Author Topic: Value investing/tilting with funds is utter crap  (Read 28527 times)

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #50 on: March 31, 2015, 08:33:56 PM »
Linking to the longest passive fund in each category and testing the maximum interval is as good a method as any.

If you want index data the results will be even more in the favor of value funds as there will be no expense ratio subtracted from their outperformance.

Besides, since when do you care at all about proof?  This whole thread is a testament to your thoughtless and reflexive tendency to make claims completely divorced from reality.

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #51 on: March 31, 2015, 08:41:02 PM »
What are your answers to the following questions? (I should ask them one at a time, in Socratic fashion, but that would be tedious, so I'll list them all out at once. Hopefully the point is clear.)

Do you believe that all cars or houses for sale are exactly efficiently priced?

Do you think that all workers are paid exactly the highest salary they could get in the job market?

Do you think that all private businesses for sale in your local community are exactly efficiently priced?

Why wouldn't the same factors apply to businesses that are publicly listed, when the large majority of these publicly listed businesses have no analyst coverage and no institutions looking at them? Why are the prices of these publicly listed securities magically efficient, when so many things in the world aren't?

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #52 on: April 01, 2015, 12:11:49 AM »

What are your answers to the following questions? (I should ask them one at a time, in Socratic fashion, but that would be tedious, so I'll list them all out at once. Hopefully the point is clear.)

Do you believe that all cars or houses for sale are exactly efficiently priced?

Do you think that all workers are paid exactly the highest salary they could get in the job market?

Do you think that all private businesses for sale in your local community are exactly efficiently priced?

Why wouldn't the same factors apply to businesses that are publicly listed, when the large majority of these publicly listed businesses have no analyst coverage and no institutions looking at them? Why are the prices of these publicly listed securities magically efficient, when so many things in the world aren't?

I think these are all good points. Those who argue that the market is perfectly efficient seem delusional to me. There is no convincing argument for the momentum anomaly as a risk story for example.

But to me the most convincing argument for value effect is the empirical observation that no matter where you look,  cheap stocks in aggregate outperform expensive stocks over long time horizons.

This may not be the way we wish for the market to work. But it is in fact the way the market works.

And I'm certainly not arguing that indexing is not one of the best strategies out there (if not the best.)

But indexing works precisely because it is cheap,and not because the market is perfectly efficient.

And I really have very little skin in this game personally as I am decidedly not a value investor, (though Admittedly I do favor a small value tilt for my buy and hold taxable accounts.)

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #53 on: April 01, 2015, 12:46:22 AM »
There are people who make a good living buying things like cars, pizza ovens, and anything else you can imagine at auctions, then reselling them.

It's easy to understand why they are able to make money. They are able to buy assets at less than they are worth.

I don't understand why it's so hard for some people to understand how you can do this with publicly trade securities as well. You are rewarded for your work done in identifying and buying securities that are currently priced at less than their worth.

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #54 on: April 01, 2015, 04:11:22 AM »
Because figuring out the value of a car is relatively easy, but the "worth" of a stock is based on unknown future profits, affected by unknown events and policies.

CorpRaider

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Re: Value investing/tilting with funds is utter crap
« Reply #55 on: April 01, 2015, 12:52:10 PM »
Invert.  If you cannot construct a diversified portfolio that will beat the 500 stocks chosen by Dow Jones and weighted by float, due to taxes and fees.  Therefore, you cannot construct a diversified portfolio that will underperform either; taxes and fees being equal.
« Last Edit: April 01, 2015, 01:16:42 PM by CorpRaider »

Aphalite

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Re: Value investing/tilting with funds is utter crap
« Reply #56 on: April 01, 2015, 01:06:41 PM »
Invert.  You cannot construct a diversified portfolio that will beat the 500 stocks chosen by Dow Jones and weighted by float, due to taxes and fees.  Therefore, you cannot construct a diversified portfolio that will underperform either; taxes and fees being equal.

Not sure that this is quite true - if you deposited 250k into a brokerage account and got 500 free trades (lots of brokerages out there offer this), you have no fees, and if you don't sell, you have no taxes. This means you actually have a lower outflow than a mutual fund since you're not paying management expenses (Vanguard's annual 5 bps) - of course, you don't have the ability to rebalance, but you could use dividends (which are taxed regardless of whether you receive them from stocks or from a mutual fund) to rebalance (purchases here would cost fees on an annual basis)

Aphalite

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Re: Value investing/tilting with funds is utter crap
« Reply #57 on: April 01, 2015, 01:15:06 PM »
Because figuring out the value of a car is relatively easy, but the "worth" of a stock is based on unknown future profits, affected by unknown events and policies.

Two fallacies with that statement:
1) "value" of a car is the market price quoted to you by a buyer or KBB or whatever source you have, this is the same as open price on the stock market - you could say that a car has unknown future maintenance expenses, or in the event of a technological discovery, it becomes obsolete - same idea here, you can only work off of the knowledge that you have, and that goes for stocks as well. Equities at the end of the day are only supported by the earnings power of the underlying business, stocks are not just pieces of paper - you get returns from appreciation as well as dividends. Historically, the dividend portion of the return has driven total return (above inflation) for investors, as appreciation can fluctuate wildly - just look at our host's indexview (from 1971 - 2015, real return was 6% with dividends and 3% without, from 2000-2015, real return was 2% with dividends and 0% without)

2) When you take a view that the worth of a stock is based on unknown FUTURE events, then you have no basis for investing in stocks as opposed to holding bonds. The reason people think equities will drive better returns than bonds is because HISTORICALLY that has been true. If you are saying that investors cannot know future prospects for a company (the pillar of investing in individual stocks), then you should also say that investors cannot know future prospects for the market as a whole (the pillar of indexing) - the market isn't an entity, it's just a collection of a multitude of different businesses. Buying individual stock means you are buying a share of the business's sales and profits. Buying an index means you are buying a share of many different business's sales and profits - and you're letting float dictate how to weigh those businesses in your capital allocation

CorpRaider

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Re: Value investing/tilting with funds is utter crap
« Reply #58 on: April 01, 2015, 01:17:17 PM »
Invert.  You cannot construct a diversified portfolio that will beat the 500 stocks chosen by Dow Jones and weighted by float, due to taxes and fees.  Therefore, you cannot construct a diversified portfolio that will underperform either; taxes and fees being equal.

Not sure that this is quite true - if you deposited 250k into a brokerage account and got 500 free trades (lots of brokerages out there offer this), you have no fees, and if you don't sell, you have no taxes. This means you actually have a lower outflow than a mutual fund since you're not paying management expenses (Vanguard's annual 5 bps) - of course, you don't have the ability to rebalance, but you could use dividends (which are taxed regardless of whether you receive them from stocks or from a mutual fund) to rebalance (purchases here would cost fees on an annual basis)

I too doubt that it (either) is true.

Aphalite

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Re: Value investing/tilting with funds is utter crap
« Reply #59 on: April 01, 2015, 01:25:43 PM »
I too doubt that it (either) is true.

I see the point you were trying to make now

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #60 on: April 01, 2015, 02:04:02 PM »
Because figuring out the value of a car is relatively easy, but the "worth" of a stock is based on unknown future profits, affected by unknown events and policies.

Two fallacies with that statement:
1) "value" of a car is the market price quoted to you by a buyer or KBB or whatever source you have, this is the same as open price on the stock market - you could say that a car has unknown future maintenance expenses, or in the event of a technological discovery, it becomes obsolete - same idea here, you can only work off of the knowledge that you have, and that goes for stocks as well. Equities at the end of the day are only supported by the earnings power of the underlying business, stocks are not just pieces of paper - you get returns from appreciation as well as dividends. Historically, the dividend portion of the return has driven total return (above inflation) for investors, as appreciation can fluctuate wildly - just look at our host's indexview (from 1971 - 2015, real return was 6% with dividends and 3% without, from 2000-2015, real return was 2% with dividends and 0% without)

2) When you take a view that the worth of a stock is based on unknown FUTURE events, then you have no basis for investing in stocks as opposed to holding bonds. The reason people think equities will drive better returns than bonds is because HISTORICALLY that has been true. If you are saying that investors cannot know future prospects for a company (the pillar of investing in individual stocks), then you should also say that investors cannot know future prospects for the market as a whole (the pillar of indexing) - the market isn't an entity, it's just a collection of a multitude of different businesses. Buying individual stock means you are buying a share of the business's sales and profits. Buying an index means you are buying a share of many different business's sales and profits - and you're letting float dictate how to weigh those businesses in your capital allocation

Sorry, I still don't think the analogy makes sense. A car has immediate utility. I can get in and use it to drive from A to B. The utility of a stock is the promise of future returns, which are unknown and can change. Therefore finding "undervalued" is not as reliable and mostly a crap shoot. 

Your point #2 I don't really know what you're saying. It sounds like just an argument for diversification. As these unknown events will affect different companies differently. No we can't know the future, therefore we buy thousand of stocks, not try to guess which ones are "undervalued".

"then you should also say that investors cannot know future prospects for the market as a whole (the pillar of indexing) "
eh, no shit? No we can't. And how is this "the pillar of indexing"? Pillar of indexing is buying the average and diversify at low cost.

Aphalite

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Re: Value investing/tilting with funds is utter crap
« Reply #61 on: April 01, 2015, 02:16:05 PM »
Sorry, I still don't think the analogy makes sense. A car has immediate utility. I can get in and use it to drive from A to B. The utility of a stock is the promise of future returns, which are unknown and can change. Therefore finding "undervalued" is not as reliable and mostly a crap shoot. 

Your point #2 I don't really know what you're saying. It sounds like just an argument for diversification. As these unknown events will affect different companies differently. No we can't know the future, therefore we buy thousand of stocks, not try to guess which ones are "undervalued".

"then you should also say that investors cannot know future prospects for the market as a whole (the pillar of indexing) "
eh, no shit? No we can't. And how is this "the pillar of indexing"? Pillar of indexing is buying the average and diversify at low cost.

By your definition, the price then should be the only thing driving the value of a car, but if you pay $3000 for a 5 year old honda or for a 10 year old ford, they are different assets and you only know of their approximate reliability because of historical data. It's the same for evaluating businesses. Once you gain knowledge/understanding of businesses or do research into it, it's akin to doing research into car models and future reliability/maintenance costs - just because it's harder doesn't mean it's any less reliable than researching a car

Maybe this will clarify #2 - how do you know that buying "thousands of stocks" will result in more returns than a basket of bonds or a bucket of gold? Because it is based on historical research/statistics. The same is done to analyze stocks - we study history of businesses to know what constitutes as a comparative advantage. Just because there's more variables when you start to analyze businesses, doesn't mean that analysis is worth any less than academic studies done on stocks vs. bonds. In your position, you are positing that ONLY the academic studies of asset classes are useful, whereas others in this thread are positing that business analysis has just as much utility

Pillar of indexing is "buying thousands of stocks", hence, buying and betting on the future prospects of the market as a whole. Again, I refer you to my past post:
Have you looked into WHY Bogle created the index fund? It wasn't because weighing 500 stocks by their market cap is the best way to get returns for your portfolio, it's because index funds replicates two of the three conditions within value investing that makes it so powerful - compounding/time in the market (aka buy and hold), and low costs/fees/taxes due to lack of turnover. What's missing is buying at a lower price, but even Buffett admits that this isn't necessary and that buying good stocks at a fair price can be muc more productive
« Last Edit: April 01, 2015, 02:17:56 PM by aphalite »

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #62 on: April 01, 2015, 02:24:16 PM »
Because it is based on historical research/statistics. The same is done to analyze stocks - we study history of businesses to know what constitutes as a comparative advantage. Just because there's more variables when you start to analyze businesses, doesn't mean that analysis is worth any less than academic studies done on stocks vs. bonds. In your position, you are positing that ONLY the academic studies of asset classes are useful, whereas others in this thread are positing that business analysis has just as much utility

ok, yes it can have utility and can (maybe, sometimes) be done. By people who do it as a full time, 60hrs/week job. But I'm going to guess that for 99% of the people here it does not. So don't see much point discussing it.

For the rest of us, i.e. pretty much everyone here, the historical return and academic studies is what matters and I feel safe that I'm not loosing anything by ignoring "intrinsic value".

Aphalite

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Re: Value investing/tilting with funds is utter crap
« Reply #63 on: April 01, 2015, 02:28:48 PM »
I agree with you there - for 99% of the people it's not worth the precious time that they have, and they'd be better off spending it on something they enjoy doing. You do perfectly fine investing in index funds, getting 6% REAL return and 10% overall return from 1971-2015 investing in the SP500, so you aren't losing anything, but arguing that it's utter crap for the people who enjoy doing it is why we have disagreements

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #64 on: April 01, 2015, 08:08:00 PM »
Because figuring out the value of a car is relatively easy, but the "worth" of a stock is based on unknown future profits, affected by unknown events and policies.

Do you think that all private businesses for sale in your local community are exactly efficiently priced? Aren't their prices also based on, as you say, "unknown future profits, affected by unknown events and policies"?

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #65 on: April 01, 2015, 08:10:54 PM »
Because figuring out the value of a car is relatively easy, but the "worth" of a stock is based on unknown future profits, affected by unknown events and policies.

Do you think that all private businesses for sale in your local community are exactly efficiently priced? Aren't their prices also based on, as you say, "unknown future profits, affected by unknown events and policies"?
Yes they are effected by unknown unknowns. So I don't buy local businesses. What's your point?

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #66 on: April 01, 2015, 08:31:35 PM »
Because figuring out the value of a car is relatively easy, but the "worth" of a stock is based on unknown future profits, affected by unknown events and policies.

Do you think that all private businesses for sale in your local community are exactly efficiently priced? Aren't their prices also based on, as you say, "unknown future profits, affected by unknown events and policies"?
Yes they are effected by unknown unknowns. So I don't buy local businesses. What's your point?

So you are denying that anyone makes good money as a local businessman or investor who routinely does this? Do you think all real estate is efficiently priced? Doesn't real estate depend also on many complex factors, many of which are completely unknowable, such as the direction of interest rates? Do you think arebelspy is just a lucky monkey throwing darts, or has he developed skill at real estate over many hundreds of hours of study and networking? What's so magical about businesses, that once they list, make them somehow completely un-evaluatable, unlike anything else in the world?

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #67 on: April 01, 2015, 08:33:59 PM »
My point, simply, is that you and others have a biased and inconsistent worldview that denies reality in thinking that no one can make money investing in stocks because they, magically, unlike anything else in the world, are efficiently priced simply because they are publicly listed.

Now, I'm not saying you aren't a good asset allocator, or that disciplined asset allocation won't get good results. It will, if you stick with it. I just don't understand the need to denigrate other ways of investing that do in fact work, saying that your way is the only way. I don't feel the need to say that things other than what I do can't work, or that my way is the only way. I don't see why that's necessary or helpful.
« Last Edit: April 01, 2015, 08:36:05 PM by innerscorecard »

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #68 on: April 01, 2015, 08:38:20 PM »
Again, the analogy does not work. Real estate is based on knowledge of the local community, which require your you to at least visit it. (same with local business. But, no I don't think they make money. Thanks amazon.)

Info on listed stocks is available to anyone with a browser. The knowledge advantage is much less. Virtually zero. So maybe the share price isn't perfectly efficient all the time, but you can't know when, and guessing is such a crap shoot that it's pointless.

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #69 on: April 01, 2015, 08:44:01 PM »
I mean, what's your point? Are some stocks not efficient priced? Probably not always. So what? You still have no idea which are and which aren't. Just because you think found one doesn't mean it's right. It could just mean it's going down the tubes..

If you bought Google at the IPO you'd be rich. Ergo growth investing is awesome! ... Qed etc.

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #70 on: April 01, 2015, 08:52:42 PM »
My point, simply, is that you and others have a biased and inconsistent worldview that denies reality in thinking that no one can make money investing in stocks because they, magically, unlike anything else in the world, are efficiently priced simply because they are publicly listed.

Now, I'm not saying you aren't a good asset allocator, or that disciplined asset allocation won't get good results. It will, if you stick with it. I just don't understand the need to denigrate other ways of investing that do in fact work, saying that your way is the only way. I don't feel the need to say that things other than what I do can't work, or that my way is the only way. I don't see why that's necessary or helpful.
Oh! I'm so sorry Mr Buffett. I didn't mean to denigrate your prudent investment in junk food manufacturers. Good luck with that.
And I'm just the messenger. Blame lies with Bogle..

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #71 on: April 01, 2015, 08:55:37 PM »
Just because you do not know the details of the investing process does not mean there isn't a process. Annual reports and your internet browser are just the start of it. You mentioned visits and other local knowledge for real estate - that exists for stocks, too! Most companies have zero analyst coverage. There is no attention at all from institutions to them, because the companies are so small they are uninvestable. You often don't have to be the smartest player at the table - it's enough if you're at the table at all and have done the research. There are listed companies where they are delighted if you show up at the annual meeting and talk to the CFO, because no one does.

And even large-caps are frequently mispriced as well, but that's a story for another day.

Look, I definitely DO agree that buying mutual funds run by "value managers" and with "Value" in the name is not a wise thing to do. The fees are likely to eat away at the outperformance, and maybe more so. And I don't think a "value tilt" is likely to give great results going forward. Buying stocks that are cheap on simple ratios isn't good to work as well as it did in the 1950s, where it was not as easy to just get the data. With our world of cheap ETFs and tons of "smart beta," I think all that is going to be arbitraged away more or less.

But people are going to keep on finding ways to buy dollar bills for 50 cents (or 80 cents, depending on the level of valuation of the market). That's what value investing is, buying things for less than they are worth. And because the world changes, that approach will have to adapt and change as well.

tj

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Re: Value investing/tilting with funds is utter crap
« Reply #72 on: April 01, 2015, 10:34:18 PM »
Just because you do not know the details of the investing process does not mean there isn't a process. Annual reports and your internet browser are just the start of it. You mentioned visits and other local knowledge for real estate - that exists for stocks, too! Most companies have zero analyst coverage. There is no attention at all from institutions to them, because the companies are so small they are uninvestable. You often don't have to be the smartest player at the table - it's enough if you're at the table at all and have done the research. There are listed companies where they are delighted if you show up at the annual meeting and talk to the CFO, because no one does.

And even large-caps are frequently mispriced as well, but that's a story for another day.

Look, I definitely DO agree that buying mutual funds run by "value managers" and with "Value" in the name is not a wise thing to do. The fees are likely to eat away at the outperformance, and maybe more so. And I don't think a "value tilt" is likely to give great results going forward. Buying stocks that are cheap on simple ratios isn't good to work as well as it did in the 1950s, where it was not as easy to just get the data. With our world of cheap ETFs and tons of "smart beta," I think all that is going to be arbitraged away more or less.

But people are going to keep on finding ways to buy dollar bills for 50 cents (or 80 cents, depending on the level of valuation of the market). That's what value investing is, buying things for less than they are worth. And because the world changes, that approach will have to adapt and change as well.

Re the bolded - Why do you think that low cost fund managers (such as Wellington, PRIMECAP, Mairs & Power, Dodge & Cox etc), cannot do this?

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #73 on: April 01, 2015, 11:47:29 PM »
They can, but with their size and other limitations, you might as well just do it yourself and save the fees.

hodedofome

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Re: Value investing/tilting with funds is utter crap
« Reply #74 on: April 02, 2015, 08:24:13 AM »
It's hilarious the level of arrogance of some on this board. They have the appearance of being so smart that they've figured out the best way of investing and everything else is inferior. I think it's just covering up a huge insecurity - that they themselves don't have the skills to outperform the market therefore it must be impossible. This was always Fama's issue as well.

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #75 on: April 02, 2015, 08:26:56 AM »
It's hilarious the level of arrogance of some on this board. They have the appearance of being so smart that they've figured out the best way of investing and everything else is inferior. I think it's just covering up a huge insecurity - that they themselves don't have the skills to outperform the market therefore it must be impossible. This was always Fama's issue as well.

I almost don't want to engage in these arguments, but I worry about the cocksureness of a lot of these prophets confusing people who are just starting out.

691175002

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Re: Value investing/tilting with funds is utter crap
« Reply #76 on: April 02, 2015, 08:45:21 AM »
The EMH is just a convenient tool for analysis, not really an attempt to describe real markets.

If you want to do any kind of analysis you have to make an assumption about how prices are set.  Assuming they reflect availaible information is a reasonable choice.  If everyone admitted "We have no clue what influences prices" then the whole field of finance is dead.  Basic concepts such as alpha/beta, diversification, risk/reward and more all have their roots in EMH.

Note that anomalies like value or momentum investing can coexist with EMH, assuming that the additional return is offset by increased risk (ex: small-cap anomaly).  Similar arguments can be made for momentum (skewed returns) and value (associated with distressed companies).  Of course everything fell apart once the low-volatility anomaly was discovered, since there is no way to rationalize low risk companies as actually having more risk.

There are many reasons why publicly listed securities should be priced more efficiently than physical assets.  They have low transaction costs, are perfectly fungible, free to transport, and all information is publically availaible.  A comparison to real estate or employment isn't fair because of how sticky/illiquid those markets are, and because everyone has varying preferences.

The interesting thing about EMH is that it seems reasonable at first, then you realize it can't possibly reflect reality, but the harder you look the more unavoidable it becomes.  The fact that long-term outperformance is so hard to achieve (especially on a risk-adjusted basis) shows that markets must be pretty damn efficient.  Note that EMH only says that prices must reflect availaible information, not that they represent the true value of an asset at all points in time.

Scandium

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Re: Value investing/tilting with funds is utter crap
« Reply #77 on: April 02, 2015, 09:04:32 AM »
It's hilarious the level of arrogance of some on this board. They have the appearance of being so smart that they've figured out the best way of investing and everything else is inferior. I think it's just covering up a huge insecurity - that they themselves don't have the skills to outperform the market therefore it must be impossible. This was always Fama's issue as well.

I find it hilarious the arrogance of people who think they can outperform a billion dollar industry, and the best paid people in the world, with a few hours on their ipad in the evening. I'm also tired of engaging in these (pointless) arguments, and will try to avoid it. I do worry someone just starting out will think it's a good idea, but now I'm not sure I give a shit. If they want to loose money have at it.

I will pick up some extra cash by becoming an NFL quarterback on the side. Someone else did it so it must be possible..

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #78 on: April 02, 2015, 09:28:00 AM »
The EMH is just a convenient tool for analysis, not really an attempt to describe real markets.

If you want to do any kind of analysis you have to make an assumption about how prices are set.  Assuming they reflect availaible information is a reasonable choice.  If everyone admitted "We have no clue what influences prices" then the whole field of finance is dead.  Basic concepts such as alpha/beta, diversification, risk/reward and more all have their roots in EMH.

Note that anomalies like value or momentum investing can coexist with EMH, assuming that the additional return is offset by increased risk (ex: small-cap anomaly).  Similar arguments can be made for momentum (skewed returns) and value (associated with distressed companies).  Of course everything fell apart once the low-volatility anomaly was discovered, since there is no way to rationalize low risk companies as actually having more risk.

There are many reasons why publicly listed securities should be priced more efficiently than physical assets.  They have low transaction costs, are perfectly fungible, free to transport, and all information is publically availaible.  A comparison to real estate or employment isn't fair because of how sticky/illiquid those markets are, and because everyone has varying preferences.

The interesting thing about EMH is that it seems reasonable at first, then you realize it can't possibly reflect reality, but the harder you look the more unavoidable it becomes.  The fact that long-term outperformance is so hard to achieve (especially on a risk-adjusted basis) shows that markets must be pretty damn efficient.  Note that EMH only says that prices must reflect availaible information, not that they represent the true value of an asset at all points in time.

The EMH is absolutely my starting point in analysis. I need to have an "inefficient rationale" for why the current consensus is wrong and why my variant perception is instead correct. But it's foolish to state that because everything is perfectly efficient, value investing is nonsense.

Especially for small investors. It's true that once you get to certain size, it's really hard to outperform. I doubt I'll ever have this problem. It's not like I have $10 billion right now. I'm not only hunting for the elephants everyone is looking for. I'm also looking at minnows that no institutions are looking at, because the securities don't have the carrying capacity for them.

And the kicker is that the elephants are often inefficiently priced, too, if you just look at how wildly the market prices fluctuate, compared to the much lesser fluctuations of the underlying fundamentals.

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #79 on: April 02, 2015, 01:03:21 PM »
Look. It is possible to beat the market picking stocks.

It's just improbable. That's all.

Anyone with a rudimentary knowledge of investing knows this to be the case.

The market is not perfectly efficient, but it's damned hard to beat market returns.

I have no interest in individual stock selection for the most part, and am under no illusion that I have a special insight when it comes to stock selection. But to dismiss the possibility of outperformance as out of hand is to ignore those who have shown the talent to beat the market over long time periods in a statistically significant manner.

And none of this has anything to do with the obvious fallacy that was the original argument that value investing is utter crap!

RapmasterD

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Re: Value investing/tilting with funds is utter crap
« Reply #80 on: April 02, 2015, 09:36:09 PM »
Well stated, Miles.

Dodge

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Re: Value investing/tilting with funds is utter crap
« Reply #81 on: April 02, 2015, 10:32:20 PM »
Saying I prefer investing in broad index funds to tilting towards tilting my index funds holdings value (or size, or momentum, or quality) is perfectly defensible.

Saying the following  is just utter nonsense.

Quote
Value investing is crap.  Utter crap, meant to sell people who don't know any better on a more expensive fund that "beats the market".

Value funds do not cost more because of slick marketing or sales angles, (Is Vanguard shady in its marketing of it's style funds?  Is the style fund side of their business separated from the ethical broad index fund side?) they cost more because they are not cap weighted and require periodic trading (ie. transaction costs.)

Saying that "value investing is crap" is to posit that the capital asset pricing model is correct, which has been debunked for what 30 years?  In such a fantasy world the momentum, value, quality, and size effects don't exist, despite the fact that they have been demonstrated time and time again in out of sample and out of market analyses.

Suggesting that Fama who first codified the 3 factor model would agree with your idiotic statement despite the fact that he,

A. won a Nobel for a model that used the value factor to explain excess returns over the CAPM,
and
B. Helped design the first passive value funds for DFA and still works for them

is completely ridiculous.

Furthermore simple real world back testing of gives empiric proof that value has had demonstrable value after fees to date.

VFINX vs DFLVX (US large cap vs US LCV) finds that DFLVX has a higher CAGR (10.46 vs 9.33) and a higher Sharp ratio (.50 vs .49).

 Even more convincing is Small cap (VSMAX vs small value (DFSMX)  DFSVX wins in both CAGR (11.82 vs 9.08) and Sharp ratio (.56 vs .46)

Finally  Foreign large cap value (DFIVX) shows consistency with the above value dominance over Foreign large(VTMGX).  CaGR (5.76 vs 2.58)  Sharp (0.29 vs 0.13)

each back test uses the maximum timeframe allowed for the longest available passive vs blend  funds.

Again these results are all after fees!

So the original statement could not be more transparently false.   

In fact the original argument was so patently absurd that I feel like I just wasted 15 minutes arguing that the moon is not made of cheese.  It was an easy but pointless exercise.

Linking to a few individual funds which beat the market over the last 20 years, does not invalidate the findings of studies which look at funds as a whole, over 80 years.

It doesn't seem like anyone is advocating in favor of value funds outperforming, but I'll ask anyway.  I understand the theories, I'm looking for evidence.  Does anyone have evidence which contradicts the evidence/studies in the original post, which show that value funds don't outperform?

innerscorecard

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Re: Value investing/tilting with funds is utter crap
« Reply #82 on: April 03, 2015, 12:21:39 AM »
I think that for the record, it should be stated that the original title of this post was "value investing is crap." This is important, because anyone reading this thread in retrospect with the changed title will think that anyone arguing that individuals can successfully pick undervalued stocks is arguing a straw man, where in fact it is the  very opposite.

PeteD01

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Re: Value investing/tilting with funds is utter crap
« Reply #83 on: April 03, 2015, 08:12:15 AM »
According to the 20%/80% rule, which I follow religiously, value investing is utter crap.
Simple total market indexing results in higher net returns than more than 80% of actively invested $$ return after fees.
In most areas, rewards beyond 80% of the theoretically achievable require disproportionate effort and increasing risk of failure.
It often pays handsomely to just leave a good thing alone, particularly in a field where avoiding wrong calls is the main problem.
In other words: Optimal returns are not necessarily the highest returns.





Dodge

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Re: Value investing/tilting with funds is utter crap
« Reply #84 on: April 03, 2015, 08:26:04 AM »
I think that for the record, it should be stated that the original title of this post was "value investing is crap." This is important, because anyone reading this thread in retrospect with the changed title will think that anyone arguing that individuals can successfully pick undervalued stocks is arguing a straw man, where in fact it is the  very opposite.

Updated the original post to reflect this.  I think it worked out well, the original title prompted many people who otherwise wouldn't have come into the thread, to share their opinion on value funds.

RapmasterD

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Re: Value investing/tilting with funds is utter crap
« Reply #85 on: April 03, 2015, 12:22:59 PM »
I don't care about value funds.

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #86 on: April 03, 2015, 01:41:41 PM »

Saying I prefer investing in broad index funds to tilting towards tilting my index funds holdings value (or size, or momentum, or quality) is perfectly defensible.

Saying the following  is just utter nonsense.

Quote
Value investing is crap.  Utter crap, meant to sell people who don't know any better on a more expensive fund that "beats the market".

Value funds do not cost more because of slick marketing or sales angles, (Is Vanguard shady in its marketing of it's style funds?  Is the style fund side of their business separated from the ethical broad index fund side?) they cost more because they are not cap weighted and require periodic trading (ie. transaction costs.)

Saying that "value investing is crap" is to posit that the capital asset pricing model is correct, which has been debunked for what 30 years?  In such a fantasy world the momentum, value, quality, and size effects don't exist, despite the fact that they have been demonstrated time and time again in out of sample and out of market analyses.

Suggesting that Fama who first codified the 3 factor model would agree with your idiotic statement despite the fact that he,

A. won a Nobel for a model that used the value factor to explain excess returns over the CAPM,
and
B. Helped design the first passive value funds for DFA and still works for them

is completely ridiculous.

Furthermore simple real world back testing of gives empiric proof that value has had demonstrable value after fees to date.

VFINX vs DFLVX (US large cap vs US LCV) finds that DFLVX has a higher CAGR (10.46 vs 9.33) and a higher Sharp ratio (.50 vs .49).

 Even more convincing is Small cap (VSMAX vs small value (DFSMX)  DFSVX wins in both CAGR (11.82 vs 9.08) and Sharp ratio (.56 vs .46)

Finally  Foreign large cap value (DFIVX) shows consistency with the above value dominance over Foreign large(VTMGX).  CaGR (5.76 vs 2.58)  Sharp (0.29 vs 0.13)

each back test uses the maximum timeframe allowed for the longest available passive vs blend  funds.

Again these results are all after fees!

So the original statement could not be more transparently false.   

In fact the original argument was so patently absurd that I feel like I just wasted 15 minutes arguing that the moon is not made of cheese.  It was an easy but pointless exercise.

Linking to a few individual funds which beat the market over the last 20 years, does not invalidate the findings of studies which look at funds as a whole, over 80 years.

It doesn't seem like anyone is advocating in favor of value funds outperforming, but I'll ask anyway.  I understand the theories, I'm looking for evidence.  Does anyone have evidence which contradicts the evidence/studies in the original post, which show that value funds don't outperform?

Wrong again.

I advocated value funds outperforming in the past, and believe the trend will continue in the  future. See post 50.

There is ample evidence of Value beating blend over long time horizons. See post 15.

The better question is why you believe the converse when you provide zero evidence of your hypothesis that value funds do not outperform.

And although I am a huge fan bogle, Bogle quotes do not count as evidence.

Aphalite

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Re: Value investing/tilting with funds is utter crap
« Reply #87 on: April 03, 2015, 02:16:29 PM »
There is ample evidence of Value beating blend over long time horizons. See post 15.

The better question is why you believe the converse when you provide zero evidence of your hypothesis that value funds do not outperform.

And although I am a huge fan bogle, Bogle quotes do not count as evidence.

To be fair, currently, Vanguard value etf (VTV) is lagging VTI - 7.29% in 10 years and 13.47% in 5 years vs 8.57% and 14.76% - respectively (same trends for midcap and small cap). Can't remember if that's total return or just appreciation tho - if dividends were not included, reinvestment (yield is 2.47% vs 1.84%) could possibly make value funds better

https://personal.vanguard.com/us/funds/etf/all?sortorder=asc&sortorder=asc&sort=name&sort=name&WT.srch=1#upperTB=perfTBI&lowerTB=avgAnnTBI

Also, the chart you posted seem to indicate that everytime there's a crash, the two funds converge in total price - enthusiasm for growth prior to 2000 led to temporary overperformance until the 2001 crash, and enthusiasm for value prior to 2008 led to temporary overperformance until the 09 crash. Perhaps the next crash will see value meet with total market yet again?
« Last Edit: April 03, 2015, 02:20:28 PM by aphalite »

Dodge

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Re: Value investing/tilting with funds is utter crap
« Reply #88 on: April 03, 2015, 03:06:05 PM »
Wrong again.

I advocated value funds outperforming in the past, and believe the trend will continue in the  future. See post 50.

There is ample evidence of Value beating blend over long time horizons. See post 15.

The better question is why you believe the converse when you provide zero evidence of your hypothesis that value funds do not outperform.

And although I am a huge fan bogle, Bogle quotes do not count as evidence.

None of the posts mentioned contain an analysis of actual funds over time.  The only sources I see here that do, are in the original post.  John Bogle's word is not the source, the underlying data is.

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #89 on: April 03, 2015, 03:36:18 PM »
See post 50 again.

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #90 on: April 03, 2015, 03:41:26 PM »

There is ample evidence of Value beating blend over long time horizons. See post 15.

The better question is why you believe the converse when you provide zero evidence of your hypothesis that value funds do not outperform.

And although I am a huge fan bogle, Bogle quotes do not count as evidence.

To be fair, currently, Vanguard value etf (VTV) is lagging VTI - 7.29% in 10 years and 13.47% in 5 years vs 8.57% and 14.76% - respectively (same trends for midcap and small cap). Can't remember if that's total return or just appreciation tho - if dividends were not included, reinvestment (yield is 2.47% vs 1.84%) could possibly make value funds better

https://personal.vanguard.com/us/funds/etf/all?sortorder=asc&sortorder=asc&sort=name&sort=name&WT.srch=1#upperTB=perfTBI&lowerTB=avgAnnTBI

Also, the chart you posted seem to indicate that everytime there's a crash, the two funds converge in total price - enthusiasm for growth prior to 2000 led to temporary overperformance until the 2001 crash, and enthusiasm for value prior to 2008 led to temporary overperformance until the 09 crash. Perhaps the next crash will see value meet with total market yet again?

VTI has only existed since 2005. I'll give you credit for supplying data, unlike others, but I think that all would agree that nine years is not enough time to come to a meaningful conclusion about the relative performance of any two asset classes.

The other point I would make is that Vanguard style funds are very weak sauce. In other words their value funds are not very value-ey. But even so I suspect that if they were back tested back to the 70s or earlier, VTV would beat VTI.

Dodge

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Re: Value investing/tilting with funds is utter crap
« Reply #91 on: April 03, 2015, 04:33:07 PM »
See post 50 again.

The past performance of a few standout funds, over 20 years, cannot be used to show a general outperformance of the value factor in mutual funds.  Thus far, the only evidence presented looks at value funds as a whole, over 80 years, and has found no outperformance.

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Re: Value investing/tilting with funds is utter crap
« Reply #92 on: April 03, 2015, 04:34:22 PM »
I'm tired of some of this nonsense. Here is some data going back to the 20's.

tj

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Re: Value investing/tilting with funds is utter crap
« Reply #93 on: April 03, 2015, 04:49:02 PM »

There is ample evidence of Value beating blend over long time horizons. See post 15.

The better question is why you believe the converse when you provide zero evidence of your hypothesis that value funds do not outperform.

And although I am a huge fan bogle, Bogle quotes do not count as evidence.

To be fair, currently, Vanguard value etf (VTV) is lagging VTI - 7.29% in 10 years and 13.47% in 5 years vs 8.57% and 14.76% - respectively (same trends for midcap and small cap). Can't remember if that's total return or just appreciation tho - if dividends were not included, reinvestment (yield is 2.47% vs 1.84%) could possibly make value funds better

https://personal.vanguard.com/us/funds/etf/all?sortorder=asc&sortorder=asc&sort=name&sort=name&WT.srch=1#upperTB=perfTBI&lowerTB=avgAnnTBI

Also, the chart you posted seem to indicate that everytime there's a crash, the two funds converge in total price - enthusiasm for growth prior to 2000 led to temporary overperformance until the 2001 crash, and enthusiasm for value prior to 2008 led to temporary overperformance until the 09 crash. Perhaps the next crash will see value meet with total market yet again?

VTI has only existed since 2005. I'll give you credit for supplying data, unlike others, but I think that all would agree that nine years is not enough time to come to a meaningful conclusion about the relative performance of any two asset classes.

The other point I would make is that Vanguard style funds are very weak sauce. In other words their value funds are not very value-ey. But even so I suspect that if they were back tested back to the 70s or earlier, VTV would beat VTI.

Why are you so pro-Betterment if you do not like the Vanguard Value funds?

tj

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Re: Value investing/tilting with funds is utter crap
« Reply #94 on: April 03, 2015, 04:50:23 PM »
I'm tired of some of this nonsense. Here is some data going back to the 20's.

This can't be taken seriously. How would you have invested in Small Cap Value funds in 1801? Hell, how would you invest in ANY?

PeteD01

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Re: Value investing/tilting with funds is utter crap
« Reply #95 on: April 03, 2015, 04:54:01 PM »
I'm tired of some of this nonsense. Here is some data going back to the 20's.

Nice graph telling the whole story.
Small growth is not worth bothering with.
Large value and large growth is well represented in total market.
Small value is definitely where the money is but is not that easy to invest in.

bdbrooks

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Re: Value investing/tilting with funds is utter crap
« Reply #96 on: April 03, 2015, 04:58:47 PM »
This can't be taken seriously. How would you have invested in Small Cap Value funds in 1801? Hell, how would you invest in ANY?

How can I not be taken seriously. The graph started in 1927. Not 1801. In 1927 all 4 funds started with $100 and the graph is the results of how they fared over the last 80+ years.
« Last Edit: April 03, 2015, 05:01:04 PM by bdbrooks »

milesdividendmd

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Value investing/tilting with funds is utter crap
« Reply #97 on: April 03, 2015, 05:00:28 PM »
See post 50 again.

The past performance of a few standout funds, over 20 years, cannot be used to show a general outperformance of the value factor in mutual funds.  Thus far, the only evidence presented looks at value funds as a whole, over 80 years, and has found no outperformance.

As I've already explained, those funds were selected based on 2 simple  criteria

1. They are passive funds
And
2.  They were the first passive funds of their kind.

They were not cherry picked. They are simply the longest available comparison for commercially available passive funds of their kind.

If you can find a longer back-testable collection of relevant funds to this discussion then please share it with the group.

That would be far more useful than your empty proclamations without a shred of evidence.

If you want asset class data please see bdbrooks' above post.

It's not that complicated.

milesdividendmd

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Re: Value investing/tilting with funds is utter crap
« Reply #98 on: April 03, 2015, 05:05:57 PM »


There is ample evidence of Value beating blend over long time horizons. See post 15.

The better question is why you believe the converse when you provide zero evidence of your hypothesis that value funds do not outperform.

And although I am a huge fan bogle, Bogle quotes do not count as evidence.

To be fair, currently, Vanguard value etf (VTV) is lagging VTI - 7.29% in 10 years and 13.47% in 5 years vs 8.57% and 14.76% - respectively (same trends for midcap and small cap). Can't remember if that's total return or just appreciation tho - if dividends were not included, reinvestment (yield is 2.47% vs 1.84%) could possibly make value funds better

https://personal.vanguard.com/us/funds/etf/all?sortorder=asc&sortorder=asc&sort=name&sort=name&WT.srch=1#upperTB=perfTBI&lowerTB=avgAnnTBI

Also, the chart you posted seem to indicate that everytime there's a crash, the two funds converge in total price - enthusiasm for growth prior to 2000 led to temporary overperformance until the 2001 crash, and enthusiasm for value prior to 2008 led to temporary overperformance until the 09 crash. Perhaps the next crash will see value meet with total market yet again?

VTI has only existed since 2005. I'll give you credit for supplying data, unlike others, but I think that all would agree that nine years is not enough time to come to a meaningful conclusion about the relative performance of any two asset classes.

The other point I would make is that Vanguard style funds are very weak sauce. In other words their value funds are not very value-ey. But even so I suspect that if they were back tested back to the 70s or earlier, VTV would beat VTI.

Why are you so pro-Betterment if you do not like the Vanguard Value funds?

1.  Irrelevant question to topic at hand.

2. I like betterment for their ease of use, maintenance free slice and dice portfolio with effortless tax loss harvesting and rebalancing.

3.  I would choose different value ETFs if I were in charge of their security selection.

Dodge

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Re: Value investing/tilting with funds is utter crap
« Reply #99 on: April 03, 2015, 05:07:52 PM »
This can't be taken seriously. How would you have invested in Small Cap Value funds in 1801? Hell, how would you invest in ANY?

How can I not be taken seriously. The graph started in 1927. Not 1801. In 1927 all 4 funds started with $100 and the graph is the results of how they fared over the last 80+ years.

Based on the source, and the graph, this seems to be the very data the sources in the original post say is invalid, because it does not represent the returns of actual funds.

"So investors should not ignore the obvious costs of implementing a strategy that rises, pristinely, out of academic studies that cannot be precisely replicated in the real world." ~John Bogle

Can you show that this graph is indeed the result of real world funds?