Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

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Taylor Larimore
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Rick Ferri's Investment Gems

Post by Taylor Larimore » Sun Jun 09, 2019 1:50 pm

nedsaid wrote:As far as Rick, his book "All About Asset Allocation" has been forgotten. Sort of like Mission Impossible message where the agent is warned that if captured that the Secretary will disavow all knowledge. The book has met that fate.
Nedsaid:

Your quote is very unfair -- and it is wrong. I am surprised you wrote it.

I own Rick's second edition of All About Asset Allocation published in 2006. It currently has 4 1/2 Amazon stars (out of 5). John Bogle wrote this endorsement:
All about Asset Allocation offers advice that is both prudent and practical--keep it simple, diversify, and above all, keep your expenses low--from an author who both knows how vital asset allocation is to investment success and, most important, works with real people."
I selected All About Asset Allocation for my Collection of Investment Gems. This is a link to Rick's many Gems, most of which are as important today as they were when the book was written:

All About Asset-Allocation.

After winning a large lawsuit from the firm that purchased Rick's former advisory business, we are fortunate that Rick recently returned to being a financial adviser.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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gmaynardkrebs
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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by gmaynardkrebs » Sun Jun 09, 2019 6:22 pm

nedsaid wrote:
Thu Jun 06, 2019 3:28 pm
I am deliberately underweighting the FAANG stocks.
I'm with you, but don't how. How would one do that (basically, a broad large-cap less FANG) using Vanguard or ETFs available through Vanguard?

columbia
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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by columbia » Sun Jun 09, 2019 6:27 pm

gmaynardkrebs wrote:
Sun Jun 09, 2019 6:22 pm
nedsaid wrote:
Thu Jun 06, 2019 3:28 pm
I am deliberately underweighting the FAANG stocks.
I'm with you, but don't how. How would one do that (basically, a broad large-cap less FANG) using Vanguard or ETFs available through Vanguard?
S&P 500 EX-TECHNOLOGY ETF
https://www.proshares.com/funds/spxt_index.html

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nedsaid
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Re: Rick Ferri's Investment Gems

Post by nedsaid » Sun Jun 09, 2019 8:53 pm

Taylor Larimore wrote:
Sun Jun 09, 2019 1:50 pm
nedsaid wrote:As far as Rick, his book "All About Asset Allocation" has been forgotten. Sort of like Mission Impossible message where the agent is warned that if captured that the Secretary will disavow all knowledge. The book has met that fate.
Nedsaid:

Your quote is very unfair -- and it is wrong. I am surprised you wrote it.

I own Rick's second edition of All About Asset Allocation published in 2006. It currently has 4 1/2 Amazon stars (out of 5). John Bogle wrote this endorsement:
All about Asset Allocation offers advice that is both prudent and practical--keep it simple, diversify, and above all, keep your expenses low--from an author who both knows how vital asset allocation is to investment success and, most important, works with real people."
I selected All About Asset Allocation for my Collection of Investment Gems. This is a link to Rick's many Gems, most of which are as important today as they were when the book was written:

All About Asset-Allocation.

After winning a large lawsuit from the firm that purchased Rick's former advisory business, we are fortunate that Rick recently returned to being a financial adviser.

Best wishes.
Taylor
Hi Taylor:

I own Rick's book and enjoyed it. I thought it was an excellent work. Granted, it was written some years ago and Rick has refined his thinking to some degree since. People are entitled to change their minds on things. I just reacted to Rick acting as if he had never written the book, wondering aloud why we spend much time even talking about factors. Rick was one of the influencers who convinced me the efficacy of Small/Value tilting some years ago. Things just sort of disappeared down the old memory hole.

This got started when Rick made a comment about the "Larry portfolio." He wondered which one it was since Larry had so many. He gave Larry the raspberries for changing his mind on things. I then reminded Rick of his book, which advocated Small-Value tilting. I did remind Rick that his own thinking had changed a bit over the years. I didn't mention that he also has put out a number of model portfolios himself. Sort of like standing at the plate and seeing a high, hanging curveball. I just couldn't resist taking a swing at a fat pitch. Knocked it over the deep centerfield fence.

I googled "Rick Ferri Small-Cap Value" and got this link:

https://www.forbes.com/sites/rickferri/ ... a28e2a1179

Larry Swedroe or Paul Merriman could have written this article. Rick said this in the article,
"The academic research supporting small-cap value exposure is robust." Now it seems that Rick is
more 3 fund than the Boglemeister himself. More Bogle than thou.

In fairness to Rick, his portfolios were not complex, certainly simpler than Paul Merriman's. His books were written with what was known at the time. He is a good author and I would recommend his work to others. He is a recommended author here and I would add my endorsement to his writings.

I also have read his posts faithfully here over the years. He did post once that he thought the premiums from factor tilts would about cover his fees. Rick also posted something like that the older that he got, the more he saw the wisdom in simpler portfolios. So I could see the refinements to his thinking.

I am very grateful that Rick has returned full force to the forum. I am also glad that he is back in the advisory business and am certain that he serves his clients well.
Last edited by nedsaid on Sun Jun 09, 2019 9:43 pm, edited 4 times in total.
A fool and his money are good for business.

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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by nedsaid » Sun Jun 09, 2019 8:56 pm

columbia wrote:
Sun Jun 09, 2019 6:27 pm
gmaynardkrebs wrote:
Sun Jun 09, 2019 6:22 pm
nedsaid wrote:
Thu Jun 06, 2019 3:28 pm
I am deliberately underweighting the FAANG stocks.
I'm with you, but don't how. How would one do that (basically, a broad large-cap less FANG) using Vanguard or ETFs available through Vanguard?
S&P 500 EX-TECHNOLOGY ETF
https://www.proshares.com/funds/spxt_index.html
Well!!! There is an ETF for everything. Didn't even know such a thing existed.

Actually I have underweighted the FAANG stocks with my Mid/Small-Cap and Value tilts with my portfolio.
A fool and his money are good for business.

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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by larryswedroe » Sun Jun 09, 2019 10:14 pm

Just to set the record straight, the Larry Portfolio was phrased coined by NYT author Ron Lieber to reflect my equity allocation which was all small value (EM value since no small value fund) and then all high quality safe bonds. That is still the same "larry portfolio" which simply meant a high tilt and low equity portfolio. Now one could add alts as I have since then, noting they were not available then. But not necessary. So the "Larry Portfolio" is unchanged. Just means high tilt and low beta. And I would add it is as simple as the TSM portfolio as only need two to implement. Nothing at all complex about it. Could for example do DWUSX and DSFVX or two similar funds

Larry

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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by nedsaid » Sun Jun 09, 2019 10:44 pm

Day9 wrote:
Sun Jun 09, 2019 12:49 pm
nedsaid wrote:
Sun Jun 09, 2019 11:05 am
...It would seem to me that to get the proper factor diversification, one needs the Alts and probably a good helping, maybe 10%, of a Style Premia type of fund. It also seems like one needs to take more extreme tilts. My tilts have been rather cautious. No matter what you do, it seems to be that a long-only portfolio will be dominated by market beta both in terms of return and risk. One might need to get some long/shorts in there unless I went all-in on the equity side with Small-Value like the "Larry portfolio." I am beginning to wonder if this is a "go big or go home" type of thing. My problem is that I probably have been too timid.
You are probably right which is why Mr Swedroe has been talking about alts beyond the one you mentioned like Stone Ridge Reinsurance and Alternative Lending. But I also think you are right you can get there without these alts if you go all in on deep small value funds (e.g. DFA Small Value instead of DFA Core, Targeted Value, or Vector Equity), and also greatly reduce your overall stock allocation and greatly increase your safe bond allocation. Increasing duration risk loading and decreasing market beta gets you closer to a risk parity portfolio. Mr Swedroe has said on this forum that he has a very low stock allocation himself. At least having the market weight in international developed and emerging might help too since these probably have higher expected return (and risk) going forward so adding those to a home-biased portfolio while simultaneously reducing your overall stock allocation would achieve the same thing.

So I also get the sense it is "go big or go home" and also it is only for someone where a low stock/high bond allocation is appropriate (certain levels of need, ability, and willingness to take risk). If you have to be 80 stock / 20 bond, unleveraged, long only, then I can't see how to avoid the portfolio being dominated by market beta.
Thanks for your comments. I went back through my New 'Doo thread where I post about my own portfolio and how it has performed. It would seem that with my relatively mild tilts that the factor drag was maybe 1% a year across my entire portfolio over the last decade. Hopefully, whenever the factors come back my factor premiums will exceed that 1%. This seems rational as Value has been on a 10 year vacation. I have a higher stock allocation than Larry, I am at 65% right now.

The other possibility is that I didn't pick my investments very well, maybe an incompetence drag. But most of the factor products I bought were recommended by experts. So maybe expert drag. The great T-Shirt philosopher once said, "If at first you try and don't succeed, blame somebody." It just feels better blaming the experts.

So hard to say on the question of how extreme factor tilts should be. My untrained eye would say that my relatively mild tilts still had an effect. My hunch is that it is hard to reduce market beta risk to the level of risk from other factors in the portfolio. In a perfect portfolio your returns and risk should equally come from the factors of Market, Size, Value, Quality, and Momentum. In actual practice it seems that Market beta still predominates despite the efforts to diversify it away, judging from Random Walker's observation about how much of the variability in his portfolio seems connected to stocks even after his tilts and alts. But again, Buckingham has done all they know to do.

Research would indicate that diversification across factors helps portfolio performance during secular bear markets like 1968-1984 and 2000-2012, the markets were essentially flat during those time periods. In the short run, almost anything can happen but over longer time periods, factor diversification should work quite well.

I think Larry is correct on factor diversification.
Last edited by nedsaid on Mon Jun 10, 2019 8:25 am, edited 1 time in total.
A fool and his money are good for business.

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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by gmaynardkrebs » Mon Jun 10, 2019 7:10 am

nedsaid wrote:
Sun Jun 09, 2019 8:56 pm
columbia wrote:
Sun Jun 09, 2019 6:27 pm
gmaynardkrebs wrote:
Sun Jun 09, 2019 6:22 pm
nedsaid wrote:
Thu Jun 06, 2019 3:28 pm
I am deliberately underweighting the FAANG stocks.
I'm with you, but don't how. How would one do that (basically, a broad large-cap less FANG) using Vanguard or ETFs available through Vanguard?
S&P 500 EX-TECHNOLOGY ETF
https://www.proshares.com/funds/spxt_index.html
Well!!! There is an ETF for everything. Didn't even know such a thing existed.

Actually I have underweighted the FAANG stocks with my Mid/Small-Cap and Value tilts with my portfolio.
Except, this one seems to inlude Amazon, Alphabet and Facebook. Not sure why.
Amazon.com Inc. 3.67%
Berkshire Hathaway Inc.-Class B 2.36%
Johnson & Johnson 2.06%
JPMorgan Chase & Co. 1.93%
Alphabet Inc.-Class C 1.90%
Facebook Inc.-Class A 1.88%
Alphabet Inc.-Class A 1.86%
Exxon Mobil Corp. 1.72%
Pfizer Inc. 1.50%
UnitedHealth Group Inc. 1.43%

columbia
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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by columbia » Mon Jun 10, 2019 7:14 am

That’s curious.

I think the real answer is: not easily.

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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by chisey » Mon Jun 10, 2019 7:49 am

gmaynardkrebs wrote:
Mon Jun 10, 2019 7:10 am
Except, this one seems to inlude Amazon, Alphabet and Facebook. Not sure why.
None of them are in the tech sector. Amazon is Consumer Discretionary, and Alphabet and Facebook are Communication Services.

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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by nedsaid » Mon Jun 10, 2019 8:23 am

gmaynardkrebs wrote:
Mon Jun 10, 2019 7:10 am
nedsaid wrote:
Sun Jun 09, 2019 8:56 pm
columbia wrote:
Sun Jun 09, 2019 6:27 pm
gmaynardkrebs wrote:
Sun Jun 09, 2019 6:22 pm
nedsaid wrote:
Thu Jun 06, 2019 3:28 pm
I am deliberately underweighting the FAANG stocks.
I'm with you, but don't how. How would one do that (basically, a broad large-cap less FANG) using Vanguard or ETFs available through Vanguard?
S&P 500 EX-TECHNOLOGY ETF
https://www.proshares.com/funds/spxt_index.html
Well!!! There is an ETF for everything. Didn't even know such a thing existed.

Actually I have underweighted the FAANG stocks with my Mid/Small-Cap and Value tilts with my portfolio.
Except, this one seems to inlude Amazon, Alphabet and Facebook. Not sure why.
Amazon.com Inc. 3.67%
Berkshire Hathaway Inc.-Class B 2.36%
Johnson & Johnson 2.06%
JPMorgan Chase & Co. 1.93%
Alphabet Inc.-Class C 1.90%
Facebook Inc.-Class A 1.88%
Alphabet Inc.-Class A 1.86%
Exxon Mobil Corp. 1.72%
Pfizer Inc. 1.50%
UnitedHealth Group Inc. 1.43%
There were changes made in the composition of the sectors in the S&P 500, if I remember correctly, the changes were made during September 2018. The Telecommunications sector was eliminated and replaced with the Communications sector. So Facebook, Google, and Netflix are in the new Communications sector. I see above that Amazon is in Consumer Discretionary.
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Re: Larry Swedroe: The Re-Death of Value, or Deja Vu All Over

Post by abuss368 » Tue Jun 11, 2019 7:55 pm

Random Walker wrote:
Tue Jun 04, 2019 7:59 pm
https://alphaarchitect.com/2019/06/04/t ... -all-over/
He has a detailed reminder that a decade is a short period of time when looking at financial data.
In my opinion this is key. A decade is a short period of time. Consider the 10 year bull market. What is there is a decade of decreasing or increasing interest rates. Investors have to be willing to stay the course with a strategy over the long haul.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

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