Investing styles

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
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deaddog
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Re: Investing styles

Post by deaddog » 28 Sep 2017 11:21

jay wrote:
28 Sep 2017 09:12
deaddog, provided you like the company and fundamentals etc..., how do you (technically) time your entry? for example, do you favour stocks that had been in a downtrend and then showing signs of reversal, like as soon as weekly/monthly closing price jumps above 200SMA?
Jay;

I prefer stocks in an uptrend. Ideally a stock making a new 52 week high on double average volume.
This month I bought AVO, BLDP and DOO (ouch) although I haven't had a sell signal on DOO yet.

I scan for unusual activity, big price moves on above average volume.
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Re: Investing styles

Post by ghariton » 05 Oct 2017 13:55

The number of investment styles is proliferating. And most of the new ones are referred to as "smart beta". I particularly liked this one,
I’d just entered in an index built from companies with “cat” in their names -- yes, the furry felines -- hit a button and watched it back-test to an 849,751 percent return. Forget the internet, I thought. Cats are about to take over smart beta.

This is the story of the time I designed my own factor fund as a way of learning about one of Wall Street’s hottest trends -- and its pitfalls. There are already ETFs that focus on themes, such as "biblically responsible" companies or ones popular with millennials. Quants have hundreds of style tilts, and their exploding popularity has created a gold rush for creators. I wanted in.
Why not? After all, he back-tested it and all.

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The plural of anecdote is NOT data.

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Re: Investing styles

Post by Quebec » 05 Oct 2017 15:16

ghariton wrote:
05 Oct 2017 13:55
Why not? After all, he back-tested it and all.
'He' is a 'she' and she even talked to C. Asness about the CAT factor:
I decided to get another opinion. For this, I conferred with Cliff Asness, founder of AQR Capital Management and a pioneer of factor investing.

“Everything you can sort on can be a factor, but not all factors are interesting. Factors need some economics, theory or intuition even, to be at all interesting to us. Thus the cat factor fails as we have no story for why it should matter at all,” Asness said. “Now, in contrast, we are active traders of the dog and parakeet factors, which are based on hard neo-classical economics married to behavioral finance and machine learning. But the cat factor is just silly.”
:lol:
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Re: Investing styles

Post by ghariton » 05 Oct 2017 17:26

Quebec wrote:
05 Oct 2017 15:16
ghariton wrote:
05 Oct 2017 13:55
Why not? After all, he back-tested it and all.
'He' is a 'she' and she even talked to C. Asness about the CAT factor:
I decided to get another opinion. For this, I conferred with Cliff Asness, founder of AQR Capital Management and a pioneer of factor investing.

“Everything you can sort on can be a factor, but not all factors are interesting. Factors need some economics, theory or intuition even, to be at all interesting to us. Thus the cat factor fails as we have no story for why it should matter at all,” Asness said. “Now, in contrast, we are active traders of the dog and parakeet factors, which are based on hard neo-classical economics married to behavioral finance and machine learning. But the cat factor is just silly.”
:lol:
I see. So the key factor to stock-picking, and to investing in general, is whether there's a good story that goes along with the tip?

Sorta like what Damon Runyon said about betting on horses, back in the early 1930s.

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The plural of anecdote is NOT data.


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Re: Investing styles

Post by scomac » 05 Oct 2017 19:30

"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
Thomas Babington Macaulay in 1830

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Re: Investing styles

Post by ghariton » 05 Oct 2017 21:56

scomac wrote:
05 Oct 2017 19:30
Perhaps it should have been titled What Worked on Wall Street...
Yup. I saw an article recently (can't remember exactly where) that claimed that a style that enjoyed a period of great success often underperforms afterwards, because a whole bunch of people pile in and drive the price up to the point where they become lousy investments.

But don't take my word for it -- ask the low-volatility investors, or indeed the value investors these last few years.

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The plural of anecdote is NOT data.

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Re: Investing styles

Post by DenisD » 05 Oct 2017 22:35

ghariton wrote:
05 Oct 2017 21:56
last few years
What do the last few years tell us about anything?

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Re: Investing styles

Post by ghariton » 05 Oct 2017 23:11

DenisD wrote:
05 Oct 2017 22:35
ghariton wrote:
05 Oct 2017 21:56
last few years
What do the last few years tell us about anything?
Not much, if you're trying to forecast financial markets. But if you look at longer historic periods, you start introducing data from periods that are increasingly different. So even long historic periods don't help very much in forecasting financial returns, etc.

You probably know where I'm going with this. If periods with relevant data are too short, and periods that are long enough contain irrelevant (or marginally relevant) information, then the past is not of much use in predicting the future. By and large, we just don't know. The solution? Move away from picking stocks, or styles for ETFs, and buy the market.

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Re: Investing styles

Post by DenisD » 05 Oct 2017 23:42

The traditional reason for buying the market was the lower cost of index funds. That advantage isn't as large anymore. Even individual investors of modest means, such as I, can buy groups of stocks at low cost. The other reason was the efficient market. Who believes that any more? How many regulars in this forum hold Canadian index funds for their Canadian equity allocation? Many of them believe they have found a way to beat the market, in Canada at least.

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Re: Investing styles

Post by DenisD » 06 Oct 2017 00:08

I've just been reviewing the 10 year returns of my Canadian large-cap, US large-cap and US small-cap screens. It's rather amusing that my best performance, relative to the benchmark, was with US large caps. Supposedly the most efficient market in the world. And my worst performance was with US small caps. Probably the least efficient of the three. What's the conclusion? I don't think I want to know. :wink:

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Re: Investing styles

Post by AltaRed » 06 Oct 2017 09:33

DenisD wrote:
06 Oct 2017 00:08
What's the conclusion? I don't think I want to know. :wink:
It is a crap shoot. No style or methodology or algorithm can capture the random nature of markets consistently. Hence why I index ex-Canada in particular, and I'd do a little better in Canada by simply sticking to a solid group of pehaps 20 dividend paying equities. IOW, stop dicking around with stuff on the margin like REITs and Prefs. :wink:
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Re: Investing styles

Post by Koogie » 06 Oct 2017 09:39

DenisD wrote:
05 Oct 2017 23:42
The traditional reason for buying the market was the lower cost of index funds. That advantage isn't as large anymore. Even individual investors of modest means, such as I, can buy groups of stocks at low cost. The other reason was the efficient market. Who believes that any more? How many regulars in this forum hold Canadian index funds for their Canadian equity allocation? Many of them believe they have found a way to beat the market, in Canada at least.
I thought the Main reason was about not being able to pick future winners and buying the whole market to get the average return instead. Even buying groups of stocks (ie: top producers in a market or segment) still introduces an element of stock picking. So broad market indexing was always the attraction far more than purchasing efficiency.

FWIW, I have come to agree with the idea that the Canadian market isn't worth indexing. I still have a large Canadian index ETF but I haven't added to it in years and probably never will. It is in fact a back pocket candidate for liquidation should there be a crash and opportunities arise to purchase at a discount individual securities I already hold.
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Re: Investing styles

Post by Taggart » 06 Oct 2017 10:37

All I know, is that SPIVA says in their year end 2016 report that only 8.89% of Canadian Equity funds beat the S&P Composite over ten years. If the Canadian index comes in a close second to the winners in the stock perforamnce derby, then that's fine by me. Makes it easier for my wife managing the TFSA and RRSP if I kick the bucket first. The individual Canadian dividend growth stocks in the non-registered portfolio should last at least for a few years spewing off their cash without me being here to micro-manage them.

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Re: Investing styles

Post by DenisD » 06 Oct 2017 12:13

Taggart wrote:
06 Oct 2017 10:37
All I know, is that SPIVA says in their year end 2016 report that only 8.89% of Canadian Equity funds beat the S&P Composite over ten years.
You mean I'm a 10 percenter? Wow! Or at least my screen is. Maybe even a 5 percenter. Of course, past performance ... etc etc

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Re: Investing styles

Post by Taggart » 06 Oct 2017 12:44

DenisD wrote:
06 Oct 2017 12:13
Taggart wrote:
06 Oct 2017 10:37
All I know, is that SPIVA says in their year end 2016 report that only 8.89% of Canadian Equity funds beat the S&P Composite over ten years.
You mean I'm a 10 percenter? Wow! Or at least my screen is. Maybe even a 5 percenter. Of course, past performance ... etc etc
No Denis, I'm not taking a dig at anybody, including yourself. Just the facts, nothing else. If others have found a better way, I think that's great, but I've finally found contentment in the way I invest now.

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Re: Investing styles

Post by ghariton » 06 Oct 2017 12:51

DenisD wrote:
05 Oct 2017 23:42
The traditional reason for buying the market was the lower cost of index funds.
Perhaps. In my case, the reason for buying the market is diversification. I believe that is the point AltaRed is making as well.

I believe that the stock market is essentially a random walk with upward drift. Some styles, or strategies will out-perform, perhaps for unexpectedly long periods of time (random events tend to cluster, after all). Then they will underperform, and other styles will become the leaders.

I suppose that if an investor is willing to follow a given style through thick and thin, sticking with it when it is underperforming and waiting for it to come back, that will give satisfactory results too. But I would find that hard to do, and I'm not sure I could ride it out. By contrast, while a widely diversified portfolio may not have higher returns, I do expect it to have less volatility than a more specific style. That helps me keep my emotions under control.

I come back to my earlier point. If a given style does particularly well for a while, investors are likely to come piling in, driving security prices up and driving total returns even higher, for a while. But that is typically followed by a period of below-average returns. Investors will flee for the next great style, prices will fall, and the cycle iterates. Sticking with the style probably will produce satisfactory results over the cycle. Changing styles to chase the next hot thing will produce underperformance, as we know from Dalbar and other studies showing the average investor doing significantly worse than market indexes. (Indexing to the market removes that temptation, at least for me.)

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Re: Investing styles

Post by NormR » 06 Oct 2017 13:16

ghariton wrote:
06 Oct 2017 12:51
By contrast, while a widely diversified portfolio may not have higher returns, I do expect it to have less volatility than a more specific style. That helps me keep my emotions under control.
Seems like a big assumption that one couldn't find a lower-vol portfolio. High yield portfolios in Canada have been low vol and high return. Just sticking to dividend payers has worked well. One might also knock out "lotto" stocks.
ghariton wrote:
06 Oct 2017 12:51
Changing styles to chase the next hot thing will produce underperformance, as we know from Dalbar and other studies showing the average investor doing significantly worse than market indexes.
Look into the Dalbar study. I'm interested in your thoughts on its robustness.

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Re: Investing styles

Post by DenisD » 06 Oct 2017 16:16

Taggart wrote:
06 Oct 2017 12:44
DenisD wrote:
06 Oct 2017 12:13
Taggart wrote:
06 Oct 2017 10:37
All I know, is that SPIVA says in their year end 2016 report that only 8.89% of Canadian Equity funds beat the S&P Composite over ten years.
You mean I'm a 10 percenter? Wow! Or at least my screen is. Maybe even a 5 percenter. Of course, past performance ... etc etc
No Denis, I'm not taking a dig at anybody, including yourself.
Taggart, I didn't think you were taking a dig at me. And I wasn't trying to poke fun at you. It was just something that occurred to me when I read your post.

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Re: Investing styles

Post by Shakespeare » 06 Oct 2017 16:30

Remember that we aren't charging MERs. A competent DIY investor should be able to capture the average MER since market efficiency should drop off at the MER point.
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Re: Investing styles

Post by scomac » 06 Oct 2017 17:24

DenisD wrote:
06 Oct 2017 12:13
Taggart wrote:
06 Oct 2017 10:37
All I know, is that SPIVA says in their year end 2016 report that only 8.89% of Canadian Equity funds beat the S&P Composite over ten years.
You mean I'm a 10 percenter? Wow! Or at least my screen is. Maybe even a 5 percenter. Of course, past performance ... etc etc
You may as well blow your own horn Dennis because no one else will. I just finished engaging in a little exercise to see how a DIY portoflio might compare to the SPIVA numbers. The problem with reports of this nature is that individual results aren't reported so it's largely based off of the public record with mutual fund reporting.

Doing some Canadian Equity isolation and bear in mind that a Canadian Equity fund can have up to 49% foreign content and still be classified as Canadian. I screened using Globeinvestor Gold for all mutual funds in CAD$ with returns >= my 5 and 10 year numbers which on a rolling basis are 12.37% and 10.28%. I have 70% CAD assets and 30% USD assets. Of that total 17% is in fixed income in the form of bond ETFs and split share preferreds. (For reference, the TSX Comp. total return index gained 8.08% annually over the past 5 years rolling.) The screen returned 59 funds of all stripes with returns equal to or greater than what I had experienced which includes my trading costs, but no additional fees. There are over 5400 active Canadian mutual funds with 10 year return numbers, so that works out to just a hair over 1% matching or besting what I do. I've been fortunate. I claim no special skills or talent. I just buy good companies at fair prices and hang onto them to let the magic of time do its work.

So what does this prove? Not much, but it does offer a word of caution that what you read may not be reflective of your own situation as a DIYer. All they are doing is publishing conclusions based on the available public data. It has already been pointed out that we don't charge an MER. We don't have to worry about being measured on a quarter-by-quarter basis, so we have the luxury of having a much longer time horizon and some flexibility to not hug a benchmark index. That in and of itself is why active management via mutual fund fails the vast majority if the time. It's inevitable because the MER sinks them!

FWIW I espouse indexing when asked for a recommendation which is rare anymore. It's what my kids do and it's what my wife is doing. It gets the job done with the least amount of effort and offers the lowest risk of a major league screw up! That's all most people need.
"On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?"
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Re: Investing styles

Post by DenisD » 06 Oct 2017 23:46

I get confused when people say it's not worth investing in the index in Canada. But index investing is the best option for the rest of the world. I wonder: do Canadians have an investing inferiority complex? Are we so dumb that we can't price our companies correctly? While the rest of the world can? And if we are dumb, can't those smart Americans come up here electronically and take advantage of us? And fix those prices?

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Re: Investing styles

Post by Chuck » 07 Oct 2017 13:42

For me, I don't index in Canada, because I overweight Canada (by quite a bit). The reason I overweight Canada is because of tax advantaged dividends. So a broad based market index doesn't suit. I could buy an dividend ETF, but I think I can DIY well enough at a low cost to save the overhead of the MER.

I suppose if I was going invest only 4% of my equities in Canada (i.e. global weighting), I would buy an index.

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Re: Investing styles

Post by scomac » 07 Oct 2017 14:19

Chuck wrote:
07 Oct 2017 13:42
For me, I don't index in Canada, because I overweight Canada (by quite a bit). The reason I overweight Canada is because of tax advantaged dividends. So a broad based market index doesn't suit. I could buy an dividend ETF, but I think I can DIY well enough at a low cost to save the overhead of the MER.

I suppose if I was going invest only 4% of my equities in Canada (i.e. global weighting), I would buy an index.
This is how I look at it too. For smaller dollar amounts indexing makes loads of sense.
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Re: Investing styles

Post by gsp_ » 08 Oct 2017 08:57

scomac wrote:
07 Oct 2017 14:19
Chuck wrote:
07 Oct 2017 13:42
For me, I don't index in Canada, because I overweight Canada (by quite a bit). The reason I overweight Canada is because of tax advantaged dividends. So a broad based market index doesn't suit. I could buy an dividend ETF, but I think I can DIY well enough at a low cost to save the overhead of the MER.

I suppose if I was going invest only 4% of my equities in Canada (i.e. global weighting), I would buy an index.
This is how I look at it too. For smaller dollar amounts indexing makes loads of sense.
I'm all for having home country bias, shoot for 25-40% of equities myself and understand others are comfortable with even more. That being said, everyone's situation is different and it doesn't necessarily follow that indexing is for small money or doesn't work with a domestic overweight.

There are valid reasons for home country bias other than tax advantaged dividends as mentioned in the VG studies 1 2. For some of us at certain income levels, and more importantly in certain provinces, dividends aren't all that advantaged or efficient. I don't own a single dividend paying Canadian equity(excluding preferreds) despite having a 30% or so allocation to domestic stocks, all of it indexed. Capital gains are significantly more efficient in my situation. Not only are they taxed at an 8% lower rate but they benefit from long term tax deferral.

It is understandable to want to save a comparatively high, dividend ETF MER but for those of us preferring to own the market, the cost is very negligible at 3 to 6 basis points making indexing the easy decision.

To each his own but indexing works perfectly well with a Canadian overweight and significant amounts invested.

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