Clippings 2017

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longinvest
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Re: Clippings 2017

Post by longinvest » 22 May 2017 06:42

longinvest wrote:
21 May 2017 22:41
no single security can grow bigger than 25% of my portfolio.
To be fair, I'm lending 32% of my portfolio to a single issuer, the Federal Government (all of my RRBs and 29% of VAB). It's a risk. But, I've decided that I won't try to protect my portfolio against government default. There are just too many ways for our governments (federal, provincial) to hurt me against which I have no effective defense; they can tax me, confiscate my wealth, etc. There are almost no limits as elected governments can rewrite laws.
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Re: Clippings 2017

Post by Lazy Ninja » 22 May 2017 09:03

Report on a new study concludes that, while stocks over all beat bonds and Treasury bills by a wide margin over the long run, that is not true of individual stocks. What you are seeing is a few stocks doing phenomenally well, with the average stock quite mediocre.
Getting back to this for a minute, what are the implications for us stubborn fools who insist on stock picking in terms of the optimal number of individual securities in our portfolios (ignoring, for the moment, that the optimal number is zero)? Is it that we should concentrate in fewer issues to increase the possibility of outperforming market averages (as well as that of underperforming, naturally), or is it that we should cast a wider net, in order to give us a better chance of having at least some of our capital land in these "superstar" stocks?

Edit to add: are these the key takeaways?
You concentrate to make money (if you can stand the risk) and diversify to keep it.
... all the while keeping in mind that most people suffer from over-optimism bias.

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Re: Clippings 2017

Post by Shakespeare » 22 May 2017 09:52

Canada can't really support a superstar stock. To make sure you have one, hold VT.

Remember what happened not only to Nortel but to Nokia in Finland. The one stock overwhelmed the market and gave too much risk. Only a large economy like the US can really support a superstar.

As for Canadian stocks, I think about 15 is the right number.
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Inflation Risk And Cash

Post by Park » 22 May 2017 10:12

http://micawberprinciple.com/the-10-sma ... tion-1716/

"the maximum decline of the inflation-adjusted T-bill portfolio was 49 percent [over a 5-year period], the result of holding cash in an inflationary environment.”

James O'Shaughnessy

I don't know what is the applicable time period, but on reading the link, my guess is that the starting date is 1927. As for the end date, the link was written in December 2016, so the end date was probably no earlier than 2010.

That maximum loss of 49% is very likely permanent and doesn't include the tax you paid on income during the 5 year period. With stocks, there is a chance that you will recover your loss.

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Re: Clippings 2017

Post by longinvest » 22 May 2017 10:36

According to The Stingy Investor Asset Mixer, the worst drop of 3-month Canadian T-bills in inflation-adjusted terms, from 1970 to 2016, was a cumulative real loss of -11.56% from 1971 until 1975, which was recovered from 11 years later in 1982. That's far from a -50% drop. From 1970 to 2016, they had an average annualized real return of 2.09%. Not bad, really, for cash, for 47 years encompassing a period of very high inflation!

As a comparison, the TSX composite lost a cumulative real -39.57% in 1973 and 1974, and recovered 6 years later in 1979.

I'm almost tempted to believe David Trahair that many people could save for retirement exclusively using a 5-year GIC ladder, invested in registered accounts. It would be a conservative approach, requiring lots of savings, but it might be better for many than playing the lottery with individual stocks and bailing out after every market crash.
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Re: Clippings 2017

Post by NormR » 22 May 2017 10:54

It's worth remembering that the SI calculator is based on annual data. The peak to bottom based on monthly/daily/intra-day data will be larger - often a sizable margin.

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Re: Clippings 2017

Post by longinvest » 22 May 2017 10:57

NormR wrote:
22 May 2017 10:54
It's worth remembering that the SI calculator is based on annual data. The peak to bottom based on monthly/daily/intra-day data will be larger - often a sizable margin.
This would likely make the stocks numbers even worse, comparatively to those of 3-month Canadian T-bills.
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Re: Clippings 2017

Post by ghariton » 22 May 2017 14:10

I feel badly intruding on such an interesting conversation, but after all, this is the "clippings" thread.

Jamie Dymon thinks that the world economy is set to do very well:
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he remains optimistic about the global economy and the prospects for regulatory reform under U.S. President Donald Trump.

“Japan is growing more than it has grown in 15 years, Europe is doing well all things considered, America is chugging along,” Dimon said in an exclusive interview with Bloomberg TV on Saturday in Riyadh, where he attended a Saudi-U.S. CEO forum held to coincide with Trump’s visit to the kingdom. “Even the IMF, which is always warning about stuff, is saying the world will grow faster than expected.”
Time to trade in all my RRBs for some VT?

Maybe EWZ would be a better choice.

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The plural of anecdote is NOT data.

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Re: Clippings 2017

Post by Park » 22 May 2017 16:45

longinvest wrote:
22 May 2017 10:36
According to The Stingy Investor Asset Mixer, the worst drop of 3-month Canadian T-bills in inflation-adjusted terms, from 1970 to 2016, was a cumulative real loss of -11.56% from 1971 until 1975, which was recovered from 11 years later in 1982. That's far from a -50% drop. From 1970 to 2016, they had an average annualized real return of 2.09%. Not bad, really, for cash, for 47 years encompassing a period of very high inflation!

As a comparison, the TSX composite lost a cumulative real -39.57% in 1973 and 1974, and recovered 6 years later in 1979.

I'm almost tempted to believe David Trahair that many people could save for retirement exclusively using a 5-year GIC ladder, invested in registered accounts. It would be a conservative approach, requiring lots of savings, but it might be better for many than playing the lottery with individual stocks and bailing out after every market crash.
David Trahair would probably consider the Great Depression as a good example of why you should invest for retirement exclusively using a 5 year GIC ladder. I'm reading "The Gone Fishin' Portfolio" by Alexander Green. He points out that the loss was 89%, and it started in October 1929 with the nadir being July 1932. John Jacob Raskob's infamous interview in the Ladies Home Journal was in the summer of 1929. He recommended investing $15 per month in the stock market. Such advice was obviously bad timing. But Alexander Green quotes Jeremy Siegel. If you had put $15 per month in the stock market starting In August 1929, you would have beaten T-bills over the next 4 years.

I should emphasize that Alexander Green advises that only money needed at least 5 years from now should be in the stock market.

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Re: Clippings 2017

Post by big easy » 23 May 2017 10:53

Shakespeare wrote:
22 May 2017 09:52
Canada can't really support a superstar stock. To make sure you have one, hold VT.

Remember what happened not only to Nortel but to Nokia in Finland. The one stock overwhelmed the market and gave too much risk. Only a large economy like the US can really support a superstar.

As for Canadian stocks, I think about 15 is the right number.
15% of total portfolio or 15% of equity weighting.

Longinvest,
I was not promoting equal weight indexing, in fact I pointed out that it results in an even higher bias towards mines and energy and less weight to financials which does not accomplish better diversification in my opinion. Perhaps an index with equal weight by sector which would include telecoms, utilities, consumer discretionary etc. Maybe you could combine some of the BMO equal weight etfs? Just thinking out loud, I will stick with VCN for my Cdn equity holdings.
"Everybody has a plan until they get punched in the face." Mike Tyson

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Re: Clippings 2017

Post by Shakespeare » 23 May 2017 11:32

15% of total portfolio or 15% of equity weighting.
Neither. 15 stocks.

Added: plus VT.
“A wise man should be prepared to abandon his baggage at any time.” -- R.A. Heinlein, The Door Into Summer.

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Re: Clippings 2017

Post by ghariton » 26 May 2017 17:20

Statistics Canada reports on Canadian incomes for 2015 (notice the customary time lag before compilation and publication)
The median after-tax income of Canadian families and unattached individuals was $56,000 in 2015, virtually unchanged from 2014. Since the start of the Canadian Income Survey in 2012, the median after-tax income of Canadians has increased 2.9%.

Senior families, where the highest income earner was 65 years of age or older, had a median after-tax income of $57,500 in 2015, up 5.7% from 2012. After-tax income of these families has been climbing steadily since at least the mid-1970s. In 1976, senior families received $33,100 in after-tax income.
I hadn't realized the size of government transfers, and their importance relative to other sources of income, especially for seniors:
Median government transfers for senior families rose 3.0% from 2014 to $27,500 in 2015, compared with a 1.8% increase to $17,400 for unattached seniors.

Among families where the highest income earner was 64 years of age or younger, median government transfers rose 27.0% from 2014 to $4,700 in 2015.
A welfare state indeed.

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Re: Clippings 2017

Post by adrian2 » 26 May 2017 17:51

ghariton wrote:
26 May 2017 17:20
A welfare state indeed.
I'm entitled to my entitlements.
:evil:
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Re: Clippings 2017

Post by Koogie » 31 May 2017 12:01

Turns out the head of Equitable Bank is actually an indexer.....

How Equitable Bank's CEO invests his own money
https://www.theglobeandmail.com/globe-i ... e35148416/

""'My general approach is to diversify my investments across a range of economic places with the ETF positions I take. I don’t try to outsmart the market, but try to track it. If I can track it, I’m happy with it. It’s perhaps a little boring, but I think the academic evidence is clear."""

"""Be very concerned about the cost of investing. Choose funds with low [management expense ratios] and don’t try to be too clever."""
Buy very little, sell even less.

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Re: Clippings 2017

Post by big easy » 31 May 2017 15:44

Anyone heard of David Winters? Saw him on Consuelo Mack's Wealthtrack. He argues that S&P 500 index funds have actual expenses of 4.1% due to "The annual dilution of company shares issued for executive compensation can increase expenses an extra 2.5%" and "Ongoing company share buybacks to offset dilution can increase expenses up to an additional 1.6%"

I suppose his argument is that the shares he buys do not engage in such activities, although he never says so.

He also says that "95% of the time Index Funds vote in favor of executive compensation creating ever increasing look through expenses"

http://wintergreeniceberg.com/
http://wintergreeniceberg.com/hidden-ex ... dex-funds/

Caveat - he heads an actively managed etf.
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Re: Clippings 2017

Post by AltaRed » 31 May 2017 15:55

That is if the corporations do not buy equivalent shares off the market to offset dilution from eecutive compensation. Some companies, bless their hearts, do that while others are just pigs at the trough.
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Re: Clippings 2017

Post by adrian2 » 31 May 2017 15:56

big easy wrote:
31 May 2017 15:44
Anyone heard of David Winters? Saw him on Consuelo Mack's Wealthtrack. He argues that S&P 500 index funds have actual expenses of 4.1% due to "The annual dilution of company shares issued for executive compensation can increase expenses an extra 2.5%" and "Ongoing company share buybacks to offset dilution can increase expenses up to an additional 1.6%"
This might as well go into investment porn thread. :evil:
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Re: Clippings 2017

Post by SQRT » 31 May 2017 16:46

AltaRed wrote:
31 May 2017 15:55
That is if the corporations do not buy equivalent shares off the market to offset dilution from eecutive compensation. Some companies, bless their hearts, do that while others are just pigs at the trough.
It was always our (TD) policy to buy enough shares in to offset exec comp dilution. Tended to be lumpy though, depending on market forces and capital levels. Some people view share repo's as an artificial boost to share prices which help the option holders. I didn't subscribe to that view.

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Re: Clippings 2017

Post by CROCKD » 02 Jun 2017 13:22

Re: Artificial Intelligence
The robots aren't going to kill you
our AI tools are likely to continue to derive all of their root volition from us. Your self-driving car will take you places you want to go and even make suggestions. But it won't argue, and when you're done with it, it will just sit in your garage, recharging. There is simply no business value in pursuing a self-driving car that has all of these properties but also wants to go to college. If we can make the first without making the second, then things will be much less complicated for us. And much less frightening.
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Re: Clippings 2017

Post by Profit not Prophet » 06 Jun 2017 09:39

Tackling the 'Nastiest, Hardest Problem in Finance'
William Sharpe, creator of a model that measures risk and reward, turns to retirement planning.
https://www.bloomberg.com/view/articles ... in-finance

and linked in the story is more Sharpe info at his site, lots of long pdf's for those inclined
http://web.stanford.edu/%7Ewfsharpe/RISMAT/

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Re: Clippings 2017

Post by randomwalker » 07 Jun 2017 12:00

"It's a Stock Pickers market"...Again...no this time it's for real...well maybe.

Investing Pro

Growing gap between market winners and losers is good news for active management
by Martin Pelletier, the Financial Post, June 5, 2017

"The benefits of diversification and active management are finally beginning to reveal themselves, once again...the market has left plenty of room and opportunities for good old fashioned active investment management."

http://business.financialpost.com/inves ... management

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Re: Clippings 2017

Post by Taggart » 07 Jun 2017 15:02

randomwalker wrote:
07 Jun 2017 12:00
"It's a Stock Pickers market"...Again...no this time it's for real...well maybe.

Investing Pro

Growing gap between market winners and losers is good news for active management
by Martin Pelletier, the Financial Post, June 5, 2017

"The benefits of diversification and active management are finally beginning to reveal themselves, once again...the market has left plenty of room and opportunities for good old fashioned active investment management."

http://business.financialpost.com/inves ... management
All I know is these professionals keep saying the same thing decade after decade, but the vast majority still don't outperform. SPIVA says less than 9% can better the S&P TSX Composite Index over a ten year period.

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Re: Clippings 2017

Post by big easy » 07 Jun 2017 15:41

Taggart wrote:
07 Jun 2017 15:02
randomwalker wrote:
07 Jun 2017 12:00
"It's a Stock Pickers market"...Again...no this time it's for real...well maybe.

Investing Pro

Growing gap between market winners and losers is good news for active management
by Martin Pelletier, the Financial Post, June 5, 2017

"The benefits of diversification and active management are finally beginning to reveal themselves, once again...the market has left plenty of room and opportunities for good old fashioned active investment management."

http://business.financialpost.com/inves ... management
All I know is these professionals keep saying the same thing decade after decade, but the vast majority still don't outperform. SPIVA says less than 9% can better the S&P TSX Composite Index over a ten year period.
Summary of article: Some stocks went up while others went down. Implication: All you have to do is pick the right ones and you're golden. :roll:
"Everybody has a plan until they get punched in the face." Mike Tyson

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Re: Clippings 2017

Post by ghariton » 08 Jun 2017 10:39

Statistics Canada reports quarterly on private sector trusteed pension plans. From the latest release
Pension fund assets held in stocks increased 4.4% in the fourth quarter, while bond holdings decreased 3.5%. The value of mortgage investments has increased steadily over the last two years, rising 13.4% in the fourth quarter of 2016.
So, either deliberately or as a byproduct of other decisions, pension plan trustees are switching away from bonds and into equities and mortgages.

Note however that the role of mortgages is still tiny: they increased from 1.1 % to 1.2 % of total assets. Equities went from 27.8 % to 28.9 %, while bonds went from 35.0 % to 33.6 %.

Any lessons for retail investors?

George
The plural of anecdote is NOT data.

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Re: Clippings 2017

Post by ghariton » 08 Jun 2017 10:52

Ben Snider of Goldman Sachs ponders the death of value investing.

(Spoiler: He thinks it is sick but will recover.)

George
The plural of anecdote is NOT data.

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