Logan Roy wrote: ↑Wed Mar 29, 2023 8:23 am
HeavyChevy wrote: ↑Fri Mar 24, 2023 7:26 pm
Thanks to all for the discussion.
It's interesting how so many of these discussions evolve toward maximizing diversification, as if that is the only holy grail. Here I am seeking a discussion around the value (pun intended) of a value dominated stock portfolio in retirement, i.e. no incoming investments. Not adding 15%. Going all value like Wellington taditionally did (not so much recently). Better, drop the bond, TIPS, REIT, etc. discussion and go all value in equities. This is so ridiculous to some BH that it seems hard for them to fathom. Most think 100% total market equities in retirement is too risky, but the merits are discussed dispassionately. Here, an admittedly limited data set seems to support the idea that value holds up better than total market in a deaccumulating situation. I'd really appreciate some some counter arguments that directly show the fallacy of that apprach rather than global considerations around volatility and diversification that don't seem to address the question: is value better than total market in an equity portfolio with substantial periodic outward cashflows.
(Obviously, the value portfolio segments under considration contain many, many stocks and are quite diversified with respect to business, etc. already)
As always, I am interested in the correct answer rather than the rational answer.
The correct answer will only be known with hindsight – I think a rational answer is the best we can hope for.
I don't think there's a good reason to go all-in on Value. If the aim is reducing a form of risk: limiting yourself to a smaller part of a single asset class probably won't achieve that.. It goes against the most fundamental principle of risk reduction, which is that you really want as many unrelated sources of return as possible. Value is then a good principle to apply to all of them.
One risk with value stocks is you're generally in more cyclical businesses (banks, natural resources, etc.), and if we found ourselves back in a deflationary regime (as we have been in recent history, and Japan has been since 1990 – and it may be a sign of the kind of economy we're moving towards), the sources of a lot of those earnings might stay rather depressed, which is why Value's tended to underperform in the recent era, and even been a pretty poor investment.
https://www.portfoliovisualizer.com/bac ... tion5_2=35
My eyes are tired
I ran the original conditions through PV for all available 11 year periods: 1972-82 thru 2012-22 (41 runs)
Portfolios were: 34LCV/33MCV33SCV, 65TSM/35IntTreas, 100TSM
The ending portvolio values (initial $3M) were:
34LCV 65TSM/35IntTreas 100TSM
33MCV
33SCV
6.26 * * 2.52 * * 2.24 * * 1972-82
7.11 * * 2.21 * * 1.65 * * 1973-83
12.06 * * 3.82 * * 3.96 * * 1974-84
25.47 * * 8.15 * * 11.17 * * 1975-85
18.36 * * 6.72 * * 8.28
10.65 * * 4.91 * * 5.68
14.13 * * 6.72 * * 8.42
16.4 * * 8.42 * * 10.53
10.67 * * 7.28 * * 7.93
11.69 * * 7.51 * * 7.49
13.85 * * 8.93 * * 9.67
12.29 * * 7.71 * * 8.77
8.52 * * 6.37 * * 6.84
11.17 * * 8.09 * * 9.18
9.40 * * 6.74 * * 8.34
10.37 * * 7.00 * * 9.33
11.88 * * 8.66 * * 11.89
9.81 * * 8.82 * * 12.56
8.83 * * 6.70 * * 8.28
12.04 * * 7.04 * * 8.81
6.98 * * 4.74 * * 4.88
7.62 * * 5.35 * * 5.94
7.61 * * 5.26 * * 6.07
9.05 * * 5.98 * * 6.83
7.47 * * 4.64 * * 5.28
5.73 * * 4.24 * * 4.36
2.39 * * 2.46 * * 1.74
2.88 * * 2.10 * * 1.40
3.24 * * 1.85 * * 0.87
2.57 * * 2.16 * * 1.35
3.14 * * 2.79 * * 2.22
6.15 * * 4.26 * * 5.00
4.39 * * 3.48 * * 3.64
3.18 * * 3.17 * * 3.12
3.40 * * 3.40 * * 3.40
2.93 * * 3.39 * * 3.29
3.15 * * 3.12 * * 3.07
8.54 * * 5.82 * * 9.34
6.48 * * 5.56 * * 8.36
6.63 * * 5.56 * * 8.85 * * 2011-21
6.71 * * 4.63 * * 7.48 * * 2012-22
Value portfolio "won" 33/40 or 83%
Diversified stock/bond "won" 1.5/40 or 4%
Total market "won" 5.5/40 or 14% - but 5 of the last 6 years
Tie in 2006-2016
Do these results mean anything at all? Let me know what you think.