Hello, I have set up my TSP allocation for the following:
S Fund: 12%
C Fund: 40%
S Fund: 10%
I Fund: 38%
I have 28 years before I retire. I would like to find a more aggressive
allocation. I will appreciate any advice.
thanks,
joe
<> wrote in message
news:
> Hello, I have set up my TSP allocation for the following:
I hope this helps you out, Joe.
Synonyms Sodium Phosphate Tribasic, Tribasic
Sodium Phosphate, TSP, Trisodium
Orthophosphate
Chemical Formula Na3PO4*12H2O
Molecular Weight 380.13
Specifications Typical
Assay 98.0 % min. 98.08 - 98.78 %
Sulfate (SO4) 0.5 % max. 041 - .047 %
P205 18 - 20 % 18.21 - 18.51 %
Na20 17.59 - 17.89 %
Chloride (CL) 0.3 % max. .30 %
Water Insolubles 0.1 % max. .004 %
Iron (Fe) .01 %
Gary,
Mmm... are you one of those people that surf the newsgroups giving
everyone rude responses? What purpose did your response serve? Why even
bother responding? Did it make you giggle? Gary please get off the
internet and meet some friends.
Hi jjlindula,
I don't know how many people here recognize the words here,
but I sure don't. Typically people list the full name of the
funds in which they are invested. Or in the alternative,
they give the fund symbol. While you're digging up that
info, consider experimenting with the several free online
asset allocation tools I list at
Given info like your age and risk tolerance, they will make
suggestions about how much you should have in stocks (among
domestic, large cap, small cap, international, etc.) and
bonds (investment grade; emerging market, etc.)
Lastly, misc.invest.financial-plan is a moderated group. You
should consider asking your question there (though again,
after indicating exactly what the funds are in which you are
invested). Jokers and trolls don't get through to that
newsgroup, except maybe by one-time accident.
<> wrote
> Hello, I have set up my TSP allocation for the following:
>
> S Fund: 12%
> C Fund: 40%
> S Fund: 10%
> I Fund: 38%
>
> I have 28 years before I retire. I would like to find a
more aggressive
> allocation. I will appreciate any advice.
>
> thanks,
> joe
Elle wrote:
>
> Hi jjlindula,
>
> I don't know how many people here recognize the words here,
> but I sure don't. Typically people list the full name of the
> funds in which they are invested.
Those ARE the names of the funds.
> [...]
> <> wrote
> > Hello, I have set up my TSP allocation for the following:
> >
> > S Fund: 12%
> > C Fund: 40%
> > S Fund: 10%
> > I Fund: 38%
> >
> > I have 28 years before I retire. I would like to find a
> > more aggressive
> > allocation. I will appreciate any advice.
Here are Morningstar's suggestions:
(You have to be registered at Morningstar to read, but that's free)
Your post lists S fund twice. Assuming that your allocation is S 22%, C
40%, I 38%, then by most people's measures, that's already quite an
aggressive portfolio (pretty heavy international and small cap
exposure). You might tweak by increasing small cap further (since C & I
are both large cap) but otherwise there's not much else I might change.
As M* observes, you are missing other aggressive portions of the market
because they are not available in TSP: emerging markets (both equity and
debt), junk bonds. Not much you can do about that other than coordinate
your plan investments with your outside investments.
--
Mark Freeland
Mark Freeland wrote:
> Elle wrote:
> >
> > Hi jjlindula,
> >
> > I don't know how many people here recognize the words here,
> > but I sure don't. Typically people list the full name of the
> > funds in which they are invested.
>
> Those ARE the names of the funds.
>
> > [...]
>
> > <> wrote
> > > Hello, I have set up my TSP allocation for the following:
> > >
> > > S Fund: 12%
> > > C Fund: 40%
> > > S Fund: 10%
> > > I Fund: 38%
> > >
> > > I have 28 years before I retire. I would like to find a
> > > more aggressive
> > > allocation. I will appreciate any advice.
>
> Here are Morningstar's suggestions:
>
> (You have to be registered at Morningstar to read, but that's free)
>
> Your post lists S fund twice. Assuming that your allocation is S 22%, C
> 40%, I 38%, then by most people's measures, that's already quite an
> aggressive portfolio (pretty heavy international and small cap
> exposure). You might tweak by increasing small cap further (since C & I
> are both large cap) but otherwise there's not much else I might change.
The data in the UK shows that small cap has never been more expensive
relative to large cap. ie the traditional substantial discount in PE
or P/B terms of small cap stocks has entirely disappeared due to the
outperformance by small cap stocks over the last 5 years. I don't know
the US data but I note that there are several 'flavours of the month'
amongst small investors: small cap, international stocks, emerging
markets, real estate, commodites and therefore I would be cautious re
these areas (and generally, anything that looks to be doing
particularly well in response to record low bond yields-- I think there
is a clear bubble going on out there in liquidity).
A rebalancing away from small cap seems to me to be prudent. I don't
think it should be more than 10% of most investor's portfolio.
On international I have argued that the long run US consumer's
proportion in international equities should be about 20%. That may be
too conservative.
>
> As M* observes, you are missing other aggressive portions of the market
> because they are not available in TSP: emerging markets (both equity and
> debt), junk bonds.
David Swensen's latest book is interesting. He reckons junk bonds
aren't worth the risk-return tradeoff. Emerging markets are such a
small proportion of total world markets that they can be missed. It's
worth noting that China's stock market has been performing appallingly,
whilst the economy is blazing. And that Emerging Markets have done
extremely well over the past couple of years.
Mark Freeland wrote:
> Elle wrote:
> >
> > Hi jjlindula,
> >
> > I don't know how many people here recognize the words here,
> > but I sure don't. Typically people list the full name of the
> > funds in which they are invested.
>
> Those ARE the names of the funds.
>
> > [...]
>
> > <> wrote
> > > Hello, I have set up my TSP allocation for the following:
> > >
> > > S Fund: 12%
> > > C Fund: 40%
> > > S Fund: 10%
> > > I Fund: 38%
> > >
> > > I have 28 years before I retire. I would like to find a
> > > more aggressive
> > > allocation. I will appreciate any advice.
>
> Here are Morningstar's suggestions:
>
> (You have to be registered at Morningstar to read, but that's free)
Worth also considering the L funds which do the automatic rebalancing
on a lifestyle (age) basis, particularly L2040 (most equity weighted).
I suggest the L fund. You don't have to worry about anything.
"darkness39" <> wrote in message
news:
>
> Mark Freeland wrote:
>> Elle wrote:
>> >
>> > Hi jjlindula,
>> >
>> > I don't know how many people here recognize the words here,
>> > but I sure don't. Typically people list the full name of the
>> > funds in which they are invested.
>>
>> Those ARE the names of the funds.
>>
>> > [...]
>>
>> > <> wrote
>> > > Hello, I have set up my TSP allocation for the following:
>> > >
>> > > S Fund: 12%
>> > > C Fund: 40%
>> > > S Fund: 10%
>> > > I Fund: 38%
>> > >
>> > > I have 28 years before I retire. I would like to find a
>> > > more aggressive
>> > > allocation. I will appreciate any advice.
>>
>> Here are Morningstar's suggestions:
>>
>> (You have to be registered at Morningstar to read, but that's free)
>
>
>
> Worth also considering the L funds which do the automatic rebalancing
> on a lifestyle (age) basis, particularly L2040 (most equity weighted).
>
"darkness39" <> wrote in message
news:
>
> Mark Freeland wrote:
> The data in the UK shows that small cap has never been more expensive
> relative to large cap. ie the traditional substantial discount in PE
> or P/B terms of small cap stocks has entirely disappeared due to the
> outperformance by small cap stocks over the last 5 years.
Even without checking, I'm willing to accept the premise that the ratio of
P/E (small cap) to P/E (large cap) is at or near a historical high. There
is an underlying premise that over time, this ratio tends to stay within a
certain range. I'm okay with that, too.
There is the argument that small caps historically outperform large caps
over sufficiently long periods of time. Let's say, just to put some numbers
on this, that large caps tend to average 10%, and small caps 12%. (I'm not
saying these are the right numbers, but it gives us something concrete to
work with.) This means that the ratio of P/Es remains relatively fixed if
small caps perform a couple of percent better than large caps.
If small caps were to return "only" 11%, while large caps returned 10%, the
ratio of P/Es would shrink. And if small caps returns were the same as
large caps, the ratio of P/Es (small to large) would shrink even faster.
The point of all of this is to say that even if small cap P/Es are high
relative to large cap P/Es, it does not necessarily follow that small caps
must do worse in order to bring the ratios back into line. (The inverse
argument doesn't hold - if large caps are overpriced, then large caps must
do worse, because they traditionally do worse to begin with.)
None of this is to dispute the idea that there is more risk now in small
caps. But people have been saying this for years. (Admittedly, that means
we are closer, rather than farther, away from large caps finally
outperforming. Check large cap growth - how many years now have the pundits
been saying this is the place to be?)
The OP asked about making the portfolio more "aggressive". Reducing small
cap to 10% may arguably be more prudent, but it isn't more aggressive.
> I don't know
> the US data but I note that there are several 'flavours of the month'
> amongst small investors: small cap, international stocks, emerging
> markets, real estate, commodites and therefore I would be cautious re
> these areas (and generally, anything that looks to be doing
> particularly well in response to record low bond yields-- I think there
> is a clear bubble going on out there in liquidity).
I agree with the general advice of not following hot sectors (flavours of
the month), but to me that means maintaining a neutral mix, and not trying
to time the shifts in the markets (between the two of us, aren't you
supposed to be the one who is more index-oriented :-).
> A rebalancing away from small cap seems to me to be prudent. I don't
> think it should be more than 10% of most investor's portfolio.
At 10%, why bother? Not enough to likely make a significant dent in
portfolio performance.
> On international I have argued that the long run US consumer's
> proportion in international equities should be about 20%. That may be
> too conservative.
20% seems to be "conventional wisdom". Personally, I shoot for 25-30%, but
just as 10% in small caps shouldn't have much impact, neither should a
difference of 5% (20% vs. 25%) in another broad category (international).
--
Mark Freeland
Bad quoting on my part (it looks like I attributed writing to myself words
that weren't mine) ... try again:
"darkness39" <> wrote in message
news:
>
> The data in the UK shows that small cap has never been more expensive
> relative to large cap. ie the traditional substantial discount in PE
> or P/B terms of small cap stocks has entirely disappeared due to the
> outperformance by small cap stocks over the last 5 years.
Even without checking, I'm willing to accept the premise that the ratio of
P/E (small cap) to P/E (large cap) is at or near a historical high. There
is an underlying premise that over time, this ratio tends to stay within a
certain range. I'm okay with that, too.
There is the argument that small caps historically outperform large caps
over sufficiently long periods of time. Let's say, just to put some numbers
on this, that large caps tend to average 10%, and small caps 12%. (I'm not
saying these are the right numbers, but it gives us something concrete to
work with.) This means that the ratio of P/Es remains relatively fixed if
small caps perform a couple of percent better than large caps.
If small caps were to return "only" 11%, while large caps returned 10%, the
ratio of P/Es would shrink. And if small caps returns were the same as
large caps, the ratio of P/Es (small to large) would shrink even faster.
The point of all of this is to say that even if small cap P/Es are high
relative to large cap P/Es, it does not necessarily follow that small caps
must do worse in order to bring the ratios back into line. (The inverse
argument doesn't hold - if large caps are overpriced, then large caps must
do worse, because they traditionally do worse to begin with.)
None of this is to dispute the idea that there is more risk now in small
caps. But people have been saying this for years. (Admittedly, that means
we are closer, rather than farther, away from large caps finally
outperforming. Check large cap growth - how many years now have the pundits
been saying this is the place to be?)
The OP asked about making the portfolio more "aggressive". Reducing small
cap to 10% may arguably be more prudent, but it isn't more aggressive.
> I don't know
> the US data but I note that there are several 'flavours of the month'
> amongst small investors: small cap, international stocks, emerging
> markets, real estate, commodites and therefore I would be cautious re
> these areas (and generally, anything that looks to be doing
> particularly well in response to record low bond yields-- I think there
> is a clear bubble going on out there in liquidity).
I agree with the general advice of not following hot sectors (flavours of
the month), but to me that means maintaining a neutral mix, and not trying
to time the shifts in the markets (between the two of us, aren't you
supposed to be the one who is more index-oriented :-).
> A rebalancing away from small cap seems to me to be prudent. I don't
> think it should be more than 10% of most investor's portfolio.
At 10%, why bother? Not enough to likely make a significant dent in
portfolio performance.
> On international I have argued that the long run US consumer's
> proportion in international equities should be about 20%. That may be
> too conservative.
20% seems to be "conventional wisdom". Personally, I shoot for 25-30%, but
just as 10% in small caps shouldn't have much impact, neither should a
difference of 5% (20% vs. 25%) in another broad category (international).
--
Mark Freeland
Mark
The outperformance of small caps over large caps comes in extreme
bursts-- typically in 2-3 year bursts in any 15 year period. It may
also be an artefact of the data (see David Dreman's wonderful book 'The
New Contrarian Investing'-- Dreman reckons Rolf Banz (unwittingly)
cooked the data, by the time you factor in dealing spreads and
illiquidity, there is no small cap anomaly).
from www.efficientfrontier.com
Return/
SD
S&P 500
11.04%
14.88%
CRSP Universe
11.00%
15.42%
FF Large Growth
10.25%
16.65%
FF Large Value
13.71%
15.39%
FF Small Growth
9.68%
24.60%
FF Small Value
17.59%
19.20%
Historically, small cap growth has massively underperformed the
indices, and small cap value has massively outperformed. Lots of
potential reasons for that. My favourite theory is the 'bet on the
2.30 at Goodwood' effect. Humans by nature are gamblers, and investors
are far more likely to bet on an interesting growth company that may be
the next Microsoft (but most probably will not) rather than a very dull
small company that pays a 6% yield and makes tobacco machinery (and
produces very good long term returns for investors doing it).
There is also quite a bit of work on monetary policy, which suggests
that small cap value will outperform when monetary policy is loosening
(because these small cos are less international, by and large, than big
cap cos, and much more sensitive to the domestic economy), and do worse
when tightening is taking place (rising real interest rates). So if,
for example, we entered another era of very high real interest rates
(eg if deflation clicked in so low nominal rates still imply higher
real rates) small cap value is likely to do quite poorly. Note we have
just come out of a period of unprecedentedly low nominal rates (and
pretty low real ones).
On the question of PEs, my prior assumption is that it is cheapness
that counts. Whereas I am suspicious of the claimed ability of most
investors to 'pick stocks' (and hence my scepticism of most active
managers, at least relative to the fees they charge) I am less
sceptical of the notion that asset classes become systematically over
or undervalued.
They can do so for reasons cited by Shliefer in his famous paper. it
is almost impossible to arbitrage a whole asset class, due to borrowing
restrictions (you cannot 'go short' on the entire US stock of
residential property, for example). If there are noisy traders, who
trade on momentum not fundamentals, then a *rational* investor might
make money by going long on momentum, rather than going short on
valuation.
The clearest example of this was the dot com bubble. Everyone knew it
was overhyped, but no one could get off the bandwagon. Google presents
a similar opportunity, I suspect. If you short google, and you are
marked to market, your hedge fund is likely to disappear (pace the
latest stock price movements!) or have its loans pulled by the banks,
before you are proven right.
I can think of other good examples: Russian debt in 1998, Argentina,
the US residential property market right now (YMMW: stale bear on that
last ;-).
you might summarise my overall suggested strategy as 'use indexes to
replicate the performance of asset classes at the lowest possible cost'
but 'add to that when an asset class looks really overvalued, it may
well, it may well stay that way (momentum) but eventually you will be
proved right'. I would add to that (since I am an Anglican
(Episcopalian) and therefore devoted to theological compromise ;-) that
'there are some (value) managers who seem to genuinely be able to add
alpha longer term. If you can access their funds at a low enough MER,
there is a case for them in the mix'.*
Another point is the one Swensen (of Yale endowment fame) makes in his
latest book. Asset markets are more volatile than sheer fundamentals
would dictate. A process of continuous rebalancing can exploit that.
* names that occur. Cundill. Mutual Beacon. Dreman (Scudder).
Warren Buffett. Dodge & Cox. over here: Asset Value Investors
(British Empire Securities trust but beware it is at a premium to NAV).
Swensen brought my attention recently to Longleaf (Southeastern Asset
Management) which is a new one on me and merits investigation. He is
also pretty clear on some of the persistent worst offenders in the
industry re low value add/ high costs and eye opening on some of the
games played with ETFs.
darkness39 wrote:
>
> Mark
>
> The outperformance of small caps over large caps comes in extreme
> bursts-- typically in 2-3 year bursts in any 15 year period. It may
> also be an artefact of the data (see David Dreman's wonderful book 'The
> New Contrarian Investing'-- Dreman reckons Rolf Banz (unwittingly)
> cooked the data, by the time you factor in dealing spreads and
> illiquidity, there is no small cap anomaly).
I've seen writings before to that effect, but had never taken the time
to check them carefully. Not surprisingly, numbers shift depending on
how you look at them. For example:
> from www.efficientfrontier.com
>
> Return/
> SD
>
> S&P 500
> 11.04%
> 14.88%
>
> CRSP Universe
> 11.00%
> 15.42%
>
> FF Large Growth
> 10.25%
> 16.65%
>
> FF Large Value
> 13.71%
> 15.39%
>
> FF Small Growth
> 9.68%
> 24.60%
>
> FF Small Value
> 17.59%
> 19.20%
>
>
You have to question why Bernstein took FF data only from 1963, when it
was available from 1927, and that full data set shows risk (which he
defines as std dev.) exactly opposite to his claim that: "If anything,
value seems to have lower risk than growth, especially for small
stocks."
The averages, when one makes use of the full data, as Vanguard did are:
Value Blend Growth (avg. annual returns)
Large 12.1% 10.5% 9.6%
Small 15.1% 13.5% 9.9%
Value Blend Growth (avg. annual std dev.)
Large 20.6% 21.5% 27.5%
Small 33.7% 29.6% 32.3%
You can check the data yourself (I did) -
French's data page:
"Fama and French update the research data at least once a year ..."
2x3 matrix of data (Large, Small; Value, Blend, Growth):
Description of data:
(I come up with ever so slightly different numbers from Vanguard's -
some of the average returns I compute are 0.3% higher, some match
exactly.)
In contrast, Motley Fool looks at the same data (via moneyChimp), and
says that it shows SCG underperforming LCG (9.3% vs. 9.6%),
contradicting Vanguard's (and my) analysis of the data for the same
period.
My point is simply that different writers come up with different
analyses, often in direct contradiction to each other. Of the data I
presented above, I trust the Vanguard analysis, because I was able to go
to the source and reproduce the numbers. MotleyFool/moneyChimp I
mistrust because they say they are working off the same data and yet
reach opposite conclusions. Bernstein has his own axe to grind (value
is safer) and substantiates this by using only a partial dataset.
> Historically, small cap growth has massively underperformed the
> indices, and small cap value has massively outperformed.
Taken collectively (small cap vs. large cap), small cap has
outperformed, category by category (see Vanguard, or FF raw data).
Since the choices available to the OP were not style-specific, one has
to compare the performances strictly by cap. That still argues for more
than 10% small cap (which you address below):
> There is also quite a bit of work on monetary policy, which suggests
> that small cap value will outperform when monetary policy is loosening
> (because these small cos are less international, by and large, than big
> cap cos, and much more sensitive to the domestic economy), and do worse
> when tightening is taking place (rising real interest rates). So if,
> for example, we entered another era of very high real interest rates
> (eg if deflation clicked in so low nominal rates still imply higher
> real rates) small cap value is likely to do quite poorly. Note we have
> just come out of a period of unprecedentedly low nominal rates (and
> pretty low real ones).
The first sentence contains a couple of implicit assumptions: that
monetary policy is localized (it is worth reexamining that in a global
economy), and that monetary policy affects real interest rates.
A while ago, I acknowledged not having a good idea what drove real
rates, and invited comments.
news:
In that post, I also gave a link to a speech by the St. Louis Fed Bank
president, suggesting that real rates were driven by economic growth
(productivity gains and population growth):
A function of monetary policy is typically described as controlling
inflation (nominal rates); the impact on real rates would thus seem to
be incidental. As I said, I'm open to ideas on what drives real
interest rates.
> On the question of PEs, my prior assumption is that it is cheapness
> that counts. Whereas I am suspicious of the claimed ability of most
> investors to 'pick stocks' (and hence my scepticism of most active
> managers, at least relative to the fees they charge) I am less
> sceptical of the notion that asset classes become systematically over
> or undervalued.
This is somewhat mixing apples and oranges. You compare the ability to
pick individual stock trends with the existence of market trends (and
not the ability to "pick" those trends).
This is significant. I'll accept that asset classes have trends. What
I question is the ability to time them. One's accuracy in stock
selection does not have to be great (and I don't think anyone claims
they only pick winners), because one makes a number of selections
simultaneously. But when one says that small caps will underperform
large caps (or vice versa), one is making an all-or-nothing bet; time it
wrong, and one loses.
> The clearest example of this was the dot com bubble. Everyone knew it
> was overhyped, but no one could get off the bandwagon.
You had Greenspan's "irrational exuberance" speech in Dec. 1996:
Where would investors be if they had taken this as a signal to get out
of equities, and back in when? Or look at bonds. How many people have
been saying for 2, 3, 4 years, to stay out of long bonds? Yet over the
past 3 and 5 year periods, the average long term bond fund has returned
more than the average intermediate bond fund, the average short term
bond fund, the average ultrashort term bond fund.
Likewise, there has been a steady flood of opinions that large cap
growth is the place to be, and small cap value is overpriced. Yet all
the small cap categories have continued to outperform their respective
large cap categories over the past year.
(All data per Morningstar:
)
I agree that the longer the trends continue, the greater the probability
that they will reverse in the near term. But timing it is another
matter.
> you might summarise my overall suggested strategy as 'use indexes to
> replicate the performance of asset classes at the lowest possible cost'
> but 'add to that when an asset class looks really overvalued, it may
> well, it may well stay that way (momentum) but eventually you will be
> proved right'. I would add to that (since I am an Anglican
> (Episcopalian) and therefore devoted to theological compromise ;-) that
> 'there are some (value) managers who seem to genuinely be able to add
> alpha longer term. If you can access their funds at a low enough MER,
> there is a case for them in the mix'.*
Though that may come at higher risk, as observed in the Vanguard
analysis (that contradicts Bernstein's).
> Another point is the one Swensen (of Yale endowment fame) makes in his
> latest book. Asset markets are more volatile than sheer fundamentals
> would dictate. A process of continuous rebalancing can exploit that.
Not to be pedantic here, but I assume you mean continual. I know I've
seen reports on the efficacy of using different periods, but I don't
remember more than that right now. The benefit should be similar to
DCA.
> * names that occur. Cundill. Mutual Beacon. Dreman (Scudder).
> Warren Buffett. Dodge & Cox. over here: Asset Value Investors
> (British Empire Securities trust but beware it is at a premium to NAV).
> Swensen brought my attention recently to Longleaf (Southeastern Asset
> Management) which is a new one on me and merits investigation. He is
> also pretty clear on some of the persistent worst offenders in the
> industry re low value add/ high costs and eye opening on some of the
> games played with ETFs.
If you look at deep value funds, like Dreman High Return, or especially
Longleaf (despite M* calling it a blend fund), you see tremendous
*relative* volatility (99th percentile, first percentile). Great
absolute volatility (very low), but I found I couldn't stomach the
swings in relative performance.
--
Mark Freeland
Good spot on Bernstein. I don't know why particularly he chose that sub
period. I doubt it was as simple as conscious data mining to prove a
point (unconscious is possible).
My own feel on small cap sticks. When small cap is cheap, in the sense
that it is at a significant discount by PE, PB or other measures to
large cap, it is interesting. When it is no longer cheap, then it is
in dangerous territory. That view is conditioned by the performance of
small cap when it was first widely publicised in the late 80s, and the
'small cap effect' seemed to disappear-- a host of funds emerged to
invest in small cap, and the period from then until the late 90s was
marked by outperformance of large cap stocks.
On timing asset classes v stocks. The evidence shows most active
managers systematically underperform the index against which they are
benchmarked (after costs). Hence the argument for indexing (especially
in fixed income, but also in equities, except in cases like emerging
markets where the makeup of the index itself seems to be quite
distorted-- we don't normally mean Korean semiconductor stocks when we
talk about emerging markets, but last time I checked, on one of the
leading ETFs these were something like 20% of the capitalisation).
Conversely on asset classes, having lived through (at least) 2 property
bubbles in my life, one bond market crash, one dot com crash, I think
they do, from time to time, show evidence of gross over and
undervaluation. The best reading of that being their valuation
relative to historic trend. Why I think they can do that is in that
paper by Shliefer as 3 cites below:
"Noise Trader Risk in Financial Markets" (with B. De Long, L. Summers
and R. Waldmann). Journal of Political Economy, August, 1990. Reprinted
in Richard H. Thaler, ed., Advances in Behavioral Finance, Russell Sage
Foundation, 1993
The Limits of Arbitrage" (with R. Vishny). Journal of Finance, March,
1997. Reprinted in Behavioral Finance, The International Library of
Critical Writings in Financial Economics, Richard Roll (series editor)
and Harold M. Shefrin (editor), forthcoming, 2000.
Clarendon Lectures: Inefficient Markets, Oxford University Press, 2000.
I concede there is a risk to being 'in' or 'out' of markets-- to some
extent mechanical rebalancing counteracts that. I'm not sure whether I
mean continous or continual ;-).
On how often to rebalance, one would do it continually (;-) if
transaction costs and taxes were zero. As they are not, probably not
more than once a year. A second question is whether one believes in
asset class momentum-- I do. In which case, rebalancing away from an
outperforming asset class into an underperforming one is probably
something one should not do that often-- perhaps as little as every 3-5
years?
Re the deep value guys and relative v. absolute performance. To my
mind, it is the volatility in the cash value of your portfolio that
counts. Whether you are off some benchmark which is, itself, created
by human fiat, seems to me to be less important. I'm all for indexing
(mostly) but that is because I think stock markets are pretty efficient
discounters of publicly available information, so a low cost tracking
solution seems to me to be the smartest.
Hedge funds, the choice investment for the high net worth investor as
well as many of the leading endowments (Yale, Harvard) with the best
long term record, tend to be sold on absolute return mandates, not
relative return. The concern of a hedge fund investor is whether (s)he
has more money at the end of the year than when he started, not whether
US equities fell 30%, and he only fell 20%, so he 'won' the
benchmarking race.
In other words, investing exists to stabilise your future consumption
(or that of your inheritors). Relative performance is secondary to the
absolute performance. The empirical data seems to suggest that, in the
long term, value managers are better at preserving and growing capital
than other types of equity investors. Whether this is due to superior
stock-picking skill, or simply the statistical properties of value
stocks, I don't know.
wrote:
> I have 28 years before I retire. I would like to find a more aggressive
> allocation. I will appreciate any advice.
Aggressive generally means you want money associated with an aggressive
aim, that aggressive will be more of an amount profits return. You
point out a relatively long timeframe to modify aggressiveness, which
generally means you are willing to sustain losses in order to be
aggressive. A contradiction within the two isn't significant - how are
you to achieve more if you are willing to tolerate less - time is to
conciliate. Also, the source of the timeframe. Aggressive mutual
funds, or most any fund for that matter, advise a long timeframe is
within your best interest to weather fund losses. To subscribe to such
a fund, is to have assurance by loyality for a nomimal fee. You need to
pledge alliance to that 28-year timeframe, into a weight for your
search criteria, to answer your question. Evincing dissension over
constituent funds, by way of comparision to your object fund, is a
benchmark of gains and losses which will detract from that selection as
timeframes shorten. You first suitably divide your asset allocation
for a portion aggressiveness will tolerate, high growth and value funds
within larger name fund houses will supply. Funds that carry a high
dollar weight of like-mindedness for the most loyal subscribers
possible over the longest timeframe possible. Bear in mind, they
don't get that way for nothing.