Bill Bernstein: Why value is dead

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CULater
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Bill Bernstein: Why value is dead

Post by CULater » Fri May 01, 2020 12:17 pm

Way backaways, Dr. Bernstein articulated the relationship between inflation and the returns from value stocks. It seems that value stocks do well when inflation is higher, but growth stocks do well when inflation is lower, which has been the case for quidawhile now.
The observation that higher interest rates are more harmful to growth than value stocks is not new, but there has been surprisingly little attention devoted to this in the growth-versus-value debate, particularly from a historical perspective.

In order to examine the problem, I took advantage of Ken French’s wonderful Web site and downloaded the HmL series (a familiar Fama-French acronym for "high-minus-low" book value), which goes back to July 1926. This series basically represents the return of the top third of stocks sorted on book/price, minus the return of the bottom third. In other words, the value-minus-growth return difference. A positive number signifies higher returns for value stocks, and vice versa. The simple plot of monthly inflation versus HmL is an eye-crossing scattergram, but the slope of HmL on inflation is clearly positive, with a t stat of 2.91 and a p value of .0037. So there is indeed a significant positive correlation between inflation and value return, albeit a very noisy one.
http://www.efficientfrontier.com/ef/701/value.gif

The original Fama-French paper covered a period of very high inflation, the years 1963-1990, and consequently showed a robust value effect. Towards the end of that period, interest rates and inflation commenced a long and powerful decline, which continues to this day—just the sort of environment expected to favor growth stocks.
Based on Dr. Bernstein's analysis, it might be the case that the deflationary forces now in effect aren't going to be good for value stocks for the foreseeable future. And unless inflation comes roaring back soon, Value is Dead or at least Sleeping Soundly.

http://www.efficientfrontier.com/ef/701/value.htm
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Re: Bill Bernstein: Why value is dead

Post by whereskyle » Fri May 01, 2020 12:22 pm

CULater wrote:
Fri May 01, 2020 12:17 pm
Way backaways, Dr. Bernstein articulated the relationship between inflation and the returns from value stocks. It seems that value stocks do well when inflation is higher, but growth stocks do well when inflation is lower, which has been the case for quidawhile now.
The observation that higher interest rates are more harmful to growth than value stocks is not new, but there has been surprisingly little attention devoted to this in the growth-versus-value debate, particularly from a historical perspective.

In order to examine the problem, I took advantage of Ken French’s wonderful Web site and downloaded the HmL series (a familiar Fama-French acronym for "high-minus-low" book value), which goes back to July 1926. This series basically represents the return of the top third of stocks sorted on book/price, minus the return of the bottom third. In other words, the value-minus-growth return difference. A positive number signifies higher returns for value stocks, and vice versa. The simple plot of monthly inflation versus HmL is an eye-crossing scattergram, but the slope of HmL on inflation is clearly positive, with a t stat of 2.91 and a p value of .0037. So there is indeed a significant positive correlation between inflation and value return, albeit a very noisy one.
http://www.efficientfrontier.com/ef/701/value.gif

The original Fama-French paper covered a period of very high inflation, the years 1963-1990, and consequently showed a robust value effect. Towards the end of that period, interest rates and inflation commenced a long and powerful decline, which continues to this day—just the sort of environment expected to favor growth stocks.
Based on Dr. Bernstein's analysis, it might be the case that the deflationary forces now in effect aren't going to be good for value stocks for the foreseeable future. And unless inflation comes roaring back soon, Value is Dead or at least Sleeping Soundly.

http://www.efficientfrontier.com/ef/701/value.htm
I left Betterment to escape the value tilt. Feels like a different world than the one Fama and French were looking at. I'll still buy plenty of value stocks at market-cap weight. :beer
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Re: Bill Bernstein: Why value is dead

Post by zaboomafoozarg » Fri May 01, 2020 12:28 pm

I made the mistake of tilting to small value years ago. I knew I'd have to stick with it, so I'm in it for the long haul.

What makes it more painful is that I concentrated the small value in my Roth IRA because it's not available in my 401k. So now my Roth IRA has suffered much larger losses.

Between the international and small value I have in my Roth IRA, I think its total value right now is LESS than the sum of all the contributions I've made over the last decade.

Instead of picking what did well 20 years ago, I should have tried to pick what will do well for the next 20 years.

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Re: Bill Bernstein: Why value is dead

Post by anon_investor » Fri May 01, 2020 12:32 pm

Interesting. Value tilt as in inflation hedge?

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Re: Bill Bernstein: Why value is dead

Post by whereskyle » Fri May 01, 2020 12:33 pm

Interesting that the 90s still favored growth even though inflation was at 3% according to Bill's chart...

Could it be that the investors of the modern world are just not as interested in getting good deals over innovative companies when the economics of the past are constantly being uprooted by growth companies?

I'm not convinced I'm right on this rhetorical point. Just a theory that squares with recent performance.
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Re: Bill Bernstein: Why value is dead

Post by zaboomafoozarg » Fri May 01, 2020 12:36 pm

And ironically, Bernstein's "The Intelligent Asset Allocator" was what initially got me started down the road of tilting to small value.

I should've probably cared less about my asset allocation, and more about doing something to make more money.

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Re: Bill Bernstein: Why value is dead

Post by AZAttorney11 » Fri May 01, 2020 12:47 pm

Go ahead and sell me your SCV - I'll continue to buy low and sell high. Seriously, those of you who feel you're wasting money on SCV, have abandoned your tilts lately, etc. are likely to regret that decision over the very long-term. As others have said, factor tilts are a lifelong commitment. Deviation from TSM or the S&P 500 is to be expected. What's odd to me is that folks are abandoning this strategy at exactly the wrong time.

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Re: Bill Bernstein: Why value is dead

Post by whereskyle » Fri May 01, 2020 1:01 pm

AZAttorney11 wrote:
Fri May 01, 2020 12:47 pm
Go ahead and sell me your SCV - I'll continue to buy low and sell high. Seriously, those of you who feel you're wasting money on SCV, have abandoned your tilts lately, etc. are likely to regret that decision over the very long-term. As others have said, factor tilts are a lifelong commitment. Deviation from TSM or the S&P 500 is to be expected. What's odd to me is that folks are abandoning this strategy at exactly the wrong time.
:beer Told a family member to leave the SCV fund in her 401k alone. She is 59. If/when it goes up again, I think I'll advise that she sell it all and reallocate into her balanced fund for a less volatile retirement. I generally don't time the market, but I also don't invest in value funds. It seems that one invested in SCV in addition to the market is in a sense a timer because the extreme volatility triggers frequent rebalancing. (I know this is a whole 'nother topic. Just mentioning it because I think it might make sense to dump SCV at a high entirely once retirement begins to avoid the need for later rebalancing.) Family member does not have the chops to continue rebalancing. A single fund would probably work best for her. But not until SCV goes up!
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Re: Bill Bernstein: Why value is dead

Post by SimpleGift » Fri May 01, 2020 1:39 pm

CULater wrote:
Fri May 01, 2020 12:17 pm
Based on Dr. Bernstein's analysis, it might be the case that the deflationary forces now in effect aren't going to be good for value stocks for the foreseeable future. And unless inflation comes roaring back soon, Value is Dead or at least Sleeping Soundly.
Happen to agree with Mr. Bernstein. The correlation between the value premium and inflation doesn't show up in the year-to-year data, but if one looks at longer term averages (which was Mr. Bernstein's approach), the correlations increase. This chart shows the value premium and inflation over 10-year rolling periods since 1927:
Looking at these longer term trends, and considering the future outlook for population aging, lower growth and lower inflation, it's hard to be enthusiastic about the future of the value premium. Just my two cents.

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Re: Bill Bernstein: Why value is dead

Post by Dominic » Fri May 01, 2020 1:47 pm

whereskyle wrote:
Fri May 01, 2020 12:33 pm
Interesting that the 90s still favored growth even though inflation was at 3% according to Bill's chart...
Another counterexample is Japan, which has had a relatively strong value premium and very low inflation for ~20 years.

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Re: Bill Bernstein: Why value is dead

Post by Taylor Larimore » Fri May 01, 2020 1:53 pm

zaboomafoozarg wrote:
Fri May 01, 2020 12:28 pm

I made the mistake of tilting to small value years ago. I knew I'd have to stick with it, so I'm in it for the long haul.
zaboomafoozarg:

Read the very wise words of Lord Keynes: "When the facts change, I change my mind. What do you do, sir?"

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "Selecting funds that will significantly exceed market returns, a search in which hope springs eternal and in which past performance has proven of virtually no predictive value, is a loser’s game.”
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Re: Bill Bernstein: Why value is dead

Post by packer16 » Fri May 01, 2020 1:53 pm

I think value factor investing may be dead due to increasing disruption in industries beyond tech. Disruption changes the economics that mean reversion is based upon, namely, that the cheap companies economics will become similar to the expensive companies economics. In the case of disruption, value factor investing may be the wrong way to invest if the disrupted company cannot stabilize or reverse the effects of the disruption. Low inflation may be more of a correlated event, as more disruption also causes low inflation or deflation.

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Re: Bill Bernstein: Why value is dead

Post by whereskyle » Fri May 01, 2020 1:55 pm

packer16 wrote:
Fri May 01, 2020 1:53 pm
I think value factor investing may be dead due to increasing disruption in industries beyond tech. Disruption changes the economics that mean reversion is based upon, namely, that the cheap companies economics will become similar to the expensive companies economics. In the case of disruption, value factor investing may be the wrong way to invest if the disrupted company cannot stabilize or reverse the effects of the disruption. Low inflation may be more of a correlated event, as more disruption also causes low inflation or deflation.

Packer
I think I agree with this almost entirely, which means I should be highly skeptical about it. My solution to cure this uncertainty: don't tilt.
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Re: Bill Bernstein: Why value is dead

Post by junior » Fri May 01, 2020 2:01 pm

CULater wrote:
Fri May 01, 2020 12:17 pm
Way backaways, Dr. Bernstein articulated the relationship between inflation and the returns from value stocks.
Is that article from 2001? I wouldn't assume Bernstein even still believes it today.

Here's what he's said recently about value:

https://boglecenter.net/2019/12/27/bogl ... ranscript/

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Re: Bill Bernstein: Why value is dead

Post by packer16 » Fri May 01, 2020 2:05 pm

whereskyle wrote:
Fri May 01, 2020 1:55 pm
packer16 wrote:
Fri May 01, 2020 1:53 pm
I think value factor investing may be dead due to increasing disruption in industries beyond tech. Disruption changes the economics that mean reversion is based upon, namely, that the cheap companies economics will become similar to the expensive companies economics. In the case of disruption, value factor investing may be the wrong way to invest if the disrupted company cannot stabilize or reverse the effects of the disruption. Low inflation may be more of a correlated event, as more disruption also causes low inflation or deflation.

Packer
I think I agree with this almost entirely, which means I should be highly skeptical about it. My solution to cure this uncertainty: don't tilt.
What this may show is the market has incorporated disruption in pricing but the value factor model does or cannot incorporate disruption in its estimate of fair value. In other words, market efficiency is providing a better estimate of fair value than the value factor does.

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Re: Bill Bernstein: Why value is dead

Post by Triple digit golfer » Fri May 01, 2020 2:27 pm

Every time I read threads like this, or the mind-numbing, 300+ post threads about small value, I am happy that I just own the market.

I hope you value tilters end up in the money soon. I don't have the stomach for such large tracking error.

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Re: Bill Bernstein: Why value is dead

Post by BusterScruggs » Fri May 01, 2020 2:43 pm

Every moment I move closer to the 3 fund portfolio and calling it a day.

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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 3:06 pm

I suppose the SCV advocates don't care too much. They believe in the diversification benefit from independent risk sources.

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Re: Bill Bernstein: Why value is dead

Post by packer16 » Fri May 01, 2020 3:27 pm

They should care if they are diversifying into leveraged disrupted companies that have little chances of recovering competitive advantage. Lets look at the 2 largest industries in SCV, energy & banks/finance. Historically, these have not been disrupted, now they are, so looking at the past & expecting mean reversion may be wishful thinking.

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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 3:30 pm

packer16 wrote:
Fri May 01, 2020 3:27 pm
They should care if they are diversifying into leveraged disrupted companies that have little chances of recovering competitive advantage. Lets look at the 2 largest industries in SCV, energy & banks/finance. Historically, these have not been disrupted, now they are, so looking at the past & expecting mean reversion may be wishful thinking.

Packer
Correct. I cringe whenever they bring up mean reversion.

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Re: Bill Bernstein: Why value is dead

Post by Ocean77 » Fri May 01, 2020 3:34 pm

Yes, inflation and value investing are dead. Well, that is until they're not.

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Re: Bill Bernstein: Why value is dead

Post by fatFIRE » Fri May 01, 2020 3:37 pm

I still have protect against hyperinflation and US monetary collapse in my investment statement. Definitely sticking to my SV-tilt.

Nobody remembers 2008?

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Re: Bill Bernstein: Why value is dead

Post by packer16 » Fri May 01, 2020 3:38 pm

Value investing is not dead but value factor investing may be. As a value investor you can deal with disruption in your valuation but as a "value" factor you cannot as there is no disruption parameter you can screen on.

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Re: Bill Bernstein: Why value is dead

Post by Slick8503 » Fri May 01, 2020 3:39 pm

And during the 90s the dot coms were going to change the way equities were priced and it was different that time. I wasn’t alive but I’m sure the nifty 50 were going to forever be dominant and small and out of favor companies just could not compete. I’m sure it was different that time as well.

I don’t understand why many investors think there will be a neon sign when it’s time for something to outperform. The very reason for the outperformance is because everything looks bad and it’s priced to reflect how terrible it looks.
Last edited by Slick8503 on Fri May 01, 2020 3:56 pm, edited 1 time in total.

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Re: Bill Bernstein: Why value is dead

Post by AZAttorney11 » Fri May 01, 2020 3:39 pm

acegolfer wrote:
Fri May 01, 2020 3:30 pm
packer16 wrote:
Fri May 01, 2020 3:27 pm
They should care if they are diversifying into leveraged disrupted companies that have little chances of recovering competitive advantage. Lets look at the 2 largest industries in SCV, energy & banks/finance. Historically, these have not been disrupted, now they are, so looking at the past & expecting mean reversion may be wishful thinking.

Packer
Correct. I cringe whenever they bring up mean reversion.
Companies and industries are disrupted all of the time. That's not new. New companies and industries will emerge. That's not new.

There's a lot of recency bias among the anti-SCV crowd. Over the next 30-50 years, I think there's a good chance my slight SCV tilt will pay off. But there are way too many posters looking at things over the past 5 or 10 years. Again, factor tilts are a lifelong commitment.

As someone said on another thread, once upon a time you HAD to have a big chunk of international equities, then it was emerging markets, and now the flavor of the past few years has been S&P 500 or TSM and to hell with international / emerging market equities, small, medium, etc.

To me, the most important thing is to pick a sensible strategy and asset allocation that you will not deviate from and follow that strategy forever.

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Re: Bill Bernstein: Why value is dead

Post by mjb » Fri May 01, 2020 3:44 pm

whereskyle wrote:
Fri May 01, 2020 1:55 pm
packer16 wrote:
Fri May 01, 2020 1:53 pm
I think value factor investing may be dead due to increasing disruption in industries beyond tech. Disruption changes the economics that mean reversion is based upon, namely, that the cheap companies economics will become similar to the expensive companies economics. In the case of disruption, value factor investing may be the wrong way to invest if the disrupted company cannot stabilize or reverse the effects of the disruption. Low inflation may be more of a correlated event, as more disruption also causes low inflation or deflation.

Packer
I think I agree with this almost entirely, which means I should be highly skeptical about it. My solution to cure this uncertainty: don't tilt.
Agree. I don't tilt.

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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 3:48 pm

AZAttorney11 wrote:
Fri May 01, 2020 3:39 pm
To me, the most important thing is to pick a sensible strategy and asset allocation that you will not deviate from and follow that strategy forever.
Suppose one did that. What if later he learns through reading that there are more sensible strategies? Should he continue the previous strategy forever? What's the point of learning, if one doesn't take actions?

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Re: Bill Bernstein: Why value is dead

Post by packer16 » Fri May 01, 2020 3:51 pm

AZAttorney11 wrote:
Fri May 01, 2020 3:39 pm
acegolfer wrote:
Fri May 01, 2020 3:30 pm
packer16 wrote:
Fri May 01, 2020 3:27 pm
They should care if they are diversifying into leveraged disrupted companies that have little chances of recovering competitive advantage. Lets look at the 2 largest industries in SCV, energy & banks/finance. Historically, these have not been disrupted, now they are, so looking at the past & expecting mean reversion may be wishful thinking.

Packer
Correct. I cringe whenever they bring up mean reversion.
Companies and industries are disrupted all of the time. That's not new. New companies and industries will emerge. That's not new.

There's a lot of recency bias among the anti-SCV crowd. Over the next 30-50 years, I think there's a good chance my slight SCV tilt will pay off. But there are way too many posters looking at things over the past 5 or 10 years. Again, factor tilts are a lifelong commitment.

As someone said on another thread, once upon a time you HAD to have a big chunk of international equities, then it was emerging markets, and now the flavor of the past few years has been S&P 500 or TSM and to hell with international / emerging market equities, small, medium, etc.

To me, the most important thing is to pick a sensible strategy and asset allocation that you will not deviate from and follow that strategy forever.
Disruption to this magnitude is new as IMO we have approached tipping points in energy & shortly in finance. Take a look "under the hood" of a SCV fund & you will heavy weights to energy & finance. Take a look at energy, primarily oil & gas. Historically, the transportation demand has been there and satisfied with oil. Now with electrification of autos the demand is at best flat & will probably decline. Historically, you could expect reversion to the mean to work so value factor investing works. For value factor investing to work you are relying on the underlying economics of firm to be about the same so the cheap stock can go up to the expensive stock valuation. But this may not be the case in energy or finance so that is the bet you are making. There are some sectors not affected by disruption as much & value factor investing will probably still work there but I have not seen the low-disruption value factor funds yet.

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Re: Bill Bernstein: Why value is dead

Post by junior » Fri May 01, 2020 3:54 pm

packer16 wrote:
Fri May 01, 2020 3:27 pm
They should care if they are diversifying into leveraged disrupted companies that have little chances of recovering competitive advantage. Lets look at the 2 largest industries in SCV, energy & banks/finance. Historically, these have not been disrupted, now they are, so looking at the past & expecting mean reversion may be wishful thinking.

Packer
If you know which companies will fail due to disruption and which will not you have no need for index funds or investing advise inspired by John Bogle.

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Re: Bill Bernstein: Why value is dead

Post by nisiprius » Fri May 01, 2020 4:02 pm

acegolfer wrote:
Fri May 01, 2020 3:48 pm
AZAttorney11 wrote:
Fri May 01, 2020 3:39 pm
To me, the most important thing is to pick a sensible strategy and asset allocation that you will not deviate from and follow that strategy forever.
Suppose one did that. What if later he learns through reading that there are more sensible strategies? Should he continue the previous strategy forever?
Yes.
What's the point of learning, if one doesn't take actions?
All of these strategies are based on backtesting over very long periods of time. In order to have gotten the results in the past, one would have had to stick to the strategy for a very long period of time. And if you hope to get them in the future, you need to plan to stick to them for a long period of time in the future.

If you want to do anything else, then you need to test a metastrategy of "constantly changing strategies." It is very likely that the result of doing that is to get you a return that is a weighted average of the return of the different strategies--weighted by how much time you spent each one--but that the risk, measured by standard deviation, is more than the weighted average of the risks, because on top of them you must add the "manager risk" created by the action of switching between them.

Therefore, it is perfectly credible that it could be better to stick to a good strategy than to keep changing it whenever something that seems better comes along.

Particularly since the strategies that you have read are "more sensible," turn out over time not to have been so sensible after all. For example, based on all the finance-magazine articles, I would have added [collateralized] commodity [futures] funds to my portfolio around 2007 or so, and then in all likelihood I would have gotten disgusted and dropped it.
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Re: Bill Bernstein: Why value is dead

Post by fredflinstone » Fri May 01, 2020 4:03 pm

fatFIRE wrote:
Fri May 01, 2020 3:37 pm
I still have protect against hyperinflation and US monetary collapse in my investment statement. Definitely sticking to my SV-tilt.

Nobody remembers 2008?
I suspect small value stocks won't perform well if there is hyperinflation. Gold will.
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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 4:19 pm

nisiprius wrote:
Fri May 01, 2020 4:02 pm
Particularly since the strategies that you have read are "more sensible," turn out over time not to have been so sensible after all. For example, based on all the finance-magazine articles, I would have added [collateralized] commodity [futures] funds to my portfolio around 2007 or so, and then in all likelihood I would have gotten disgusted and dropped it.
If the commodity futures fund is the "more sensible" strategy, then apparently he didn't learn well.

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Re: Bill Bernstein: Why value is dead

Post by Massdriver » Fri May 01, 2020 4:24 pm

The market likely already priced this in, as the gap between growth and value has widened. I don’t know the future. I do know that all the people surrendering are doing so right at a time value has underperformed. Stay the course I say, and if value should start to outperform years later and you still want out, do it whenever you’re up. At least that way you know you did it for the right reasons and not to chase the performance of large caps.

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Re: Bill Bernstein: Why value is dead

Post by klaus14 » Fri May 01, 2020 4:53 pm

zaboomafoozarg wrote:
Fri May 01, 2020 12:28 pm
I made the mistake of tilting to small value years ago. I knew I'd have to stick with it, so I'm in it for the long haul.

What makes it more painful is that I concentrated the small value in my Roth IRA because it's not available in my 401k. So now my Roth IRA has suffered much larger losses.

Between the international and small value I have in my Roth IRA, I think its total value right now is LESS than the sum of all the contributions I've made over the last decade.

Instead of picking what did well 20 years ago, I should have tried to pick what will do well for the next 20 years.
i think it is wise not to sell SCV. In general, selling low after recent underperformance is a behavioral error/risk for retail investors.
However, you don't have to add more. That's what i am doing.
35% US, 20 ExUS Dev, 10% EM, 10% EM Bonds, 10% Gold, 10% EDV, 5% I/EE Bonds.

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Re: Bill Bernstein: Why value is dead

Post by UpsetRaptor » Fri May 01, 2020 5:10 pm

When analyzing one's portfolio, it may be worth mentioning that anyone that has a US equity tilt effectively has a growth tilt, and anyone that has an ex-US tilt effectively has a value tilt.

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Re: Bill Bernstein: Why value is dead

Post by Broken Man 1999 » Fri May 01, 2020 5:15 pm

AZAttorney11 wrote:
Fri May 01, 2020 3:39 pm
acegolfer wrote:
Fri May 01, 2020 3:30 pm
packer16 wrote:
Fri May 01, 2020 3:27 pm
They should care if they are diversifying into leveraged disrupted companies that have little chances of recovering competitive advantage. Lets look at the 2 largest industries in SCV, energy & banks/finance. Historically, these have not been disrupted, now they are, so looking at the past & expecting mean reversion may be wishful thinking.

Packer
Correct. I cringe whenever they bring up mean reversion.
Companies and industries are disrupted all of the time. That's not new. New companies and industries will emerge. That's not new.

There's a lot of recency bias among the anti-SCV crowd. Over the next 30-50 years, I think there's a good chance my slight SCV tilt will pay off. But there are way too many posters looking at things over the past 5 or 10 years. Again, factor tilts are a lifelong commitment.

As someone said on another thread, once upon a time you HAD to have a big chunk of international equities, then it was emerging markets, and now the flavor of the past few years has been S&P 500 or TSM and to hell with international / emerging market equities, small, medium, etc.

To me, the most important thing is to pick a sensible strategy and asset allocation that you will not deviate from and follow that strategy forever.
For me SV is probably like my international stock holding. Sure, both asset classes might pay off, but many (including myself) don't have 30-50 years to wait. :D

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Re: Bill Bernstein: Why value is dead

Post by rkhusky » Fri May 01, 2020 5:18 pm

Massdriver wrote:
Fri May 01, 2020 4:24 pm
The market likely already priced this in, as the gap between growth and value has widened. I don’t know the future. I do know that all the people surrendering are doing so right at a time value has underperformed. Stay the course I say, and if value should start to outperform years later and you still want out, do it whenever you’re up. At least that way you know you did it for the right reasons and not to chase the performance of large caps.
That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day. It doesn’t matter what your portfolio value was in the past or what your portfolio value could have been if you invested a different way.

What would you invest in if your portfolio was currently all in cash? Then that is what your AA should currently be. And you should work at getting it there.

Apart from taxes and fees, you should feel free to change your AA at at will. On the other hand, constantly changing strategies is a sure way to lose money, especially if you continually chase the hot product.

So, if one has decided that SV investing isn’t for them, they should feel free to move closer to a Total Market portfolio, which is always sensible.

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Re: Bill Bernstein: Why value is dead

Post by junior » Fri May 01, 2020 5:23 pm

rkhusky wrote:
Fri May 01, 2020 5:18 pm

That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day.
Disagree. If reversion to the mean is a thing every day is not a new day and there is no cognitive bias in staying the course.

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Re: Bill Bernstein: Why value is dead

Post by nisiprius » Fri May 01, 2020 5:24 pm

UpsetRaptor wrote:
Fri May 01, 2020 5:10 pm
When analyzing one's portfolio, it may be worth mentioning that anyone that has a US equity tilt effectively has a growth tilt, and anyone that has an ex-US tilt effectively has a value tilt.
No growth tilt for the US, and very little value tilt for ex-US, assuming we are using factors as defined by Fama and French, and assuming that PortfolioVisualizer knows how to calculate them correctly.

The Vanguard Total Stock Market Index Fund has no growth tilt; in fact, it has a microscopic value factor loading of 0.02.

The Vanguard Total International Stock Index Fund has a value factor loading of 0.10, but that doesn't seem enough to matter much given that two value factor funds are showing loadings of 0.30 and 0.56.

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Re: Bill Bernstein: Why value is dead

Post by abuss368 » Fri May 01, 2020 5:25 pm

Own total market index funds and don't speculate on corners, sectors, or niche's of any market.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 5:28 pm

rkhusky wrote:
Fri May 01, 2020 5:18 pm
That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day. It doesn’t matter what your portfolio value was in the past or what your portfolio value could have been if you invested a different way.

What would you invest in if your portfolio was currently all in cash? Then that is what your AA should currently be. And you should work at getting it there.

Apart from taxes and fees, you should feel free to change your AA at at will. On the other hand, constantly changing strategies is a sure way to lose money, especially if you continually chase the hot product.

So, if one has decided that SV investing isn’t for them, they should feel free to move closer to a Total Market portfolio, which is always sensible.
This (not the commodity futures) is the sensible thing to do.

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Re: Bill Bernstein: Why value is dead

Post by iceport » Fri May 01, 2020 5:37 pm

junior wrote:
Fri May 01, 2020 5:23 pm
rkhusky wrote:
Fri May 01, 2020 5:18 pm

That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day.
Disagree. If reversion to the mean is a thing every day is not a new day and there is no cognitive bias in staying the course.
True, but I'm not sure the quote rkhusky answered was actually referring to reversion to the mean. It headed in that direction, and came close, but never got there.

I think Massdriver was simply warning against the behavioral error of performance chasing.

Staying the course would address both concerns. (But it wouldn't address the risk that came with the value tilt in the first place: continued tracking error.)
"Discipline matters more than allocation.” ─William Bernstein

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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 5:45 pm

junior wrote:
Fri May 01, 2020 5:23 pm
rkhusky wrote:
Fri May 01, 2020 5:18 pm

That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day.
Disagree. If reversion to the mean is a thing every day is not a new day and there is no cognitive bias in staying the course.
Reversion to the mean is no longer a thing. See https://papers.ssrn.com/sol3/papers.cfm ... id=3442539

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Re: Bill Bernstein: Why value is dead

Post by junior » Fri May 01, 2020 6:11 pm

acegolfer wrote:
Fri May 01, 2020 5:45 pm
junior wrote:
Fri May 01, 2020 5:23 pm
rkhusky wrote:
Fri May 01, 2020 5:18 pm

That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day.
Disagree. If reversion to the mean is a thing every day is not a new day and there is no cognitive bias in staying the course.
Reversion to the mean is no longer a thing. See https://papers.ssrn.com/sol3/papers.cfm ... id=3442539
I'm unclear why you linked to this. Is there a concensus among academics or did you just look for one that agrees with you? Couldn't you present a paper that came to opposite conclusions? This appears to be one:

https://papers.ssrn.com/sol3/papers.cfm ... id=3488748

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Re: Bill Bernstein: Why value is dead

Post by BH+ » Fri May 01, 2020 6:12 pm

If we go through another decade of low interest rates / low inflation and value under-performs, perhaps large cap growth will become the new factor to tilt to?

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Re: Bill Bernstein: Why value is dead

Post by Walkure » Fri May 01, 2020 6:14 pm

nisiprius wrote:
Fri May 01, 2020 4:02 pm
If you want to do anything else, then you need to test a metastrategy of "constantly changing strategies." It is very likely that the result of doing that is to get you a return that is a weighted average of the return of the different strategies--weighted by how much time you spent each one--but that the risk, measured by standard deviation, is more than the weighted average of the risks, because on top of them you must add the "manager risk" created by the action of switching between them.
It's a funny thing, but in my mind it's exactly reversed. What you're calling "manager risk" is one of those expected risks that gets printed in a prospectus but won't show up in a backtest. In hindsight, switching horses midstream does not alter the realized standard deviation of either investment vehicle precisely because standard deviation is directionally neutral - that is, upside risk counts as much as downside risk. But "manager risk" refers to the odds that you'll bail on the underperformer right before it starts to outperform (which appears to describe half the folks in this thread :wink: ). The result is that you will have the same total weighted "risk" as standard deviation, with returns that generally trail the weighted CAGR.

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Re: Bill Bernstein: Why value is dead

Post by willthrill81 » Fri May 01, 2020 6:19 pm

"This time, it's different."

Now when have I heard that before?
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Re: Bill Bernstein: Why value is dead

Post by acegolfer » Fri May 01, 2020 6:24 pm

junior wrote:
Fri May 01, 2020 6:11 pm
acegolfer wrote:
Fri May 01, 2020 5:45 pm
junior wrote:
Fri May 01, 2020 5:23 pm
rkhusky wrote:
Fri May 01, 2020 5:18 pm

That’s an example of a cognitive bias called anchoring. It leads people to want to get back to even. In reality, every day is a new day.
Disagree. If reversion to the mean is a thing every day is not a new day and there is no cognitive bias in staying the course.
Reversion to the mean is no longer a thing. See https://papers.ssrn.com/sol3/papers.cfm ... id=3442539
I'm unclear why you linked to this. Is there a concensus among academics or did you just look for one that agrees with you? Couldn't you present a paper that came to opposite conclusions? This appears to be one:

https://papers.ssrn.com/sol3/papers.cfm ... id=3488748
To be clear, I believe in value premium. I was critical of your mean reversion and provided a citation. OTOH, your citation has nothing to do with mean reversion.

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Re: Bill Bernstein: Why value is dead

Post by averagedude » Fri May 01, 2020 6:27 pm

I believe it boils down to sectors. Technology companies have wide moats, high earnings growth, and huge profit margins. Could change one day due to government intervention and increased global competition. Value will shine again, but it could be years. Who knows, maybe one day their will be a couple of professors that will win accolades for discovering a growth premium in equities.

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Speculating on corners, sectors, or niche's?

Post by Taylor Larimore » Fri May 01, 2020 6:50 pm

abuss368 wrote:
Fri May 01, 2020 5:25 pm
Own total market index funds and don't speculate on corners, sectors, or niche's of any market.
Bogleheads:

Wiser words are seldom seen.

Thank you and best wishes.
Taylor
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