Australian (ASX) Stock Market Forum

The official "ASX is tanking!" panic thread

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InsvestoBoy said:
Spotted this today, good timing for you @kid hustlr

https://realinvestmentadvice.com/wait-for-the-fat-pitch-buy-and-hold-vs-active-management/
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Good Stuff,

Investo - some more questions/comments:

- I feel as though you are making the point that most people can't handle the max draw down associated with 100% equities. I agree
- You haven't really gone into detail as to why the 'risk parity' model you prefer is not a bet vs holding equities which is a bet.
- Given the historically extreme low levels of bonds, does the risk parity model concern you?

Trying to ask the tough questions!!!
 
InsvestoBoy said:
It’s not a theory!

If you believe that mindlessly investing in equities over time will always lead to “average returns” (whatever those are), because they did in the past in your lucky corner of the world it’s a bet that the businesses you’re buying will remain profitable and you’re not overpaying.
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I never said anything about achieving average returns.

When it comes to equities, people are conditioned to believe that they go up, and Vanguard can market this effectively largely because in the US and a few other lucky places, they have.
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I'm responding to this statement that people are conditioned to think equities always go up, are you saying that investing in say, the Vanguard Int'l Share Index Fund for example, is not highly likely to provide you with a return well above inflation over the long term? I think it is more than just a bet, to assume that global equity indices, on the whole, are likely to rise over the long term.

As you said, there are many well-understood drivers behind this.
 
kid hustlr said:
- I feel as though you are making the point that most people can't handle the max draw down associated with 100% equities. I agree
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Am I making a specific point? I didn't actually realise that, your scatter plot charts just kind of set me rolling...

- You haven't really gone into detail as to why the 'risk parity' model you prefer is not a bet vs holding equities which is a bet.
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I didn't say holding equities is a bet! I said mindlessly investing in equities over time with an expectation you will receive an average return is a bet.

I don't remember mentioning risk parity is the model I prefer.

Some of my strategies within an envelope include volatility management but that's because if you are holding a name in the resource sector with a historical volatility of 86% annualised, you generally want to manage that.

I've usually found myself on the other side of risk parity portfolio transactions...if any of the 4 asset classes takes a big tumble it results in a spike in volatility, risk parity is selling down that asset class and I am increasing the allocation to that envelope.

- Given the historically extreme low levels of bonds, does the risk parity model concern you?
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I'm not concerned about my bond allocation if that is what you're asking, I don't allocate a % of my money to bonds based on their volatility, I allocate a fixed % of my money regardless of it!
 
btw not arguing or trying to give you a hard time. Interested in your thinking around this, don't hear many criticisms of the theory behing Index investing these days.
 
Junior said:
are you saying that investing in say, the Vanguard Int'l Share Index Fund for example, is not highly likely to provide you with a return well above inflation over the long term?
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I'm saying it's not that simple and I also showed some shorthand calculations earlier which show the expected long run (10-12Y) return currently is probably less than inflation given the current position of valuations and profit margins.
 
Junior said:
don't hear many criticisms of the theory behing Index investing these days.
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There's always a bubble forming somewhere.

My thinking, and this goes back well before the recent correction, is that one of the current bubbles is index investing.

By that I mean not any specific fund but the broad concept that simply throwing money at the market and waiting is a guaranteed way to wealth.

It will end as all bubbles do is my expectation. My thinking there isn't new, this one seems to have been going quite a while and the presence of the index funds seems to have distorted the underlying market itself to some extent, creating a situation where most of the action is in the largest components of the index.

As an exercise to prove the point, go to any non-financial related forum. Doesn't matter what topic so long as it's not finance, economics or investment related. Find that forum's "off topic" or "general chat" section and post a thread asking how to invest. Play dumb and pretend to know nothing.

Almost certainly the answer you get to that question will involve buy and hold investing in index funds with the only question being what fund and the detail of how you buy into it. That's all the proof you need that that's where any bubble is going to be, the masses have the notion firmly in their mind that index funds are essentially foolproof.:2twocents
 
InsvestoBoy said:
I'm saying it's not that simple and I also showed some shorthand calculations earlier which show the expected long run (10-12Y) return currently is probably less than inflation given the current position of valuations and profit margins.
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I haven't tried to put any precise figures on it but as a broad concept, well if you look at past cycles investing when valuations were low produced high returns over the next decade and vice versa.:2twocents
 
Thanks investo,

Apologies if I've used the term risk parity incorrectly.

I guess the question I'm asking is, why do you think your envelope strategy (which I'm reading as 1/4 gold, 1/4 US equities, 1/4 bonds, 1/4 cash) will perform strongly in the future?

Would your allocations be different if the US stock market was currently trading on a trailing P/E of 5?
 
InsvestoBoy said:
I'm saying it's not that simple and I also showed some shorthand calculations earlier which show the expected long run (10-12Y) return currently is probably less than inflation given the current position of valuations and profit margins.
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Thanks for the response. I've re-read your posts and links, I am more clear about what you're saying now. I like index funds but very much believe in active investing in terms of re-balancing and managing exposure across asset classes & sub-asset classes.

The next 12 months will be very interesting.
 
kid hustlr said:
I guess the question I'm asking is, why do you think your envelope strategy (which I'm reading as 1/4 gold, 1/4 US equities, 1/4 bonds, 1/4 cash) will perform strongly in the future?
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It's more like, I don't know what the future will hold and have therefore weighted accordingly.

There is an equal weight ETF on the ASX called MVW. They wrote a couple of whitepapers at launch:
"Why Equal Weighting Outperforms – The Mathematical Explanation": https://www.vaneck.com.au/why-equal-weighting-outperforms/

and

"The unequalled power of equal weight investing": https://www.vaneck.com.au/the-unequalled-power-of-equal-weight-investing/

If those links aren't working you can find them linked here: https://www.vaneck.com.au/funds/mvw/snapshot/

If you have a read through those you can get an idea of some of the things going on in my head.

Plug this: "equal weight site:papers.ssrn.com" into google and you can read some academic papers on the topic.

Would your allocations be different if the US stock market was currently trading on a trailing P/E of 5?
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I don't invest purely on value so I'm not sure, but probably not. I think the highest I'd probably go is 75%.
 
Is there a discussion to be had regarding the benefits of passive investing with regards to taxation?

If I never sell I never pay tax on the cap gains. The more active I am the more tax becomes a factor
 
kid hustlr said:
Is there a discussion to be had regarding the benefits of passive investing with regards to taxation?

If I never sell I never pay tax on the cap gains. The more active I am the more tax becomes a factor
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Sure...

Recent paper that was decent on this topic: https://alphaarchitect.com/2018/12/26/is-active-alpha-enough-to-cover-taxes/

Personally, because I'm still working with a decent income and pretty frugal living, usually my monthly savings are much larger than the monthly variance in my portfolio. So very often I am "rebalancing" by buying more of whatever has become underweight as my cash goes overweight on payday.

But sometimes the markets will go nuts (like they did since September till Jan) and I'll be forced to do an active rebalance at one of my predefined rebalancing dates or variance triggers. That's a choice for me! I could simply let my paychecks catch up into the underweights if I don't want to take a tax hit on selling overweights.

In any case for me, those rebalancings still constitute a smallish % of the overall, e.g. if I'm holding $100,000 in equities and they go up by 10% while everything else is the same, now I'm holding $110,000 and I'm going to sell down $7,500 to bring it back in line. At tax time I'm only paying CGT on that $7,500 offset by whatever losses I booked, not the whole thing.
 
kid hustlr said:
Also commission is a factor!
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I feel like I've written this several times on here over the last few days but get an Interactive Brokers account!

I recently made a $27,000~ USD value trade on the NASDAQ and the commission was $1.20 USD plus like 56c AUD in FX conversion fee.

It used to be a huge pain to set up an IB account so I never did but recently I discovered the process is a breeze and pretty happy with their offering.
 
fiftyeight said:
You need your own thread
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Along similar lines, there is some good current discussion in the latest series of posts about superannuation, which might be hard to track down in future on this thread. Would be good if it was in a superannuation thread, or say the Medium/Long Term Investing forum
 
Logique said:
Along similar lines, there is some good current discussion in the latest series of posts about superannuation, which might be hard to track down in future on this thread. Would be good if it was in a superannuation thread, or say the Medium/Long Term Investing forum
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A thread where you run a 'demo' account would be ideal, I am sure it would not require too much effort :p
 
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