Funny...

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
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FinanceFun
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Funny...

Post by FinanceFun » Sat Dec 31, 2011 11:33 am

I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds. Almost all of the analysis is "pain-based" and backward looking. "Ohh the lost decade... bonds were better... buy more bonds" Ignoring the rising earnings and shrinking P/E's of the "lost decade." Ignoring that intermediate term treasuries don't even keep pace with inflation. People here are in for a real nasty surprise when bond yields start to rise... We will be calling it the "lost decade for bonds" in 2022...

I guess thats why successful investors are generally contrarian.

dbr
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Re: Funny...

Post by dbr » Sat Dec 31, 2011 11:59 am

FinanceFun wrote:I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds. Almost all of the analysis is "pain-based" and backward looking. "Ohh the lost decade... bonds were better... buy more bonds" Ignoring the rising earnings and shrinking P/E's of the "lost decade." Ignoring that intermediate term treasuries don't even keep pace with inflation. People here are in for a real nasty surprise when bond yields start to rise... We will be calling it the "lost decade for bonds" in 2022...

I guess thats why successful investors are generally contrarian.
Or who simply navigate a steady course without wandering here and there trying to steer by a rear view mirror (as you say).

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ruralavalon
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Re: Funny...

Post by ruralavalon » Sat Dec 31, 2011 12:02 pm

I guess thats why successful investors are those that have a reasonable asset allocation and then stay the course, with rebalancing.
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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 12:10 pm

If you say so... What the posters on this forum DO may be different from what they SAY. But if you read this forum, as I have, there is a massive bias towards bonds, with a consistent justification of "the lost decade."

By they way, if you are a "stay the course" person, then you have continued to rebalance away from bonds and into stocks during "the lost decade." Some interesting facts:

10 Year Tres Rate from 1880 - 2011:
Mean: 4.67
Median: 3.82
Max: 15.32 (sep 1981)
Min: 1.89 (Dec 2011) (the start of the NEXT lost decade)

S&P 500 PE Ratios 1880 - 2011:
Mean: 16.42
Median: 15.82
Min: 4.78 (Dec 1920)
Max: 44.2 (Dec 1999.... gee... the start of the "lost decade")
Current: 13

Let me add that the S&P 500 is approx flat since the peak, yet PE's have dropped from 44.2 to 13 through improved earnings. Two massive bubbles bursting did not stop corporations from generating ever increasing profits. I personally think it is foolish to have a bias towards bonds in this environment.

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ddb
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Re: Funny...

Post by ddb » Sat Dec 31, 2011 12:14 pm

FinanceFun wrote:If you say so... What the posters on this forum DO may be different from what they SAY. But if you read this forum, as I have, there is a massive bias towards bonds, with a consistent justification of "the lost decade."

By they way, if you are a "stay the course" person, then you have continued to rebalance away from bonds and into stocks during "the lost decade." Some interesting facts:

10 Year Tres Rate from 1880 - 2011:
Mean: 4.67
Median: 3.82
Max: 15.32 (sep 1981)
Min: 1.89 (Dec 2011) (the start of the NEXT lost decade)

S&P 500 PE Ratios 1880 - 2011:
Mean: 16.42
Median: 15.82
Min: 4.78 (Dec 1920)
Max: 44.2 (Dec 1999.... gee... the start of the "lost decade")
Current: 13
I agree that this forum generally seems overly-optimistic about bond returns. I'm generally opposed to any strategy which relies on backtesting as "research", and I think a lot of people here have warm and fuzzy feelings about their heavy bond allocations because of how bonds have performed so nicely during the past 30 years.

Still, it remains true that bonds of a high-quality and short/intermediate-term nature are much less risky than stocks, as measured by expected volatility. For that reason, I don't think it's wrong to have a lot of bonds, I just think it's wrong to expect that a 70% bond portfolio will be able to meet a 3-4% SWR over a 30-year period.

- DDB
"We have to encourage a return to traditional moral values. Most importantly, we have to promote general social concern, and less materialism in young people." - PB

dbr
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Re: Funny...

Post by dbr » Sat Dec 31, 2011 12:18 pm

FinanceFun wrote:If you say so... What the posters on this forum DO may be different from what they SAY. But if you read this forum, as I have, there is a massive bias towards bonds, with a consistent justification of "the lost decade."

By they way, if you are a "stay the course" person, then you have continued to rebalance away from bonds and into stocks during "the lost decade."
Well, over the last three years I have net withdrawals from bonds, 2/3 of which funded withdrawals from portfolio and 1/3 of which were used to purchase stocks, so, yes.

I agree that a lot of people who post here may not be walking the walk. I also suspect that most of the people who are walking the walk don't put up postings that say so. The postings come from people who have a question, or a fear, or are confused, or want discussion of what to do, and so on.

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Rick Ferri
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Re: Funny...

Post by Rick Ferri » Sat Dec 31, 2011 12:20 pm

FinanceFun wrote:I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds... Almost all of the analysis is "pain-based" and backward looking...Ignoring the rising earnings and shrinking P/E's of the "lost decade"... Ignoring that intermediate term treasuries don't even keep pace with inflation....
You need to read more of MY posts. :wink:

Rick Ferri :thumbsup
The Education of an Index Investor: born in darkness, finds indexing enlightenment, overcomplicates everything, embraces simplicity.

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 12:20 pm

ddb wrote:
FinanceFun wrote:If you say so... What the posters on this forum DO may be different from what they SAY. But if you read this forum, as I have, there is a massive bias towards bonds, with a consistent justification of "the lost decade."

By they way, if you are a "stay the course" person, then you have continued to rebalance away from bonds and into stocks during "the lost decade." Some interesting facts:

10 Year Tres Rate from 1880 - 2011:
Mean: 4.67
Median: 3.82
Max: 15.32 (sep 1981)
Min: 1.89 (Dec 2011) (the start of the NEXT lost decade)

S&P 500 PE Ratios 1880 - 2011:
Mean: 16.42
Median: 15.82
Min: 4.78 (Dec 1920)
Max: 44.2 (Dec 1999.... gee... the start of the "lost decade")
Current: 13
I agree that this forum generally seems overly-optimistic about bond returns. I'm generally opposed to any strategy which relies on backtesting as "research", and I think a lot of people here have warm and fuzzy feelings about their heavy bond allocations because of how bonds have performed so nicely during the past 30 years.

Still, it remains true that bonds of a high-quality and short/intermediate-term nature are much less risky than stocks, as measured by expected volatility. For that reason, I don't think it's wrong to have a lot of bonds, I just think it's wrong to expect that a 70% bond portfolio will be able to meet a 3-4% SWR over a 30-year period.

- DDB
No doubt that bonds play an important role in reducing portfolio volatility and in supporting a dollar cost averaging strategy. As such, they should be part of the strategy. I just foresee rising yields generating flat nominal returns for bonds over the next decade, negative real-returns. At the same time, there is a case to be made for equities. I know many people who have, over the past year, moved significant portions of their portfolio into bonds. Many are sitting at 80-90% bonds. This is, in my opinion, a huge mistake.

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 12:23 pm

dbr wrote:
FinanceFun wrote:If you say so... What the posters on this forum DO may be different from what they SAY. But if you read this forum, as I have, there is a massive bias towards bonds, with a consistent justification of "the lost decade."

By they way, if you are a "stay the course" person, then you have continued to rebalance away from bonds and into stocks during "the lost decade."
Well, over the last three years I have net withdrawals from bonds, 2/3 of which funded withdrawals from portfolio and 1/3 of which were used to purchase stocks, so, yes.

I agree that a lot of people who post here may not be walking the walk. I also suspect that most of the people who are walking the walk don't put up postings that say so. The postings come from people who have a question, or a fear, or are confused, or want discussion of what to do, and so on.
Walking the walk. Solid.

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Re: Funny...

Post by gofigure » Sat Dec 31, 2011 12:26 pm

Forum participants here run from just out of college to well into retirement. Most advocate what I gather is a resonable AA. I don't agree with your characterization of an overly conservative i.e. bond bias.

tpm871
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Re: Funny...

Post by tpm871 » Sat Dec 31, 2011 12:53 pm

I have about a 30% allocation to bonds (mix of Treasuys, TIPs, and munis), but I don't think of it as outperforming in the long run. Instead, I like that they are inversely correlated with equities, providing rebalancing opportunities when the market takes a dive. That worked well for me back in Nov 2008.

The fact that bonds did well this year is just a nice bonus, but not my reason for holding bonds.

555
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Re: Funny...

Post by 555 » Sat Dec 31, 2011 12:55 pm

FinanceFun wrote:I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds.
It appears that you have written more posts than you have read.

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 12:58 pm

555 wrote:
FinanceFun wrote:I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds.
It appears that you have written more posts than you have read.
It appears that you like to make comments, without facts.

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camper
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Re: Funny...

Post by camper » Sat Dec 31, 2011 1:01 pm

I think you need to consider the age and wealth of a lot of the Bogleheads. If there is no need to take on risk, then why would you? FWIW we strive for 20% bond allocation. I will be 31 next week and DW is already 31.

555
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Re: Funny...

Post by 555 » Sat Dec 31, 2011 1:03 pm

FinanceFun wrote:
FinanceFun wrote:I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds.
It appears that you like to make comments, without facts.
I fixed your post. :roll:

rmelv
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Re: Funny...

Post by rmelv » Sat Dec 31, 2011 1:04 pm

Funnily enough, I tend to think that this forum is overly biased towards stocks and quick to label bonds as being in a bubble. We all are different and have different expectations from our portfolio.

Personally, I like consistent returns and holding bonds helps me achieve my goals. Don't worry about trying to talk people out of their portfolios, I have found it to be a waste of time. Besides, you might just be wrong.

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 1:08 pm

camper wrote:I think you need to consider the age and wealth of a lot of the Bogleheads. If there is no need to take on risk, then why would you? FWIW we strive for 20% bond allocation. I will be 31 next week and DW is already 31.
Its not an argument on % allocation, but rather on a pervasive theme that "bonds are good, stocks are good but risky." While VERY little airtime has been given to the substantial risks of bond investing in an environment with negative real return at time of purchase, and high likelihood of increasing yields over time - resulting in potentially negative nominal returns.

You need to understand that bonds are likely to provide negative real-returns, and possibly negative nominal returns over the next decade. As others have mentioned, that doesn't make them a bad investment. There is still a home for them to reduce portfolio volatility and to support dollar cost averaging.

My point is that this is NOT DISCUSSED TO AN EXTENT ANYWHERE CLOSE TO THE "POSITIVE'S OF BOND INVESTING" IN THIS FORUM. As a result, I think many readers are making poor decisions on their personal asset allocation vs their personal goals.

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camper
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Re: Funny...

Post by camper » Sat Dec 31, 2011 1:32 pm

FinanceFun wrote:
camper wrote:I think you need to consider the age and wealth of a lot of the Bogleheads. If there is no need to take on risk, then why would you? FWIW we strive for 20% bond allocation. I will be 31 next week and DW is already 31.
Its not an argument on % allocation, but rather on a pervasive theme that "bonds are good, stocks are good but risky." While VERY little airtime has been given to the substantial risks of bond investing in an environment with negative real return at time of purchase, and high likelihood of increasing yields over time - resulting in potentially negative nominal returns.

You need to understand that bonds are likely to provide negative real-returns, and possibly negative nominal returns over the next decade. As others have mentioned, that doesn't make them a bad investment. There is still a home for them to reduce portfolio volatility and to support dollar cost averaging.

My point is that this is NOT DISCUSSED TO AN EXTENT ANYWHERE CLOSE TO THE "POSITIVE'S OF BOND INVESTING" IN THIS FORUM. As a result, I think many readers are making poor decisions on their personal asset allocation vs their personal goals.
I see a lot of likelihood and potentially in your post. I have read plenty of posts here stating posters are shorting the duration of their bond allocations due to the current and POTENTIAL future interest rate environment. What would be your alternatives to bonds?

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 1:37 pm

camper wrote:
FinanceFun wrote:
camper wrote:I think you need to consider the age and wealth of a lot of the Bogleheads. If there is no need to take on risk, then why would you? FWIW we strive for 20% bond allocation. I will be 31 next week and DW is already 31.
Its not an argument on % allocation, but rather on a pervasive theme that "bonds are good, stocks are good but risky." While VERY little airtime has been given to the substantial risks of bond investing in an environment with negative real return at time of purchase, and high likelihood of increasing yields over time - resulting in potentially negative nominal returns.

You need to understand that bonds are likely to provide negative real-returns, and possibly negative nominal returns over the next decade. As others have mentioned, that doesn't make them a bad investment. There is still a home for them to reduce portfolio volatility and to support dollar cost averaging.

My point is that this is NOT DISCUSSED TO AN EXTENT ANYWHERE CLOSE TO THE "POSITIVE'S OF BOND INVESTING" IN THIS FORUM. As a result, I think many readers are making poor decisions on their personal asset allocation vs their personal goals.
I see a lot of likelihood and potentially in your post. I have read plenty of posts here stating posters are shorting the duration of their bond allocations due to the current and POTENTIAL future interest rate environment. What would be your alternatives to bonds?
Right now I am Overweight:
Stocks
Cash

Market weight:
Gold

Underweight:
Bonds

So, IF my typical allocation was:
Stocks: 60%
Bonds: 25%
Gold: 5%
Cash 10%

I would be entering 2012 as:
Stocks: 70%
Bonds: 12%
Gold: 5%
Cash: 13%

trico
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Re: Funny...

Post by trico » Sat Dec 31, 2011 1:52 pm

The trend is your freind. Until the trend changes I will follow the current one.
Cash=45%
Bonds=35%
Stocks=20%

1mil dollar portfolio at 2011 start
1.05mil year end 2011.
Not much but could be way worse. Just retired.

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momar
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Re: Funny...

Post by momar » Sat Dec 31, 2011 1:58 pm

FinanceFun wrote:
camper wrote:I think you need to consider the age and wealth of a lot of the Bogleheads. If there is no need to take on risk, then why would you? FWIW we strive for 20% bond allocation. I will be 31 next week and DW is already 31.
Its not an argument on % allocation, but rather on a pervasive theme that "bonds are good, stocks are good but risky." While VERY little airtime has been given to the substantial risks of bond investing in an environment with negative real return at time of purchase, and high likelihood of increasing yields over time - resulting in potentially negative nominal returns.

You need to understand that bonds are likely to provide negative real-returns, and possibly negative nominal returns over the next decade. As others have mentioned, that doesn't make them a bad investment. There is still a home for them to reduce portfolio volatility and to support dollar cost averaging.

My point is that this is NOT DISCUSSED TO AN EXTENT ANYWHERE CLOSE TO THE "POSITIVE'S OF BOND INVESTING" IN THIS FORUM. As a result, I think many readers are making poor decisions on their personal asset allocation vs their personal goals.
There has been a lot of discussion on what will happen to funds like TBM in a rising interest rate environment. See nisiprius here, for example: http://www.bogleheads.org/forum/viewtop ... t#p1256440

If you feel that it is not sufficient, why don't you post something more than meta-criticism and show us some analysis that contradicts that already posted?
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 2:27 pm

I am guessing people are having difficulty with the word "Majority"

ma·jor·i·ty (m-jôr-t, -jr-)
n. pl. ma·jor·i·ties
1. The greater number or part; a number more than half of the total.
2. The amount by which the greater number of votes cast, as in an election, exceeds the total number of remaining votes.
3. The political party, group, or faction having the most power by virtue of its larger representation or electoral strength.
4. Law The status of having reached full legal age, with attendant rights and responsibilities.
5. The military rank, commission, or office of a major.
6. Obsolete The fact or state of being greater; superiority.

There. That should cover it.

555
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Re: Funny...

Post by 555 » Sat Dec 31, 2011 2:36 pm

FinanceFun wrote:I am guessing people are having difficulty with the word "Majority"

ma·jor·i·ty (m-jôr-t, -jr-)
n. pl. ma·jor·i·ties
1. The greater number or part; a number more than half of the total.
2. The amount by which the greater number of votes cast, as in an election, exceeds the total number of remaining votes.
3. The political party, group, or faction having the most power by virtue of its larger representation or electoral strength.
4. Law The status of having reached full legal age, with attendant rights and responsibilities.
5. The military rank, commission, or office of a major.
6. Obsolete The fact or state of being greater; superiority.

There. That should cover it.
FinanceFun wrote:I read through these posts and I see the majority of the sentiment being very risk averse and overweight bonds
I don't believe you. Prove it.
FinanceFun wrote:Almost all of the analysis is "pain-based" and backward looking. "Ohh the lost decade... bonds were better... buy more bonds"
I don't believe you. Prove it.

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 2:41 pm

So the counter to a logical argument based upon an observation is:

"Empericaly prove to me the most inconsequential part of the argument!"?

Awesome!

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Re: Funny...

Post by kontango » Sat Dec 31, 2011 2:47 pm

I agree with your post. I've had a debt/equity mix of 0%/100% since I began contributing to my retirement account in 1999 (I'm not suggesting this is the right balance for everyone by any means). I've experienced the lost decade. But I see no reason to let the last 10 year period (clearly an outlier historically) drive my investment decisions going forward.

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camper
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Re: Funny...

Post by camper » Sat Dec 31, 2011 3:12 pm

I will take one last crack in this thread.
FinanceFun wrote: "Ohh the lost decade... bonds were better... buy more bonds"
Can you provide a post where anything like this was stated?

The majority of what I read here on bond allocation is age in bonds.

Boglehead philosophy is buy, hold, rebalance with broadly diversified index funds. For the most part Bogleheads don't change allocations based on what MIGHT happen. Can you tell me when the interest rates will rise? A date is preferable so I can time it just right.

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FinanceFun
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Re: Funny...

Post by FinanceFun » Sat Dec 31, 2011 3:37 pm

camper wrote:I will take one last crack in this thread.
FinanceFun wrote: "Ohh the lost decade... bonds were better... buy more bonds"
Can you provide a post where anything like this was stated?

The majority of what I read here on bond allocation is age in bonds.

Boglehead philosophy is buy, hold, rebalance with broadly diversified index funds. For the most part Bogleheads don't change allocations based on what MIGHT happen. Can you tell me when the interest rates will rise? A date is preferable so I can time it just right.
Thank you for regurgitating the mantra. I am not saying that the "stick you head in the sand and chant 'Ooomm'" strategy is wrong. The "Ostrich" approach will likely counter rising yields with rising stock values. Whoopee!

Thats all well and good, but it doesn't make it right, or best, or change the evidence in front of you. Top Rated Bonds in general will lose you money, in real return, over the next decade. If you don't believe that 100%, then 70%? 50%? 20%? Are odds better or worse that yields go higher vs lower? Given that investors NEED yield to go lower for ANY chance of a real return should convince even the most ignorant that odds do not favor a real return. If you want to invest in a guaranteed loss there are more enjoyable ways...

The question is: what do you do with that. You can stick your head in the sand... chant "ooommmm". Cool. The bull market in stocks will take care the the anchor of bonds. Or you could act. I frankly don't care what you choose. The whole point of this was to highlight the issues with the bond market so that people can do their homework and make intelligent decisions.

To put it in context:
Person A: My strategy is to walk down this train track.
Person B: But there is a train coming.
Person A: Yes. I see that. But my strategy is to walk down this train track.
Splat

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