Author Topic: For the guys that like to buy cheap  (Read 6031 times)

hodedofome

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For the guys that like to buy cheap
« on: October 01, 2014, 11:44:10 AM »
If you've got cash sitting around and you believe in the global value investing strategy of the GVAL ETF, it's currently in a 16% drawdown from the highs earlier this year.

As a recap, it buys the 10 cheapest countries in the world as determined by their CAPE ratio. International stocks, especially Euro/Russia area stocks, have been hit pretty hard lately. If you are a long-term believer in this strategy, it's a better idea to buy it when it's sucking, rather than when it's hitting new highs.

milesdividendmd

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Re: For the guys that like to buy cheap
« Reply #1 on: October 01, 2014, 09:53:22 PM »
Faber seems to have terrible luck. I am a strong believer in buying low CAPE markets. But with any contrarian approach there will be long periods of negative tracking error, which is  exactly what you don't want when you launch an ETF. 

(The alternative explanation is that he sucks at execution. But I dont really believe that.)

foobar

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Re: For the guys that like to buy cheap
« Reply #2 on: October 03, 2014, 07:15:53 AM »
Faber seems to have terrible luck. I am a strong believer in buying low CAPE markets. But with any contrarian approach there will be long periods of negative tracking error, which is  exactly what you don't want when you launch an ETF. 

(The alternative explanation is that he sucks at execution. But I dont really believe that.)

At what point does bad luck become poor strategy? The guys papers are great reads but the results have been sketchy at best.

milesdividendmd

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Re: For the guys that like to buy cheap
« Reply #3 on: October 03, 2014, 09:47:17 AM »

Faber seems to have terrible luck. I am a strong believer in buying low CAPE markets. But with any contrarian approach there will be long periods of negative tracking error, which is  exactly what you don't want when you launch an ETF. 

(The alternative explanation is that he sucks at execution. But I dont really believe that.)

At what point does bad luck become poor strategy? The guys papers are great reads but the results have been sketchy at best.

Way too soon to say anything one way or another. As an investor I believe the best you can do is to pick a rational strategy and stick to it through thick and thin.

http://finance.yahoo.com/tumblr/blog-sticking-to-a-long-term-strategy-in-a-short-term-world-153112926.html

In Faber's defense, The Ivy portfolio had terrible performance, the global value portfolio, its simply too young to say anything about it all, but both the domestic and foreign shareholder yield portfolios have had decent performance. This is pretty much what you'd expect if you'd had to predict the performance of four newly launched strategies a priori.

foobar

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Re: For the guys that like to buy cheap
« Reply #4 on: October 03, 2014, 11:16:04 AM »

Faber seems to have terrible luck. I am a strong believer in buying low CAPE markets. But with any contrarian approach there will be long periods of negative tracking error, which is  exactly what you don't want when you launch an ETF. 

(The alternative explanation is that he sucks at execution. But I dont really believe that.)

At what point does bad luck become poor strategy? The guys papers are great reads but the results have been sketchy at best.

Way too soon to say anything one way or another. As an investor I believe the best you can do is to pick a rational strategy and stick to it through thick and thin.

http://finance.yahoo.com/tumblr/blog-sticking-to-a-long-term-strategy-in-a-short-term-world-153112926.html

In Faber's defense, The Ivy portfolio had terrible performance, the global value portfolio, its simply too young to say anything about it all, but both the domestic and foreign shareholder yield portfolios have had decent performance. This is pretty much what you'd expect if you'd had to predict the performance of four newly launched strategies a priori.

It is the Ivy portfolio that I am referring to. It is the only one I am aware of with more than like a 3 year history:) We can check back on GVal in 10-20 years:)

milesdividendmd

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For the guys that like to buy cheap
« Reply #5 on: October 03, 2014, 11:38:41 AM »
It's always preferable to develop and execute your own strategy because if you pay someone else to do it, by the time you can tell that they are (or are not) talented its too late.

Even if we lack benchmark beating investment talent, (and probability tells us we do) at least our own services are free!

sol

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Re: For the guys that like to buy cheap
« Reply #6 on: October 03, 2014, 11:49:06 AM »
Part of me likes the idea that choosing emerging markets based on low CAPE, because it should work.

But then I remember that there are all kinds of market timing strategies out there, and people who make hundreds of millions of dollars per year to use supercomputers to analyze market trends are ALSO trying to find strategies that should work, and all of these strategies are competing against each, and the results of that competition set the market index average, which is what I can get for free.

Faber is just one more smart guy telling us we should give him our money because he's smarter than the other smart guys.  No different than what the Motley Fool does, or the famous "buy plastics!" guy or whatever other hot tip you've heard recently.  Maybe he's right and maybe he's wrong, but why gamble with him when you know that playing his game is a statistically losing proposition?

I'll stick to index funds.

hodedofome

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Re: For the guys that like to buy cheap
« Reply #7 on: October 04, 2014, 07:17:56 PM »
This is not a thread about passive vs active investing Sol. There are plenty of other threads you can share your thoughts. Thanks.

As far as the Ivy Portfolio, the ACTUAL portfolio as shown in the book and the white papers has performed as expected. It is the fund that stunk. Part of the reason was the high fees, and Cambria has recently decided to stop being the adviser to the fund. If you were doing the strategy on your own, you sidestepped the financial crisis and it's still ahead of what the market has done with less than half the volatility. Also a 75% less drawdown. So anyone knocking the Ivy strategy just doesn't have a clue.

As far as the GVAL etf, I think any low cost, intelligently mechanical global value strategy would perform roughly the same. You can use P/E, CAPE, Dividends, B/M or any other common value indicator. The key is to be in the cheapest countries for a low cost, and I think GVAL accomplishes that. The best time to buy into a strategy you like (and that includes index funds) is when they are in a drawdown, and GVAL is definitely in one.
« Last Edit: October 04, 2014, 07:20:44 PM by hodedofome »

superannuationfreak

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Re: For the guys that like to buy cheap
« Reply #8 on: October 04, 2014, 08:06:20 PM »
My concerns with GVAL are the lack of diversification (<100 stocks) and the relatively high expense ratio.

If I want value exposure I'd rather get an account with Schwab (if I were in the US) and pay no commissions for some combination of:
PXSV
FNDF
FNDE

RyeWhiskey

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Re: For the guys that like to buy cheap
« Reply #9 on: October 05, 2014, 10:44:33 AM »
Seems like a 'technical' and country-centered version of what I call the 'grit your teeth' portfolio. This is where you speculate by buying the worst performing equity class for the previous year each year. Last year was precious metal stocks, this year may be Russian stocks. I presume you could also include commodities if you so desired, as well as fixed-income.

milesdividendmd

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Re: For the guys that like to buy cheap
« Reply #10 on: October 05, 2014, 12:47:21 PM »

Part of me likes the idea that choosing emerging markets based on low CAPE, because it should work.

But then I remember that there are all kinds of market timing strategies out there, and people who make hundreds of millions of dollars per year to use supercomputers to analyze market trends are ALSO trying to find strategies that should work, and all of these strategies are competing against each, and the results of that competition set the market index average, which is what I can get for free.

Faber is just one more smart guy telling us we should give him our money because he's smarter than the other smart guys.  No different than what the Motley Fool does, or the famous "buy plastics!" guy or whatever other hot tip you've heard recently.  Maybe he's right and maybe he's wrong, but why gamble with him when you know that playing his game is a statistically losing proposition?

I'll stick to index funds.

I largely agree with this sentiment. When it comes to choosing a strategy the data could not be more clear. Passive indexing beats active investing 80% of the time long-term.

But a couple of points.

Faber's  Global value strategy is not an emerging markets strategy. It includes holdings in developed markets such as Spain and Austria.

Investing in emerging markets and indexing are not mutually  exclusive. There are plenty of emerging markets index funds.

One can implement a GVAL like strategy using only passive indexes from low CAPE countries. The only issue is that the portfolio will likely end up being about the same cost as GVAL.

Calling Faber another "smart guy who tells us to give him our money" hardly differentiates him from anyone in the fund business (including Bogle). As detailed above his ETF is almost as cheap as a similar strategy using Low cost index funds.

Not arguing that you should run out and buy GVAL. Not at all. Just pointing out that painting every non bogle approach as a scam is not accurate, and is probably overly simple.

milesdividendmd

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Re: For the guys that like to buy cheap
« Reply #11 on: October 05, 2014, 12:50:11 PM »

Seems like a 'technical' and country-centered version of what I call the 'grit your teeth' portfolio. This is where you speculate by buying the worst performing equity class for the previous year each year. Last year was precious metal stocks, this year may be Russian stocks. I presume you could also include commodities if you so desired, as well as fixed-income.

It's more of a fundamental value approach than technical.

But he does cherry pick the worst companies from the worst countries in order to harvest deep value.

milesdividendmd

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Re: For the guys that like to buy cheap
« Reply #12 on: October 05, 2014, 12:54:21 PM »
My concerns with GVAL are the lack of diversification (<100 stocks) and the relatively high expense ratio.

If I want value exposure I'd rather get an account with Schwab (if I were in the US) and pay no commissions for some combination of:
PXSV
FNDF
FNDE

If you believe in an active approach like GVAL, then diversification will water down your results.

This is what Charlie Munger terms "diworsification".  Either you should put your penny down or you should index. Blending the approach is likely the worst of both worlds. Higher risk without proportionally higher returns.
« Last Edit: October 05, 2014, 01:29:24 PM by milesdividendmd »

hodedofome

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Re: For the guys that like to buy cheap
« Reply #13 on: December 16, 2014, 11:32:53 AM »
FWIW, GVAL is now in more than a 25% drawdown. Strategy is getting pretty dang cheap.

sirdeets

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Re: For the guys that like to buy cheap
« Reply #14 on: December 16, 2014, 03:34:54 PM »
Interesting read!
A few years ago I wanted to do a similiar thing - buy cheap countries based on Shiller PE
I ended up buying index funds that track large % of equties in a country, for example ERUS which represents 80% of the Russian equities market.
I ended up buying ERUS, EWI, EWK, TUR with a similar expense ratio to GVAL.
I sold them all a year later for a 25% gain as I wanted to buy a house, and they have since all tanked.