If you started investing today, would you tilt?

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burritoLover
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Re: If you started investing today, would you tilt?

Post by burritoLover »

If you are not doing something exactly like Bill Sharpe's "preferred portfolio" -> "global stocks and bonds, cap weighted, free float", then you are a tilter and you shouldn't throw stones from your "sort of like the market" glass house.
Last edited by burritoLover on Tue Jan 24, 2023 3:18 pm, edited 1 time in total.
Apathizer
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Re: If you started investing today, would you tilt?

Post by Apathizer »

sbrooks32 wrote: Tue Jan 24, 2023 3:11 pm Just recognize that buying the S&P 500 or a total market fund based on market cap could be viewed as a tilt at times. For the past few years, there has been a tilt towards large-cap growth in those funds. I chose to add some value balance to my portfolio by adding positions in RSP (Invesco Equal Weight S&P 500 ETF) or FNDB (Schwab Fundamental US Broad Market Index ETF). That would be a value-tilt vs the market cap, but I viewed as offsetting the large-cap growth tilt back to a more neutral position.
That's very much my thinking as well. In my portfolio the large growth and large value allocation is fairly equal, with a moderate small value slant. That seems more well diversified to me since returns are not so dependent on large growth the way they are with market cap weights.
Last edited by Apathizer on Thu Jan 26, 2023 1:29 am, edited 2 times in total.
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secondopinion
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Re: If you started investing today, would you tilt?

Post by secondopinion »

burritoLover wrote: Tue Jan 24, 2023 3:12 pm If you are not doing something exactly like Bill Sharpe's "preferred portfolio" -> "global stocks and bonds, cap weighted, free float", then you are a tilter and you shouldn't throw stones from your "sort of like the market" glass house.
Right. It does not mean one's portfolio is wrong; it is just the claim that it is better for any investor is wrong. Even Bill Sharpe's "preferred portfolio" is wrong for many investors.

Tilts are fine if they actually help your portfolio be more suitable for your objectives. Relation to the market returns should not be your objective because you will likely be wrong according to itself.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Tom_T
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Re: If you started investing today, would you tilt?

Post by Tom_T »

secondopinion wrote: Tue Jan 24, 2023 3:31 pm
burritoLover wrote: Tue Jan 24, 2023 3:12 pm If you are not doing something exactly like Bill Sharpe's "preferred portfolio" -> "global stocks and bonds, cap weighted, free float", then you are a tilter and you shouldn't throw stones from your "sort of like the market" glass house.
Right. It does not mean one's portfolio is wrong; it is just the claim that it is better for any investor is wrong. Even Bill Sharpe's "preferred portfolio" is wrong for many investors.

Tilts are fine if they actually help your portfolio be more suitable for your objectives. Relation to the market returns should not be your objective because you will likely be wrong according to itself.

Also, nobody knows which portfolio (on paper) will be "best" -- and even that is subjective since it depends on the future date you choose to plant your stick in the ground to do a comparison.
Logan Roy
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Re: If you started investing today, would you tilt?

Post by Logan Roy »

km91 wrote: Tue Jan 24, 2023 2:32 pm
Logan Roy wrote: Tue Jan 24, 2023 1:33 pm
The term risk premium has a clear meaning. It can be applied to any situation in which there's a risk and a return, from style factors to sports betting:

"the general definition being the expected risky return less the risk-free return, as demonstrated by the formula below.."
https://en.wikipedia.org/wiki/Risk_premium
Come on, at least read the FF paper if you're going to argue about the model's validity.

market premium = Return(mkt) - Return(risk-free)
size premium = Return(small) - Return(large)
value premium = Return(cheap) - Return(expensive)
quality premium = Return(profitable) - Return(unprofitable)
investment premium = Return(conservative) - Return(aggressive)

Only the market premium is measured relative to the risk free rate. The additional factor premiums are measured as the performance spread between the long/short factor portfolios described above. These premiums may not be expected to return in excess of the market, but there is no reason they have to. In a factor tilted portfolio we are adding the additional factor premiums to the market premium, we are not replacing the market premium. The market return is not some sort of hurdle rate that the factor premiums need to overcome
I think for us to progress beyond this introduction to FF stuff, I'd have to explain to you what your argument is, again. I say: keep doing what you're doing, investment wise.
Logan Roy
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Re: If you started investing today, would you tilt?

Post by Logan Roy »

Nathan Drake wrote: Tue Jan 24, 2023 3:11 pm
Logan Roy wrote: Tue Jan 24, 2023 1:51 pm
Nathan Drake wrote: Mon Jan 23, 2023 5:30 pm
Logan Roy wrote: Mon Jan 23, 2023 4:39 pm
Nathan Drake wrote: Mon Jan 23, 2023 3:41 pm

Through this sample, EM was higher most of the time.

And this sample was an extremely fortuitous backtest with both start and end dates favoring US

Let’s look at longer data, because we know EM meaningfully outperformed in the preceding decades

Sure looks like a premium to me
It doesn't look like a premium. And again, the EM index didn't exist before 1988.
Sure does if you analyze it temporarally and not just by cherry picking a start and end date. Again, it had the highest performance most of the sample and had a terrible decade it ended with.

EM markets existed prior to 1988 even if the indexes didn’t.
It's not cherrypicked when we're using all available data. And Chinese exchanges existed before inclusion in the index, but certainly didn't have a history of outperforming, or being investable. These were much more like gambling markets before opening up to global investment.

We can find transient moments when EM outperformed? You can find that with Treasuries. If the risk-premium's always there, that's what we'd expect to mean revert towards over long periods.
Again, we find more periods where EM outperforms

That chart shows better performance generally. We would expect mean reversion for the last decade of awful performance

China was not a meaningful EM market in 80s and 70s, we know EM did better than US in this period
Okay. The chart shows EM outperforming. EM did better before EM existed as a definition, sure.
km91
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Re: If you started investing today, would you tilt?

Post by km91 »

Logan Roy wrote: Tue Jan 24, 2023 5:35 pm I think for us to progress beyond this introduction to FF stuff, I'd have to explain to you what your argument is, again. I say: keep doing what you're doing, investment wise.
I can't wait to get to the advanced stuff where financial markets are no different than gambling markets and I can can read AQR and Arnott papers and conjure up conclusions not even known to the authors
Nathan Drake
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Re: If you started investing today, would you tilt?

Post by Nathan Drake »

Logan Roy wrote: Tue Jan 24, 2023 5:37 pm
Nathan Drake wrote: Tue Jan 24, 2023 3:11 pm
Logan Roy wrote: Tue Jan 24, 2023 1:51 pm
Nathan Drake wrote: Mon Jan 23, 2023 5:30 pm
Logan Roy wrote: Mon Jan 23, 2023 4:39 pm

It doesn't look like a premium. And again, the EM index didn't exist before 1988.
Sure does if you analyze it temporarally and not just by cherry picking a start and end date. Again, it had the highest performance most of the sample and had a terrible decade it ended with.

EM markets existed prior to 1988 even if the indexes didn’t.
It's not cherrypicked when we're using all available data. And Chinese exchanges existed before inclusion in the index, but certainly didn't have a history of outperforming, or being investable. These were much more like gambling markets before opening up to global investment.

We can find transient moments when EM outperformed? You can find that with Treasuries. If the risk-premium's always there, that's what we'd expect to mean revert towards over long periods.
Again, we find more periods where EM outperforms

That chart shows better performance generally. We would expect mean reversion for the last decade of awful performance

China was not a meaningful EM market in 80s and 70s, we know EM did better than US in this period
Okay. The chart shows EM outperforming. EM did better before EM existed as a definition, sure.
Just because EM as an asset class wasn't broadly available in an index fund wrapper doesn't mean it did not exist. Same straw man argument against small cap value stocks.

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steve r
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Re: If you started investing today, would you tilt?

Post by steve r »

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protagonist
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Re: If you started investing today, would you tilt?

Post by protagonist »

km91 wrote: Tue Jan 24, 2023 2:36 pm
protagonist wrote: Tue Jan 24, 2023 1:27 pm It's important to recognize that every trade has a winner and a loser.
A company IPOs and sells shares to the public

The government sells a 30yr bond

I sell t bills to pay for a home renovation

Who wins and loses on these trades?
I was specifically referencing stock trades. If you buy and the stock goes down, you lose and the seller wins (and vice versa).
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Stef
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Re: If you started investing today, would you tilt?

Post by Stef »

So what‘s the reference stock portfolio? VT?
66.66% USA | 13.33% Switzerland | 10% Developed Markets exUS/CH | 10% Emerging Markets
pascalwager
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Re: If you started investing today, would you tilt?

Post by pascalwager »

Nathan Drake wrote: Sun Jan 22, 2023 1:32 am
pascalwager wrote: Sat Jan 21, 2023 1:24 pm I would probably invest in VT, possibly with a US growth tilt for greater exected returns, until retirement.

In retirement, I might change to US small cap value and emerging market tilts for greater diversification if I didn't just stay with simple VT.
There is not a higher expected return for a “US Growth” tilt
Growth has a higher expected return than value because of higher correlation to the market, but also comes with higher risk (volatility).

Your personal portfolio shows a strong value tilt which might be suitable for a retiree with a low bonds allocation who still desires less volatility than the market and doesn't mind an expected return less than the market. But based on your response, I'm guessing you're not that particular retiree, or maybe not even a retiree at all.

My own portfolio, as a retiree, is VT (total world market stocks) / VIOV (small value) / XCEM (EM ex-China) and also TIPS. The SV and EM ex-China together are about half as large as the total world market AA.

So, I'm willing to get a lower return than the market for a smoother ride.
Apathizer
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Re: If you started investing today, would you tilt?

Post by Apathizer »

pascalwager wrote: Thu Jan 26, 2023 2:25 am Growth has a higher expected return than value because of higher correlation to the market, but also comes with higher risk (volatility).
Historically value has outperformed growth and the total market about 80% of the time.
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km91
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Re: If you started investing today, would you tilt?

Post by km91 »

protagonist wrote: Wed Jan 25, 2023 10:28 pm
km91 wrote: Tue Jan 24, 2023 2:36 pm
protagonist wrote: Tue Jan 24, 2023 1:27 pm It's important to recognize that every trade has a winner and a loser.
A company IPOs and sells shares to the public

The government sells a 30yr bond

I sell t bills to pay for a home renovation

Who wins and loses on these trades?
I was specifically referencing stock trades. If you buy and the stock goes down, you lose and the seller wins (and vice versa).
Why does the seller "win"? If they bought TSLA at $400 and they sell it to you at $150, and it goes to $125 what have they "won"?
protagonist
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Re: If you started investing today, would you tilt?

Post by protagonist »

km91 wrote: Thu Jan 26, 2023 2:50 am
protagonist wrote: Wed Jan 25, 2023 10:28 pm
km91 wrote: Tue Jan 24, 2023 2:36 pm
protagonist wrote: Tue Jan 24, 2023 1:27 pm It's important to recognize that every trade has a winner and a loser.
A company IPOs and sells shares to the public

The government sells a 30yr bond

I sell t bills to pay for a home renovation

Who wins and loses on these trades?
I was specifically referencing stock trades. If you buy and the stock goes down, you lose and the seller wins (and vice versa).
Why does the seller "win"? If they bought TSLA at $400 and they sell it to you at $150, and it goes to $125 what have they "won"?
The idea is that buying and selling a stock at a given moment in time is not a "good idea" for both parties- one will profit from the sale in the future and the other will lose. If it were a good idea to buy and sell at the same time, both parties might as well do neither. The past is the past, and is irrelevant really, which is a behavioral trap people fall into. The fact that you already lost 70% on your previous TSLA bet (the person who sold it at $400 won) should not influence what you do with the stock today- by deciding to buy more or sell it today you are gambling that you will win in the future and the person taking your bet will lose.
Last edited by protagonist on Thu Jan 26, 2023 11:05 pm, edited 1 time in total.
km91
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Re: If you started investing today, would you tilt?

Post by km91 »

protagonist wrote: Thu Jan 26, 2023 12:21 pm The idea is that buying and selling a stock at a given moment in time is not a "good idea" for both parties- one will profit from the sale in the future and the other will lose.
I think this is an incorrect framing of the issue. Any trade is a "good idea" for both parties, if it wasn't they wouldn't have decided to do it in the first place. The seller risks missing out on future gains, the buyer risks future losses, but these opportunity costs may be low compared to the other options the investor has to use the money. Obviously we can't know how the investor weighed these options or how they view the future, but the fact that they decided to trade tells us they view it as a good idea. There is no reason both sides of the trade can't benefit, the outcome isn't zero sum.

An investor in retirement sells some stock to pay for their living expenses and a month later the stock is up 10%. Sure, the investor "lost" 10% upside but they probably viewed the cost of not paying their bills or meeting their other living expenses as higher.
pascalwager
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Re: If you started investing today, would you tilt?

Post by pascalwager »

Harry Markowitz (Noble prize winner for MPT) has a unique tilt, the last I heard. He's 50% bonds, but his stocks are a 100% tilt toward US state of Georgia companies that specialize in storm repairs.

Then there's the prominent economist that tilts 100% toward obliviousness. When asked about how he invests for retirement (he uses a management company) he said "I haven't the slightest idea and I hope my wife doesn't either."
Apathizer
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Re: If you started investing today, would you tilt?

Post by Apathizer »

pascalwager wrote: Fri Jan 27, 2023 1:07 pm Harry Markowitz (Noble prize winner for MPT) has a unique tilt, the last I heard. He's 50% bonds, but his stocks are a 100% tilt toward US state of Georgia companies that specialize in storm repairs.

Then there's the prominent economist that tilts 100% toward obliviousness. When asked about how he invests for retirement (he uses a management company) he said "I haven't the slightest idea and I hope my wife doesn't either."
So some people have weirdly unconventional investments. Er, do you have a point? There were some prominent academics who invested heavily in crypto and suffered massive losses like everyone else who invested during the height of crypto-mania.

Some people are adept in some areas and highly deficient in others. My mom has adept linguistic skills, but she's thoroughly inept with investing. You keep posting these arcane anecdotes, but it's unclear to me what your point is.
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secondopinion
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Re: If you started investing today, would you tilt?

Post by secondopinion »

protagonist wrote: Thu Jan 26, 2023 12:21 pm
km91 wrote: Thu Jan 26, 2023 2:50 am
protagonist wrote: Wed Jan 25, 2023 10:28 pm
km91 wrote: Tue Jan 24, 2023 2:36 pm
protagonist wrote: Tue Jan 24, 2023 1:27 pm It's important to recognize that every trade has a winner and a loser.
A company IPOs and sells shares to the public

The government sells a 30yr bond

I sell t bills to pay for a home renovation

Who wins and loses on these trades?
I was specifically referencing stock trades. If you buy and the stock goes down, you lose and the seller wins (and vice versa).
Why does the seller "win"? If they bought TSLA at $400 and they sell it to you at $150, and it goes to $125 what have they "won"?
The idea is that buying and selling a stock at a given moment in time is not a "good idea" for both parties- one will profit from the sale in the future and the other will lose. If it were a good idea to buy and sell at the same time, both parties might as well do neither. The past is the past, and is irrelevant really, which is a behavioral trap people fall into. The fact that you already lost 70% on your previous TSLA bet (the person who sold it at $400 won) should not influence what you do with the stock today- by deciding to buy more or sell it today you are gambling that you will win in the future and the person taking your bet will lose.
It is wrong entirely; they sell because it is not longer suitable for their needs. I did not sell a treasury bill to pay for a medical bill because I think the other side will lose out of the deal. I did not do tax loss harvesting because I think the other side will lose out of the deal. I did not buy long-term bonds at 2.25% and sell them at 1.25% because the other side will lose out of the deal. I am merely met my desires out of the investment, and now I have something more worth my desires to do with my money -- not that I think their money is ill spend for their desires.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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