Seeking Alpha

Smarty_Pants

Smarty_Pants
Send Message
View as an RSS Feed
View Smarty_Pants' Comments BY TICKER:
Latest  |  Highest rated
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    "So call me a lawbreaker." - giorgiolb

    Huh. So THAT's what the last two letters of your nome de plume stand for.
    Jun 3, 2015. 09:11 PM | 1 Like Like |Link to Comment
  • Dividend Growth Investing: The Perfect Portfolio Moving Forward (Part 1) [View article]
    "Jack Daniels? :-) " - Robert

    With Coke, naturally.
    Jun 3, 2015. 03:44 PM | 1 Like Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    "Is this not calling the kettle black." - BoomBoom99

    And, it's that they won't be satisfied unless the 'competition' is held on their terms. Defining your own success metric isn't allowed, because it's not the one they use (and obviously THAT can't be right).
    Jun 3, 2015. 03:42 PM | 5 Likes Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    "the equally weighed SP500 was beaten by less than 1% CAGR" - Financial Dave

    Oh my. The standard of comparison appears to be slipping. Simply beating an index based ETF isn't enough for DGI to "win". DGI has to beat the ETF by more than 1% CAGR (or greater?) over an entire interval to suggest a 'better' performance.

    You guys crack me up. Really.

    FWIW, outperforming an ETF by 0.5% CAGR over a span of a 35 year investment career will leave you with 17+% more money at the end. That's hardly chicken feed.

    On top of that, once you reach retirement, the ETF plan has you selling your ETF (yielding ~1.5%), paying capital gains tax, then buying income producing assets. So now your 100% value ETF will be reduced by taxes and you will have about 85% left to use when buying income. Meanwhile, the DGI portfolio holder will simply stop reinvesting their dividends and spend them.

    So dividends on 85% vs. dividends on 117% would seem to indicate that the DGI portfolio will provide quite a bit more income in retirement, given the comparison of Bob's portfolio vs. RSP holds over the long term like it has over the past 7 years.
    Jun 3, 2015. 03:30 PM | 5 Likes Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    "On the other hand, guys like Dave Crosetti pick stocks and still have plenty of time to fish."

    Maybe the fish know something we don't.

    Dave Crosetti - the Fish Whisperer. ;-)
    Jun 2, 2015. 06:30 PM | 4 Likes Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    "I thought Digital Growth was maybe some biotech startup working on a solution for undersized fingers." - giorgiolb

    Don't forget toes!! They're digits too.

    Or do you subscribe to the theory which paraphrases George Orwell in that "All digits are equal, but some digits are more important than others."?

    ;-)
    Jun 1, 2015. 09:38 PM | 5 Likes Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    "Selection bias comes in all flavors, even among "simpler alternatives"" - giorgiolb

    Indeed. But I've noticed that some people only want to point out the biases used by others while ignoring the ones they employ themselves as counter-examples.

    In the case of TLT, it has a standard deviation of price movement that is half of SPY's standard deviation. That's supposed to be a safe place to park your money?

    In addition, the whole 60/40 stock/bond split using ETFs is not at all what the original theory suggested. Originally the 40% in bonds was intended to be put into individual bonds with a specific maturity date selected to provide a known amount of income (~40% of what you needed) in retirement. Those individual bonds were to be purchased when yields were 'above' usual levels and held to maturity to maximize their total return. There was no annual rebalancing.

    You bought the bonds to hold, when the price was right (and when yields were much higher than today). If bond prices weren't "right", then you put your money into stocks and waited for bond prices to come down to sell the stocks and buy bonds. The bonds didn't serve to 'reduce' risk, they eliminated part of it for the time interval selected. A portion of your retirement income was locked in once you bought the bonds and laddered them across your retirement years. The stocks were then supposed to provide the rest of your retirement income.

    This whole 60/40 stock/bond ETF split with annual rebalancing is nothing at all like the original approach. It's a kludged up simulacrum of the original intent whose effectiveness over the past 30 years has had more to do with falling interest rates than MPT theory.

    So if you're going to use a kludge, why not go all the way and use a mildly leveraged 20+ year bond ETF, like EDV, just to exaggerate those bond price swings even MORE between rebalancing? That should really juice things up, especially in that declining interest rate environment.

    But, you know, choosing a selectivity bias in hindsight often isn't about evaluating a process for being suitable, it's about "being right". Whatever that means. I'll be simply amazed if varan responds and admits that using AGG instead of TLT would be more in line with the intent of the original 60/40 split, even if that means ending up with significantly less money in the end. I don't think he could accept suggesting a simpler method that came up second best, by a significant margin.

    So, if you like using the more volatile ETFs for your "safe" bond holdings, have at it. I hope for varan's sake (or those who elect to follow his suggested example) that interest rates stay low forever so that you have a chance to build up some sort of retirement nest egg.

    As for the DGI evaluations, at least we're debating 'how much' selectivity is involved, and trying to use information from history to reduce that selectivity level in our evaluations in an effort to learn something we aren't sure about.

    One group tries to expand their knowledge, the other attempts to restrict it. That's how I see it. Me, I prefer to learn what I don't know and see if that acquired knowledge can help me build a better tomorrow, with less risk than I have now.
    Jun 1, 2015. 09:30 PM | 5 Likes Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    "Digital Growth investing?" - giorgiolb

    giorgiolb, you gotta keep up with the times:

    There used to be a company called Digital Equipment Corporation (symbol DEC). They used to make VAX mainframe computers that were widely used in the 1980s and early 1990s.

    They were acquired by Compaq for a cool $9.6 Billion in 1998, just before the tech crash.

    http://bit.ly/1daGH1B


    There's also Western Digital, makers of hard drives.


    And finally, don't overlook Digital Realty Trust (DLR), a member of the CCC.
    Jun 1, 2015. 07:59 PM | 2 Likes Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    "your strategy of gathering $1,000 from dividends and then buying shares of "X" company. I was just curious about how this would apply for someone who is new to investing or doesn't have a whole lot of money invested." - ExoticAnimal

    That's a very good question. The answer depends on the investor's plan.

    One way might be to add in monthly savings to the dividends so the $X investment amount is reached sooner.

    Another might be to lower the $1,000 to a smaller number. Most ETF's have an annual fee that is charged. Use that as a basis for choosing your own 'fee' for the one time purchase of a stock. If I pay $10 per trade, and I want to limit the 'fee' to 1.0%, then I have to buy ($10 / 0.01) = $1,000.00. If I am willing to accept a 'fee' of 2%, then I can invest $500.00 at a time.

    That's two ways to look at setting a different minimum investment level. You might even think up a different one that makes more sense to you. It's your money, do what seems reasonable. It doesn't have to be perfect.
    May 31, 2015. 10:08 PM | 6 Likes Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    "I joined SA in late 2012 and your articles, Chuck Carnevale, and other dividend growth investors have gotten me off to a good start preparing for retirement." -
    Dave Ryan

    With a first name like Dave, you should be a natural for DGI. Thanks for joining the discussion. Please continue, I'm sure there's something you can teach the rest of us that we would be better off for learning.
    May 31, 2015. 09:38 PM | 5 Likes Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    DVK,

    On further reflection, I wanted to also point out the difficulty of your original goal. To grow income without adding capital from ~$1,400 annually to $4,678 requires a compounded dividend growth rate of 12.82% for ten straight years. That's a pretty tall order for anyone to tackle.

    The fact that your results are tracking right along the income goal curve is an amazing performance in that light.

    Additionally, the fact that your Total Return is running equal with SPY when your portfolio has a beta of around 0.70 (my guess-timate) is also a mind-bender. The so called 'hyper-compounding' effect is just something to see in real time.

    Einstein would be proud.

    (That's an indirect reference to Albert Einstein's comment that Compounding was the 8th Wonder of the World, for those without a program.)
    May 31, 2015. 09:20 PM | 18 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]
    "do you advise your clients that luck will be a big part of how their portfolios turn out over time?" - conkjc

    < Let me manage your money. I don't have much skill, but I'm so lucky at investing that you might still beat an index fund after I pay myself 2% of AUM and 20% of any profitably lucky investment guesses! If it doesnt' work out for you it's probably just because I can't overcome your own bad luck. >

    Where do I sign up? NOT.
    May 31, 2015. 06:13 PM | 2 Likes Like |Link to Comment
  • The No. 1 Stock In The World - Part 2 [View article]
    "we ... all gather at the DGI Temple of Doom to blindfold ourselves and throw darts at a stock ticker." - geekette

    Naturally. Zealots HAVE to have a Temple of Doom.

    Just remember to bring your Magic Pants to the weekly meetings. ;-)
    May 31, 2015. 05:59 PM | 3 Likes Like |Link to Comment
  • Happy Birthday! My Dividend Growth Portfolio's 7th Birthday Report [View article]
    Great job DVK! Thanks for the update.

    Keep on keepin' on.
    May 31, 2015. 03:54 PM | 8 Likes Like |Link to Comment
  • Retired Or Soon To Be? Here's A Back Test You Need To Review [View article]
    "The VTI/TLT is just the baseline; if you replace VTI by better performing assets, the returns and therefore the sustainable income will still be better." - varan

    Why not replace TLT ( a 20 year maturity bond ETF) with something less 'risky', like AGG?

    Would someone approaching retirement choose a bond ETF at the long end of the curve for the "safe" place to park money? The year-end prices for TLT range from 82.3 to 127.3 over the span considered. That's a lot of volatility and price risk for the supposed 'safe' place to park your money that bonds are supposed to provide.

    Why not use AGG (investments spread across all maturities of the yield curve) instead? It's a lot less volatile, and returns only about 0.5% less yield. The year-end price ranges from 102 to 110.8 over the timeframe. The pre-retiree has a much lower risk to capital using AGG instead of TLT.

    However, varan's comparison to Bob's portfolio comes up short if the pre-retiree plays 'safe' with his bond money. The ending portfolio value for a 60/40 rebalanced split using SPY/AGG is less than $490,000.

    Replace SPY/AGG with SPY/TLT and the final value jumps up over $620,000. Using the 'riskier' TLT makes a big difference.

    varan is employing his own form of selectivity in backtesting when he uses TLT. A long maturity bond fund will generate significant capital gains over a period where the interest rates fall from 4.3+% to 2.6-% as the 20 year maturity bond has since 2008. varan's TLT example takes advantage of the falling interest rate environment at the long end of the bond curve.

    While that may be fine for some people, it's something that should be pointed out. TLT's gains will turn into losses in a rising interest rate environment. His 60/40 split using TLT under those circumstances won't look so promising.

    Wikipedia's article on the history of the 60/40 stock/bond portfolio indicates that the use of the safest bonds is intended.

    "Note that the fixed income securities shown in the example are high quality, safe “investment grade” fixed income securities, CDs and government-sponsored agency bonds, all chosen to avoid the risk of default. ... Investors willing to take greater risks may use any quality of bond deemed acceptable in light of their higher yields, though safety would likely be of paramount importance for retirement."

    http://tinyurl.com/os2...

    varan's VTI/TLT example works because TLT is more volatile, generally moves opposite the market, and has enjoyed an exaggerated falling interest rate environment since 2008. Should rates start rising steadily, or should TLT stop moving opposite the market in general, then his VTI/TLT mix will have a much different, and possibly lackard, result.
    May 31, 2015. 03:06 PM | 4 Likes Like |Link to Comment
COMMENTS STATS
3,019 Comments
6,422 Likes