reading it now. Not sure it was worth my five minutes, but what the heck.... One thing I learned is that while we've all been distracted by looking back ten years (the CAPE10 religion), it is now okay to use twenty years and, viola', large cap stocks suddenly don't look so expensive. However, as you say, LCV aren't extra cheap like SCV. It's starting to give me a headache so I'll just crawl back into my TSM cave with the other Neanderthals. It's actually pretty crowded in here. :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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matjen
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by matjen » Sat Aug 17, 2019 10:12 pm

Dialectical Investor wrote:
Fri Aug 16, 2019 3:06 pm

Many of Taylor's statements regarding factor investing are, quite simply, wrong, and that assessment has nothing to do with the merits of any particular strategy. I think it is in the best interest of the forum to point out when incorrect information is posted, regardless of the source or topic. There is no need to mince words about it. It is very difficult to have an intelligent conversation otherwise. I do not consider myself belong to a "camp." Neither this topic, nor any other, should be framed as Us vs. Them. I find that to be counterproductive, and it only pushes people to defend their arguments with vagaries, half-truths, fallacies, or simply by changing the focus of the conversation--none of which are very productive, and all of which are the cause of many contentious disagreements and locked threads. There's no need to try to smooth things over, or come to someone's defense, when we could just discuss the actual subject at hand. Or, perhaps that simply is not possible.
+100
Inject this straight into my veins. Wise and direct words that everyone should consider.
A man is rich in proportion to the number of things he can afford to let alone.

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