"Flight to quality"... to WHAT exactly?
"Flight to quality"... to WHAT exactly?
When stock market decline is in full force, some investors "flee to quality". What's the data from the few recent stock market declines - what do those investors tend to flee to, exactly? Clearly, Treasuries are a big destination. What maturities Treasuries tend to get the biggest inflows? I was thinking T-bills, but panicky investors might think the decline might last longer than just a few months, so maybe they flee to Intermediate treasuries then?
Do commodity futures tend to see inflows, and perhaps better returns during stock bear markets? Gold and other precious metals? Developed markets government bonds? TIPS? (I read the articles that TIPS DON'T see big inflows, actually.)
What else?
Do commodity futures tend to see inflows, and perhaps better returns during stock bear markets? Gold and other precious metals? Developed markets government bonds? TIPS? (I read the articles that TIPS DON'T see big inflows, actually.)
What else?
Re: "Flight to quality"... to WHAT exactly?
Relatively, it depends on what durations, and to what extent, they are disrupted from that.
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Re: "Flight to quality"... to WHAT exactly?
I do not know of anyone that does what you have proposed. We stay the course.seugene wrote: ↑Tue Oct 26, 2021 6:28 pm When stock market decline is in full force, some investors "flee to quality". What's the data from the few recent stock market declines - what do those investors tend to flee to, exactly? Clearly, Treasuries are a big destination. What maturities Treasuries tend to get the biggest inflows? I was thinking T-bills, but panicky investors might think the decline might last longer than just a few months, so maybe they flee to Intermediate treasuries then?
Do commodity futures tend to see inflows, and perhaps better returns during stock bear markets? Gold and other precious metals? Developed markets government bonds? TIPS? (I read the articles that TIPS DON'T see big inflows, actually.)
What else?
Re: "Flight to quality"... to WHAT exactly?
You can Google for "quality stocks" and you will find a list, but I'm not randomly buying those companies. If there were "quality stocks" out there, wouldn't you only want to hold only the quality ones? They should perform significantly better than the stocks that are poor quality.
Re: "Flight to quality"... to WHAT exactly?
After the stock market has already begun a decline, that is exactly the time not to sell one’s stock holdings and move to something else.
The proper action is to rebalance into stocks as needed to maintain one’s asset allocation.
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Re: "Flight to quality"... to WHAT exactly?
Why should they perform better? I can agree they would be "usually better", but there are surprises all the time.AquaBliss wrote: ↑Tue Oct 26, 2021 6:52 pm You can Google for "quality stocks" and you will find a list, but I'm not randomly buying those companies. If there were "quality stocks" out there, wouldn't you only want to hold only the quality ones? They should perform significantly better than the stocks that are poor quality.
Quality stocks exist, but their risk profile is not what one would expect (low volatility but considerable tail risk because they price in the likely gains due to their "quality"; failing quality, and both volatility increases and price decreases).
Last edited by secondopinion on Tue Oct 26, 2021 7:20 pm, edited 1 time in total.
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Re: "Flight to quality"... to WHAT exactly?
This is one of these weird expressions from financial media that doesn't make any sense. If something were higher quality, why wouldn't everyone have bought that higher quality thing and pushed its prices up? That would in effect be selling low and buying high. Who wants to do that?
If you accept the philosophy that is espoused here, namely that markets are reasonably efficient and changes in markets are inherently unpredictable, then there isn't a quality thing to switch to or a good time to do it. IOW one is buying investments not just for one market cycle to dump them at the end, but buying and holding them over many market cycles (a lifetime even). One doesn't focus on what the market thinks is best, but buys according to their own situation. This way one isn't buying protection when it is most expensive. Though one can take the downturns as an opportunity to rebalance, IOW sell safety to others in order to buy risky assets (when the risk premium is highest).
If you accept the philosophy that is espoused here, namely that markets are reasonably efficient and changes in markets are inherently unpredictable, then there isn't a quality thing to switch to or a good time to do it. IOW one is buying investments not just for one market cycle to dump them at the end, but buying and holding them over many market cycles (a lifetime even). One doesn't focus on what the market thinks is best, but buys according to their own situation. This way one isn't buying protection when it is most expensive. Though one can take the downturns as an opportunity to rebalance, IOW sell safety to others in order to buy risky assets (when the risk premium is highest).
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Re: "Flight to quality"... to WHAT exactly?
If there's a relatively free lunch around (or at least crumbs), it's with 7% risk-free Series I Savings Bonds right now.
Call that flight to quality if you want, or flight to safety. Or grabbing any risk-free yield possible.
Call that flight to quality if you want, or flight to safety. Or grabbing any risk-free yield possible.
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Re: "Flight to quality"... to WHAT exactly?
It's a cliche that can mean anything you want it to mean.
Re: "Flight to quality"... to WHAT exactly?
The below is my personal take. YMMV.
OP, I think you are overthinking this. "Flight to quality" is a catch phrase of the financial entertainment industry and its talking heads. It's just click bait and noise meant to distract you.
Do you want to define a metric for "flight to quality" in order to operationalize that into some kind of investing tactic? I don't understand why you are interested in it. Seems like more heat than light.
OP, I think you are overthinking this. "Flight to quality" is a catch phrase of the financial entertainment industry and its talking heads. It's just click bait and noise meant to distract you.
Do you want to define a metric for "flight to quality" in order to operationalize that into some kind of investing tactic? I don't understand why you are interested in it. Seems like more heat than light.
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Re: "Flight to quality"... to WHAT exactly?
Cool. But how much inflation, again?
They should call 0% series I bonds Patriot bonds. For those who like to pay a lot of tax for no benefit to themselves.
Re: "Flight to quality"... to WHAT exactly?
Looks like real estate as well. Home prices having been going up way too fast way too soon.
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Re: "Flight to quality"... to WHAT exactly?
Pricing is based on observed information; quality companies are those likely to remain healthy. Health is not exactly cyclical. The healthy companies are more likely to be healthy five years later than the unhealthy ones be healthy. Quality is "buying the likely returns"; "poor quality" is "buying against the odds". Quality is less volatile in the usual situation, but can have more money lost than what the volatility suggests (they carry tail risk). It is risk skew; nothing here says the expected returns are better or worse.tomsense76 wrote: ↑Tue Oct 26, 2021 7:19 pm This is one of these weird expressions from financial media that doesn't make any sense. If something were higher quality, why wouldn't everyone have bought that higher quality thing and pushed its prices up? That would in effect be selling low and buying high. Who wants to do that?
If you accept the philosophy that is espoused here, namely that markets are reasonably efficient and changes in markets are inherently unpredictable, then there isn't a quality thing to switch to or a good time to do it. IOW one is buying investments not just for one market cycle to dump them at the end, but buying and holding them over many market cycles (a lifetime even). One doesn't focus on what the market thinks is best, but buys according to their own situation. This way one isn't buying protection when it is most expensive. Though one can take the downturns as an opportunity to rebalance, IOW sell safety to others in order to buy risky assets (when the risk premium is highest).
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.
Re: "Flight to quality"... to WHAT exactly?
I completely understand what you are saying, but for $10k they might still be the best bad option after considering risk and liquidity (after a year). As you are aware, bank bonuses are available and may be the only safe rival at the moment for relatively small sums of cash.whodidntante wrote: ↑Tue Oct 26, 2021 7:34 pmCool. But how much inflation, again?
They should call 0% series I bonds Patriot bonds. For those who like to pay a lot of tax for no benefit to themselves.
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Re: "Flight to quality"... to WHAT exactly?
Not that it matters, but the phrase I've always heard is "flight to safety," not "flight to quality."
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Re: "Flight to quality"... to WHAT exactly?
Every crisis is unique.
There is a camp here using long term treasuries because they have tended to have the most counterbalancing movement.
OTOH there was some evidence during the coronacrash that low and negative yielding treasuries in other countries were less effective.
This raises the question of how much flight there will be to already negative real yield treasuries especially if the "crash then print" game is well known to market participants.
There is a camp here using long term treasuries because they have tended to have the most counterbalancing movement.
OTOH there was some evidence during the coronacrash that low and negative yielding treasuries in other countries were less effective.
This raises the question of how much flight there will be to already negative real yield treasuries especially if the "crash then print" game is well known to market participants.
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Re: "Flight to quality"... to WHAT exactly?
Yep, didn't see a single thread last March of people selling their stocks out of fear. And total bond didn't go up during the GFC as people sold stocks and bought bonds.Trader Joe wrote: ↑Tue Oct 26, 2021 6:41 pm I do not know of anyone that does what you have proposed. We stay the course.
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Re: "Flight to quality"... to WHAT exactly?
Have seen both. For example
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Re: "Flight to quality"... to WHAT exactly?
Usual talking meaningless points . Talking heads trying to give the reason why market declined . In actuality they know nothing, just feeling the air before commercial brake .
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Re: "Flight to quality"... to WHAT exactly?
The only point I was trying to get at it is that trying to buy quality in a crisis (normally what "flight to quality" is referring to) is going to be expensive. Don't think we are disagreeing here, but feel free to correct me.secondopinion wrote: ↑Tue Oct 26, 2021 8:07 pmPricing is based on observed information; quality companies are those likely to remain healthy. Health is not exactly cyclical. The healthy companies are more likely to be healthy five years later than the unhealthy ones be healthy. Quality is "buying the likely returns"; "poor quality" is "buying against the odds". Quality is less volatile in the usual situation, but can have more money lost than what the volatility suggests (they carry tail risk). It is risk skew; nothing here says the expected returns are better or worse.tomsense76 wrote: ↑Tue Oct 26, 2021 7:19 pm This is one of these weird expressions from financial media that doesn't make any sense. If something were higher quality, why wouldn't everyone have bought that higher quality thing and pushed its prices up? That would in effect be selling low and buying high. Who wants to do that?
If you accept the philosophy that is espoused here, namely that markets are reasonably efficient and changes in markets are inherently unpredictable, then there isn't a quality thing to switch to or a good time to do it. IOW one is buying investments not just for one market cycle to dump them at the end, but buying and holding them over many market cycles (a lifetime even). One doesn't focus on what the market thinks is best, but buys according to their own situation. This way one isn't buying protection when it is most expensive. Though one can take the downturns as an opportunity to rebalance, IOW sell safety to others in order to buy risky assets (when the risk premium is highest).
"Anyone who claims to understand quantum theory is either lying or crazy" -- Richard Feynman
Re: "Flight to quality"... to WHAT exactly?
I think the behaviors in question are characteristic of certain kinds of investors, e.g., momentum investors who pick stocks. I'm not sure they pay much attention to things like what's expensive or not.tomsense76 wrote: ↑Tue Oct 26, 2021 9:03 pm The only point I was trying to get at it is that trying to buy quality in a crisis (normally what "flight to quality" is referring to) is going to be expensive. Don't think we are disagreeing here, but feel free to correct me.
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Re: "Flight to quality"... to WHAT exactly?
You're right, "flight to safety" is what I meant to say. Although apparently these phrases are at least somewhat synonymous, as tomsense76 pointed out.
But let's not get hung up on the exact phrase, and whether it's a real thing or not. When panicked investors are selling stocks, where do they park the money for the most part?
Just to clarify, I am not considering "fleeing to safety" when the stock market is down. So, no need to convince me to stay the course. The reason I asked is because I want to make an informed choice about what to include on the other side of the scale to stocks in my portfolio (which bonds exactly, and what else, if anything), so that I can provide liquidity to those panicking investors, and profit.
Perhaps I should have asked the question differently: Which asset sub-classes are likely to maintain their value best when stock markets are in decline?
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Re: "Flight to quality"... to WHAT exactly?
It may be those sub-classes that have low volatility independent of the any specific time period. Such classes would be expected to have low return too.
I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash. I hold the minimum amount of investments with expected low return to satisfy my goals and volatility appetite.
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Re: "Flight to quality"... to WHAT exactly?
"Such classes would be expected to have low return too" - I'm ok with that.
"I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash." - I think what you are saying here, whether you realize it or not, is that one can't make money by rebalancing, and that's not the case.
"I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash." - I think what you are saying here, whether you realize it or not, is that one can't make money by rebalancing, and that's not the case.
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Re: "Flight to quality"... to WHAT exactly?
Since 1982, long-term and intermediate treasuries have seen meaningful spikes during stock-market crashes. This was of course when they were providing nominal yields above the inflation rate.seugene wrote: ↑Wed Oct 27, 2021 6:22 am "Such classes would be expected to have low return too" - I'm ok with that.
"I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash." - I think what you are saying here, whether you realize it or not, is that one can't make money by rebalancing, and that's not the case.
https://www.portfoliovisualizer.com/bac ... ion3_3=100
Will this keep happening? Idk.
Do I expect the US treasury to pay its debts on time? Yes (despite the constant congressional standoffs).
Do I invest exclusively in treasuries for my bond holding? Not anymore. The total bond market provides excellent exposure to treasuries.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Re: "Flight to quality"... to WHAT exactly?
Your question was answered by you, in your original post:
Regarding which maturities... all of them. For example, you can see from the chart that all maturities of Treasuries went up during the March 2020 crash. The short end doesn't show a big jump because it has cash-like characteristics. But we know that the short end also sees huge inflows, because Vanguard had to close their Treasury money market in 2020 for that reason.
According to the charts, nothing comes close to Treasuries, at least in terms of consistency, for the effect you describe. If you find something in the charts that says otherwise, please let us know.What else?
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Re: "Flight to quality"... to WHAT exactly?
Flight to safety - is a term that refers to where the money flows into when there is panic selling.
Long term buy & hold investors whose primary goal is to invest for their retirement should not and does not do panic selling, as this is bad for their long term results. Who does this apply to then? The traders that are big market movers who moves billions of dollars everyday, when they see prospects are gloom and they do not have faith to stay in market for long term when these events occur, they move money out of risk assets and into safe assets, mainly US Treasury securities, longer the term better the safety because they do not know how long this will last. It could be a long time or short, when the outcome isn't certain they move out and then move back in. Buy & hold does not work for big money movers.
Long term buy & hold investors whose primary goal is to invest for their retirement should not and does not do panic selling, as this is bad for their long term results. Who does this apply to then? The traders that are big market movers who moves billions of dollars everyday, when they see prospects are gloom and they do not have faith to stay in market for long term when these events occur, they move money out of risk assets and into safe assets, mainly US Treasury securities, longer the term better the safety because they do not know how long this will last. It could be a long time or short, when the outcome isn't certain they move out and then move back in. Buy & hold does not work for big money movers.
Re: "Flight to quality"... to WHAT exactly?
I've always heard the quality factor in the active management world refer to "Buffett-style" investing. Company "moats" are examined using a framework like the Porter Five Forces model. But the knock is this is highly subjective/qualitative, and as Boggleheads we should reasonably assume that a company's competitive advantage is already priced in.
Indices like MSCI's ACWI or USA Quality Factor try to capture "quality" companies by screening high return on equity, stable year-over-year earnings growth, and low financial leverage. In effect, this gives a large universe that could reasonably be considered quality under a Porter lens.
Indices like MSCI's ACWI or USA Quality Factor try to capture "quality" companies by screening high return on equity, stable year-over-year earnings growth, and low financial leverage. In effect, this gives a large universe that could reasonably be considered quality under a Porter lens.
Re: "Flight to quality"... to WHAT exactly?
If I understand correctly, you're saying there are qualitative approaches to assessing quality, and on the other hand, there are also quantitative approaches.BayStater wrote: ↑Wed Oct 27, 2021 8:41 am I've always heard the quality factor in the active management world refer to "Buffett-style" investing. Company "moats" are examined using a framework like the Porter Five Forces model. But the knock is this is highly subjective/qualitative, and as Boggleheads we should reasonably assume that a company's competitive advantage is already priced in.
Indices like MSCI's ACWI or USA Quality Factor try to capture "quality" companies by screening high return on equity, stable year-over-year earnings growth, and low financial leverage. In effect, this gives a large universe that could reasonably be considered quality under a Porter lens.
Sounds like a non-controversial statement. I'm not sure if you were advocating something in particular.
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Re: "Flight to quality"... to WHAT exactly?
The pain is going to have to get a lot higher before newly issued I-bonds are yielding 7%. Those that are getting that yield today are already in quality.
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Re: "Flight to quality"... to WHAT exactly?
How Portfolio Rebalancing Usually Reduces Long-Term Returns... https://www.kitces.com/blog/how-rebalan ... nt-anyway/seugene wrote: ↑Wed Oct 27, 2021 6:22 am "Such classes would be expected to have low return too" - I'm ok with that.
"I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash." - I think what you are saying here, whether you realize it or not, is that one can't make money by rebalancing, and that's not the case.
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Re: "Flight to quality"... to WHAT exactly?
There's no contradiction between the above two positions. One can make money by rebalancing in some scenarios. And one can make money by not rebalancing in some other scenarios.dogagility wrote: ↑Wed Oct 27, 2021 11:42 amHow Portfolio Rebalancing Usually Reduces Long-Term Returns... https://www.kitces.com/blog/how-rebalan ... nt-anyway/seugene wrote: ↑Wed Oct 27, 2021 6:22 am "Such classes would be expected to have low return too" - I'm ok with that.
"I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash." - I think what you are saying here, whether you realize it or not, is that one can't make money by rebalancing, and that's not the case.
That being said, I'm not sure the cited article is relevant to the discussion. We're talking about whether rebalancing away from bonds and into stocks during a crash yields any benefit. Some have found that it did.
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Re: "Flight to quality"... to WHAT exactly?
Kitces had that scenario in his article too. He didn't seem to find any consistent benefit over long periods of time if I read it correctly.HanSolo wrote: ↑Wed Oct 27, 2021 1:05 pmThere's no contradiction between the above two positions. One can make money by rebalancing in some scenarios. And one can make money by not rebalancing in some other scenarios.dogagility wrote: ↑Wed Oct 27, 2021 11:42 amHow Portfolio Rebalancing Usually Reduces Long-Term Returns... https://www.kitces.com/blog/how-rebalan ... nt-anyway/seugene wrote: ↑Wed Oct 27, 2021 6:22 am "Such classes would be expected to have low return too" - I'm ok with that.
"I'm not convinced a person will be able to make money off of other investors "fleeing to safety" by holding those safe assets prior to a stock market crash." - I think what you are saying here, whether you realize it or not, is that one can't make money by rebalancing, and that's not the case.
That being said, I'm not sure the cited article is relevant to the discussion. We're talking about whether rebalancing away from bonds and into stocks during a crash yields any benefit. Some have found that it did.
The devil is in the details though. I can see where increasing stock allocation significantly above prior constant allocation during a large recession (>30% stock decline) might be beneficial.
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Re: "Flight to quality"... to WHAT exactly?
As far as I can tell, all he's saying is that if you abandon your AA, you can get better returns long-term by letting the winners run (assuming the winning side keeps winning)... which is kind of obvious. It's not very useful to Bogleheads who want to maintain a chosen AA (or AA band, or glide path, etc.). If someone were comfortable letting their AA drift from 60/40 to 80/20 (and beyond), then why didn't they start with 80/20 to begin with... or 100/0.dogagility wrote: ↑Wed Oct 27, 2021 2:29 pm Kitces had that scenario in his article too. He didn't seem to find any consistent benefit over long periods of time if I read it correctly.
Again, I think that's a different topic from what this thread is about.
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Re: "Flight to quality"... to WHAT exactly?
To be honest, it wouldn't matter. If stocks go down, and X goes up, it might still a flight to safety. Usually it's bonds, maybe precious metals. maybe just growth stocks go down and value stocks go up.seugene wrote: ↑Wed Oct 27, 2021 5:33 am
You're right, "flight to safety" is what I meant to say. Although apparently these phrases are at least somewhat synonymous, as tomsense76 pointed out.
But let's not get hung up on the exact phrase, and whether it's a real thing or not. When panicked investors are selling stocks, where do they park the money for the most part?
It's really about putting a label on whatever happened, not so much about just one scenario.
This time is the same
Re: "Flight to quality"... to WHAT exactly?
My understanding is that people who really believe in the quality factor believe it can only be obtained qualitatively. The quantitative methods may get you an approximation of the factor, but they are not strictly speaking "quality".HanSolo wrote: ↑Wed Oct 27, 2021 9:14 amIf I understand correctly, you're saying there are qualitative approaches to assessing quality, and on the other hand, there are also quantitative approaches.BayStater wrote: ↑Wed Oct 27, 2021 8:41 am I've always heard the quality factor in the active management world refer to "Buffett-style" investing. Company "moats" are examined using a framework like the Porter Five Forces model. But the knock is this is highly subjective/qualitative, and as Boggleheads we should reasonably assume that a company's competitive advantage is already priced in.
Indices like MSCI's ACWI or USA Quality Factor try to capture "quality" companies by screening high return on equity, stable year-over-year earnings growth, and low financial leverage. In effect, this gives a large universe that could reasonably be considered quality under a Porter lens.
Sounds like a non-controversial statement. I'm not sure if you were advocating something in particular.
Of course I could be biased in the crowds of people I know.
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Re: "Flight to quality"... to WHAT exactly?
I thought the common statement was "flight to safety". Usually, all stocks drop together in such situations because they want to take almost all risk off the table. However, quality stock are normally lower beta; therefore, they will not drop as much. This does not mean they are a worse deal in a panic. In fact, tested quality stocks (those that might being impacted in quality) could be a better deal; however, the risk of these is now higher given the circumstances.tomsense76 wrote: ↑Tue Oct 26, 2021 9:03 pmThe only point I was trying to get at it is that trying to buy quality in a crisis (normally what "flight to quality" is referring to) is going to be expensive. Don't think we are disagreeing here, but feel free to correct me.secondopinion wrote: ↑Tue Oct 26, 2021 8:07 pmPricing is based on observed information; quality companies are those likely to remain healthy. Health is not exactly cyclical. The healthy companies are more likely to be healthy five years later than the unhealthy ones be healthy. Quality is "buying the likely returns"; "poor quality" is "buying against the odds". Quality is less volatile in the usual situation, but can have more money lost than what the volatility suggests (they carry tail risk). It is risk skew; nothing here says the expected returns are better or worse.tomsense76 wrote: ↑Tue Oct 26, 2021 7:19 pm This is one of these weird expressions from financial media that doesn't make any sense. If something were higher quality, why wouldn't everyone have bought that higher quality thing and pushed its prices up? That would in effect be selling low and buying high. Who wants to do that?
If you accept the philosophy that is espoused here, namely that markets are reasonably efficient and changes in markets are inherently unpredictable, then there isn't a quality thing to switch to or a good time to do it. IOW one is buying investments not just for one market cycle to dump them at the end, but buying and holding them over many market cycles (a lifetime even). One doesn't focus on what the market thinks is best, but buys according to their own situation. This way one isn't buying protection when it is most expensive. Though one can take the downturns as an opportunity to rebalance, IOW sell safety to others in order to buy risky assets (when the risk premium is highest).
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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Re: "Flight to quality"... to WHAT exactly?
In my study of stocks, these is a difference between safety and quality.
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.
Re: "Flight to quality"... to WHAT exactly?
Do the people you're referring to include Jeremy Grantham (and, by extension, his readers)? He's the one who talks about quality more than anyone I've seen. If I understand him correctly, his criteria for quality are pretty much the quantitative ones as you cited. So it's always been my perception that quality assessment has mostly been quantitative (or at least I hadn't heard otherwise until your post).BayStater wrote: ↑Wed Oct 27, 2021 11:11 pmMy understanding is that people who really believe in the quality factor believe it can only be obtained qualitatively. The quantitative methods may get you an approximation of the factor, but they are not strictly speaking "quality".HanSolo wrote: ↑Wed Oct 27, 2021 9:14 amIf I understand correctly, you're saying there are qualitative approaches to assessing quality, and on the other hand, there are also quantitative approaches.BayStater wrote: ↑Wed Oct 27, 2021 8:41 am I've always heard the quality factor in the active management world refer to "Buffett-style" investing. Company "moats" are examined using a framework like the Porter Five Forces model. But the knock is this is highly subjective/qualitative, and as Boggleheads we should reasonably assume that a company's competitive advantage is already priced in.
Indices like MSCI's ACWI or USA Quality Factor try to capture "quality" companies by screening high return on equity, stable year-over-year earnings growth, and low financial leverage. In effect, this gives a large universe that could reasonably be considered quality under a Porter lens.
Sounds like a non-controversial statement. I'm not sure if you were advocating something in particular.
Of course I could be biased in the crowds of people I know.
As the OP mentioned, the question of what happens during bear markets is more about safety than quality (see below). I think flight (or perhaps bias, not flight) to quality a-la-Grantham might be more likely to happen not during bear markets but during bull markets (among those following that discourse, anyway), as that's when Grantham usually makes his projections that quality will outperform over a 7-year time frame.
So I think the topic of quality is actually unrelated to the OP's question (which was about bear markets).
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
Re: "Flight to quality"... to WHAT exactly?
Yeah, this thread kinda went off the rails, because I said quality when I meant safety, and also because people mis-interpreted my post as if I said I'd like (or that I think it's a good idea) to "flee to safety" during bear markets. I implied it (but didn't say so, to be fair) the opposite way - I want to take advantage of where ever other people are fleeing to, while the stock market is in a freefall.
I'll try to maybe say what I mean next time.