Ben Felix- "Ultimate Inflation Hedge" video
- sleepysurf
- Posts: 887
- Joined: Sat Nov 23, 2013 5:59 am
- Location: Florida
Ben Felix- "Ultimate Inflation Hedge" video
Ben Felix has another superb YouTube video looking at various theoretical inflation hedges... https://youtu.be/1a3XnvRCcVo
Consistent with his (Canadian) advisory firm's investing philosophy, he suggests a value tilt (small and large) may be beneficial, vs. other popular recommendations (i.e. commodities, gold, crypto, etc.)
Overall, his advice is to diversify and stay the course!
BTW, Ben Felix would be a phenomenal guest for Rick's Bogleheads on Investing podcast, and/or invited to present for the 2023 Annual Conference.
Consistent with his (Canadian) advisory firm's investing philosophy, he suggests a value tilt (small and large) may be beneficial, vs. other popular recommendations (i.e. commodities, gold, crypto, etc.)
Overall, his advice is to diversify and stay the course!
BTW, Ben Felix would be a phenomenal guest for Rick's Bogleheads on Investing podcast, and/or invited to present for the 2023 Annual Conference.
Retired 2018 | currently ~64/33/3 (partially sliced and diced, with a slowly rising equity glide path)
- drumboy256
- Posts: 673
- Joined: Sat Jun 06, 2020 2:21 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
Being about 55% "value" in my entire portfolio, antidotally, I can say this draw down has been around half of what people have lost who are vanilla 3-funders in this downturn. Stay the course!
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
- sleepysurf
- Posts: 887
- Joined: Sat Nov 23, 2013 5:59 am
- Location: Florida
Re: Ben Felix- "Ultimate Inflation Hedge" video
That's quite a "tilt." Is that all Large Cap, or also Small/Mid Value?drumboy256 wrote: ↑Mon May 23, 2022 2:24 pm Being about 55% "value" in my entire portfolio, antidotally, I can say this draw down has been around half of what people have lost who are vanilla 3-funders in this downturn. Stay the course!
I unwound my 10% Small/Mid Cap Value "tilt" after retiring 4+ yrs ago, but still maintain a 10% allocation to the Vanguard Large Cap Value Index (VVIAX). It's helped cushion the blow this year, and will remain a permanent allocation in my portfolio.
Retired 2018 | currently ~64/33/3 (partially sliced and diced, with a slowly rising equity glide path)
-
- Posts: 155
- Joined: Tue Jun 08, 2021 3:10 am
Re: Ben Felix- "Ultimate Inflation Hedge" video
Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
In the past there were a lot more industrial companies in the total stock market, which are more vulnerable to inflation:
https://www.qad.com/blog/2019/10/sp-500 ... -over-time
In this articles are also some good reasons, why today the market is different than 1970s:
https://www.blackrock.com/us/individual ... -the-1970s
https://www.spenceandpartners.co.uk/ins ... e-economy/
I would bet today the market is not as vulnerable to inflation as it was in the past. The outperformance of value stocks in the past could be highly misleading.
Todays market are more flexible and will adapt faster to new environments, so don't make thinks over complicated and stick to the traditional total stock market funds.
In the past there were a lot more industrial companies in the total stock market, which are more vulnerable to inflation:
https://www.qad.com/blog/2019/10/sp-500 ... -over-time
In this articles are also some good reasons, why today the market is different than 1970s:
https://www.blackrock.com/us/individual ... -the-1970s
https://www.spenceandpartners.co.uk/ins ... e-economy/
I would bet today the market is not as vulnerable to inflation as it was in the past. The outperformance of value stocks in the past could be highly misleading.
Todays market are more flexible and will adapt faster to new environments, so don't make thinks over complicated and stick to the traditional total stock market funds.
- burritoLover
- Posts: 4097
- Joined: Sun Jul 05, 2020 12:13 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
The theory here is that value stocks have a shorter "duration" (than growth stocks) because their expected future cash flows occur closer to the present whereas with growth stocks the cash flows are further out from the present day and therefore are more impacted by inflation.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
- drumboy256
- Posts: 673
- Joined: Sat Jun 06, 2020 2:21 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
The funds I currently hold are:sleepysurf wrote: ↑Mon May 23, 2022 8:16 pmThat's quite a "tilt." Is that all Large Cap, or also Small/Mid Value?drumboy256 wrote: ↑Mon May 23, 2022 2:24 pm Being about 55% "value" in my entire portfolio, antidotally, I can say this draw down has been around half of what people have lost who are vanilla 3-funders in this downturn. Stay the course!
I unwound my 10% Small/Mid Cap Value "tilt" after retiring 4+ yrs ago, but still maintain a 10% allocation to the Vanguard Large Cap Value Index (VVIAX). It's helped cushion the blow this year, and will remain a permanent allocation in my portfolio.
VVIAX - Vanguard Large Cap Value
VSIAX - Vanguard Small Cap Value
AVUV - Advantis Small Cap Value
AVDV - Advantis Intl. Small Cap Value
VTI - Total Market
As for "tilt" I would say a strong lean on value. New money going into accounts is split 50/50 between SCV and Total market to maintain and/or enhance that leaning. Also, running a modified version of HFEA in my other accounts of which once they get to be > than that 10% threshold, go into AVUV or VTI depending on the need.
I do see the value of value (ironically) and plan to continue to invest that way.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
- sleepysurf
- Posts: 887
- Joined: Sat Nov 23, 2013 5:59 am
- Location: Florida
Re: Ben Felix- "Ultimate Inflation Hedge" video
Your Merri-Bogle signature says it all!drumboy256 wrote: ↑Tue May 24, 2022 8:10 am I do see the value of value (ironically) and plan to continue to invest that way.
Retired 2018 | currently ~64/33/3 (partially sliced and diced, with a slowly rising equity glide path)
- drumboy256
- Posts: 673
- Joined: Sat Jun 06, 2020 2:21 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
sleepysurf wrote: ↑Tue May 24, 2022 8:41 amYour Merri-Bogle signature says it all!drumboy256 wrote: ↑Tue May 24, 2022 8:10 am I do see the value of value (ironically) and plan to continue to invest that way.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
Re: Ben Felix- "Ultimate Inflation Hedge" video
Not trying to critique, just curious: What do you think of VFVA (Vanguard Value Factor ETF) instead of the first three funds above?drumboy256 wrote: ↑Tue May 24, 2022 8:10 am The funds I currently hold are:
VVIAX - Vanguard Large Cap Value
VSIAX - Vanguard Small Cap Value
AVUV - Advantis Small Cap Value
AVDV - Advantis Intl. Small Cap Value
VTI - Total Market
“My opinions are just that - opinions.”
- drumboy256
- Posts: 673
- Joined: Sat Jun 06, 2020 2:21 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
I looked at it VFVA but it was too vanilla for me. I also gathered having more stocks exposure is the equiv. debate between "why not just use VT vs. VTI/VXUS". I also overweighted LCV going into the next decade because I wanted deeper value exposure at the top as i balance out the funds with VTI.Gaston wrote: ↑Fri May 27, 2022 10:18 pmNot trying to critique, just curious: What do you think of VFVA (Vanguard Value Factor ETF) instead of the first three funds above?drumboy256 wrote: ↑Tue May 24, 2022 8:10 am The funds I currently hold are:
VVIAX - Vanguard Large Cap Value
VSIAX - Vanguard Small Cap Value
AVUV - Advantis Small Cap Value
AVDV - Advantis Intl. Small Cap Value
VTI - Total Market
For me, it was personal preference, but for those wanting to kill two birds with one stone, it could work.
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill
Re: Ben Felix- "Ultimate Inflation Hedge" video
Thank you.drumboy256 wrote: ↑Sat May 28, 2022 10:55 amI looked at it VFVA but it was too vanilla for me. I also gathered having more stocks exposure is the equiv. debate between "why not just use VT vs. VTI/VXUS". I also overweighted LCV going into the next decade because I wanted deeper value exposure at the top as i balance out the funds with VTI.Gaston wrote: ↑Fri May 27, 2022 10:18 pmNot trying to critique, just curious: What do you think of VFVA (Vanguard Value Factor ETF) instead of the first three funds above?drumboy256 wrote: ↑Tue May 24, 2022 8:10 am The funds I currently hold are:
VVIAX - Vanguard Large Cap Value
VSIAX - Vanguard Small Cap Value
AVUV - Advantis Small Cap Value
AVDV - Advantis Intl. Small Cap Value
VTI - Total Market
“My opinions are just that - opinions.”
Re: Ben Felix- "Ultimate Inflation Hedge" video
That's a losing bet so far. Since April 2021 (when inflation spiked from around 2% to 4%, and kept going up after that), the Vanguard Total Stock Market ETF (VTI) has returned CAGR of about 1%, while Vanguard Value ETF (VTV) has returned CAGR of almost 9%.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
In the past there were a lot more industrial companies in the total stock market, which are more vulnerable to inflation:
https://www.qad.com/blog/2019/10/sp-500 ... -over-time
In this articles are also some good reasons, why today the market is different than 1970s:
https://www.blackrock.com/us/individual ... -the-1970s
https://www.spenceandpartners.co.uk/ins ... e-economy/
I would bet today the market is not as vulnerable to inflation as it was in the past. The outperformance of value stocks in the past could be highly misleading.
Todays market are more flexible and will adapt faster to new environments, so don't make thinks over complicated and stick to the traditional total stock market funds.
Since Oct 2021 (when inflation rose above 5%) the difference is even a bit more - about -6% (negative) CAGR for VTI vs 5% (positive) CAGR for VTV.
It's always different this time, except when it's not.
Re: Ben Felix- "Ultimate Inflation Hedge" video
Interesting, research seems to show that Value stocks are the best hedge against higher levels of inflation and that Small Value is the best. Hmmm.
A fool and his money are good for business.
Re: Ben Felix- "Ultimate Inflation Hedge" video
Time to read again an oldie but goodie. The famous or perhaps infamous Barry Ritholtz article, "The Death of Equities - How Inflation is Destroying the Stock Market." This was a cover story for the August 13, 1979 issue of BusinessWeek magazine. It is often citied as a signal of excessive bearishness, sort of a contrary indicator signaling that the Stock Market had bottomed but it did take until about the summer of 1984 before the US Stock Market would start a new historic bull market.
Federal Reserve Chairman Paul Volcker jacked up interest rates until the country was put into deep recession. My recollection was that new home construction stopped cold and the only construction I could see were commercial projects already in progress. No one wanted to borrow for long term construction projects at what amounted to credit card rates. As I recall, interest rates reached their peak in 1982. The inflation beast was severely wounded and we saw a long era of falling rates of inflation and interest rates that didn't end until 2021.
Higher levels of inflation are not good for stocks and Barry Ritholtz explains why. A tip of the hat to Nisiprius.
https://ritholtz.com/1979/08/the-death-of-equities/
Federal Reserve Chairman Paul Volcker jacked up interest rates until the country was put into deep recession. My recollection was that new home construction stopped cold and the only construction I could see were commercial projects already in progress. No one wanted to borrow for long term construction projects at what amounted to credit card rates. As I recall, interest rates reached their peak in 1982. The inflation beast was severely wounded and we saw a long era of falling rates of inflation and interest rates that didn't end until 2021.
Higher levels of inflation are not good for stocks and Barry Ritholtz explains why. A tip of the hat to Nisiprius.
https://ritholtz.com/1979/08/the-death-of-equities/
A fool and his money are good for business.
Re: Ben Felix- "Ultimate Inflation Hedge" video
I have a more modest slant, but my losses have been about 3% less than the cap weight global market, so I'm content.drumboy256 wrote: ↑Mon May 23, 2022 2:24 pm Being about 55% "value" in my entire portfolio, antidotally, I can say this draw down has been around half of what people have lost who are vanilla 3-funders in this downturn. Stay the course!
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
- Charles Joseph
- Posts: 2394
- Joined: Tue Apr 05, 2022 10:49 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
Value companies, which generally pay above-average dividends, usually outperform in a high inflationary environment, because the value of a dollar received today (in the form of current cash flow from companies via dividends) is worth more than receipt of cash flow down the road via deferred capital gains or deferred dividends from growth stocks several years from, when high inflation will have eaten away at your money.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
Investors easily recognize this, which is why they often pile into value stocks during times of rising inflation.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
Re: Ben Felix- "Ultimate Inflation Hedge" video
Another important reason that value stocks tend to do better in periods of higher inflation is that interest rates are typically higher during these periods (as we're seeing now). That raises the cost of capital that growth companies particularly need and thus eats more into their expected future earnings growth than it does with value companies.Samuel Glover wrote: ↑Sat May 28, 2022 5:11 pmValue companies, which generally pay above-average dividends, usually outperform in a high inflationary environment, because the value of a dollar received today (in the form of current cash flow from companies via dividends) is worth more than receipt of cash flow down the road via deferred capital gains or deferred dividends from growth stocks several years from, when high inflation will have eaten away at your money.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
Investors easily recognize this, which is why they often pile into value stocks during times of rising inflation.
Re: Ben Felix- "Ultimate Inflation Hedge" video
Agreed that generally extremely high inflation does not bode well for stocks. In fact, I can initially strengthen your argument with an article from larry Swedroe: https://alphaarchitect.com/2021/12/the- ... est-rates/nedsaid wrote: ↑Sat May 28, 2022 4:41 pm Time to read again an oldie but goodie. The famous or perhaps infamous Barry Ritholtz article, "The Death of Equities - How Inflation is Destroying the Stock Market." This was a cover story for the August 13, 1979 issue of BusinessWeek magazine. It is often citied as a signal of excessive bearishness, sort of a contrary indicator signaling that the Stock Market had bottomed but it did take until about the summer of 1984 before the US Stock Market would start a new historic bull market.
Federal Reserve Chairman Paul Volcker jacked up interest rates until the country was put into deep recession. My recollection was that new home construction stopped cold and the only construction I could see were commercial projects already in progress. No one wanted to borrow for long term construction projects at what amounted to credit card rates. As I recall, interest rates reached their peak in 1982. The inflation beast was severely wounded and we saw a long era of falling rates of inflation and interest rates that didn't end until 2021.
Higher levels of inflation are not good for stocks and Barry Ritholtz explains why. A tip of the hat to Nisiprius.
https://ritholtz.com/1979/08/the-death-of-equities/
So, that's it. Case closed. Right?
Not so fast...
...Other research seems to conflict with this finding:
https://alphaarchitect.com/2021/04/infl ... e-premium/
The below image from - https://alphaarchitect.com/2022/01/the- ... following/
What's the answer? Well, I think one can say that Value indices are likely to perform better than large-cap indices during inflationary regimes in the US, as we have already witnessed in Q1 of this year. Whether Value is going to be the best hedge for inflation ever? Ehh not so sure on that, however, I also would argue that the timing nature of Trend makes it a bit less appealing to most bogleheads...
Oh, and to further complicate things, PortfolioCharts's data finds that TSM reigns supreme over value stocks.
https://portfoliocharts.com/2022/05/27/ ... portfolios
- Charles Joseph
- Posts: 2394
- Joined: Tue Apr 05, 2022 10:49 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
Thanks for this. I'm nearing retirement, have a tilt toward value/dividend companies (a behavioral/mathematical error I guess but it keeps me on course; I haven't sold any stocks in, well, ages), and am always learning. What you said makes total sense. It's always good to learn something new. Thanks again.02nz wrote: ↑Sat May 28, 2022 11:28 pmAnother important reason that value stocks tend to do better in periods of higher inflation is that interest rates are typically higher during these periods (as we're seeing now). That raises the cost of capital that growth companies particularly need and thus eats more into their expected future earnings growth than it does with value companies.Samuel Glover wrote: ↑Sat May 28, 2022 5:11 pmValue companies, which generally pay above-average dividends, usually outperform in a high inflationary environment, because the value of a dollar received today (in the form of current cash flow from companies via dividends) is worth more than receipt of cash flow down the road via deferred capital gains or deferred dividends from growth stocks several years from, when high inflation will have eaten away at your money.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
Investors easily recognize this, which is why they often pile into value stocks during times of rising inflation.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
Re: Ben Felix- "Ultimate Inflation Hedge" video
Bitcoin, LoL
I didn't think Ben Felix even had to mention Bitcoin.
I didn't think Ben Felix even had to mention Bitcoin.
-
- Posts: 427
- Joined: Sat Feb 09, 2019 1:27 am
Re: Ben Felix- "Ultimate Inflation Hedge" video
My inflation hedge is a big mortgage. It worked great for my parents who bought a house in 1967 and by the 1980s had a ridiculously low monthly payment.
-
- Posts: 155
- Joined: Tue Jun 08, 2021 3:10 am
Re: Ben Felix- "Ultimate Inflation Hedge" video
Would you buy a company sector, just because it has outperformed during inflation? There are always some company sectors of factors which will outperform the market during some circumstances. The beauty of the total market is, that it has all sectors and factors included, which will outperform or underperform in the future and overall you get a "good enough" result. Casing for better than the market results will often lead to underperformance and markettiming. For me, casing company sectors or market factors are like casing after the missed bus.02nz wrote: ↑Sat May 28, 2022 11:28 pmAnother important reason that value stocks tend to do better in periods of higher inflation is that interest rates are typically higher during these periods (as we're seeing now). That raises the cost of capital that growth companies particularly need and thus eats more into their expected future earnings growth than it does with value companies.Samuel Glover wrote: ↑Sat May 28, 2022 5:11 pmValue companies, which generally pay above-average dividends, usually outperform in a high inflationary environment, because the value of a dollar received today (in the form of current cash flow from companies via dividends) is worth more than receipt of cash flow down the road via deferred capital gains or deferred dividends from growth stocks several years from, when high inflation will have eaten away at your money.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
Investors easily recognize this, which is why they often pile into value stocks during times of rising inflation.
It is not possible to forecast, which sector or factor will outperform in the future. It's better to own them all. The total market will do this for you automatically in its simplest, cheapest and most effective form.
Re: Ben Felix- "Ultimate Inflation Hedge" video
This is called a strawman argument. We're not talking about sector tilts, but rather a small-value tilt. Something like VBR is far more diversified than say an energy or health care sector fund. Everybody can decide on their own whether to tilt to SCV or anything else, based on available data and research. Your earlier post contained nothing more than your hypothesis, which I rebutted with actual data.fisher0815 wrote: ↑Mon May 30, 2022 1:50 amWould you buy a company sector, just because it has outperformed during inflation? There are always some company sectors of factors which will outperform the market during some circumstances. The beauty of the total market is, that it has all sectors and factors included, which will outperform or underperform in the future and overall you get a "good enough" result. Casing for better than the market results will often lead to underperformance and markettiming. For me, casing company sectors or market factors are like casing after the missed bus.02nz wrote: ↑Sat May 28, 2022 11:28 pmAnother important reason that value stocks tend to do better in periods of higher inflation is that interest rates are typically higher during these periods (as we're seeing now). That raises the cost of capital that growth companies particularly need and thus eats more into their expected future earnings growth than it does with value companies.Samuel Glover wrote: ↑Sat May 28, 2022 5:11 pmValue companies, which generally pay above-average dividends, usually outperform in a high inflationary environment, because the value of a dollar received today (in the form of current cash flow from companies via dividends) is worth more than receipt of cash flow down the road via deferred capital gains or deferred dividends from growth stocks several years from, when high inflation will have eaten away at your money.fisher0815 wrote: ↑Tue May 24, 2022 1:16 am Value stocks are normally companies with higher risk, low margins and low pricing power. I doubt, those companies are a good inflation hedge.
Investors easily recognize this, which is why they often pile into value stocks during times of rising inflation.
It is not possible to forecast, which sector or factor will outperform in the future. It's better to own them all. The total market will do this for you automatically in its simplest, cheapest and most effective form.
- Charles Joseph
- Posts: 2394
- Joined: Tue Apr 05, 2022 10:49 pm
Re: Ben Felix- "Ultimate Inflation Hedge" video
I very much enjoy listening to Ben Felix take things like anecdotal evidence and isolated studies and turn them into universal, indisputable facts.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger