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klarsolo

klarsolo
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  • How 2014 Could Be Like 1929 [View article]
    I think it is entirely possible and not even all that difficult to write "How 2014 could be like ANY specific year over the last 100 years" and provide some good arguments.

    The problem is that apart from the intellectual exercise all these articles are virtually useless. You will always find a number of variables that are similar and a number that are quite different. Not sure how this helps anybody in the end.
    Feb 23 05:53 PM | 1 Like Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    US value stocks can deliver completely different returns than European value stocks, even though they are both value. And not just over one year, but easily over a much longer time period. Same with growth or small cap factors. Growth stocks can become value stocks without delivering either factor's associated return in the meantime.
    I just don't get how the factor model by itself is supposed to help you construct superior portfolios without you also having some idea of other strategies that you use to employ them.
    Even if you correctly figure out that your client loves value stocks, and you put them into 90 % global value, if over the next 20 years value strongly underperforms growth then your client did not get good advice.
    Feb 12 07:13 PM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    I totally agree that there are strategies you can use that utilize those factors smartly. But Larry never really mentions strategies other than "don't pay for active management".
    He has apparently come to the conclusion that the most effective use of his time is to not even try to have the highest performance and be part of the top 20 %, but instead to primarily focus on marketing and to write article after article dismissing active managers and indirectly touting his own firm.
    His repeated praises of factor models surely must sound impressive to any client with no background in finance. By mixing and mashing DFA, Vanguard and some other funds of his choice he'll create simple portfolios in no time that will most likely not blow up, and actually deliver decent results. Most clients will be happy with that, because most of Larry's competition does a worse service for their clients than he does. I just hope they never wonder how much more money they could have made had Larry spent even half his energy on being part of the top 20 % instead of just on marketing the insight that it's really, really difficult to pick those managers who will outperform their markets over the very long run in advance.
    Feb 12 07:00 PM | 2 Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Even if somebody gave you the FUTURE factors of everything, you'd still need to know how well small cap, value and growth do over the future to make good investment decisions. So in any case you still need to be a semi decent forecaster or passive benchmarks would beat you.
    Your advantage truly is that there are no widely spread passive benchmarks for advisers or somebody could point out your wrong guesses and shortfalls. I guess you could use target date funds, but I don't think most of them are all that great. Eventually they will come though and then your marketing strategy of simply pointing towards the mutualfund industry and saying "Ha Ha" will get a little harder. But since most people stick with advisers who they like regardless of their true skill you should be fine in any case, because you strike me as a truly decent and honest fellow, and most people would be better off with you managing their portfolios.
    Feb 12 05:34 PM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Take for example Brazilian stocks. 5 years ago they were probably highly correlated with growth factors. Is that still the case? Or are they now more explained by value? What about tech stocks in 2000 versus early 2003? Gold stocks 2 years ago vs now? How stable are your factors for these sectors?
    Feb 12 05:19 PM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Larry, I'm seriously at a loss as to how exactly factor models help you put together portfolios for the future. I mentioned the question above, but don't want it to get lost. Please help me out.
    So you can use factor models to determine the PAST exposure of a portfolio to certain factors. For example you can run a regression on mutual fund manager A and say "well, over the last 5 years he derived 80 % from value, and 10 % from growth, and 10 % from small cap".

    What exactly is the useful takeaway from this insight? Yes, now you know that if you climb into your DeLorean and go back 5 years you can save money: Instead of giving 100 % to mutual fund manager A it's cheaper to just put 80 % into a value fund, and 10 % into a growth fund and 10 % into small cap. Is that it?
    Or do you assume that these factors are stable over time, so you only run a regression once and then you have the fund manager completely figured out and can always beat him? That may work well enough for closet indexers but probably not for capable managers.

    I also still don't understand how you can just dismiss sectors based on your factor models. The exposure of sectors to factors is not stable over time. Sometimes it will correlate more with value, sometimes more with growth, and sometimes more with small cap. And what exactly those exposures are like you can only determine in hindsight, which does not mean at all they will remain stable. A fund manager that can skillfully rotate in and out of different asset classes like Seth Klarman or Howard Marks would run circles around your factor models that they lose all applicability.

    So how does any of this help you do well for your clients in the future? How do you determine how much to put into any specific fund for your clients? Please advise.
    Feb 12 05:15 PM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Client satisfaction is great, but having satisfied clients does not really mean you do a great job in your asset allocation. Absent obvious blowups and shortcomings it is very, very difficult for a layman to discern whether his adviser now did a good job or whether the market was just favorable. It takes even more skill to realize if money was left on the table, that kind of thinking is alien to most people who do not do this regularly. So I think pointing to satisfied clients alone doesn't prove that you put together fantastic portfolios.

    A good financial adviser is important and provides plenty of valuable services. And Larry, I honestly like your advocacy for index funds and low cost products. You provide a good, valuable service. But like most people you seem to turn what you believe into a religion and a dogma that everybody should follow, with no downside.

    You can point to Fama & French and factor models as much as you want, they hardly help you discern what assets will do well over the next 10-20 years.

    It's great to know what exposure something had in the past to growth and value and small cap and whatever other factors you want, but how exactly does it help put together good portfolios for the future, portfolios that will beat a completely unmanaged passive benchmark portfolio?

    I'm aware that not too many of those benchmarks exist yet, and I'm starting to believe that your self assuredness is based on that shortcoming, because if those were as readily available as they are for mutual fund managers people would be asking questions about the value added of your asset allocation process as well. It's great to be in funds that beat 80 % of mutual funds over 10 years, but not if your allocation to them seriously distracted from overall performance.
    Feb 12 03:18 PM | 1 Like Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Larry, can you explain to me how exactly you use your factor models in putting together client portfolios? How you derive those factors and how do you allocate assets based on them?
    Feb 12 02:49 PM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Larry, I'm sure you deliver good work and you're worth the money you are being paid. But that is not really the issue here. I just wanted to see how your portfolio returns stack up compared to completely passive algorithms. Many of your articles are variations of "mutual fund managers are not worth the cost, because they cannot beat the market". However, there is also a market for you that you should be compared to, to see if your asset allocation beats a completely passive benchmark. If not, then investors are better off by completely passively investing their money (no Larry Swedroe making any decisions anymore) and to just come to you for advice in other areas unrelated to asset allocation.
    Feb 12 02:46 PM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Larry, the question remains, do the portfolios you generate for your clients outperform a completely passive benchmark after costs over a long time horizon? I'm not talking about 5 years, but 20-30 years.

    You are essentially saying that mutual fund managers cannot reliably outperform over the very long stretch, but you exclude yourself from similar measurements, partly by counting other services you perform for your clients into your fees, so that it isn't directly comparable any more.
    Feb 11 09:59 PM | 4 Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    I'm a bit puzzled how you can write that sector selection does not add to performance because it is all about factor selection. Do different sectors not represent different factors, and don't those factors change all the time anyway? How stable are those shiny regressions you run to determine your factor exposures? Me think they are just as unstable over time as anything in finance, be it correlation or beta or any other measurement of your choice, so once again it takes some skill to pick the right exposures at the right time.

    You can spin it any way you want, at the very end it comes down to you having to know what you're doing to add any value.
    Feb 11 09:43 PM | 3 Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Also, the funny thing is, even as a passive investor you have to make a lot of active decisions, especially in terms of sector and asset allocation and when to re-balance. That in turn takes some to serious skill. When you mess those up you can also miss out on a decent chunk of money during your life. So even when you decide to go all with Vanguard and DFA and low or zero cost index funds you still have your work cut out for you.
    Larry, when it comes to wealth management your business model is to be an active picker of passive investments, am I not right? Or do you feel like in this area it is also not possible to add value above and beyond your costs over some low cost algorithm? If you don't agree with that statement, why not? How is working on the right asset allocation mix so much different compared to picking the right stocks? People don't get your investment advice for free either, but did you ever check how much your advice added to their performance over some passive benchmark? Or do you not charge for it?
    Feb 11 09:13 PM | 2 Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    nlitwinetz made a very good point above when he mentioned that you can write almost the same post warning people from becoming entrepreneurs.
    In what business is it expected that with very little work and original ideas and without having to adapt to new, changing market environments you should be able to achieve outperformance over a lifetime? So why do people expect it from the average mutual fund manager?
    Also, what is the potential outperformance when you actually do a good job and find yourself in the top 20 %? Is it just 1 % above the passive investor per year, or is it a lot more, especially when measured over a life time?
    Larry, you could write a similar post about how it's not worth training hard to be an Olympian, and how the statistics are completely against you and how you could injure yourself and just think of all the great stuff you're missing out on in life during all those grueling training hours, with your chances being so ridiculously small.
    Your points are all well taken. Yes, the average investor and the average mutual fund manager, mostly due to career risk, but also for plenty of other reasons, will not be able to outperform. But why are they expected to, when you'd not expect that in any other business (do you expect the majority of MBA graduates to all be great, above-average managers over 20-30 years? And if they are not, people should not do an MBA because it doesn't pay off automatically?)
    Feb 11 08:43 PM | 2 Likes Like |Link to Comment
  • On the hour [View news story]
    WisPokerGuy, some people apparently like the concept of conspiracies everywhere. You'd think they would eventually find a way of profiting from their knowledge, instead of just perpetually complaining.
    Feb 1 03:05 PM | 2 Likes Like |Link to Comment
  • Jeff Miller Positions For 2014: Another Solid Year For Stocks Ahead [View article]
    Jeff, thank you for all your fantastic posts over the years. You are one of the very few who I truly enjoy reading, and who provide real value to actual investors.
    Jan 7 08:09 PM | Likes Like |Link to Comment
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