Clippings 2017

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

Post by AltaRed »

ghariton wrote: 08 Jun 2017 10:39 Any lessons for retail investors?
One lesson I get is not to make significant shifts in asset selection. The big retail shift into dividend paying stocks for income, the shift to corporate and junk bonds to increase yield, and now the shift into MICs may not end well.

Another one may be the soundness and robustness of DB pension plans may be increasingly at risk.
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Re: Clippings 2017

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I have noticed that nearly all TDDI IPOs for convertible debentures are real estate. I hold none of them, although I do hold one from H&R REIT that is working out fine.
For the fun of it...Keith
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Re: Clippings 2017

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Indeed. I see them via Scotia iTrade. When you see an increasing trend for certain types of offerings, you know the issuers are taking advantage of product/sector demand driving up valuations. Issuers will always tap into the the 'cheapest' source of funding. Time to stay away.
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Clippings 2017 : Greenpeace

Post by CROCKD »

Finally someone willing to publically speak out about this self serving organisation.
MARGARET WENTE
Greenpeace is a menace to the world

Their holier than thou but totally hypocritical mouthpiece David Suszuki pushes their brand of half truths and disinformation. I long ago decided that I would never contribute money to them because I did not like how they went about their "business".
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Re: Clippings 2017 : Greenpeace

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CROCKD wrote: 25 Jun 2017 06:37 Finally someone willing to publically speak out about this self serving organisation.
MARGARET WENTE
Greenpeace is a menace to the world

Their holier than thou but totally hypocritical mouthpiece David Suszuki pushes their brand of half truths and disinformation. I long ago decided that I would never contribute money to them because I did not like how they went about their "business".
From the article:
Greenpeace’s fearmongering gives environmental activism a bad name. Last year more than 100 Nobel laureates signed a letter urging them to drop their campaign against genetically modified foods and golden rice, which increase crop yields and provide crucial nutrients that prevent disease and death. Greenpeace is a menace to the world, and especially to the world’s most vulnerable. It is also enormously powerful.

“I used to respect Greenpeace, but they are not aware of the reality of the forest industry,” Mr. Potvin told me. “Young people believe them. Students believe them. They spread a lot of falsehoods, and they do a lot of damage.”
When I first got the opportunity to vote, I've seriously considered voting for the Greens. What could be wrong in voting for ecology, for the better of the environment, less partisan politics and so on? In the end, I did not vote for them, and boy, how did my evaluation of their "purity" evolve in time...
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Re: Clippings 2017

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http://www.moneysense.ca/save/investing ... over-time/

I love the story of Harry Markowitz, the Nobel laureate who pioneered the idea of portfolio diversification in the 1950s. If anyone could design an optional plan for asset allocation, it would be Markowitz. But what did he do with his own money? “I should have computed the historical covariances of the asset classes and drawn an efficient frontier,” he explained. “But I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. So I split my contributions 50/50 between stocks and bonds.”
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Why Invest In Options?

Post by Park »

http://cawidgets.morningstar.ca/Article ... &id=812812

Why invest in options? By writing equity index options, you gain access to the volatility risk premium, which can diversify your stock portfolio.

However, I'd like to see data that takes into account taxes.
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Re: Clippings 2017 : Greenpeace

Post by Hogwild »

Sorry, but I guess I'm one of those "irrational persons", as I don't buy the scientific research on GMO foods. For one thing, there is not enough longitudinal information.
Show me a 10-year or 30-years longitudinal study and maybe I'll start to be convinced. What are the time periods of the current research studies?

Many scientists retort "yes, but farmers have been cross-breeding foods for years". Yeah, but not the way scientists are doing it. The changes were slower, not as radical, and did not use the same methods.

Drastic, and I mean drastic changes have been made to some GMO foods.

adrian2 wrote: 25 Jun 2017 09:24
CROCKD wrote: 25 Jun 2017 06:37 Finally someone willing to publically speak out about this self serving organisation.
MARGARET WENTE
Greenpeace is a menace to the world

Their holier than thou but totally hypocritical mouthpiece David Suszuki pushes their brand of half truths and disinformation. I long ago decided that I would never contribute money to them because I did not like how they went about their "business".
From the article:
Greenpeace’s fearmongering gives environmental activism a bad name. Last year more than 100 Nobel laureates signed a letter urging them to drop their campaign against genetically modified foods and golden rice, which increase crop yields and provide crucial nutrients that prevent disease and death. Greenpeace is a menace to the world, and especially to the world’s most vulnerable. It is also enormously powerful.

“I used to respect Greenpeace, but they are not aware of the reality of the forest industry,” Mr. Potvin told me. “Young people believe them. Students believe them. They spread a lot of falsehoods, and they do a lot of damage.”
When I first got the opportunity to vote, I've seriously considered voting for the Greens. What could be wrong in voting for ecology, for the better of the environment, less partisan politics and so on? In the end, I did not vote for them, and boy, how did my evaluation of their "purity" evolve in time...
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Currency Hedging

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http://news.morningstar.com/cover/video ... ?id=813867

The above link from morningstar.com isn't about currency hedging, but it makes some good comments about it.

"most international stocks are more volatile principally because they are traded in foreign currencies. And that currency risk, when you invest in a European stock, for example, is the source of the added volatility...

So, if I'm an investor and I'm concerned about that risk, that extra volatility, I have one of two options. Either, one, I could invest in a currency-hedged stock fund that basically tries to mitigate some of those currency effects, in which case I may be able to bring the risk profile on to par with what I might have in the U.S.; or I could leave that currency risk unhedged but keep my allocation to foreign stocks at a more modest percentage of my overall portfolio.

Now, even though it is true that the unhedged stock returns of foreign stocks are more volatile than U.S stocks, because they are not perfectly correlated with U.S. stocks, if I combine foreign stocks with U.S. stocks in a portfolio, it may actually help slightly mitigate the overall volatility of that portfolio. But again, if you're going to leave the currency risk unhedged, it's best to leave that foreign exposure at a smaller percentage of your portfolio, if you are concerned about that overall volatility...

...did a bit of research on this to try to find what the optimal allocation would be if I was looking at reducing my overall portfolio volatility. And what I found was that using data from 1970 until March of 2017 a 33% allocation to non-U.S. stocks would have resulted in the maximum volatility reduction for the overall portfolio. Now, that maximum volatility reduction was pretty modest. It was about 5%. But still, there are some benefits beyond just that volatility reduction that you would get from going abroad...But I found that you can actually still get most of the volatility reduction benefits with even a smaller allocation than that. So, a 20% allocation to non-U.S. stocks would have given you about 84% of that maximum volatility reduction...

Now, if I were to hedge out my currency risk, it would require a larger allocation to non-U.S. stocks to achieve the maximum volatility reduction. But the maximum volatility reduction is even greater there because I have reduced the volatility of that non-U.S. stock portion of the portfolio. So, I did some research on this as well and I found that about a 30% allocation to non-U.S. stocks with a currency-hedged portfolio would have given you about three fourths of the total volatility reduction that you could have achieved with a currency-hedged portfolio"

That's advice for US investors. Most would agree that for Canadian investors, maximal volatility reduction tends to occur with around 66% foreign stock exposure. And that's unhedged exposure. If you hedge, it looks like it should be higher. How much higher, I don't know.

Volatility is one measure of risk associated with foreign currency exposure. What happens in stock bear markets is another. And in such markets, the Canadian dollar tends to go down, which increases the drawndown. But the $US and the euro tend to go up, which does the opposite.

I'm going to leave my foreign currency exposure unhedged.
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Re: Clippings 2017

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Most would agree that for Canadian investors, maximal volatility reduction tends to occur with around 66% foreign stock exposure.
Why?
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Re: Clippings 2017

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Shakespeare wrote: 05 Jul 2017 08:54
Most would agree that for Canadian investors, maximal volatility reduction tends to occur with around 66% foreign stock exposure.
Why?
https://www.canadianportfoliomanagerblo ... al-stocks/

https://www.vanguardcanada.ca/documents ... s-tlor.pdf

The above two links give some data. If one solely looks at volatility reduction, one can make an argument for anywhere from 20-50% of stock exposure being Canadian.

Justin Bender in the first link makes the following comment:

"about 55% of the decrease in volatility is coming from the equity diversification, and about 45% of the volatility reduction is coming from the currency diversification."
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Re: Clippings 2017

Post by Shakespeare »

Covariances are notoriously unstable. The 66% implies a precision unattainable forward.
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Re: Clippings 2017

Post by longinvest »

Shakespeare wrote: 06 Jul 2017 06:09 The 66% implies a precision unattainable forward.
+1 :thumbsup:
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Re: Clippings 2017

Post by Park »

longinvest wrote: 06 Jul 2017 06:32
Shakespeare wrote: 06 Jul 2017 06:09 The 66% implies a precision unattainable forward.
+1 :thumbsup:
+1

"If one solely looks at volatility reduction, one can make an argument for anywhere from 20-50% of stock exposure being Canadian."
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Re: Clippings 2017

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A very good interview with Linda Hasenfratz, despite a lot of leading questions from the interviewer that hinted at his social agenda (she put him in his place quite effectively).

I "met" her at a networking thing for people who do business in Guelph about 10 years ago (okay, maybe 15) She was very impressive and could command a room.

Auto-parts magnate Linda Hasenfratz on NAFTA, Trump and sexism in the boardroom
https://www.theglobeandmail.com/report- ... e35509156/


.. and to further dispel a myth which seems to cling on:

Q:"So you don’t look at this issue (women in business) and see a problem, you see—"

A:"I see progress. And I think momentum is building. I look at women in science, technology, trades, engineering, math—huge momentum building there as well. The incoming class to the University of Toronto engineering program this year is 46% women. Isn’t that incredible? And people say, “Oh there’s no women in engineering.” That is not true."
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Re: Clippings 2017

Post by Park »

https://www.youtube.com/channel/UC1RYKu ... YCKWQsScDw

Lars Kroijer, a former hedge fund manager, now has a hobby of educating retail investors. The link above is to his youtube videos. If you're interested in learning how to create a financial model spreadsheet using Excel, he goes through an example.

He also makes the following point about currency hedging. Assume disaster in Canada, but not elsewhere. Canadian investments will likely decrease in value, but so will the Canadian dollar. By not currency hedging one's foreign stock exposure, one is decreasing the risk associated with such a scenario.
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Re: Clippings 2017

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Park wrote: 09 Jul 2017 20:11 He also makes the following point about currency hedging. Assume disaster in Canada, but not elsewhere. Canadian investments will likely decrease in value, but so will the Canadian dollar. By not currency hedging one's foreign stock exposure, one is decreasing the risk associated with such a scenario.
Indeed. I've never understood why one would double down when or if the Canadian economy/loonie does a face plant.
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Re: Clippings 2017

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A little long, haven't viewed all four videos yet may be worth a look cause it's Wade Pfau.....
https://retirementresearcher.com//rio-video-launch-p-1

Get ready to tackle your biggest retirement income problems with the confidence that comes from working within a proven framework. In this first video, we discuss the basics of building a Retirement Income Optimization™ Map and how it can help you overcome the retirement income challenge.

Three downloadable PDF files to help make/do your own RIO.

You could start with Video 3 and work your way back if interested.
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Fumdamental Indexation

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Link from morningstar.com on fundamental indexation.

http://beta.morningstar.com/articles/81 ... exing.html

"The dynamic value orientation could be worth the higher fee that these funds levy compared with market-cap-weighted value funds. But timing the value factor is notoriously difficult and the dynamic approach still does not offer a unique exposure. That is part of the reason why the fundamental index funds in this article that Morningstar rates earn Morningstar Analyst Ratings of Bronze, one peg lower than the cheapest and best run market-cap-weighted value funds. These cap-weighted strategies include Schwab US Large-Cap Value (SCHV), iShares Core S&P US Value (IUSV), Vanguard Mid-Cap Value (VOE), and Vanguard Small-Cap Value (VBR). These all offer more consistent value exposure at a fraction of the price of the fundamentally weighted options."
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Rebalancing

Post by Park »

For the novice investor, why rebalance?

http://beta.morningstar.com/articles/81 ... ncing.html
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Re: Rebalancing

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Park wrote: 18 Jul 2017 09:11 For the novice investor, why rebalance?

http://beta.morningstar.com/articles/81 ... ncing.html
As someone who doesn't believe in his ability to predict future returns, or to identify somebody who can reliably do it, why do I rebalance?

It's simple logic. Let me explain.

If all my portfolio was in cash, how would I invest it today? Would I put more in stocks because they have been going up these last years? Of course not. It would be completely illogical to make a different decision (by not rebalancing) just because the money is already invested! The history of how my portfolio got to what it is today should have no weight into how I should invest it today. If the best way to invest $X of cash, today, is a certain way, it makes no difference that the money is not already in cash.

If one adopts an asset allocation, one should stick to it by rebalancing. Otherwise, one should simply put 100% into the asset one believes will beat all others and switch 100% into another asset when its future returns become higher than the others due to a change in valuations*.

* Let me insist: I do not believe in valuations and future return predictions. But, some people people do.

Rebalancing is not done to enhance returns, but to limit the portfolio's exposure to the risks of each asset class. But letting the portfolio drift away from its target allocation, one increases the portfolio's exposure to the risks of asset classes over target. If one is comfortable with the drifted allocation and doesn't want to rebalance, one might as well have selected this new target from the start.

In other words, using the linked article example: instead of starting with a 50/50 portfolio in 2009 and let it drift to 75/25 in 2017, if one is comfortable with 72/25 and doesn't want to rebalance, one would have done much better by adopting the 75/25 allocation in 2009 and assumed the risk of stocks all along. Stocks have not become less risky in 2017 than in 2009, and their future returns are no higher than in 2009; actually, some might argue that their future returns are probably lower after the run up.

Again: it's simple logic.
Last edited by longinvest on 18 Jul 2017 11:03, edited 3 times in total.
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Re: Clippings 2017

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Nor is it hard to re-balance (recognizing minor variations from the chosen AA are no big deal). For the individual accumulating a portfolio, simply put new money into the underperforming class to bring it up, and for those in withdrawal mode, simply tap into the AA that is outperforming to bring it down. It should seldom be necessary to sell a portion of one asset type just to buy a portion of the other asset type.
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Re: Clippings 2017

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AltaRed wrote: 18 Jul 2017 10:55 Nor is it hard to re-balance (recognizing minor variations from the chosen AA are no big deal). For the individual accumulating a portfolio, simply put new money into the underperforming class to bring it up, and for those in withdrawal mode, simply tap into the AA that is outperforming to bring it down. It should seldom be necessary to sell a portion of one asset type just to buy a portion of the other asset type.
+1 :thumbsup:
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Re: Clippings 2017

Post by couponstrip »

I think rebalancing is a useful tool for portfolio risk management, but that's not how it's often portrayed in financial articles and books.

It's mentioned in the context of forced selling high and buying low. Doing better by taking the emotion out of it. If this is why you rebalance, then this bogleheads thread is a must read.

We are 100% equity. We don't rebalance. We have three ETF's and divide up our savings to buy the same proportion of each ETF every year as we have for the past 12 years.
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Re: Clippings 2017

Post by gobsmack »

An opnion piece at Maclean's about the low delinquency rate.
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