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

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
KlangFool
Posts: 13705
Joined: Sat Oct 11, 2008 12:35 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by KlangFool » Wed Aug 14, 2019 10:09 am

OP,

I use SCV as part of my mini-Larry portfolio. I have 10% in SCV and 10% in intermediate-Term Treasury. It would be interesting to see how SCV works out if it is part of the Larry portfolio.

KlangFool

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 10:18 am

The beauty of Total Market funds is that we can sleep well and not have to worry about underperforming the market. No sector or style risks.
John C. Bogle: "Simplicity is the master key to financial success."

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 10:29 am

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

But TSM may or may not allow investors to achieve their goals. Tilting toward SCV may help them do that better.
“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

robertmcd
Posts: 547
Joined: Tue Aug 09, 2016 9:06 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by robertmcd » Wed Aug 14, 2019 10:30 am

Larry and DFA's investing strategy has had a rough go this business cycle - I am sure it has a lot of people asking if this time is different

Short term bonds - nope should have taken massive interest rate risk at historically low yields and been in ultra long term

International stocks - should have been in 100% US and ignored valuation and focus on growth

Small cap value - should have been in Mega cap growth or at least market cap weighted

The real winner has been risk parity and throwing caution to the wind about inflation protection with regards to debt levels and money printing

wolf359
Posts: 1792
Joined: Sun Mar 15, 2015 8:47 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by wolf359 » Wed Aug 14, 2019 10:40 am

whodidntante wrote:
Tue Aug 13, 2019 6:22 pm
Let's all go buy SCV then.
I tilt to SCV.

When there have been recent posts on Bogleheads talking about how SCV was underperforming, I interpreted it as SCV is just out of favor right now. Larry Swedroe is saying the same thing.

I'm not buying any more than my asset allocation calls for, but I am keeping my AA with a SCV tilt. It's a 20-30 year commitment with a volatile asset class. I am not surprised that it is fluctuating.

If you were thinking of adding an SCV tilt, now is a good time to start. Otherwise, one should just stay the course.

YRT70
Posts: 334
Joined: Sat Apr 27, 2019 8:51 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by YRT70 » Wed Aug 14, 2019 10:56 am

It's even cheaper today. IJS -3.02% at the moment. Ouch.

Thanks for sharing the article Will.

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

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

YRT70 wrote:
Wed Aug 14, 2019 10:56 am
It's even cheaper today. IJS -3.02% at the moment. Ouch.

Thanks for sharing the article Will.
That means that the expected returns for SCV going forward are even higher today! :wink:
“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

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 11:10 am

Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
John C. Bogle: "Simplicity is the master key to financial success."

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 12:14 pm

abuss368 wrote:
Wed Aug 14, 2019 11:10 am
Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
The future could look very different from the past, but SCV has had better rolling returns than TSM over the last 47+ years in 1, 3, 5, 7, 10, and 15 year periods, every period that Portfolio Visualizer measures (i.e. higher highs, higher lows, and higher averages; no downside there at all). The future could look different, but it would have to look very different for SCV to not be a worthwhile addition to a portfolio. But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
“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

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 12:20 pm

We invested in individual stocks for many years. A lot of good a great returns and many horrible results. We moved to total market funds with Vanguard and it has been the best financial decision we ever made.
Last edited by abuss368 on Wed Aug 14, 2019 2:07 pm, edited 1 time in total.
John C. Bogle: "Simplicity is the master key to financial success."

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Total Markets and category averages

Post by abuss368 » Wed Aug 14, 2019 12:23 pm

Taylor Larimore wrote:
Tue Aug 13, 2019 7:50 pm

We know because the total market is, by definition, average.

Best wishes.
Taylor
Thanks Taylor! I recall many Jack Bogle interviews and writings where he said exactly that.
John C. Bogle: "Simplicity is the master key to financial success."

abc132
Posts: 316
Joined: Thu Oct 18, 2018 1:11 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 12:51 pm

willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
abuss368 wrote:
Wed Aug 14, 2019 11:10 am
Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
The future could look very different from the past, but SCV has had better rolling returns than TSM over the last 47+ years in 1, 3, 5, 7, 10, and 15 year periods, every period that Portfolio Visualizer measures (i.e. higher highs, higher lows, and higher averages; no downside there at all). The future could look different, but it would have to look very different for SCV to not be a worthwhile addition to a portfolio. But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
It's just strange when that those that argue we can't use 1-15 year performance to evaluate a decision us that exact same metric to evaluate a decision. 1-15 year performance should only be relevant to those with 1-15 year investment horizon. You miss the larger point that it is the total portfolio with SCV performance that matters, not SCV on it's own.

Lastly, you have no SCV in your portfolio because you believe that your portfolio is "good enough" without it. Your dislike for TSM should not blind you to the fact that people are leaving out SCV for the same reason as you. When you add a permanent amount of SCV to your own portfolio, you will have a better argument. The idea that others can't tolerate less than TSM is way off base, and a mischaracterization of others. That is not why SCV is missing from your portfolio, so please stop falsely attributing things to others.

Most Bogleheads add bonds and accept less than TSM performance. Their reasons for including or not including SCV are separate and distinct.
Last edited by abc132 on Wed Aug 14, 2019 1:20 pm, edited 4 times in total.

User avatar
FIREchief
Posts: 3545
Joined: Fri Aug 19, 2016 6:40 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Wed Aug 14, 2019 12:57 pm

willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
Some investors can tolerate underperforming TSM but have no reason to allow for that possibility. As soon as a person entertains deviation from TSM, there is an ever expanding universe of "great ideas" that they will feel compelled to understand and pursue. If a person can simply tolerate being average, TSM is (or at least always has been) a great place to be. :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.

Northern Flicker
Posts: 4784
Joined: Fri Apr 10, 2015 12:29 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Northern Flicker » Wed Aug 14, 2019 1:41 pm

I think secular overperformanxe of value or growth has lasted as long as 30 years in the past.
The small premium has been negative 30 years, but value hasn't had that bad of a run, TMK.
I think any such historical comparison is sensitive to start date, since it will be comparing returns of value and growth from the start date.

asif408
Posts: 1791
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Wed Aug 14, 2019 2:00 pm

willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
abuss368 wrote:
Wed Aug 14, 2019 11:10 am
Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
The future could look very different from the past, but SCV has had better rolling returns than TSM over the last 47+ years in 1, 3, 5, 7, 10, and 15 year periods, every period that Portfolio Visualizer measures (i.e. higher highs, higher lows, and higher averages; no downside there at all). The future could look different, but it would have to look very different for SCV to not be a worthwhile addition to a portfolio. But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
The DFA small cap value fund, which is the oldest and most cited around here as a "pure" small value play, has outperformed the total stock market since inception of 1993 annually by about 1.5% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

But it appears your statement in bold can't possibly be true, particularly regarding the 1, 3, & 5 year rolling periods, because this fund underperformed the TSM fund every year between 1995-1999, in 2007, from 2014-2015, & from 2017-present. In fact, since January 2014 (an almost 6 year period) it has trailed the TSM by 8% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I can't find any actual SCV fund in which your bolded statement is true, so it appears you aren't using data from actual existing funds.

User avatar
HomerJ
Posts: 13267
Joined: Fri Jun 06, 2008 12:50 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by HomerJ » Wed Aug 14, 2019 2:23 pm

FIREchief wrote:
Tue Aug 13, 2019 11:42 pm
willthrill81 wrote:
Tue Aug 13, 2019 11:30 pm
FIREchief wrote:
Tue Aug 13, 2019 11:25 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.t

this means that SCV's valuations are significantly more attractive and historically likely to lead to outperformance in the future.
What was he recommending at the beginning of that last decade? Was it SCV? (fool me once.....)
Without delving into the data, I'll bet that TSM had more attractive valuations than SCV a decade ago. I don't know what Larry was recommending back then, but he's been pro-SCV for quite a while.
I appreciate that, but it really doesn't matter unless you place great faith in "valuations" as an input to investment decisions. If somebody gave me bad advice ten years ago, and tries to give me the same advice today, I'll likely pay no attention.
Here's an article from 2009, with a Larry portfolio

https://obliviousinvestor.com/8-lazy-etf-portfolios/
5. Larry Swedroe’s Big Rocks Portfolio
9% Vanguard S&P 500 Index ETF (VOO)
9% Vanguard Value ETF (VTV)
9% Vanguard Small-Cap ETF (VB)
9% Vanguard Small-Cap Value ETF (VBR)
6% Vanguard REIT ETF (VNQ)
3% Vanguard Total International Stock ETF (VXUS)
6% SPDR S&P International Dividend (DWX)
3% Vanguard FTSE AW ex-US Sm-Cap ETF (VSS)
3% WisdomTree International SmallCap Div (DLS)
3% Vanguard Emerging Mkts ETF (VWO)
40% Vanguard Short-Term Bond ETF (BSV)

You’ll note that Swedroe’s portfolio is significantly tilted toward small-cap and value equities (with the reasoning that their higher risk levels should bring higher expected returns). It’s more funds than I’d personally like, but Swedroe makes a valid point that if you’re only rebalancing annually, the additional effort required by having a few more funds in your portfolio is pretty minor.
So 10 years ago his calculations showed a higher expected return for small cap and small value.

Just like today.

Sooner or later, he'll be right.
The J stands for Jay

User avatar
Taylor Larimore
Advisory Board
Posts: 28672
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Taylor Larimore » 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."
"Simplicity is the master key to financial success." -- Jack Bogle

User avatar
FIREchief
Posts: 3545
Joined: Fri Aug 19, 2016 6:40 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by FIREchief » Wed Aug 14, 2019 2:34 pm

HomerJ wrote:
Wed Aug 14, 2019 2:23 pm
Sooner or later, he'll be right.
Of course! Even my old busted clock is right twice a day! :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.

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 3:18 pm

asif408 wrote:
Wed Aug 14, 2019 2:00 pm
willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
abuss368 wrote:
Wed Aug 14, 2019 11:10 am
Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
The future could look very different from the past, but SCV has had better rolling returns than TSM over the last 47+ years in 1, 3, 5, 7, 10, and 15 year periods, every period that Portfolio Visualizer measures (i.e. higher highs, higher lows, and higher averages; no downside there at all). The future could look different, but it would have to look very different for SCV to not be a worthwhile addition to a portfolio. But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
The DFA small cap value fund, which is the oldest and most cited around here as a "pure" small value play, has outperformed the total stock market since inception of 1993 annually by about 1.5% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

But it appears your statement in bold can't possibly be true, particularly regarding the 1, 3, & 5 year rolling periods, because this fund underperformed the TSM fund every year between 1995-1999, in 2007, from 2014-2015, & from 2017-present. In fact, since January 2014 (an almost 6 year period) it has trailed the TSM by 8% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I can't find any actual SCV fund in which your bolded statement is true, so it appears you aren't using data from actual existing funds.
My statement is based on Portfolio Visualizer's asset class data.

Portfolio 1 is TSM, and Portfolio 2 is SCV.
Image
“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

asif408
Posts: 1791
Joined: Sun Mar 02, 2014 8:34 am
Location: Florida

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by asif408 » Wed Aug 14, 2019 3:24 pm

willthrill81 wrote:
Wed Aug 14, 2019 3:18 pm
asif408 wrote:
Wed Aug 14, 2019 2:00 pm
willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
abuss368 wrote:
Wed Aug 14, 2019 11:10 am
Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
The future could look very different from the past, but SCV has had better rolling returns than TSM over the last 47+ years in 1, 3, 5, 7, 10, and 15 year periods, every period that Portfolio Visualizer measures (i.e. higher highs, higher lows, and higher averages; no downside there at all). The future could look different, but it would have to look very different for SCV to not be a worthwhile addition to a portfolio. But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
The DFA small cap value fund, which is the oldest and most cited around here as a "pure" small value play, has outperformed the total stock market since inception of 1993 annually by about 1.5% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

But it appears your statement in bold can't possibly be true, particularly regarding the 1, 3, & 5 year rolling periods, because this fund underperformed the TSM fund every year between 1995-1999, in 2007, from 2014-2015, & from 2017-present. In fact, since January 2014 (an almost 6 year period) it has trailed the TSM by 8% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I can't find any actual SCV fund in which your bolded statement is true, so it appears you aren't using data from actual existing funds.
My statement is based on Portfolio Visualizer's asset class data.

Portfolio 1 is TSM, and Portfolio 2 is SCV.
Image
Ok, so it uses Professor Kenneth French's Research Data from 1972-1998, then Vanguard's fund from 1999 onward. Thanks for confirming, so the performance shown before 1999 is theoretical.

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 3:26 pm

asif408 wrote:
Wed Aug 14, 2019 3:24 pm
willthrill81 wrote:
Wed Aug 14, 2019 3:18 pm
asif408 wrote:
Wed Aug 14, 2019 2:00 pm
willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
abuss368 wrote:
Wed Aug 14, 2019 11:10 am
Total Market funds are an excellent strategy. Taylor has previously provided links for academic studies that were beneficial and educational.
The future could look very different from the past, but SCV has had better rolling returns than TSM over the last 47+ years in 1, 3, 5, 7, 10, and 15 year periods, every period that Portfolio Visualizer measures (i.e. higher highs, higher lows, and higher averages; no downside there at all). The future could look different, but it would have to look very different for SCV to not be a worthwhile addition to a portfolio. But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
The DFA small cap value fund, which is the oldest and most cited around here as a "pure" small value play, has outperformed the total stock market since inception of 1993 annually by about 1.5% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

But it appears your statement in bold can't possibly be true, particularly regarding the 1, 3, & 5 year rolling periods, because this fund underperformed the TSM fund every year between 1995-1999, in 2007, from 2014-2015, & from 2017-present. In fact, since January 2014 (an almost 6 year period) it has trailed the TSM by 8% CAGR: https://www.portfoliovisualizer.com/bac ... 0&total3=0

I can't find any actual SCV fund in which your bolded statement is true, so it appears you aren't using data from actual existing funds.
My statement is based on Portfolio Visualizer's asset class data.

Portfolio 1 is TSM, and Portfolio 2 is SCV.
Image
Ok, so it uses Professor Kenneth French's Research Data from 1972-1998, then Vanguard's fund from 1999 onward. Thanks for confirming, so the performance shown before 1999 is theoretical.
So do you ignore all stock market data that existed before the emergence of mutual funds? I'm genuinely curious. One other person here not long ago stated that he more of less does.

If you change the starting year to 1999, the numbers are obviously different, but SCV still had a substantial lead over TSM in every way measured.
Last edited by willthrill81 on Wed Aug 14, 2019 3:29 pm, edited 3 times in total.
“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
Posts: 316
Joined: Thu Oct 18, 2018 1:11 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 3:28 pm

willthrill81 wrote:
Wed Aug 14, 2019 3:18 pm
My statement is based on Portfolio Visualizer's asset class [url=https://www.portfoliovisualizer.com/bac ... allocation?
You missed a very important word, average, in your original statement.

User avatar
White Coat Investor
Posts: 14166
Joined: Fri Mar 02, 2007 9:11 pm
Location: Greatest Snow On Earth

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by White Coat Investor » Wed Aug 14, 2019 4:03 pm

Per Madsinger's latest, a slice and dice (tilted) portfolio outperforms a 3 fund and just 500 index since 1999 and is even with the 3 fund since 2009. Yea, it's crummy over the last 5 years, but the long term data is still in its favor.
viewtopic.php?p=4694551#p4694551


CAGR CAGR CAGR CAGR
July YTD since since since since
2019 2019 2016 2014 2009 1999
VFINX 1.43% 20.23% 13.25% 11.05% 14.19% 6.30%
Sheltered Sam 0.43% 16.22% 10.45% 7.80% 11.90% 7.63%
Hot Hands 1.26% 24.34% 5.00% 4.06% 10.72% 10.29%

Newsletter G-IND x.xx% x.xx% x.xx% x.xx% x.xx% x.xx%
Newsletter G x.xx% x.xx% x.xx% x.xx% x.xx% x.xx%
LS G 0.20% 14.59% 9.35% 7.00% 10.38% 5.59%
3 fund 0.20% 14.81% 9.39% 6.85% 10.20% 6.08%
s&d 0.05% 14.02% 8.32% 6.38% 10.10% 7.25%
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

Northern Flicker
Posts: 4784
Joined: Fri Apr 10, 2015 12:29 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Northern Flicker » Wed Aug 14, 2019 4:12 pm

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..
Holding small-cap value stocks at market-cap weight is neutral. To get a positive factor loading you have to tilt to the stocks that have the factor loading desired.

I’m not arguing against the idea of just holding a total market index fund, but doing so diversifies away all factor exposures other than market beta by the definition of factors. In any given equity factor model, the market portfolio will have a coefficient of 1 for the market factor and a coefficient of 0 for all other factors.

Saying the market portfolio has, say small-cap factor exposure because it contains small-cap stocks is like claiming it has exposure to the alpha of IBM stock because the market portfolio includes IBM, when in fact all alpha is diversified away.
Last edited by Northern Flicker on Wed Aug 14, 2019 4:17 pm, edited 1 time in total.

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 4:17 pm

Northern Flicker wrote:
Wed Aug 14, 2019 4:12 pm
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..
Holding small-cap value stocks at market-cap weight is neutral. To get a positive factor loading you have to tilt to the stocks that have the factor loadings desired.

I’m not arguing against the idea of just holding a total market index fund, but doing so diversifies away all factor exposures other than market beta by the definition of factors. In any given factor model, the market portfolio will have a coefficient of 1 for the market factor and a coefficient of 0 for all other factors.
:thumbsup

Holding both growth and value, for instance, negates the factor entirely. It's like betting $1 on heads coming up and another $1 on tails coming up when a fair coin is flipped; you should be indifferent as to which side comes up because it's completely irrelevant to you.

But if you're in the Twilight Zone, the coin might act a little differently. :wink:
Image
“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

User avatar
Rowan Oak
Posts: 380
Joined: Mon May 09, 2016 2:11 pm
Location: Yoknapatawpha

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Rowan Oak » Wed Aug 14, 2019 4:37 pm

FIREchief wrote:
Wed Aug 14, 2019 12:57 pm
willthrill81 wrote:
Wed Aug 14, 2019 12:14 pm
But if an investor cannot tolerate underperforming TSM, then they should just stick with TSM.
Some investors can tolerate underperforming TSM but have no reason to allow for that possibility. As soon as a person entertains deviation from TSM, there is an ever expanding universe of "great ideas" that they will feel compelled to understand and pursue. If a person can simply tolerate being average, TSM is (or at least always has been) a great place to be. :sharebeer
+1
Own them all and let it be.
“If you can get good at destroying your own wrong ideas, that is a great gift.” – Charlie Munger

User avatar
Forester
Posts: 442
Joined: Sat Jan 19, 2019 2:50 pm
Location: UK

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Forester » Wed Aug 14, 2019 5:04 pm

abuss368 wrote:
Wed Aug 14, 2019 10:18 am
The beauty of Total Market funds is that we can sleep well and not have to worry about underperforming the market. No sector or style risks.
Is that really true? It's fine for a young person accumulating, but the three fund portfolio should carry a health warning for a retiree of modest means. Megacap index investing hit a brick wall in the early 2000s because the exposure to richly valued tech made it top heavy.

It's Total Market in name only but not in spirit. US small cap alone is 1,800 companies worth $3.5 trillion; this is dwarfed by just the largest 4 US companies.

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 5:21 pm

Forester wrote:
Wed Aug 14, 2019 5:04 pm
abuss368 wrote:
Wed Aug 14, 2019 10:18 am
The beauty of Total Market funds is that we can sleep well and not have to worry about underperforming the market. No sector or style risks.
Is that really true? It's fine for a young person accumulating, but the three fund portfolio should carry a health warning for a retiree of modest means. Megacap index investing hit a brick wall in the early 2000s because the exposure to richly valued tech made it top heavy.

It's Total Market in name only but not in spirit. US small cap alone is 1,800 companies worth $3.5 trillion; this is dwarfed by just the largest 4 US companies.
If we view risk in terms of either at least matching inflation over a given period or providing investors with the returns needed to achieve their goals, then over the history of our data on SCV, it's been significantly less risky than TSM. For instance, TSM had negative real returns in the 1970s and again in the 2000s, while SCV had good returns in both periods.
“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

Northern Flicker
Posts: 4784
Joined: Fri Apr 10, 2015 12:29 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Northern Flicker » Wed Aug 14, 2019 5:31 pm

s that really true? It's fine for a young person accumulating, but the three fund portfolio should carry a health warning for a retiree of modest means. Megacap index investing hit a brick wall in the early 2000s because the exposure to richly valued tech made it top heavy.

It's Total Market in name only but not in spirit. US small cap alone is 1,800 companies worth $3.5 trillion; this is dwarfed by just the largest 4 US companies.
Yes, it’s true. The total market index fund has tripled since 1/1/2000 if you reinvested dividends. Many people are happy with that brick wall.

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 5:34 pm

Yes! Total market investing for both domestic and international stocks and bonds is recommended by Vanguard investment experts.
John C. Bogle: "Simplicity is the master key to financial success."

jdb
Posts: 1594
Joined: Wed Dec 05, 2012 8:21 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by jdb » Wed Aug 14, 2019 5:38 pm

I like Larry, for bonds. But with all due respect his continued infatuation with SCV after decade of underperformance reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck.

User avatar
whodidntante
Posts: 6402
Joined: Thu Jan 21, 2016 11:11 pm
Location: outside the echo chamber

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by whodidntante » Wed Aug 14, 2019 7:19 pm

I like threads where we thoughtfully review Larry's latest article, take some time to reflect on it, discuss and challenge each other, then quickly reach a consensus then walk away a bit more educated. I can't wait until we have one.

abc132
Posts: 316
Joined: Thu Oct 18, 2018 1:11 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 7:33 pm

willthrill81 wrote:
Wed Aug 14, 2019 5:21 pm
If we view risk in terms of either at least matching inflation over a given period or providing investors with the returns needed to achieve their goals, then over the history of our data on SCV, it's been significantly less risky than TSM. For instance, TSM had negative real returns in the 1970s and again in the 2000s, while SCV had good returns in both periods.
You can't equate risk with returns, nor a set period of returns with the best plan. The risk is independent of the actualized returns. The defined reason for small cap outperformance is due to additional risk. Why are you here defining it as the opposite?

I think you need to differentiate risk from reward, and best outcome from best plan.

User avatar
nedsaid
Posts: 12534
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » Wed Aug 14, 2019 7:53 pm

jdb wrote:
Wed Aug 14, 2019 5:38 pm
I like Larry, for bonds. But with all due respect his continued infatuation with SCV after decade of underperformance reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck.
I like Bogleheads. But with all due respect their continued infatuation with Total Stock Market Index after 12 years of underperformance relative to bonds from 2000-2012 reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck.
A fool and his money are good for business.

User avatar
nedsaid
Posts: 12534
Joined: Fri Nov 23, 2012 12:33 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nedsaid » 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
A fool and his money are good for business.

nps
Posts: 711
Joined: Thu Dec 04, 2014 10:18 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by nps » Wed Aug 14, 2019 7:57 pm

abc132 wrote:
Wed Aug 14, 2019 7:33 pm
willthrill81 wrote:
Wed Aug 14, 2019 5:21 pm
If we view risk in terms of either at least matching inflation over a given period or providing investors with the returns needed to achieve their goals, then over the history of our data on SCV, it's been significantly less risky than TSM. For instance, TSM had negative real returns in the 1970s and again in the 2000s, while SCV had good returns in both periods.
You can't equate risk with returns
Sure you can. Do you not believe in the ERP?

But I think you are taking exception to an alternate view of risk. Investing all your money in Treasuries is risk free from one viewpoint (loss of principal and interest), and very risky from another (likelihood of reaching retirement goals).

garlandwhizzer
Posts: 2446
Joined: Fri Aug 06, 2010 3:42 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by garlandwhizzer » Wed Aug 14, 2019 8:34 pm

willthrill81 wrote:

He reviews Prof. French's data, which indicates that SCV outperformed the S&P 500 by over 4% annually, and DFA's SCV fund's (DFSVX) outperformance of the S&P 500 by 9.4% annually since 1993. But over the last decade, that same fund trailed the S&P 500 by 1.7% annually.
First of all, the 4% annual SCV premium which was calculated from 1927 to June 2019 has two problems. First of all it uses a long/short cost-free model which magnifies returns, does not exist in the real investing world, assumes that trades are free and frictionless and assumes that shorting is likewise free. During the large majority of this chosen time period neither the small factor nor the value factor had even been described and the SCV market space was almost completely ignored by investors. Ben Graham invested in SCV in these days and he routinely found stocks with robustly growing profits, strong balance sheets, and selling for less than book value. No such stocks exist today, nor have they existed in the past decade, nor will they exist in the next decade. I'd put all my portfolio in such stocks if they existed today but they don't. Back then trades were expensive, expressed in fractions rather than decimal points, and importantly the model does not take into account the costs of trading frictions and illiquidity which are severe in these thinly traded stocks. So the FF model since 1929 is inherently flawed as a predictor of real SCV results going forward. Junk in, junk out. It you're going to make it big in academics you construct a model that shows striking results and this one does on backtesting to 1929. It clearly is interesting but how reliable it is now that professionally driven markets know about these factors and that there is a plethora of SCV funds and ETFs seeking the premiums. That is a different question. In addition, essentially no one uses shorting due to cost constraints which automatically cuts the premium in half. Add in increased costs, the uncertainty of ever changing parameters on how to define and capture SCV effectively, and trading frictions in these relatively illiquid stocks. Now you're starting to get a realistic picture of what SCV returns might be going forward. Probably positive if you have enough patience but certainly a long way from the quoted 4%/yr..

Second, willthrill81 wrote:
and DFA's SCV fund's (DFSVX) outperformance of the S&P 500 by 9.4% annually since 1993. But over the last decade, that same fund trailed the S&P 500 by 1.7% annually.
The last part of this sentence seems correct. DFSVX did in fact trail the S&P 500 by 1.7%/yr. in the last decade. The first part, claiming that DFSVX outperformed the S&P 500 by 9.4% annually since 1993 is utterly preposterous on the face of it. I believe that willthrill81 simply got the numbers in Larry's article mixed up and did not intend to mislead. All of us make mistakes from time to time. The following is what Larry actually wrote in the article willthrill81 refers to.
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.
So in sum since 1993, VFINX has underperformed DFSVX by 1.6%/yr. although both had very good returns (9.4%,11.0%). In the last decade the opposite happened, VFINX outperformed by 1.7%. The question is which of these two results has more predictive value about the future? I believe in reversion to the mean of recent trends and I've held 25% SCV through its struggles. It makes sense that it should outperform after a long dry spell of LCG dominance, although harvesting it effectively after costs is an art, not a cakewalk. On the other hand beta is by far my favorite factor so I hold 75% TSM. Importantly harvesting beta effectively with this fund is dirt cheap, incredibly easy, and reliable with few decisions to be made and very little trading.

Garland Whizzer

User avatar
Dialectical Investor
Posts: 527
Joined: Mon Dec 03, 2018 11:41 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Dialectical Investor » 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.

abc132
Posts: 316
Joined: Thu Oct 18, 2018 1:11 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 8:48 pm

nps wrote:
Wed Aug 14, 2019 7:57 pm
abc132 wrote:
Wed Aug 14, 2019 7:33 pm
willthrill81 wrote:
Wed Aug 14, 2019 5:21 pm
If we view risk in terms of either at least matching inflation over a given period or providing investors with the returns needed to achieve their goals, then over the history of our data on SCV, it's been significantly less risky than TSM. For instance, TSM had negative real returns in the 1970s and again in the 2000s, while SCV had good returns in both periods.
You can't equate risk with returns
Sure you can. Do you not believe in the ERP?

But I think you are taking exception to an alternate view of risk. Investing all your money in Treasuries is risk free from one viewpoint (loss of principal and interest), and very risky from another (likelihood of reaching retirement goals).
1. Willthrills is arguing peanut butter is better than jelly, without considering a combination of peanut butter and jelly, or any other sandwich for that matter. WIllthrills is not eating peanut butter, so when he tells you to do so it's likely just because he hates jelly.
2. Something with higher returns does not automatically lower risk - chief example is an individual stock that happened to do well over the last ?? years
3. The details of the portfolio matter for determining the type of risk he is talking about (meeting objective, handling inflation)

Data mining past performance is not a risk assessment. No matter how many times it is done here to argue against TSM. It's trivial to find something that worked better in the past, but as Willthrill's linked market timing thread shows, it's easy to fool yourself into thinking the past will repeat. Pointing to past charts is about the worst analysis you can do.

A much better argument can be made for something other than TSM. Larry does a pretty good job of it, but this thread does not.

Consider SCV if you think it adds value to your portfolio. Please don't do it based on the linked information (stuff after the original post).
Last edited by abc132 on Wed Aug 14, 2019 9:00 pm, edited 6 times in total.

EnjoyIt
Posts: 2651
Joined: Sun Dec 29, 2013 8:06 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by EnjoyIt » Wed Aug 14, 2019 8:49 pm

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

But TSM may or may not allow investors to achieve their goals. Tilting toward SCV may help them do that better. or make it more difficult to achieve those goals.
Let me correct the above for you.

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 9:09 pm

nps wrote:
Wed Aug 14, 2019 7:57 pm
abc132 wrote:
Wed Aug 14, 2019 7:33 pm
willthrill81 wrote:
Wed Aug 14, 2019 5:21 pm
If we view risk in terms of either at least matching inflation over a given period or providing investors with the returns needed to achieve their goals, then over the history of our data on SCV, it's been significantly less risky than TSM. For instance, TSM had negative real returns in the 1970s and again in the 2000s, while SCV had good returns in both periods.
You can't equate risk with returns
Sure you can. Do you not believe in the ERP?

But I think you are taking exception to an alternate view of risk. Investing all your money in Treasuries is risk free from one viewpoint (loss of principal and interest), and very risky from another (likelihood of reaching retirement goals).
Correct. The so-called 'risk free' investment (i.e. T-bills), while having no volatility nor default risk, carries significant inflation risk, never mind that it's pretty difficult for most people to achieve their goals with such low, possible zero, real returns. Risk is a multi-faceted issue, and it certainly goes much farther than just volatility; that's why Warren Buffett has said that he views bonds as riskier than stocks. Volatility is primarily used as a proxy for risk as a matter of convenience and convention.
“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

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 9:10 pm

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

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

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 9:14 pm

garlandwhizzer wrote:
Wed Aug 14, 2019 8:34 pm
and DFA's SCV fund's (DFSVX) outperformance of the S&P 500 by 9.4% annually since 1993. But over the last decade, that same fund trailed the S&P 500 by 1.7% annually.
The last part of this sentence seems correct. DFSVX did in fact trail the S&P 500 by 1.7%/yr. in the last decade. The first part, claiming that DFSVX outperformed the S&P 500 by 9.4% annually since 1993 is utterly preposterous on the face of it. I believe that willthrill81 simply got the numbers in Larry's article mixed up and did not intend to mislead. All of us make mistakes from time to time. The following is what Larry actually wrote in the article willthrill81 refers to.
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.
Yes, I got the numbers mixed up writing the summary. Thanks for the catch. I've corrected the OP.
“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
Posts: 316
Joined: Thu Oct 18, 2018 1:11 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 9:20 pm

willthrill81 wrote:
Wed Aug 14, 2019 9:09 pm
nps wrote:
Wed Aug 14, 2019 7:57 pm
abc132 wrote:
Wed Aug 14, 2019 7:33 pm
willthrill81 wrote:
Wed Aug 14, 2019 5:21 pm
If we view risk in terms of either at least matching inflation over a given period or providing investors with the returns needed to achieve their goals, then over the history of our data on SCV, it's been significantly less risky than TSM. For instance, TSM had negative real returns in the 1970s and again in the 2000s, while SCV had good returns in both periods.
You can't equate risk with returns
Sure you can. Do you not believe in the ERP?

But I think you are taking exception to an alternate view of risk. Investing all your money in Treasuries is risk free from one viewpoint (loss of principal and interest), and very risky from another (likelihood of reaching retirement goals).
Correct. The so-called 'risk free' investment (i.e. T-bills), while having no volatility nor default risk, carries significant inflation risk, never mind that it's pretty difficult for most people to achieve their goals with such low, possible zero, real returns. Risk is a multi-faceted issue, and it certainly goes much farther than just volatility; that's why Warren Buffett has said that he views bonds as riskier than stocks. Volatility is primarily used as a proxy for risk as a matter of convenience and convention.
That's not what he said at all. He said those loading up on too many too-safe bonds are adding risk, and that thinking the AA defines the risk of the portfolio is incorrect. That would be in line with considering an entire portfolio to analyze risk, which is what Larry recommends using a Monte Carlo simulation. Your simplistic analysis here is similar to what people are doing incorrectly with safe bonds - I like A better than B.

Random Walker
Posts: 4137
Joined: Fri Feb 23, 2007 8:21 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by Random Walker » Wed Aug 14, 2019 9:27 pm

jdb wrote:
Wed Aug 14, 2019 5:38 pm
I like Larry, for bonds. But with all due respect his continued infatuation with SCV after decade of underperformance reminds me of the description of people getting married for third or fourth time, a triumph of hope over experience. Good luck.
There’s a lot wrong with this statement, and I think it reveals a lack of a bigger picture appreciation of the Reducing The Risk of Black Swans philosophy:
1. Obviously a decade is a short period of time: As Larry says “financial noise”
2. The point of SCV is only partially about increased returns in exchange for increased risk. It’s about diversifying across unique and independent sources of risk. With higher expected return SCV equities, the investor likely would have a bigger allocation to bonds. His portfolio likely would have trailed the TSM investor by even more than described. But the lower equity / higher tilt investor did quite well in his own right and likely smoothed the ride (although the S&P 500 ride has been historic in both rise and lack of volatility).
3. The statement hugely makes the error of confusing strategy and outcome
4. The above ignores the outperformance of SV internationally.

Below is a comparison 2009-2019 60% VTSAX / 40% VBIMX versus 40% DFSVX / 60% VBIMX. The TSM portfolio outperformed, but with more volatility and a lower Sharpe ratio. I realize we eat our capital gains as opposed to Sharpe ratios, but certainly a trade off worthy of consideration for those approaching or in withdrawal phase. This recent decade long TSM rise has had record low volatility. I wouldn’t bet on that continuing. We can only invest looking forward. Which strategy looks better looking forward from here? Of course costs are certain and improved portfolio efficiency only potential. Not a straightforward call.


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

Dave

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 9:32 pm

Warren Buffett has said it best a couple of index funds is all that is needed. S&P 500 and Treasuries. Other asset classes flow in and out of favor.
John C. Bogle: "Simplicity is the master key to financial success."

abc132
Posts: 316
Joined: Thu Oct 18, 2018 1:11 am

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abc132 » Wed Aug 14, 2019 9:49 pm

abuss368 wrote:
Wed Aug 14, 2019 9:32 pm
Warren Buffett has said it best a couple of index funds is all that is needed. S&P 500 and Treasuries. Other asset classes flow in and out of favor.
Buffett reference was an odd choice for arguing for small caps, which Buffett didn't think you needed.

User avatar
abuss368
Posts: 15530
Joined: Mon Aug 03, 2009 2:33 pm
Location: Where the water is warm, the drinks are cold, and I don't know the names of the players!

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by abuss368 » Wed Aug 14, 2019 9:51 pm

abc132 wrote:
Wed Aug 14, 2019 9:49 pm
abuss368 wrote:
Wed Aug 14, 2019 9:32 pm
Warren Buffett has said it best a couple of index funds is all that is needed. S&P 500 and Treasuries. Other asset classes flow in and out of favor.
Buffett reference was an odd choice for arguing for small caps, which Buffett didn't think you needed.
Buffett has given much recognition to Jack Bogle and has always said a few index funds is all that is needed.
John C. Bogle: "Simplicity is the master key to financial success."

wootwoot
Posts: 388
Joined: Tue Jan 27, 2009 7:37 pm

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by wootwoot » Wed Aug 14, 2019 9:54 pm

Small value stocks just got cheaper!

User avatar
Topic Author
willthrill81
Posts: 13210
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Larry Swedroe: Small Value Stocks are Cheap

Post by willthrill81 » Wed Aug 14, 2019 10:20 pm

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

Post Reply