<p>^To do the opposite? My equity holding is 99% in index funds. I may not make as much money but my life is peaceful. I sold FB a few months ago for a bit more than $29 a share. I can’t imagine the strees had I held it longer.</p>
<p>Does anyone have info/opinions on ETFs based on Rob Arnott’s fundamental indexes such as Schwab’s SFLNX or SFSNX? I’ve seen references to instruments called FNDX and FNXB, but I don’t think they exist. </p>
<p>Briefly, my situation - I’m not risk averse given that at my close-to-retirement age, my primary positions are equity. They are mainly traditional (cap weighted) broad index funds and ETFs with very low expenses. I guess DS’s rather surprising career shift into finance made me look again into the money world, and much of what I’ve read (eg. momentum investing and other active techniques) scares me because my track record in doing anything active is pretty pathetic. </p>
<p>The one that interested me was Arnott, with his theory, crudely stated by me, that 1) assuming some (undetermined) stocks are overvalued and others under, and 2) the market, over time tends to correct these differences, cap weighted stocks are intrinsically over/under weighted in the over/under valued stocks. There was more theory and actual data looking at the top ten cap stocks along these lines that I’ll skip, but it got me interested enough to look at the performance of these funds, and RAFI indexes. </p>
<p>I’m pretty sure I haven’t gotten the full picture, but to summarize, on the negatives, I’ve found some (like Bogle) are against this technique, the expense ratios of some of these funds are higher than the comparable cap weighted funds I hold, and I haven’t found ETFs.
On the plus, there are some charts that show them doing better over a moderate period of time. I haven’t checked into too many non-Schwab options (I think WisdomTree is one) so my research is incomplete.</p>
<p>I’d like to ask a general question as to what the more experienced investors on this thread feel about this approach - fundamental indexing and not cap indexed, and if you know of ETFs and how they compare with SPY, VOO, and the like . This is not from the perspective of some of you who are good at trading, but for someone like me for whom active trading is not an option. (I do it in small amounts for fun hoping I can talk about a ten bagger I pulled off in 18 months at our next party, but it’s unlikely to happen in my lifetime).<br>
Thanks for your patience re this long post.</p>
<p>I am also real bad at stock picking and would not claim to have the expertise of dstark, BCEagle, etc. However, my understanding is that the evidence pretty clearly indicates that value stocks outperform the market over time. The simplest value etf is probably IWD. FWIW, here is a chart comparing the performance of IWD and SPY since about 2000 (no warranties express or implied)</p>
<p>[IWD</a> Technical Analysis | iShares Russell 1000 Value ETF Stock - Yahoo! Finance](<a href=“IWD Interactive Stock Chart | iShares Russell 1000 Value ETF Stock - Yahoo Finance”>IWD Interactive Stock Chart | iShares Russell 1000 Value ETF Stock - Yahoo Finance)</p>
<p>Dadof3, I cant find too mich info on using the fundamental index over the cap rated index.</p>
<p>Sflnx has beaten iwb (the Russell cap composite index most comparable) by about 1 percent a year over the last few years.</p>
<p>Sfsnx has not beaten the comparable Russell capitalization based index. Therefore, I dont see what is so great about sfsnx.</p>
<p>I think Arnott is going to do well.</p>
<p>EMM1, I think value does beat growth over the long run. I think.
I think using 2000 as the base skews the results when comparing growth vs value. </p>
<p>One… Interest rates have come down quite a but since the year 2000.
Two… The year 2000 was around the time growth stocks peaked.</p>
<p>Do you have info that goes back to 1981 or 1975?</p>
<p>Bonds beat stocks between
1981 and 2011, right?</p>
<p>The fact that bonds beat stocks over that 30 year period makes it extremely unlikely that bonds will beat stocks during the years… 2011 to 2041. </p>
<p>Sometimes the past works against the future.</p>
<p>I am thinking of buying VGK. It owns european stocks and has a 7.33 yield. I am not sure how they get that yield so high but it might be a good buy for long term turn around in Europe.</p>
<p>I made good money on my nat gas short, but I think I pulled out of the trade too soon. It’s still going down. My WTI short is break even. It went against me for a while and i got pretty worried but WTI is overvalued in the short run unless OPEC pulls back soon by a lot.</p>
<p>Past performance does not predict future performance, but this has really sucked. I have owned VGK from the highs (somewhere in 2007) and unlike many US stocks, it has not recovered.</p>
<p>erformance
VGK SP500<br>
1 Day 0.20 0.12<br>
1 Week 1.27 0.57<br>
4 Weeks 7.25 3.56<br>
13 Weeks 1.82 5.56<br>
1 Year -10.16 3.21<br>
3 Years 55.72 68.58<br>
5 Years -18.54 -0.71 </p>
<p>I decided I needed some European exposure… LOL. I am not sure, but I seem to recall seeing at one point it was heavily weighted towards Swiss stocks.</p>
<p>If you think Europe is going to outperform, go for it.</p>
<p>Thanks for the info on VGK. I’m still debating it. I want to find some really good undervalued european stocks that may increase if the recession there ends.</p>
<ol>
<li>I agree 100% with dstark that a ten year backtest is not long enough to prove anything and should have added that caveat to my last post. I couldn’t put my finger on the things that I had read which had taken a longer view of the advantages of value investing and IWD was the purest unfiltered value play that I could think of. For a 30 year backtest, see</li>
</ol>
<p><a href=“Down Homepage”>Down Homepage;
<ol>
<li><p>I think the basic premise of value investing makes a lot of intuitive sense. While all of the relative strength research that I have seen indicates that over the short term stocks (and asset classes) that are in favor tend remain in favor, over the intermediate and long term investor enthusiasms are likely to change. The idea of value investing, it seems to me, is to buy into specific stocks while they are out of favor, and then wait to benefit from the change in enthusiasm if and when it comes.</p></li>
<li><p>I don’t think the analogy to bonds holds. The bull market in bonds was based upon the ongoing decline in rates, which was inherently self-limiting. By contrast, the idea of value investing is to constantly (albeit gradually) adjust the portfolio by continually shifting into whatever stocks are currently out of favor.</p></li>
<li><p>Thinking about all of this, as an index investor I’m thinking that whatever portion of my portfolio is invested in spy should instead be divided between PDP (relative strength) and PRF/IWD (value). Anyone have any thoughts about this idea?</p></li>
</ol>
<p>Great link.</p>
<p>How do value stocks perform compared to growth stocks in a rising interest rate environment? Is there a tipping point where value stocks stop outperforming?</p>
<p>If gdp percentage increases rise above a certain level does that switch which groups are in favor? Is there a criteria that makes growth stocks more attractive?</p>
<p>Switching into different value stocks sounds interesting…
The dogs of the dow strategy used to work for many years using that strategy.</p>
<p>Anyway… I like that link.</p>
<p>What do you guys think about this upcoming week? The news coming out, this doesn’t look to be a great week.</p>
<p>Very good questions about the relative performance of different strategies in different environments. Unfortunately, I’ve not seen any literature that provides an answer, although there must be some somewhere.</p>
<p>Rather than thinking of the process as switching among value stocks, I would say that at some point a stock that used to qualify as a “value” stock might cease to be a value stock under whatever metric you are employing to define that term. At that point, a value investor would sell the stock and buy something else which did qualify. </p>
<p>As you point out, the dogs of the dow approach use just such a strategy. If only value investing were so simple.</p>
<p>I must say that I am somewhat uneasy right now. For the past two years or so, the right play has been “diversification across asset classes or countries be damned, just hold SPY.” (Even though I know he’s selling fundamental indexing right now, I’m sure Jeremy Siegel is smiling). We could be in a period like 1995-2000, but still…some people might buy into the euphoria and really get burned.</p>
<p>I’m particularly worried about next month. If there is no budget/debt ceiling deal, there will be hell to pay in the markets and everywhere else. I suppose that the only place to hide then would be gold.</p>
<p>HLF beat the street big time. Revenues up 18 percent from prior years’s quarter. Poor Bill Ackman. He will get squeezed. It’s just a matter of when. Carl Ichan is smiling I am sure. I hope dstark is smiling too.</p>
<p>Thanks razorsharp. I made money in hlf but I am out of it now.</p>
<p>I guess I will miss the squeeze.</p>
<p>That is ok.</p>
<p>I am vey uneasy too, EMM. It seems like just about anything could begin the big dive.</p>
<p>POT and other potash companies are down over 20 percent in pre market. I’m not sure if I understand what happened with the russian company. Potash is a big part of fertilizer and I doubt that will change anytime soon.</p>
<p>First day of the month, strong economic data, (also strong data from China), new highs on dow and s&p 500 (above 1700!), typical sold a tiny position and got run over, we are at channel tops, so hard not to jump in and buy and rub these stocks all over me!!! joy! joy!! must… not… buy… here!!!</p>
<p>It was a very good month to be short volatility through xiv and I will continue to hold it this month. However, much as I try to resist the temptation to base my trading on my perceptions of current events, I think that it would be very risky to remain short volatility once the fun starts in Washington next month. Indeed, I am thinking of moving all of my risk capital to cash-like instruments in September and waiting until the dust settles.</p>
<p>Since we don’t know what will happen in the market going forward, it is best to buy protection rather than closing out positions.</p>
<p>Interesting comparison of performance and risk among different asset allocation strategies</p>
<p>[Mebane</a> Faber Research ? Stock Market and Investing Blog](<a href=“http://www.mebanefaber.com/]Mebane”>http://www.mebanefaber.com/)</p>
<p>Based on this chart, you would think that either the risk parity or the permanent approach was the clear winner because of their smaller drawdowns. However, the problem is that I think that the calculations are done from 1973, and most of that period coincided with the historic bond rally that began in the early 1980s and went on for 30 years, giving an advantage to approaches that have relatively high allocations to bonds. This chart shows the difference between long bond returns in the period from 1973 to today and the returns earlier in the 20th century.</p>
<p>[Historical</a> Returns](<a href=“http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histret.html]Historical”>http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histret.html)</p>