DFA on Managing Expectations

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DFA on Managing Expectations

Post by TomP10 » Mon Dec 19, 2016 9:36 pm

Just came across these four videos on the ifa.com youtube channel. Really nice discussion of various aspects of managing your expectations of return. The videos feature a VP at Dimensional Funds, Scott Bosworth. I did not have high expectations but I found the discussion very good.

Don't get bogged by the reference to the DFA portfolio. The lessons are more universal.

Part One -- perspective on how often a portfolio fails to track the S&P 500 (or whatever you use for a benchmark). Patience!!

Part Two -- time horizon perspective. A portfolio often fails to meet expectations, especially in the very short run, less so with a longer run horizon

Part Three -- how starting date can change your perspective. Two people with the same portfolio can have very different outcomes depending on when they start (e.g., 1982 vs 1999)

Part Four -- how individual components in your portfolio can often lag

I think many will benefit from the discussion.
"It is remarkable how much long term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." -- Charlie Munger

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Re: DFA on Managing Expectations

Post by Dulocracy » Tue Dec 20, 2016 6:52 pm

Thank you for the links!
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

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Re: DFA on Managing Expectations

Post by livesoft » Tue Dec 20, 2016 7:31 pm

Thanks for the links. They were worth my time to watch them.
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Re: DFA on Managing Expectations

Post by triceratop » Wed Dec 21, 2016 1:43 am

Thank you very much. The links were very much well-worth my time.

(Still peeved that it is hard to gain cheap access to LCV/SCV Intl/EM, to really replicate a similar diversified factor strategy :annoyed )
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Re: DFA on Managing Expectations

Post by rick2427 » Wed Dec 21, 2016 1:42 pm

Thanks for sharing the links. It helped reinforce the importance of global diversification and also staying the course long term


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Re: DFA on Managing Expectations

Post by peppers » Wed Dec 21, 2016 4:32 pm

An interesting presentation. Thank you for the links.
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Re: DFA on Managing Expectations

Post by matjen » Wed Dec 21, 2016 5:10 pm

Great presentation. Thank you OP for bringing to our attention.
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Re: DFA on Managing Expectations

Post by livesoft » Wed Dec 21, 2016 9:26 pm

I will probably watch these 4 videos every year. Some highlights for me are as follows (all numbers below are my recollection and not verbatim, so watch videos for the actual stated numbers):

Clearly presented that there is really no such thing as average returns until one gets 10 years or more grouped together.

During good times, markets move up about 53% of the trading days and down about 47% of the trading days.
During bad times, markets move up about 47% of the trading days and down about 53% of the trading days.

Even when the S&P500 return was the worst return on the Callan "periodic table" of investment returns, it was still positive on average. The same cannot be said of the EM stock asset class.

At least 20% to 30% of clients are trailing market returns after 5 years simply because of the time point they started to invest. That is, these are the pissed off clients ready to switch advisors because their portfolios did not deliver what the averages promised.

Even a Bogleheads-endorsed 3-fund portfolio will trail market returns because of entry point.

So you are damned if you do and damned if you don't.

While there is no guarantee this will happen in the future, big down years are have been followed by decent up years eventually.

I will guess that most investors don't track their portfolio performance well enough to really know how they are doing compared to benchmarks.

I also got some ideas on how to improve my RBD strategy.
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Re: DFA on Managing Expectations

Post by arcticpineapplecorp. » Tue Jan 03, 2017 6:39 pm

For those not aware, I believe these four videos are from the full movie at http://www.ifa.com. The entire movie is an 1 hour and 12 minutes long and is called "Index Funds The 12 step recovery program for active investors" and can be found at the link below. I found it interesting and helpful. Hope others do too.

"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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