Morningstar asserts that the relative outperformance of equal weighting the S&P 500 is due to the higher weighting given to mid cap stocks. I haven't done the in-depth research to satisfy myself whether that is in fact the case, or it is due to the "buy high/sell low" bias of cap weighting, or something else.
As a real world example, however, we can look at the RSP equal weighted ETF. Since inception it has out-performed the cap weighted SPY, but under-performed the mid-cap 400 ETF MDY. That tends to support the Morningstar thesis.
The author's strategy looks to me like a type of "barbell" approach: allocating half to higher beta (RSP has a beta of 1.11 vs the S&P 500, MDY beta is 1.15), and half to lower beta blue chip dividend payers (DVY beta is 0.69). That doesn't seem like a bad strategy on the face of it, and could be the basis for some tweaking to optimize performance.
Stocks Power Ahead, Now In Overbought Territory [View article]
That's an interesting take. The seasonality effect is well documented in both the professional and academic literature (see for example http://b.gatech.edu/Xn...). If an observed phenomenon is statistically significant, then by definition it is not random, or coincidence.
In any event, what I was getting at with my question is, having provided such an edge over the past three years, I wonder whether traders might be getting too complacent with that seasonal pattern. That is when the market often gives a "head fake" and goes the other way. We'll see what happens.
Stocks Power Ahead, Now In Overbought Territory [View article]
Thanks for sharing your outlook chaser; I agree on most counts. What's your sense on the sell (or sell short) in May trade. It has worked three years in a row - are traders expecting it again this year?
Stock Rally Continues, But Loses Some Steam [View article]
Thank you for the comments everyone. That breakdown in the CAD has me a little concerned. I just put up a post on my instablog here at SA with a chart that has the CAD and SPX plotted together. It shows the divergence pretty clearly. To me this is something that bears watching.
Rally Continues, But Watch Out For A Correction [View article]
Thank you for the comments gang. Sometimes muddling through isn't the worst thing. Still seeing a good bit of bearish commentary out there, but that's what makes a market.
Thanks for the comments everyone. It's interesting that we have a sort of skeptical consensus developing here. I have to admit that my own gut-level view has been somewhat skeptical as well. But at the end of the day I believe you have to "manage by the data," and the market data is bullish on balance.
My approach to this kind of environment is to go long, but stay alert for signs of trouble. If the evidence dictates, I will change my outlook accordingly.
Deep Dive: Financial Repression Reconsidered [View article]
Marc, what is so radical in your essay is that you are giving voice to something that has become taboo in public discourse, and practically unheard of on a investment focused website. But you are right that it is a survey of some old ideas that formerly had currency.
As a grad student in the days when serious discussion of Karl Marx was still a going concern on university campuses, I recognize a few basic premises here. Now, I understand that the mere mention of Marx (you did mention his colleague Engels) imperils any dialogue at all, but I'm hoping we can have a grown up discussion here.
One of the central premises of Marx's analysis of emerging capitalism (which still retains a great deal of value) was that, left to its own devices, capitalism tends to concentrate capital, which leads to a couple of other central premises of Marxian economics: the inherently crisis prone nature of market driven economies, and the tendency of the rate of profit to fall.
The genius (in my opinion) of 20th century western liberal governments was the emergence of activist policy, which has been able to blunt some of these tendencies and lend stability to western economies. Whether it was a response to Leninist revolutionary pressure is a matter of some debate, but that centrist liberal paradigm - social democratic in Europe - has come under considerable pressure. The tiger is very powerful, and always straining to break his cage.
Microsoft: Don't Worry About Google Chromebooks [View article]
Thanks Sal. I was not comparing the two as direct substitutes, but making the point that Google got the pricing right on their offering, while Microsoft whiffed on theirs.
Microsoft: Don't Worry About Google Chromebooks [View article]
My impression of the Chromebook is that it's a better iteration of the netbook for that particular use case. Clearly the price point is attractive and Google got that right - as opposed to Microsoft who missed it with the Surface. An even better alternative for cheap mobile computing, to me at least, would be a $200 used Thinkpad or Dell with your favorite flavor of Linux. Battery life may be shorter, but those laptops are powerful and built to last, and some of the Linux distributions are very usable and have a good variety of quality apps these days.
Dogging The Dow: Examining The 'Dogs Of The Dow' Strategy [View article]
Thanks for the article Mr. Porter, and to the participants in a very interesting discussion. As a simple guy who tends to be fond of simple strategies, I have always found the Dogs of the Dow interesting but don't actually employ it.
There is a general principle behind the Dogs, and Cranky's VIG based approach (I am a big fan of VIG and VDAIX myself), and any number of other similar approaches. They concentrate a portfolio in a handful of high quality, highly liquid value stocks. That is not a bad foundation, but it's not quite enough.
Where I think an investor can actually gain an edge is by coupling this type of simple approach with a strict sell discipline. For example, buy the ten or five stocks indicated by the rule, but sell any stock that falls, say, 5% below cost basis. That way if any of the dogs get really sick - and they are dogs for a reason, after all - you don't hold them all the way down.
This approach would create alpha on the downside (which is where alpha is easiest to find). Notice that in Cranky's example, the outperformance of his VIG based model was due to the much smaller drawdown in 2008 vs. the dogs. That is your proof of the principle. As I always tell folks who want to play in the market, making money is dead simple: just make sure you don't lose money. The rest will mostly take care of itself.
Dividend Aristocrats + Equal Weighting > S&P 500 [View article]
As a real world example, however, we can look at the RSP equal weighted ETF. Since inception it has out-performed the cap weighted SPY, but under-performed the mid-cap 400 ETF MDY. That tends to support the Morningstar thesis.
The author's strategy looks to me like a type of "barbell" approach: allocating half to higher beta (RSP has a beta of 1.11 vs the S&P 500, MDY beta is 1.15), and half to lower beta blue chip dividend payers (DVY beta is 0.69). That doesn't seem like a bad strategy on the face of it, and could be the basis for some tweaking to optimize performance.
Stocks Power Ahead, Now In Overbought Territory [View article]
In any event, what I was getting at with my question is, having provided such an edge over the past three years, I wonder whether traders might be getting too complacent with that seasonal pattern. That is when the market often gives a "head fake" and goes the other way. We'll see what happens.
Stocks Power Ahead, Now In Overbought Territory [View article]
Stocks Tested, Earn Passing Grade [View article]
-Harry
Stock Rally Continues, But Loses Some Steam [View article]
Rally Continues, But Watch Out For A Correction [View article]
Deep Dive: Financial Repression Reconsidered [View article]
The Bulls Are Running [View article]
My approach to this kind of environment is to go long, but stay alert for signs of trouble. If the evidence dictates, I will change my outlook accordingly.
Deep Dive: Financial Repression Reconsidered [View article]
You pose a good question, and I would be interested in seeing some of the literature - maybe just the abstracts to start - on the subject.
Deep Dive: Financial Repression Reconsidered [View article]
As a grad student in the days when serious discussion of Karl Marx was still a going concern on university campuses, I recognize a few basic premises here. Now, I understand that the mere mention of Marx (you did mention his colleague Engels) imperils any dialogue at all, but I'm hoping we can have a grown up discussion here.
One of the central premises of Marx's analysis of emerging capitalism (which still retains a great deal of value) was that, left to its own devices, capitalism tends to concentrate capital, which leads to a couple of other central premises of Marxian economics: the inherently crisis prone nature of market driven economies, and the tendency of the rate of profit to fall.
The genius (in my opinion) of 20th century western liberal governments was the emergence of activist policy, which has been able to blunt some of these tendencies and lend stability to western economies. Whether it was a response to Leninist revolutionary pressure is a matter of some debate, but that centrist liberal paradigm - social democratic in Europe - has come under considerable pressure. The tiger is very powerful, and always straining to break his cage.
Deep Dive: Financial Repression Reconsidered [View article]
Looking For Direction As Earnings Season Gets Underway [View article]
Microsoft: Don't Worry About Google Chromebooks [View article]
Microsoft: Don't Worry About Google Chromebooks [View article]
Dogging The Dow: Examining The 'Dogs Of The Dow' Strategy [View article]
There is a general principle behind the Dogs, and Cranky's VIG based approach (I am a big fan of VIG and VDAIX myself), and any number of other similar approaches. They concentrate a portfolio in a handful of high quality, highly liquid value stocks. That is not a bad foundation, but it's not quite enough.
Where I think an investor can actually gain an edge is by coupling this type of simple approach with a strict sell discipline. For example, buy the ten or five stocks indicated by the rule, but sell any stock that falls, say, 5% below cost basis. That way if any of the dogs get really sick - and they are dogs for a reason, after all - you don't hold them all the way down.
This approach would create alpha on the downside (which is where alpha is easiest to find). Notice that in Cranky's example, the outperformance of his VIG based model was due to the much smaller drawdown in 2008 vs. the dogs. That is your proof of the principle. As I always tell folks who want to play in the market, making money is dead simple: just make sure you don't lose money. The rest will mostly take care of itself.