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Article Archive: 2023

The Stingy News Weekly: May 28, 2023
05/28/23   SNW
This week we have timing, trends, extending, junk, and more.

Investment junk food
05/28/23   Behaviour
"Easy and instant access to information is often framed as a major advantage to present day investors compared to their predecessors, but if anything we suffer from a profound information disadvantage. The benefit of improved knowledge is easily overwhelmed by the behavioural challenge of dealing with an incessant torrent of noise. Much of what investors consume is little more than investment junk food, tempting us into decisions that feel good in the moment but come with a material long-term cost."

Trend following in equities
05/28/23   Markets
"Japan can be used as a case study as it is ahead of the rest of the world in terms of a declining population. Economic growth has been anemic and its stock market features a long bear market between 1989 and 2010. The results from this analysis do not highlight that long-short trend following was effective when applied to the Nikkei 225, although long-only trend following generated attractive risk-adjusted returns."

The time to buy stocks
05/28/23   Markets
"Sixty-one percent of U.S. adults say they have money invested in the stock market, the highest percentage Gallup has measured since 2008. Stock ownership fell during the Great Recession and stayed depressed for more than a decade, including lows of 52% in 2013 and 2016."

Extend and pretend
05/28/23   Real Estate
"Most of those are mortgages with amortizations 35 years or longer, as reported by the banks. The share of the Canadian mortgage portfolio with amortizations 35 years or longer was 25% at CIBC, RBC, and TD, respectively."

05/28/23   Markets
"Difficult as it might be sometimes, investors' best bet is to choose an asset allocation - and then to stick with it."

The Stingy News Weekly: May 21, 2023
05/21/23   SNW
This week we have momentum, volatility, value, options, commodities, and more.

The investing mystery of our age
05/21/23   Markets
"The paradox of our decade is that the capex needs of a multipolar, environmentally conscious, world are enormous. But, nobody wants to invest in capex for commodities! This is untenable."

Zero-day options
05/21/23   Markets
"Wall Street has accepted that derivatives trading will never be the same after the frenzy for fast-twitch stock options took hold. What it next has to absorb: The equity market itself is threatening to go the same way."

The ugly truth behind the ugly
05/21/23   Real Estate
"Now it's David's turn to refuse to walk away: He's using proceeds from the sale to continue his elder abuse lawsuit against Patriot Holdings. A trial date is set for June."

Concentrating for factors
05/21/23   Value Investing
"How many stocks should you own in a concentrated factor portfolio if the goal is maximizing expected returns or Sharpe ratio?"

Reducing momentum crashes
05/21/23   Momentum Investing
"Momentum crashes are a blight on the performance of momentum strategies. Although there has been a fair amount of research on the topic, few practical solutions have emerged to mitigate the impact on portfolios. In this study, the authors document the outperformance of momentum stocks, made somewhat 'immune' to momentum crashes , by including stocks far away from their peak position relative to stocks very near their peaks. Turns out the outperformance is very large. It also accounts for the majority of negative momentum performance."

Outperformance, please
05/21/23   Behaviour
"What's the difference between fund 1 and fund 2 that makes fund 2 so much more attractive? I can tell you it isn't the return because the two funds are designed to have exactly the same return. The key difference between fund 1 and fund 2 is that fund 1 is a frequent underperformer that sometimes has a large outperformance, while fund 2 is a frequent outperformer but sometimes suffers large underperformance."

The Stingy News Weekly: May 14, 2023
05/14/23   SNW
This week we have monkeys, retirement, risk, and more.

Find the bottleneck first
05/14/23   Management
"To understand monkeys and pedestals, imagine that you're trying to teach a monkey to juggle flaming torches while it stands on a pedestal in the town square. Two tasks are competing for your money, time, and attention: training the monkey and building the pedestal. One is a possibly intractable obstacle. And the other is building the pedestal."

Save more to retire earlier
05/14/23   Thrift
"The good news is that we can quantify how much earlier you could retire if you increased your savings rate by 1%. The bad news is that this answer also depends your current savings rate."

05/14/23   Markets
"It's worth noting that any strategy that attempts to beat the market will, by definition, need to have a tracking error greater than 0. One way this could potentially be achieved is with a very concentrated (10- to 20-stock) portfolio, as employed by many actively managed hedge funds. Another way could potentially be through a quantitative approach that seeks to capture factor premia while diversifying away unsystematic risk through larger portfolios."

U.S. investors underestimate risk
05/14/23   World
"The tendency to invest in domestic stocks may appear safer to Americans than the risk experienced by global stock investors. While it is important to use expected returns as the primary input in a financial plan, advisors should be aware that the possibility of extreme losses that could derail a plan isn't limited to the worst-case scenarios experienced only by U.S. investors."

Physical finance
05/14/23   Behaviour
"I have to say I remain a bit skeptical"

The Stingy News Weekly: May 7, 2023
05/07/23   SNW
This week we have Buffett, ETFs, freedom, and more.

The 2023 Warren and Charlie show
05/07/23   Buffett
"the Berkshire Hathaway annual meeting is a gathering of the company's shareholders presided over by Chairman and CEO Warren Buffett and Vice Chairman Charlie Munger. The Omaha, Nebraska, event gives shareholders a chance to hear Buffett and Munger discuss investing, their economic outlook and life, as well as ask the legendary pair questions." [video]

Financial freedom
05/07/23   Behaviour
"Financial freedom isn't a seven- or eight-figure portfolio balance. Instead, it's knowing we have enough to pay for the life we want. It's the ability to enjoy two great luxuries - spending our time as we wish and not having to think about money."

Best times to trade ETFs
05/07/23   Markets
"Avoid the open. Avoid FOMC announcement periods."

Make less make more
05/07/23   Economy
"Like many of the drivers of the current market and profit cycle, we believe the strategy of making less to make more is unsustainable. The willingness and ability of certain customers to pay higher prices should not be confused with a healthy economy. It's not. As prices increase and volumes decline, economic activity is shrinking. Further, as more companies crowd into the higher-end segment, the risk of becoming overly dependent on volatile and inflated asset prices is growing. While revenue growth from price increases and serving the wealthy may camouflage the decline in economic activity in the near-term, ultimately, to grow organically, the economy must make more, not less. If it doesn't, we'll eventually just be buying and selling empty boxes."

Garbage is back
05/07/23   Markets
"hype-driven rallies around narrative themes have become a dominant feature in the US equity markets"

The Stingy News Weekly: April 30, 2023
04/30/23   SNW
This week we have value, AI, fish, teams, and more.

AI is a waste of time
04/30/23   Tech
"AI will waste a billion hours before it saves a billion hours. Before it kills us all, it will kill a lot of time."

Solo vs. teams
04/30/23   Funds
"In other words, while the average single-manager hedge fund has better performance, individual funds can be at the very top or at the very bottom, depending on the decisions of the fund manager. Team-managed funds are in the murky middle, neither particularly good nor particularly bad."

Swedish Fish
04/30/23   Value Investing
"Overall, we think that the low valuations in Europe relative to the US warrant a consideration of overweighting Europe in a global asset allocation today. And one doesn't have to enjoy eating fermented herring or ice swimming to be attracted to the historical discounts on offer in countries like Sweden."

Expectations affect share repurchases
04/30/23   Markets
"It finds that firms repurchase significantly more shares when they expect higher future earnings relative to market expectations, which is consistent with the undervaluation hypothesis. This finding holds regardless of the level of underlying valuations. The results do not appear to be driven by managerial misvaluation or bias. Rather, my findings suggest that firms utilize insider information to time the market with respect to share repurchase decisions."

Booms and busts in value
04/30/23   Value Investing
"Campbell, Giglio, and Polk also showed that while the classic value strategy bets on the convergence of valuation ratios across and within industries, the intra-industry component of such a bet typically contributes much more to value.s average outperformance. Thus, investors building value-oriented portfolios might want to consider funds that are industry neutral."

The Stingy News Weekly: April 23, 2023
04/23/23   SNW
This week we have inflation, wealth, incentives, and more.

Price over volume
04/22/23   Economy
"Those are good excuses to raise pricing and not care about volume. And that is the world we are living in. Volume doesn't matter. Price does."

Rich vs wealthy
04/22/23   Thrift
"if you want to feel wealthier you can either: (1) increase your net worth or (2) decrease your desires. This is how you can have far less than someone else while still feeling like you have much more."

How incentives work
04/22/23   Books
"Too often there's a conflict between what you say and what your incentives signal. You can tell everyone that you care about honesty, but talk is cheap. For the claim to be credible, you need to back it up by taking actions that are costly to you, such as paying the full entrance fee. If you align what you say with the incentives you offer, the signal will be credible and easy to understand."

Learned along the way
04/22/23   Books
"There are many paths to the top of the mountain. Most journeys start haphazardly, trying one route and then another. But eventually, successful investors settle down and do mostly the right thing for many years, and they end up with surprising wealth - and nobody's more surprised than the investors themselves, who discover that a huge pile of dollars has resulted from decades of prosaic prudence."

Pauper's grave retirement plan
04/22/23   Fun
"In an acknowledgement of the financial struggles many Canadians are facing, CIBC has announced a new investment plan to help customers scrape through lives of quiet desperation until they're ready to be unceremoniously rolled into a ditch and paved over." [humour]

The Stingy News Weekly: April 16, 2023
04/16/23   SNW
This week we have compounding, deflation, the Reads, and more.

Saved by compounding
04/16/23   Thrift
"Consider an investor over a 30-year period earning a 5% average annual return after expenses, versus a pre-cost 7%. Missing out on those two percentage points yields a final result that's half what it could have been."

Book publishing
04/16/23   Books
"BookScan found that only 6.7 percent of the new titles released by (the top ten publishers in the U.S. trade market) were selling more than 10,000 copies in their first year of sales, only 12.3 percent were selling more than 5,000 copies in their first year, and only 33.9 percent of these titles were selling more than 1,000 copies in their first year."

04/16/23   Economy
"One month ago, I 'officially' took the position that inflation had been conquered, and that, properly measured, the economy had actually been experiencing deflation since last June. This morning's report only confirmed that position."

Automatic enrollment
04/16/23   Retirement
"In 2006, nearly one-quarter of participants ages 18 to 24 had no equity exposure. In 2021, 97% of automatically enrolled Generation Z participants had an equity allocation between 41% and 99%." [pdf]

Be like the Reads
04/16/23   Thrift
"While it might seem like common sense not to spend too much or too little, it can be tricky to achieve this balance. But there are some strategies that can help."

The Stingy News Weekly: April 9, 2023
04/09/23   SNW
This week we have light, value, mortgages, and more.

European value
04/08/23   World
"the European market is effectively a large value index today, as it trades at 13x Price/Earnings, which is cheaper than the US large value index at 14x Price/Earnings"

The economy and the market
04/08/23   Economy
"the US economy and stock market showed a high correlation throughout most of this period. Correlations only fell off considerably four times: during the Great Depression, World War II, the 1990s, and the global pandemic. All of which suggests the S&P 500 was a good proxy for the US economy for much of the last 120 years."

Making life worse one bulb at a time
04/08/23   Government
"There's something off about LED bulbs - which will soon be, thanks to a federal ban, the only kind you can buy."

Mortgage rate update
04/08/23   Bonds
"With the ten-year yield at 3.3%, and based on an historical relationship, 30-year rates would currently be around 5.0%. So, mortgage rates are higher than expected based on the ten-year yield"

The Stingy News Weekly: April 2, 2023
04/02/23   SNW
This week we have average, diversifiction, inflation, and more.

The age of average
04/02/23   Markets
"Distinctiveness has died. In every field we look at, we find that everything looks the same. Welcome to the age of average."

So much to like
04/02/23   Markets
"Not only are stocks better value than they were 15 months ago, but also the long-term benefits remain as impressive as ever. What benefits? Here are nine reasons I have 88% of my retirement portfolio in stocks."

Feel bad all the time
04/02/23   Markets
"The average number of days to go from peak to trough is 381, so just over a year. The average number of days to go from the previous peak to new all-time highs is 1,166 days or more than 3 years."

Simple diversification
04/02/23   Markets
"The research we reviewed demonstrates that a simple 1/N factor diversification strategy will likely be at least as efficient as more 'sophisticated' versions such as mean-variance and minimum variance strategies."

Historical CPI based on current practices
04/02/23   Economy
"we find that current inflation levels are much closer to past inflation peaks than the official series would suggest."

Memory and probability
04/02/23   Behaviour
"Behavioral economists connect the way our memory works to how we make probability judgments"

The Stingy News Weekly: March 25, 2023
03/25/23   SNW
This week we have Hetty, happiness, timing, and more.

America's first value investor
03/25/23   Value Investing
"Hetty Green's accomplishments are extraordinary by any standard, but what makes them even more impressive is that she succeeded despite having none of the advantages afforded to men at the time. Hetty Green could not purchase a seat on the New York Stock Exchange, serve as a director on a corporate board, or even exercise the right to vote."

No satisfaction
03/25/23   Behaviour
"But here's what I found most intriguing: While the authors found that more money typically boosts happiness, they also observe the relationship between income and happiness 'is weak, even if statistically robust.' In fact, they go on to note that 'the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale.'"

Mr. Market's paddle
03/25/23   Markets
"Fed members also appear confused by the relationship between the Fed's powerful tools and concerning macroeconomic trends, such as inflation, wealth inequality, and the declining labor participation rate. Chairman Powell recently commented on the labor participation rate, noting rising retirements were contributing the decline. Based on his comments, it appears Powell is unable to connect the dots between the Fed's powerful tools and retirement-enabling portfolio and home values. Instead, he blames COVID and doesn't consider the linkage between the Federal Reserve's bloated balance sheet, asset prices, and labor availability."

Executives with remarkable timing
03/25/23   Markets
"Never-before-seen IRS records show that CEOs are sometimes making multimillion-dollar bets on the stocks of direct competitors and partners - and doing so with exquisite timing."

Merger arbitrage
03/25/23   Markets
"There are about 40 deals per year meeting our criteria; 89% of deals close successfully. The arbitrageur earns about 2.0% on the successful deals and loses 2.8% on cancelled deals for a blended average 1.5% return on long exposure if they were to bet on every merger."

Institutional impact on factor premiums
03/25/23   Markets
"For anomalies that are risk-based, that is what we should expect to see because, while risk cannot be arbitraged away, cash flows can reduce the size of the premium. For the anomalies that are behavioral based, it appears that limits to arbitrage are still sufficient to allow them to persist post-publication."

The Stingy News Weekly: March 19, 2023
03/19/23   SNW
This week we have bank bailouts, value spreads, Cliff, and more.

Central banks move
03/19/23   Markets
"In a global response of the type not seen since the height of the pandemic, the Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a co-ordinated action to enhance market liquidity. The ECB vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was .instrumental. for restoring calm."

UBS to rescue Credit Suisse
03/19/23   Markets
"UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving just 1 UBS share for 22.5 Credit Suisse shares they own. Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law so that it can be completed rapidly."

Value spread expands
03/19/23   Value Investing
"Today's peak seems more like the tech bubble than the financial crisis. Expensive stocks were bid up to unfathomably high prices, while deep value type stocks have just plodded along."

Cliff Asness interview
03/18/23   Markets
"Neither he nor AQR engages in market timing, but the spread between value and growth had gotten so huge that he felt comfortable 'sinning a little.'" [audio]

No going back
03/18/23   Retirement
"But there's a downside to making the emotionally safe choice. The problem: In some cases, the path that promises least short-term regret - by, say, claiming Social Security right away, taking the pension lump sum and avoiding immediate annuities - could end up hurting us financially over the long haul."

Bank run
03/18/23   Markets
"It would be shocking if we are not talking about loan-level delinquencies, charge-offs and credit losses later this year. Our expectation is that the stress banks' asset-liability managers are under right now gets shifted to banks. credit officers in the second half of this year. This is the slower-moving risk in banks that has been dormant for many years now thanks in part to easy monetary policy, and it seems to be awakening due to the knock-on effects of higher interest rates and the draining of liquidity from the financial system."

The Stingy News Weekly: March 12, 2023
03/12/23   SNW
This week we have bank runs, enough, menopause, and more.

US backs customer deposits
03/12/23   Markets
"Silicon Valley Bank customers will have access to their deposits starting on Monday, U.S. officials said on Sunday, as the federal government announced actions to shore up deposits and stem any broader financial fallout from the collapse of the tech startup-focused lender. ... SVB equity and bondholders would be wiped out, said the official, who briefed reporters after the announcement."

Enough: Graham's Lesson
03/12/23   Graham
"Graham had enough money. What he didn't have enough of was time. So he refused to invest more of his most valuable asset in the pursuit of riches."

The Other Enough
03/12/23   Retirement
"Many folks are happy to get off the career treadmill. But for others, including me, calling it quits doesn't come easily. We humans are inherently restless. We want more stuff, more money and, yes, another success. And when we get these things, we quickly grow dissatisfied and start hankering after something else. We never achieve that final, fully satisfying triumph that we crave."

Defying Logic
03/12/23   Markets
"In theory, higher rates should result in downward pressure on housing prices. But there's another, more subtle factor at play: Many existing homeowners, who had been considering selling, now feel 'stuck.' The problem is that, if they move, they'll have to take out new mortgages, which might be prohibitively expensive. The result: Fewer homeowners are putting their homes on the market. That reduction in supply is putting upward pressure on prices at the same time that higher rates are applying downward pressure."

Your house is a terrible investment
03/12/23   Real Estate
"Hey I've got an idea. We're always talking about good investments. What if we came up with the worst possible investment we can construct? What might that look like?"

Bank Runs, Now and Then
03/12/23   Markets
"There was an infamous story of a bank run in Hong Kong that was caused by a long line in front of a pastry shop that just so happened to be right next to a bank. People assumed the line was for depositors taking their money out of the bank, word spread and soon the bank run was on for no other reason than the herd mentality."

The Demise of Silicon Valley Bank
03/12/23   Markets
"One of the features of banking crises is that they rarely repeat consecutively. This matters because policymakers have a tendency to craft regulation around the last war. US stress tests include all manner of scenarios for bad credit, but few for interest rate shocks. The severely adverse scenario for 10 years Treasury yields is 0.8-1.5%; the baseline scenario, reflecting a shallower recession, incorporates yields of 3.2-3.9%."

Hot and heavy
03/08/23   Health
"Yet, a lack of understanding and support for women experiencing menopause by the medical establishment and by workplaces, leads women to "lean out" of future career advancement."

The Stingy News Weekly: March 5, 2023
03/05/23   SNW
This week we have value, thrift, retirement, China, and more.

Riding the rails
03/05/23   Retirement
"Each strategy has some merit. The 4% rule is a great shorthand tool because you can often do the math in your head. Guardrails, on the other hand, may be more complex, but the way it responds to changes in the market makes it more realistic. Many school endowments, it's worth noting, use a hybrid approach: They withdraw a fixed percentage of their endowments, but that fixed percentage is often set in relation to a three-year moving average of the endowment's value."

Intangibles and value
03/05/23   Value Investing
"It is worth noting that other value metrics, such as price-to-sales (which is not affected by accounting for intangibles), did not work during the 'dark winter' for value stocks. This shows that the poor performance of the value factor was less about how the worth of a stock was measured and more about the price aspect (growth stocks outperformed because the multiple of earnings investors were willing to pay for them increased dramatically relative to the multiple for value stocks)."

Spendthrift propaganda
03/05/23   Behaviour
"My purpose in touching on the lives of these two women is to point out that they never enjoyed spending their wealth." Boo!

Stocks and bonds are positively correlated
03/05/23   Markets
"For the past 30 years, the correlation between stocks and bonds has been negative. But last year, the trailing three-year correlation turned positive for the first time since November 2000. This is something that many investors today have never experienced in their professional lives."

Dan Wang on China
03/05/23   World
"What I did not sufficiently appreciate is that a state that would so casually decapitate a sector like online tutoring would also have the will to visit catastrophe upon whole cities. And fear of those moves is wearing on people. I perceive a fading sense of enthusiasm among businesspeople and youths."

The build-nothing country
03/05/23   World
"Ever day, new examples of this stasis pile up. In Berkeley, a plan to build student housing was just blocked by a court, which demanded that the university study whether students themselves constitute an environmental hazard. I wish I were kidding, but I'm not."

Wild lumber prices
03/05/23   Markets
"Lumber is currently at $369 per 1000 board feet. This is down from the peak of $1,733, and down 72% from $1,441 a year ago."

The Stingy News Weekly: February 26, 2023
02/26/23   SNW
This week we have Buffett, the long term and very long term, and more.

The long term
02/26/23   Markets
"Elroy Dimson, Paul Marsh and Mike Staunton published a book the early-2000s called Triumph of the Optimists: 101 Years of Global Investment Returns that looked at the historical record of equity markets around the globe since the year 1900. This book provides the answer to these questions. And lucky for us, the authors update the data on an annual basis for the Credit Suisse Global Investment Returns Yearbook."

Buffett's letter
02/25/23   Buffett
"In August 1994 - yes, 1994 - Berkshire completed its seven-year purchase of the 400 million shares of Coca-Cola we now own. The total cost was $1.3 billion - then a very meaningful sum at Berkshire. The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million. Growth occurred every year, just as certain as birthdays. All Charlie and I were required to do was cash Coke's quarterly dividend checks. We expect that those checks are highly likely to grow."

Stocks vs bonds
02/25/23   Markets
"A more revelatory observation is that, in the first 150 years of McQuarrie's data, bonds and stocks perform about the same. And they also perform nearly the same from 1982 to 2012. In fact, what emerges is that the equity outperformance that seems so evident in Siegel's data is in fact concentrated in the period from around World War II to 1982."

02/25/23   Thrift
"By your 50s, you might realize you're on track to have plenty saved for retirement. But by then, if you're like me, frugality will have become a way of life and you could find it awfully hard to change."

No need to guess
02/25/23   Retirement
"Since so much of personal finance is beyond our control, it's important to control what we can - in other words, to know which questions can be answered without reference to a crystal ball."

The Stingy News Weekly: February 19, 2023
02/19/23   SNW
This week we have Munger's AGM, risk, stagflation, life expectancy, and more.

Starter homes gone
02/19/23   Real Estate
"If you're in the market for a new home I'm sure you've been waiting for years for prices to come down. Maybe higher mortgage rates will help. But unless there is some government action at the federal and local levels to make it easier to build more, the days of new homes going for $300k or less might be a thing of the past."

Good on 200k
02/19/23   Economy
"If you had an income of $200,000, that would put you in the top 10% of household incomes or the top 5% of individual incomes in 2021."

Jabba the Mutt
02/19/23   Economy
"Based on our bottom-up view, we do not believe economic activity, net of inflation, is as robust as recent economic reports indicate. And while it's too early to determine if we're heading into a lethargic and ugly Jabba the Mutt recession like 2008, current economic conditions certainly aren't the award-winning purebred investors appear to be pricing into risk assets."

Risk eats return
02/19/23   Markets
"To understand the intuition behind reducing exposure with the square of volatility, first consider an investor whose portfolio returns ten percent one month and draws down ten percent the next. The end portfolio isn't flat: the investor has lost one percent of their starting investment, even though the average return over the two periods was zero. Now consider an investor whose portfolio rises five percent before falling by the same amount. That investor will only lose 25bps relative to his starting point."

Charlie Munger speaks
02/15/23   Munger
"Berkshire Hathaway Vice Chairman Charlie Munger speaks at the Annual Shareholders Meeting of the Daily Journal Corporation." [video]

Years you have left to live
02/14/23   Health
"As expected, the probability that you live to the next year decreases as you age. More than 99% of people under the age of 60 live to see the next year, but the probability shifts towards zero relatively quickly after that."

The Stingy News Weekly: February 12, 2023
02/12/23   SNW
This week we have value spreads, volatility, bubbles, millions, and more.

Where millionaires keep their money
02/12/23   Thrift
"Many people are curious about the financial habits of the wealthy, and for good reason. Having a better understanding of how millionaires manage their money can help us learn from their successes and potentially improve our own financial well-being as well."

Information in valuation spreads
02/12/23   Value Investing
"For value investors, the above findings are good news. The largest historical drawdown for the value premium from November 2016 through October 2020 led to a dramatic widening of the book-to-market spread between value and growth stocks."

We measure what we can
02/12/23   Markets
"There is a common idea in academic finance that is conspicuously dismissed by both contrarian investors and the popular culture: the claim that historical volatility is a good indicator of future risk."

Helpful in theory
02/12/23   Markets
"Each bubble differs, but the eventual comeuppance always feels brutally familiar."

Graphing Dividends 2023
02/08/23   Stingy Investing
Here's an update to my Graphing Dividends feature that corrects calculation errors that impacted the 2022 returns. My apologies for missing the bug the first time around. [pdf]

The Stingy News Weekly: February 5, 2023
02/05/23   SNW
This week we have dividends, value, 60-40, and more.

60-40 annus horribilis
02/05/23   Markets
"2022 was the first year in which both assets were down significantly. The Bond Agg lost 13.0 while the S&P 500 fell 18.1%. The only other year a 60/40 portfolio lost money and had a negative bond return was 1994, a mere blip on the chart."

Why equal weighting works
02/05/23   Markets
"two factors will remain the key driver of outperformance: three parts small cap and one part value."

After the darkest hour
02/05/23   Value Investing
"Today, deep value companies in Europe can be purchased at around 5x EV/EBITDA and 0.8x Price/Book"

The disappearing index effect
02/05/23   Indexing
"The abnormal return associated with a stock being added to the S&P 500 has fallen from an average of 3.4% in the 1980s and 7.6% in the 1990s to 0.8% over the past decade. This has occurred despite a significant increase in the percentage of stock market assets linked to the index. A similar pattern has occurred for index deletions, with large negative abnormal returns on average during the 1980s and 1990s, but only -0.6% between 2010 and 2020."

Dividend impact on stock returns
02/05/23   Dividends
"As shown in the table above, without controlling for the factor exposures, while the dividend payers had lower monthly returns (1.06% vs. 1.09%), the significantly higher monthly volatility of the non-payers (6.42% vs. 4.23%) resulted in the dividend payers having a higher annualized compound return (12.25% vs. 11.10%)."

The value of projects
02/05/23   Management
"We find that discounting based on expected returns (such as variants on the CAPM or multi-factor model), performs very poorly. Discounting with an Implied Cost of Capital (ICC), imputed from comparable firms, obtains much better results. ... Finally, we show that under standard assumptions about the production function, the value loss from using the CAPM can be sizable, of the order of 10%."

The Stingy News Weekly: January 29, 2023
01/29/23   SNW
This week we have dividends, value, phones, and more.

Be wary of extreme yields
01/29/23   Stingy Investing
"Overall, returns tend to fall dramatically when yields reach extremely high levels."

No customer service
01/29/23   Management
"When there's no option to pick up the phone, at some point it obviously creates all kinds of havoc in customers' lives"

Tim talks value
01/29/23   Value Investing
Tim McElvaine talks about some of his recent investments. [video]

Avoiding Unhappiness
01/29/23   Thrift
"it seems that we can't buy happiness with a fistful of dollars or a stack of credit cards. The thrill of a new purchase is short-lived. But money spent to reduce our financial worries, such as by paying off credit card debt, may help stave off the unhappiness that can lead to depression."

Valuation risk strikes
01/29/23   Value Investing
"We think there's ample room for continued normalization of multiples that should continue to support small-cap and value stock returns globally in the decade ahead."

Arithmetic vs. geometric returns
01/29/23   Markets
"with apologies to all the people who know this by heart, let me spend today discussing the difference between arithmetic and geometric returns and why understanding this relationship is crucial for long-term investment success."

Asset allocation crash risk
01/29/23   Markets
"While Factor-Based and Risk-Parity portfolios exhibit best risk-adjusted returns in the long run, the Dynamic Asset Allocation reduces the abandonment risk due to its lower expected drawdown. Across all strategies, risk-tolerant investors that rely on the longer history for setting their expectations, experience significantly better outcomes, particularly if their investment horizon includes times of crisis"

The Stingy News Weekly: January 22, 2023
01/22/23   SNW
This week we have dividends, low fees, periodic mixing, and more.

Rich income
01/22/23   Thrift
"if you're interested in understanding how your income compares to others in the U.S. (and whether that makes you rich), then you've come to the right place. So, how much income do you need to be rich? Let's find out."

The easy way to returns
01/17/23   Stingy Investing
"Slashing fees is an easy, and practical, way to boost long-term returns and it explains the popularity of low-fee funds and very low-fee index funds in particular."

The smaller stable dividend portfolio
01/17/23   Stingy Investing
"I used a combined injection of low-volatility and dividends on large stocks to form the Stable Dividend portfolio. This time around I'm using a similar approach to inoculate smaller stocks to form the, imaginatively named, Smaller Stable Dividend portfolio."

Price-to-fantasy ratio
01/17/23   Markets
"If reported earnings next year merely match the likely final 2022 level of $181, then the current price-to-forward earnings (P/F) ratio is 21. In 2023, if earnings tumble just 20% from 2022 levels, then the correct current P/F ratio is 26, hardly a bargain."

Asset Mixer Update
01/17/23   Stingy Investing
We've updated our Asset Mixer to include real data for 2022.

Periodic Table Update
01/17/23   Stingy Investing
We've updated our periodic table of annual returns for Canadians to include real data for 2022.

The Stingy News Weekly: January 15, 2023
01/15/23   SNW
This week we have Cliff, interviews, bacon, and more.

Cliff Asness interview
01/15/23   Asness
"Cliff joins the show to discuss FTX, AMC, why hedge funds aren't hedging, the role of index funds and a whole lot more."

A place to start
01/15/23   Retirement
"The 4% rule may be making a comeback. But it's just a starting point - and you shouldn't necessarily follow it precisely."

Job interview nightmare
01/15/23   Management
"Companies are seemingly coming up with new, higher, and harder hoops to jump through at every turn. That translates to endless rounds of interviews, various arbitrary tests, and complex exercises and presentations that entail hours of work and prep. There can be good reasons for firms to do this - they really want to make sure they get the right person, and they're trying to reduce biases - but it's hard not to feel like it can just be too much."

Uncorrelated assets
01/15/23   :Asness
"Recently, Dimensional Fund Advisors wrote critically on 'liquid alts.' They make some good points, but they also draw some odd conclusions that if applied more generally would not be to their (or our) liking. Besides discussing their piece, below I take this opportunity to review the general rationale behind holding uncorrelated assets (in particular, equity 'factors' held in a long-short manner)."

Spending money
01/15/23   Thrift
"How people invest their money tends to be hidden from view. But how they spend is far more visible, so what it shows about who you are can be even more insightful."

Crispy bacon
01/15/23   Funds
"Being wedded to a benchmark by relative return fears, career risk, and investment mandates, in our opinion, practically guarantees a highly correlated and ordinary outcome. If the objective is to achieve higher returns with less risk, we do not believe looking like everyone else, or serving soggy bacon, is the answer. Bacon, in our opinion, should be served crispy."

The Stingy News Weekly: January 8, 2023
01/08/23   SNW
This week we have the asset mixer, periodic table for Canadians, recessions, bonds, and more.

Harvey vs the spread
01/08/23   Markets
"The spread, which Harvey's work is based on, has been consistently inverted since mid November and hovered Wednesday at around minus 82 basis points. Despite the curve being inverted for the ninth time since 1968, Harvey said it's probably not a harbinger for a recession."

Trading a 2s10s inversion
01/08/23   Bonds
"We have discussed why the yield curve inversion is important to investors while showing that such an event, despite not offering an immediate boon for bond investors, does support both intermediate and long-term forward return outperformance. Further, we have also demonstrated that bond price returns following the peak of a yield curve inversion tend to produce above average forward-looking returns across all time horizons."

Volatility laundering
01/08/23   Funds
"Given the massive popularity of private investing today, it may very well be true that, as a great man once almost said, 'Never have so many paid so much to so few for the privilege of being told so little.'"

The bubble has not popped
01/08/23   Value Investing
"Value spread at 94th percentile"

A disaster for Tesla
01/08/23   Markets
"On this metric, Tesla still has a similar enterprise value to many of these automakers combined even after falling so sharply in 2022, despite being utterly unjustified by current fundamentals."

Asset Mixer Update
01/03/23   Stingy Investing
We've updated our Asset Mixer to include nominal data for 2022.

Periodic Table Update
01/03/23   Stingy Investing
We've updated our periodic table of annual returns for Canadians to include nominal data for 2022.

The Stingy News Weekly: January 1, 2023
01/01/23   SNW
Happy New Year!

Dividends and buybacks
01/01/23   Dividends
"the combined yield from both is close to 5%"

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