Fads in Investment Concepts

[Deleted]

Jonathan Clements
The Humble Dollar

humbledollar.com/2023/02/helpful-in-theory/

"But there aren’t just fads among investments. There are also fads among investment concepts. But while naïve investors tend to get caught up in investment bubbles, it’s the brainy types who fall in love with investment concepts, which they then promote with a religious zealot’s fervor."

[steelpony10]

@django ,

        Although I’m not strictly a spend down investor I find this all true. For me common sense would seem to indicate all the “sure things” would have been written about after 100 plus years already. None stuck based on the simple facts that a holy grail that applies to everyone is non existent and all future outcomes are unknown. Using your own facts to establish your own personal goals while adapting along the way to your unknowns is much simpler. 

[Deleted]

Feb 12, 2023 12:21:58 GMT steelpony10 said:

@django ,

        Although I’m not strictly a spend down investor I find this all true. For me common sense would seem to indicate all the “sure things” would have been written about after 100 plus years already. None stuck based on the simple facts that a holy grail to applies to everyone is non existent and all future outcomes are unknown. Using your own facts to establish your own personal goals while adapting along the way to your unknowns is much simpler. 

I agree. I tilt some toward value and small based on an investment concept, but know if any "premium" exists, there is certainly no guarantee it will show up in my lifetime.

[steadyeddy]

Feb 12, 2023 12:21:58 GMT steelpony10 said:

@django ,

        Although I’m not strictly a spend down investor I find this all true. For me common sense would seem to indicate all the “sure things” would have been written about after 100 plus years already. None stuck based on the simple facts that a holy grail that applies to everyone is non existent and all future outcomes are unknown. Using your own facts to establish your own personal goals while adapting along the way to your unknowns is much simpler. 

steelpony10 , I agree that an individual's investing plan should suit him/her. For most on this forum, I believe we are past the "believe the fads" stage of life, and most if not all of our future earnings would be from the seed corn we saved so far. This is not the time to change course.

[Chahta]

Lack of fads is why I am invested now. I deviated last year to some extent buying into some cash/treasuries for about 25% and a small amount of timing. I didn't like doing it, but it worked out. Getting back in I was a little early but I think I will be OK.

[retiredat48]

@django,...Thanks for article...

R48

[Mustang]

Good article. I mostly agree with the lessons learned. I am hardly an expert but I try to read a little about some of these subjects.

Modern Portfolio Theory: The efficient frontier isn't static. It changes over time and most of what I've read talked about an asset allocation of stocks and bonds because they usually have a negative correlation. (Thanks to the Fed 2022 was different.) Different types of stocks may have a less positive correlation but not negative. I wouldn't think anyone would use Japanese stocks and think they are significantly diversifying their portfolio. That is also true of sector investing or mid and small cap stocks.  I've not seen anything to suggest these have a strong negative correlation with large cap stocks.  Pretty much when stocks crash they all crash.

One of our members once posted an Ameritrade chart that I like. It showed the minimum risk portfolio being 33% stock and 67% bonds. Yes it has low returns but it also has low risk. For that very reason a huge number of advisors recommend Vanguard Wellesley Income Fund for retirees. Its asset allocation is fairly close to the current minimum risk portfolio. Lesson learned: "to construct a portfolio that includes uncorrelated assets." For the withdrawal phase I couldn't agree more.

Monte Carlo Analysis: Since I am retired I focus on the withdrawal phase of investing. While sequence of return problems exist for the 20-something investor almost every reference I've read says that they have time to ride it out. The 110 minus your age rule is based on that. It is in the withdrawal phase that it becomes a portfolio killer.

The author is correct in that a retiree cannot rely on average returns. That was William Bengen's concern. When he did his original research advisors were using average returns. His 1994 study was based on historical data not Monte Carlo simulations. Others, such as Early Retire Now, have also used historical data to show that sequence of returns are a real problem for retirees because they have to sell in order to pay the bills. Analysis usually separates a 30-year retirement into thirds. Returns during the first ten years have a far greater impact on the life of the portfolio than returns during the last 10 years.  Some advisors recommend a U of V long term investment strategy.  Heavy on stocks when young gradually transitioning to more bonds at retirement age then slowly increasing the stocks.  This allows the portfolio to grow when the investor is young or late in retirement but avoids an early sequence of return problem.

But the articles I've read weren't based upon Monte Carlo Analysis. There are lots of problems with computer simulations the biggest being that when forecasting the future small changes in inputs make large changes in outcomes. Analysts try to adjust for average returns by also using standard deviations so most computer simulations are not exactly based on average returns. But as far as I know they only factor in sequence of returns when choosing a probability of success. Morningstar kind of adjusted for it by recommending a lower initial withdrawal rate in their December 2021 analysis.  But they then changed the inputs for their December 2022 analysis upping the initial withdrawal rate to 3.8%. Some may break the outcomes into 10 year periods but I've not read anything that mentions it.

Another lesson learned was that too many investors focus on short-term results instead of long-term results. That is most likely true but I might be a little biased since I'm pretty much a buy and hold investor only looking for long term results.

[marpro]

If I had cash, last year was an excellent buying opportunity both in bonds and equities. Now, the share counts of my CEFs keep growing, and my monthly income keeps growing every month. I am not going to change anything, what I have now. I will think of getting back into equities until the FED says that it was over, not until then. Look at the simple breakfast item, eggs. The price has gone up four times.

[Deleted]

Even when I don't have cash, I can always find a way to create some. For last year, I simply sold all my bond oefs in 4th quarter 2021. I used to have problems selling, not so much any more. That gave me lots of money to play with. The hard part was to not get antsy and deploy it too soon. I spread it out among some preferred stocks and some FI CEF and some equities that appeared to be on sale. Mostly dollar cost averaging. By 4th quarter it was fully deployed.

Now I am making selective equity sales to raise some cash for better opportunities, that may present themselves. Mostly selling things that are a bit pricy IMO. I used to worry about keeping some perceived "proper" allocation. Now I just try and be where the best action is occurring. That's my fad!

[johntaylor]

Don't know if this qualifies as a fad, but non-ESG offerings are popping up:

www.strivefunds.com/