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

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Alchemist
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Alchemist » Sat Aug 17, 2019 11:25 pm

Getting back to the topic of the OP.....

SCV currently being below historical PE while the rest of the market is near its historical PE certainly means that today they are cheaper relative to history. While the most attractive possible future is that this portends SCV outperformance, there are in fact three ways for this to turn out.

SCV is at historically cheap levels compared to the rest of the market, therefore:

1. SCV is set for outperformance (buying now is good)

2. SCV will stay cheap or even get cheaper (buying now is bad)

3. SCV is simply a leading indicator and the rest of the market will soon crash to join it (everyone loses together)

We cannot know which of the three will actually happen. They could all happen in varying order. The future is quite uncertain. But if you have strong belief that SCV will outperform over the long haul, now seems good time to rebalance into it....at least compared to a year ago.

Lee_WSP
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Lee_WSP » Sun Aug 18, 2019 1:30 am

Can someone explain to me what exactly the factor camp invests in? Even better if you can break it down by XX% in XYZ fund, etc.

And also the reasons they invest that way.

I get the Larry portfolio, there's a prospectus on that one.

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matjen
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by matjen » Sun Aug 18, 2019 6:37 am

Lee_WSP wrote:
Sun Aug 18, 2019 1:30 am
Can someone explain to me what exactly the factor camp invests in? Even better if you can break it down by XX% in XYZ fund, etc.

And also the reasons they invest that way.

I get the Larry portfolio, there's a prospectus on that one.
I present to you what IMO is the greatest post in Boglehead history: viewtopic.php?f=1&t=7353

Robert T. does a great job of laying out the research, the framework, and some sample approaches. None of this means everyone or you should invest with this approach over say the excellent 3-Fund or LifeStrategy, Target-Date Fund or Liability Matching approach. However, it is a viable method IMO that can be nearly as simple and nearly as inexpensive. Not as simple or as inexpensive however. To each their own.
A man is rich in proportion to the number of things he can afford to let alone.

YRT70
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by YRT70 » Sun Aug 18, 2019 8:29 am

Elysium wrote:
Sat Aug 17, 2019 7:59 am
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.
Out of curiosity I had a look at how well the IFA data can be captured with actual funds.

2009-2019 US small cap value
IFA 11.88%
SLYV 12.13% (M*)

2009-2019 US small cap growth
IFA 14.7%
VBK 14.2% (M*)

Seems like there's little difference between IFA index data and actual live fund data in this case.

stlutz
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by stlutz » Sun Aug 18, 2019 9:16 am

Alchemist wrote:
Sat Aug 17, 2019 11:25 pm
Getting back to the topic of the OP.....

SCV currently being below historical PE while the rest of the market is near its historical PE certainly means that today they are cheaper relative to history.
It's worth noting the whole premise of the thread is dependent on which "earnings" measure you use. The JPM chart was based on estimated earnings. If one uses latest-twelve-months earnings, you get a different picture.

The PE of the S&P 600 Value ETF (IJS) is 48. The PE of Vanguards SV ETF is 24.

The PE of the total market is 25.

This all could be explained as simply observing that the market appears to disagree with analysts about what these companies are going to earn over the next couple of years.

Alchemist
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Alchemist » Sun Aug 18, 2019 1:25 pm

stlutz wrote:
Sun Aug 18, 2019 9:16 am
It's worth noting the whole premise of the thread is dependent on which "earnings" measure you use. The JPM chart was based on estimated earnings. If one uses latest-twelve-months earnings, you get a different picture.

The PE of the S&P 600 Value ETF (IJS) is 48. The PE of Vanguards SV ETF is 24.

The PE of the total market is 25.

This all could be explained as simply observing that the market appears to disagree with analysts about what these companies are going to earn over the next couple of years.
Wow. That is quite a different picture. Also wanted to add that my original three scenarios were incomplete, there are at least three more:

4. SCV earnings miss expectations, making PE higher without increasing the price

5. The rest of the markets beats earnings expectations, lowering PE without lowering the price

6. Any combination of the previous 5

I am not making any predictions. Actually that is kind of my point, that there are many possible future courses and it is easy to buy into the one that confirms our own beliefs.

Elysium
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Mon Aug 19, 2019 8:09 am

YRT70 wrote:
Sun Aug 18, 2019 8:29 am
Elysium wrote:
Sat Aug 17, 2019 7:59 am
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.
Out of curiosity I had a look at how well the IFA data can be captured with actual funds.

2009-2019 US small cap value
IFA 11.88%
SLYV 12.13% (M*)

2009-2019 US small cap growth
IFA 14.7%
VBK 14.2% (M*)

Seems like there's little difference between IFA index data and actual live fund data in this case.
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.

Elysium
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Mon Aug 19, 2019 8:12 am

Alchemist wrote:
Sun Aug 18, 2019 1:25 pm
stlutz wrote:
Sun Aug 18, 2019 9:16 am
It's worth noting the whole premise of the thread is dependent on which "earnings" measure you use. The JPM chart was based on estimated earnings. If one uses latest-twelve-months earnings, you get a different picture.

The PE of the S&P 600 Value ETF (IJS) is 48. The PE of Vanguards SV ETF is 24.

The PE of the total market is 25.

This all could be explained as simply observing that the market appears to disagree with analysts about what these companies are going to earn over the next couple of years.
Wow. That is quite a different picture. Also wanted to add that my original three scenarios were incomplete, there are at least three more:

4. SCV earnings miss expectations, making PE higher without increasing the price

5. The rest of the markets beats earnings expectations, lowering PE without lowering the price

6. Any combination of the previous 5

I am not making any predictions. Actually that is kind of my point, that there are many possible future courses and it is easy to buy into the one that confirms our own beliefs.
Value will perform well again some point in time, we don't need any expert to say they are cheap or expensive now, but so will growth. The best strategy seems to me to be balanced with both styles, again if one must own a separate Value fund then it is only prudent to counter weight with a Growth fund, and not just a balanced fund as proposed by value proponents. This is simply over weighting value. The other option of course followed by Bogleheads is to own the balanced fund like total market.

Actual live mutual fund data shows Growth and Value performs about the same over long periods. We can take end points for each to project superiority just after a long run of good performance for one vs the other. Jack Bogle has shown this long time back in his books, and he was dismissed off by value proponents for having used active managed mutual funds in his data, as he used a database that contained all fund data, besides index funds didn't exist for most categories. As it happens most of the time, Jack Bogle was right about this. Time has proven it again that disagreeing with Bogle ends up being a folly.

There may be a small minority who are really convinced about the merits of small value factor, and their numbers are dwindling for sure, as even Bill Bernstein seems to be skeptical lately. Let them overweight as they are willing to play this strategy no matter what. The point is that if one sticks to their strategy through thick and thin, they will end up meeting their goals and outperform 99% of the investors out there. As the most important reason investors under perform is not because they picked the wrong factor or style, but make too many adjustments based on market noise and ends up under performing the funds they own.

rascott
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by rascott » Mon Aug 19, 2019 9:19 am

stlutz wrote:
Sun Aug 18, 2019 9:16 am
Alchemist wrote:
Sat Aug 17, 2019 11:25 pm
Getting back to the topic of the OP.....

SCV currently being below historical PE while the rest of the market is near its historical PE certainly means that today they are cheaper relative to history.
It's worth noting the whole premise of the thread is dependent on which "earnings" measure you use. The JPM chart was based on estimated earnings. If one uses latest-twelve-months earnings, you get a different picture.

The PE of the S&P 600 Value ETF (IJS) is 48. The PE of Vanguards SV ETF is 24.

The PE of the total market is 25.

This all could be explained as simply observing that the market appears to disagree with analysts about what these companies are going to earn over the next couple of years.

IJS shows a PE of 14.6 on the Ishares site... and it doesn't indicate anything about it being a forward PE.

The forward PE is 13.7.

schismal
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by schismal » Mon Aug 19, 2019 10:08 am

Elysium wrote:
Mon Aug 19, 2019 8:12 am
Value will perform well again some point in time, we don't need any expert to say they are cheap or expensive now, but so will growth. The best strategy seems to me to be balanced with both styles, again if one must own a separate Value fund then it is only prudent to counter weight with a Growth fund, and not just a balanced fund as proposed by value proponents. This is simply over weighting value. The other option of course followed by Bogleheads is to own the balanced fund like total market.

Actual live mutual fund data shows Growth and Value performs about the same over long periods. We can take end points for each to project superiority just after a long run of good performance for one vs the other. Jack Bogle has shown this long time back in his books, and he was dismissed off by value proponents for having used active managed mutual funds in his data, as he used a database that contained all fund data, besides index funds didn't exist for most categories. As it happens most of the time, Jack Bogle was right about this. Time has proven it again that disagreeing with Bogle ends up being a folly.

There may be a small minority who are really convinced about the merits of small value factor, and their numbers are dwindling for sure, as even Bill Bernstein seems to be skeptical lately. Let them overweight as they are willing to play this strategy no matter what. The point is that if one sticks to their strategy through thick and thin, they will end up meeting their goals and outperform 99% of the investors out there. As the most important reason investors under perform is not because they picked the wrong factor or style, but make too many adjustments based on market noise and ends up under performing the funds they own.
The four corners portfolio has done quite well compared to total market over the past few decades.

LINK

Elysium
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Mon Aug 19, 2019 11:18 am

schismal wrote:
Mon Aug 19, 2019 10:08 am
Elysium wrote:
Mon Aug 19, 2019 8:12 am
Value will perform well again some point in time, we don't need any expert to say they are cheap or expensive now, but so will growth. The best strategy seems to me to be balanced with both styles, again if one must own a separate Value fund then it is only prudent to counter weight with a Growth fund, and not just a balanced fund as proposed by value proponents. This is simply over weighting value. The other option of course followed by Bogleheads is to own the balanced fund like total market.

Actual live mutual fund data shows Growth and Value performs about the same over long periods. We can take end points for each to project superiority just after a long run of good performance for one vs the other. Jack Bogle has shown this long time back in his books, and he was dismissed off by value proponents for having used active managed mutual funds in his data, as he used a database that contained all fund data, besides index funds didn't exist for most categories. As it happens most of the time, Jack Bogle was right about this. Time has proven it again that disagreeing with Bogle ends up being a folly.

There may be a small minority who are really convinced about the merits of small value factor, and their numbers are dwindling for sure, as even Bill Bernstein seems to be skeptical lately. Let them overweight as they are willing to play this strategy no matter what. The point is that if one sticks to their strategy through thick and thin, they will end up meeting their goals and outperform 99% of the investors out there. As the most important reason investors under perform is not because they picked the wrong factor or style, but make too many adjustments based on market noise and ends up under performing the funds they own.
The four corners portfolio has done quite well compared to total market over the past few decades.

LINK
You just over weighted small companies and then compared to Total Market, it gained a few extra for little bit more risk. See here when you adjust small to reflect market weight, they both have identical risk/returns:

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

Anyhow, there is no point in trying different combinations to see what has performed well in the past. You can do this all day every day and get different results depending on time period picked, especially different start/end points. The fundamental question is whether over weighting small value is a good strategy. It is a theory created out of FF work in the past and pushed hard by some of the practitioners. For some time they had the benefit of one time value out performing growth after the tech crash of 2000. But they seem to have run into an iceberg lately with small value trailing last 10 years and no one really knows if and when it will outperform total markets.

I would rather not speculate and bet all my retirement money on such a theory with very limited history of actual live data. DFA funds only go back to 1990's and does not look promising based on that alone, again end point bias may be in play here as Growth has outperformed Value lately.

The question is do you feel lucky and bet on a theory not accepted by all market practitioners (SCV), or bet on something that has broad appeal (market beta). Some say betting on market beta alone is risky, I see it differently. Most people don't have a clue, including academics and most investment managers. I would do the balanced approach and bet on both Growth and Value.

That said, I already said in previous post quoted above that if an investor over weighted SCV and stayed with it through all market cycles no matter what, they will reach their goals, because steady saving, investing, and compound rates will do the magic. They may end up with more dollars than others or less, no one knows for sure, but anyone who sticks with their program and do the regular investing and avoid the noise will reach their goals.

DecumulatorDoc
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by DecumulatorDoc » Mon Aug 19, 2019 11:41 am

stlutz wrote:
Sun Aug 18, 2019 9:16 am
Alchemist wrote:
Sat Aug 17, 2019 11:25 pm
Getting back to the topic of the OP.....

SCV currently being below historical PE while the rest of the market is near its historical PE certainly means that today they are cheaper relative to history.
It's worth noting the whole premise of the thread is dependent on which "earnings" measure you use. The JPM chart was based on estimated earnings. If one uses latest-twelve-months earnings, you get a different picture.

The PE of the S&P 600 Value ETF (IJS) is 48. The PE of Vanguards SV ETF is 24.

The PE of the total market is 25.

This all could be explained as simply observing that the market appears to disagree with analysts about what these companies are going to earn over the next couple of years.
The P/E of IJS is 14.64 and Vanguard SCV is 15.3 according to Blackrock and Vanguard websites using latest fiscal year earnings (trailing). Vanguard Total Stock mkt P/E is 20.3.
This of course supports Alchemist's premise that SCV is undervalued. Where does your data come from?

rascott
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by rascott » Mon Aug 19, 2019 12:00 pm

Taylor Larimore wrote:
Tue Aug 13, 2019 7:01 pm
willthrill81 wrote:
Tue Aug 13, 2019 5:23 pm
In a recent post at Advisor Perspectives, Larry notes that SCV has underperformed the S&P 500 over the last decade and longer. --
My investment strategy allows me to be ambivalent about factor investing, but I am curious to hear what others think of this.
willthrill81:

No one knows which stock category will outperform or underperform in the future. Nevertheless, we DO know that total stock market investors will never be in the bottom category of investment returns which allows us to sleep well and not worry about underperformance.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In my view, owning the market and holding it forever is the ultimate strategy for winners."


From 2000-2012 the TSM returned less than being in 1 month T-bills.

So there goes that fallacy.

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willthrill81
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Mon Aug 19, 2019 12:40 pm

Elysium wrote:
Mon Aug 19, 2019 11:18 am
For some time they had the benefit of one time value out performing growth after the tech crash of 2000. But they seem to have run into an iceberg lately with small value trailing last 10 years and no one really knows if and when it will outperform total markets.
I'd hardly call a 2-3% lag that still resulted in nearly 8% CAGR (i.e. VISVX) an 'iceberg', but that's a matter of opinion.
Elysium wrote:
Mon Aug 19, 2019 11:18 am
I would rather not speculate and bet all my retirement money on such a theory with very limited history of actual live data.
It would seem to me and many others to be very reasonable not to put 100% of one's equity exposure into SCV. Even Paul Merriman, lauded as one of the big SCV proponents, typically recommends portfolios that it only comprise 25% of one's domestic equity exposure, although he has argued that it may be worthwhile for a very young investor who strongly believes in the asset class to go 100%.

I'm not quite sure how to interpret what you mean by "very limited history of actual live data." DFA's SCV fund has been around since 1993 and Vanguard's since 1998. The oldest index fund I'm aware of is Vanguard's S&P 500 fund VFINX, which was launched in 1976, and their TSM fund VTSMX was launched in 1992, just a year before DFA's SCV fund. Are you saying that 42 years of "actual live data" is adequate but 26 years is not?
Elysium wrote:
Mon Aug 19, 2019 11:18 am
The question is do you feel lucky and bet on a theory not accepted by all market practitioners (SCV), or bet on something that has broad appeal (market beta). Some say betting on market beta alone is risky, I see it differently. Most people don't have a clue, including academics and most investment managers. I would do the balanced approach and bet on both Growth and Value.

That said, I already said in previous post quoted above that if an investor over weighted SCV and stayed with it through all market cycles no matter what, they will reach their goals, because steady saving, investing, and compound rates will do the magic. They may end up with more dollars than others or less, no one knows for sure, but anyone who sticks with their program and do the regular investing and avoid the noise will reach their goals.
Again, this is a matter of opinion. Some people look at the theory and data and conclude that going 100% TSM is a 'riskier' bet than something like 75% TSM and 25% SCV. A lot of it seems to come down to how much credence you place on the risk-based theory that SCV should outperform TSM over the long-term and the historic data.

But, as I've noted recently in multiple threads, the minimization of maximum regret may sway many toward TSM if they view it as being the default equity investment.
“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

abc132
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Mon Aug 19, 2019 1:21 pm

willthrill81 wrote:
Mon Aug 19, 2019 12:40 pm

It would seem to me and many others to be very reasonable not to put 100% of one's equity exposure into SCV. Even Paul Merriman, lauded as one of the big SCV proponents, typically recommends portfolios that it only comprise 25% of one's domestic equity exposure, although he has argued that it may be worthwhile for a very young investor who strongly believes in the asset class to go 100%.
I'm curious what that means, since Morningstar only has DFSVX at 48% small cap value. One would need to be ~50% DFSVX to capture 25% small cap value. Mornignstar has Vanguard's small cap value at 25%, so one would need to be 100% VISVX to capture 25% small cap value. How do you capture 100% SCV?

willthrill81 wrote:
Mon Aug 19, 2019 12:40 pm
But, as I've noted recently in multiple threads, the minimization of maximum regret may sway many toward TSM if they view it as being the default equity investment.
Regret minimization might motivate someone into just a checking account. It might motivate someone into leveraged stocks only, or exclusively looking at past strategies that beat TSM. A theory of regret minimization is not how most people actually pick their portfolio's, and applying it in an overweight manner to Bogleheads is not representative of the truth.

Many Bogleheads choose TSM because it has been shown to be one of the best investing methods, avoiding all of the major errors people might make on their own. Seeking a good enough investing philosophy is not regret minimization - it is good decision making. We should not seek to minimize regret, we should try to find a good enough plan that we will be likely to meet our goals.

Elysium
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Mon Aug 19, 2019 1:44 pm

willthrill81 wrote:
Mon Aug 19, 2019 12:40 pm
Elysium wrote:
Mon Aug 19, 2019 11:18 am
For some time they had the benefit of one time value out performing growth after the tech crash of 2000. But they seem to have run into an iceberg lately with small value trailing last 10 years and no one really knows if and when it will outperform total markets.
I'd hardly call a 2-3% lag that still resulted in nearly 8% CAGR (i.e. VISVX) an 'iceberg', but that's a matter of opinion.
I am willing to wager that you were never repeatedly claiming a 2-3% superior expected returns for SCV over TSM, and pointing to DFA fund data to make the case when they were performing 3-5% above TSM back then. I am suggesting that there were a number of such DFA fans back then, they have all but disappeared now. I am someone who actually owns couple of DFA value funds, and would love to see them doing well. Just don't like the pitch that they are far superior and everyone needs to overweight value.
willthrill81 wrote:
Mon Aug 19, 2019 12:40 pm
Elysium wrote:
Mon Aug 19, 2019 11:18 am
I would rather not speculate and bet all my retirement money on such a theory with very limited history of actual live data.
It would seem to me and many others to be very reasonable not to put 100% of one's equity exposure into SCV. Even Paul Merriman, lauded as one of the big SCV proponents, typically recommends portfolios that it only comprise 25% of one's domestic equity exposure, although he has argued that it may be worthwhile for a very young investor who strongly believes in the asset class to go 100%.

I'm not quite sure how to interpret what you mean by "very limited history of actual live data." DFA's SCV fund has been around since 1993 and Vanguard's since 1998. The oldest index fund I'm aware of is Vanguard's S&P 500 fund VFINX, which was launched in 1976, and their TSM fund VTSMX was launched in 1992, just a year before DFA's SCV fund. Are you saying that 42 years of "actual live data" is adequate but 26 years is not?
We can disagree, but I think 26 years is limited as it does not even cover 2 full market cycles (some say 30-32 years). But I agree it is subjective, as some people would say you need 100 years of data.
willthrill81 wrote:
Mon Aug 19, 2019 12:40 pm
Elysium wrote:
Mon Aug 19, 2019 11:18 am
The question is do you feel lucky and bet on a theory not accepted by all market practitioners (SCV), or bet on something that has broad appeal (market beta). Some say betting on market beta alone is risky, I see it differently. Most people don't have a clue, including academics and most investment managers. I would do the balanced approach and bet on both Growth and Value.

That said, I already said in previous post quoted above that if an investor over weighted SCV and stayed with it through all market cycles no matter what, they will reach their goals, because steady saving, investing, and compound rates will do the magic. They may end up with more dollars than others or less, no one knows for sure, but anyone who sticks with their program and do the regular investing and avoid the noise will reach their goals.
Again, this is a matter of opinion. Some people look at the theory and data and conclude that going 100% TSM is a 'riskier' bet than something like 75% TSM and 25% SCV. A lot of it seems to come down to how much credence you place on the risk-based theory that SCV should outperform TSM over the long-term and the historic data.

But, as I've noted recently in multiple threads, the minimization of maximum regret may sway many toward TSM if they view it as being the default equity investment.
I am not a TSM only investor personally, as I indicated earlier I do own some growth and value. My investments are not very typical of Bogleheads, so I rarely talk about it. That said, I just don't get the idea of over weighting Value by using TSM which contains Value already then additional SCV, instead if having separate SCV/LCV funds why not own LCG/SCG funds to balance out. That way there is no over weight to value, but there is size over weight which TSM investors may disagree with.

fennewaldaj
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by fennewaldaj » Mon Aug 19, 2019 2:42 pm

DecumulatorDoc wrote:
Mon Aug 19, 2019 11:41 am
stlutz wrote:
Sun Aug 18, 2019 9:16 am
Alchemist wrote:
Sat Aug 17, 2019 11:25 pm
Getting back to the topic of the OP.....

SCV currently being below historical PE while the rest of the market is near its historical PE certainly means that today they are cheaper relative to history.
It's worth noting the whole premise of the thread is dependent on which "earnings" measure you use. The JPM chart was based on estimated earnings. If one uses latest-twelve-months earnings, you get a different picture.

The PE of the S&P 600 Value ETF (IJS) is 48. The PE of Vanguards SV ETF is 24.

The PE of the total market is 25.

This all could be explained as simply observing that the market appears to disagree with analysts about what these companies are going to earn over the next couple of years.
The P/E of IJS is 14.64 and Vanguard SCV is 15.3 according to Blackrock and Vanguard websites using latest fiscal year earnings (trailing). Vanguard Total Stock mkt P/E is 20.3.
This of course supports Alchemist's premise that SCV is undervalued. Where does your data come from?
I think his data is from etf.com which includes negative earnings. I think what they do is take total market cap and divide by total earnings (including negative) So if some companies have very negative earnings they will skew things. Some other calculations assume negative earnings are zero. It is a bit unclear what is better.

YRT70
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by YRT70 » Tue Aug 20, 2019 8:08 am

Elysium wrote:
Mon Aug 19, 2019 8:09 am
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.
I've read those discussions. While I agree there are some issues with the older data, I don't consider those issues large enough to toss the whole factor premia in the bin. YMMV.

In my opinion the more compelling argument against factor investing is the uncertainty whether these premia will persist in the future. That is something no one knows.

Random Walker
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Random Walker » Tue Aug 20, 2019 9:32 am

YRT70 wrote:
Tue Aug 20, 2019 8:08 am
Elysium wrote:
Mon Aug 19, 2019 8:09 am
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.
I've read those discussions. While I agree there are some issues with the older data, I don't consider those issues large enough to toss the whole factor premia in the bin. YMMV.

In my opinion the more compelling argument against factor investing is the uncertainty whether these premia will persist in the future. That is something no one knows.
I certainly agree that back tested data should be viewed with a lot of skepticism. But once a data set is used to form a hypothesis, one can then look at other data sets to support or refute the hypothesis. For a factor, one can look in different geographic markets, time periods before and after the initial data, and in some cases even different asset classes. A data set starting after initial publication of the factor finding is perhaps most useful. Fama French was published about 1992-1993. There is real live fund after cost data supporting SV since publication and generation of widespread popularity.

Dave

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by HomerJ » Tue Aug 20, 2019 12:12 pm

rascott wrote:
Mon Aug 19, 2019 12:00 pm
Taylor Larimore wrote:
Tue Aug 13, 2019 7:01 pm
willthrill81 wrote:
Tue Aug 13, 2019 5:23 pm
In a recent post at Advisor Perspectives, Larry notes that SCV has underperformed the S&P 500 over the last decade and longer. --
My investment strategy allows me to be ambivalent about factor investing, but I am curious to hear what others think of this.
willthrill81:

No one knows which stock category will outperform or underperform in the future. Nevertheless, we DO know that total stock market investors will never be in the bottom category of investment returns which allows us to sleep well and not worry about underperformance.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In my view, owning the market and holding it forever is the ultimate strategy for winners."


From 2000-2012 the TSM returned less than being in 1 month T-bills.

So there goes that fallacy.
2000-2012 isn't forever.
The J stands for Jay

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Tue Aug 20, 2019 2:41 pm

HomerJ wrote:
Tue Aug 20, 2019 12:12 pm
rascott wrote:
Mon Aug 19, 2019 12:00 pm
Taylor Larimore wrote:
Tue Aug 13, 2019 7:01 pm
willthrill81 wrote:
Tue Aug 13, 2019 5:23 pm
In a recent post at Advisor Perspectives, Larry notes that SCV has underperformed the S&P 500 over the last decade and longer. --
My investment strategy allows me to be ambivalent about factor investing, but I am curious to hear what others think of this.
willthrill81:

No one knows which stock category will outperform or underperform in the future. Nevertheless, we DO know that total stock market investors will never be in the bottom category of investment returns which allows us to sleep well and not worry about underperformance.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "In my view, owning the market and holding it forever is the ultimate strategy for winners."
From 2000-2012 the TSM returned less than being in 1 month T-bills.

So there goes that fallacy.
2000-2012 isn't forever.
True, but in the long run, we're all dead.
“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 Elysium » Thu Aug 22, 2019 10:20 am

Random Walker wrote:
Tue Aug 20, 2019 9:32 am
YRT70 wrote:
Tue Aug 20, 2019 8:08 am
Elysium wrote:
Mon Aug 19, 2019 8:09 am
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.
I've read those discussions. While I agree there are some issues with the older data, I don't consider those issues large enough to toss the whole factor premia in the bin. YMMV.

In my opinion the more compelling argument against factor investing is the uncertainty whether these premia will persist in the future. That is something no one knows.
I certainly agree that back tested data should be viewed with a lot of skepticism. But once a data set is used to form a hypothesis, one can then look at other data sets to support or refute the hypothesis. For a factor, one can look in different geographic markets, time periods before and after the initial data, and in some cases even different asset classes. A data set starting after initial publication of the factor finding is perhaps most useful. Fama French was published about 1992-1993. There is real live fund after cost data supporting SV since publication and generation of widespread popularity.

Dave
DFA Small Cap Value fund (DFSVX) has full annual data since 1/1/1994 on PV, however Vanguard Small Cap Growth Index Fund (VISGX), the first known Small Cap Growth Index fund that I am aware of has data only since 1999. Looking at both since then, it seems the performance is even, some years value did better and some years growth did better.
https://www.portfoliovisualizer.com/bac ... 0&total3=0

Based on this, if there is a premia then it exists for both Growth and Value would you agree, or would you say only Value premia is legitimate and Growth returns are an anomaly :?: Needless to say, such an argument would sound absurd.

My point is the same as Jack Bogle suggested based on his research, that both Value and Growth tends to even out over longer time periods, and there seems to be no particular advantage to over weight one over the other. You can always use different end periods to claim superiority of one over other.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 22, 2019 10:24 am

Elysium wrote:
Thu Aug 22, 2019 10:20 am
Random Walker wrote:
Tue Aug 20, 2019 9:32 am
YRT70 wrote:
Tue Aug 20, 2019 8:08 am
Elysium wrote:
Mon Aug 19, 2019 8:09 am
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.
I've read those discussions. While I agree there are some issues with the older data, I don't consider those issues large enough to toss the whole factor premia in the bin. YMMV.

In my opinion the more compelling argument against factor investing is the uncertainty whether these premia will persist in the future. That is something no one knows.
I certainly agree that back tested data should be viewed with a lot of skepticism. But once a data set is used to form a hypothesis, one can then look at other data sets to support or refute the hypothesis. For a factor, one can look in different geographic markets, time periods before and after the initial data, and in some cases even different asset classes. A data set starting after initial publication of the factor finding is perhaps most useful. Fama French was published about 1992-1993. There is real live fund after cost data supporting SV since publication and generation of widespread popularity.

Dave
DFA Small Cap Value fund (DFSVX) has full annual data since 1/1/1994 on PV, however Vanguard Small Cap Growth Index Fund (VISGX), the first known Small Cap Growth Index fund that I am aware of has data only since 1999. Looking at both since then, it seems the performance is even, some years value did better and some years growth did better.
https://www.portfoliovisualizer.com/bac ... 0&total3=0

Based on this, if there is a premia then it exists for both Growth and Value would you agree, or would you say only Value premia is legitimate and Growth returns are an anomaly :?: Needless to say, such an argument would sound absurd.

My point is the same as Jack Bogle suggested based on his research, that both Value and Growth tends to even out over longer time periods, and there seems to be no particular advantage to over weight one over the other. You can always use different end periods to claim superiority of one over other.
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.

You probably know this, but keep in mind that if SCV does well relative to all small-caps, then SCG will do poorly, and vice versa. That being said, both SCV and SCG, together representing all small-caps, can certainly do better (or worse) than the total stock market.
“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 rascott » Thu Aug 22, 2019 10:29 am

Elysium wrote:
Thu Aug 22, 2019 10:20 am
Random Walker wrote:
Tue Aug 20, 2019 9:32 am
YRT70 wrote:
Tue Aug 20, 2019 8:08 am
Elysium wrote:
Mon Aug 19, 2019 8:09 am
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.
I've read those discussions. While I agree there are some issues with the older data, I don't consider those issues large enough to toss the whole factor premia in the bin. YMMV.

In my opinion the more compelling argument against factor investing is the uncertainty whether these premia will persist in the future. That is something no one knows.
I certainly agree that back tested data should be viewed with a lot of skepticism. But once a data set is used to form a hypothesis, one can then look at other data sets to support or refute the hypothesis. For a factor, one can look in different geographic markets, time periods before and after the initial data, and in some cases even different asset classes. A data set starting after initial publication of the factor finding is perhaps most useful. Fama French was published about 1992-1993. There is real live fund after cost data supporting SV since publication and generation of widespread popularity.

Dave
DFA Small Cap Value fund (DFSVX) has full annual data since 1/1/1994 on PV, however Vanguard Small Cap Growth Index Fund (VISGX), the first known Small Cap Growth Index fund that I am aware of has data only since 1999. Looking at both since then, it seems the performance is even, some years value did better and some years growth did better.
https://www.portfoliovisualizer.com/bac ... 0&total3=0

Based on this, if there is a premia then it exists for both Growth and Value would you agree, or would you say only Value premia is legitimate and Growth returns are an anomaly :?: Needless to say, such an argument would sound absurd.

My point is the same as Jack Bogle suggested based on his research, that both Value and Growth tends to even out over longer time periods, and there seems to be no particular advantage to over weight one over the other. You can always use different end periods to claim superiority of one over other.
They don't look equal to me....roughly 1/2% difference. You can do some calcs on what 0.5% provides in real dollars over a 60+ year investment life.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 22, 2019 10:30 am

Rick Ferri used to recommend (not sure if he still does) a small allocation of equity to small value.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by whodidntante » Thu Aug 22, 2019 10:38 am

willthrill81 wrote:
Thu Aug 22, 2019 10:24 am
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.
The usual advice is one should not expect a premium from buying lottery tickets. You really have to torture the data to conclude otherwise. I'm dubious that the kinds of stocks that are mentioned in those discussions are contained in real-world growth funds. Most real-world funds, even those owned by bogleheads, apply some measure of quality screen. That quality screen deselects the most horrific junk. I'm not sure if TSM funds use such a filter. It would be possible to find but I've never looked.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 22, 2019 10:42 am

whodidntante wrote:
Thu Aug 22, 2019 10:38 am
willthrill81 wrote:
Thu Aug 22, 2019 10:24 am
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.
The usual advice is one should not expect a premium from buying lottery tickets. You really have to torture the data to conclude otherwise. I'm dubious that the kinds of stocks that are mentioned in those discussions are contained in real-world growth funds. Most real-world funds, even those owned by bogleheads, apply some measure of quality screen. That quality screen deselects the most horrific junk. I'm not sure if TSM funds use such a filter. It would be possible to find but I've never looked.
I don't think that TSM funds filter for anything at all. My understanding is that they basically let the market do that via cap-weighting.
“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 abuss368 » Thu Aug 22, 2019 10:48 am

Rick Ferri had at one time a portfolio of 10 or more funds that include small cap value. This may have been simplified to the Three Fund Portfolio. Perhaps Rick will see this thread and respond.
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 22, 2019 10:51 am

willthrill81 wrote:
Thu Aug 22, 2019 10:24 am
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.

You probably know this, but keep in mind that if SCV does well relative to all small-caps, then SCG will do poorly, and vice versa. That being said, both SCV and SCG, together representing all small-caps, can certainly do better (or worse) than the total stock market.
I don't know what time measurement was used to cite the abysmal performance, but it certainly hasn't been abysmal over the past 20 years. It is interesting that the "black hole" of investing has actually performed slightly better than SCV since the inception of the Vanguard funds in 1999: https://www.portfoliovisualizer.com/bac ... total3=100

Obviously not by a lot and lagged a good portion of the time but interesting nonetheless, considering how well SCV did in the early to mid 2000s. Either SCV or SCG were good choices looking back, and beat the overall US stock market since that time by about 3% CAGR. But if I was a SCV tilter, I wouldn't have an abundance of confidence in the strategy, considering a tilt to either over the past two decades have been essentially a wash.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 22, 2019 11:12 am

asif408 wrote:
Thu Aug 22, 2019 10:51 am
willthrill81 wrote:
Thu Aug 22, 2019 10:24 am
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.

You probably know this, but keep in mind that if SCV does well relative to all small-caps, then SCG will do poorly, and vice versa. That being said, both SCV and SCG, together representing all small-caps, can certainly do better (or worse) than the total stock market.
I don't know what time measurement was used to cite the abysmal performance, but it certainly hasn't been abysmal over the past 20 years. It is interesting that the "black hole" of investing has actually performed slightly better than SCV since the inception of the Vanguard funds in 1999: https://www.portfoliovisualizer.com/bac ... total3=100

Obviously not by a lot and lagged a good portion of the time but interesting nonetheless, considering how well SCV did in the early to mid 2000s. Either SCV or SCG were good choices looking back, and beat the overall US stock market since that time by about 3% CAGR. But if I was a SCV tilter, I wouldn't have an abundance of confidence in the strategy, considering a tilt to either over the past two decades have been essentially a wash.
Yes, many believe that the last 20 years of performance is an anomaly in terms of SCG doing as well as it has. Both SCV and SCG have far outperformed TSM over the last 20 years as well. The potential for SCG to outperform is partly why several of Paul Merriman's suggested portfolios include an allocation to small-cap as well as an allocation to small-cap value (among many others).
“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 abuss368 » Thu Aug 22, 2019 12:01 pm

I am curious of Larry thoughts on Small Cap Growth vs. Small Cap Value.
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 22, 2019 12:41 pm

rascott wrote:
Thu Aug 22, 2019 10:29 am
Elysium wrote:
Thu Aug 22, 2019 10:20 am
Random Walker wrote:
Tue Aug 20, 2019 9:32 am
YRT70 wrote:
Tue Aug 20, 2019 8:08 am
Elysium wrote:
Mon Aug 19, 2019 8:09 am
IFA data prior to when actual fund returns did not exist is unreliable at best and made up at worst. There were discussions on this forum that can be found with a search. In any case, back tested data is unreliable whether made by academicians for theory or fund companies with special interests.
I've read those discussions. While I agree there are some issues with the older data, I don't consider those issues large enough to toss the whole factor premia in the bin. YMMV.

In my opinion the more compelling argument against factor investing is the uncertainty whether these premia will persist in the future. That is something no one knows.
I certainly agree that back tested data should be viewed with a lot of skepticism. But once a data set is used to form a hypothesis, one can then look at other data sets to support or refute the hypothesis. For a factor, one can look in different geographic markets, time periods before and after the initial data, and in some cases even different asset classes. A data set starting after initial publication of the factor finding is perhaps most useful. Fama French was published about 1992-1993. There is real live fund after cost data supporting SV since publication and generation of widespread popularity.

Dave
DFA Small Cap Value fund (DFSVX) has full annual data since 1/1/1994 on PV, however Vanguard Small Cap Growth Index Fund (VISGX), the first known Small Cap Growth Index fund that I am aware of has data only since 1999. Looking at both since then, it seems the performance is even, some years value did better and some years growth did better.
https://www.portfoliovisualizer.com/bac ... 0&total3=0

Based on this, if there is a premia then it exists for both Growth and Value would you agree, or would you say only Value premia is legitimate and Growth returns are an anomaly :?: Needless to say, such an argument would sound absurd.

My point is the same as Jack Bogle suggested based on his research, that both Value and Growth tends to even out over longer time periods, and there seems to be no particular advantage to over weight one over the other. You can always use different end periods to claim superiority of one over other.
They don't look equal to me....roughly 1/2% difference. You can do some calcs on what 0.5% provides in real dollars over a 60+ year investment life.
You can adjust the start/end point to arrive at a point that shows SCG outperformed by 0.5%. There is nothing magical about a 20 year period starting in 99 other than that is when VISGX data is available, give it a few more months give or take and you may get different result.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by whodidntante » Thu Aug 22, 2019 12:43 pm

abuss368 wrote:
Thu Aug 22, 2019 12:01 pm
I am curious of Larry thoughts on Small Cap Growth vs. Small Cap Value.
Did you write to him? Remember some keep impugning his character on this site.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 22, 2019 12:45 pm

whodidntante wrote:
Thu Aug 22, 2019 12:43 pm
abuss368 wrote:
Thu Aug 22, 2019 12:01 pm
I am curious of Larry thoughts on Small Cap Growth vs. Small Cap Value.
Did you write to him? Remember some keep impugning his character on this site.
Good point.
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 22, 2019 12:48 pm

abuss368 wrote:
Thu Aug 22, 2019 12:01 pm
I am curious of Larry thoughts on Small Cap Growth vs. Small Cap Value.
It is well known that he believes SCG is a black-hole of investing, or something similar. Some academic theory around lottery effect etc... practically nothing is far from truth, SCG returned over 15% last 10 years.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Elysium » Thu Aug 22, 2019 12:55 pm

willthrill81 wrote:
Thu Aug 22, 2019 11:12 am
asif408 wrote:
Thu Aug 22, 2019 10:51 am
willthrill81 wrote:
Thu Aug 22, 2019 10:24 am
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.

You probably know this, but keep in mind that if SCV does well relative to all small-caps, then SCG will do poorly, and vice versa. That being said, both SCV and SCG, together representing all small-caps, can certainly do better (or worse) than the total stock market.
I don't know what time measurement was used to cite the abysmal performance, but it certainly hasn't been abysmal over the past 20 years. It is interesting that the "black hole" of investing has actually performed slightly better than SCV since the inception of the Vanguard funds in 1999: https://www.portfoliovisualizer.com/bac ... total3=100

Obviously not by a lot and lagged a good portion of the time but interesting nonetheless, considering how well SCV did in the early to mid 2000s. Either SCV or SCG were good choices looking back, and beat the overall US stock market since that time by about 3% CAGR. But if I was a SCV tilter, I wouldn't have an abundance of confidence in the strategy, considering a tilt to either over the past two decades have been essentially a wash.
Yes, many believe that the last 20 years of performance is an anomaly in terms of SCG doing as well as it has. Both SCV and SCG have far outperformed TSM over the last 20 years as well. The potential for SCG to outperform is partly why several of Paul Merriman's suggested portfolios include an allocation to small-cap as well as an allocation to small-cap value (among many others).
It may be an anomaly, or not. May be I need a blue pill to see the magic of SCV. How do we know SCV returns from 2000-07 weren't an anomaly? because FF told us through their study of many markets over 100 years of their back tested data. First of all, we know FF benchmark cannot be re-created with long only mutual funds, so even if their finding is true, we still cannot capture those returns. Second, what if Value effect is no longer available, because everyone now knows about it, and the premium has all but disappeared.

No one knows for sure. I would imagine then again beating this horse to death, why over weight SCV, instead of maintaining a balance between Growth and Value. If you hold small-blend then is already has both Growth and Value and the returns will be same as 50/20 SCG/SCV, so no need to have SCV, instead if you wish you have separate SCV, then it seems 50/50 SCG/SCV is better. That way, you are not betting on one or the other.

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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 22, 2019 12:58 pm

Elysium wrote:
Thu Aug 22, 2019 12:48 pm
abuss368 wrote:
Thu Aug 22, 2019 12:01 pm
I am curious of Larry thoughts on Small Cap Growth vs. Small Cap Value.
It is well known that he believes SCG is a black-hole of investing, or something similar. Some academic theory around lottery effect etc... practically nothing is far from truth, SCG returned over 15% last 10 years.
Thanks as I was not aware of his thoughts on small cap growth.
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 willthrill81 » Thu Aug 22, 2019 1:08 pm

Elysium wrote:
Thu Aug 22, 2019 12:55 pm
willthrill81 wrote:
Thu Aug 22, 2019 11:12 am
asif408 wrote:
Thu Aug 22, 2019 10:51 am
willthrill81 wrote:
Thu Aug 22, 2019 10:24 am
I've heard several experts discuss that SCG has historically had abysmal performance, which makes sense considering how well SCV has done. So most would say that SCG's outperformance of late is an anomaly. TMK, it certainly has not held up in the past across time and geography like the SCV premium has.

You probably know this, but keep in mind that if SCV does well relative to all small-caps, then SCG will do poorly, and vice versa. That being said, both SCV and SCG, together representing all small-caps, can certainly do better (or worse) than the total stock market.
I don't know what time measurement was used to cite the abysmal performance, but it certainly hasn't been abysmal over the past 20 years. It is interesting that the "black hole" of investing has actually performed slightly better than SCV since the inception of the Vanguard funds in 1999: https://www.portfoliovisualizer.com/bac ... total3=100

Obviously not by a lot and lagged a good portion of the time but interesting nonetheless, considering how well SCV did in the early to mid 2000s. Either SCV or SCG were good choices looking back, and beat the overall US stock market since that time by about 3% CAGR. But if I was a SCV tilter, I wouldn't have an abundance of confidence in the strategy, considering a tilt to either over the past two decades have been essentially a wash.
Yes, many believe that the last 20 years of performance is an anomaly in terms of SCG doing as well as it has. Both SCV and SCG have far outperformed TSM over the last 20 years as well. The potential for SCG to outperform is partly why several of Paul Merriman's suggested portfolios include an allocation to small-cap as well as an allocation to small-cap value (among many others).
It may be an anomaly, or not. May be I need a blue pill to see the magic of SCV. How do we know SCV returns from 2000-07 weren't an anomaly? because FF told us through their study of many markets over 100 years of their back tested data. First of all, we know FF benchmark cannot be re-created with long only mutual funds, so even if their finding is true, we still cannot capture those returns. Second, what if Value effect is no longer available, because everyone now knows about it, and the premium has all but disappeared.

No one knows for sure. I would imagine then again beating this horse to death, why over weight SCV, instead of maintaining a balance between Growth and Value. If you hold small-blend then is already has both Growth and Value and the returns will be same as 50/20 SCG/SCV, so no need to have SCV, instead if you wish you have separate SCV, then it seems 50/50 SCG/SCV is better. That way, you are not betting on one or the other.
There's no point in holding both SCV and SCG. Just own SC unless you don't have access to a SC fund.

But if you own a SC fund, you're basically saying that you believe in the SC premium but not the SCV premium. That may be well founded, but I'm not sure why you would believe in one but not the other.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Thu Aug 22, 2019 1:26 pm

How are the small cap stocks divided into the growth and value components? Is it just that the 50% with the lowest P/E ratios are defined as the "small cap value" stocks, with the remainder the "small cap growth" stocks, or is it more complicated than that?
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 22, 2019 1:47 pm

At one time many years ago we simply invest in Vanguard Small Cap Index Fund.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 22, 2019 1:48 pm

FIREchief wrote:
Thu Aug 22, 2019 1:26 pm
How are the small cap stocks divided into the growth and value components? Is it just that the 50% with the lowest P/E ratios are defined as the "small cap value" stocks, with the remainder the "small cap growth" stocks, or is it more complicated than that?
I was not sure of this either. Often a stock can move back and forth between value and growth.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Thu Aug 22, 2019 3:41 pm

FIREchief wrote:
Thu Aug 22, 2019 1:26 pm
How are the small cap stocks divided into the growth and value components? Is it just that the 50% with the lowest P/E ratios are defined as the "small cap value" stocks, with the remainder the "small cap growth" stocks, or is it more complicated than that?
I thought this was a simple question for which there would be a simple answer. Was I mistaken? Is there really no clear definition for what qualifies a stock as either "value" or "growth?" If not, then this whole discussion is rather silly! :shock:
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 22, 2019 3:48 pm

FIREchief wrote:
Thu Aug 22, 2019 3:41 pm
FIREchief wrote:
Thu Aug 22, 2019 1:26 pm
How are the small cap stocks divided into the growth and value components? Is it just that the 50% with the lowest P/E ratios are defined as the "small cap value" stocks, with the remainder the "small cap growth" stocks, or is it more complicated than that?
I thought this was a simple question for which there would be a simple answer. Was I mistaken? Is there really no clear definition for what qualifies a stock as either "value" or "growth?" If not, then this whole discussion is rather silly! :shock:
There are various ways to define 'value' and 'growth', and my understanding is that they all have a lot of overlap when implemented in a real world context. Which is best is a subjective matter, not unlike most things we discuss around here, but I agree with nedsaid that the differences produced by the multiple means of achieving the split are unlikely to make or break the viability of owning SCV. Vanguard's VISVX has done a fine job in its ~20 years since inception. Whether it's worth paying more for DFA funds and getting better small and value exposure is debatable.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 22, 2019 4:14 pm

FIREchief wrote:
Thu Aug 22, 2019 4:05 pm
It is starting to sound like SCV is more in the realm of active management than indexing. If that's the case, then any supposed premium may stem more from perception (or even manipulation) than observation.
Out of curiosity, do you consider the S&P 500 to be 'active management'? The Wiki refers to the S&P 500 as an index, but a committee selects the S&P 500 on the basis of numerous criteria.
A committee selects each of the index's 500 corporations based on their liquidity, size, and industry. It rebalances the index quarterly, in March, June, September, and December. To qualify for the index, a company must be in the United States and have a market cap of at least $6.1 billion. At least 50 percent of the corporation's stock must be available to the public. Its stock price must be at least $1 per share. It must file a 10-K annual report. At least 50 percent of its fixed assets and revenues must be in the United States.

Finally, it must have at least four consecutive quarters of positive earnings.
https://www.thebalance.com/what-is-the- ... 00-3305888

Vanguard refers to its VISVX as an index fund, and they say this about it as well.
The fund employs an indexing investment approach designed to track the performance of the the CRSP US Small Cap Value Index, a broadly diversified index of value stocks of smaller U.S. companies. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
Now that is not conclusive evidence that VISVX or any other SCV fund is not 'active management', but frankly I find the term 'active management' to be a subjective one itself. Many here consider any AA other than a global cap-weighted one to be active management. If so, then there are probably exceedingly few passive investors in the world.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Thu Aug 22, 2019 4:18 pm

I am curious how many Bogleheads invest in small cap value.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Thu Aug 22, 2019 4:23 pm

willthrill81 wrote:
Thu Aug 22, 2019 4:14 pm
FIREchief wrote:
Thu Aug 22, 2019 4:05 pm
It is starting to sound like SCV is more in the realm of active management than indexing. If that's the case, then any supposed premium may stem more from perception (or even manipulation) than observation.
Out of curiosity, do you consider the S&P 500 to be 'active management'? The Wiki refers to the S&P 500 as an index, but a committee selects the S&P 500 on the basis of numerous criteria.
I do not consider mutual funds or ETFs that track the S&P 500 to be active management. I see no opportunity for mixed or hidden agendas, and there is a long stable history of how well the associated index funds are able to track the S&P 500 index.
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 nedsaid » Thu Aug 22, 2019 4:26 pm

abuss368 wrote:
Thu Aug 22, 2019 4:18 pm
I am curious how many Bogleheads invest in small cap value.
I have used Vanguard Small-Cap Value Index ETF and the iShares S&P 600 Small Cap Value Index ETF. When I had my 403(b), I used the Allianz NFJ Small Cap Value fund for my Small Value representation but switched it to the iShares product when I rolled the 403(b) over to a Rollover IRA. At American Century, I have used their Mid-Cap Value fund which actually has a better performance record than its Small Value product. You might substitute a Mid Cap Value Index and get very similar results. The S&P Indexes seem to be better than the Russell Indexes. Vanguard uses the CRSP indexes, which seem to be better than the Russell indexes. Reason being is that Russell doesn't seem to make any effort to screen out the junk. S&P does have quality criteria for their indexes.

I also use the iShares Core Small Cap Index ETF, which is based upon the S&P 600 Small Cap Index. I bought this back in 2004 and have been nothing but pleased with it. I also have a Micro Cap Index ETF but seems plagued by front running, is rated 2 star by Morningstar, and I am much less pleased with it.

So that is what I am doing.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Day9 » Thu Aug 22, 2019 4:27 pm

The value factor is defined as long/short. Larry once said here about 0.6 loading on the factor is about as high as you can get if you go long-only.

The small factor is also long/short and defined many ways. Originally it was long the 50% smallest stocks and short the 50% largest stocks. Larry has investigated this under different definitions for example looking at the smallest decile minus the largest decile. He has a whole appendix/chapter devoted to this in his factor book.

There is an AQR fund (qspix) that goes long/short to capture these premiums among others and not just in stocks, but also bonds, currencies, and commodities. There is a huge thread in this forum discussing this fund if you search for it. I do not own this fund.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Thu Aug 22, 2019 4:28 pm

FIREchief wrote:
Thu Aug 22, 2019 4:23 pm
willthrill81 wrote:
Thu Aug 22, 2019 4:14 pm
FIREchief wrote:
Thu Aug 22, 2019 4:05 pm
It is starting to sound like SCV is more in the realm of active management than indexing. If that's the case, then any supposed premium may stem more from perception (or even manipulation) than observation.
Out of curiosity, do you consider the S&P 500 to be 'active management'? The Wiki refers to the S&P 500 as an index, but a committee selects the S&P 500 on the basis of numerous criteria.
I do not consider mutual funds or ETFs that track the S&P 500 to be active management. I see no opportunity for mixed or hidden agendas, and there is a long stable history of how well the associated index funds are able to track the S&P 500 index.
My admittedly limited understanding of indices is that they are typically (must?) be created using objective criteria. To the extent that this is true, I don't see then how someone could consider the S&P 500 to be a passive investment but an index fund tracking SCV to be active management. The fact that there are different ways to define SCV doesn't seem to imply active management any more than there are different ways to determine whether a firm should be included in the S&P 500.
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Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » Thu Aug 22, 2019 4:33 pm

Day9 wrote:
Thu Aug 22, 2019 4:27 pm
The value factor is defined as long/short. Larry once said here about 0.6 loading on the factor is about as high as you can get if you go long-only.

The small factor is also long/short and defined many ways. Originally it was long the 50% smallest stocks and short the 50% largest stocks. Larry has investigated this under different definitions for example looking at the smallest decile minus the largest decile. He has a whole appendix/chapter devoted to this in his factor book.

There is an AQR fund (qspix) that goes long/short to capture these premiums among others and not just in stocks, but also bonds, currencies, and commodities. There is a huge thread in this forum discussing this fund if you search for it. I do not own this fund.
Wow. Great post. Precisely the type of post that sheds important light on this topic. Thank you.
A fool and his money are good for business.

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