Clippings 2014

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George$
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Re: Clippings 2014

Post by George$ »

Just given:

The Many Errors Of The "Active vs. Passive" Debate -
First, there is NO fund manager alive that can beat an index fund every year, year-after-year, over a long time period even if they simply mimicking the index. This is clearly shown by comparing the Vanguard S&P 500 Index fund as compared to the S&P 500 Index.
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Re: Clippings 2014

Post by IdOp »

I'll nominate that article by Lance Roberts as a worthy candidate for the Outstanding Financial Pornography thread.
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Re: Clippings 2014

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IdOp wrote:I'll nominate that article by Lance Roberts as a worthy candidate for the Outstanding Financial Pornography thread.
+ 1

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Re: Clippings 2014

Post by twa2w »

Proponents of active management claim that gifted managers can identify stocks that will rise in price and shun those that will decline. They can sell stocks in advance of any serious market decline and re-enter the market before the rebound, thereby outperforming their benchmark index. Let's look at a recent report that debunks these claims. ....

...the five years ending on Dec. 31, 73% of large-cap domestic funds, 78% of midcap funds, 67% of small-cap funds and 80% of REIT funds underperformed their benchmark indexes....."
This quote from the above noted article is key - I have hilited the words "Gifted managers"
Just what % of managers would one consider to be gifted. I would suspect about 10% - 15% may be the normal distribution. The question, as always, is how do you identify them ahead of time. Even with a track record how do you distinguish the gifted from the lucky?
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Re: Clippings 2014

Post by IdOp »

I found lot of things not to like about that article.
Lance Roberts wrote:First, there is NO fund manager alive that can beat an index fund every year, year-after-year, over a long time period even if they simply mimicking the index. This is clearly shown by comparing the Vanguard S&P 500 Index fund as compared to the S&P 500 Index.
This is ludicrous on two levels. First, how could the failure of an index fund to match the index ever "prove" that no active manager can beat the index year after year? In fact there is nothing that can ever prove such a statement about the future, as unlikely as it is to occur (and as unimportant as it may be that it should occur). Second, I take the point of that paragraph to be to seed the idea that "if index funds are so great as vaunted, they should be able to beat the index", which is absurd, they're not designed to do this.

He then dismisses the SPIVA report as data mining, ignoring the long history of similarly inevitable SPIVA reports.

His rhetoric seems to be:

1) The index is a mythical creature, you can't beat it with index funds [absurd], or even get the exact same results [fair enough];

2) Therefore it's bad to "chase" the index, so stop doing it;

3) By default, the only alternative left is active management;

4) So put your money into:
Let's create a fund that underperforms the index by 20% when markets are rising and loses 20% of every market decline. Also, let's include a 2% annual expense to cover fees and other trading related costs which are not included in the index.
Oh wait, I'm lost, isn't that a mythical creature too? :roll:

But, no worries I can just put my money into the Dodge & Cox Balanced Fund instead of the S&P 500. Err, is that data mining, or did he give me this advice 20 years ago? (A point made by twa2w.) And, the faulty implication is that index proponents advocate putting all of one's money into stocks, rather than a balanced portfolio composed of stock, bond, etc., index funds.

Overall, ISTM this isn't really an article that actually tries to make a reasoned case for active management. Instead, it's demonize and conquer against the index. Maybe Lance should try politics, but probably it doesn't pay enough.
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Re: Clippings 2014

Post by Park »

Nice article for the investor who is not at the advanced level.

Relates Tobin's Q to P/B when it comes to evaluating country ETFs.

http://www.etf.com/sections/blog/22173- ... =1&start=4
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Re: Clippings 2014

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How do you erec...., ummm, raise a flaccid economy?

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Re: Clippings 2014

Post by Park »

How a mortgage should interact with a portfolio is a topic that doesn't receive a lot of interest. The link below looks into it:

http://online.wsj.com/news/articles/SB1 ... 2892505944
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Re: Clippings 2014

Post by Norbert Schlenker »

From Park's link:
David Hultstrom wrote:There are other people, frequently women, who just feel so good about being debt free that it trumps all other considerations.
Perhaps this splits along gender lines (and then it seems I am really female), but I would draw the line another way. Some people are naturally "take this job and shove it" types, with an eye on the exit at all times. Having fixed obligations to pay every month ties one down. To a house. A job. A car. If you can avoid binding financial entanglements, which means adjusting spending downward when cash is short, then you're much more capable of independence.
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Re: Clippings 2014

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Norbert Schlenker wrote:From Park's link:
David Hultstrom wrote:There are other people, frequently women, who just feel so good about being debt free that it trumps all other considerations.
Perhaps this splits along gender lines (and then it seems I am really female), but I would draw the line another way. Some people are naturally "take this job and shove it" types, with an eye on the exit at all times. Having fixed obligations to pay every month ties one down. To a house. A job. A car. If you can avoid binding financial entanglements, which means adjusting spending downward when cash is short, then you're much more capable of independence.
I'm no female, either, but I do share the dislike of any ongoing big financial obligation. Maybe it's not the most efficient thing, but being mortgage free has had a very profound impact on my feeling of financial safety. Our monthly expenses are much lower now, specially that we were making big mortgage payments to get rid of it.
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Re: Clippings 2014

Post by AltaRed »

:thumbsup: I focused on eliminating that mortgage as soon as possible
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Re: Clippings 2014

Post by Shakespeare »

What mortgage?

As a retiree, I used the approach "100% down - nothing more to pay."
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Re: Clippings 2014

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Pfizer walks away

While this link is specifically about Pfizer, I find the reasons as to why Pfizer pursued AstraZeneca in the first place interesting.... and why this may be the start? continuation? of a trend
Pfizer had several reasons for taking aim at AstraZeneca for what would have been its fourth mega-merger in 14 years.

Highest on the list appeared to be Pfizer's desire to take part in a recent trend of so-called tax inversions, under which it could reincorporate in Britain and pay significantly lower corporate tax. Pfizer would also be able to use tens of billions of dollars it has parked overseas, avoiding high U.S. taxes for repatriating the huge cash pile.
This is almost identical to the February Endo International deal whereby Endo's purchase of Paladin Labs in February was a convenient time to re-incorporate itself out of the USA into Ireland. Will this trend continue and what will US lawmakers try to do about it?
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Re: Clippings 2014

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Asset Allocation: Why Consistency Trumps Being Right

http://www.financial-planning.com/30-da ... 256-1.html

In investing, however, intuition is often wrong. In actuality, any combination of the three funds outperformed the highest performing single fund, as long as one was consistent with the allocation. In this case, rebalancing was done twice annually, every June 30 and Dec. 31. Thus, being consistent with the allocation was actually more important than picking the right one in the first place.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: Clippings 2014

Post by BRIAN5000 »

What to Expect From the Stock Market: 2014-2018

http://www.minyanville.com/business-new ... ?refresh=1


All of this assumes you can stick with the stock market for at least five years, even if it crashes. I'm pretty confident that there will be some painful drawdowns during the next five years, and if you plan to get out after one of them, you're probably better off getting out now.

So we're back to the usual dull advice. Save an adequate fraction of your income. Diversify broadly. Accept a level of risk commensurate with your expected return goals. Stay the course. Look at valuation, but not too closely, and don't follow daily ups and downs of the market at all. Keep fees fair and taxes low. Hope for good returns, plan for mediocre ones, and prepare to survive terrible ones.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: Clippings 2014

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BRIAN5000 wrote: So we're back to the usual dull advice. Save an adequate fraction of your income. Diversify broadly. Accept a level of risk commensurate with your expected return goals. Stay the course. Look at valuation, but not too closely, and don't follow daily ups and downs of the market at all. Keep fees fair and taxes low. Hope for good returns, plan for mediocre ones, and prepare to survive terrible ones.
Yes, that not only sums it up, it also covers the important details. :wink:

Of course, to make any money, you have to pad it out to 200 pages or so, with folksy anecdotes and a catchy title. The colour of the cover is also important, so as to stand out from the other hundred books saying the same thing.

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Re: Clippings 2014

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Tim Harford:
In the 2001 issue of the International Journal of Forecasting, an economist from the International Monetary Fund, Prakash Loungani, published a survey of the accuracy of economic forecasts throughout the 1990s. He reached two conclusions. The first was that forecasts are all much the same. There was little to choose between those produced by the IMF and the World Bank, and those from private sector forecasters. The second conclusion was that the predictive record of economists was terrible. Loungani wrote: “The record of failure to predict recessions is virtually unblemished.”

Now Loungani, with a colleague, Hites Ahir, has returned to the topic in the wake of the economic crisis. The record of failure remains impressive. There were 77 countries under consideration, and 49 of them were in recession in 2009. Economists – as reflected in the averages published in a report called Consensus Forecasts – had not called a single one of these recessions by April 2008

<snip>

More astonishing still, when Loungani extends the deadline for forecasting a recession to September 2008, the consensus remained that not a single economy would fall into recession in 2009. Making up for lost time and satisfying the premise of an old joke, by September of 2009, the year in which the recessions actually occurred, the consensus predicted 54 out of 49 of them – that is, five more than there were. And, as an encore, there were 15 recessions in 2012. None were foreseen in the spring of 2011 and only two were predicted by September 2011.

<snip>

John Maynard Keynes famously looked forward to a day when “economists could manage to get themselves thought of as humble, competent people, on a level with dentists”.

It’s a nice piece of self-deprecation, but it’s also an analogy worth exploring. We don’t expect a dentist to be able to forecast the pattern of tooth decay. We expect that she will offer good practical advice on dental health and intervene to fix problems when they occur. We should demand much the same from economists: proven advice about how to keep the economy working well and solutions when the economy malfunctions. And economists should bear in mind that no self-respecting dentist would be caught dead forecasting when your teeth will fall out.
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Re: Clippings 2014

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When I headed up a function that included market forecasting, when questioned about my functions' inaccurate forecasts by senior management, I retorted that forecasting is easy but predicting the future is impossible. I confided that if I happened on a method of doing that reliably they would be the first to know (because I would resign). :rofl:

When they asked me about customer attitudes towards our future products, I devised a process where they conducted interviews of our key clients. They felt it was one of the more productive activities that they had performed. :thumbsup:
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Re: Clippings 2014

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Jonathan Clemens:
But the skills that help us succeed in other areas of our lives, such as looking for patterns, working hard, minimizing the chances of loss and mimicking the behavior of others, don't necessarily pay off in the financial markets.

Market patterns often turn out to be random price movements, working hard can mean excessive trading costs, minimizing losses can lead us to avoid stocks, and mimicking others can prompt us to buy overpriced growth companies.

Layered on top of this is our abundant self-confidence. That confidence can help us in our career and in social situations. But it can be a disaster in the financial markets, which are fiercely competitive.

"In every trade, there is an idiot," quips Prof. Statman. "What is it that I know that isn't known by others? There's a difference between playing tennis against a wall and playing tennis against Roger Federer. "
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Re: Clippings 2014

Post by Peculiar_Investor »

Jonathan Clements wrote:"In every trade, there is an idiot," quips Prof. Statman. "What is it that I know that isn't known by others? There's a difference between playing tennis against a wall and playing tennis against Roger Federer. "
I'm not sure I agree with this analogy. The sports analogy covers playing against a single, known, opponent. Much can be known in advance about the other side.

Trading the public markets is very different. It is you against many, so what I know is theoretically part of what is known by others, but only if you accept the efficient market hypothesis. If I'm making a trade, say selling a holding to pay taxes, does the other side know that? In Prof. Statman's example, who's the idiot in the trade?
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Re: Clippings 2014

Post by parvus »

Oh dear, you mean people don't have the same utility preferences? Or do you mean that utility preferences are accomplished in ways economists haven't quite yet mathed out? :wink:
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Re: Clippings 2014

Post by kcowan »

What he conveniently ignores is the differing investment strategies. I buy a value stock when it reaches my price point from a momentum trader who is unloading it on the way down. We are both happy with the trade.

I think his theme might apply among trading types, especially with day traders.
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Re: Clippings 2014

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I read John Mauldin's free newsletter from time to time, for the entertainment. I would never base investment decisions upon it. Nevertheless, he has been saying the following repeatedly, and I think that there is more than a grain of truth to it:
It’s not too much of a stretch to say that we’re in a race between how much wealth and value and improvement in lifestyles human ingenuity can create versus how much destruction of wealth and lifestyles governments can destroy.
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Re: Clippings 2014

Post by Park »

http://news.morningstar.com/articlenet/ ... xml&part=3

On the last page of this 3 page article, the authors cites Credit Suisse 2014 Yearbook. There is a somewhat inverse relationship between stock market return and weakness of currency in emerging markets.
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US Has Relatively Favorable Income Tax Policies

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:thumbsup: In a comparison of labor tax burdens in Organization for Economic Co-operation and Development countries, the Tax Foundation found that, while workers in the US ended up paying, on average, 31.3 percent of their income in taxes in 2013, this was only the 26th highest among members, and below the 34-country average of 35.8 percent. The complete story is here http://www.usa-tax-news.com/story/US_Ha ... 65052.html
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