Clippings 2016

Recommended reading, economic debates, predictions and opinions.
Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Ratio Plan Investing

Post by Park » 18 Sep 2016 05:29

http://www.nytimes.com/1985/03/16/busin ... sting.html

This is for the novice investor. NYT article from 1985 on formula investing:

"formula used by the investor to mark the turning points in the market and to indicate the time for purchasing and selling securities"

"One of the categories of formula investing is known as ratio plans"

"they entail an orderly process for adding to or reducing particular securities positions in keeping with the preselected ratios."

"The purpose of each is to invest in securities at regular intervals on the basis of specific market signals"

"Constant dollar plans are devised to retain the same dollar value of a security or a group of securities in a certain classification, rather than as a percentage of the overall portfolio. Under such a plan, the investor sells the stock when its price advances and acquires additional shares when the price declines"

"Constant ratio plans, on the other hand, involve maintaining the same relative value of different securities in the portfolio."

"The third of these ratio formulas, variable ratio plans, is more difficult to establish. Using this, for instance, the proportion of assets in a classification may be adjusted in accordance with a market indicator such as the Standard & Poor's 500-stock index or stocks may be purchased based on their relationship to a price-earnings ratio."

gobsmack
Silver Ring
Silver Ring
Posts: 291
Joined: 04 Sep 2015 13:16

Re: Uses Of Options For Investors

Post by gobsmack » 22 Sep 2016 05:54

Park wrote:Any other uses of options for investors, as opposed to traders?
Could they perhaps be used as way to infer how the market believes a stock will move? (i.e., similar to looking at short positions)

gobsmack
Silver Ring
Silver Ring
Posts: 291
Joined: 04 Sep 2015 13:16

Re: Clippings 2016

Post by gobsmack » 22 Sep 2016 06:01

A sad article on Bloomberg about a small community in Newfoundland debating whether they should take cash and abandon their homes. I did not know these relocation programs existed.

Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Re: Uses Of Options For Investors

Post by Park » 23 Sep 2016 01:30

gobsmack wrote:
Park wrote:Any other uses of options for investors, as opposed to traders?
Could they perhaps be used as way to infer how the market believes a stock will move? (i.e., similar to looking at short positions)
Put/Call ratio.

gobsmack
Silver Ring
Silver Ring
Posts: 291
Joined: 04 Sep 2015 13:16

Re: Uses Of Options For Investors

Post by gobsmack » 23 Sep 2016 06:04

Park wrote:
gobsmack wrote:
Park wrote:Any other uses of options for investors, as opposed to traders?
Could they perhaps be used as way to infer how the market believes a stock will move? (i.e., similar to looking at short positions)
Put/Call ratio.
Cool! I didn't know about this. Thanks

Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Bond Trading Strategies For The Novice Investor

Post by Park » 02 Oct 2016 10:06

The following link from Fidelity is about how to time your bond purchases using the bond trading strategies of ladders, barbells and bullets. If you're not a novice investor, ignore this post.

https://www.fidelity.com/learning-cente ... strategies

"Ladders are popular among those investing in bonds with long-term objectives, such as saving for college tuition. They’re also particularly useful for retirees or others trying to create a predictable income stream...Your exposure to interest rate volatility is reduced because your bond portfolio is now spread across different coupons and maturities."

"When pursuing a bullet strategy you purchase several bonds that mature at the same time, minimizing your interest rate risk by staggering your purchase date. This is an effective approach when you know that you will need the proceeds from the bonds at a specific time, like when a college tuition bill comes due."

About a barbell strategy, my impression is that this is more for those who want to actively manage their bonds.

Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Re: Bond Trading Strategies For The Novice Investor

Post by Park » 05 Oct 2016 09:50

Park wrote:The following link from Fidelity is about how to time your bond purchases using the bond trading strategies of ladders, barbells and bullets. If you're not a novice investor, ignore this post.

https://www.fidelity.com/learning-cente ... strategies

"Ladders are popular among those investing in bonds with long-term objectives, such as saving for college tuition. They’re also particularly useful for retirees or others trying to create a predictable income stream...Your exposure to interest rate volatility is reduced because your bond portfolio is now spread across different coupons and maturities."

"When pursuing a bullet strategy you purchase several bonds that mature at the same time, minimizing your interest rate risk by staggering your purchase date. This is an effective approach when you know that you will need the proceeds from the bonds at a specific time, like when a college tuition bill comes due."

About a barbell strategy, my impression is that this is more for those who want to actively manage their bonds.
I can't modify the above post anymore. If I could, the link below would be the one I'd use about bond trading strategies.

http://franklin-street.com/Docs_News/PR ... _Curve.pdf

User avatar
Peculiar_Investor
Gold Ring
Gold Ring
Posts: 7187
Joined: 01 Mar 2005 14:52
Location: Calgary
Contact:

Re: Clippings 2016

Post by Peculiar_Investor » 17 Oct 2016 11:16

A somewhat interesting read from the WSJ -- The Dying Business of Picking Stocks - WSJ [$$$]
Investors are giving up on stock picking.

Pension funds, endowments, 401(k) retirement plans and retail investors are flooding into passive investment funds, which run on autopilot by tracking an index. Stock pickers, archetypes of 20th century Wall Street, are being pushed to the margins.

Over the three years ended Aug. 31, investors added nearly $1.3 trillion to passive mutual funds and their brethren—passive exchange-traded funds—while draining more than a quarter trillion from active funds, according to Morningstar Inc.
Nothing particularly new to most FWF'ers here, but it was interesting to read about the movement in institutional money
Employer-sponsored 401(k)-style retirement plans have 25% of their assets in index funds, up from 19% in 2012, according to investment-consulting firm Callan Associates Inc. Public pension plans had 60% of their U.S. stock allocations in index funds in 2015, up from 38% in 2012, according to research firm Greenwich Associates. At endowments and foundations, the index-fund share rose to 63% from 40% in that time period.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

User avatar
Koogie
Gold Ring
Gold Ring
Posts: 1441
Joined: 09 Mar 2012 16:44

Re: Clippings 2016

Post by Koogie » 17 Oct 2016 14:31

Apologies if this was posted elsewhere but in furtherance of the above, one could also cite this study released last week to justify the swing away from active management (perhaps Mr. Hallett might expand on his thoughts).

Fund management performance in Canada has just hit a new low
http://www.theglobeandmail.com/globe-in ... e32357580/

"""By at least one measure, active fund management in Canada has hit a new low.

A new report shows that the number of Canadian funds focused on U.S. large-cap stocks that outperformed the index over the past five years was precisely zero.

Not a single Canadian manager investing in U.S. stocks delivered higher returns than the S&P 500 index over that time, according to S&P Dow Jones Indices.


“The numbers are ugly. There isn’t any other way to describe it,” said Dan Hallett, vice-president of HighView Financial Group.

“The S&P 500 is a much harder index to beat,” he said.

But, he added, “I can’t remember it ever being that bad.”"""
Buy very little, sell even less.

Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Vanguard On Rebalancing Stocks/Bonds

Post by Park » 18 Oct 2016 17:08

https://www.vanguard.com/pdf/icrpr.pdf

"The primary goal of a rebalancing
strategy is to minimize risk relative to a target asset allocation,
rather than to maximize returns...asset classes produce different
returns, so the portfolio’s asset allocation changes. Therefore,
to recapture the portfolio’s original risk-and-return characteristics,
the portfolio should be rebalanced...This paper demonstrates that the risk-adjusted returns
are not meaningfully different whether a portfolio is rebalanced
monthly, quarterly, or annually; however, the number of ebalancing events and resulting costs (taxes, time, and labor) increase
significantly...As a result, we conclude that for most broadly diversified stock and bond fund portfolios
(assuming reasonable expectations regarding return patterns, average
returns, and risk), annual or semiannual monitoring, with rebalancing at
5% thresholds, is likely to produce a reasonable balance between risk
control and cost minimization for most investors. Annual rebalancing is
likely to be preferred when taxes or substantial time/costs are involve."

This is for rebalancing between stocks and bonds.

http://blogs.wsj.com/totalreturn/2015/0 ... this-year/

"Francis Kinniry, a principal with Vanguard Group’s investment-strategy unit, says that if you are worried about risk, it is much more important to rebalance between stocks and bonds.

By contrast, rebalancing among stock-market sectors isn’t so crucial. “We don’t see a big difference in risk if your international is off by 10 percentage points,” Mr. Kinniry says.

The reason: Even though there can be sharp differences in the annual results for U.S. and foreign shares, they tend rise and fall in unison. As a result, owning more of one rather than the other could make a difference to your annual results, but it may not make a big difference to your portfolio’s volatility."

User avatar
Quebec
Silver Ring
Silver Ring
Posts: 686
Joined: 24 Oct 2009 16:49
Location: Quebec City

What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing

Post by Quebec » 20 Oct 2016 09:01

Very funny and (to me) inspiring article in the WSJ. This is my type of investment manager.

What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing
Steve Edmundson has no co-workers, rarely takes meetings and often eats leftovers at his desk. With that dynamic workday, the investment chief for the Nevada Public Employees’ Retirement System is out-earning pension funds that have hundreds on staff. His daily trading strategy: Do as little as possible, usually nothing.
Even Mr. Edmundson can’t resist studying investment strategies. “I spend a lot of time researching things we ultimately don’t do.” On volatile market days, though, he gets to go home on time and chill out.
He generally doesn't work outside 8 a.m.-to-5 p.m. hours. He commutes in a 2005 Honda Element with over 175,000 miles on it.
Imagefiniki, the Canadian financial wiki: a knowledge base of financial subjects written from a Canadian perspective

Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Dollar Cost Averaging

Post by Park » 20 Oct 2016 10:18

Once again, this post is for the novice investor. Are any of my posts otherwise :) ?

This is from:

http://www.servowealth.com/resources/ar ... ow-half-it

There are two issues here. First of all, stocks are volatile. Secondly, when should you buy and sell stocks (timing)?

This post is about dollar cost averaging, which some would call periodic investing instead. Anyone who is regularly investing money from their pay cheque is doing this.

Assume someone is investing $1000 monthly from 2000-2014 in the US. Individual A puts it all in Vanguard's S&P500 fund. Individual B puts it all in Vanguard's Short Term Bond Index Fund. Both funds had a compound return of 4.1% over that time period.

What about the returns of both investors, more specifically their internal rates of returns, which take into account the $ they put in? For the stock investor, it was 8.5%. For the bond investor, it was 3%.

Why the difference? The S&P500 was 7 times more volatile.

One could conceive of scenarios where the results wouldn't be favorable for dollar cost averaging. For example, assume the S&P500 trend was to increase from 2000 to 2007, followed by a trend down with it ending up in 2014 at the same place it was in 2000. But I doubt that such scenarios would be majority of situations.

As a timing method, dollar cost averaging is very simple. There will be many doing it, who don't realize that they' are. But it can take advantage of the volatility of stocks. And over the entire accumulation cycle of an investor, it will likely increase returns.

Amended to include the following: it is ironic that one of the few timing methods that does work is so straightforward.
Last edited by Park on 20 Oct 2016 13:05, edited 1 time in total.

gobsmack
Silver Ring
Silver Ring
Posts: 291
Joined: 04 Sep 2015 13:16

Tech Bubble?

Post by gobsmack » 20 Oct 2016 11:13

Just sharing a couple of articles I ran into this week talking about a possible tech bubble:

http://spectrum.ieee.org/view-from-the- ... -get-worse
http://www.bloomberg.com/news/articles/ ... -just-wait

These things are incredibly hard to predict but, the fact that Forbes recently valued Instagram at $50 billion (i.e., roughly the entire GDP of Alaska), does give me pause.

Park
Silver Ring
Silver Ring
Posts: 820
Joined: 13 Aug 2010 20:51

Value Stocks To Manage Bubble And Inflation Risk

Post by Park » 20 Oct 2016 11:25

This is from http://seekingalpha.com/article/3974839 ... t-retirees

The author presents data that value stocks outperform the overall stock market, decrease exposure to stock market bubbles and deal with inflation better than the overall market. I'll focus on the latter two.

US Market Index = Dimensional US Market Index (USMI)
Value Stock Index = 60% Dimensional US Large Value Index, 40% Dimensional US Small Value Index, rebalanced annually. (VSI)

1973-1982 (Post Nifty-Fifty Bubble) Inflation was 8.7%. US Market Index returned 7.7%. Value Stock Index 16.3%
2000-2009 (Post-Tech Stock Bubble) Inflation was 2.5%. US Market Index 0%. Value Stock Index 7.6%.

The following uses all 5 year periods between 1928-2015.

Inflation above 5% (20 periods), USMI 10.3%, VSI 17.5%, Inflation 7.2%
Below 2% (22), 9.0%, 8.4%, -0.2%
Above 8% (5), 16.2%, 23.8%, 9.1%
Below 0% (5), -2.2%, -5.0%, -3.8%

The US didn't have a fiat currency for the initial period of this analysis. With a fiat currency, deflation tends to be less of an issue.

longinvest
Gold Ring
Gold Ring
Posts: 1451
Joined: 10 Sep 2012 17:26
Location: QC

Re: Clippings 2016

Post by longinvest » 23 Oct 2016 18:24

Why you should wait until you are 70 to collect CPP benefits by Fred Vettese
Nobody wants to outlive their savings, but nor do they want to live below their means. Navigating between these two extremes can be a challenge. Unless you buy an annuity, you might think that all you can do is keep your fingers crossed and hope for the best. In fact, a little knowledge about retirement spending patterns and government pensions can help retirees get more retirement income when they need it.
...
The key is to defer the start of CPP and OAS pensions until age 70. Less than one per cent of all workers do this and even then, the late start may be more accidental than intentional. While low-income workers may have no choice but to start their CPP and OAS immediately, middle-income workers like Mario are missing out on a great opportunity to improve their retirement security if they start CPP and OAS too early.
...
If this strategy is so effective, you might wonder why you never heard of it before. That may have something to do with the way most financial advisers get paid. Unless they work on a fee-only basis (which is rare) they are paid a percentage of assets, but the strategy described here draws down those assets more quickly.
Bogleheads investment philosophy | Simple index portfolios | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11913
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Clippings 2016

Post by ghariton » 26 Oct 2016 13:07

Ignore the Anti-HFT Crowd. Wall Street’s Speed Demons Are Heroes
Since 2013, positive research has outnumbered negative by a 2-1 margin, a database search of the 30 most-cited papers on HFTs showed. Researchers found automated firms reduced trading costs, and contrary to popular opinion, improved market depth and stability. It’s a turnaround from the previous three years, when most studies were inconclusive or negative.

“As a whole, the literature strongly supports HFTs being a net positive,” said Jonathan Brogaard, a professor at the University of Washington and co-author of “High-Frequency Trading and Price Discovery,” which has been mentioned by other researchers more than 350 times as the most-cited paper.
A word of caution:
Nevertheless, some say the conclusions should be taken with a grain of salt. Academia has been dogged by worries that its research can be easily tainted by the influence of, and cozy relationships with, the industries it studies. Finance is no exception.
I always thought that concerns of retail investors about HST were grossly exaggerated. We might lose a dime here and a nickel there, but I for one really enjoy the increased liquidity and smaller margins. Of course, the situation may be different for large active fund managers, but somehow I have little sympathy for them. After all, they were the ones ripping me off, and the HSTs have tilted the playing field just a little bit in my favour.

Now if only someone like the HSTs could bring some improvements to the bond markets...

George
The plural of anecdote is NOT data.

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11913
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Clippings 2016

Post by ghariton » 07 Nov 2016 12:09

BlackRock Says Australia May Lose AAA as Soon as Next Month
Australia could be stripped of its top credit score by S&P Global Ratings as early as next month if the government’s interim budget review shows further deterioration, according to BlackRock Inc.

<snip>

The government has been forced to revise its estimates on the budget repeatedly and the timeline for a return to surplus keeps getting postponed. Back in 2013, then Treasurer Joe Hockey predicted that there would be a surplus of A$6.59 billion in the current fiscal year; in this year’s May budget that was projected to have turned into a A$37.1 billion deficit.
S&P said in July that there was a one-in-three chance that it would lower Australia’s credit rating within two years if lawmakers failed to agree proposals to balance the budget by the early 2020s. It said “more forceful fiscal policy decisions” would be required
Good thing that the Australian economy is really different from the Canadian economy.

George
The plural of anecdote is NOT data.

User avatar
Peculiar_Investor
Gold Ring
Gold Ring
Posts: 7187
Joined: 01 Mar 2005 14:52
Location: Calgary
Contact:

Asness' 1995 paper on MOM now available on SSRN

Post by Peculiar_Investor » 09 Nov 2016 08:42

Tip of the hat to Larry Swedroe on the Bogleheads forum that Asness' 1995 paper on MOM now available on SSRN.
larryswedroe wrote:https://papers.ssrn.com/sol3/papers.cfm ... id=2865769

Thought this would be of interest

Larry
The abstract states:
Cliff Asness wrote:Researchers have long argued over whether strategies based on past stock returns have power to explain future stock returns. This paper finds no convincing evidence that either short-run or long-run contrarian strategies represent important factors for explaining the cross-section of stock returns. In contrast, the properly specified one-year momentum strategy has explanatory power for stock returns when used alone, when tested against size and book-to-market, and when subjected to exhaustive robustness checks. We conclude that one-year momentum represents a necessary third factor, along with firm size and book-to-market, for explaining the cross-section of stock returns.
I've downloaded it, but in the adventures of last night/today I haven't had the time to read through it to see what, if anything, I can gleam from it to further educate myself.
Imagefiniki, the Canadian financial wiki New editors wanted and welcomed, please help collaborate and improve the wiki.

Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams

User avatar
Descartes
Gold Ring
Gold Ring
Posts: 1158
Joined: 03 Nov 2008 09:59

Re: Clippings 2016

Post by Descartes » 09 Nov 2016 13:18

I remember touring the Mint in Ottawa on a school trip when I was a kid.
We were warned not to bend over and pick up anything we found on the floor.
It is all so much more understandable now..

Mint employee guilty of smuggling $165K of gold in rectum
Lawrence was found guilty of theft for stealing 22 gold pucks worth $165,000, and laundering 18 of those nuggets via Ottawa Gold Buyers.
Gold Pucks! Only in Canada.
"A dividend is a dictate of management. A capital gain is a whim of the market."

User avatar
Shakespeare
Diamond Ring
Diamond Ring
Posts: 20779
Joined: 15 Feb 2005 23:25
Location: Lethbridge, AB
Contact:

Re: Clippings 2016

Post by Shakespeare » 09 Nov 2016 13:35

the above link wrote:The RCMP also seized four gold pucks — roughly the diametre of golf balls
Dunno about that. :roll:
“A wise man should be prepared to abandon his baggage at any time.” -- R.A. Heinlein, The Door Into Summer.

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11913
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Clippings 2016

Post by ghariton » 10 Nov 2016 12:55

Statistics Canada shows growth in median family income for seniors versus non-seniors, for 1976 to 2014.
c-g01-eng.png
The gap between the two first narrows, and then widens again. Still, over all, I would say that both groups have done well, including recent years. It's important not to assume that Canadian experience is the same as U.S. experience.

George
The plural of anecdote is NOT data.

Hammerer
Silver Ring
Silver Ring
Posts: 314
Joined: 21 Oct 2008 00:09

Re: Clippings 2016

Post by Hammerer » 10 Nov 2016 18:54

Lawrence was found guilty of theft for stealing 22 gold pucks worth $165,000, and laundering 18 of those nuggets via Ottawa Gold Buyers.
"He told the teller the cheques were from "gold nuggets" and that he wanted to transfer the money to help his parents rebuild a house in Jamaica."
"The pucks were identical in diameter to those produced at the mint"
"seized four gold pucks [...] from Lawrence's bank safety deposit box"

I hope they're only publishing this story because of it's absurdness, otherwise the Mint is a worrisomely porous place.

User avatar
Pickles
Gold Ring
Gold Ring
Posts: 3913
Joined: 27 Sep 2006 09:44
Location: Toronto

Re: Clippings 2016

Post by Pickles » 10 Nov 2016 19:22

I visited the mint in 2014. Clearly I missed an open opportunity....
Regards,
Pickles

User avatar
ghariton
Diamond Ring
Diamond Ring
Posts: 11913
Joined: 18 Feb 2005 18:59
Location: Ottawa

Re: Clippings 2016

Post by ghariton » 21 Nov 2016 13:11

How are the top 1% of income earners in Canada doing?
The average total income of the top 1% of Canadian taxfilers rose just under 0.4% from 2013 to $466,700 in 2014. In recent years, the average total income of the top 1% has remained roughly stable, growing 0.4% from 2009 to 2014, while the average total income of all taxfilers grew 4.2%.

The share of the country's total income held by the top 1% did not change from 2013 at 10.3%, almost two percentage points below the peak of 12.1% in 2006. The most recent year that the top 1% had a smaller share was 1998 at 10.2%.

Canada's top 1% taxfilers paid, on average, $159,500 in income taxes to the federal and provincial or territorial governments in 2014, up $4,200 or 2.7% over the previous year. As a result, the share of income taxes paid by the top 1% rose slightly from 20.3% in 2013 to 20.5% in 2014. That was down from a peak of 23.3% in 2007.

To be in the top 1 percent in 2014, a taxfiler must have earned a total income of at least $227,100. Over 268,500 Canadians were in this high-income group.
So the gap between the top 1% in Canada and the rest is not growing. If anything, it is narrowing somewhat. Contrast this with the situation in the U.S.

It is always dangerous to look at trends in the U.S. and assume that these can be automatically transposed to Canada.

George
The plural of anecdote is NOT data.

User avatar
AltaRed
Diamond Ring
Diamond Ring
Posts: 18621
Joined: 05 Mar 2005 20:04
Location: Ogopogo Land

Re: Clippings 2016

Post by AltaRed » 21 Nov 2016 20:27

Ottawa to Phase Out Coal Generating Plants by 2030

Not unexpected I suppose but it will increase electrical costs to consumers, both in terms of stranded generation not yet amortized off and higher priced sustainable/renewable alternatives. Seems NS gets a reprieve for winter peaking post-2030 but on the premise they will meet GHG reductions elsewhere. Not that hard to do I suppose if oil fueled heating keeps getting converted to gas and/or business activity and population shrinks over the next 15 years.
Imagefiniki, the Canadian financial wiki The go-to place to bolster your financial freedom

Locked