Clippings 2017

Recommended reading, economic debates, predictions and opinions.
Park
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Re: Clippings 2017

Post by Park » 12 Oct 2017 02:00

A 2012 link from Credit Suisse about Piotroski score.

https://research-doc.credit-suisse.com/ ... 8ZFh2H0%3D

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Re: Clippings 2017

Post by Park » 19 Oct 2017 09:11

http://onlinelibrary.wiley.com/doi/10.1 ... 3/abstract

Review of the academic literature on quantitative value investing.

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Will The Value Premium Persist?

Post by Park » 22 Oct 2017 16:54

One question that you hear is whether the value premium will persist, now that it is well known. I've heard Jason Hsu, from Research Affiliates, states it will, because of investors' tendencies to buy high and sell low.

Andrew Hallam had an article in the Globe and Mail (paywall), which illustrates that nicely.

"measured in U.S. dollars, Vanguard's Total Stock Market Index (VTSMX) averaged 7.1 per cent during the 10 years that ended Jan. 31, 2017. Its investors did even better. According to Morningstar, they averaged 8.1 per cent a year....

Measured in U.S. dollars, Vanguard's U.S. Value Index (VIVAX) earned a compound annual return of 5.8 per cent during the 10-year period that ended Jan. 31, 2017. But according to Morningstar, the typical investor in this fund averaged just 1.8 per cent...

Vanguard's Growth Stock Index (VIGRX) averaged 8.1 per cent measured in U.S. dollars. Its investors averaged just 5.3 per cent.

Investors in Vanguard's Small Cap Value Index (VISVX) were just as foolish. The fund averaged 7.5 per cent a year to Jan. 31, 2017. But its typical investor only averaged 4.2 per cent.

Investors in Vanguard's Small Cap Growth Index (VISGX) behaved a bit better. The fund averaged a 10-year annual return of 8.1 per cent. Its investors averaged 7.5 per cent."

One could make a case that Vanguard investors may be worse than investors in general, but I doubt it.

The value premium and the tendency of investors to engage in cyclical, as opposed to countercyclical, market timing has been known for more than 10 years. With periodic investing, also called dollar cost averaging by some, it's relatively simple to take advantage of stock volatility to have an internal rate of return greater than the compound return of a benchmark. Such stock volatility is even more marked in value funds than broad market cap funds. Once again, the benefits of periodic investing have been known for more than 10 years.

Despite that, investors continue to hurt themselves, and I doubt that will change. I'm confident that the value premium will persist.

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Re: Will The Value Premium Persist?

Post by 2 yen » 23 Oct 2017 06:51

Park wrote:
22 Oct 2017 16:54
One question that you hear is whether the value premium will persist, now that it is well known. I've heard Jason Hsu, from Research Affiliates, states it will, because of investors' tendencies to buy high and sell low.

Andrew Hallam had an article in the Globe and Mail (paywall), which illustrates that nicely.

"measured in U.S. dollars, Vanguard's Total Stock Market Index (VTSMX) averaged 7.1 per cent during the 10 years that ended Jan. 31, 2017. Its investors did even better. According to Morningstar, they averaged 8.1 per cent a year....

Measured in U.S. dollars, Vanguard's U.S. Value Index (VIVAX) earned a compound annual return of 5.8 per cent during the 10-year period that ended Jan. 31, 2017. But according to Morningstar, the typical investor in this fund averaged just 1.8 per cent...

Vanguard's Growth Stock Index (VIGRX) averaged 8.1 per cent measured in U.S. dollars. Its investors averaged just 5.3 per cent.

Investors in Vanguard's Small Cap Value Index (VISVX) were just as foolish. The fund averaged 7.5 per cent a year to Jan. 31, 2017. But its typical investor only averaged 4.2 per cent.

Investors in Vanguard's Small Cap Growth Index (VISGX) behaved a bit better. The fund averaged a 10-year annual return of 8.1 per cent. Its investors averaged 7.5 per cent."

One could make a case that Vanguard investors may be worse than investors in general, but I doubt it.

The value premium and the tendency of investors to engage in cyclical, as opposed to countercyclical, market timing has been known for more than 10 years. With periodic investing, also called dollar cost averaging by some, it's relatively simple to take advantage of stock volatility to have an internal rate of return greater than the compound return of a benchmark. Such stock volatility is even more marked in value funds than broad market cap funds. Once again, the benefits of periodic investing have been known for more than 10 years.

Despite that, investors continue to hurt themselves, and I doubt that will change. I'm confident that the value premium will persist.
Interesting. So the message appears to be to just stay the course. Don't check statements too often, have a good emergency fund separate from investments, relax and just allow those automatic monthly contributions to happen.

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Re: Clippings 2017

Post by longinvest » 23 Oct 2017 07:45

Another interpretation would be that investing into the total market is sufficient to reach one's financial goals and makes it easier to stay the course.
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Re: Clippings 2017

Post by 2 yen » 23 Oct 2017 09:26

longinvest wrote:
23 Oct 2017 07:45
Another interpretation would be that investing into the total market is sufficient to reach one's financial goals and makes it easier to stay the course.
Yes. Seeing one stock go down is terrifying for those unused to fluctuations. Perhaps less scary with the whole basket.

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Re: Clippings 2017

Post by big easy » 27 Oct 2017 12:38

A study of DBRS bond default rates and rating transitions from 1976-2015 for those interested in corporate bonds. The is a list of 57 defaults brings back memories - Olympia & York and Lehman Bros. were the only two issues to be AA at the time of default.

DBRS Study
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Re: Clippings 2017

Post by Shakespeare » 28 Oct 2017 15:28

Behind the G&M pay wall:

Hey, Canadian stock market: Thanks for 10 years of nothing - The Globe and Mail
On an after-inflation basis, the S&P/TSX composite index lost money over the past decade. The index averaged a gain of 1.1 per cent annually for the 10 years to late-October, while inflation averaged 1.6 per cent....

consider these three rules....

1. Dividends matter

If we look at the S&P/TSX total return index, where dividends are added to changes in share price, then the annualized 10-year gain is 4 per cent....

2. Global diversification matters...

3. Patience matters
“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 big easy » 28 Oct 2017 18:08

Shakespeare wrote:
28 Oct 2017 15:28
Behind the G&M pay wall:

Hey, Canadian stock market: Thanks for 10 years of nothing - The Globe and Mail
On an after-inflation basis, the S&P/TSX composite index lost money over the past decade. The index averaged a gain of 1.1 per cent annually for the 10 years to late-October, while inflation averaged 1.6 per cent....

consider these three rules....

1. Dividends matter

If we look at the S&P/TSX total return index, where dividends are added to changes in share price, then the annualized 10-year gain is 4 per cent....

2. Global diversification matters...

3. Patience matters
The EAFE index is still in negative territory 10 years after the financial crisis of 2007. Of course the people that brought it to us are doing just fine.
"Everybody has a plan until they get punched in the face." Mike Tyson

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Re: Clippings 2017

Post by pmj » 29 Oct 2017 08:44

... Which points to the stupidity of only looking at price indices for any market whose constituents pay dividends - but at least the writer made that observation as an after-thought. I guess "TSX makes 2.4% after inflation over 10 years" wouldn't have been as exciting :shock:.
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Re: Clippings 2017

Post by Taggart » 29 Oct 2017 11:07

The no paywall version.

-------------------------------------------------------------------------

Going even further back in market history:

From 1963 to 1983 for the TSE 300, not including dividends, the annual compound growth rate was 6.5% in stocks. Inflation about 6.8% a year.

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Re: Clippings 2017

Post by deaddog » 29 Oct 2017 12:24

Taggart wrote:
29 Oct 2017 11:07
The no paywall version.

-------------------------------------------------------------------------

Going even further back in market history:

From 1963 to 1983 for the TSE 300, not including dividends, the annual compound growth rate was 6.5% in stocks. Inflation about 6.8% a year.
Thank you Taggart.

Start date also make a difference. Oct 2007 was near the peak of the last bull market.
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Re: Clippings 2017

Post by AltaRed » 29 Oct 2017 12:28

pmj wrote:
29 Oct 2017 08:44
... Which points to the stupidity of only looking at price indices for any market whose constituents pay dividends - but at least the writer made that observation as an after-thought. I guess "TSX makes 2.4% after inflation over 10 years" wouldn't have been as exciting :shock:.
It's intended as a headline grabber to get people to read the article. Happens all the time in all genres of media. The question after I read the article is whether we should expect another super commodity cycle (that existed pre-2008) that seems critical to TSX performance. Seems to me the Canadian 'pulse' from the federal government, and urbanites in particular, is NO to almost everything resource based. That's a tough headwind.
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Re: Clippings 2017

Post by Administrator » 30 Oct 2017 08:57

There was enough discussion about Momentum investing to split it out into a separate topic.

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'five books'

Post by Profit not Prophet » 30 Oct 2017 14:52

https://fivebooks.com/interview/george- ... g-markets/

The best books on Emerging Markets recommended by George Magnus

What determines whether a country goes backwards or forwards? Why have so few developing countries joined the ranks of rich nations? George Magnus, former chief economist of UBS, chooses books to help us reflect on what it is that societies need in order to be successful.

'“It is worth reflecting on the fact that the Japanese economic miracle basically came to an end in 1989-90 — more or less as the working age population, as a share of the total population in Japan, peaked.”
In the same vein, if we think about the rest of the West—the United States and Europe—they also reached the pinnacle of their economic boom from the 1980s onward for 25 years. That cycle burst in 2007-2008, more or less at the same time as the working age population, as a share of total population, peaked. It’s early days. It’s only been eight years since the collapse of Lehman’s, and demographics move glacially. However, we are confronting huge issues from a demographic standpoint, which influence economic variables in a very, very fundamental way. They impact on savings, consumption, investment, patterns of consumption and investment, public debt, pension fund liabilities and the viability of pay-as-you-go schemes all over the world. '

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Quantitative Value And Low Dividends

Post by Park » 31 Oct 2017 01:29

https://gallery.mailchimp.com/6750faf5c ... idends.pdf

For some investors, dividends, especially foreign dividends, are a taxation problem. Mebane Faber has a white paper out (link above) done in cooperation with the Wesley Gray and Jack Vogel. They look at quantitative value strategies, and what effect dividend minimization has on such a strategy in a variety of taxation scenarios. My conclusion is that a quantitative value strategy, which screens out high dividend stocks, might work well for a Canadian investor in a higher tax bracket.

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Hedging Currency Risk

Post by Park » 01 Nov 2017 08:01

http://beta.morningstar.com/articles/83 ... costs.html

Nice article from morningstar for the novice investor on currency hedging. When I invest outside Canada, I'm making a decision about both security investing and currency investing. Most of my portfolio is foreign, which is true for many Canadian investors, so currency investing is a major part of my portfolio.

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Re: Quantitative Value And Low Dividends

Post by SQRT » 01 Nov 2017 22:18

Park wrote:
31 Oct 2017 01:29
https://gallery.mailchimp.com/6750faf5c ... idends.pdf
My conclusion is that a quantitative value strategy, which screens out high dividend stocks, might work well for a Canadian investor in a higher tax bracket.
Agree that divs are a real problem for high earners. For Alberta, divs taxed (max marg rate) at 31.7% while cap gains at 24%. Much worse in Ont. That doesn’t take into account return of ACB either, Problem is, in Canada at least, the best performers over long periods, all pay divs. Hard to avoid. If you earn under about $70k per year, divs are really great though.

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Re: Clippings 2017

Post by Profit not Prophet » 02 Nov 2017 08:31

Debating Where Tech Is Going to Take Finance.

https://www.bloomberg.com/view/articles ... ke-finance

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Re: Clippings 2017

Post by ghariton » 02 Nov 2017 14:32

Interview with Barry Ritholz on evidence based investing, apparently the latest big thing. (Because most investors have been investing without any evidence, based on hunches, or raw emotion, or whatever. Just a little condescending?)

Here's a quote from Mr. Ritholz:
I'm not going to argue by most metrics that stocks aren't expensive, but stocks are often expensive. Take the CAPE ratio, which has been above its average over 90% of the time for the past 30 years.

If you looked at the CAPE, and got out of stocks, you missed at least 20 years of market gains out of those 30 years. Evidence-based investing says you can't just look at the numbers in abstract. You have to understand what it means in context.
Hold it. Let's rewind that for a bit:
Take the CAPE ratio, which has been above its average over 90% of the time for the past 30 years.
Is that an arithmetic average? A geometric average? It sure as hell can't be the median, or any other meaningful use of the word "average".

I think that this is a good example of the mindless use of statistics without looking at the context.

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The plural of anecdote is NOT data.

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Re: Clippings 2017

Post by DenisD » 02 Nov 2017 14:50

Maybe he means something like the average of the last 90 years?

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Re: Clippings 2017

Post by ghariton » 02 Nov 2017 17:12

DenisD wrote:
02 Nov 2017 14:50
Maybe he means something like the average of the last 90 years?
Maybe so.

But I don't think that would be any more meaningful.

Unless he thinks that the economy of the 1920s and 1930s is a good guide to today's economy.

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The plural of anecdote is NOT data.

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Re: Clippings 2017

Post by kcowan » 02 Nov 2017 17:32

I used to follow Ritholz until I discovered that he is a shill! Now I follow no one. I do pay attention to NormR But I no longer follow Buffett either. I believe he has become a "rent-seeker"!
For the fun of it...Keith

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Re: Clippings 2017

Post by patriot1 » 02 Nov 2017 18:51

ghariton wrote:
02 Nov 2017 14:32
Is that an arithmetic average? A geometric average? It sure as hell can't be the median, or any other meaningful use of the word "average"
A data series can be above its arithmetic mean up to (but not including) 100% of the time. It just has to be a little above for a long time and a lot below for a short time.But not the median, which is defined as the value for which the number of samples above and below are equal.

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Re: Clippings 2017

Post by DenisD » 02 Nov 2017 21:16

ghariton wrote:
02 Nov 2017 17:12
But I don't think that would be any more meaningful.
I think his point is that CAPE on its own is not meaningful.
Ritholz wrote:If you looked at the CAPE, and got out of stocks, you missed at least 20 years of market gains out of those 30 years. Evidence-based investing says you can't just look at the numbers in abstract. You have to understand what it means in context.

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