In what ways could BogleHeads be badly wrong ?

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technovelist
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Re: In what ways could BogleHeads be badly wrong ?

Post by technovelist » Fri Jan 26, 2018 10:27 pm

Leesbro63 wrote:
Fri Jan 26, 2018 10:10 pm
For what it's worth, this is a good thread. It's good and prudent to honestly ask yourself and consider how you might be wrong.

My own thought on this are two points addressed above.

1. Having all your assets at Vanguard. Esp for large accounts. I guess if Vanguard fails, the whole system is kaput. But considering we diversify everything else, it seems prudent not to have all of a large portfolio at any one place, including Vanguard. The way people treat Vanguard as some sort of saintly heaven for money might be a bit over the top.

2. A sustained 1974ish period rerun. Where big but not hyperinflation pummels stocks and bonds. But it's not clear what can be done to mitigate against this. It's not clear that real estate will do well like it did in the late 70s and it's not clear that gold will be a hedge. In this scenario, those who whizzed away their money might end up getting the last laugh. I guess the diversifier here might be to actually spend a little more than just for the usual 3 year old, new-to-the-Boglehead Honda Civic every 15 years, whether it's needed or not. 8-)
Well, the HBPP has about a 40-year track record of fairly smooth growth, including some really bad times for stocks. I'm pretty sure gold would be a good diversifier in a rerun of the 1970's, as it was the first time.
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Re: In what ways could BogleHeads be badly wrong ?

Post by jalbert » Fri Jan 26, 2018 11:55 pm

At any rate, we can suffice it to say that the random walk hypothesis is not universally accepted in the academic community. I know that Jeremy Siegel hasn't believed it for at least the last 20 years.
If an unproven hypothesis is universally accepted, I would be inclined to question it more, not less, as I would be concerned it was not being adequately scrutinized and tested.
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Re: In what ways could BogleHeads be badly wrong ?

Post by willthrill81 » Sat Jan 27, 2018 1:12 am

jalbert wrote:
Fri Jan 26, 2018 11:55 pm
At any rate, we can suffice it to say that the random walk hypothesis is not universally accepted in the academic community. I know that Jeremy Siegel hasn't believed it for at least the last 20 years.
If an unproven hypothesis is universally accepted, I would be inclined to question it more, not less, as I would be concerned it was not being adequately scrutinized and tested.
Or it might just be false.
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bling
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Re: In what ways could BogleHeads be badly wrong ?

Post by bling » Sat Jan 27, 2018 10:40 am

late to the party....

i think there are many ways that BHs can be "wrong". but i don't think there's anything you can be "badly wrong".

staying the course is a perfect example. when i first started, i picked a lazy portfolio that included 10% in commodities. through luck i needed to liquidate my account for some expenses, and when i got back in the market i picked a new lazy portfolio, which now had 15% in REITs instead. if i stayed the course of my original lazy portfolio my commodities allocation would have been a real drag.

now, some here probably modify their definition of staying the course as defined in their IPS to include rules of how much you can/cannot be in certain sectors, etc., but if you started off with an exotic portfolio, staying the course could be "wrong".

why i don't think it's "badly wrong" is because if that were the case, it means the entire market has crashed beyond repair and society has a bigger problem...

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Re: In what ways could BogleHeads be badly wrong ?

Post by rob65 » Sat Jan 27, 2018 12:01 pm

The underlying assumption is that a diversified portfolio of stock and bond funds that is at least somewhat equity heavy during the accumulation phase (some variation of age - x in bonds) is the way to save for retirement. Some funds will beat the index; most won’t. Within that framework, I don’t think a BH approach could “badly” fail.

The issue would be the unlikely event that the underlying assumption turns out to be badly wrong and that almost any portfolio based around stocks fails. Maybe cash or real estate or direct ownership of a small business or bitcoin turns out to be the only thing that worked ... well, strike bitcoin, but you get the idea.

That said, I think the average person has little choice but to accept the underlying assumption.

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Re: In what ways could BogleHeads be badly wrong ?

Post by tibbitts » Sat Jan 27, 2018 12:21 pm

rob65 wrote:
Sat Jan 27, 2018 12:01 pm
The underlying assumption is that a diversified portfolio of stock and bond funds that is at least somewhat equity heavy during the accumulation phase (some variation of age - x in bonds) is the way to save for retirement. Some funds will beat the index; most won’t. Within that framework, I don’t think a BH approach could “badly” fail.

The issue would be the unlikely event that the underlying assumption turns out to be badly wrong and that almost any portfolio based around stocks fails. Maybe cash or real estate or direct ownership of a small business or bitcoin turns out to be the only thing that worked ... well, strike bitcoin, but you get the idea.

That said, I think the average person has little choice but to accept the underlying assumption.
Exactly. The BH model assumes that average results are good enough - that people can succeed by being average. If for a generation or two only the top 10-20% of people succeed (have a good retirement, whatever their goals are) that will cause the model to collapse and the forum will be filled with posts about how obviously we all should invest in something other than the total stock and bond market.

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Re: In what ways could BogleHeads be badly wrong ?

Post by Leesbro63 » Sat Jan 27, 2018 12:37 pm

This isn’t exactly right. The Boglehead philosophy posits that MARKET returns will generally outperform for the average investor. Therefore market returns are above average.

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Re: In what ways could BogleHeads be badly wrong ?

Post by MiddleOfTheRoad » Sat Jan 27, 2018 12:56 pm

BH diversify.
You will miss the homeruns, and the strikeouts.
You will be wrong at all times in some parts of the portfolio. As a whole, it is hard for the whole portfolio to be “badly” wrong. That is the point of diversification.

Assuming no social, political, natural disaster black swan. Then survival instinct and useful skills are needed, not investing.

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Re: In what ways could BogleHeads be badly wrong ?

Post by blinx77 » Sat Jan 27, 2018 1:04 pm

snackdog wrote:
Wed Jan 24, 2018 1:12 pm
A black swan event such as a pandemic, nuclear war, cyber attack or asteroid collision could crater the world economy for a generation or more. Then the bogleheads might look pretty silly with all their investments up in smoke.
I have often wondered this. Perhaps not even "up in smoke" but reduced by 80-90% for a generation or more.

What if the folks, say, buying large tracts of land near the local river / ponds in their rural towns are actually making the best investments and those of us living in HCOL areas and making high wages and dumping it all in the stock markets are actually going to be caught flat-footed?

My grandparents fled the Soviet Union with nothing (though to be fair, they never had much), so thinking about these black swan type events is not just an academic exercise in my family. I have other friends who were born there and fled themselves. Of course, land would not have helped them there, but maybe next time the catastrophe will be of a different sort?

I have often thought that if I were wealthy enough, a modest country house near a water source (with well water, and preferably off grid) could be a great diversifier of a different sort. But I am not financially there yet so the point is moot.

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Re: In what ways could BogleHeads be badly wrong ?

Post by MnD » Sat Jan 27, 2018 1:12 pm

1) Stocks are risky and bonds are safe, ignoring a sequence of returns like a 1966 retirement where increasing bonds just made things worse. Looking in the rear view mirror at a 35-year bull market for bonds does not make them safe.

2) US-only or heavy-US tilt in equities is better and safer. Again confusing a very strong past decade for US versus international for investment wisdom, along with appeal to authority fallacy and inflated nationalism.

3) Deep discounting of or ignoring assets and revenue streams such as Social Security, pensions, imputed rent value from paid off house etc. whereas the future value and income to be derived from a basket of "pure financial assets" is projected out decades and to 4 decimal places.

4) "Richest person in the graveyard" approach to financial planning. Very low SWR's, often coupled with excessive frugality and/or deferring an excessive share of gratification to a future timeline that one in fact may not be participating in. Excessively optimistic assumptions about life expectancy and years of active healthy retirement.

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Re: In what ways could BogleHeads be badly wrong ?

Post by nedsaid » Sat Jan 27, 2018 1:45 pm

I do see flaws not in the Boglehead philosophy but in the actions of Bogleheads as a group.

One flaw is recency bias. Bogleheads are not immune to the desire to be in the investments that have recently done well and to be out of the investments that have recently not done so well. A big example are TIPS. It used to be standard advice to split a bond portfolio 50% Total Bond Market Index and 50% TIPS. It seems now that the majority of Bogleheads, maybe 2/3, don't see the need for TIPS at all. We also saw this with International Stocks, which are now on fire. Back in 2015, many threads here about people wanting to give up on them.

Another flaw is extreme stay the course. Investors should not change their portfolios in response to every compelling investment book they read. We need a stability in our portfolio mix as well as in our investment approach. I will say that the economy and the markets change over time and we have to be flexible enough to make adjustments. A big change in our personal circumstances is another rational reason to make adjustments. Hard to tell when it is time to make changes but it should be a rare occurance. Investors should allow for flexibility and not get too rigid in their thinking.

I have always said that Mr. Bogle, if he chose to post here under a pseudonym, would get hooted off the forum for not being "Bogleheaded" enough. Mr. Bogle is remarkably flexible in his thinking and he does say rather surprising things from time to time.
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Re: In what ways could BogleHeads be badly wrong ?

Post by willthrill81 » Sat Jan 27, 2018 2:22 pm

MnD wrote:
Sat Jan 27, 2018 1:12 pm
1) Stocks are risky and bonds are safe, ignoring a sequence of returns like a 1966 retirement where increasing bonds just made things worse. Looking in the rear view mirror at a 35-year bull market for bonds does not make them safe.

2) US-only or heavy-US tilt in equities is better and safer. Again confusing a very strong past decade for US versus international for investment wisdom, along with appeal to authority fallacy and inflated nationalism.

3) Deep discounting of or ignoring assets and revenue streams such as Social Security, pensions, imputed rent value from paid off house etc. whereas the future value and income to be derived from a basket of "pure financial assets" is projected out decades and to 4 decimal places.

4) "Richest person in the graveyard" approach to financial planning. Very low SWR's, often coupled with excessive frugality and/or deferring an excessive share of gratification to a future timeline that one in fact may not be participating in. Excessively optimistic assumptions about life expectancy and years of active healthy retirement.
+10

All of your points are spot on. In particular, I think that many Bogleheads ignore the long-term risks associated with bonds and that they tend to be overly conservative in the withdrawal phase.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: In what ways could BogleHeads be badly wrong ?

Post by rob65 » Sat Jan 27, 2018 3:13 pm

willthrill81 wrote:
Sat Jan 27, 2018 2:22 pm
MnD wrote:
Sat Jan 27, 2018 1:12 pm
1) Stocks are risky and bonds are safe, ignoring a sequence of returns like a 1966 retirement where increasing bonds just made things worse. Looking in the rear view mirror at a 35-year bull market for bonds does not make them safe.

2) US-only or heavy-US tilt in equities is better and safer. Again confusing a very strong past decade for US versus international for investment wisdom, along with appeal to authority fallacy and inflated nationalism.

3) Deep discounting of or ignoring assets and revenue streams such as Social Security, pensions, imputed rent value from paid off house etc. whereas the future value and income to be derived from a basket of "pure financial assets" is projected out decades and to 4 decimal places.

4) "Richest person in the graveyard" approach to financial planning. Very low SWR's, often coupled with excessive frugality and/or deferring an excessive share of gratification to a future timeline that one in fact may not be participating in. Excessively optimistic assumptions about life expectancy and years of active healthy retirement.
+10

All of your points are spot on. In particular, I think that many Bogleheads ignore the long-term risks associated with bonds and that they tend to be overly conservative in the withdrawal phase.
Although I do enjoy the “we have annual expenses of 40k, cola adjusted pensions of 60k, and a 2.5M portfolio, can we retire” threads. :happy

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Re: In what ways could BogleHeads be badly wrong ?

Post by halfnine » Sat Jan 27, 2018 4:44 pm

MnD wrote:
Sat Jan 27, 2018 1:12 pm
1) Stocks are risky and bonds are safe, ignoring a sequence of returns like a 1966 retirement where increasing bonds just made things worse. Looking in the rear view mirror at a 35-year bull market for bonds does not make them safe.

2) US-only or heavy-US tilt in equities is better and safer. Again confusing a very strong past decade for US versus international for investment wisdom, along with appeal to authority fallacy and inflated nationalism.

3) Deep discounting of or ignoring assets and revenue streams such as Social Security, pensions, imputed rent value from paid off house etc. whereas the future value and income to be derived from a basket of "pure financial assets" is projected out decades and to 4 decimal places.

4) "Richest person in the graveyard" approach to financial planning. Very low SWR's, often coupled with excessive frugality and/or deferring an excessive share of gratification to a future timeline that one in fact may not be participating in. Excessively optimistic assumptions about life expectancy and years of active healthy retirement.
This.

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Re: In what ways could BogleHeads be badly wrong ?

Post by edge » Sat Jan 27, 2018 7:03 pm

If somehow bonds outperform stocks over long periods of time, maybe? Or if markets fail permanently. But in this case we are all screwed.

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Re: In what ways could BogleHeads be badly wrong ?

Post by Fallible » Sat Jan 27, 2018 10:11 pm

Da5id wrote:
Thu Jan 25, 2018 9:29 am
sreynard wrote:
Thu Jan 25, 2018 12:31 am
OK, #3 does sometimes bother me as well, though for perhaps the opposite reason as your example. I never liked "ability to sleep at night" as a criteria for setting asset allocation. It seems to me that education is a better solution than going with a "gut feeling" emotional response.
I find the frequent sleep well at night, or "SWAN", references one of the more troubling bogleheads tropes as well. What lets you sleep well at night is subject to change on a moments notice, and is very squishy and emotionally based. It is basically license to go with your gut rather than stick to a plan. ...
The “sleep-well test” refers to the effects of lack of sleep due to excessive worry or deeper anxiety on both mental and physical well-being. Any investor who is not mindful of those effects is taking on too much health risk in addition to a market risk that could lead to panic and bailing out in a market crash.
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Re: In what ways could BogleHeads be badly wrong ?

Post by Random Walker » Sat Jan 27, 2018 10:34 pm

One way most Bogleheads could be “wrong” is in their view of diversification. Most Bogleheads view diversification as stocks v. Bonds, # stocks, geography. Finance has moved beyond that, and it is possible investors would be better off diversifying across sources of return. A TSM portfolio really has exposure to only one source of return, market beta. A more efficient portfolio will diversify across multiple drivers of returns: market beta, size, value, CS Momentum, TS Momentum, profitability, alternatives with exposures to several styles across several asset classes. This may be especially true presently with equity valuations very very high and interest rates very low.

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Re: In what ways could BogleHeads be badly wrong ?

Post by siamond » Sat Jan 27, 2018 11:10 pm

Dudley wrote:
Wed Jan 24, 2018 10:48 am
The broad BogleHead investment philosophy has (or would have) served investors well for the last few decades.
i.e. establish a stock/bond mix in line with age/risk; invest in a broad, low cost index funds; hold and rebalance over cycles. Is that going to be true going forward ?
This is an intriguing question that deserves non-dogmatic answers. Maybe we should decompose it...

1. establish a stock/bond mix in line with age/risk

I have a LOT of doubts about the Bogleheads conventional wisdom here (and the recent push of numerous folks towards a 30/70 portfolio in retirement). I fail to see the case for age-based adjustment to one's AA. I think risk is naively equated with volatility, and this is really at odds with a rational evaluation of risks, at least for most investors. I think a LOT of people are going to get burned (or at least unnecessarily strap themselves) with making short-term volatility paramount while mostly ignoring long-term consequences on their income. Being overly 'conservative' might be actually quite risky. Notably if we stay in a world of low interest rates, and/or if inflation rises its ugly head. I think there is a lot of recency bias floating around in this respect. But then, I'm not alone in thinking that, a significant number of Bogleheads do seem to share such views, and acting accordingly.

2. invest in a broad, low cost index funds

Here, I cannot see how this can go wrong. Or at least wronger than other strategies that wouldn't involve a lot of luck. Sure, if everything was indexed, there is a problem, but there is just no way this will happen, human greed is a constant of the universe, active investors will play roulette as long as there is a stock market...

Where I do see something possibly going wrong would be a restrictive interpretation of 'broad' diversification, namely US-only or close. I fear many people fall for 'success bias', and can't see the US market dynamics go south in the future like other countries did in the past. I certainly hope it will not, but I am not ready to bet the rest of my family's life on this. Broad is broad, and this means the world, notably in a highly interconnected world.

3. hold and rebalance over cycles.

This one is just simple and sound financial discipline. And if you depart a bit from it (maybe trying to be overly cute about rebalancing triggers, or the converse, only rebalance every couple of years), the impact should be negligible. If you do NOT rebalance, you might get lucky, but... that's just luck.

4. scanning the Wiki page about Bogleheads philosophy, the OP left aside a few things like invest early and often, minimize taxes, develop a plan, etc.

Those are all points of common sense. Can't see how it can go wrong. At a higher level though, I am worried by many posters who seem to view the Bogleheads philosophy as a rigid dogma, never to be deviated from. I don't have a specific example, but staying open-minded goes a long way in being adaptive, and staying adaptive is the best way to mitigate unknown risks.

At yet another level, I agree with the other posters who indicated that the full reliance on the stock/bond market (+ fixed income) can go really sour. Cyberattacks or an institutional crisis crippling the entire system may very well happen. A worldwide crisis lasting for decades and severely impacting both stocks & bonds might happen (heck, why would economic growth keep going forever?). Climate change or some other human-triggered planetary crisis could totally change our priorities, and lead to a major contraction. I just don't know what to realistically do about those threats that wouldn't be more harmful to much more likely outcomes though (e.g. own physical gold and then getting robbed isn't a smart move - heck, my mother did exactly that a few decades ago, sigh).

Maybe stop worrying too much, stay the course without being overly dogmatic, stay adaptive, and enjoy life as it goes? :beer

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Re: In what ways could BogleHeads be badly wrong ?

Post by visualguy » Sat Jan 27, 2018 11:42 pm

technovelist wrote:
Fri Jan 26, 2018 1:01 am
If that is correct, then the Permanent Portfolio (PP) is even more agnostic about the future, since it doesn't assume that the extreme outlier called the "US stock market" will necessarily continue to be an outlier in the positive direction.
I don't know about PP, but I was just looking at the total international index, and reminded how the US is an outlier... The international index has never reached again its peak of 10/2007. Hopefully, it will reach it again soon, but that will be a period of over a decade.

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Re: In what ways could BogleHeads be badly wrong ?

Post by StevieG72 » Sun Jan 28, 2018 6:39 am

May have underestimated the benefits of DIY investing.
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Re: In what ways could BogleHeads be badly wrong ?

Post by Lauretta » Sun Jan 28, 2018 7:21 am

Nate79 wrote:
Wed Jan 24, 2018 12:12 pm

4. That having a professional advisor, even one paid by AUM is evil and will cause disaster. Some people just don't have a clue, don't have time, and need some help.
I am relatively new to this website but I've noticed that people seem to hold Larry Swedroe in high regard (I believe rightly). Yet he is a financial advisor and has spoken/written in favour of people getting an advisor (to avoid making mistakes, have access to better products like DFA etc). Yet you say that Bogleheads advice against having financial advisors.
How can these two positions be reconciled?
Last edited by Lauretta on Sun Jan 28, 2018 9:15 am, edited 1 time in total.
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Re: In what ways could BogleHeads be badly wrong ?

Post by Nate79 » Sun Jan 28, 2018 8:22 am

visualguy wrote:
Sat Jan 27, 2018 11:42 pm
technovelist wrote:
Fri Jan 26, 2018 1:01 am
If that is correct, then the Permanent Portfolio (PP) is even more agnostic about the future, since it doesn't assume that the extreme outlier called the "US stock market" will necessarily continue to be an outlier in the positive direction.
I don't know about PP, but I was just looking at the total international index, and reminded how the US is an outlier... The international index has never reached again its peak of 10/2007. Hopefully, it will reach it again soon, but that will be a period of over a decade.
If you invested $10k in Vanguard Total International Index fund in 10/2007 you had recovered by mid 2014. Perhaps you are playing around with price charts which is meaningless.

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Re: In what ways could BogleHeads be badly wrong ?

Post by JonnyDVM » Sun Jan 28, 2018 9:04 am

Pandemics aside, I'm beginning to wonder if the secret to investing is to keep throwing money at the next potential big thing until you find the one that sticks.

I have a friend who has made 10X his initial investment in crypto. Told me to get into it shortly after Bitcoin started to climb but I dismissed it as stupid. He was turned onto it by someone who started with an initial 30k investment. In under a year that investment was worth more than my entire lifetime of savings.

Cryptocurrency investment is the antithesis of boglehead philosophy. The whole concept goes against every investing instict I know. We can talk theory all we want, but at the end of the day they are the ones holding huge sacks of money.
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Re: In what ways could BogleHeads be badly wrong ?

Post by Leesbro63 » Sun Jan 28, 2018 9:12 am

I am relatively new to this website but I've noticed that people seem to hold Larry Swedroe in high regard (I believe rightly). Yet he is a financial advisor and has spoken/written in favour o people getting and advisor (to avoid maing mistakes, have access to better products like DFA etc). Yes you say that Bogleheads advice against having financial advisors.
How can these two positions be reconciled?
This is a great question. I guess the answer is that not everyone has the skill or interest to do it yourself, although the long term cost of an advisor is steep. I’ve had an interesting discussion regarding the victims of Bernard Madoff. Should we feel sorry for them or are they not really victims? My own feeling is that SOME of his victims were widows and orphans who hired the former chair of the NASDAQ to do what they could not. A prudent decision. The counter argument was that most were not widows and orphans and were wealthy or at least very affluent and should have better educated themselves about money matters, a la Bogleheads.

So I guess the answer is that the cost of not doing it yourself is very high and perhaps risky. But if you absolutely can’t or won’t, at least learn how to find an advisor who understands Boglehead thinking.

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Re: In what ways could BogleHeads be badly wrong ?

Post by Lauretta » Sun Jan 28, 2018 9:28 am

Leesbro63 wrote:
Sun Jan 28, 2018 9:12 am
I am relatively new to this website but I've noticed that people seem to hold Larry Swedroe in high regard (I believe rightly). Yet he is a financial advisor and has spoken/written in favour o people getting and advisor (to avoid maing mistakes, have access to better products like DFA etc). Yes you say that Bogleheads advice against having financial advisors.
How can these two positions be reconciled?
This is a great question. I guess the answer is that not everyone has the skill or interest to do it yourself, although the long term cost of an advisor is steep. I’ve had an interesting discussion regarding the victims of Bernard Madoff. Should we feel sorry for them or are they not really victims? My own feeling is that SOME of his victims were widows and orphans who hired the former chair of the NASDAQ to do what they could not. A prudent decision. The counter argument was that most were not widows and orphans and were wealthy or at least very affluent and should have better educated themselves about money matters, a la Bogleheads.

So I guess the answer is that the cost of not doing it yourself is very high and perhaps risky. But if you absolutely can’t or won’t, at least learn how to find an advisor who understands Boglehead thinking.
Thank you for your answer. This really speaks to me, since the main reason I started to educate myself about finance (I find that in Europe we're not really encouraged to do so in general), is that some years ago I got some advice from an advisor who was introduced by friends and I followed that without questioning it; I eventually lost some money (not too much but enough for it to hurt) but I recognize that ultimately the responsibility for the bad decision was really mine (I had chosen to trust someone blindly instead of trying to understand things for myself). So I really believe that ultimately people are responsible for their choices, if you don't make the choice to manage your wealth yourself, you still have to make the right choice for the advisor...
The one reason in favour of having an advisor however is that you can get funds such as DFA which according to Larry perform better than index funds (this is the case at least in the US; for EU investors probably taxation rules still makes it better to stick to funds such as iShares that are domiciled here in Europe, instead of getting funds like DFA or AQR).
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Re: In what ways could BogleHeads be badly wrong ?

Post by Leesbro63 » Sun Jan 28, 2018 9:35 am

We’re not really encouraged to learn about money matters here in America either. Personally I find it appalling that kids can graduate high school, let alone college, without a course in personal finance.

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Re: In what ways could BogleHeads be badly wrong ?

Post by IlliniDave » Sun Jan 28, 2018 9:39 am

I've thought about this one for a couple days, and it's really hard to answer.

The first problem, as mentioned above, is nailing down what a boglehead actually is. The participants here are a very diverse group in their attitudes about finances and investing.

I think it all boils down to that we as a group have some degree of reasonable expectation/hope that by putting our money at risk we will ultimately be rewarded with an increase in wealth that justifies the risk. In that context most of us feel the financial system of the entire world will not collapse around us. If we're wrong about that, that's about as badly wrong as we could be when it comes to the topic of investing. But that does not distinguish us from anyone else in the universe of financial investors.

Other stuff, like learning after the fact that relatively expensive active management, performance chasing, stock picking, etc., proved in the aggregate to give somewhat better returns than relatively low cost, relatively passive strategies, while the word proceeds onward largely like it has in the past (markets rise over time, sovereign entities remain standing, etc.), then the consequence of bogleheads being wrong is really somewhat on the margin, and not what I'd call badly wrong. It's really hard to envision a scenario where taking the overall average result at the lowest cost will cause us to have a result that is substantially worse than, well, the average of what everyone else is doing. There will always be some strategies that work better and some that do worse. But you'd have to posit a scenario where the vast majority experience disastrous results while a select few through a systematic knowable process come out ahead. It just doesn't seem realistic. As Mr. Bogle says, it's "the relentless rules of humble arithmetic". I guess maybe the big mistake there would be failing to believe that on average, we are not substantially superior to average. We failed to move to Lake Woebegone.
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Re: In what ways could BogleHeads be badly wrong ?

Post by dbr » Sun Jan 28, 2018 9:44 am

IlliniDave wrote:
Sun Jan 28, 2018 9:39 am
In that context most of us feel the financial system of the entire world will not collapse around us. If we're wrong about that, that's about as badly wrong as we could be when it comes to the topic of investing. But that does not distinguish us from anyone else in the universe of financial investors.
I don't think that is a tenet of Boglehead Philosophy. Rather it is an obvious assumption about the context in which BH applies. No one would doubt that all bets are off if we assume an extreme enough situation. And you are right. It is not just BH but most of the known world we live in that is out the window in an extreme enough case.

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Re: In what ways could BogleHeads be badly wrong ?

Post by Johnnie » Sun Jan 28, 2018 9:57 am

Maybe someone has already said this, but is it possible that the world has changed in ways that make us far too over-conservative about stocks?

With all the buybacks and a dearth of new issues for many years, with big demographic changes and broad, worldwide macroeconomic changes (ie. globalization), could there be a massive mismatch in the number of equity shares available and the number of people with the ability and desire to own them?

Could what we call "froth" be the market starting to discover that the demand for stocks may be far greater than the supply?
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Re: In what ways could BogleHeads be badly wrong ?

Post by siamond » Sun Jan 28, 2018 10:00 am

Leesbro63 wrote:
Sun Jan 28, 2018 9:35 am
We’re not really encouraged to learn about money matters here in America either. Personally I find it appalling that kids can graduate high school, let alone college, without a course in personal finance.
This is side tracking a bit from the main thrust of this (excellent) thread, but I totally agree with you. Furthermore, very few enterprises encourage you (or assist you) to fill this knowledge gap.

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Re: In what ways could BogleHeads be badly wrong ?

Post by dbr » Sun Jan 28, 2018 10:01 am

siamond wrote:
Sun Jan 28, 2018 10:00 am
Leesbro63 wrote:
Sun Jan 28, 2018 9:35 am
We’re not really encouraged to learn about money matters here in America either. Personally I find it appalling that kids can graduate high school, let alone college, without a course in personal finance.
This is side tracking a bit from the main thrust of this (excellent) thread, but I totally agree with you. Furthermore, very few enterprises encourage you (or assist you) to fill this knowledge gap.
The one's that do are nefarious salesmen who use the opportunity as a means to prepare people to be fleeced.

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Re: In what ways could BogleHeads be badly wrong ?

Post by siamond » Sun Jan 28, 2018 10:04 am

dbr wrote:
Sun Jan 28, 2018 10:01 am
siamond wrote:
Sun Jan 28, 2018 10:00 am
Leesbro63 wrote:
Sun Jan 28, 2018 9:35 am
We’re not really encouraged to learn about money matters here in America either. Personally I find it appalling that kids can graduate high school, let alone college, without a course in personal finance.
This is side tracking a bit from the main thrust of this (excellent) thread, but I totally agree with you. Furthermore, very few enterprises encourage you (or assist you) to fill this knowledge gap.
The one's that do are nefarious salesmen who use the opportunity as a means to prepare people to be fleeced.
Yup, exactly right, been there too. I guess that Bogleheads' children are a very fortunate crew, with mentors (parents) eager to share such knowledge without having a conflict of interest.

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Re: In what ways could BogleHeads be badly wrong ?

Post by IlliniDave » Sun Jan 28, 2018 10:28 am

dbr wrote:
Sun Jan 28, 2018 9:44 am
IlliniDave wrote:
Sun Jan 28, 2018 9:39 am
In that context most of us feel the financial system of the entire world will not collapse around us. If we're wrong about that, that's about as badly wrong as we could be when it comes to the topic of investing. But that does not distinguish us from anyone else in the universe of financial investors.
I don't think that is a tenet of Boglehead Philosophy. Rather it is an obvious assumption about the context in which BH applies. No one would doubt that all bets are off if we assume an extreme enough situation. And you are right. It is not just BH but most of the known world we live in that is out the window in an extreme enough case.
I agree it is not specific to Bogleheads, it's a core belief of essentially all investors that bogleheads share. To not believe it and invest anyway is irrational. I only mentioned it because it was the only thread I could think of that being badly wrong about would be really bad. By virtue of accepting what the markets do (i.e., positioning for "average" results before fees) anything that goes systematically bad for bogleheads means most everyone else has experienced things going badly wrong for them too, so bogleheadism has no significant relative downside compared to other common/accessible approaches. Worst case, in the universe of investors the "perfect boglehead" comes out about average for their AA. Best case maybe a somewhat ahead by virtue of lower fees. For bogleheads to be badly wrong (systematically) requires that investing in traditional financial securities proves a bad idea. That is a possible outcome, and maybe a few prescient or lucky derivative specialists or market timers would come out ahead even then, but you're right, we,re starting to get into all bets are off territory there.
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Re: In what ways could BogleHeads be badly wrong ?

Post by rbaldini » Sun Jan 28, 2018 10:33 am

willthrill81 wrote:
Thu Jan 25, 2018 11:15 am
Regardless, it is undeniable, based on the data from the sample I provided, that the returns 'were what they were'. Again, this brings us back to whether this 'trend' will continue (i.e. stocks in an upward trend exhibit far less volatility than do stocks in a downward trend). I see no reason for this to change going forward, but that's just my opinion.
Here’s a good possible reason: once an easily predictable and profitable trend is discovered and widely publicized, it should be quickly eliminated by buyers and sellers looking to make money. Isn’t that what the EMH predicts? I’m not arguing this is true, but there’s your reason.

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Re: In what ways could BogleHeads be badly wrong ?

Post by CyclingDuo » Sun Jan 28, 2018 10:38 am

InvisibleAerobar wrote:
Wed Jan 24, 2018 3:41 pm
btenny wrote:
Wed Jan 24, 2018 12:29 pm
I think Boglehead philosophy is great and works great for most situations. BUT if we get high inflation and or even moderate inflation for an extended period stock and bond investors will most likely suffer. This happened in the 1970s. The market rose but inflation rose faster so net net stocks lost money. The same thing happened to bonds. So following Boglehead rules in the 1970s was not very good.

Just thinking back to how things progressed in those days gives me chills. I am too old to fight back and invest in other areas like I did back then.
So the question becomes, what would have been better (with perfect hindsight) and what could one do if something similar (to the events in the 70s) happens in the future? I wonder how people in Japan has made it out of the last two decades, given the anemic growth (and at times lack of even that).
http://pages.stern.nyu.edu/~adamodar/Ne ... retSP.html

S&P 500 Annual Total Returns (includes dividends) in the 1970's

1970 3.56%
1971 14.22%
1972 18.76%
1973 -14.31%
1974 -25.90%
1975 37.00%
1976 23.83%
1977 -6.98%
1978 6.51%
1979 18.52%
1980 31.74%
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Re: In what ways could BogleHeads be badly wrong ?

Post by thx1138 » Sun Jan 28, 2018 10:47 am

JonnyDVM wrote:
Sun Jan 28, 2018 9:04 am
Pandemics aside, I'm beginning to wonder if the secret to investing is to keep throwing money at the next potential big thing until you find the one that sticks.

I have a friend who has made 10X his initial investment in crypto. Told me to get into it shortly after Bitcoin started to climb but I dismissed it as stupid. He was turned onto it by someone who started with an initial 30k investment. In under a year that investment was worth more than my entire lifetime of savings.

Cryptocurrency investment is the antithesis of boglehead philosophy. The whole concept goes against every investing instict I know. We can talk theory all we want, but at the end of the day they are the ones holding huge sacks of money.
Insert "lottery tickets" for bitcoin and try the same logic. Or select any of hundreds of penny stocks with survivor bias.

You've got two bad behavioral errors on display here. First is confusing strategy for outcome. Second is preference for lottery like returns.

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Re: In what ways could BogleHeads be badly wrong ?

Post by aspirit » Sun Jan 28, 2018 10:48 am

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." Luckily most site participants know the sites widely heralded 3 or 4 fund portfolio's are just fine long term investments. Tilt or factor invest at your own peril.
Good luck!
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Re: In what ways could BogleHeads be badly wrong ?

Post by stan1 » Sun Jan 28, 2018 10:54 am

wolf359 wrote:
Thu Jan 25, 2018 9:32 am
2. There is a significant home country bias, particularly toward the US, in implementation. Many Bogleheads use Total US Stock Market or S&P 500 for most if not all of their equity exposure. If the United States loses a major world war (like Germany, Japan, France, Poland), or is subject to significant political upheaval (Russia and Eastern Europe during Communist era), or other changes which affect the US economy, this could be catastrophic for US-centric investors.
This is a myth. In actuality the group of people on this board who recommend to others against investing in international is a very, very small but sometimes vocal minority. Some used to argue that international investing was too expensive but Vanguard took care of that a decade ago. There are a few who do not invest in international themselves but if pressed on whether they would recommend the same to their grandchildren or great grandchildren they answer "I think they probably should". That's Jack Bogle's answer, too.

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Re: In what ways could BogleHeads be badly wrong ?

Post by willthrill81 » Sun Jan 28, 2018 11:10 am

rbaldini wrote:
Sun Jan 28, 2018 10:33 am
willthrill81 wrote:
Thu Jan 25, 2018 11:15 am
Regardless, it is undeniable, based on the data from the sample I provided, that the returns 'were what they were'. Again, this brings us back to whether this 'trend' will continue (i.e. stocks in an upward trend exhibit far less volatility than do stocks in a downward trend). I see no reason for this to change going forward, but that's just my opinion.
Here’s a good possible reason: once an easily predictable and profitable trend is discovered and widely publicized, it should be quickly eliminated by buyers and sellers looking to make money. Isn’t that what the EMH predicts? I’m not arguing this is true, but there’s your reason.
That logic doesn't work when it comes to trend following. The more that market participants implement it, the larger the effect will become.

If the random walk and EMH were completely accurate, I don't think it would be possible for trend following to work. But trend following has worked well.
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Re: In what ways could BogleHeads be badly wrong ?

Post by JonnyDVM » Sun Jan 28, 2018 11:11 am

thx1138 wrote:
Sun Jan 28, 2018 10:47 am
JonnyDVM wrote:
Sun Jan 28, 2018 9:04 am
Pandemics aside, I'm beginning to wonder if the secret to investing is to keep throwing money at the next potential big thing until you find the one that sticks.

I have a friend who has made 10X his initial investment in crypto. Told me to get into it shortly after Bitcoin started to climb but I dismissed it as stupid. He was turned onto it by someone who started with an initial 30k investment. In under a year that investment was worth more than my entire lifetime of savings.

Cryptocurrency investment is the antithesis of boglehead philosophy. The whole concept goes against every investing instict I know. We can talk theory all we want, but at the end of the day they are the ones holding huge sacks of money.
Insert "lottery tickets" for bitcoin and try the same logic. Or select any of hundreds of penny stocks with survivor bias.

You've got two bad behavioral errors on display here. First is confusing strategy for outcome. Second is preference for lottery like returns.


All investing is more or less gambling but with a positive expectation. We all try to land on the minimum amount of risk with the maximum amount of return. Perhaps we are doing it wrong. Maybe we should be looking at focusing part of our portfolios on investments with huge variance. We can call cryptocurrency a bubble. We can all thumb our noses at it. We can agree it's dumb. But we can't deny a lot of people have made a lot of money with it.
Sometimes the questions are complicated and the answers are simple. -Dr. Seuss

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Re: In what ways could BogleHeads be badly wrong ?

Post by rbaldini » Sun Jan 28, 2018 11:21 am

dbr wrote:
Thu Jan 25, 2018 3:32 pm
willthrill81 wrote:
Thu Jan 25, 2018 11:15 am

I understand that, but that argument, namely that annual returns are "samples from a hypothetical population of all possible returns" assumes that there is indeed a population of all possible returns to draw from. I'll admit that there's some sense to it, but make no mistake that that is an unproven assumption.
The word "assume" in the context of a theory does not mean what you probably are thinking it means. The issue in such a procedure is not whether or not the assumptions are proven or not but whether or not the conclusions derived from that theory are useful and not contradicted by facts. Even in the case the conclusions are contradicted by facts, theories are still kept on if they are "close enough" and/or when they provide valuable heuristics for organizing data and making predictions.
Guys, the *point* of a null hypothesis test is to test the validity of some unproven assumption. You have to assume a null model to calculate a p-value! The p-value is the probability of observing some statistic in the data (or a more extreme one) *if the null hypothesis were true*. If the p-value is moderately large, then it implies that the data is not inconsistent with the null. That's it. It doesn't prove the null true, of course, just doesn't provide strong evidence to refute it.

In our context, a p-value of 0.35 means that, if indeed the sequence of market returns were random independent normal variates, then we would have observed the trends in that data (or larger ones!) 35% of the time. This doesn't require you to believe that there is a in fact a stationary stochastic model generating returns! It just says that the data sample in this case is not inconsistent with that idea.

There are other papers that show statistical significant results, so I'm not trying to argue that the market is actually random. Just arguing statistics.

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Re: In what ways could BogleHeads be badly wrong ?

Post by visualguy » Sun Jan 28, 2018 11:26 am

Nate79 wrote:
Sun Jan 28, 2018 8:22 am
visualguy wrote:
Sat Jan 27, 2018 11:42 pm
technovelist wrote:
Fri Jan 26, 2018 1:01 am
If that is correct, then the Permanent Portfolio (PP) is even more agnostic about the future, since it doesn't assume that the extreme outlier called the "US stock market" will necessarily continue to be an outlier in the positive direction.
I don't know about PP, but I was just looking at the total international index, and reminded how the US is an outlier... The international index has never reached again its peak of 10/2007. Hopefully, it will reach it again soon, but that will be a period of over a decade.
If you invested $10k in Vanguard Total International Index fund in 10/2007 you had recovered by mid 2014. Perhaps you are playing around with price charts which is meaningless.
Why meaningless? Not reaching its previous peak again for over a decade (and still not there) is lousy. Even if you prefer to look at it with dividends, you would be at $12K now on a $10K investment in international in 2007, while you would be at $23K with US. The US has been in a completely different ballgame.

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Re: In what ways could BogleHeads be badly wrong ?

Post by willthrill81 » Sun Jan 28, 2018 11:28 am

rbaldini wrote:
Sun Jan 28, 2018 11:21 am
dbr wrote:
Thu Jan 25, 2018 3:32 pm
willthrill81 wrote:
Thu Jan 25, 2018 11:15 am

I understand that, but that argument, namely that annual returns are "samples from a hypothetical population of all possible returns" assumes that there is indeed a population of all possible returns to draw from. I'll admit that there's some sense to it, but make no mistake that that is an unproven assumption.
The word "assume" in the context of a theory does not mean what you probably are thinking it means. The issue in such a procedure is not whether or not the assumptions are proven or not but whether or not the conclusions derived from that theory are useful and not contradicted by facts. Even in the case the conclusions are contradicted by facts, theories are still kept on if they are "close enough" and/or when they provide valuable heuristics for organizing data and making predictions.
Guys, the *point* of a null hypothesis test is to test the validity of some unproven assumption. You have to assume a null model to calculate a p-value! The p-value is the probability of observing some statistic in the data (or a more extreme one) *if the null hypothesis were true*. If the p-value is moderately large, then it implies that the data is not inconsistent with the null. That's it. It doesn't prove the null true, of course, just doesn't provide strong evidence to refute it.

In our context, a p-value of 0.35 means that, if indeed the sequence of market returns were random independent normal variates, then we would have observed the trends in that data (or larger ones!) 35% of the time. This doesn't require you to believe that there is a in fact a stationary stochastic model generating returns! It just says that the data sample in this case is not inconsistent with that idea.

There are other papers that show statistical significant results, so I'm not trying to argue that the market is actually random. Just arguing statistics.
Your point is well taken.

My point was that using the data that I referenced, the returns and volatility of the market for the period investigated were, definitively, what they were. Whether this trend was statistically significant is a separate issue.

It's like conducting a census of a population and finding out that 52% exhibit one mutually exclusive trait (e.g. female), while the other 48% exhibit another (e.g. male). Depending on the intended use, statistics are generally inappropriate in this context because you know precisely what the underlying population parameters are. There is no need for using statistics to try to determine what the parameters were because the parameters are clearly known.
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Re: In what ways could BogleHeads be badly wrong ?

Post by rbaldini » Sun Jan 28, 2018 11:36 am

willthrill81 wrote:
Sun Jan 28, 2018 11:10 am
That logic doesn't work when it comes to trend following. The more that market participants implement it, the larger the effect will become.
That sounds a bit fanciful to me. You seem to be implying that if we all just believed in trend following, we could just make money forever (forgive me if I'm misunderstanding you). The market goes up, which is an upward trend, so everyone wants to buy more, which causes prices to go up, so everyone wants to buy more, ad infinitum. Can we will ourselves into eternal prosperity like this?

I think it's more like this: the trend right now is upward. Everyone is a trend follower, so they think the price will continue to rise. They'll very quickly shift more money out of bonds or real estate or whatever and into the stock market, to benefit from the anticipated rise. But the sudden demand for stock will cause the rise to happen *right now*, while buying is happening, rather in the anticipated future - so it's relatively hard to profit off of it. The price increase stops when everyone thinks the putting ever more into the market is no longer worth it (for other reasons, e.g. prices relative to earnings are now higher; or because they think they've "priced in" the trend enough). From there on, any future changes are no longer predictable.

So the theory goes, anyway. Now, you might not believe the market is very efficient, which is fine and defensible. But *if it were*, I don't buy the argument that trend following would somehow be immune to it.
willthrill81 wrote:
Sun Jan 28, 2018 11:10 am
If the random walk and EMH were completely accurate, I don't think it would be possible for trend following to work. But trend following has worked well.
Agreed. My point is that as easily actionable information is revealed to the world, a reasonably efficient market would incorporate it. In fact you might argue that as a market gets more information and technology, it becomes more efficient. We know more now than ever before, and we can act on information faster than ever before. Perhaps trend following worked in the past, but I wonder whether it will in the future now that it appears to be somewhat common knowledge.

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Re: In what ways could BogleHeads be badly wrong ?

Post by Lauretta » Sun Jan 28, 2018 12:34 pm

willthrill81 wrote:
Wed Jan 24, 2018 11:57 pm

As far as it being actionable, take a look at this graph from Portfolio Visualizer. A 10 month (~200 day) moving average is used with only one trade 'allowed' per month. When VTSMX is above the average, that's where all the money is. Otherwise, all of the money is moved into VBMFX. It's very simple and actionable. And this is just the result of data-mining as this type of strategy has been used for decades.

Image

Over this 24 year period, trend following smashed buy-and-hold with annual returns of 12.11% vs. 9.58% and a lower max drawdown of -17.57% vs. -50.89%. I do not expect identical performance going forward, but this kind of performance is in line with the table above. When stocks are in a downward trend, volatility goes up and returns go down. During this time, bonds are the 'safe haven'. When stocks are in an upward trend, volatility drops and returns go up.

Why then do more investors not do this? I believe it's primarily due to a lack of patience. During a bull market, buy-and-hold is very likely to beat trend following. This occurred during the bull market of the late 1990s and again in the current bull market. It's difficult for investors to see that they're lagging behind the total market, potentially for a decade or more. The fear of missing out is very real. But for those willing to pay that price, they have been spared from the worst ravages of bear markets and saved their portfolios from the big drawdowns.

I do not expect the absolute returns of trend following to exceed or even match those of buy-and-hold of equities going forward. But I believe it will continue to be a more efficient strategy than buying-and-holding balanced portfolios.
One issue with your back test is that the last 30 years were particularly good for trend following, because of the 2 huge bear markets. If the market goes sideways it doesn't work. I've discussed this with an academic who told me that a backtest for say 1945 till today would look much less impressive.
I also saw a paper by AQR comparing market timing to sinning and concluding that it's ok to sin - but only a little.
I agree with your last sentence, it might be a 'more efficient strategy than buying-and-holding balanced portfolios.' if the latter have lots of cash or bonds, and if you are prepared to put all your wealth in a trend following strategy (in the 1929 crash even with trend following one would have had a DD of more than 50% and there's no way of saying for certain what would happen in the future, so I wouldn't be confortable putting everything into this strategy).
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Re: In what ways could BogleHeads be badly wrong ?

Post by Nate79 » Sun Jan 28, 2018 12:55 pm

visualguy wrote:
Sun Jan 28, 2018 11:26 am
Nate79 wrote:
Sun Jan 28, 2018 8:22 am
visualguy wrote:
Sat Jan 27, 2018 11:42 pm
technovelist wrote:
Fri Jan 26, 2018 1:01 am
If that is correct, then the Permanent Portfolio (PP) is even more agnostic about the future, since it doesn't assume that the extreme outlier called the "US stock market" will necessarily continue to be an outlier in the positive direction.
I don't know about PP, but I was just looking at the total international index, and reminded how the US is an outlier... The international index has never reached again its peak of 10/2007. Hopefully, it will reach it again soon, but that will be a period of over a decade.
If you invested $10k in Vanguard Total International Index fund in 10/2007 you had recovered by mid 2014. Perhaps you are playing around with price charts which is meaningless.
Why meaningless? Not reaching its previous peak again for over a decade (and still not there) is lousy. Even if you prefer to look at it with dividends, you would be at $12K now on a $10K investment in international in 2007, while you would be at $23K with US. The US has been in a completely different ballgame.
I am not arguing that International is better than the US return. I'm saying that your statement that International has not recovered yet is blatantly false and is a typical misrepresentation of the data by harking on price return vs total return. Dividends are a fundamental part of the total return an investor would have received.

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Re: In what ways could BogleHeads be badly wrong ?

Post by survivor » Sun Jan 28, 2018 1:10 pm

I am new to this site and wish I had found it many years ago, I am confident I would have more money. I think the Bogleheads could be badly wrong on the future of bonds effect on their portfolio. I fear for those near retirement counting on a 3 or 4 percent SWR for 20 or more years. I don't think it is unrealistic to think that 20 years from now the stock market could be lower than it is today. For those that count on needing lots of money in retirement, I think of the fear I seen on many politicans, banksters, investors, etc back in 2007-2009. I can still see, in my mind,the look on Mohammad Alerians face, one morning on CNBC, when he said that he called his wife to go get cash out of the AMT, as he feared a complete freeze up of the financial system.

I like my plan better: no debt
SS covers 100% annual expenses
Part time job covers 100% annual expenses
Cash and cds covers 100% annual expenses till age 80 + 15 more years of stocks
Own house and land in a rural area, with lots of wild game, timber, artesian well, etc
Lots of tools and the skills to use them.
And last but not least plenty of guns and ammo.

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Re: In what ways could BogleHeads be badly wrong ?

Post by thx1138 » Sun Jan 28, 2018 1:18 pm

JonnyDVM wrote:
Sun Jan 28, 2018 11:11 am
All investing is more or less gambling but with a positive expectation.
What is the basis for a cryptocurrency to have positive expectation? All currency trades have zero expectation in fact...
We all try to land on the minimum amount of risk with the maximum amount of return. Perhaps we are doing it wrong.
We have quite a bit of evidence over multiple asset classes or multiple time periods that the risk adjusted return on things with low probability of extremely high pay off and high probability of losing the initial investment are really poor even if they have postive expectancy. So no we aren't doing it wrong and see the aforementioned behavioral error of being enamoured with "lottery like" returns. Even a lottery with positive expectancy is still a bad investment.
Maybe we should be looking at focusing part of our portfolios on investments with huge variance.
It's not the high variance that is the problem, it is the very unfavorable skew and kurtosis. Again "lottery like" returns are crap in a portfolio even with positive expectancy.
We can call cryptocurrency a bubble. We can all thumb our noses at it. We can agree it's dumb. But we can't deny a lot of people have made a lot of money with it.
And right back to the other behavioral error. The idiosyncratic outcome is a non-sequitor. Don't confuse a positive outcome with a good strategy.

Especially an outcome that hasn't even played out yet...

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Re: In what ways could BogleHeads be badly wrong ?

Post by visualguy » Sun Jan 28, 2018 1:21 pm

Nate79 wrote:
Sun Jan 28, 2018 12:55 pm
visualguy wrote:
Sun Jan 28, 2018 11:26 am
Nate79 wrote:
Sun Jan 28, 2018 8:22 am
visualguy wrote:
Sat Jan 27, 2018 11:42 pm
technovelist wrote:
Fri Jan 26, 2018 1:01 am
If that is correct, then the Permanent Portfolio (PP) is even more agnostic about the future, since it doesn't assume that the extreme outlier called the "US stock market" will necessarily continue to be an outlier in the positive direction.
I don't know about PP, but I was just looking at the total international index, and reminded how the US is an outlier... The international index has never reached again its peak of 10/2007. Hopefully, it will reach it again soon, but that will be a period of over a decade.
If you invested $10k in Vanguard Total International Index fund in 10/2007 you had recovered by mid 2014. Perhaps you are playing around with price charts which is meaningless.
Why meaningless? Not reaching its previous peak again for over a decade (and still not there) is lousy. Even if you prefer to look at it with dividends, you would be at $12K now on a $10K investment in international in 2007, while you would be at $23K with US. The US has been in a completely different ballgame.
I am not arguing that International is better than the US return. I'm saying that your statement that International has not recovered yet is blatantly false and is a typical misrepresentation of the data by harking on price return vs total return. Dividends are a fundamental part of the total return an investor would have received.
My statement was that the international index hasn't reached its peak again in over a decade (read carefully above) which is 100% accurate.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: In what ways could BogleHeads be badly wrong ?

Post by golfCaddy » Sun Jan 28, 2018 1:49 pm

There are several black swans that could prevent a boglehead from meeting their financial goals, although none of them would be a flaw in the CMH.

1) Returns could be far lower than their historical average. If a 50/50 portfolio returns 1-2% real over the next 20 years, that might be tolerable for a retiree with 25-30x expenses already saved. However, it would be devastating to a young accumulator trying to save 25-30x expenses.
2) Life expectancy could increase dramatically, although this is most likely for younger bogleheads. This is a positive black swan of sorts, but your typical SWR assumes a 30 year retirement. The MD bogleheads might have more insight than I do, but it seems at least plausible cancer will be cured in the next 30 years.
3) We could encounter widespread unemployment either due to the negative shock of another Great Depression, or the positive-ish shock of AI and robots eliminating large numbers of jobs, including in traditionally white collar occupations.
4) At the more extreme end, you can read Bernstein's retirement calculator from hell.
5) I think a major cyber attack is more likely than not at some point. However, I don't think there's much the average person can do to hedge against that possibility.

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