Is it foolish to go all in Small Cap Value?

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burritoLover
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Re: Is it foolish to go all in Small Cap Value?

Post by burritoLover »

The OP expects to get the market return no matter what for their 100% SCV portfolio even if SCV fails to deliver a premium. So, there's already a behavioral volcano brewing here if that doesn't happen or it doesn't happen over the time period they expect to.
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investyoumust
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

burritoLover wrote: Fri Jan 21, 2022 1:42 pm The OP expects to get the market return no matter what for their 100% SCV portfolio even if SCV fails to deliver a premium. So, there's already a behavioral volcano brewing here if that doesn't happen or it doesn't happen over the time period they expect to.
Why should it be easier for me to stick to the total stock market, when that can underperform inflation for 20 years?
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Re: Is it foolish to go all in Small Cap Value?

Post by Escapevelocity »

investyoumust wrote: Fri Jan 21, 2022 1:46 pm
burritoLover wrote: Fri Jan 21, 2022 1:42 pm The OP expects to get the market return no matter what for their 100% SCV portfolio even if SCV fails to deliver a premium. So, there's already a behavioral volcano brewing here if that doesn't happen or it doesn't happen over the time period they expect to.
Why should it be easier for me to stick to the total stock market, when that can underperform inflation for 20 years?
That's easy. The FOMO factor is much less when 90% of your fellow investors are doing the same thing (SP500 or TSM) compared to you bumping around on the SS Minnow.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

Escapevelocity wrote: Fri Jan 21, 2022 1:59 pm
That's easy. The FOMO factor is much less when 90% of your fellow investors are doing the same thing (SP500 or TSM) compared to you bumping around on the SS Minnow.
Yes, that's the biggest reason in my opinion. :mrgreen:
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burritoLover
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Re: Is it foolish to go all in Small Cap Value?

Post by burritoLover »

investyoumust wrote: Fri Jan 21, 2022 1:46 pm
burritoLover wrote: Fri Jan 21, 2022 1:42 pm The OP expects to get the market return no matter what for their 100% SCV portfolio even if SCV fails to deliver a premium. So, there's already a behavioral volcano brewing here if that doesn't happen or it doesn't happen over the time period they expect to.
Why should it be easier for me to stick to the total stock market, when that can underperform inflation for 20 years?
You are underestimating the additional risk of SCV as you believe you'll get the market return no matter what - or at least that what it sounds like. Where's the risk in SCV if you are guaranteed at least market returns? Correct me if I'm misstating your beliefs.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

burritoLover wrote: Fri Jan 21, 2022 2:04 pm You are underestimating the additional risk of SCV as you believe you'll get the market return no matter what - or at least that what it sounds like. Where's the risk in SCV if you are guaranteed at least market returns? Correct me if I'm misstating your beliefs.
The risk is short-term underperformance. I think over a 10-15 year period it's almost certain to get a satisfactory return.
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Re: Is it foolish to go all in Small Cap Value?

Post by vanbogle59 »

muffins14 wrote: Fri Jan 21, 2022 8:41 am "wait am I young?" ... "am I old now? how old is 'older'?"

I guess I have arrived to not-young status
I'm a long-time football fan. First the players start to look young. Then the coaches. Then the refs.....
But if you're asking the question, you are definitely NOT YOUNG.
:sharebeer

P.S. "Old" is permanently "10 years older than me". But "young" is no longer "10 years younger than me", because some of those people are really old too.
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Re: Is it foolish to go all in Small Cap Value?

Post by willthrill81 »

burritoLover wrote: Fri Jan 21, 2022 2:04 pm
investyoumust wrote: Fri Jan 21, 2022 1:46 pm
burritoLover wrote: Fri Jan 21, 2022 1:42 pm The OP expects to get the market return no matter what for their 100% SCV portfolio even if SCV fails to deliver a premium. So, there's already a behavioral volcano brewing here if that doesn't happen or it doesn't happen over the time period they expect to.
Why should it be easier for me to stick to the total stock market, when that can underperform inflation for 20 years?
You are underestimating the additional risk of SCV as you believe you'll get the market return no matter what - or at least that what it sounds like. Where's the risk in SCV if you are guaranteed at least market returns? Correct me if I'm misstating your beliefs.
Why do you believe that the OP thinks that the returns of SCV will always be at least equal to those of TSM? That would indeed be a crazy view indeed as history is painfully clear that that is not true, but the OP clearly doesn't believe that.
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Re: Is it foolish to go all in Small Cap Value?

Post by burritoLover »

investyoumust wrote: Fri Jan 21, 2022 2:05 pm
burritoLover wrote: Fri Jan 21, 2022 2:04 pm You are underestimating the additional risk of SCV as you believe you'll get the market return no matter what - or at least that what it sounds like. Where's the risk in SCV if you are guaranteed at least market returns? Correct me if I'm misstating your beliefs.
The risk is short-term underperformance. I think over a 10-15 year period it's almost certain to get a satisfactory return.
Yeah, that's the problem right there. There's no certainty with any risk asset. It is not even "almost" certain. Then 20 and 30 years happens - then what? You stay the course when you had this "almost" certainty in your brain? Or do you start making changes? You really think you are going to have a robot like intensity to stay the course even when the worse-case was worse than you anticipated? You should have a really low bar for worse-case scenario - not rely on what has happened in the past.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

burritoLover wrote: Fri Jan 21, 2022 2:21 pm Yeah, that's the problem right there. There's no certainty with any risk asset. It is not even "almost" certain. Then 20 and 30 years happens - then what? You stay the course when you had this "almost" certainty in your brain? Or do you start making changes? You really think you are going to have a robot like intensity to stay the course even when the worse-case was worse than you anticipated? You should have a really low bar for worse-case scenario - not rely on what has happened in the past.
What will total stock market investors do when over the next 20 years the S&P 500 underperforms inflation while Bitcoin crushes it?

The behavioral errors are everywhere...

I personally feel comfortable with small cap value, since it is diversifying across thousands of companies and buying cheap earnings power (value investing appeals to me) so even if no outperformance, I will feel comfortable that I am avoiding much of the hype and bubbles, and instead investing in the "real", "old" economy.
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Re: Is it foolish to go all in Small Cap Value?

Post by imak »

If you have already decided on Factor tilting your portfolio, I highly recommend going through the excellent framework/categories laid out by Robert T in this pinned thread:
viewtopic.php?f=10&t=7353

Make sure to read through each linked article/post and then decide IPS on your own.
"Take a simple idea and take it seriously" ~ Charlie Munger
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

imak wrote: Fri Jan 21, 2022 2:30 pm If you have already decided on Factor tilting your portfolio, I highly recommend going through the excellent framework/categories laid out by Robert T in this pinned thread:
viewtopic.php?f=10&t=7353

Make sure to read through each linked article/post and then decide IPS on your own.
Thanks, will read.
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Re: Is it foolish to go all in Small Cap Value?

Post by vanbogle59 »

investyoumust wrote: Fri Jan 21, 2022 2:28 pm
burritoLover wrote: Fri Jan 21, 2022 2:21 pm Yeah, that's the problem right there. There's no certainty with any risk asset. It is not even "almost" certain. Then 20 and 30 years happens - then what? You stay the course when you had this "almost" certainty in your brain? Or do you start making changes? You really think you are going to have a robot like intensity to stay the course even when the worse-case was worse than you anticipated? You should have a really low bar for worse-case scenario - not rely on what has happened in the past.
What will total stock market investors do when over the next 20 years the S&P 500 underperforms inflation while Bitcoin crushes it?

The behavioral errors are everywhere...

I personally feel comfortable with small cap value, since it is diversifying across thousands of companies and buying cheap earnings power (value investing appeals to me) so even if no outperformance, I will feel comfortable that I am avoiding much of the hype and bubbles, and instead investing in the "real", "old" economy.
Why not just value, instead of SCV?
Is that because it too is dominated by a few large companies? Or is it empirical decision?
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Re: Is it foolish to go all in Small Cap Value?

Post by JSPECO9 »

That people look at the last 5 years of SCV performance vs the S&P 500 and say "see, SCV is risky" is silly to me. Capitulating on SCV because of underperformance is no different than capitulating on international stocks, yet we the Bogleheads don't point to possible underperformance when recommending the latter. It doesn't make a lot of sense. The risk of capitulating on any strategy is simply FOMO in my opinion, and that's independent of the asset class itself.
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Re: Is it foolish to go all in Small Cap Value?

Post by willthrill81 »

vanbogle59 wrote: Fri Jan 21, 2022 2:32 pm
investyoumust wrote: Fri Jan 21, 2022 2:28 pm
burritoLover wrote: Fri Jan 21, 2022 2:21 pm Yeah, that's the problem right there. There's no certainty with any risk asset. It is not even "almost" certain. Then 20 and 30 years happens - then what? You stay the course when you had this "almost" certainty in your brain? Or do you start making changes? You really think you are going to have a robot like intensity to stay the course even when the worse-case was worse than you anticipated? You should have a really low bar for worse-case scenario - not rely on what has happened in the past.
What will total stock market investors do when over the next 20 years the S&P 500 underperforms inflation while Bitcoin crushes it?

The behavioral errors are everywhere...

I personally feel comfortable with small cap value, since it is diversifying across thousands of companies and buying cheap earnings power (value investing appeals to me) so even if no outperformance, I will feel comfortable that I am avoiding much of the hype and bubbles, and instead investing in the "real", "old" economy.
Why not just value, instead of SCV?
Is that because it too is dominated by a few large companies? Or is it empirical decision?
If you believe in one factor, why not believe in two?
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Re: Is it foolish to go all in Small Cap Value?

Post by burritoLover »

investyoumust wrote: Fri Jan 21, 2022 2:28 pm
burritoLover wrote: Fri Jan 21, 2022 2:21 pm Yeah, that's the problem right there. There's no certainty with any risk asset. It is not even "almost" certain. Then 20 and 30 years happens - then what? You stay the course when you had this "almost" certainty in your brain? Or do you start making changes? You really think you are going to have a robot like intensity to stay the course even when the worse-case was worse than you anticipated? You should have a really low bar for worse-case scenario - not rely on what has happened in the past.
What will total stock market investors do when over the next 20 years the S&P 500 underperforms inflation while Bitcoin crushes it?

The behavioral errors are everywhere...

I personally feel comfortable with small cap value, since it is diversifying across thousands of companies and buying cheap earnings power (value investing appeals to me) so even if no outperformance, I will feel comfortable that I am avoiding much of the hype and bubbles, and instead investing in the "real", "old" economy.
TSM investors won't do anything because they are not expecting they'll at least get the return of another asset at a minimum like you are. That is your unique behavioral clutch in this scenario. Anyway good luck :sharebeer I have a relatively heavy SCV tilt (at least for around here) and I'm hoping not to make any behavioral errors as well.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

vanbogle59 wrote: Fri Jan 21, 2022 2:32 pm
Why not just value, instead of SCV?
Is that because it too is dominated by a few large companies? Or is it empirical decision?
Mainly because small cap value has worked better. Value has not been statistically significant in large cap stocks.

The SCV premium is (mostly) a result of migration. You get rewarded when small companies become big companies, and value companies improve to become growth companies.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

burritoLover wrote: Fri Jan 21, 2022 2:35 pm TSM investors won't do anything because they are not expecting they'll at least get the return of another asset at a minimum like you are. That is your unique behavioral clutch in this scenario. Anyway good luck :sharebeer I have a relatively heavy SCV tilt (at least for around here) and I'm hoping not to make any behavioral errors as well.
If you invest in stocks you are at least hoping to beat the risk-free rate I assume.
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Re: Is it foolish to go all in Small Cap Value?

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investyoumust wrote: Fri Jan 21, 2022 2:38 pm
burritoLover wrote: Fri Jan 21, 2022 2:35 pm TSM investors won't do anything because they are not expecting they'll at least get the return of another asset at a minimum like you are. That is your unique behavioral clutch in this scenario. Anyway good luck :sharebeer I have a relatively heavy SCV tilt (at least for around here) and I'm hoping not to make any behavioral errors as well.
If you invest in stocks you are at least hoping to beat the risk-free rate I assume.
I'm hoping to get at least 0% real so I contribute enough so if I get only that, I don't eat cat food in retirement.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

burritoLover wrote: Fri Jan 21, 2022 2:41 pm I'm hoping to get at least 0% real so I contribute enough so if I get only that, I don't eat cat food in retirement.
Ok. So what if TSM fails to produce 0% real for 20 years? (as has happened in the past)

That introduces huge behavioral errors, right? (based on your previous comments)
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Re: Is it foolish to go all in Small Cap Value?

Post by burritoLover »

investyoumust wrote: Fri Jan 21, 2022 2:43 pm
burritoLover wrote: Fri Jan 21, 2022 2:41 pm I'm hoping to get at least 0% real so I contribute enough so if I get only that, I don't eat cat food in retirement.
Ok. So what if TSM fails to produce 0% real for 20 years? (as has happened in the past)

That introduces huge behavioral errors, right? (based on your previous comments)
Notice the words "hoping" not "almost certain".
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

burritoLover wrote: Fri Jan 21, 2022 2:46 pm Notice the words "hoping" not "almost certain".
Fair enough. I am hopeful as well. :mrgreen:
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Re: Is it foolish to go all in Small Cap Value?

Post by grog »

Small cap value will generally have somewhat elevated beta under CAPM (maybe around 1.1-1.2) with an R^2 of around 75%. A multi-factor model will reassign much of this excess beta to "size" and R^2 goes up to around 95%+. A 100% SCV portfolio will be quite volatile, more so than 100% S&P 500.

Although SCV should move with the broader market most of the time, it's only maybe 4% or so in terms of market cap and the selection is not industry neutral, nor is it neutral with respect to debt/financial structure and things like that. The differences are enough that the underperformance could be substantial and since it's so small I think it's hard to give a lower bound for this downside risk.

I like the broad market because if that does poorly, I am in very good company (basically everybody), and it seems silly to me to complain about earning the average return to capital. If the market average is there for the taking, why not just take it? You can say that's not enough, but too bad since you can't reliably beat it.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

grog wrote: Fri Jan 21, 2022 2:49 pm Small cap value will generally have somewhat elevated beta under CAPM (maybe around 1.1-1.2) with an R^2 of around 75%. A multi-factor model will reassign much of this excess beta to "size" and R^2 goes up to around 95%+. A 100% SCV portfolio will be quite volatile, more so than 100% S&P 500.

Although SCV should move with the broader market most of the time, it's only maybe 4% or so in terms of market cap and the selection is not industry neutral, nor is it neutral with respect to debt/financial structure and things like that. The differences are enough that the underperformance could be substantial and since it's so small I think it's hard to give a lower bound for this downside risk.

I like the broad market because if that does poorly, I am in very good company (basically everybody), and it seems silly to me to complain about earning the average return to capital. If the market average is there for the taking, why not just take it? You can say that's not enough, but too bad since you can't reliably beat it.
If the market average is there for the taking there is good reason to believe that some parts of the market are likely to have higher returns than others, why not just take it?
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Re: Is it foolish to go all in Small Cap Value?

Post by seajay »

investyoumust wrote: Fri Jan 21, 2022 2:28 pm What will total stock market investors do when over the next 20 years the S&P 500 underperforms inflation while Bitcoin crushes it?
A very poor comparison IMO. Bitcoin is a encrypted public ledger that records all transactions/amounts ...etc. The integrity is maintained via agreement between multiple copies of that ledger. Take a copy of the ledger today and whilst you can't read it with present technology likely in 20 years time it will be trivial to crack/read. i.e. the privacy is time limited and in some cases account activities/data from 20 years ago might be employed to hack/steal in the present (20 year future) day; Or be used by the state to retrospectively identify tax-evasion transactions/amounts as a means to further deeply investigate recent (20 year future) activities (raid your systems etc). Which could lead to confiscation of your wealth under 'proceeds of illicit activities'.

Some trading outfits keep their most useless trader who consistently loses money, as a small account for that trader can be a means for the other traders with larger accounts to take the opposite sides and make money. On a grand scale El Salvador and its adoption of Btc as a national currency might be seen as similar.
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Re: Is it foolish to go all in Small Cap Value?

Post by Escapevelocity »

OP - you know it's perfectly OK to have strong conviction that any given approach is superior without necessarily being 100% into that "superior" strategy. It's called hedging your bets.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

seajay wrote: Fri Jan 21, 2022 2:57 pm A very poor comparison IMO. Bitcoin is a encrypted public ledger that records all transactions/amounts ...etc. The integrity is maintained via agreement between multiple copies of that ledger. Take a copy of the ledger today and whilst you can't read it with present technology likely in 20 years time it will be trivial to crack/read. i.e. the privacy is time limited and in some cases account activities/data from 20 years ago might be employed to hack/steal in the present (20 year future) day; Or be used by the state to retrospectively identify tax-evasion transactions/amounts as a means to further deeply investigate recent (20 year future) activities (raid your systems etc). Which could lead to confiscation of your wealth under 'proceeds of illicit activities'.

Some trading outfits keep their most useless trader who consistently loses money, as a small account for that trader can be a means for the other traders with larger accounts to take the opposite sides and make money. On a grand scale El Salvador and its adoption of Btc as a national currency might be seen as similar.
The b-word ledger isn't encrypted. It is hashed, so that the hash matches a certain difficulty.

I don't know when/if the SHA-256 hashing algorithm will be cracked, but 256-bit encryption is used by most of the internet today so nothing to worry about in the foreseeable future.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

Escapevelocity wrote: Fri Jan 21, 2022 3:01 pm OP - you know it's perfectly OK to have strong conviction that any given approach is superior without necessarily being 100% into that "superior" strategy. It's called hedging your bets.
By factor definitions I am not "all in".

Most of the returns will come from market beta anyways.

Small, Value and Profitability play a much smaller role in the total returns for a small cap value fund.
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Re: Is it foolish to go all in Small Cap Value?

Post by WoodSpinner »

Morse Code wrote: Fri Jan 21, 2022 1:35 pm
willthrill81 wrote: Fri Jan 21, 2022 11:52 am...Tracking error is little more than FOMO. Does it matter that U.S. TSM has returned 15% real since 2010 while SCV (as measured by VISVX) has returned 10% real over the same period? 10% real should be more than any prudent plan was expecting.

What should matter far more to investors than whether their portfolio is 'tracking' the performance of a benchmark, which could be argued to be arbitrary anyway, is whether they are on track to meet their own investment goals.
Bingo. I don't really care what the performance of the S&P 500 is or that some people don't stick to their investment plan. Both of those things are irrelevant to me and my goals.

Frequently changing one's asset allocation for whatever reason is a behavioral problem that some people have, but should not be projected onto every investor. As an argument against a high equity or high SCV allocation, it contradicts the very principle that we should base our allocation on our individual risk tolerance. It's as if one were to say, "You should choose your allocation based on your own risk tolerance, but you don't know your risk tolerance, so you should choose your allocation based on some anecdotes about people with behavioral problems" :oops:
Actually the bolder portion is a very good idea! perhaps, I am not reading the sarcasm you intended.

If you don’t know your risk tolerance, you should be more conservative and then ramp up the risk as you gain insights.

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Re: Is it foolish to go all in Small Cap Value?

Post by WoodSpinner »

Escapevelocity wrote: Fri Jan 21, 2022 1:59 pm
investyoumust wrote: Fri Jan 21, 2022 1:46 pm
burritoLover wrote: Fri Jan 21, 2022 1:42 pm The OP expects to get the market return no matter what for their 100% SCV portfolio even if SCV fails to deliver a premium. So, there's already a behavioral volcano brewing here if that doesn't happen or it doesn't happen over the time period they expect to.
Why should it be easier for me to stick to the total stock market, when that can underperform inflation for 20 years?
That's easy. The FOMO factor is much less when 90% of your fellow investors are doing the same thing (SP500 or TSM) compared to you bumping around on the SS Minnow.
During what period of time has the TSM underperformed inflation for Twenty Years?

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Re: Is it foolish to go all in Small Cap Value?

Post by seajay »

investyoumust wrote: Fri Jan 21, 2022 3:03 pm
seajay wrote: Fri Jan 21, 2022 2:57 pm A very poor comparison IMO. Bitcoin is a encrypted public ledger that records all transactions/amounts ...etc. The integrity is maintained via agreement between multiple copies of that ledger. Take a copy of the ledger today and whilst you can't read it with present technology likely in 20 years time it will be trivial to crack/read. i.e. the privacy is time limited and in some cases account activities/data from 20 years ago might be employed to hack/steal in the present (20 year future) day; Or be used by the state to retrospectively identify tax-evasion transactions/amounts as a means to further deeply investigate recent (20 year future) activities (raid your systems etc). Which could lead to confiscation of your wealth under 'proceeds of illicit activities'.

Some trading outfits keep their most useless trader who consistently loses money, as a small account for that trader can be a means for the other traders with larger accounts to take the opposite sides and make money. On a grand scale El Salvador and its adoption of Btc as a national currency might be seen as similar.
The b-word ledger isn't encrypted. It is hashed, so that the hash matches a certain difficulty.

I don't know when/if the SHA-256 hashing algorithm will be cracked, but 256-bit encryption is used by most of the internet today so nothing to worry about in the foreseeable future.
China's Jiuzhang 2 can calculate in one millisecond a task that would otherwise take the world’s fastest conventional computer 30 trillion years to process. A public ledger based system is massively flawed IMO.
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Re: Is it foolish to go all in Small Cap Value?

Post by WoodSpinner »

JSPECO9 wrote: Fri Jan 21, 2022 2:33 pm That people look at the last 5 years of SCV performance vs the S&P 500 and say "see, SCV is risky" is silly to me. Capitulating on SCV because of underperformance is no different than capitulating on international stocks, yet we the Bogleheads don't point to possible underperformance when recommending the latter. It doesn't make a lot of sense. The risk of capitulating on any strategy is simply FOMO in my opinion, and that's independent of the asset class itself.
Sigh, there is a difference between a tilt and going all in!

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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

WoodSpinner wrote: Fri Jan 21, 2022 3:21 pm During what period of time has the TSM underperformed inflation for Twenty Years?

WoodSpinner
Eyeballing it, from 1969 until 1992. https://www.macrotrends.net/2324/sp-500 ... chart-data

(and the Great Depression obviously)
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

seajay wrote: Fri Jan 21, 2022 3:24 pm China's Jiuzhang 2 can calculate in one millisecond a task that would otherwise take the world’s fastest conventional computer 30 trillion years to process. A public ledger based system is massively flawed IMO.
I think 256-bit will be secure for quite some time: https://www.youtube.com/watch?v=S9JGmA5_unY
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Re: Is it foolish to go all in Small Cap Value?

Post by oldcomputerguy »

investyoumust wrote: Fri Jan 21, 2022 2:43 pm Ok. So what if TSM fails to produce 0% real for 20 years? (as has happened in the past)
To what time frame do you refer?
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

oldcomputerguy wrote: Fri Jan 21, 2022 3:32 pm
investyoumust wrote: Fri Jan 21, 2022 2:43 pm Ok. So what if TSM fails to produce 0% real for 20 years? (as has happened in the past)
To what time frame do you refer?
Great Depression and stagflation in the 1970s and 80s.
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Re: Is it foolish to go all in Small Cap Value?

Post by Morse Code »

WoodSpinner wrote: Fri Jan 21, 2022 3:19 pm
Morse Code wrote: Fri Jan 21, 2022 1:35 pm
willthrill81 wrote: Fri Jan 21, 2022 11:52 am...Tracking error is little more than FOMO. Does it matter that U.S. TSM has returned 15% real since 2010 while SCV (as measured by VISVX) has returned 10% real over the same period? 10% real should be more than any prudent plan was expecting.

What should matter far more to investors than whether their portfolio is 'tracking' the performance of a benchmark, which could be argued to be arbitrary anyway, is whether they are on track to meet their own investment goals.
Bingo. I don't really care what the performance of the S&P 500 is or that some people don't stick to their investment plan. Both of those things are irrelevant to me and my goals.

Frequently changing one's asset allocation for whatever reason is a behavioral problem that some people have, but should not be projected onto every investor. As an argument against a high equity or high SCV allocation, it contradicts the very principle that we should base our allocation on our individual risk tolerance. It's as if one were to say, "You should choose your allocation based on your own risk tolerance, but you don't know your risk tolerance, so you should choose your allocation based on some anecdotes about people with behavioral problems" :oops:
Actually the bolder portion is a very good idea! perhaps, I am not reading the sarcasm you intended.

If you don’t know your risk tolerance, you should be more conservative and then ramp up the risk as you gain insights.

WoodSpinner
Not so much sarcasm as trying to point out the absurdity of that argument. Guess I failed, lol.
Last edited by Morse Code on Fri Jan 21, 2022 3:40 pm, edited 2 times in total.
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Re: Is it foolish to go all in Small Cap Value?

Post by onourway »

investyoumust wrote: Fri Jan 21, 2022 3:26 pm
WoodSpinner wrote: Fri Jan 21, 2022 3:21 pm During what period of time has the TSM underperformed inflation for Twenty Years?

WoodSpinner
Eyeballing it, from 1969 until 1992. https://www.macrotrends.net/2324/sp-500 ... chart-data

(and the Great Depression obviously)
Fairly certain that is a price chart and does not include reinvestment of dividends which makes a big difference.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

onourway wrote: Fri Jan 21, 2022 3:37 pm
Fairly certain that is a price chart and does not include reinvestment of dividends which makes a big difference.
Yeah, you're right. :oops:

More of a 15 year period: http://www.simplestockinvesting.com/SP5 ... eturns.htm
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Re: Is it foolish to go all in Small Cap Value?

Post by loukycpa »

John Bogle on tilting:
"Impressed both by the long-term performance (and recent performance) of value stocks and small-cap stocks, some investors hold the all-market (or S&P 500) index fund as the core, and add a value index fund and a small-cap index fund as satellites. I'm skeptical that any kind of superior performance will endure forever. (Nothing does!) But if you disagree, it would not be unreasonable to hold, say, 85 percent in the core, another 10 percent in value, and another 5 percent in small cap. But doing so increases the risk that your return will fall short of the market's return, so don't push too far."
-- The Little Book Of Common Sense Investing, p.206.

I suppose he wrote this around 2007? Well before the last 10+ years when large cap growth been so strong. Even if you don't agree with his advice, you have to admit his timing was good at least. :wink:
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

loukycpa wrote: Fri Jan 21, 2022 3:43 pm I suppose he wrote this around 2007? Well before the last 10+ years when large cap growth been so strong. Even if you don't agree with his advice, you have to admit his timing was good at least. :wink:
Yeah, for all the passive preaching Bogle has done, he was a great market timer. :twisted:

Didn't he reduce his stock portfolio at the peak of the dot com bubble?
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Re: Is it foolish to go all in Small Cap Value?

Post by nisiprius »

investyoumust wrote: Fri Jan 21, 2022 3:26 pm
WoodSpinner wrote: Fri Jan 21, 2022 3:21 pm During what period of time has the TSM underperformed inflation for Twenty Years?

WoodSpinner
Eyeballing it, from 1969 until 1992. https://www.macrotrends.net/2324/sp-500 ... chart-data

(and the Great Depression obviously)
Not sure if "until 1992" means "including 1992" or "up to but not including 1991."

Not "eyeballing it," 2015 Ibbotson SBBI Classic Yearbook,
table C-1, p. 260, "Large-cap Stocks" =S&P 500 back to 1957, predecessor indexes earlier
table C-7, p. 296, "Inflation"

From the beginning of 1969 through the end of 1992
Large-cap Stocks (=S&P 500 back to 1957) 10.5%.
Inflation 5.9%

From the beginning of 1969 through the end of 1991
Large-cap Stocks 10.7%
Inflation 6.1%

Or, Moneychimp's CAGR of the stock market, inflation-adjusted

Image

Image

It didn't underperform inflation. In real terms, it multiplied an investor's money more than 2.6X.
Last edited by nisiprius on Fri Jan 21, 2022 3:49 pm, edited 1 time in total.
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

nisiprius wrote: Fri Jan 21, 2022 3:46 pm Not sure if "until 1992" means "including 1992" or "up to but not including 1991."

Not "eyeballing it," 2015 Ibbotson SBBI Classic Yearbook,
table C-1, p. 260, "Large-cap Stocks" =S&P 500 back to 1957, predecessor indexes earlier
table C-7, p. 296, "Inflation"

From the beginning of 1969 through the end of 1992
Large-cap Stocks (=S&P 500 back to 1957) 10.5%.
Inflation 5.9%

From the beginning of 1969 through the end of 1991
Large-cap Stocks 10.7%
Inflation 6.1%

Or, Moneychimp's CAGR of the stock market, inflation-adjusted

Image

Image

It didn't underperform inflation. It more doubled an investor's money in real terms.
I used a price chart. :oops:

It was more of a 15-year period.
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Re: Is it foolish to go all in Small Cap Value?

Post by onourway »

investyoumust wrote: Fri Jan 21, 2022 3:38 pm
onourway wrote: Fri Jan 21, 2022 3:37 pm
Fairly certain that is a price chart and does not include reinvestment of dividends which makes a big difference.
Yeah, you're right. :oops:

More of a 15 year period: http://www.simplestockinvesting.com/SP5 ... eturns.htm
More interesting, IMO, is the upper right corner of that chart, which looks an awful lot like the period you are referring to. I've invested the vast majority of my money during that period in that corner, and so far, it's been a great time to invest...

Image
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Re: Is it foolish to go all in Small Cap Value?

Post by investyoumust »

onourway wrote: Fri Jan 21, 2022 3:50 pm
More interesting, IMO, is the upper right corner of that chart, which looks an awful lot like the period you are referring to. I've invested the vast majority of my money during that period in that corner, and so far, it's been a great time to invest...

Image
I looked at the inflation-adjusted chart.

Image

I am not saying that TSM is a bad portfolio. Just that it can underperform for a long time as well, so patience is always needed and isn't exclusive to "tilts".
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Re: Is it foolish to go all in Small Cap Value?

Post by JSPECO9 »

WoodSpinner wrote: Fri Jan 21, 2022 3:25 pm
JSPECO9 wrote: Fri Jan 21, 2022 2:33 pm That people look at the last 5 years of SCV performance vs the S&P 500 and say "see, SCV is risky" is silly to me. Capitulating on SCV because of underperformance is no different than capitulating on international stocks, yet we the Bogleheads don't point to possible underperformance when recommending the latter. It doesn't make a lot of sense. The risk of capitulating on any strategy is simply FOMO in my opinion, and that's independent of the asset class itself.
Sigh, there is a difference between a tilt and going all in!

WoodSpinner
I wouldn't go 100% any asset class because I prefer diversification, nor do I think anyone should, no matter the conviction. But the downside of being 100% SCV is no different than the downside of being 100% S&P 500. Over any long-period of time, the S&P 500 can suck, the same way that over a long-period of time a good SCV index fund can suck. But for some reason it's acceptable to be 100% S&P 500.
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Re: Is it foolish to go all in Small Cap Value?

Post by WoodSpinner »

Morse Code wrote: Fri Jan 21, 2022 3:36 pm
WoodSpinner wrote: Fri Jan 21, 2022 3:19 pm
Morse Code wrote: Fri Jan 21, 2022 1:35 pm
willthrill81 wrote: Fri Jan 21, 2022 11:52 am...Tracking error is little more than FOMO. Does it matter that U.S. TSM has returned 15% real since 2010 while SCV (as measured by VISVX) has returned 10% real over the same period? 10% real should be more than any prudent plan was expecting.

What should matter far more to investors than whether their portfolio is 'tracking' the performance of a benchmark, which could be argued to be arbitrary anyway, is whether they are on track to meet their own investment goals.
Bingo. I don't really care what the performance of the S&P 500 is or that some people don't stick to their investment plan. Both of those things are irrelevant to me and my goals.

Frequently changing one's asset allocation for whatever reason is a behavioral problem that some people have, but should not be projected onto every investor. As an argument against a high equity or high SCV allocation, it contradicts the very principle that we should base our allocation on our individual risk tolerance. It's as if one were to say, "You should choose your allocation based on your own risk tolerance, but you don't know your risk tolerance, so you should choose your allocation based on some anecdotes about people with behavioral problems" :oops:
Actually the bolder portion is a very good idea! perhaps, I am not reading the sarcasm you intended.

If you don’t know your risk tolerance, you should be more conservative and then ramp up the risk as you gain insights.

WoodSpinner
Not so much sarcasm as trying to point out the absurdity of that argument. Guess I failed, lol.
I think you did….

Why do you feel this is bad advice?

I suspect quotes from Respected Advisors won’t be helpful….

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Re: Is it foolish to go all in Small Cap Value?

Post by Morse Code »

WoodSpinner wrote: Fri Jan 21, 2022 6:22 pm
Morse Code wrote: Fri Jan 21, 2022 3:36 pm
WoodSpinner wrote: Fri Jan 21, 2022 3:19 pm
Morse Code wrote: Fri Jan 21, 2022 1:35 pm
willthrill81 wrote: Fri Jan 21, 2022 11:52 am...Tracking error is little more than FOMO. Does it matter that U.S. TSM has returned 15% real since 2010 while SCV (as measured by VISVX) has returned 10% real over the same period? 10% real should be more than any prudent plan was expecting.

What should matter far more to investors than whether their portfolio is 'tracking' the performance of a benchmark, which could be argued to be arbitrary anyway, is whether they are on track to meet their own investment goals.
Bingo. I don't really care what the performance of the S&P 500 is or that some people don't stick to their investment plan. Both of those things are irrelevant to me and my goals.

Frequently changing one's asset allocation for whatever reason is a behavioral problem that some people have, but should not be projected onto every investor. As an argument against a high equity or high SCV allocation, it contradicts the very principle that we should base our allocation on our individual risk tolerance. It's as if one were to say, "You should choose your allocation based on your own risk tolerance, but you don't know your risk tolerance, so you should choose your allocation based on some anecdotes about people with behavioral problems" :oops:
Actually the bolder portion is a very good idea! perhaps, I am not reading the sarcasm you intended.

If you don’t know your risk tolerance, you should be more conservative and then ramp up the risk as you gain insights.

WoodSpinner
Not so much sarcasm as trying to point out the absurdity of that argument. Guess I failed, lol.
I think you did….

Why do you feel this is bad advice?

I suspect quotes from Respected Advisors won’t be helpful….

WoodSpinner
Maybe the biggest problem I have with it is it's based on the very arrogant assumption that other investors cannot possibly know what is best for them, but the person giving the advice does.
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Re: Is it foolish to go all in Small Cap Value?

Post by willthrill81 »

Morse Code wrote: Fri Jan 21, 2022 8:43 pm
WoodSpinner wrote: Fri Jan 21, 2022 6:22 pm
Morse Code wrote: Fri Jan 21, 2022 3:36 pm
WoodSpinner wrote: Fri Jan 21, 2022 3:19 pm
Morse Code wrote: Fri Jan 21, 2022 1:35 pm

Bingo. I don't really care what the performance of the S&P 500 is or that some people don't stick to their investment plan. Both of those things are irrelevant to me and my goals.

Frequently changing one's asset allocation for whatever reason is a behavioral problem that some people have, but should not be projected onto every investor. As an argument against a high equity or high SCV allocation, it contradicts the very principle that we should base our allocation on our individual risk tolerance. It's as if one were to say, "You should choose your allocation based on your own risk tolerance, but you don't know your risk tolerance, so you should choose your allocation based on some anecdotes about people with behavioral problems" :oops:
Actually the bolder portion is a very good idea! perhaps, I am not reading the sarcasm you intended.

If you don’t know your risk tolerance, you should be more conservative and then ramp up the risk as you gain insights.

WoodSpinner
Not so much sarcasm as trying to point out the absurdity of that argument. Guess I failed, lol.
I think you did….

Why do you feel this is bad advice?

I suspect quotes from Respected Advisors won’t be helpful….

WoodSpinner
Maybe the biggest problem I have with it is it's based on the very arrogant assumption that other investors cannot possibly know what is best for them, but the person giving the advice does.
To be honest, that's probably my biggest problem with the BH ethos. It is generally taken by at least many here that the BH way is the very best way for everybody, period. While I believe it to be an excellent overall path for most investors, I certainly don't believe it is the only prudent path for all investors.
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Re: Is it foolish to go all in Small Cap Value?

Post by muffins14 »

willthrill81 wrote: Fri Jan 21, 2022 9:20 pm
Morse Code wrote: Fri Jan 21, 2022 8:43 pm
WoodSpinner wrote: Fri Jan 21, 2022 6:22 pm
Morse Code wrote: Fri Jan 21, 2022 3:36 pm
WoodSpinner wrote: Fri Jan 21, 2022 3:19 pm

Actually the bolder portion is a very good idea! perhaps, I am not reading the sarcasm you intended.

If you don’t know your risk tolerance, you should be more conservative and then ramp up the risk as you gain insights.

WoodSpinner
Not so much sarcasm as trying to point out the absurdity of that argument. Guess I failed, lol.
I think you did….

Why do you feel this is bad advice?

I suspect quotes from Respected Advisors won’t be helpful….

WoodSpinner
Maybe the biggest problem I have with it is it's based on the very arrogant assumption that other investors cannot possibly know what is best for them, but the person giving the advice does.
To be honest, that's probably my biggest problem with the BH ethos. It is generally taken by at least many here that the BH way is the very best way for everybody, period. While I believe it to be an excellent overall path for most investors, I certainly don't believe it is the only prudent path for all investors.

Think about it like a prior in Bayesian statistics. Most people would be very well off with a three-fund portfolio. Many worse mistakes can happen.

If you as an individual can have evidence that you are different, you need sufficient evidence to pull yourself away from the prior. Weak evidence? Prior dominates.

The forum serves as a strong informative prior.
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