Small Cap Value heads Rejoice !!!

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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 » Thu Jul 30, 2020 10:15 pm

vencat wrote:
Thu Jul 30, 2020 9:52 pm
abuss368 wrote:
Thu Jul 30, 2020 8:51 pm
J G Bankerton wrote:
Thu Jul 30, 2020 10:52 am
I must bid you all ado; I sold my value and bought growth. I tried but I don't see a change in momentum for the foreseeable future.
I wish you all good luck and may your portfolios increase. :beer
Jack Bogle has advised in nearly all his books to avoid any bet on sectors or styles, including value vs. growth.

Try not to focus on finding the needle in the haystack but rather own the entire haystack. Total Stock and Bond are excellent choices.
Why does your entire haystack not include Total World stock market?
For the reasons Mr. Bogle has explained.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 » Thu Jul 30, 2020 11:01 pm

000 wrote:
Tue Jul 28, 2020 8:49 pm
vineviz wrote:
Tue Jul 28, 2020 8:48 pm
000 wrote:
Tue Jul 28, 2020 7:54 pm
I am willing to consider historical trials of investing that are long enough. 200 years isn't enough.
I'm sorry, I didn't recognize that you were just here to troll us. My mistake.

Carry on.
No, I am not a troll. I'll note you still have not provided a satisfactory answer to the question underlying this whole discussion which is: how to gauge future risks.

I think we won't reach a satisfactory resolution to this, so I don't plan to respond further to this subthread.
You can very rarely predict anything _exactly_ right. How many heads will you get if you flip a coin 10000 times?

Even if you cannot exactly predict returns, you must be able to assign _some_ probability to certain events occurring and can make some reasonable assumptions about future standard deviations and correlations based on (gasp) backtesting. You can even create worst-case scenarios for yourself, perhaps simulating over a range of different future correlations, different future standard deviations, different future return premiums etc.

If you can't accept that you need to make at least a few assumptions, how do you walk outside without fearing the probability that a meteor will land on you?

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Re: Small Cap Value heads Rejoice !!!

Post by 000 » Thu Jul 30, 2020 11:12 pm

muffins14 wrote:
Thu Jul 30, 2020 11:01 pm
You can very rarely predict anything _exactly_ right. How many heads will you get if you flip a coin 10000 times?
I won't know until I do it. Moreover, this is a false analogy as the behavior of capital markets and human society at a large scale is very dissimilar to flipping a coin.
muffins14 wrote:
Thu Jul 30, 2020 11:01 pm
Even if you cannot exactly predict returns, you must be able to assign _some_ probability to certain events occurring and can make some reasonable assumptions about future standard deviations and correlations based on (gasp) backtesting.
Well that's the whole question. For example, what do past market/political/social circumstances tell us about whether small or large cap stocks are more likely to face adverse regulatory risk over the next 20 years? What is the probability of it going one way or the other? If you, vineviz, or anyone else knows, give me a number.
muffins14 wrote:
Thu Jul 30, 2020 11:01 pm
You can even create worst-case scenarios for yourself, perhaps simulating over a range of different future correlations, different future standard deviations, different future return premiums etc.
Backtesting gives us anecdotes. We do not have enough data to gauge probabilities. More importantly, we only get one outcome, not all the outcomes that might happen.
muffins14 wrote:
Thu Jul 30, 2020 11:01 pm
If you can't accept that you need to make at least a few assumptions, how do you walk outside without fearing the probability that a meteor will land on you?
Another false analogy. Astronomy is an ancient and well-established science. Its predicative power of the movement of heavenly bodies is very strong. The predicative power of economics is not. As far as the meteor question, I live my life by accepting that I do not have control over many things that happen to me and we all die eventually.
Last edited by 000 on Thu Jul 30, 2020 11:21 pm, edited 2 times in total.

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Re: Small Cap Value heads Rejoice !!!

Post by abuss368 » Thu Jul 30, 2020 11:19 pm

Buy the stack! I gave up on sector and style funds after reading Jack Bogle’s books. Growth v Value makes no sense when one can buy the haystack!
Last edited by abuss368 on Sat Aug 01, 2020 9:57 am, edited 1 time in total.
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Thu Jul 30, 2020 11:41 pm

Both the "buy the haystack but only half of the haystack" and the "economics is not a science because you cannot perfectly predict it" crowds are kinda bumming me out.

I feel like we've lost sight of our true goal here fellas. To rejoice at the sweet, sweet SCV bargains.

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.

Paycheck hitting tonight, getting ready to get myself some FNDC shares. PB under 1.0? Uh yes please.
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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver » Fri Jul 31, 2020 9:11 am

I still follow this thread, but tend to ignore most of the posts that don't fit the theme of rejoicing over SCV. I added to my SCV positions 2 days ago.

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Re: Small Cap Value heads Rejoice !!!

Post by vineviz » Fri Jul 31, 2020 9:56 am

Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm
Both the "buy the haystack but only half of the haystack" and the "economics is not a science because you cannot perfectly predict it" crowds are kinda bumming me out.
I find it mildly amusing that it’s always the folks who say “nobody knows anything” who can’t refrain from telling us how smart they are.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid » Fri Jul 31, 2020 10:33 am

Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.
Well, my posting has been very ineffective. I tried to get a Small Value panic going and to my utter dismay read that Garland Whizzer was actually buying MORE Small Value. Some capitulation that was! My relentless teasing didn't work and as far as I know Random Walker and Vineviz haven't faltered a bit either. Even sticking pins in my Larry Swedroe voodoo doll didn't work, he keeps talking about the factors on Twitter. So far no tearful confessions that he had been wrong all along. Sigh. All my reverse trolling egging on the trolls on the Small Value threads actually did seem to work, don't see as much of them here. I was trying to egg them on to help create a panic out of Small Value but they just sort of got bored and went away. I don't know, I pushed the limits here, I guess I need to do something really on edge like drinking out of expired milk cartons or driving 56 MPH in a 55 MPH zone. I was born to be mild. Anywho, I have had lots and lots of fun with this.
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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid » Fri Jul 31, 2020 10:41 am

The other thing I hadn't thought about until now is that there might be a bit of the "Larry Swedroe effect", in other words things work until Larry writes about them. I was just at his Twitter feed and a recent article on Alpha Architect has him doubling down on Value.

The article summary is here:
Israel, Laursen, and Richardson examined criticisms of value investing, including increased share repurchase activity, the changing nature of firm activities, the rise of ‘intangibles’ and the impact of conservative accounting systems, the changing nature of monetary policy and the potential impact of lower interest rates, and value measures are too simple to work, and found little empirical evidence to support them. They provided two other important observations. The first is the strong evidence that fundamentals matter for stock prices and the underperformance of value in recent years cannot be explained by deteriorating fundamentals. The second is that even if value provided no premium, the diversification benefits provided by negative correlation of the value premium with other common factors (market beta, momentum, profitability, and quality) should lead investors to include an allocation to the value factor.
https://alphaarchitect.com/2020/07/30/i ... value-dead

Darn it Larry, you aren't helping the cause here.
A fool and his money are good for business.

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Re: Small Cap Value heads Rejoice !!!

Post by caklim00 » Fri Jul 31, 2020 10:55 am

nedsaid wrote:
Fri Jul 31, 2020 10:33 am
Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.
Well, my posting has been very ineffective. I tried to get a Small Value panic going and to my utter dismay read that Garland Whizzer was actually buying MORE Small Value. Some capitulation that was! My relentless teasing didn't work and as far as I know Random Walker and Vineviz haven't faltered a bit either. Even sticking pins in my Larry Swedroe voodoo doll didn't work, he keeps talking about the factors on Twitter. So far no tearful confessions that he had been wrong all along. Sigh. All my reverse trolling egging on the trolls on the Small Value threads actually did seem to work, don't see as much of them here. I was trying to egg them on to help create a panic out of Small Value but they just sort of got bored and went away. I don't know, I pushed the limits here, I guess I need to do something really on edge like drinking out of expired milk cartons or driving 56 MPH in a 55 MPH zone. I was born to be mild. Anywho, I have had lots and lots of fun with this.
I think its that most of the SCV folks probably are more immune to noise. It could ultimately cause me to lag my peers but doubt it will cause me to live out of a cardboard box.

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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid » Fri Jul 31, 2020 11:00 am

caklim00 wrote:
Fri Jul 31, 2020 10:55 am
nedsaid wrote:
Fri Jul 31, 2020 10:33 am
Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.
Well, my posting has been very ineffective. I tried to get a Small Value panic going and to my utter dismay read that Garland Whizzer was actually buying MORE Small Value. Some capitulation that was! My relentless teasing didn't work and as far as I know Random Walker and Vineviz haven't faltered a bit either. Even sticking pins in my Larry Swedroe voodoo doll didn't work, he keeps talking about the factors on Twitter. So far no tearful confessions that he had been wrong all along. Sigh. All my reverse trolling egging on the trolls on the Small Value threads actually did seem to work, don't see as much of them here. I was trying to egg them on to help create a panic out of Small Value but they just sort of got bored and went away. I don't know, I pushed the limits here, I guess I need to do something really on edge like drinking out of expired milk cartons or driving 56 MPH in a 55 MPH zone. I was born to be mild. Anywho, I have had lots and lots of fun with this.
I think its that most of the SCV folks probably are more immune to noise. It could ultimately cause me to lag my peers but doubt it will cause me to live out of a cardboard box.
I have posted a lot about my own investment results. I have probably trailed the 3 fund portfolio investing in similar proportions to my own by maybe 1.5% a year since the 2008-2009 financial crisis and bear market. My investment returns have been very acceptable albeit a bit disappointing, I won't be eating cat food anytime soon. If you have a Value tilt in a Growth stock market, you just are not going to beat the market no matter what you do. Value tilts worked great in the 2000's but not in the 2010's.
A fool and his money are good for business.

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Re: Small Cap Value heads Rejoice !!!

Post by J G Bankerton » Fri Jul 31, 2020 11:53 am

Massdriver wrote:
Fri Jul 31, 2020 9:11 am
I still follow this thread, but tend to ignore most of the posts that don't fit the theme of rejoicing over SCV. I added to my SCV positions 2 days ago.
There is no joy in VBR. I gave it a fling when it had its week but the handwriting is on the wall.

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Jul 31, 2020 12:20 pm

Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm
Both the "buy the haystack but only half of the haystack" and the "economics is not a science because you cannot perfectly predict it" crowds are kinda bumming me out.

I feel like we've lost sight of our true goal here fellas. To rejoice at the sweet, sweet SCV bargains.

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.

Paycheck hitting tonight, getting ready to get myself some FNDC shares. PB under 1.0? Uh yes please.
Couldn't agree more. I like your way of framing it though; we can't rejoice at returns right now so let's enjoy the bargains!

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Re: Small Cap Value heads Rejoice !!!

Post by Ketawa » Fri Jul 31, 2020 1:32 pm

I'm rejoicing that 2020 performance has enabled my domestic SCV fund, QSMLX, to pull ahead of alternatives like VBR, IJS, RZV, and DFSVX since the inception of QSMLX. Link here. QSMLX is a multi-factor fund (small, value, momentum, quality).

Image

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Jul 31, 2020 1:44 pm

Ketawa wrote:
Fri Jul 31, 2020 1:32 pm
I'm rejoicing that 2020 performance has enabled my domestic SCV fund, QSMLX, to pull ahead of alternatives like VBR, IJS, RZV, and DFSVX since the inception of QSMLX. Link here. QSMLX is a multi-factor fund (small, value, momentum, quality).

Nice lead take-over! Also nicely done to not include a broad (large-cap) index in that comparison :D .

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Re: Small Cap Value heads Rejoice !!!

Post by Massdriver » Fri Jul 31, 2020 1:55 pm

J G Bankerton wrote:
Fri Jul 31, 2020 11:53 am
Massdriver wrote:
Fri Jul 31, 2020 9:11 am
I still follow this thread, but tend to ignore most of the posts that don't fit the theme of rejoicing over SCV. I added to my SCV positions 2 days ago.
There is no joy in VBR. I gave it a fling when it had its week but the handwriting is on the wall.
Are you retired or accumulating? If you are accumulating, it's a chance to buy more.

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Re: Small Cap Value heads Rejoice !!!

Post by J G Bankerton » Fri Jul 31, 2020 3:31 pm

Massdriver wrote:
Fri Jul 31, 2020 1:55 pm
J G Bankerton wrote:
Fri Jul 31, 2020 11:53 am
Massdriver wrote:
Fri Jul 31, 2020 9:11 am
I still follow this thread, but tend to ignore most of the posts that don't fit the theme of rejoicing over SCV. I added to my SCV positions 2 days ago.
There is no joy in VBR. I gave it a fling when it had its week but the handwriting is on the wall.
Are you retired or accumulating? If you are accumulating, it's a chance to buy more.
I'm retired and accumulating; I don't think I have enough time left to wait for small value. :(

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Jul 31, 2020 3:53 pm

J G Bankerton wrote:
Fri Jul 31, 2020 3:31 pm
Massdriver wrote:
Fri Jul 31, 2020 1:55 pm
J G Bankerton wrote:
Fri Jul 31, 2020 11:53 am
Massdriver wrote:
Fri Jul 31, 2020 9:11 am
I still follow this thread, but tend to ignore most of the posts that don't fit the theme of rejoicing over SCV. I added to my SCV positions 2 days ago.
There is no joy in VBR. I gave it a fling when it had its week but the handwriting is on the wall.
Are you retired or accumulating? If you are accumulating, it's a chance to buy more.
I'm retired and accumulating; I don't think I have enough time left to wait for small value. :(
Assuming you are being genuine (lot of sarcasm in this thread) I don't think you have the temperament for these factor tilts. Having said that, I personally would wager the 3-5 year outlook for value looks a lot better than growth/market-cap. Doesn't mean it'll happen that way, especially if the virus situation worsens.

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Re: Small Cap Value heads Rejoice !!!

Post by J G Bankerton » Fri Jul 31, 2020 4:15 pm

MotoTrojan wrote:
Fri Jul 31, 2020 3:53 pm
Assuming you are being genuine (lot of sarcasm in this thread) I don't think you have the temperament for these factor tilts. Having said that, I personally would wager the 3-5 year outlook for value looks a lot better than growth/market-cap. Doesn't mean it'll happen that way, especially if the virus situation worsens.
Oh, I have 15 years left according to Social Security. That is if I stay away rave parties and wear my mask.

I held foreign VXUS for years even keeping the AA at 20% for a year as it went into free fall. That and my age made me short on temperament. I have to get a return cushion, if it falls behind out it goes. My switch to large cap growth gave me a comfortable return cushion, enough of a cushion to give me time to avoid a loss if the S&P starts to out perform it.

My animal spirit thought small value was going to take off, he doesn't feel it anymore. May all our boats rise with the coming tide.

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Re: Small Cap Value heads Rejoice !!!

Post by Fallible » Fri Jul 31, 2020 5:01 pm

000 wrote:
Tue Jul 28, 2020 7:54 pm
vineviz wrote:
Tue Jul 28, 2020 7:13 pm
000 wrote:
Tue Jul 28, 2020 5:30 pm

Is investing a science?
Investing is an applied field of financial economics, why CJ is a science.
Not sure for what CJ stands sorry.
vineviz wrote:
Tue Jul 28, 2020 7:13 pm
Investors use financial economics in the same way that doctors use biology and chemistry.

Would you trust a doctor who said that corndogs were just as healthy as raw carrots, but refuses to tell you what they meant by “healthy” and tells you they don’t believe in historical trials?
False analogy. The physiology of the human body is much more constant than the performance of capital markets. In other words, biological evolution is much slower than social evolution and the performance of investments -- other than ones you directly control yourself -- is a function of society. I am willing to consider historical trials of investing that are long enough. 200 years isn't enough.

If we accept the premise that investing is a science, then we must conclude it is a young science and we don't have enough data yet to draw many meaningful conclusions.
Jack Bogle said "Investing is not a science. It is a human activity that involves both emotional as well as rational behavior. Financial markets are far too complex to isolate any single variable with ease, as if conducting a scientific experiment."

WSJ columnist Jason Zweig weighs in on the subject in his book "Your Money & Your Brain," and there was a good thread on it back in 2013, "Investing: Is it an art or a science?"
ttps://www.bogleheads.org/forum/viewtopic.php?t=117137
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Re: Small Cap Value heads Rejoice !!!

Post by vineviz » Fri Jul 31, 2020 5:26 pm

Fallible wrote:
Fri Jul 31, 2020 5:01 pm

Jack Bogle said "Investing is not a science. It is a human activity that involves both emotional as well as rational behavior. Financial markets are far too complex to isolate any single variable with ease, as if conducting a scientific experiment."

WSJ columnist Jason Zweig weighs in on the subject in his book "Your Money & Your Brain," and there was a good thread on it back in 2013, "Investing: Is it an art or a science?"
ttps://www.bogleheads.org/forum/viewtopic.php?t=117137

If Zweig wrote that column today we’d accuse the WSJ of using a clickbait headline.

Art vs science is a false dichotomy, and a distraction from any discussion of merit. What difference does it make? What information does that question provide?

Biology is a science, but don’t try to use it to determine with certainty which branch a flying bird will land on. Or how many days it will take for your antibiotics to get your infection under control. Or how many freckles your child will have on their face.

Economics is a science, and anyone who is not trolling you will concede that. Are there differences between the physical sciences and the social sciences? Absolutely.

Is “investing” a science? I don’t think so, but I also don’t much care. The important thing, to me, is that having a better grasp of mathematics and science makes investing more comprehensible. Just like having a grasp of physics makes golf more comprehensible, even if golf itself is not a science.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid » Fri Jul 31, 2020 6:03 pm

Fallible wrote:
Fri Jul 31, 2020 5:01 pm

Jack Bogle said "Investing is not a science. It is a human activity that involves both emotional as well as rational behavior. Financial markets are far too complex to isolate any single variable with ease, as if conducting a scientific experiment."

WSJ columnist Jason Zweig weighs in on the subject in his book "Your Money & Your Brain," and there was a good thread on it back in 2013, "Investing: Is it an art or a science?"
ttps://www.bogleheads.org/forum/viewtopic.php?t=117137
I fall into the behavioral camp, pretty much I have made comments here similar to Bogle's. Comments about putting the market on the couch, comments that investing is not a math equation or an engineering problem to be solved. Sometimes my comments would indicate that I think of quants sometimes as "mad scientists." On the other hand, quantitative analysis of securities is very helpful. If I ran an investing firms, I would employ quants even if I was a bit suspicious of their conclusions.

My take is that investing employs science like principles and the behavior of markets can be explained in mathematical terms. So it in my mind is a sort of science or a soft science. From all of the quantitative analysis, you can build portfolio models and attempt to optimize risk vs. reward. Problem is, we don't know the future but having an informed and educated guess is far better than nothing. I have nothing against the Quants as long as we recognize that there are limitations.

Sort of reminds me of listening to Bill Russell, the famed former Boston Celtics center, provide commentary on NBA games. Pretty much his analysis was either that the team was "in rhythm or out of rhythm." Certainly, there is sort of an ebb and flow to sports and Russell's description capture a lot of what goes on but there is more to it than that. A purely behavioral explanation of markets falls short, more to it than the market being "in rhythm or out of rhythm." Markets really are rational most of the time. On the other hand, the quant models fall short at times because people and markets can do really weird things at the worst possible time. There is sort of a wild card of human behavior. Another thing is that investor preferences change over time.

So I am somewhere in the middle here. The behavioral camp probably thinks I am wishy washy and the quants think that I am a crank. But I suppose, I am what I am, that is the way that I think. I also listen to experts but always with a bit of skepticism.
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Re: Small Cap Value heads Rejoice !!!

Post by Fallible » Fri Jul 31, 2020 6:50 pm

vineviz wrote:
Fri Jul 31, 2020 5:26 pm
Fallible wrote:
Fri Jul 31, 2020 5:01 pm

Jack Bogle said "Investing is not a science. It is a human activity that involves both emotional as well as rational behavior. Financial markets are far too complex to isolate any single variable with ease, as if conducting a scientific experiment."

WSJ columnist Jason Zweig weighs in on the subject in his book "Your Money & Your Brain," and there was a good thread on it back in 2013, "Investing: Is it an art or a science?"
ttps://www.bogleheads.org/forum/viewtopic.php?t=117137
If Zweig wrote that column today we’d accuse the WSJ of using a clickbait headline.

Art vs science is a false dichotomy, and a distraction from any discussion of merit. What difference does it make? What information does that question provide? ...
Since the question whether investing is art or science or both has been taken up by investing legends, top financial authors, and pro and non-pro investors over the years, it does seem to be addressing something important. I think that something is the ongoing need to understand and deal effectively with the emotions and cognitive biases that can negatively affect our investing decisions. Adding to the comments from Jack Bogle (above) and others, here's Larry Swedroe on the subject, writing in 2013 about framing (I bolded the pertinent last sentence):
It’s my experience that there are two keys to being able to maintain control over those urges that get investors into trouble. The first is to understand financial history. That means knowing that stocks are high risk investments, subject to large losses (we’ve had three bear markets with losses of about 50 percent or more in the last 40 years), and serious crises come with great frequency. Forewarned that regular crises are the norm in investing enables you to be emotionally prepared to deal with them.

The second key is that in order to deal with the many crises, and the bear markets that accompany them, you have to make sure that you don’t take more risk than you have the ability, willingness, and need to take. As you’ll see, finding this sweet spot is more art than science.
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle

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Re: Small Cap Value heads Rejoice !!!

Post by LadyGeek » Fri Jul 31, 2020 7:19 pm

Although the debate of "Is it science?" is interesting, it is derailing the discussion. Behavioral finance can be discussed in the Personal Finance (Not Investing) forum.

Please stay on-topic, which is small-cap value.
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Fri Jul 31, 2020 7:49 pm

nedsaid wrote:
Fri Jul 31, 2020 10:33 am
Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.
Well, my posting has been very ineffective. I tried to get a Small Value panic going and to my utter dismay read that Garland Whizzer was actually buying MORE Small Value. Some capitulation that was! My relentless teasing didn't work and as far as I know Random Walker and Vineviz haven't faltered a bit either. Even sticking pins in my Larry Swedroe voodoo doll didn't work, he keeps talking about the factors on Twitter. So far no tearful confessions that he had been wrong all along. Sigh. All my reverse trolling egging on the trolls on the Small Value threads actually did seem to work, don't see as much of them here. I was trying to egg them on to help create a panic out of Small Value but they just sort of got bored and went away. I don't know, I pushed the limits here, I guess I need to do something really on edge like drinking out of expired milk cartons or driving 56 MPH in a 55 MPH zone. I was born to be mild. Anywho, I have had lots and lots of fun with this.
SCV has had some bad juju. You think a vineviz or Random Walker capitulation is what it takes? No, that's not enough.

Swedroe capitulation you say? No, still not enough.

There's only one member whose capitulation would reverberate through generations and finally liberate SCV from its bad juju.

Robert T.
Ketawa wrote:
Fri Jul 31, 2020 1:32 pm
I'm rejoicing that 2020 performance has enabled my domestic SCV fund, QSMLX, to pull ahead of alternatives like VBR, IJS, RZV, and DFSVX since the inception of QSMLX.
Oh no sorry to hear that :/
(I'm going to keep telling myself that VBR's performance so far is a feature, not a bug...)
MotoTrojan wrote:
Fri Jul 31, 2020 12:20 pm
Couldn't agree more. I like your way of framing it though; we can't rejoice at returns right now so let's enjoy the bargains!
You want some more rejoicing. How about this:

In Ages of the Investor, Bernstein shows that accumulators historically would have ended up with more money using SCV. That's both because of SCV's premium but also due to their volatility, leading to more share buying when stocks drop. This volatility actually helps the accumulator.

Bernstein then artificially reduced SCV's returns to be, on average, equal to the market's and accumulators still came out ahead.

SCV needed to have a ridiculous 1%+ (forget the number right now) underperformance vs the market before accumulators actually came out behind. You freaking heard that right. Even if SCV's returns are lower going forward, us accumulators might still come out ahead.

Idk man, this feels like it's gonna work out.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson

000
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Re: Small Cap Value heads Rejoice !!!

Post by 000 » Fri Jul 31, 2020 7:51 pm

Has anyone done any analysis on how much of the recent performance difference versus say VTI is due to small and value factors versus the sector makeup? Or comparing two theoretical funds with the same sector breakdown, but one holds the small value stocks in each sector?

Apologies if this is upthread, I have not read the whole thread. Thanks.

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Re: Small Cap Value heads Rejoice !!!

Post by absolute zero » Fri Jul 31, 2020 7:57 pm

I’d be interested as well in any sector comparisons.

Also, do some people avoid (or prefer) SCV due to it’s sector tilts? Specifically I’m thinking of someone in either the financials or energy sectors, who wouldn’t want their employment to be correlated with their portfolio returns.

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Jul 31, 2020 8:00 pm

absolute zero wrote:
Fri Jul 31, 2020 7:57 pm
I’d be interested as well in any sector comparisons.

Also, do some people avoid (or prefer) SCV due to it’s sector tilts? Specifically I’m thinking of someone in either the financials or energy sectors, who wouldn’t want their employment to be correlated with their portfolio returns.
AQR does sector-neutral value (and multi-factor) but I am not familiar with their funds/performance.

Not all value is created equal either; a fund like QVAL which weights on TEV/EBIT doesn't have much energy, and by design doesn't hold any financials at all.

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Re: Small Cap Value heads Rejoice !!!

Post by MotoTrojan » Fri Jul 31, 2020 8:02 pm

Steve Reading wrote:
Fri Jul 31, 2020 7:49 pm
MotoTrojan wrote:
Fri Jul 31, 2020 12:20 pm
Couldn't agree more. I like your way of framing it though; we can't rejoice at returns right now so let's enjoy the bargains!
You want some more rejoicing. How about this:

In Ages of the Investor, Bernstein shows that accumulators historically would have ended up with more money using SCV. That's both because of SCV's premium but also due to their volatility, leading to more share buying when stocks drop. This volatility actually helps the accumulator.

Bernstein then artificially reduced SCV's returns to be, on average, equal to the market's and accumulators still came out ahead.

SCV needed to have a ridiculous 1%+ (forget the number right now) underperformance vs the market before accumulators actually came out behind. You freaking heard that right. Even if SCV's returns are lower going forward, us accumulators might still come out ahead.

Idk man, this feels like it's gonna work out.
I'm with you, all sounds great. Quite well positioned for the eventual value rebound at the moment.

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Re: Small Cap Value heads Rejoice !!!

Post by nedsaid » Fri Jul 31, 2020 8:12 pm

Steve Reading wrote:
Fri Jul 31, 2020 7:49 pm
nedsaid wrote:
Fri Jul 31, 2020 10:33 am
Steve Reading wrote:
Thu Jul 30, 2020 11:41 pm

Where's nedsaid at? I want one of his speeches where he rambles on about the trials and tribulations of SCV, as well as what weak hands are left to flush. Honestly, I only understand like half of what he says but the part I get, I like. Always puts me on a good mood seeing those posts.
Well, my posting has been very ineffective. I tried to get a Small Value panic going and to my utter dismay read that Garland Whizzer was actually buying MORE Small Value. Some capitulation that was! My relentless teasing didn't work and as far as I know Random Walker and Vineviz haven't faltered a bit either. Even sticking pins in my Larry Swedroe voodoo doll didn't work, he keeps talking about the factors on Twitter. So far no tearful confessions that he had been wrong all along. Sigh. All my reverse trolling egging on the trolls on the Small Value threads actually did seem to work, don't see as much of them here. I was trying to egg them on to help create a panic out of Small Value but they just sort of got bored and went away. I don't know, I pushed the limits here, I guess I need to do something really on edge like drinking out of expired milk cartons or driving 56 MPH in a 55 MPH zone. I was born to be mild. Anywho, I have had lots and lots of fun with this.
SCV has had some bad juju. You think a vineviz or Random Walker capitulation is what it takes? No, that's not enough.

Swedroe capitulation you say? No, still not enough.

There's only one member whose capitulation would reverberate through generations and finally liberate SCV from its bad juju.

Robert T.
Ketawa wrote:
Fri Jul 31, 2020 1:32 pm
I'm rejoicing that 2020 performance has enabled my domestic SCV fund, QSMLX, to pull ahead of alternatives like VBR, IJS, RZV, and DFSVX since the inception of QSMLX.
Oh no sorry to hear that :/
(I'm going to keep telling myself that VBR's performance so far is a feature, not a bug...)
MotoTrojan wrote:
Fri Jul 31, 2020 12:20 pm
Couldn't agree more. I like your way of framing it though; we can't rejoice at returns right now so let's enjoy the bargains!
You want some more rejoicing. How about this:

In Ages of the Investor, Bernstein shows that accumulators historically would have ended up with more money using SCV. That's both because of SCV's premium but also due to their volatility, leading to more share buying when stocks drop. This volatility actually helps the accumulator.

Bernstein then artificially reduced SCV's returns to be, on average, equal to the market's and accumulators still came out ahead.

SCV needed to have a ridiculous 1%+ (forget the number right now) underperformance vs the market before accumulators actually came out behind. You freaking heard that right. Even if SCV's returns are lower going forward, us accumulators might still come out ahead.

Idk man, this feels like it's gonna work out.
Market sentiment has a momentum all of its own, it will take some sort of unexpected event to change the current Large Growth trend in the stock market. Really and truly, I thought the Covid-19 pandemic would perhaps do the trick but instead reinforced the Large Growth trend. Makes sense, if people have to stay home they will spend more time on the internet. If meetings and schooling are virtual and not in person, that will intensify demand for the internet. Entertainment is now more and more consumed over the internet. In turn, this increased demand for internet usage also encourages people to update their hardware and software too. Makes sense that in this environment, High Tech and more internet based companies would be seen as the safe haven.

Financial and energy companies tend to show up on Value screens and both types of companies floundered during the pandemic. So Growth went one way and Value went the other way. Growth funds that I own are up for the year whereas Value funds are down.

So far, events have not caused the worm to turn. First, I thought the formerly robust economy would ignite Value but Growth still predominated. Then the Covid-19 pandemic hit and as we discussed above only strengthened the Growth trend. Investors prefer the Large Growth stocks right now and for good reason, the FAANG stocks have fairly high valuations but also generate insane amounts of cash.

One reason that I don't go for extreme tilts. Trends in the markets can last longer than you think. I also allow for the possibility that I could be wrong. But I am not capitulating. As another poster mentioned above, the Value tilters seem more resistant to market noise. There is a lot of noise in the markets right now.

Final comment, volatility alone does not make a strategy work. Small Value worked because it was less loved and expectations are lower than for Large Growth. Pretty much, low expectations are easier to beat than high expectations and market moves are largely reality vs. market expectations. In other words, investors tend to be too optimistic about Growth stocks and too pessimistic about Value stocks. Small Value also worked because it has exposure to market beta and indeed most of its return comes from market beta. In fact, Boglehead portfolios largely work because of stock market beta. It is just that Value has still had positive returns in recent years but less than the market as a whole.
A fool and his money are good for business.

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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Fri Jul 31, 2020 8:20 pm

absolute zero wrote:
Fri Jul 31, 2020 7:57 pm
Also, do some people avoid (or prefer) SCV due to it’s sector tilts? Specifically I’m thinking of someone in either the financials or energy sectors, who wouldn’t want their employment to be correlated with their portfolio returns.
Actually, that's one big reason why I personally tilt. Scroll up, you'll see it. I never agreed with Random Walker or Swedroe arguments about tilts producing more diversification. It never quite felt like a free lunch the same way asset diversification does. Historically, it has been but I don't feel too strongly about it continuing in the future.

But I work in in technology. I'm already well exposed to growth-sectors. I think the average investor should hold the market (and they do). To the extent I'm not average (income is tech-heavy), I tilt the opposite way to compensate. Just my 2 cents.
000 wrote:
Fri Jul 31, 2020 7:51 pm
Has anyone done any analysis on how much of the recent performance difference versus say VTI is due to small and value factors versus the sector makeup? Or comparing two theoretical funds with the same sector breakdown, but one holds the small value stocks in each sector?

Apologies if this is upthread, I have not read the whole thread. Thanks.
Well the Fama French value and size factors are not sector-neutral either. So tilting to value typically is just tilting to the sectors that constitute the value premium of Fama and French. Once I looked at the sector composition of the FF SCV asset vs VIOV and they looked pretty similar so I never really looked again. Don't have anything more quantitative than that though, sorry.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson

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Re: Small Cap Value heads Rejoice !!!

Post by Random Walker » Fri Jul 31, 2020 8:44 pm

J G Bankerton wrote:
Fri Jul 31, 2020 3:31 pm
Massdriver wrote:
Fri Jul 31, 2020 1:55 pm
J G Bankerton wrote:
Fri Jul 31, 2020 11:53 am
Massdriver wrote:
Fri Jul 31, 2020 9:11 am
I still follow this thread, but tend to ignore most of the posts that don't fit the theme of rejoicing over SCV. I added to my SCV positions 2 days ago.
There is no joy in VBR. I gave it a fling when it had its week but the handwriting is on the wall.
Are you retired or accumulating? If you are accumulating, it's a chance to buy more.
I'm retired and accumulating; I don't think I have enough time left to wait for small value. :(
In a world where any factor, including the market factor, can underperform at any given time, diversification across independent and uncorrelated sources of return may be especially important over short time frames.

Dave

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Re: Small Cap Value heads Rejoice !!!

Post by Alchemist » Fri Jul 31, 2020 9:06 pm

Steve Reading wrote:
Fri Jul 31, 2020 7:49 pm
You want some more rejoicing. How about this:

In Ages of the Investor, Bernstein shows that accumulators historically would have ended up with more money using SCV. That's both because of SCV's premium but also due to their volatility, leading to more share buying when stocks drop. This volatility actually helps the accumulator.

Bernstein then artificially reduced SCV's returns to be, on average, equal to the market's and accumulators still came out ahead.
Your rejoicing may be pre-mature. We can easily test this proposition with real fund data for a 27 year period since DFSVX (DFA SCV) launched in March 1993 until June 2020 (July data not yet in PV). Below is performance for lump sum at inception for DFSVX vs Vanguard Total Stock Market (VTSMX) compared with an accumulator starting with $10k and adding $500 per month.

Lump Sum CAGR:
VTSMX: 9.42%
DFSVX: 9.61%

Link: PV Results

Accumulator CAGR:
VTSMX: 10.89%
DFSVX: 10.86%

Link: PV Results

To be clear I consider these both functionally a tie. But it is curious that the result of SCV slightly ahead with lump sum actually gets worse for an accumulator who now faces a tiny deficit to TSM. The other obvious takeaway is no premium available for 27 years...
Steve Reading wrote:SCV needed to have a ridiculous 1%+ (forget the number right now) underperformance vs the market before accumulators actually came out behind. You freaking heard that right. Even if SCV's returns are lower going forward, us accumulators might still come out ahead.

Idk man, this feels like it's gonna work out.
Given the previous result, this seems unlikely. So let's instead now look at a period more favorable to SCV. A twenty year period from June 2000 until June 2020.

Lump Sum CAGR:
VTSMX: 6.35%
DFSVX: 8.23%

Link: PV Results

Accumulator CAGR:
VTSMX: 9.51%
DFSVX: 10.00%

Link: PV Results

The volatility faced by an accumulator actually reduced the outperformance experienced by a lump sum investor from 1.88% to only 0.49%.

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Steve Reading
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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Fri Jul 31, 2020 9:43 pm

Alchemist wrote:
Fri Jul 31, 2020 9:06 pm
Steve Reading wrote:
Fri Jul 31, 2020 7:49 pm
You want some more rejoicing. How about this:

In Ages of the Investor, Bernstein shows that accumulators historically would have ended up with more money using SCV. That's both because of SCV's premium but also due to their volatility, leading to more share buying when stocks drop. This volatility actually helps the accumulator.

Bernstein then artificially reduced SCV's returns to be, on average, equal to the market's and accumulators still came out ahead.
Your rejoicing may be pre-mature. We can easily test this proposition with real fund data for a 27 year period since DFSVX (DFA SCV) launched in March 1993 until June 2020 (July data not yet in PV).
Bernstein is showing that given some rate of return, the higher volatility asset provides higher returns to the investor all else equal. One way it wouldn't be equal is if there was a confounding variable called "sequence of return risk", where SCV produced great returns first then bad after. In that case, despite the added volatility, you come out behind. Because not everything was in fact equal.

Bernstein addresses it in a simple way. He looks at multiple accumulation cohorts since 1929 and averages their results. That way, he's less sensitive to the sequence of returns.

Another way you can be less sensitive is to use a Monte Carlos. That way you "shuffle" the years of SCV and TSM and are completely impervious to sequence of return risk. Here are the results of that, using the same numbers you used:

Time-weighted return for SCV (50th percentile) = 10.95%
Time-weighted return for TSM (50th percentile) = 9.82%

Look at that! If you had Lump-Summed in 1993, you would've done a tiny little bit better. But if you take those same years, shuffle them in a 1000 ways to control for sequence, then you come out almost more than 1% ahead.
Here's the DFSVX simulation:
https://www.portfoliovisualizer.com/mon ... ount=10000

Here's the one for TSM. Note that I allocate a tiny slice to DFSVX to ensure the simulator only grabs results from 1994 and onwards to be consistent with the above:
https://www.portfoliovisualizer.com/mon ... ount=10000
Alchemist wrote:
Fri Jul 31, 2020 9:06 pm
But it is curious that the result of SCV slightly ahead with lump sum actually gets worse for an accumulator who now faces a tiny deficit to TSM. The other obvious takeaway is no premium available for 27 years...
Not curious at all IMO. Actually completely expected because SCV performed so well at the beginning of that time period and vice-versa. You didn't control for a very important confounding variable (sequence of returns).
Alchemist wrote:
Fri Jul 31, 2020 9:06 pm
Steve Reading wrote:SCV needed to have a ridiculous 1%+ (forget the number right now) underperformance vs the market before
Idk man, this feels like it's gonna work out.
Given the previous result, this seems unlikely.
You know why people always say to use more than one data point? It's precisely because when you use hundreds, thousands and millions of data points, you eliminate a lot of potential confounding variables of any one given point. It's almost comical that all you did was show one run of an accumulator and then concluded "given this result, what Bernstein is saying is unlikely".
Alchemist wrote:
Fri Jul 31, 2020 9:06 pm
The volatility faced by an accumulator actually reduced the outperformance experienced by a lump sum investor from 1.88% to only 0.49%.
You see volatility, and see reduced outperformance and claim the former caused the latter. Be very careful about correlation vs causation. Once you control for what really caused it (and Bernstein did so too), the true picture emerges.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson

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Re: Small Cap Value heads Rejoice !!!

Post by rkhusky » Fri Jul 31, 2020 10:14 pm

The futility of applying statistics to the stock market. Game theory is more applicable.

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Re: Small Cap Value heads Rejoice !!!

Post by Alchemist » Fri Jul 31, 2020 10:53 pm

Steve Reading wrote:
Fri Jul 31, 2020 9:43 pm
Bernstein is showing that given some rate of return, the higher volatility asset provides higher returns to the investor all else equal. One way it wouldn't be equal is if there was a confounding variable called "sequence of return risk", where SCV produced great returns first then bad after. In that case, despite the added volatility, you come out behind. Because not everything was in fact equal.
In the real world, nothing is ever equal or easily reduced to two variables. Investing in real markets with real funds is complicated and messy.
Steve Reading wrote:Bernstein addresses it in a simple way. He looks at multiple accumulation cohorts since 1929 and averages their results. That way, he's less sensitive to the sequence of returns.

Another way you can be less sensitive is to use a Monte Carlos. That way you "shuffle" the years of SCV and TSM and are completely impervious to sequence of return risk. Here are the results of that, using the same numbers you used:

Time-weighted return for SCV (50th percentile) = 10.95%
Time-weighted return for TSM (50th percentile) = 9.82%

Look at that! If you had Lump-Summed in 1993, you would've done a tiny little bit better. But if you take those same years, shuffle them in a 1000 ways to control for sequence, then you come out almost more than 1% ahead.
Here's the DFSVX simulation:
https://www.portfoliovisualizer.com/mon ... ount=10000
Monte Carlos are not very useful for real investors in the real world. Actually I would go so far as to say they are at best a distraction and at worse completely misleading. You are trying to synthetically add data points which are not real and providing 'probabilities' with no meaning. This kind of thinking is what lead very intelligent people like Swedroe to recommend commodities in the 2000's only to have their carefully crafted models blow up in their face when the Shale Oil revolution cratered oil prices.

All Bernstein did was reduce the complexity of actual markets in order to get a result he was already looking for.
Steve Reading wrote:Not curious at all IMO. Actually completely expected because SCV performed so well at the beginning of that time period and vice-versa. You didn't control for a very important confounding variable (sequence of returns).
You are not 'controlling' for sequence of returns, you are blatantly ignoring them. Yet it is those sequence of returns that actually mattered to someone who was investing their real money in SCV funds since they have been available. Bernstein's model did not help an investor make more money or take less risk. It lead them astray into believing that even if SCV underperformed, they could still come out ahead. I believe Dr Bernstein is a good man with the best of intentions, I do not mean to imply he is in any way misleading people on purpose. I am simply saying his advice on this topic is unhelpful to real investors.

Steve Reading wrote: You know why people always say to use more than one data point? It's precisely because when you use hundreds, thousands and millions of data points, you eliminate a lot of potential confounding variables of any one given point. It's almost comical that all you did was show one run of an accumulator and then concluded "given this result, what Bernstein is saying is unlikely".
The data points I gave are the only real data points that exist. Prior to 1993, you could not invest in SCV. Since 1993 there has only been one actual 27 year period. Monte Carlo simulation does not provide new data points, it creates hypothetical events that are not real. A MC simulation that gives an XX% chance of some portfolio's performance over the future is useless. Historical information gives ideas of what is possible and is useful for perspective, it does not constrain what the possibility or probability of the future actually will be. MC simulation of commodities prior to the explosion of the modern shale oil industry would give high probabilities of better outcomes if included in a portfolio. Yet in the real world it was a 100% failure.

MC's and similar tools are dangerous because they create the appearance of certainty or accuracy of the future when in reality there is none.

Steve Reading wrote:You see volatility, and see reduced outperformance and claim the former caused the latter. Be very careful about correlation vs causation. Once you control for what really caused it (and Bernstein did so too), the true picture emerges.
Seeing the "true picture" according to Bernstein won't put money in my portfolio.
rkhusky wrote:
Fri Jul 31, 2020 10:14 pm
The futility of applying statistics to the stock market. Game theory is more applicable.
Exactly. I prefer to make investing decisions on the basis of what is possible, not what is deemed by a statistical model to be probable. Certainly not one based on backtesting.

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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated » Sat Aug 01, 2020 1:38 am

Alchemist wrote:
Fri Jul 31, 2020 9:06 pm
To be clear I consider these both functionally a tie. But it is curious that the result of SCV slightly ahead with lump sum actually gets worse for an accumulator who now faces a tiny deficit to TSM. The other obvious takeaway is no premium available for 27 years...
Premium is measured in arithmetic average, not geometric average. If you want to know whether there was a premium, don't use a backtest. Read the conclusion of this paper, or the tables in this paper.

"fund A geometric average > fund B geometric average" does not imply that B offered no premium. It does not imply that A is always better than B. It does not imply that A is better than any mixture of A and B. The only thing it implies it that 100% A is expected to outperform 100% B for individuals with a logarithmic utility function. This is a completely useless observation, neither 100% total stock market nor 100% DFSVX are reasonable portfolio's for individuals with a logarithmic utility function.

Your backtests of accumulators/deaccumulators are invalid because the asset allocation fails to take future income into account. That backtest is an exercise in market timing, not an isolated comparison between funds.

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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Sat Aug 01, 2020 8:42 am

Alchemist wrote:
Fri Jul 31, 2020 10:53 pm
In the real world, nothing is ever equal or easily reduced to two variables. Investing in real markets with real funds is complicated and messy.
Sure. But we're asking a very specific question here. "Is it the case that a more volatile fund, given a similar CAGR, becomes more advantageous than the CAGR suggests, for an accumulator?". This is a very generic and testable statement. You decided to test it and "refute" it after all.

The answer is "yes, that is the case". It doesn't mean it will be so advantageous to make up for sequence of returns. But it's still an edge. You don't get to show ONE data point and then conclude "it is unlikely to help". How is that fair?
Alchemist wrote:
Fri Jul 31, 2020 10:53 pm
All Bernstein did was reduce the complexity of actual markets in order to get a result he was already looking for.
I think that's very unfair to Bernstein. He's known precisely for being evidence-based. May I remind you that all Bernstein did was exactly what you did, but he did it with more data?
Alchemist wrote:
Fri Jul 31, 2020 10:53 pm
You are not 'controlling' for sequence of returns, you are blatantly ignoring them. Yet it is those sequence of returns that actually mattered to someone who was investing their real money in SCV funds since they have been available. Bernstein's model did not help an investor make more money or take less risk. It lead them astray into believing that even if SCV underperformed, they could still come out ahead. I believe Dr Bernstein is a good man with the best of intentions, I do not mean to imply he is in any way misleading people on purpose. I am simply saying his advice on this topic is unhelpful to real investors.
Yes, that's what "controlling for a variable" means. You eliminate its effect.

In the real world, you'll get get hit a specific sequence risk. But I don't know what it will be. You don't either. To the extent it could be helpful or not, we can just ignore it. SCV and TSM suffer from it so why worry about it?

But there ARE things we can put on our favor. Low expenses. Tax efficient investing. Accumulating with a volatile asset given a similar CAGR. These all help a little. Do they assure outperformance against some specific high expenses, tax inneficient, or less volatile asset? No. Will they outperform given a bad sequence? No. But they still help so they are good ideas.
Alchemist wrote:
Fri Jul 31, 2020 10:53 pm
Seeing the "true picture" according to Bernstein won't put money in my portfolio.
Seeing the true picture from Bernstein would not have put money in the 1993-2020 accumulator. That is the ONLY thing you can say. You don't get to grab one data point, riddled with an effect independent of what he's saying, and then generalize it to apply to his claim.

What's next, are you going to grab a high fee active fund that beat TSM since 1993, and then also claim that "proves" low-cost funds "won't put money in my portfolio".

Come on.
Alchemist wrote:
Fri Jul 31, 2020 10:53 pm
Monte Carlos are not very useful for real investors in the real world. Actually I would go so far as to say they are at best a distraction and at worse completely misleading. You are trying to synthetically add data points which are not real and providing 'probabilities' with no meaning. This kind of thinking is what lead very intelligent people like Swedroe to recommend commodities in the 2000's only to have their carefully crafted models blow up in their face when the Shale Oil revolution cratered oil prices.
This paragraph is literally: "I have an opinion that MC's are not useful. They led a very specific group of people astray. Hence they are not useful". You really like making generalizations from 1 data point huh?

The reality is that MCs are just a tool. Whether it's useful or not depends on how you use it. If you're trying to answer the question "does a more volatile asset offer an edge to accumulators, given a similar CAGR?" then it will answer it. Because it is controlling for every variable except the one you want.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson

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Re: Small Cap Value heads Rejoice !!!

Post by Alchemist » Sun Aug 02, 2020 7:24 am

Steve, I think I came off more antagonistic than I intended in my previous reply. I will do my best to correct that in this one. After all I am a guest in this thread as it is intended for SCV-Heads, not TSM-heads :P
Steve Reading wrote:
Sat Aug 01, 2020 8:42 am
Sure. But we're asking a very specific question here. "Is it the case that a more volatile fund, given a similar CAGR, becomes more advantageous than the CAGR suggests, for an accumulator?". This is a very generic and testable statement. You decided to test it and "refute" it after all.

The answer is "yes, that is the case". It doesn't mean it will be so advantageous to make up for sequence of returns. But it's still an edge. You don't get to show ONE data point and then conclude "it is unlikely to help". How is that fair?
I think you are conflating a general theoretical question with a practical empirical one. If the question is "Can a hypothetical higher volatility asset with the same CAGR provide a better return for an accumulator controlling for sequence of returns" then the answer is "yes, it is possible". The question I was testing was "Has SCV higher volatility helped investors over the 27 year period of actual performance observed?" in which case the answer is no.
Steve Reading wrote:
I think that's very unfair to Bernstein. He's known precisely for being evidence-based. May I remind you that all Bernstein did was exactly what you did, but he did it with more data?
With respect to Dr Bernstein, he did not use real data from real funds. He used a MC'd version of historical data dating to pre-publication of FF and not historical data from actual funds. There is only one set of data for real SCV fund performance. March 1993 until today. There simply is no more data available, though I think it is reasonable to argue that a near three decades of performance should be enough to evaluate the predictions made in 1993 by DFA and other promoters of factor investing strategies.

If the Vanguard 500 fund failed to be in the top 50% of all mutual funds (Bogle's basic argument for indexing*) after 30 years, it would be reasonable to question whether indexing was valid. Would you agree?

*His argument defined as: market is a zero sum game, therefore the index fund before cost will be at worst better than 50% of all active funds and better than >50% after costs.

Steve Reading wrote: In the real world, you'll get get hit a specific sequence risk. But I don't know what it will be. You don't either. To the extent it could be helpful or not, we can just ignore it. SCV and TSM suffer from it so why worry about it?

But there ARE things we can put on our favor. Low expenses. Tax efficient investing. Accumulating with a volatile asset given a similar CAGR. These all help a little. Do they assure outperformance against some specific high expenses, tax inneficient, or less volatile asset? No. Will they outperform given a bad sequence? No. But they still help so they are good ideas.
I whole heartedly agree on low expenses and tax efficiency. Would you agree that given the actual sequence of returns since 1993 that SCV volatility did not help accumulators?

Steve Reading wrote:Seeing the true picture from Bernstein would not have put money in the 1993-2020 accumulator. That is the ONLY thing you can say. You don't get to grab one data point, riddled with an effect independent of what he's saying, and then generalize it to apply to his claim.

To be clear, I was responding to the claim you quoted. That due to SCV volatility it could help accumulators even if it does not have higher CAGR. I responded with the point that, thus far, it has not come to pass. Certainly that is because of sequence of returns, but we both agree that is the most important factor in that question. Why do you think Dr Bernstein would bother making that point when it is so vulnerable to other factors when actually implemented in real portfolios? Sincerely asking that question. Is it just an interesting aside?
Steve Reading wrote:What's next, are you going to grab a high fee active fund that beat TSM since 1993, and then also claim that "proves" low-cost funds "won't put money in my portfolio".

Come on.
If you could show me a 27 year period when an index fund in the United States failed to be in the top 50% of all funds for its category then it would be a valid point. The argument for indexing has never been that no funds can beat the index.
Steve Reading wrote:This paragraph is literally: "I have an opinion that MC's are not useful. They led a very specific group of people astray. Hence they are not useful". You really like making generalizations from 1 data point huh?

The reality is that MCs are just a tool. Whether it's useful or not depends on how you use it. If you're trying to answer the question "does a more volatile asset offer an edge to accumulators, given a similar CAGR?" then it will answer it. Because it is controlling for every variable except the one you want.
I certainly agree that MCs are a tool. But they do often mislead people and not just on commodities. That was just a poignant example. I shudder at the thought people make retirement allocation and withdrawal rate decisions based on them and think they provide some kind of certainty. With that said, I think we simply won't agree on the usefulness or not of MCs and ultimately it would be an interesting discussion on its own in another thread.

The question of whether or not volatility of SCV funds is helpful or not is itself a bit of a distraction. Ultimately the SCV premium did not work for a 27 year period. In fact, for the 5, 10, 15, 20, and 25 year periods it was only apparent in the 20 year period. Absent at the 25 year period and negative for the 15, 10, and 5 year periods. SCV-heads may rejoice believing this news means that an amazing turn around is shortly at hand. Maybe it is. But it is not unreasonable to question whether or not the premium either still exists or ever really did given the real life track record of SCV funds.

Thank you for your patience with an outsider in your thread.

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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Sun Aug 02, 2020 8:01 am

Alchemist wrote:
Sun Aug 02, 2020 7:24 am
The question I was testing was "Has SCV higher volatility helped investors over the 27 year period of actual performance observed?" in which case the answer is no.
My argument is that it still helped, just not enough to overcome a sequence.

Think about this: DFSVX has a higher annual fee than VTSMX. Yet it had slightly higher CAGR since 1993. Would you say the lower fee of VTSMX helped it? YES! Of course it helped it. Not enough to overcome other factors and actually get a higher CAGR, but helped nonetheless.
Alchemist wrote:
Sun Aug 02, 2020 7:24 am
With respect to Dr Bernstein, he did not use real data from real funds. He used a MC'd version of historical data dating to pre-publication of FF and not historical data from actual funds. There is only one set of data for real SCV fund performance. March 1993 until today. There simply is no more data available, though I think it is reasonable to argue that a near three decades of performance should be enough to evaluate the predictions made in 1993 by DFA and other promoters of factor investing strategies.
Bernstein didn't use "MC'd" data. It's not simulated. It's real stock data. There were people that had those stocks. They traded. They produced dividends. Many funds, be it Graham's or Tweedy Browne (which has been value investing for nearly 100 years) invested in these value securities. Most likely many of them small-caps since that's where value has been found the most in.

But fine, let's say that the only data that counts is the inception from the first open-ended, quant SCV fund. Let me ask you this: The USA is not the only country in the world is it? If I find you the data for the earliest SCV fund in some other country (won't tell you which one right now), and that data shows massive outperformance for an accumulator, what will you say to that? Let's say I also have 27 years of performance for argument's sakes.

What I would say is "what does that even prove? It's just one data point, who cares? How does that matter for the future?". But you seem to care or believe it does matter so just let me know.

Alchemist wrote:
Sun Aug 02, 2020 7:24 am
I whole heartedly agree on low expenses and tax efficiency. Would you agree that given the actual sequence of returns since 1993 that SCV volatility did not help accumulators?
It helped just nowhere near enough to beat that sequence.
Alchemist wrote:
Sun Aug 02, 2020 7:24 am
Why do you think Dr Bernstein would bother making that point when it is so vulnerable to other factors when actually implemented in real portfolios? Sincerely asking that question. Is it just an interesting aside?
For 2 reasons. You can't escape sequence risk, so why bother with it? It's a coin toss. But there are factors you can affect (expenses, volatility, etc) so put those in your favor.

The second is that the book offers some ways to reduce sequence risk.
Alchemist wrote:
Sun Aug 02, 2020 7:24 am

If you could show me a 27 year period when an index fund in the United States failed to be in the top 50% of all funds for its category then it would be a valid point. The argument for indexing has never been that no funds can beat the index.
Oh I bet I could. I just have to find an expensive-enough one.

The advantage of index funds isn't that they have historically outperformed. It's that all else equal, they should outperform (thanks to the lower fees). Not every time. But on average. It's a similar issue as the volatility one. It's just an edge. You don't have to see the edge historically to understand it exists and desire it.
Alchemist wrote:
Sun Aug 02, 2020 7:24 am
.But it is not unreasonable to question whether or not the premium either still exists or ever really did given the real life track record of SCV funds.
It's very reasonable. My point is that even if the premium doesn't exist, you come out ahead on average. The premium has to be about -1% for the future for an investor to come out behind, all else equal (controlling for sequence).

Obviously, if the sequence is favorable, you'll come out even more ahead. If unfavorable, you'll come out behind. Since we don't know what will happen, I think it's fair to eliminate the sequence from our analysis in terms of future investing.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson

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Re: Small Cap Value heads Rejoice !!!

Post by Steve Reading » Sun Aug 02, 2020 9:24 am

Alchemist wrote:
Sun Aug 02, 2020 7:24 am
Steve, I think I came off more antagonistic than I intended in my previous reply. I will do my best to correct that in this one. After all I am a guest in this thread as it is intended for SCV-Heads, not TSM-heads :P
By the way, I didn't feel you were antagonistic personally. You bring up fine points. A lot of people throwing around arguments based on historical stock returns when the factors weren't known. A lot of theoretical arguments too. Some with simulations. But then you go to the real world, with 27 years worth of real fund data, and you don't see it (at least not in the USA...). So it's fair to question it.

The problem is that real life also has limitations because it only shows ONE way in which things played out. The future could play out differently. So we also have to be careful with extrapolating the past. In my opinion, all of these tools have usefulness. FF data that Bernstein used, DFSVX real data, simulations, mathematical arguments, etc. I disagree that some of these "don't count" or are somehow inferior. They're just tools. Use them appropriately to answer the specific questions you want. Understand the limitations, the confounding variables, etc and you'll be fine.
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson

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Re: Small Cap Value heads Rejoice !!!

Post by Alchemist » Mon Aug 03, 2020 5:20 am

Steve Reading wrote:
Sun Aug 02, 2020 8:01 am
My argument is that it still helped, just not enough to overcome a sequence.

Think about this: DFSVX has a higher annual fee than VTSMX. Yet it had slightly higher CAGR since 1993. Would you say the lower fee of VTSMX helped it? YES! Of course it helped it. Not enough to overcome other factors and actually get a higher CAGR, but helped nonetheless.
This seems perfectly agreeable to me.
Steve Reading wrote: But fine, let's say that the only data that counts is the inception from the first open-ended, quant SCV fund. Let me ask you this: The USA is not the only country in the world is it? If I find you the data for the earliest SCV fund in some other country (won't tell you which one right now), and that data shows massive outperformance for an accumulator, what will you say to that? Let's say I also have 27 years of performance for argument's sakes.

What I would say is "what does that even prove? It's just one data point, who cares? How does that matter for the future?". But you seem to care or believe it does matter so just let me know.
I am aware that internationally SCV has outperformed total international. As someone (for reasons far outside the topic of this thread) who only invests in U.S. equities it is not of personal interest. Though academically, it does generate an obvious question. If the premium is missing in post-publication U.S. markets, why is it working elsewhere? I have suspicions (sector weighting differences, popularity of U.S. based SCV funds vs international ones) but it would be interesting if in-depth research on that question would be done.

Steve Reading wrote: It's very reasonable. My point is that even if the premium doesn't exist, you come out ahead on average. The premium has to be about -1% for the future for an investor to come out behind, all else equal (controlling for sequence).

Obviously, if the sequence is favorable, you'll come out even more ahead. If unfavorable, you'll come out behind. Since we don't know what will happen, I think it's fair to eliminate the sequence from our analysis in terms of future investing.
It seems to me that a more volatile asset is more likely to have a poor sequence of returns vs a less volatile one. If it swings up and down more wildly, and has a deeper drawdowns, the likelihood your investment horizon ends on a downswing with a negative outcome due to sequence of returns would be higher. Or at least that is what I would expect. Regardless, volatility with a negative premium is pretty far afield the sales pitch given by DFA (and others) for their factor funds.
Steve Reading wrote:
Sun Aug 02, 2020 9:24 am
By the way, I didn't feel you were antagonistic personally. You bring up fine points. A lot of people throwing around arguments based on historical stock returns when the factors weren't known. A lot of theoretical arguments too. Some with simulations. But then you go to the real world, with 27 years worth of real fund data, and you don't see it (at least not in the USA...). So it's fair to question it.

The problem is that real life also has limitations because it only shows ONE way in which things played out. The future could play out differently. So we also have to be careful with extrapolating the past. In my opinion, all of these tools have usefulness. FF data that Bernstein used, DFSVX real data, simulations, mathematical arguments, etc. I disagree that some of these "don't count" or are somehow inferior. They're just tools. Use them appropriately to answer the specific questions you want. Understand the limitations, the confounding variables, etc and you'll be fine.
Glad to hear it was not taken antagonistically. I agree that real life only shows one of many possible outcomes, but it is of course the outcome that matters most. I harp on the lack of a premium for 27 years (and negative for 15 years) because I am judging the SCV strategy not by historical research conducted pre-1993 but rather what its proponents predicted in the past. If their predictions failed to materialize it is evidence that there is something wrong with how they came to their conclusions to begin with and discourages me from pursuing such a strategy. Or put more crudely, if factor proponent s' SCV predictions have been wrong for the last 27 years, why on earth would they be expected to be right for the next 27 years?

Given the number of Boglehead's betting big on a SCV resurgence as evidenced by this thread, I certainly hope it happens.

Just as an interesting anecdote, PV now has July data. The difference between DFSVX and VTSMX from March 1993 until July 2020 is only 0.09%.

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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated » Mon Aug 03, 2020 5:47 am

Alchemist wrote:
Mon Aug 03, 2020 5:20 am
I am aware that internationally SCV has outperformed total international. As someone (for reasons far outside the topic of this thread) who only invests in U.S. equities it is not of personal interest. Though academically, it does generate an obvious question. If the premium is missing in post-publication U.S. markets, why is it working elsewhere? I have suspicions (sector weighting differences, popularity of U.S. based SCV funds vs international ones) but it would be interesting if in-depth research on that question would be done.
The premium isn't missing. The premium was positive but statistically insignificant. Additionally, the difference between pre-publication and post-publication was not statistically significant:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096 wrote:T 2 statistic testing that 1963-1991 and 1991-2019 expectations are equal = 0.413, p-value = 87.1%
Stop saying that the premium was missing post-publication in the US. That is not true according to any testable hypothesis.

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Re: Small Cap Value heads Rejoice !!!

Post by acegolfer » Mon Aug 03, 2020 8:10 am

Uncorrelated wrote:
Mon Aug 03, 2020 5:47 am
Alchemist wrote:
Mon Aug 03, 2020 5:20 am
I am aware that internationally SCV has outperformed total international. As someone (for reasons far outside the topic of this thread) who only invests in U.S. equities it is not of personal interest. Though academically, it does generate an obvious question. If the premium is missing in post-publication U.S. markets, why is it working elsewhere? I have suspicions (sector weighting differences, popularity of U.S. based SCV funds vs international ones) but it would be interesting if in-depth research on that question would be done.
The premium isn't missing. The premium was positive but statistically insignificant. Additionally, the difference between pre-publication and post-publication was not statistically significant:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096 wrote:T 2 statistic testing that 1963-1991 and 1991-2019 expectations are equal = 0.413, p-value = 87.1%
Stop saying that the premium was missing post-publication in the US. That is not true according to any testable hypothesis.
The same table reports the average SCV monthly premium (the topic of this thread) in 1991-2019 is not statistically significant.
Image

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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated » Mon Aug 03, 2020 8:25 am

acegolfer wrote:
Mon Aug 03, 2020 8:10 am
Uncorrelated wrote:
Mon Aug 03, 2020 5:47 am
Alchemist wrote:
Mon Aug 03, 2020 5:20 am
I am aware that internationally SCV has outperformed total international. As someone (for reasons far outside the topic of this thread) who only invests in U.S. equities it is not of personal interest. Though academically, it does generate an obvious question. If the premium is missing in post-publication U.S. markets, why is it working elsewhere? I have suspicions (sector weighting differences, popularity of U.S. based SCV funds vs international ones) but it would be interesting if in-depth research on that question would be done.
The premium isn't missing. The premium was positive but statistically insignificant. Additionally, the difference between pre-publication and post-publication was not statistically significant:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3525096 wrote:T 2 statistic testing that 1963-1991 and 1991-2019 expectations are equal = 0.413, p-value = 87.1%
Stop saying that the premium was missing post-publication in the US. That is not true according to any testable hypothesis.
The same table reports the average SCV monthly premium (the topic of this thread) in 1991-2019 is not statistically significant.
Image
Your claim was that the premium was "missing". A t-stat of 1.52 is not the same as "missing". It means we are about 80% confident there was a premium in that time period.

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Re: Small Cap Value heads Rejoice !!!

Post by acegolfer » Mon Aug 03, 2020 9:07 am

Uncorrelated wrote:
Mon Aug 03, 2020 8:25 am
Your claim was that the premium was "missing". A t-stat of 1.52 is not the same as "missing". It means we are about 80% confident there was a premium in that time period.
I just realized that you already mentioned that SCV premium is statistically insignificant.

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Re: Small Cap Value heads Rejoice !!!

Post by muffins14 » Mon Aug 03, 2020 3:37 pm

I think that in this case reducing the estimate to a binary " is / is-not statistically significant" is not really as helpful as thinking in terms of the estimated return distribution.

In this case we're seeing the monthly return premium as 0.33 +/- 1.96 * 3.58 as the 95% confidence interval, or [-6.7, 7.3%]. In the context of your portfolio, does the volatility of this asset help or hurt? Likely depends on the correlation with the rest of your portfolio, and your goals.

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Re: Small Cap Value heads Rejoice !!!

Post by Alchemist » Tue Aug 04, 2020 5:14 am

Uncorrelated wrote:
Mon Aug 03, 2020 5:47 am
Stop saying that the premium was missing post-publication in the US. That is not true according to any testable hypothesis.
Would it make you feel better if I said there was no harvestable premium? Maybe no profitable premium?

The fact is that investors in DFSVX over its entire period of existence did not gain any more money than simply investing in TSM or the S&P 500. Nor did a slice and dice and rebalance portfolio with SCV/TSM yield any more money or less risk.

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Re: Small Cap Value heads Rejoice !!!

Post by Uncorrelated » Tue Aug 04, 2020 5:37 am

Alchemist wrote:
Tue Aug 04, 2020 5:14 am
Uncorrelated wrote:
Mon Aug 03, 2020 5:47 am
Stop saying that the premium was missing post-publication in the US. That is not true according to any testable hypothesis.
The fact is that investors in DFSVX over its entire period of existence did not gain any more money than simply investing in TSM or the S&P 500. Nor did a slice and dice and rebalance portfolio with SCV/TSM yield any more money or less risk.
Over the longest time period available, investors that put 90% in DFSVX and 10% in total stock market made more money than 100% stock market. There is no risk in the past.

100% fund A vs 100% fund B is a meaningless comparison. The question is which portfolio (combination of funds) is the best, not which single-fund portfolio is the best. Based on parameters estimated from 1992-2020, small cap value does improve portfolio efficiency for some investors and for some portfolio's. If you don't believe the above statements then I'm sorry to say that you have used the wrong mathematical methods for the task at hand.

Whether you think that the evidence is strong enough (no survivorship bias, overfitting) is an entirely different matter. I can help to draw the right conclusions from data, but I can't help you to decide whether a t-stat of 1.5 is sufficient, you have to decide that for yourself.

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Re: Small Cap Value heads Rejoice !!!

Post by Forester » Tue Aug 04, 2020 5:43 am

Alchemist wrote:
Tue Aug 04, 2020 5:14 am
Uncorrelated wrote:
Mon Aug 03, 2020 5:47 am
Stop saying that the premium was missing post-publication in the US. That is not true according to any testable hypothesis.
Would it make you feel better if I said there was no harvestable premium? Maybe no profitable premium?

The fact is that investors in DFSVX over its entire period of existence did not gain any more money than simply investing in TSM or the S&P 500. Nor did a slice and dice and rebalance portfolio with SCV/TSM yield any more money or less risk.
The DFSVX investor didn't lose anything, and DFSVX is sat today on a much cheaper valuation relative to its own history than is the S&P 500. It's not outperformance as such, if the S&P 500 is neck & neck, yet is expensive; that only works if the investor is lucky, imminently cashes out and banks his gains. And although DFSVX has been more volatile, unlike the S&P it had a positive return in each decade.

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