Investment principles

gadgetmind

masonic wrote: »

The unit class used in the comparison was the expensive retail class

Well, if that managed to be upper quartile over a decade, imagine how much better the new crop of low fee trackers must be?

There are still markets where I use active, but only by using ITs in unloved areas as their discounts give me "double bubble" when sentiment swings.

Thrugelmir

masonic wrote: »

So, why were none of them able to achieve this (best outperformance <30% over 10 years)? .

The US markets are most researched in the world. With analysts poring over market news, the financial accounts in minutest detail. News travels instantaneously down the wires. Days of hiding buying behind the lengthy settlement periods are well gone. I recall Friends Provident in the mid 70's. Using up to 8 brokers to build a position in say Marks & Spencer. So as not signal the intention to the market.

Ryan_Futuristics

masonic wrote: »

I'm sure if you took a look at the article I linked to above, the following graph won't have escaped you:


So it's pretty clear 2007-2011 was a pretty torrid time for value investors, so there is certainly something about the recent climate that has gone against the value investor.

That's exactly the point - and what Meb Faber's saying: to find value you have to look outside the US now

As soon as a stock with a good Piotroski or Graham number pops up, it's piled into by hedge fund managers and ETFs and stops being a value stock ... What are you left with?

Potentially buying the actual worst stocks isn't a common strategy yet - it might still work - but it would take big balls to buy the worst performing energy stocks in the US right now

These are not new - VTV, the Vanguard Value ETF has been available on the NYSE for over 10 years and has been doing quite well, although not quite as well as the 'worst 25 stocks' strategy would have done. I'm not sure how self defeating products like this would actually be. A simple product should be beatable by a skilled value investor, just by improving the methodology a bit to avoid the dead wood. Judging by the complexity of Graham's screening methodology, he certainly seemed to advocate a more holistic appraisal of value stocks. I suppose for the company running the product, being swamped with cash and becoming too big to take advantage of opportunities probably goes in the category of a nice problem to have. An equilibrium will no doubt be reached that is still ahead of a standard market-weight capitalised tracker and they'll deduct their fees regardless. Maybe this is something GVAL will have to contend with one day.

Well First State are one of the best asset management groups we've got, and you might notice they routinely close their best performing funds off to outside investors as soon as they get too large

It's like the quantum measurement problem: you can't look at the value stocks without changing them fundamentally - you have to do what other people aren't doing to really outperform

I'm sure GVAL will, but it may be a long time before Poland's markets are as heavily analysed as the US ... So it does open things up ... One day I imagine all stock decisions will be made by incredibly powerful (and efficient) software, and then it will be a case of the newest algorithms being your best bet of beating the market (which in a way you've already got with Portfolio123) ... Most of those strategies have to be limited to around a dozen investors before their own logic could start working against them

masonic

Thrugelmir wrote: »

The US markets are most researched in the world. With analysts poring over market news, the financial accounts in minutest detail. News travels instantaneously down the wires. Days of hiding buying behind the lengthy settlement periods are well gone. I recall Friends Provident in the mid 70's. Using up to 8 brokers to build a position in say Marks & Spencer. So as not signal the intention to the market.

Well yes, but my question was asked in the context of a simple value strategy having beat the market consistently and over a long time period. If any of those fund managers had adopted a similar strategy, they would have beaten the market, so why didn't they? Ryan contends that it would have been simple for a private investor to beat the market US using a valuation screen, but if a fund ever did this it would distort the market in order to reduce the competitive edge such a strategy had. But it is hard to believe it would completely remove it (after all, sentiment is a major factor in the movement of share prices and that will never completely go away). So is it really the case that the blue line on the graph in post 23 is easily achievable by the private investor, but would immediately be put under threat if a fund was created that used similar methodology? That seems to be where the argument is leading.

masonic

Ryan_Futuristics wrote: »

I'm sure GVAL will, but it may be a long time before Poland's markets are as heavily analysed as the US ... So it does open things up ... One day I imagine all stock decisions will be made by incredibly powerful (and efficient) software, and then it will be a case of the newest algorithms being your best bet of beating the market (which in a way you've already got with Portfolio123) ... Most of those strategies have to be limited to around a dozen investors before their own logic could start working against them

Perhaps, and it would likely be the copycats that ruined the party before some of these markets became as open and transparent as the US. But several of these markets will be more susceptible to distortion than the US because they are much smaller.

InvestInPoker

doesnt matter my apologies

Ryan_Futuristics

masonic wrote: »

Perhaps, and it would likely be the copycats that ruined the party before some of these markets became as open and transparent as the US. But several of these markets will be more susceptible to distortion than the US because they are much smaller.

Absolutely - I imagine like warfare or computer hacking, there'll be a constant technology race to gain an edge, while average performance never really changes

But right now (and probably for a while), if you don't mind a degree of uncertainty, you can buy a like-for-like, earnings for earnings Russian energy firm, or Italian bank, for a fraction of what it would cost to buy one simply because it's on US soil

If you're region agonistic, long-term horizon, and building a global portfolio, there are bargains out there that only tend to come along once or twice a generation

Nosler

Ryan_Futuristics wrote: »

If you're region agonistic, long-term horizon, and building a global portfolio, there are bargains out there that only tend to come along once or twice a generation

how do you know they are bargains? it is possible that you buy cheap shares in the likes of Russia then Putin nationalises the company you have invested in...

TheTracker

masonic wrote: »

Ryan contends that it would have been simple for a private investor to beat the market US using a valuation screen, but if a fund ever did this it would distort the market in order to reduce the competitive edge such a strategy had. But it is hard to believe it would completely remove it

I could be wrong. But I imagine if a Value Premium is proven and transparent (identifiable by a screen) then that would lead to a fairly valued premium, much as risk may be now. It would remove competitive edge, but it would increase the efficiency of the market, potentially raising returns. I don't think it would lead to a reduction of edge alone. I could be wrong. Then Ryan & co would move on to other poorly appreciated premiums.

Ryan_Futuristics

Nosler wrote: »

how do you know they are bargains? it is possible that you buy cheap shares in the likes of Russia then Putin nationalises the company you have invested in...

Putin could certainly decide to seize foreign assets ... One way to look at it is the worst-case-scenario with the US is you lose 80%, but with Russia you lose everything

I suspect it would be economic and political suicide though - so it might be the kind of thing that preludes events much worse than just losing money in the stock market

But assuming the worst doesn't happen, and Russia one day gets back to it's average market valuation, there's about 45% profit to be made on your investment just from mean reversion (and a 4.5% dividend to boot) ... So I think the risk/reward profile makes being overweight Russia worthwhile ... I invest mainly through JP Morgan New Europe, which is 44% Russia, and has other similarly cheap regions in to spread the worst-case risk a bit