Is there an ETF for equities with stable cash flows?

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Is there an ETF for equities with stable cash flows?

Post by steve321 »

I have listened to this video
https://www.youtube.com/watch?v=EaJ-Djwfr9M
At about 11 minutes in the conversation, they suggest investing in equities with stable cash flows (and cash flow based investing more generally). I don't understand 100% what that means and, above all, whether that can be implemented with some ETF. If so, which one(s)?
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Re: Is there an ETF for equities with stable cash flows?

Post by Uncorrelated »

What makes you think companies with stable cash flows outperform the market? What makes you think funds with stable cash flows (with can easily be obtained by selling assets) outperform the market?

FWIW I think the individuals in the video either don't know what they're talking about or are intentionally fear mongering. No, you should not change your investment strategy because nominal rates are low.

If you want cash flow, put $1000 in a bank account and pay yourself 10 bucks each week.
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Re: Is there an ETF for equities with stable cash flows?

Post by Robot Monster »

The YouTube interview with Bridgewater you posted contains this interesting tid-bit concerning how negative they thinks bonds could go, what a lower boundary looks like.

"...you could definitely see bond yields trade -0.5%, -1% but it's going to get hard beyond that because people can move on to storing cash..."

Now I am eyeing my intermediate funds with some trepidation.

Edit: interesting discussion starting around 6:30 in the video about inflation-linked assets and gold being preferable.

I do not mean to derail your thread. I would therefore plead with everyone not to respond to the above, for this thread is about finding a stable cash flow equity ETF. I, myself, know not of such fund. Carry on...
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Re: Is there an ETF for equities with stable cash flows?

Post by steve321 »

Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
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Re: Is there an ETF for equities with stable cash flows?

Post by anon_investor »

steve321 wrote: Tue Aug 11, 2020 11:19 am
Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
Nobody knows nothing. Their fund did not do well last year...
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Re: Is there an ETF for equities with stable cash flows?

Post by texasfight »

Utilities, consumer staples, and healthcare are known as the "defensives".

Utilities are most like bond proxies, and are actually a decent value right now.
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Re: Is there an ETF for equities with stable cash flows?

Post by HawkeyePierce »

TTAC is an actively managed ETF that selects companies based on their free cash flow. It's expensive at 0.59% and historically has tracked pretty closely to the S&P500, so IMO it's not worth the cost.
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Re: Is there an ETF for equities with stable cash flows?

Post by steve321 »

texasfight wrote: Tue Aug 11, 2020 11:29 am Utilities, consumer staples, and healthcare are known as the "defensives".

Utilities are most like bond proxies, and are actually a decent value right now.
Thanks, so one should look into sector ETFs rather than factor ETFs right? (I was wondering about quality factor or low vol factor ETFs but I am probably talking nonsense here, as I don't know much about them...).
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Re: Is there an ETF for equities with stable cash flows?

Post by anon_investor »

steve321 wrote: Tue Aug 11, 2020 11:50 am
texasfight wrote: Tue Aug 11, 2020 11:29 am Utilities, consumer staples, and healthcare are known as the "defensives".

Utilities are most like bond proxies, and are actually a decent value right now.
Thanks, so one should look into sector ETFs rather than factor ETFs right? (I was wondering about quality factor or low vol factor ETFs but I am probably talking nonsense here, as I don't know much about them...).
If you are looking at ETFs with equities with "stable cash flows" check out dividend growth strategies, like "Vanguard Dividend Appreciation Index" (VIG).
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Re: Is there an ETF for equities with stable cash flows?

Post by Valuethinker »

steve321 wrote: Tue Aug 11, 2020 11:50 am
texasfight wrote: Tue Aug 11, 2020 11:29 am Utilities, consumer staples, and healthcare are known as the "defensives".

Utilities are most like bond proxies, and are actually a decent value right now.
Thanks, so one should look into sector ETFs rather than factor ETFs right? (I was wondering about quality factor or low vol factor ETFs but I am probably talking nonsense here, as I don't know much about them...).
If I wanted a somewhat diversified portfolio of companies with stable cash flows, I would look to ETFs with the "Quality" factor or the "Low Volatility" factor.

The former is closer to it however it probably turns out that low volatility shares also have fairly stable cash flows, conservative financials etc. One challenge with European-listed ETFs is that they often have quite small market caps (I am usually looking at iShares) and so their longterm viability is in question. What tends to happen is that when a Factor underperforms, money flows out of the strategy.

Among sector funds you are generally talking: Consumer Staples (food etc, tobacco, drinks probably), Healthcare (big pharma) and Utilities in particular. Also the top tech cos - Microsoft first and foremost, Google, Apple. You might find Berkshire Hathaway (although insurance tends to be a very cyclical business).
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Re: Is there an ETF for equities with stable cash flows?

Post by steve321 »

Valuethinker wrote: Tue Aug 11, 2020 12:34 pm
steve321 wrote: Tue Aug 11, 2020 11:50 am
texasfight wrote: Tue Aug 11, 2020 11:29 am Utilities, consumer staples, and healthcare are known as the "defensives".

Utilities are most like bond proxies, and are actually a decent value right now.
Thanks, so one should look into sector ETFs rather than factor ETFs right? (I was wondering about quality factor or low vol factor ETFs but I am probably talking nonsense here, as I don't know much about them...).
If I wanted a somewhat diversified portfolio of companies with stable cash flows, I would look to ETFs with the "Quality" factor or the "Low Volatility" factor.

The former is closer to it however it probably turns out that low volatility shares also have fairly stable cash flows, conservative financials etc. One challenge with European-listed ETFs is that they often have quite small market caps (I am usually looking at iShares) and so their longterm viability is in question. What tends to happen is that when a Factor underperforms, money flows out of the strategy.

Among sector funds you are generally talking: Consumer Staples (food etc, tobacco, drinks probably), Healthcare (big pharma) and Utilities in particular. Also the top tech cos - Microsoft first and foremost, Google, Apple. You might find Berkshire Hathaway (although insurance tends to be a very cyclical business).
Thanks. I haven't looked at iShares for min vol, but there's Vanguard VMVL. I think they are committed to it and won't delist it; what put me off is that it's currency hedged so you have all the fees involved in the hedging.
I will look into it; I haven't checked quality factor ETFS; don't think Vanguard has one (they have a tetrad VVAL VMOM VLIQ and VMVL)
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Re: Is there an ETF for equities with stable cash flows?

Post by Steve Reading »

steve321 wrote: Tue Aug 11, 2020 11:19 am
Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
I don't doubt that whatever Bridgewater is doing right now, even if it involves stock picking and goes against market efficiency, is probably a good, profitable idea. The raw talent, intelligence and resources they have is giant. I see markets as mostly efficient to us retail investors precisely because hedge funds like Bridgewater and Renaissance Technologies suck up a lot of the inefficiency.

My problem is that I don't know if the people in the video know much about what they're talking about. I don't think they're the quants actually generating, testing and implementing the strategies. They might just be talking heads, who have a general, vague idea as to what Bridgewater is doing and publicize it somewhat to build reputation. Remember Bridgewater is known for its huge level of secrecy. Whatever those people are saying is certainly a gross oversimplification of what Bridgewater actually is doing.

If an organization as secretive as Bridgewater is putting out Youtube videos talking about what they're doing, I honestly would just ignore them.

Just my opinion.
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Re: Is there an ETF for equities with stable cash flows?

Post by steve321 »

Steve Reading wrote: Tue Aug 11, 2020 12:46 pm
steve321 wrote: Tue Aug 11, 2020 11:19 am
Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
I don't doubt that whatever Bridgewater is doing right now, even if it involves stock picking and goes against market efficiency, is probably a good, profitable idea. The raw talent, intelligence and resources they have is giant. I see markets as mostly efficient to us retail investors precisely because hedge funds like Bridgewater and Renaissance Technologies suck up a lot of the inefficiency.

My problem is that I don't know if the people in the video know much about what they're talking about. I don't think they're the quants actually generating, testing and implementing the strategies. They might just be talking heads, who have a general, vague idea as to what Bridgewater is doing and publicize it somewhat to build reputation. Remember Bridgewater is known for its huge level of secrecy. Whatever those people are saying is certainly a gross oversimplification of what Bridgewater actually is doing.

If an organization as secretive as Bridgewater is putting out Youtube videos talking about what they're doing, I honestly would just ignore them.

Just my opinion.
Well no Jensen is often in the news, he was going to be CEO I think but then he had some disagreements with Dalio. But he's a very important person at Bridgewater; same for the others. They are the top people in the company so they definitely know their stuff.
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Re: Is there an ETF for equities with stable cash flows?

Post by Steve Reading »

steve321 wrote: Tue Aug 11, 2020 12:56 pm
Steve Reading wrote: Tue Aug 11, 2020 12:46 pm
steve321 wrote: Tue Aug 11, 2020 11:19 am
Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
I don't doubt that whatever Bridgewater is doing right now, even if it involves stock picking and goes against market efficiency, is probably a good, profitable idea. The raw talent, intelligence and resources they have is giant. I see markets as mostly efficient to us retail investors precisely because hedge funds like Bridgewater and Renaissance Technologies suck up a lot of the inefficiency.

My problem is that I don't know if the people in the video know much about what they're talking about. I don't think they're the quants actually generating, testing and implementing the strategies. They might just be talking heads, who have a general, vague idea as to what Bridgewater is doing and publicize it somewhat to build reputation. Remember Bridgewater is known for its huge level of secrecy. Whatever those people are saying is certainly a gross oversimplification of what Bridgewater actually is doing.

If an organization as secretive as Bridgewater is putting out Youtube videos talking about what they're doing, I honestly would just ignore them.

Just my opinion.
Well no Jensen is often in the news, he was going to be CEO I think but then he had some disagreements with Dalio. But he's a very important person at Bridgewater; same for the others. They are the top people in the company so they definitely know their stuff.
Like I said, I'm very skeptical Greg or Dalio are actually the quants that are testing, writing code, and implementing strategies. When they say "we're looking for companies with cash flow", I don't know if they know that part of those are companies in health-care, in the Midwest region, that recently have been Googled often, with services that jump up during winter time, that had earnings releases where their voices appeared confident (based on voice software). You know, the actual big data algorithms that HFs like Bridgewater and Renaissance use nowadays.

But even if they DID know exactly the characteristics of these companies, I assure you they are far, far more complicated that whatever they're willing to spill out on YT.
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Re: Is there an ETF for equities with stable cash flows?

Post by jarjarM »

Yup, very few quants actually will go on youtube and spill the secrets. They're happily exploring market inefficiency in the back office or thinking about getting enough resources so they can start their own hedge fund. While some may point out general directions of what they do, but the detail execution which is the key is hidden.
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Re: Is there an ETF for equities with stable cash flows?

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Steve Reading wrote: Tue Aug 11, 2020 1:15 pm
steve321 wrote: Tue Aug 11, 2020 12:56 pm
Steve Reading wrote: Tue Aug 11, 2020 12:46 pm
steve321 wrote: Tue Aug 11, 2020 11:19 am
Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
I don't doubt that whatever Bridgewater is doing right now, even if it involves stock picking and goes against market efficiency, is probably a good, profitable idea. The raw talent, intelligence and resources they have is giant. I see markets as mostly efficient to us retail investors precisely because hedge funds like Bridgewater and Renaissance Technologies suck up a lot of the inefficiency.

My problem is that I don't know if the people in the video know much about what they're talking about. I don't think they're the quants actually generating, testing and implementing the strategies. They might just be talking heads, who have a general, vague idea as to what Bridgewater is doing and publicize it somewhat to build reputation. Remember Bridgewater is known for its huge level of secrecy. Whatever those people are saying is certainly a gross oversimplification of what Bridgewater actually is doing.

If an organization as secretive as Bridgewater is putting out Youtube videos talking about what they're doing, I honestly would just ignore them.

Just my opinion.
Well no Jensen is often in the news, he was going to be CEO I think but then he had some disagreements with Dalio. But he's a very important person at Bridgewater; same for the others. They are the top people in the company so they definitely know their stuff.
Like I said, I'm very skeptical Greg or Dalio are actually the quants that are testing, writing code, and implementing strategies. When they say "we're looking for companies with cash flow", I don't know if they know that part of those are companies in health-care, in the Midwest region, that recently have been Googled often, with services that jump up during winter time, that had earnings releases where their voices appeared confident (based on voice software). You know, the actual big data algorithms that HFs like Bridgewater and Renaissance use nowadays.

But even if they DID know exactly the characteristics of these companies, I assure you they are far, far more complicated that whatever they're willing to spill out on YT.
so basically you are saying that what they are saying about stocks cannot be implemented by us retail investors using some ETFs, is that correct?
The stuff on gold is certainly actionable for us though (I already bought a lot), as is their recommendation to invest in IL bonds.
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Re: Is there an ETF for equities with stable cash flows?

Post by langlands »

steve321 wrote: Tue Aug 11, 2020 9:35 am I have listened to this video
https://www.youtube.com/watch?v=EaJ-Djwfr9M
At about 11 minutes in the conversation, they suggest investing in equities with stable cash flows (and cash flow based investing more generally). I don't understand 100% what that means and, above all, whether that can be implemented with some ETF. If so, which one(s)?
I watched the video, and I don't believe that is actionable for retail investors. They are thinking of portfolio construction from a very global perspective. Bridgwater is famous (notorious?) for attempting to model the entire world economy/markets as a giant Newtonian system with various levers/gears that can be pulled/turned. What this means is that instead of looking at assets as essentially black boxes with various return/correlation characteristics the way most other investors do, they want to avoid statistical reasoning as much as possible and actually model things in a deterministic way. That's why he refers to the granularity of the spending data at the level of how much people are buying eggs/veal/beef/pork. During any kind of crisis, they would like to model exactly how spending would change, which affects earnings at companies, which then affects the prices of stocks.

It's rather similar to how Buffett views the companies in his portfolio, actually. Buffett frequently says that he doesn't really care about the current market prices for even the public securities that he owns since he views his stock picks as actual businesses. He pulls aside the curtain and looks at his stocks as actual businesses with cash flows and models the value of that himself (essentially saying that he trusts his own judgement of the value of his investments more than the market's).

What Bridgewater is saying they're doing makes sense if they can actually do it. The whole problem with investing is that no one can predict the future, and so most investors put together a portfolio that has certain return/volatility statistics and hope for the best. If you could instead put together a portfolio that you could predict will perform in a certain way under a variety of future scenarios that you've analyzed in depth, why wouldn't you? Taking the uncertainty out of investing is the holy grail. However, I'm skeptical of Bridgewater's ability to actually do any of this (despite being very vocal about it) and again, none of this is remotely actionable for retail investors.
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Re: Is there an ETF for equities with stable cash flows?

Post by Steve Reading »

steve321 wrote: Tue Aug 11, 2020 1:19 pm so basically you are saying that what they are saying about stocks cannot be implemented by us retail investors using some ETFs, is that correct?
I don't think whatever stock-picking strategy Bridgewater is currently using could be implemented by a retail investor watching a YT video and picking a couple of ETFs. Yes, that's what I'm saying.
steve321 wrote: Tue Aug 11, 2020 1:19 pm The stuff on gold is certainly actionable for us though (I already bought a lot), as is their recommendation to invest in IL bonds.
Maybe the gold advice is more actionable. How could I know? I don't know if BW is just buying gold exposure directly, or through futures, or through companies. Likely it's through futures but if so, I don't know if they've overlaid roll yield and momentum strategies on top. Could a retail investor benefit from gold exposure without those strategies? I don't know.

The IL bonds is probably even less actionable. BW is famous for buying IL bonds from all over the world (the US is not the only government that issues them) and hedging them properly as needed. Can you access Brazilian, inflation-linked bonds? They sure can and maybe THAT"S what they mean when they say "we've been buying IL bonds". Maybe they think treasury IL bonds are even worse than US IL bonds. They might be shorting them. Would they say that in the YT? They might keep that part to themselves.

I will concede there is far less wiggle room when saying "we buy gold and IL bonds" than "we buy companies that have services we believe will get rewarded with high cash flow in this 0% interest environment". So the former might be reasonable to implement by retail, but I would definitely ignore the latter.
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Re: Is there an ETF for equities with stable cash flows?

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langlands wrote: Tue Aug 11, 2020 1:32 pm
steve321 wrote: Tue Aug 11, 2020 9:35 am I have listened to this video
https://www.youtube.com/watch?v=EaJ-Djwfr9M
At about 11 minutes in the conversation, they suggest investing in equities with stable cash flows (and cash flow based investing more generally). I don't understand 100% what that means and, above all, whether that can be implemented with some ETF. If so, which one(s)?
I watched the video, and I don't believe that is actionable for retail investors. They are thinking of portfolio construction from a very global perspective. Bridgwater is famous (notorious?) for attempting to model the entire world economy/markets as a giant Newtonian system with various levers/gears that can be pulled/turned. What this means is that instead of looking at assets as essentially black boxes with various return/correlation characteristics the way most other investors do, they want to avoid statistical reasoning as much as possible and actually model things in a deterministic way. That's why he refers to the granularity of the spending data at the level of how much people are buying eggs/veal/beef/pork. During any kind of crisis, they would like to model exactly how spending would change, which affects earnings at companies, which then affects the prices of stocks.

It's rather similar to how Buffett views the companies in his portfolio, actually. Buffett frequently says that he doesn't really care about the current market prices for even the public securities that he owns since he views his stock picks as actual businesses. He pulls aside the curtain and looks at his stocks as actual businesses with cash flows and models the value of that himself (essentially saying that he trusts his own judgement of the value of his investments more than the market's).

What Bridgewater is saying they're doing makes sense if they can actually do it. The whole problem with investing is that no one can predict the future, and so most investors put together a portfolio that has certain return/volatility statistics and hope for the best. If you could instead put together a portfolio that you could predict will perform in a certain way under a variety of future scenarios that you've analyzed in depth, why wouldn't you? Taking the uncertainty out of investing is the holy grail. However, I'm skeptical of Bridgewater's ability to actually do any of this (despite being very vocal about it) and again, none of this is remotely actionable for retail investors.
Ok thank you for these interesting points. I have noticed however that a lot of Bridgewater holdings at least in the past have been in ETFs rather than individual companies, so I was wondering whether they were going to implement this strategy through ETFs themselves rather than stock picking.
But I gather that for stocks what they say is not actionable apparently; I guess the most relevant part for us is the gold part.
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Re: Is there an ETF for equities with stable cash flows?

Post by unclescrooge »

HawkeyePierce wrote: Tue Aug 11, 2020 11:30 am TTAC is an actively managed ETF that selects companies based on their free cash flow. It's expensive at 0.59% and historically has tracked pretty closely to the S&P500, so IMO it's not worth the cost.
There is more to the story.

The managers used to run TTFS before they got replaced by TCW. TTFS performance before 2017 was quite good.

I can't seem to find it anymore... It probably got closed down for poor performance. Maybe someone can find it.

But the idea is you want to look at it over entire market cycle. No strategy does will all the time.
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Re: Is there an ETF for equities with stable cash flows?

Post by drk »

Check out RAFI Fundamental Indexing, which uses cash-flow as an input metric. You can buy it via Schwab’s Fundamental ETFs, such as FNDB or FNDX. Alternatively, a Quality factor fund (e.g., QUAL, VFQY) will serve the same purpose.
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Re: Is there an ETF for equities with stable cash flows?

Post by nisiprius »

"Stable cash flow" is a judgement call. If you are seriously interested in this kind of idea, I think you need to learn how to read a balance sheet--don't look at me, I don't know how--and learn how to do "fundamental analysis." Then I think you need to look at the annual reports of a few companies that issue stocks. When you understand more about business than I do,* you will be in a position to judge whether a company has stable cash flow.

But I did try a simple web search. I found an ETF. Not only am I not recommending this ETF, I recommend against it. All I am saying is "I did a web search and the description of this ETF is sort of like your description of what you are looking for. But do the stocks in this ETF really have the characteristics that Bridgewater likes? That's your challenge.

The ETF has the ticker symbol COWZ, as in "cash cow." The provider describes it by saying
Cash Cows Index Strategy

Free cash flow is the cash remaining after a company has paid expenses, interest, taxes, and long-term investments. It can be used to buy back stock, pay dividends, or participate in mergers and acquisitions.

The ability to generate a high free cash flow yield indicates a company is producing more cash than it needs to run the business and can invest in growth opportunities.
and
A strategy driven exchange traded fund that aims to provide capital appreciation over time by screening the Russell 1000 for the top 100 companies based on free cash flow yield.
Here's why I would not buy such a thing myself.

1) I just personally don't think it is sound to search out ETFs based on pet ideas.

2) You would have to be sure that their idea of "high free cash flow" is really the same as what you are looking at.

3) The expense ratio of 0.49% isn't astronomical, but it is definitely on the high side from a Boglehead perspective.

4) Inception was 12/16/2016, so there is less than four years to look at and--in particular--we can't see what it did in 2008-2009.

5) It only has $215 million in assets. That's not tiny, that's not in "ETF deathwatch" range, but you wonder why there isn't more interest in it.

6) Although "stable cash flow" is not the same thing as "high dividend yield," you might expect them to be associated, and if I compare COWZ with the Vanguard High Dividend Yield Index Fund, VHYAX, I don't see much difference and the advantage is all in favor of VHYAX.

VHYAX is big, well-known. Investors have put $33 billion into it, more than a hundred times as much as COWZ. And its expense ratio is only 0.08%.

Source

Image

*I'm not sure whether to say "ten times as much about business as I do," "a hundred times as much as I do," or "a thousand times as much as I do."
Last edited by nisiprius on Tue Aug 11, 2020 4:45 pm, edited 4 times in total.
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Re: Is there an ETF for equities with stable cash flows?

Post by whodidntante »

Steve Reading wrote: Tue Aug 11, 2020 12:46 pm
steve321 wrote: Tue Aug 11, 2020 11:19 am
Uncorrelated wrote: Tue Aug 11, 2020 10:06 am

FWIW I think the individuals in the video either don't know what they're talking about
They are from the largest hedgefund in the US I'd say it's more likely that we don't know what we are talking about...
I don't doubt that whatever Bridgewater is doing right now, even if it involves stock picking and goes against market efficiency, is probably a good, profitable idea. The raw talent, intelligence and resources they have is giant. I see markets as mostly efficient to us retail investors precisely because hedge funds like Bridgewater and Renaissance Technologies suck up a lot of the inefficiency.

My problem is that I don't know if the people in the video know much about what they're talking about. I don't think they're the quants actually generating, testing and implementing the strategies. They might just be talking heads, who have a general, vague idea as to what Bridgewater is doing and publicize it somewhat to build reputation. Remember Bridgewater is known for its huge level of secrecy. Whatever those people are saying is certainly a gross oversimplification of what Bridgewater actually is doing.

If an organization as secretive as Bridgewater is putting out Youtube videos talking about what they're doing, I honestly would just ignore them.

Just my opinion.
I think your comments are spot on.
000
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Re: Is there an ETF for equities with stable cash flows?

Post by 000 »

nisiprius wrote: Tue Aug 11, 2020 4:34 pm "Stable cash flow" is a judgement call. If you are seriously interested in this kind of idea, I think you need to learn how to read a balance sheet--don't look at me, I don't know how--and learn how to do "fundamental analysis." Then I think you need to look at the annual reports of a few companies that issue stocks. When you understand more about business than I do,* you will be in a position to judge whether a company has stable cash flow.
Yep, this is the correct answer.
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