Surprising Asset Allocation Results That Really Aren't Surprising [View article]
Thank you for your article. Forgive me for piggy-backing your work to highlight an article I did recently which makes the point from a 'live' sample that active investing is indeed unlikely to generate higher returns than passive investing: http://seekingalpha.co...
Contained within it is another very nice quote from Sharpe:
In the long run, this boring approach [passive investing] can give you more time for more interesting activities such as music, art, literature, sports, and so on. And it very well may leave you with more money as well.
Hi Aaron Thanks for the article. If you don't mind, I'd like to clarify slightly your definition of what are cuts and increases in the world of government budgets. Government budgets are (as I am sure you are well aware) measured generally as a percentage of GDP. It doesn't make much sense to look at the absolute amount of spending. If say, the economy grew by 5% but the budget grew by only 3%, then yes the budget would increase but as a percentage of the economy (GDP) it would be smaller. Which would be tantamount to cuts. So, in my humble opinion, though I haven't looked closely at the Israel budget (which I should given I am affected by it!) your analysis may be correct overall, but it would be more accurate and informative to think of budgets in terms of 'percentage of GDP'. Matthew
Bond-Choking Central Banks Expand Investment Menu [View article]
Dear Wade
May I respectfully point out, that surprisingly (given your background) you are confusing two very different Central Bank functions in one article - QE and Reserves Management.
i) Firstly, the role of QE has led to Central Banks (primarily Japan) as you mention, considering how it can further stimulate economic activity, by purchasing (domestic) assets other than bonds.
ii) The second, and quite separate issue, is the one dealt with by the RBS report which concerns management of Central Bank foreign exchange reserves and how to continue to earn a decent return in a low yielding world.
It is important to understand these are two quite different issues, and your article seems to merge the two in a illogical way which may confuse a less informed reader. Happy to elaborate further if it would be useful.
Why Reinhart And Rogoff Aren't The Real Villains: Scoring Last Week's Internet Debate [View article]
I suspect your personal bias has led to an attempt to diminish the significance of the criticism of the original paper. You began the article with the statement to read on if you haven't "lost interest in the spirited debate over a 2% calculation discrepancy in an historical average". The attempt to minimise the importance of a 2% calculation error in growth rates makes a good opening sentence, but doesn't show an awareness of the incredibly large and important impact of a 2% difference in growth rates over a number of years (of which I am sure you are aware).
The Largest Sell-Off In Gold Since The 1980s [View article]
Thanks for the article. I have a quibble. You say that "Prices fell more than 12% in just two trading days, making this the largest sell-off since at least the 1980s. " Largest sell-off in terms of what - USDs, percentage? And over what time period - two days? In 2008 the market fell by over 20% in 12 trading days. So I think you need to be careful, or at least define more precisely, when you talk the "largest sell-off" since the 1980s. It can scare people unnecessarily! See- http://seekingalpha.co...
Gold Bugs, Don't Panic (Yet): A Historical Perspective [View article]
Ha ha. I take your point. Yes, charts can be manipulated and often are. After all, there are many different ways of interpreting data. I do think taking a log chart is important for perspective of a multi-decade run, especially when it has seen such an increase in price. Otherwise earlier years give no information at all about the price action because they become so small. Just trying to put things in a historical perspective. As you say, won't console investors like Paulson who has lost another few hundred million. But may help the cautious longer term retail investor.
Hi '6228371' (!) I confess to having absolutely no idea. I have very limited experience of investing in individual Israeli stocks. My focus is to advise clients and companies here who are diversifying to international exposure.
For the sake of full disclosure, I work and live in Israel (and have held significant roles within the Central Bank). The amazing thing about the Israeli equity market is how little impact the security situation has on its returns. With (unfortunately) a relatively decent amount of sample points to choose from over the last 20 years or so, the studies I have seen show how little impact any conflict has had on the Tel Aviv index returns. This is partly because the conflicts have been of relatively low intensivity, so even though they have been very disruptive (and tragic) over a short period of time, they have not caused severe and permanent disruptions to the economy. And partly because a large amount of the companies in the major Tel Aviv indices derive a substantial part of their earnings from overseas. Matthew
Active Investing? Some (More) Evidence Why It's Mostly A Loser's Game [View article]
Thank you for the interesting reference. I think the key point is contained in the opening paragraph which contains the statement: "Notice that proving the assertion wrong does NOT prove that active investors outperform passive. It means only that it is POSSIBLE for active investors to outperform."
It is obviously correct that it is POSSIBLE for individual active investors to outperform. But I have no idea of knowing which ones will and which ones won't. And therefore when I look at my investment options, the fact that more than 50% of managers will underperform a benchmark means that statistically I will probably be better of if I just follow that benchmark.
But as I said in the article, it's an interesting debate and one that rouses strong feelings on both sides.
Active Investing? Some (More) Evidence Why It's Mostly A Loser's Game [View article]
Sorry, should have read this before my reply to badbadmin. Yes, essentially what I was saying. Though I do think it is more focused in that the issue of market timing is not relevant (in my humble opinion). A passive investor can also choose when to begin investing - and when they do they follow a benchmark. Even though they have taken a market timing decision, they will still be following a passive investment style.
Active Investing? Some (More) Evidence Why It's Mostly A Loser's Game [View article]
Hello. From my experience of many years as a buy-side investor, I believe it is correct to say that when we talk of passive it is referring to someone who invests in a fund that aims to track an index as closely as possible. And when we talk of active we are talking of someone investing in order to beat a specific index or benchmark.
You are correct that there is obviously an active decision whether to trade stocks, bonds, which investment vehicle to use, when to buy, sell etc.
But this is generally an issue of asset allocation, market timing, etc. When talking about the active vs passive debate it is more focused on the question of once you have made your asset allocation decisions, and when to buy - the question is then do you want to track an index or try and beat one. Hope that is clear.
The Treasury Bond Bubble Means The Loss Of A Safe Haven [View article]
Hi Antonio Sorry for the delayed response, but I'm going to have come back to you on this point and say that we are both right! Just for the record - The Fed announced a new QE program in Sept 2012, and at the same time continued Operation Twist through till Dec 2012. So, yes you are right that Operation Twist finished at the end of 2012. But I believe it is correct to say that QE3 started in Sept 2012. I am not sure that the new addition of Treasury buying at the end of Dec 2012 is universally known as QE4, or just an extension of QE3. But, hey, once you're up to $2 trillion, what's an extra QE here or there :) Have a great week Matthew
The Treasury Bond Bubble Means The Loss Of A Safe Haven [View article]
Sorry to be pedantic. You said: "Operation Twist had begun in September 2011 with a $400 billion program, and ended in December 2012 when QE4 was announced." The latest QE program is known as QE3 - not QE4 (Operation Twist did not have a number) and was announced in September 2012 (not December). Surprised the editors let that one through.
On the content, I am also not convinced we are in a bubble. I have written about it elsewhere, but a strong bull markets is very different from a bubble. A bubble exhibits euphoric behavior and then collapses suddenly (e.g. housing prices in US, Nikkei in early 80s, etc). The treasury market has seen a steady downward movement in yields, which may end like Japan - many years of low steady interest rates. And not necessarily involve a "pop".
That is not to say that they offer a very poor risk-reward level at current yields.
The False Link Between Higher Stocks And A Stronger Economy [View article]
Thanks for the article - the fact that there is little correlation between stock markets and economic growth is not new, as most seasoned observers will have realised. The disconnect this time around is accentuated by the massive amount of non-market (read Central Bank) intervention going on, which is causing the 'Great Levitation'.
I am also sceptical about the sustainability of markets, and see that you have been since 2009. The problem is that, as the saying goes, the markets can stay irrational a lot longer than you can stay solvent (I paraphrase).
So, knowing that this isn't going to work out well, doesn't make it any easier to make any money from it.
PS I actually think the interest rate bubble is unlikely to pop for a long time - i've written about it in one of my few articles on SA.
Surprising Asset Allocation Results That Really Aren't Surprising [View article]
http://seekingalpha.co...
Contained within it is another very nice quote from Sharpe:
In the long run, this boring approach [passive investing] can give you more time for more interesting activities such as music, art, literature, sports, and so on. And it very well may leave you with more money as well.
Israeli Budget Cuts? Not Exactly [View article]
Thanks for the article. If you don't mind, I'd like to clarify slightly your definition of what are cuts and increases in the world of government budgets.
Government budgets are (as I am sure you are well aware) measured generally as a percentage of GDP. It doesn't make much sense to look at the absolute amount of spending. If say, the economy grew by 5% but the budget grew by only 3%, then yes the budget would increase but as a percentage of the economy (GDP) it would be smaller. Which would be tantamount to cuts.
So, in my humble opinion, though I haven't looked closely at the Israel budget (which I should given I am affected by it!) your analysis may be correct overall, but it would be more accurate and informative to think of budgets in terms of 'percentage of GDP'.
Matthew
6 Important Reasons Why Bond Yields Are Set To Stay Low For Some Time Yet [View article]
Bond-Choking Central Banks Expand Investment Menu [View article]
May I respectfully point out, that surprisingly (given your background) you are confusing two very different Central Bank functions in one article - QE and Reserves Management.
i) Firstly, the role of QE has led to Central Banks (primarily Japan) as you mention, considering how it can further stimulate economic activity, by purchasing (domestic) assets other than bonds.
ii) The second, and quite separate issue, is the one dealt with by the RBS report which concerns management of Central Bank foreign exchange reserves and how to continue to earn a decent return in a low yielding world.
It is important to understand these are two quite different issues, and your article seems to merge the two in a illogical way which may confuse a less informed reader. Happy to elaborate further if it would be useful.
Yours respectfully
Matthew
Why Reinhart And Rogoff Aren't The Real Villains: Scoring Last Week's Internet Debate [View article]
The attempt to minimise the importance of a 2% calculation error in growth rates makes a good opening sentence, but doesn't show an awareness of the incredibly large and important impact of a 2% difference in growth rates over a number of years (of which I am sure you are aware).
The Largest Sell-Off In Gold Since The 1980s [View article]
You say that "Prices fell more than 12% in just two trading days, making this the largest sell-off since at least the 1980s. "
Largest sell-off in terms of what - USDs, percentage? And over what time period - two days?
In 2008 the market fell by over 20% in 12 trading days.
So I think you need to be careful, or at least define more precisely, when you talk the "largest sell-off" since the 1980s. It can scare people unnecessarily!
See- http://seekingalpha.co...
Gold Bugs, Don't Panic (Yet): A Historical Perspective [View article]
Just trying to put things in a historical perspective. As you say, won't console investors like Paulson who has lost another few hundred million. But may help the cautious longer term retail investor.
Another Israel ETF Is On The Way [View article]
I confess to having absolutely no idea. I have very limited experience of investing in individual Israeli stocks. My focus is to advise clients and companies here who are diversifying to international exposure.
Another Israel ETF Is On The Way [View article]
This is partly because the conflicts have been of relatively low intensivity, so even though they have been very disruptive (and tragic) over a short period of time, they have not caused severe and permanent disruptions to the economy. And partly because a large amount of the companies in the major Tel Aviv indices derive a substantial part of their earnings from overseas.
Matthew
Active Investing? Some (More) Evidence Why It's Mostly A Loser's Game [View article]
I think the key point is contained in the opening paragraph which contains the statement:
"Notice that proving the assertion wrong does NOT prove that active investors outperform passive. It means only that it is POSSIBLE for active investors to outperform."
It is obviously correct that it is POSSIBLE for individual active investors to outperform. But I have no idea of knowing which ones will and which ones won't. And therefore when I look at my investment options, the fact that more than 50% of managers will underperform a benchmark means that statistically I will probably be better of if I just follow that benchmark.
But as I said in the article, it's an interesting debate and one that rouses strong feelings on both sides.
Active Investing? Some (More) Evidence Why It's Mostly A Loser's Game [View article]
Yes, essentially what I was saying. Though I do think it is more focused in that the issue of market timing is not relevant (in my humble opinion). A passive investor can also choose when to begin investing - and when they do they follow a benchmark. Even though they have taken a market timing decision, they will still be following a passive investment style.
Active Investing? Some (More) Evidence Why It's Mostly A Loser's Game [View article]
From my experience of many years as a buy-side investor, I believe it is correct to say that when we talk of passive it is referring to someone who invests in a fund that aims to track an index as closely as possible. And when we talk of active we are talking of someone investing in order to beat a specific index or benchmark.
You are correct that there is obviously an active decision whether to trade stocks, bonds, which investment vehicle to use, when to buy, sell etc.
But this is generally an issue of asset allocation, market timing, etc.
When talking about the active vs passive debate it is more focused on the question of once you have made your asset allocation decisions, and when to buy - the question is then do you want to track an index or try and beat one.
Hope that is clear.
The Treasury Bond Bubble Means The Loss Of A Safe Haven [View article]
Sorry for the delayed response, but I'm going to have come back to you on this point and say that we are both right!
Just for the record - The Fed announced a new QE program in Sept 2012, and at the same time continued Operation Twist through till Dec 2012. So, yes you are right that Operation Twist finished at the end of 2012. But I believe it is correct to say that QE3 started in Sept 2012. I am not sure that the new addition of Treasury buying at the end of Dec 2012 is universally known as QE4, or just an extension of QE3.
But, hey, once you're up to $2 trillion, what's an extra QE here or there :)
Have a great week
Matthew
The Treasury Bond Bubble Means The Loss Of A Safe Haven [View article]
"Operation Twist had begun in September 2011 with a $400 billion program, and ended in December 2012 when QE4 was announced."
The latest QE program is known as QE3 - not QE4 (Operation Twist did not have a number) and was announced in September 2012 (not December). Surprised the editors let that one through.
On the content, I am also not convinced we are in a bubble. I have written about it elsewhere, but a strong bull markets is very different from a bubble. A bubble exhibits euphoric behavior and then collapses suddenly (e.g. housing prices in US, Nikkei in early 80s, etc). The treasury market has seen a steady downward movement in yields, which may end like Japan - many years of low steady interest rates. And not necessarily involve a "pop".
That is not to say that they offer a very poor risk-reward level at current yields.
Matthew
The False Link Between Higher Stocks And A Stronger Economy [View article]
I am also sceptical about the sustainability of markets, and see that you have been since 2009. The problem is that, as the saying goes, the markets can stay irrational a lot longer than you can stay solvent (I paraphrase).
So, knowing that this isn't going to work out well, doesn't make it any easier to make any money from it.
PS I actually think the interest rate bubble is unlikely to pop for a long time - i've written about it in one of my few articles on SA.