Factor Investing: The Next-Gen Boglehead frontier

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smooth_rough
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by smooth_rough »

In falling market does momentum factor mean falling at faster rate?
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HomerJ
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by HomerJ »

drumboy256 wrote: Sun Jun 12, 2022 9:41 am If you stop and think about it, funds like Advantis and DFA (Dimensional Funds) are now offering funds that basically let some of the smartest people (and algo's) run your portfolio for you.
The "smartest" people aren't taking our money.

The "smartest" people invest their own money. The "less smart" people invest YOUR money, and get rich off the fees.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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HomerJ
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by HomerJ »

drumboy256 wrote: Sun Jun 12, 2022 9:41 am Practically, since I'm sure everyone is going to plug this into Portfolio Visualizer to call me a fool! (that's ok!) here's the funds I tested with:
You tested what worked in the past.

That doesn't mean it will work in the future.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Mr. Buzzkill
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Mr. Buzzkill »

Active vs passive is probably less now about costs than about additional risks. Active management fees seem to be trending down because of competition from passive, but still with manager risk and risk of style drift/change.

If factor performance was known to be predictable with certainty either permanently or for identifiable periods, an efficient market would suggest no added value from active management.

And slicing and dicing a portfolio into too many factors to cover all the bases would seem to dissipate the value of distinct factors in a portfolio.

I think the fundamental premise of active is that humans can do better. But nobody can *predict* when, or which manager or factor will do better with sufficient accuracy and to what degree to justify differences in either higher fees or more risks.

The paradox is that if every investor and every institution went for passive indexing, there would be no model used to anchor company valuations and the market would be less efficient. It would be the stock equivalent of cryptocurrency markets. A wild ride.

Thankfully, Warren Buffet, owners of private companies, private equity investors, and some others still (and probably always will) look to measure and buy/sell companies based on intrinsic value and alternative uses of capital.

And about IPOs: hope springs eternal. At least for the insiders and preferred customers of the underwriters.

But I could be wrong about it all. Because nobody knows for sure about the future.

Just my 2%
A strategy that works only in bull markets isn’t much of a strategy. Anyway, four dollars a pound.
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packer16
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by packer16 »

Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm
nisiprius wrote: Sun Jun 12, 2022 8:28 pm
Nathan Drake wrote: Sun Jun 12, 2022 8:07 pm...VTI and chill has endured many very long periods of poor performance relative to a portfolio that captures many markets and risk premiums..
If you're going to say that, please give us a specific example of such a portfolio--using real funds that an ordinary investor could have bought. And show us that it was published at the start of the comparison period, not arrived at after the fact using hindsight.

Here is a comparison of the stock portion of the FundAdvice Ultimate Buy-and-Hold portfolio (blue) to VTI (red) The Ultimate Buy-and-Hold is factor aware and globalized. Where are the many very long periods in which VTI underperformed?

Since widespread publication of sample factor portfolios 1997-1998 or so, there's been one period in which untilted stock portfolios had poor performance compared to factor portfolios: 2000-2003. One four-year period is not "many long periods."

Source

Image

Image

If you think Ultimate Buy-and-Hold is being unfairly handicapped by having 30% international stocks, then here's factor-aware Ultimate Buy-and-Hold compared to 70% VTI, 30% VGTSX (total international)... and chill.

Source

Image
Sure, happy to oblige with this request

https://www.portfoliovisualizer.com/bac ... tion4_2=20

Image

Here we see that for the past 24 years, a globally diversified SCV only portfolio outperformed the US Total Stock Market by 3% annualized, delivering roughly 2x the ending portfolio value.

What's more, you avoided the "Dead Decade" of US stocks in the 00-12 period, a period where investors saw no returns for 12 years investing in VTI. Your portfolio had far less start date sensitivity, meaning it tended to go up meaningfully within a few years.

And this is when compared to the US TSM - a darling of the investment world that has had tremendous performance over this period when compared to TSM exUS. There's no reason to think that a period of TSM exUS performance over a meaningfully long period couldn't happen to the US TSM.

Portfolio Visualizer doesn't go back to the 1960 - 1980s period, but throughout this 20+ year period the gap in performance was even HIGHER for the factor portfolio versus the US TSM.
How do you know it is still there & not just arbed away? The pattern of returns (longer term outperformance, short/mid-term underperformance) is consistent with any excess being arbed away. In any case (even if you beleive the returns will return) you are taking timing risk of when the excess returns will show up & most folks investors probably do not have 25 or more years to wait to see if the premium will show up again. So if an SCV premium still exists you do not know when it will show up but it may hurt your performance also so IMO you are taking on more risk for an uncertain reward (you are making a bet not unlike those investing in individual stocks or sectors). If you want more risk either tilt to more stocks, add an asset class that has a non-arbable premium like Private Debt or take on a modest amount of leverage via futures contracts.

Packer
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Logan Roy
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Logan Roy »

Nathan Drake wrote: Sun Jun 12, 2022 6:31 pm
Logan Roy wrote: Sun Jun 12, 2022 6:05 pm
Nathan Drake wrote: Sun Jun 12, 2022 5:57 pm :!:
Logan Roy wrote: Sun Jun 12, 2022 5:54 pm
Nathan Drake wrote: Sun Jun 12, 2022 5:45 pm

Because those screens are looking for higher risk, higher expected return stocks as priced by the market
With bonds though, I believe, risk and return do tend to balance out over the long-term. So holding junk really doesn't reward an investor with a higher long-term return than holding 10 year treasuries.
They don’t. Higher yielding bonds outperform treasuries over the long term, which they should given that they are higher risk
Are we sure? A quick backtest here seems to demonstrate holding the safest vs the riskiest bonds makes absolutely no difference, with yields compensating defaults perfectly.

Image
https://www.portfoliovisualizer.com/bac ... ion2_2=100

The metrics in your specific backtest show similar risk characteristics, so those long term treasuries may not be the safest bonds and may actually be similar in risk profile compared to higher yielding bonds
Well US treasuries are effectively risk-free, and lower risk than cash in the bank. We could say there's a higher term premia, but it's a similar story for 10 yr treasuries. I can't get the data on PV, but I'm fairly sure over the long-term, junk and total bonds have returned about the same.

It's the same in gambling. The higher reward for betting on a 20:1 horse simply compensates higher risk – it doesn't overcompensate. My problem with factor investing is that I don't think the academia's anywhere near solid enough to take their conclusions without a pinch of salt.

One of my favourite papers, The Surprising Alpha From Malkiel's Monkey, shows inverted strategies (e.g. inverse of book value weighted) yielding market-beating returns, and risk premia don't account for nor do they explain those returns. And so I don't think it's a robust theory.
https://www.q-group.org/wp-content/uplo ... ll_Hsu.pdf
Nathan Drake
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

packer16 wrote: Sun Jun 12, 2022 10:54 pm
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm
nisiprius wrote: Sun Jun 12, 2022 8:28 pm
Nathan Drake wrote: Sun Jun 12, 2022 8:07 pm...VTI and chill has endured many very long periods of poor performance relative to a portfolio that captures many markets and risk premiums..
If you're going to say that, please give us a specific example of such a portfolio--using real funds that an ordinary investor could have bought. And show us that it was published at the start of the comparison period, not arrived at after the fact using hindsight.

Here is a comparison of the stock portion of the FundAdvice Ultimate Buy-and-Hold portfolio (blue) to VTI (red) The Ultimate Buy-and-Hold is factor aware and globalized. Where are the many very long periods in which VTI underperformed?

Since widespread publication of sample factor portfolios 1997-1998 or so, there's been one period in which untilted stock portfolios had poor performance compared to factor portfolios: 2000-2003. One four-year period is not "many long periods."

Source

Image

Image

If you think Ultimate Buy-and-Hold is being unfairly handicapped by having 30% international stocks, then here's factor-aware Ultimate Buy-and-Hold compared to 70% VTI, 30% VGTSX (total international)... and chill.

Source

Image
Sure, happy to oblige with this request

https://www.portfoliovisualizer.com/bac ... tion4_2=20

Image

Here we see that for the past 24 years, a globally diversified SCV only portfolio outperformed the US Total Stock Market by 3% annualized, delivering roughly 2x the ending portfolio value.

What's more, you avoided the "Dead Decade" of US stocks in the 00-12 period, a period where investors saw no returns for 12 years investing in VTI. Your portfolio had far less start date sensitivity, meaning it tended to go up meaningfully within a few years.

And this is when compared to the US TSM - a darling of the investment world that has had tremendous performance over this period when compared to TSM exUS. There's no reason to think that a period of TSM exUS performance over a meaningfully long period couldn't happen to the US TSM.

Portfolio Visualizer doesn't go back to the 1960 - 1980s period, but throughout this 20+ year period the gap in performance was even HIGHER for the factor portfolio versus the US TSM.
How do you know it is still there & not just arbed away? The pattern of returns (longer term outperformance, short/mid-term underperformance) is consistent with any excess being arbed away. In any case (even if you beleive the returns will return) you are taking timing risk of when the excess returns will show up & most folks investors probably do not have 25 or more years to wait to see if the premium will show up again. So if an SCV premium still exists you do not know when it will show up but it may hurt your performance also so IMO you are taking on more risk for an uncertain reward (you are making a bet not unlike those investing in individual stocks or sectors). If you want more risk either tilt to more stocks, add an asset class that has a non-arbable premium like Private Debt or take on a modest amount of leverage via futures contracts.

Packer
It hasn’t been arbitraged away because you can clearly still see it alive and well. The past two years have been better for Value vs Growth and value is still very cheap historically.

An arbitrage scenario would lead to near parity of asset pricing, which doesn’t make sense at all because the theory underlying Value is that it’s a reflection of heightened risks. If those risks no longer exist, it will track similarly and be valued similarly to market Beta.

Taking on more risk by tilting more towards one asset class or applying leverage to one asset class means you are merely MORE EXPOSED to that asset class, and factors are also about diversification.

If Value provides no premium but merely offers non-correlated returns then to me that is enough justification to embrace it in my portfolio.
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HomerJ
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by HomerJ »

drumboy256 wrote: Sun Jun 12, 2022 9:41 amSo why factor invest?
Because you want to beat the market
nedsaid wrote: Sun Jun 12, 2022 10:01 amand give you an opportunity to perhaps outperform the broad indexes by a bit.
Stop trying to beat the market.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
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HomerJ
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by HomerJ »

drumboy256 wrote: Sun Jun 12, 2022 10:54 amat the end of the day, the next question that I'm sure you're going to ask--- "So how in the world do you know which funds represent the best possible return and/or risk-adjusted return for a person?"

That's where someone (like myself) who oddly likes reading prospectus materials comes into play.
The TL;DR on the above is more or less: Think of factor investing in multiple dimensions of risk, attributes and capabilities. Not every fund out there will achieve those results you want, so therefore, understanding what the underlying fund invests in (i.e. their objective) will then net you your risk adjusted return based on investment strategy.
Too much work and no guarantee of gain.

You read the prospectuses and tell us which funds to invest in. If you're right, after 10-20 years of being right, maybe I'll take your advice (But you'll probably be older and tired of reading prospectuses by then)

Thanks anyway.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
Fryxell
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Fryxell »

drumboy256 wrote: Sun Jun 12, 2022 9:41 am Reference topic: viewtopic.php?t=313132

Factor investing is unpopular among the more pure Bogleheads that rally against the idea that sub-market, sub-sub-market and sub-sub-sub-market currents either:
A) Do not exist
B) Do exist but choose not to believe them
C) Exist only to those who choose to believe in them
D) All of the above
Yet those Bogleheads strongly believe in the market factor; and in making active decisions between the market factor and the term and credit bond factors. They believe tilting towards the market factor will lead to higher expected returns. They don’t believe that market efficiency could have possibly arbitraged away the equity premium.

Even though they implicitly admit the market factor is real and that different securities have different expected returns (stocks vs. bonds), they simultaneously believe all stocks should have the same expected return. If stocks are riskier than bonds, why would they assume all stocks are equally risky (and thus have identical expected returns)?

Typically they also believe in making active decisions for domestic versus international stocks; and in making active decisions on bond duration.

It’s all very inconsistent and contradictory. If they were consistent, they’d go for a market-weighed global portfolio of stocks, international stocks, and global bonds, and not try to tilt to obtain outperformance (ie: No tilting to stocks to try to goose returns; no tilting to US).

1) Active management vs. passive management : Who is "more" right?
This has been the dirty word of most people using Edward Jones for the last 25 years but I digress. Active management now is cheap. In fact, it's so cheap, I'm surprised it's not cheaper than most ETFs that carry an expense ratio of < .10%.
Bogle was not against active funds. He was more into making sure they were low cost. Cost matters hypothesis.
If you stop and think about it, funds like Advantis and DFA (Dimensional Funds)
Why do you mis-spell it as Advantis? There is no D in the name.
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HomerJ
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by HomerJ »

scout1 wrote: Sun Jun 12, 2022 12:11 pm Factor investing is already dead. I used to work for a factor investor like AQR years ago as it was dying. They died because they did some backtests until they found what worked. They then devised theories on why these factors persist. None of them persisted, and in fact, they all underperformed dramatically. The industry lost all credibility and the only people still selling factor investing are those who are trying to keep their job.

You can’t claim international small cap value is theoretically destined to outperform over the last 20 years and expect to have any credibility left. No one’s factor model said to buy large cap growth and that’s what did best over the last 20 years. Sometimes people are arguing that you can time factor investing, if factor investing doesnt work, paying someone to time factors is the same as an active manager. The industry’s performance, and the number of dead factor investors (AQR, Robeco, OSAM, etc) speaks for itself, factor investing doesn’t work.

The best risk reward has always been max diversification, a super naive and humble strategy. Slicing off a random subset that sounds good like “only invest in high growth + positive FCF + low beta stocks” hasn’t worked for active managers that just use screens and pretend to do research and it hasn’t worked for factor investors that advertise that they just use screens.
Ding. Ding. Ding. We have a winner.
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Fryxell
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Re: Factor Investing: The Next-Gen Boglehead frontier]

Post by Fryxell »

Gaston wrote: Sun Jun 12, 2022 3:40 pm
4. Various pundits who take a behavioral stance have noted that if lots of money flows into factor-based investment products, the anticipated factor premiums likely will disappear (i.e., too much money fighting for a slice of the expected factor return). Dr. French made a similar comment in the podcast I alluded to in point #1 above.

[/quote
5. As an investor, what I care about most is after-tax returns. So let’s say I have a choice between a) a broad-based, index ETF that, in most years, distributes no capital gains, such as Vanguard’s S&P 500 Index ETF (symbol VOO), and b) a factor-based ETF that, due to higher turnover within the porfolio, tends to generate annual capital gains distributions. Even if the factor-based ETF generates pre-tax gains that are 1% higher per annum than the Vanguard ETF, I might still be better off - on an after-tax basis - with the Vanguard fund. Each investor should assess the impact of turnover on their tax situation.

I could add more examples, but I’ll stop here; you get the point. I'm not saying factor investing is bad, but it demands continual scrutiny. None of us knows with certainty whether it will deliver superior returns going forward. Some factors might, others might not. My hope is that if one begins to slice and dice, that one does so with a balanced perspective of the risks and possible outcomes.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

HomerJ wrote: Mon Jun 13, 2022 12:12 am
drumboy256 wrote: Sun Jun 12, 2022 9:41 amSo why factor invest?
Because you want to beat the market
nedsaid wrote: Sun Jun 12, 2022 10:01 amand give you an opportunity to perhaps outperform the broad indexes by a bit.
Stop trying to beat the market.
Why is “beating the market” (which market, exactly?) something that should be dismissed?

What is wrong with allocating more to the types of stocks the market demands a higher premium for in acceptance of those heightened risks?

These dogmatic talking points and herd like suggestions that there’s only one right way to allocate does everyone a complete disservice
Last edited by Nathan Drake on Mon Jun 13, 2022 12:25 am, edited 1 time in total.
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Fryxell
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Fryxell »

Gaston wrote: Sun Jun 12, 2022 3:40 pm
4. Various pundits who take a behavioral stance have noted that if lots of money flows into factor-based investment products, the anticipated factor premiums likely will disappear (i.e., too much money fighting for a slice of the expected factor return). Dr. French made a similar comment in the podcast I alluded to in point #1 above.
Fair points. But shouldn’t all this also apply to the equity premium? Couldn’t the equity premium be arbitraged away? Could this be why stock valuations are much higher today than in most historical periods?
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Fryxell »

packer16 wrote: Sun Jun 12, 2022 4:25 pm How can you expect to make excess returns by running screens that just about everyone can do? At least active investors have a decent rationale for why their securities are not priced correctly & don't try to sell running screens is a value-added exercise. IMO the interesting places are where you have a unique or limited access to securities like directly orginated Private Debt or PE deals. If we & ETF shops can develop a screened set of securities that represent factors, there is not much excess return left.

Packer
For the same reason most bogleheads believe tilting to stocks will result in higher returns than tilting towards bonds. Not all stocks are equally risky. Some stocks are riskier in the same way that stocks are riskier than bonds.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Apathizer »

HomerJ wrote: Mon Jun 13, 2022 12:15 am
drumboy256 wrote: Sun Jun 12, 2022 10:54 amat the end of the day, the next question that I'm sure you're going to ask--- "So how in the world do you know which funds represent the best possible return and/or risk-adjusted return for a person?"

That's where someone (like myself) who oddly likes reading prospectus materials comes into play.
The TL;DR on the above is more or less: Think of factor investing in multiple dimensions of risk, attributes and capabilities. Not every fund out there will achieve those results you want, so therefore, understanding what the underlying fund invests in (i.e. their objective) will then net you your risk adjusted return based on investment strategy.
Too much work and no guarantee of gain.

You read the prospectuses and tell us which funds to invest in. If you're right, after 10-20 years of being right, maybe I'll take your advice (But you'll probably be older and tired of reading prospectuses by then)

Thanks anyway.
3 funds annually re-balanced is too much work? That's barely more work than cap weight index investing.

While the market it mostly efficient, it's only as efficient as investors. Investors aren't always rational. Sometimes they might overvalue risky, highly speculative stocks or large growth. A factor slant serves as a hedge for potentially overvalued stocks. As long as the slant isn't too strong it won't hurt us. If the overall market does well we'll still be fine. If factors out-perform we'll capture some of that additional return.

To me it's about being as well diversified as I can be. This increases the likelihood of positive returns and reduces the likelihood of negative returns.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by fisher0815 »

nisiprius wrote: Sun Jun 12, 2022 8:28 pm Since widespread publication of sample factor portfolios 1997-1998 or so, there's been one period in which untilted stock portfolios had poor performance compared to factor portfolios: 2000-2003. One four-year period is not "many long periods."
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm Here we see that for the past 24 years, a globally diversified SCV only portfolio outperformed the US Total Stock Market by 3% annualized, delivering roughly 2x the ending portfolio value.

What's more, you avoided the "Dead Decade" of US stocks in the 00-12 period, a period where investors saw no returns for 12 years investing in VTI. Your portfolio had far less start date sensitivity, meaning it tended to go up meaningfully within a few years.

And this is when compared to the US TSM - a darling of the investment world that has had tremendous performance over this period when compared to TSM exUS. There's no reason to think that a period of TSM exUS performance over a meaningfully long period couldn't happen to the US TSM.

Portfolio Visualizer doesn't go back to the 1960 - 1980s period, but throughout this 20+ year period the gap in performance was even HIGHER for the factor portfolio versus the US TSM.
That 24 years period includes the 2000-2003 period which nisiprius mentioned. This period was an extreme anomaly in the stockmarket, with extreme valuations and flawed accounting standards.

The MSCI All-Country World Index has now a forward-PE of 15.1. 2000 it was 26.
Image
Source: https://www.yardeni.com/pub/mscipe.pdf

Also consider that the PE ratio in the chart above would have been much higher in the 1997-2003 period, if the same accounting standards applied then as now. In 2006 the accounting rules have changed. Before 2006 companies could add stock based compensation to the net income, which is the E in the PE-equation. Companies massively abused this during the dot.com bubble:
Until 2006, these options were simply reported in the notes section of the financial statements in accordance with the Generally Accepted Accounting Principles (GAAP), but did not impact the financial statements themselves. In 2006 FAS 123 of the GAAP code was modified to require companies to show options as an expense on the income statement. This means that the costs of these options would be shown as employee compensation along with salaries and other expenses.
Source: https://hbr.org/2009/08/expensing-stock-options-the-co
Had AOL Time Warner in 2001, for example, reported employee stock option expenses as recommended by SFAS 123, it would have shown an operating loss of about $1.7 billion rather than the $700 million in operating income it actually reported.
Source: https://hbr.org/2003/03/for-the-last-ti ... an-expense

Show us another 24 years period with real funds which doesn't include the 2000-2003 anomaly.
Last edited by fisher0815 on Mon Jun 13, 2022 7:22 am, edited 19 times in total.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by donaldfair71 »

I really get torn up in these threads where my total Barney friends and value tilt friends wind up going tit for tat. :happy

Meb Faber interviewed the head of equity strategy, Jeff Weniger last week, on his podcast. He gives a systematic value investor’s take on the last 27 years, including Value really only leading something like 5 of the years since 1995. It was a really, really good episode.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by galawdawg »

"The Next-Gen Boglehead frontier"....sounds like what Jack Bogle would call "noise."

Slick eye-catching marketing style title on this thread but the entire theory misses the big picture.

Boglehead investing refers to investing according to principles espoused by Jack Bogle. They work for all investors, in all walks of life and in all stages of life. They can be implemented by the minimum wage worker, the tech employee making $500k a year and everyone in between. And these guiding principles are effective whether you are investing $500 or have already accumulated $5 million.

As a refresher, here are ten of Jack's timeless and true investing principles:
1. Remember reversion to the mean. The stock market reverts to fundamental returns over the long-term. Chasing performance results in buying high and selling low. Don't follow the herd.
2. Time is your friend, impulse is your enemy. Don't be captivated by the "latest and greatest" strategy or listen to the noise. Time in the market matters far more than timing the market.
3. Buy right and hold tight. Create an IPS and choose an asset allocation that is appropriate for you. Then stick to it.
4. Have realistic expectations. Trying to get rich quickly is a fool's errand. No, you are not the exception to the rule. Don't aim for unreasonable returns. Save more and invest more. When you save more you reduce the "need" to take risk. If you expect too much out of the market, you are probably going to be disappointed.
5. Forget the needle, buy the haystack. Don't pick individual stocks, it's a losing strategy that introduces uncompensated risk. Buy a total market low-cost index fund and hold it forever. By doing so, you minimize or even eliminate stock risk, style risk and manager risk.
6. Minimize the “croupier's” take. Fees matter and they matter a lot. Invest in low-cost broadly diversified funds and hold them long-term.
7. There's no escaping risk. Realize that markets will decline and they will rise. Choose an asset allocation appropriate to your willingness, ability and need to take risk and then stick to it. Anyone who promises you the benefit of the upside while eliminating the downside is either a liar or a fool.
8. Beware of fighting the last war. Investment strategies that may have worked before may not work again. Don't follow the fads. Stick with time-proven investment approaches: buy low-cost broadly diversified equity and bond funds and then stay the course.
9. Hedgehog beats the fox. Foxes represent the financial institutions that charge far too much for their artful, complicated advice. The hedgehog, which when threatened simply curls up into an impregnable spiny ball, represents the index fund with its "price-less" concept.
10. Stay the course. The secret to investing is there is no secret. When you own the entire stock market through a broad stock index fund with an appropriate allocation to an all bond-market index fund, you have the optimal investment strategy. Discipline is best summed up by staying the course. It really is that simple.

So call your "factor investing" whatever you'd like, just don't call it the Next-Gen Boglehead frontier. IMO, there is nothing Boglehead about it.

Will your "factor investing" approach work? Who knows. Every investor gets to decide for himself/herself how to invest their money. Many, including myself, prefer Jack's simple and effective approach: buy broadly diversified low-cost index funds in an allocation appropriate to your risk tolerance and then hold them forever. But others want to take a different approach. As Briscoe Darling would say, "more power to ya..." :happy

What is the Next-Gen Boglehead frontier? Take a look above at Jack's investing principles...that is the Next-Gen Boglehead frontier. The same investing principles shared with a new generation of investors. Jack Bogle's legacy will live on in the investing success of future Bogleheads. It worked yesterday, it works today and it will work tomorrow!
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Taylor Larimore
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Taylor Larimore »

galawdawg:

Thank you for your excellent post!

Best wishes
Taylor
Jack Bogle's Words of Wisdom: “I don’t believe in Factor funds”
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by packer16 »

Fryxell wrote: Mon Jun 13, 2022 12:27 am
packer16 wrote: Sun Jun 12, 2022 4:25 pm How can you expect to make excess returns by running screens that just about everyone can do? At least active investors have a decent rationale for why their securities are not priced correctly & don't try to sell running screens is a value-added exercise. IMO the interesting places are where you have a unique or limited access to securities like directly orginated Private Debt or PE deals. If we & ETF shops can develop a screened set of securities that represent factors, there is not much excess return left.

Packer
For the same reason most bogleheads believe tilting to stocks will result in higher returns than tilting towards bonds. Not all stocks are equally risky. Some stocks are riskier in the same way that stocks are riskier than bonds.
This is a good "story" for factors with not enough data to confirm or deny it. A screen is not a risk factor. Bonds are senior claims on firm assets versus stocks which are minority claims so there is a fundamental reason for this. There is no fundamental reason for a value stock to outperform a growth stock. There are theories of why this may be the case but no fundamental reason. It is empercially derived which is good for looking at history but questionable for developing projections.

As for risk this also has not been shown to be the case as there is alot more noise in the the value/growth relationship vs. the stock/bond relationship. The noise may be so hugh in the value/growth relationship that the relationship may not be significant going forward.

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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Random Walker »

Markets price risk. The lower valuations of value stocks reflect higher perceived risk. Risk and expected return necessarily linked.

Dave
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by packer16 »

Random Walker wrote: Mon Jun 13, 2022 8:36 am Markets price risk. The lower valuations of value stocks reflect higher perceived risk. Risk and expected return necessarily linked.

Dave
They reflect the lower growth prospects amongst other factors which may or may not be related to the price. To expect by screening for low P/valuation parameter in a static fashion you are uncovering risk factors that are a function of complex securties pricing is IMO naive.

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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Random Walker »

packer16 wrote: Mon Jun 13, 2022 8:55 am
Random Walker wrote: Mon Jun 13, 2022 8:36 am Markets price risk. The lower valuations of value stocks reflect higher perceived risk. Risk and expected return necessarily linked.

Dave
They reflect the lower growth prospects amongst other factors which may or may not be related to the price. To expect by screening for low P/valuation parameter in a static fashion you are uncovering risk factors that are a function of complex securties pricing is IMO naive.

Packer
This is what makes markets amazing; all sorts of complex information and emotion gets consolidated into a single number, the price of a stock.

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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by drumboy256 »

HomerJ wrote: Mon Jun 13, 2022 12:12 am
drumboy256 wrote: Sun Jun 12, 2022 9:41 amSo why factor invest?
Because you want to beat the market
nedsaid wrote: Sun Jun 12, 2022 10:01 amand give you an opportunity to perhaps outperform the broad indexes by a bit.
Stop trying to beat the market.
So what's funny is the response on using the trigger word "factor" indicates that anyone "doing" factor investing is in fact, nowhere in my initial post did I post about wanting to beat the market. In fact, it's not about beating the market, it is simply about taking risk that I'm personally comfortable with that isn't beholden to an index. In fact, the bigger picture here isn't about which index is better (look at all the debates around VTI/ITOT/FSKAX etc.) it's about which index gives you the best risk adjusted returns based on your objectives.

To Nedsaid's point, factor investing can provide opportunity to outperform an index but it's not the objective.
HomerJ wrote: Mon Jun 13, 2022 12:15 am
drumboy256 wrote: Sun Jun 12, 2022 10:54 amat the end of the day, the next question that I'm sure you're going to ask--- "So how in the world do you know which funds represent the best possible return and/or risk-adjusted return for a person?"

That's where someone (like myself) who oddly likes reading prospectus materials comes into play.
The TL;DR on the above is more or less: Think of factor investing in multiple dimensions of risk, attributes and capabilities. Not every fund out there will achieve those results you want, so therefore, understanding what the underlying fund invests in (i.e. their objective) will then net you your risk adjusted return based on investment strategy.
Too much work and no guarantee of gain.

You read the prospectuses and tell us which funds to invest in. If you're right, after 10-20 years of being right, maybe I'll take your advice (But you'll probably be older and tired of reading prospectuses by then)

Thanks anyway.
Too much work--- One of my favorite Jack quotes re: that matter: “Time makes more converts than reason.”. I can't make anyone factor invest because it's "better" than a 3-fund portfolio or potentially costs less-- or even costs more. The consideration is that the systematic risk of an index is ever persistent to an investor whether they know it or not. Spreading risk around various different funds offers an investor a better risk adjusted return that doesn't concern itself with being below average, average or above average to market returns. That is the main distinct difference I think people are overlooking. Could just be me.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by burritoLover »

A Boglehead portfolio is just a huge bet on large caps (even if you own US "total" stock) - and typically, a huge bet on the US as well. Will piling into US large caps continue to work as well as it has in the past? I would say, if anything, a small cap value tilt gives you additional diversification. You don't have to have an expectation of higher returns over the market. The lottery effect among small cap growth stocks is obviously alive and well so a small cap only tilt isn't as attractive. Continuing to just assume the same historical performance of US large caps isn't the best strategy either.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by calmaniac »

Bogle64Pilot wrote: Sun Jun 12, 2022 10:14 am
lws wrote: Sun Jun 12, 2022 10:09 am Factor investing: Just a horse of a different color.
Modern term for attempting to pick winners and losers thinking they know better than the market.
Don't we "pick winners and losers" every day, when we invest primarily in equities relative to bonds, knowing that there is a premium paid for the greater risk of the equity asset class?
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

fisher0815 wrote: Mon Jun 13, 2022 3:51 am
nisiprius wrote: Sun Jun 12, 2022 8:28 pm Since widespread publication of sample factor portfolios 1997-1998 or so, there's been one period in which untilted stock portfolios had poor performance compared to factor portfolios: 2000-2003. One four-year period is not "many long periods."
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm Here we see that for the past 24 years, a globally diversified SCV only portfolio outperformed the US Total Stock Market by 3% annualized, delivering roughly 2x the ending portfolio value.

What's more, you avoided the "Dead Decade" of US stocks in the 00-12 period, a period where investors saw no returns for 12 years investing in VTI. Your portfolio had far less start date sensitivity, meaning it tended to go up meaningfully within a few years.

And this is when compared to the US TSM - a darling of the investment world that has had tremendous performance over this period when compared to TSM exUS. There's no reason to think that a period of TSM exUS performance over a meaningfully long period couldn't happen to the US TSM.

Portfolio Visualizer doesn't go back to the 1960 - 1980s period, but throughout this 20+ year period the gap in performance was even HIGHER for the factor portfolio versus the US TSM.
That 24 years period includes the 2000-2003 period which nisiprius mentioned. This period was an extreme anomaly in the stockmarket, with extreme valuations and flawed accounting standards.

Show us another 24 years period with real funds which doesn't include the 2000-2003 anomaly.
The stock market always has anomalous periods. This one wasn’t cherry picked, it was simply the longest sample with live funds. Should we remove the “anomalous” decade of 2012-2022 for Value?
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by fisher0815 »

Nathan Drake wrote: Mon Jun 13, 2022 9:56 am The stock market always has anomalous periods. This one wasn’t cherry picked, it was simply the longest sample with live funds. Should we remove the “anomalous” decade of 2012-2022 for Value?
Inflated earnings caused by stock options were an extraordinary anomaly, which inflated stock prices and laid the foundation for the strong outperformance of value funds from 2000-2003.
You're using this single short period as evidence, that the value factor has worked with real funds. You need more data points.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Lastrun »

Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm Sure, happy to oblige with this request
Call me wrong, but I never like the way these back tests are run--no one here plops $10K in a portfolio and lets it sit for 20 years. You are either accumulating or withdrawing.

Nathan Drake, when I run your scenario on PV as follows:

Accumulator: $500 to start and $500 per month inflation adjusted, VTSMX wins.

Retiree: $1,000,000 to start, and $10,000 (4%SWR) per quarter inflation adjusted, SCV crushes.

Could someone post these?
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Ramjet »

Taylor Larimore wrote: Sun Jun 12, 2022 11:05 am I do not understand the drumbeat of Small Cap Value funds on this forum.
Bogleheads is not dominated by SCV enthusiasts
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

Lastrun wrote: Mon Jun 13, 2022 10:30 am
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm Sure, happy to oblige with this request
Call me wrong, but I never like the way these back tests are run--no one here plops $10K in a portfolio and lets it sit for 20 years. You are either accumulating or withdrawing.

Nathan Drake, when I run your scenario on PV as follows:

Accumulator: $500 to start and $500 per month inflation adjusted, VTSMX wins.

Retiree: $1,000,000 to start, and $10,000 (4%SWR) per quarter inflation adjusted, SCV crushes.

Could someone post these?
The lump sum/retiree scenario is far more important
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Lastrun »

Nathan Drake wrote: Mon Jun 13, 2022 10:46 am The lump sum/retiree scenario is far more important
Agreed, Vineviz had a great post on this a while back that I cannot locate.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by packer16 »

Random Walker wrote: Mon Jun 13, 2022 9:15 am
packer16 wrote: Mon Jun 13, 2022 8:55 am
Random Walker wrote: Mon Jun 13, 2022 8:36 am Markets price risk. The lower valuations of value stocks reflect higher perceived risk. Risk and expected return necessarily linked.

Dave
They reflect the lower growth prospects amongst other factors which may or may not be related to the price. To expect by screening for low P/valuation parameter in a static fashion you are uncovering risk factors that are a function of complex securties pricing is IMO naive.

Packer
This is what makes markets amazing; all sorts of complex information and emotion gets consolidated into a single number, the price of a stock.

Dave
I agree but thinking you can get useful risk information from a static pricing multiple (which is not a valuation) is too simplistic. There is some academic research pointing this out here: https://papers.ssrn.com/sol3/papers.cfm ... id=3779481

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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

fisher0815 wrote: Mon Jun 13, 2022 10:22 am
Nathan Drake wrote: Mon Jun 13, 2022 9:56 am The stock market always has anomalous periods. This one wasn’t cherry picked, it was simply the longest sample with live funds. Should we remove the “anomalous” decade of 2012-2022 for Value?
Inflated earnings caused by stock options were an extraordinary anomaly, which inflated stock prices and laid the foundation for the strong outperformance of value funds from 2000-2003.
You're using this single short period as evidence, that the value factor has worked with real funds. You need more data points.
Inflated valuations of growth due to unprecedented Fed stimulus may also be an anomaly, you can hand waive whatever period you don’t like with some narrative. I’m not interested in that.

Unfortunately we don’t have much data to use - I was specifically asked to use real funds. Other data would indicate periods where SCV has also been extremely beneficial, such as the 1966-1982 period where US TSM had returned less than inflation
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Anon1234 »

The Final, Definitive Thread on Value from 2012
viewtopic.php?t=96441
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by fisher0815 »

Nathan Drake wrote: Mon Jun 13, 2022 10:55 am
fisher0815 wrote: Mon Jun 13, 2022 10:22 am
Nathan Drake wrote: Mon Jun 13, 2022 9:56 am The stock market always has anomalous periods. This one wasn’t cherry picked, it was simply the longest sample with live funds. Should we remove the “anomalous” decade of 2012-2022 for Value?
Inflated earnings caused by stock options were an extraordinary anomaly, which inflated stock prices and laid the foundation for the strong outperformance of value funds from 2000-2003.
You're using this single short period as evidence, that the value factor has worked with real funds. You need more data points.
Inflated valuations of growth due to unprecedented Fed stimulus may also be an anomaly, you can hand waive whatever period you don’t like with some narrative. I’m not interested in that.
Fed stimulus doesn't inflated stock prices like in the dot com bubble. I wouldn't call it an extraordinary anomaly like the dot com bubble.
Unfortunately we don’t have much data to use - I was specifically asked to use real funds.
Because it makes sense to use a time period where the factor was investible.
Other data would indicate periods where SCV has also been extremely beneficial, such as the 1966-1982 period where US TSM had returned less than inflation
And I'm not interested in periods when the general public couldn't invest in SCV.

Let's talk again in 25 years.
Last edited by fisher0815 on Mon Jun 13, 2022 12:07 pm, edited 2 times in total.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Drew31 »

Anon1234 wrote: Mon Jun 13, 2022 11:55 am The Final, Definitive Thread on Value from 2012
viewtopic.php?t=96441
Thank you for re-posting. Been a long time since I've read that and needed that today.

Outside of changing a few names, I think that pretty much still holds.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by VTI »

Nathan Drake wrote: Sun Jun 12, 2022 11:36 pm [...]
value is still very cheap historically.
[...]
I'm going to be that annoying rat who plucks out a single phrase from a long post and disagrees with it.

I fully believe in factor investing. Judging by the portfolio in your signature, I believe even more strongly in it than you do. :mrgreen:

However, I wouldn't be so confident as to say "value is still very cheap historically". It's very cheap historically according to some simple accounting metrics, but those simple accounting metrics will never adequately explain the full risk profile of a business. They're merely a very simple model of risk.

It's quite possible that sophisticated arbitrageurs—armed with a fuller, more comprehensive, more accurate view of firms—have already squeezed the excess returns from the market, while "dumb" mechanical money like DFA and Avantis compete for the rotten firms that look good according to simple accounting metrics but are doomed to whither away in the long run.
Last edited by VTI on Mon Jun 13, 2022 12:15 pm, edited 1 time in total.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Logan Roy »

drumboy256 wrote: Mon Jun 13, 2022 9:17 am Too much work--- One of my favorite Jack quotes re: that matter: “Time makes more converts than reason.”. I can't make anyone factor invest because it's "better" than a 3-fund portfolio or potentially costs less-- or even costs more. The consideration is that the systematic risk of an index is ever persistent to an investor whether they know it or not. Spreading risk around various different funds offers an investor a better risk adjusted return that doesn't concern itself with being below average, average or above average to market returns. That is the main distinct difference I think people are overlooking. Could just be me.
I think the appeal of factor investing is that we all need to believe we're doing something better than the next guy. That we have some insight, way of thinking or bandwagon to jump on that gives us a hope of doing a bit better than average. The thought of a 10-12% average annual return would probably give any of us generational wealth – it's hugely appealing.

I'm as guilty as anyone. I just find factors aren't the most interesting or robust thing to pin those hopes on. I think they can play a role in portfolios, but as the old adage goes: In the long-run, asset allocation accounts for over 100% of returns (as everything else – including smart beta – has to be a net negative). The fact I'm holding some gold and commodities, along with a little in a value ETF, this year has made a significant difference to my performance. As long as factor ETFs have been available, none of them would've – at least positively.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

VTI wrote: Mon Jun 13, 2022 12:14 pm
Nathan Drake wrote: Sun Jun 12, 2022 11:36 pm [...]
value is still very cheap historically.
[...]
I'm going to be that annoying rat who plucks out a single phrase from a long post and disagrees with it.

I fully believe in factor investing. Judging by the portfolio in your signature, I believe even more strongly in it than you do. :mrgreen:

However, I wouldn't be so confident as to say "value is still very cheap historically". It's very cheap historically according to some simple accounting metrics, but those simple accounting metrics will never adequately explain the full risk profile of a business. They're merely a very simple model of risk.

It's quite possible that sophisticated arbitrageurs—armed with a fuller, more comprehensive, more accurate view of firms—have already squeezed the excess returns from the market, while "dumb" mechanical money like DFA and Avantis compete for the rotten firms that look good according to simple accounting metrics but are doomed to whither away in the long run.
You’d need to substantiate that. Value has fundamentally performed well this decade. Growth simply got more expensive.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by nisiprius »

Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm
nisiprius wrote: Sun Jun 12, 2022 8:28 pm
Nathan Drake wrote: Sun Jun 12, 2022 8:07 pm...VTI and chill has endured many very long periods of poor performance relative to a portfolio that captures many markets and risk premiums..
If you're going to say that, please give us a specific example of such a portfolio--using real funds that an ordinary investor could have bought. And show us that it was published at the start of the comparison period, not arrived at after the fact using hindsight
....Sure, happy to oblige with this request

https://www.portfoliovisualizer.com/bac ... tion4_2=20
And your historic example, showing who published and recommended this portfolio in 1999--to show that it isn't a recently-created portfolio based on hindsight and knowledge of past performance?
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Nathan Drake »

nisiprius wrote: Mon Jun 13, 2022 12:41 pm
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm
nisiprius wrote: Sun Jun 12, 2022 8:28 pm
Nathan Drake wrote: Sun Jun 12, 2022 8:07 pm...VTI and chill has endured many very long periods of poor performance relative to a portfolio that captures many markets and risk premiums..
If you're going to say that, please give us a specific example of such a portfolio--using real funds that an ordinary investor could have bought. And show us that it was published at the start of the comparison period, not arrived at after the fact using hindsight
....Sure, happy to oblige with this request

https://www.portfoliovisualizer.com/bac ... tion4_2=20
And your historic example, showing who published and recommended this portfolio in 1999--to show that it isn't a recently-created portfolio based on hindsight and knowledge of past performance?
Why do I need someone to recommend this portfolio? It was part of DFA’s suite of products, based on academic studies that analyzed the premiums of small cap and value.

Their more typical recommended portfolio which isn’t as slanted to SCV also meaningfully outperformed VTI

What makes market cap weighting special that it doesn’t need such caveats when it’s recommended broadly?
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by packer16 »

This paper has hard questions factor investors need to ask themselves if they think factor funds will outperform in the future. No conclusions but things to reflect on: https://papers.ssrn.com/sol3/papers.cfm ... id=3779481

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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by VTI »

Nathan Drake wrote: Mon Jun 13, 2022 1:03 pm [...]
What makes market cap weighting special that it doesn’t need such caveats when it’s recommended broadly?
I don't own any market-cap weighted index funds, but I'll answer your question:

1. They offer the average returns of all market participants. They are the middle of the road.

2. They are extremely inexpensive (low fees, low transaction costs, and low tax burden).

3. Their investing strategies will never change. When you recommend factor funds, you're actually recommending their current strategies and all future changes to those strategies.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by nisiprius »

Nathan Drake wrote: Mon Jun 13, 2022 1:03 pm
nisiprius wrote: Mon Jun 13, 2022 12:41 pm
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm
nisiprius wrote: Sun Jun 12, 2022 8:28 pm
Nathan Drake wrote: Sun Jun 12, 2022 8:07 pm...VTI and chill has endured many very long periods of poor performance relative to a portfolio that captures many markets and risk premiums..
If you're going to say that, please give us a specific example of such a portfolio--using real funds that an ordinary investor could have bought. And show us that it was published at the start of the comparison period, not arrived at after the fact using hindsight
....Sure, happy to oblige with this request

https://www.portfoliovisualizer.com/bac ... tion4_2=20
And your historic example, showing who published and recommended this portfolio in 1999--to show that it isn't a recently-created portfolio based on hindsight and knowledge of past performance?
Why do I need someone to recommend this portfolio? It was part of DFA’s suite of products, based on academic studies that analyzed the premiums of small cap and value.

Their more typical recommended portfolio which isn’t as slanted to SCV also meaningfully outperformed VTI

What makes market cap weighting special that it doesn’t need such caveats when it’s recommended broadly?
Because after the fact, with hindsight, it is easy to assemble portfolios now that assign heavy weights to things that are now known to have outperformed.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Random Walker »

burritoLover wrote: Mon Jun 13, 2022 9:23 am A Boglehead portfolio is just a huge bet on large caps (even if you own US "total" stock) - and typically, a huge bet on the US as well. Will piling into US large caps continue to work as well as it has in the past? I would say, if anything, a small cap value tilt gives you additional diversification. You don't have to have an expectation of higher returns over the market. The lottery effect among small cap growth stocks is obviously alive and well so a small cap only tilt isn't as attractive. Continuing to just assume the same historical performance of US large caps isn't the best strategy either.
I agree that assuming continued historical LG performance is a mistake. The outperformance of LG over last several years has been explained I believe entirely by multiple expansion. To expect continued LG outperformance is to expect continued multiple expansion beyond the recent historic levels.

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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by Apathizer »

VTI wrote: Mon Jun 13, 2022 12:14 pm
Nathan Drake wrote: Sun Jun 12, 2022 11:36 pm [...]
value is still very cheap historically.
[...]
I'm going to be that annoying rat who plucks out a single phrase from a long post and disagrees with it.

I fully believe in factor investing. Judging by the portfolio in your signature, I believe even more strongly in it than you do. :mrgreen:

However, I wouldn't be so confident as to say "value is still very cheap historically". It's very cheap historically according to some simple accounting metrics, but those simple accounting metrics will never adequately explain the full risk profile of a business. They're merely a very simple model of risk.

It's quite possible that sophisticated arbitrageurs—armed with a fuller, more comprehensive, more accurate view of firms—have already squeezed the excess returns from the market, while "dumb" mechanical money like DFA and Avantis compete for the rotten firms that look good according to simple accounting metrics but are doomed to whither away in the long run.
Why would a highly profitable company wither away? If anything expensive growth seems more likely to. A mundane but highly profitable company seems more likely to persevere than a sexy less profitable one.
Last edited by Apathizer on Mon Jun 13, 2022 6:51 pm, edited 1 time in total.
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by burritoLover »

nisiprius wrote: Mon Jun 13, 2022 2:00 pm
Nathan Drake wrote: Mon Jun 13, 2022 1:03 pm
nisiprius wrote: Mon Jun 13, 2022 12:41 pm
Nathan Drake wrote: Sun Jun 12, 2022 9:18 pm
nisiprius wrote: Sun Jun 12, 2022 8:28 pm If you're going to say that, please give us a specific example of such a portfolio--using real funds that an ordinary investor could have bought. And show us that it was published at the start of the comparison period, not arrived at after the fact using hindsight
....Sure, happy to oblige with this request

https://www.portfoliovisualizer.com/bac ... tion4_2=20
And your historic example, showing who published and recommended this portfolio in 1999--to show that it isn't a recently-created portfolio based on hindsight and knowledge of past performance?
Why do I need someone to recommend this portfolio? It was part of DFA’s suite of products, based on academic studies that analyzed the premiums of small cap and value.

Their more typical recommended portfolio which isn’t as slanted to SCV also meaningfully outperformed VTI

What makes market cap weighting special that it doesn’t need such caveats when it’s recommended broadly?
Because after the fact, with hindsight, it is easy to assemble portfolios now that assign heavy weights to things that are now known to have outperformed.
You mean like underweighting international stocks?
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nisiprius
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Re: Factor Investing: The Next-Gen Boglehead frontier

Post by nisiprius »

burritoLover wrote: Mon Jun 13, 2022 2:46 pm
nisiprius wrote: Mon Jun 13, 2022 2:00 pm Because after the fact, with hindsight, it is easy to assemble portfolios now that assign heavy weights to things that are now known to have outperformed.
You mean like underweighting international stocks?
In my comparison I used 70% US, 30% international. That is typical of what was being recommended for non-tilted portfolios and factor-based portfolios in 2006. For example, Larry Swedroe's 100%-stocks model portfolio, published in 2004, was exactly 70% US, 30% international. I'm not sure whether Vanguard was using 30% international or only 20%.

It's not hindsight bias to compare with 30% stocks international, that's what was commonly being recommended at the time.
Last edited by nisiprius on Mon Jun 13, 2022 3:04 pm, edited 1 time in total.
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