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Thank you Lewis. Despite my apparently long winded posts, I have been trying to be somewhat terse. In doing so, I jettisoned nuance.
We're not even in a once in a century pandemic; we're in the middle of at least two. But that's not popular impression, so I didn't go down that rabbit hole. The HIV pandemic never ended; it just being controlled in some countries.
Read in context, my expectations about future pandemics also include economic impact. Supply chains are being modified; responses to pandemics are being studied and enhanced. Will there be another pandemic that will create a similar one month jolt to the stock markets anytime soon? I doubt it.
Will "serious pandemics [] now occur more frequently"? We can both rattle off a slew of reasons: biological, technological, political, sociological. Does this present investing opportunities as well as reason for caution. Yes.
I have problems intellectually with simplistic rules-base systems that may not be able to adapt to changing conditions. I agree, and feel that "smart beta" was overhyped. IMHO the middle ground is, or should be, quant funds. They are rule-based but supposedly ever changing by quant managers. Unfortunately, much of what I've seen suggests that the quant managers, while not quite one trick ponies, seem limited in their ability to adapt. After enough time, conditions may change more than their models can stretch.
Maybe that's no different from saying that active fund managers are better in some markets than with others.
@Puddnhead without knowing how old your missus is, I'ld suggest that you first think about things that suit her time horizon. Then talk about buying things that she will feel comfortable owning if they go through a bad stretch.
From your comments, that might look a lot different than things you are holding. But if she doesn't want tobacco stocks, then she won't be interested in a dividend fund, like PEY, that holds Altria and Phillip Morris.
In the past, bonds, consumer staples, utilities, and phone companies have been the traditional refuge for the risk averse. Today some might add infrastructure and health.
But whatever you do, for heaven's sake, hold onto the FXAIX too..
Anyway, considering the rest of the M* equity boxes, I would first look at things with three year betas below 1.00, positive alpha, and relatively low standard deviation. The past three years does take in quite a bit of market excitement.
But past returns are no guarantee of future performance. So you're probably looking at funds that will under-perform if something like normal returns to the world; that era before pandemics, inflation, European land wars, and UFO's being shot down.
M* has retracted its threats against legacy portfolios. You might build a few watch lists of things you are considering. I break mine up into sector, domestic equity, and so on.
Hi WABAC, Yes, the wife is 63 and retired from the United States Postal Service in 2021. Her 401 came from TSP in January of 2022 in a large cash lump sum transfer that was put in Fido in CDs..... at the time...... to work into the market. FXAIX was the only fund I put money in---on pullbacks. Right now, she is happy with CDs and so am I. We don't need the money. She wants things that are safe. I'm the risk taker. So until we get a market pullback, I wait....and look for ideas. I want things easy in case I'm no more. God bless the Pudd
If easy is what you're after you could always go with the Mrs. Warren Buffett portfolio - Mr. Buffett indicated that upon his passing, the trustee of his estate will invest 90% of his wife's inheritance in a low-cost index fund and 10% in short-term government bonds.
Given the size of the Buffett's estate, the 90% allocation to stock index funds might be far more acceptable than in this case. If you've got several billion dollars lying around, losing a billion or two to a stock market decline in a year isn't life altering.
Given the size of the Buffett's estate, the 90% allocation to stock index funds might be far more acceptable than in this case. If you've got several billion dollars lying around, losing a billion or two to a stock market decline in a year isn't life altering.
Ditto
You can quote or cite the esteemed Buffet to support just about any point of view. My favorites are the ones about swimming naked + “Rule #1” and “Rule #2” .
But yes. @Mark’s reference to Buffet’s plan for wife (as vigorously discussed / debated here about a dozen years ago) is correct. Suggest a big grain of salt. As I believe Lewis intimated, not all of us have an extra billion lying around.
@MikeM, I don't know and can't easily uncover what the heck happened w CAPE as of 4/22, but I am sure someone here knows. DSEEX has still outperformed FXAIX for 9.5y and also ytd --- but not, as others would, or will, instantly point out, for various stints in between. (QQQ likewise looks appealing at 10y and ytd, not quite so much in between.)
I wasn't being facetious in rhetorically posing the question of where the breadth sweet spot is. Or can reliably be said to be, if we seek investment goals and guidelines. Some of the above apples-oranges (categories) objections are silly, but someone else also mentioned subsets of sets; and so I began to wonder whether everything in SCHD was in SP500 and everything in SP500 in VONE, and everything in VONE in VT. For the first it turns out not, but close, so far as I had the energy to parse. Specifically, if you exclude SCHD's last 25 or so holdings (out of ~100), which contribute a minuscule amount to performance, you do see that the remainder appear to be in SP500 (I'm not 100% positive about this, as I got tired searching within the long columns). SCHD applies a seriously delimiting quantified quality criterion. Could there be an SCHD for the VONE universe? (For some periods, of course, that is sort of what VONG and VONV do.)
Unappreciated (why I also mentioned comparative UI) was the 'leveling' effect the SCHD criteria appear to exert. But maybe UI is arguably overvalued as well. Gustibus.
@davidrmoran: I don't know what happened to DEESX, either. I see from the charts that it reached its nadir on 3/22/2020, having fallen some 7 percentage points more than FXAIX at that point. It never really caught up and I can't devise a chart that shows it outperforming FXAIX. Maybe at exactly 9.5 years, as you say. I wrongly assumed as a shareholder of DSEEX that the bonds would serve as ballast in a down market; it seems the opposite was true and that the "secret bond sauce" appeared to accelerate the move downward. I was a CAPE fan and said so on MFO. I sold, disillusioned. Fortunately, MOAT has proven itself over the long haul. I've traded it, but have never been out. MOTI and SMOT, which adopt a similar "moat" methodology, have been welcome additions in recent months.
Specifically, if you exclude SCHD's last 25 or so holdings (out of ~100), which contribute a minuscule amount to performance, you do see that the remainder appear to be in SP500 (I'm not 100% positive about this, as I got tired searching within the long columns).
Simple and relatively fast way to do this analysis:
1. Download SCHD into a spreadsheet from the Schwab site; here is the link for the .csv file.
2. Download a current (or at least recent) list of S&P 500 companies. I used Finasko; here's the direct link for an Excel file.
3. Cut and paste the ticker column (roughly 500 rows plus heading) into the SCHD spreadsheet.
4. Use COUNTIF to test whether each SCHD ticker is in the S&P 500 list. The COUNTIF function will return 1 if the SCHD ticker is in the S&P 500 and 0 otherwise. You should adjust the column letters appropriately; the expression I used is: =COUNTIF($O$2:$O$504, B2)
5. Sum the counts. There are 55 SCHD companies in the S&P 500. The other 48 are not. The first company not in the S&P 500 is #49, First Horizon Corp (FHN).
6. By multiplying the weight of each ticker by its '1' or '0' result, you get a column of weights of just those SCHD companies that are in the S&P 500. 94.06% of SCHD companies (by weight) are in the S&P 500. Of course the weightings of each company are completely different in SCHD and S&P 500.
The thing about a properly run S&P 500 index fund is the unknowns are “known unknowns.” We never know how the market will perform in the future, but if you own a low cost index fund that tracks the market well, you know you will get that market return. That brings a certain level of comfort psychologically that other strategies do not bring, and that comfort enables many investors, especially unsophisticated ones, to stick with their investment strategies to achieve their financial goals.
But with any other strategy, the truly unknown unknowns can upset investors. When the active or smart beta fund is underperforming the market, many investors get upset and sell, often at the worst time near the bottom. And when the fund is outperforming the market, investors can’t help chasing that performance, and buy, again often at the worst time, near the peak. I’ve seen such performance chasing even with sophisticated investors, sometimes even on this board. A number of studies reveal how investor returns in funds are often significantly less than the funds themselves because of such poor timing. This is especially so in volatile but top-performing funds. Investors tend to fare better in low-volatility active and smart-beta strategies. In this way, SCHD could still work for the patient long-term investor. Just don’t assume the moon.
I am sure I am not alone in dying to know what (7.) ff is.
The next step follows from my last sentence: "Of course the weightings of each company are completely different in SCHD and S&P 500."
The percentage of holding overlap, independent of weight, isn't especially meaningful. Consider funds holding just two securities: 99% and 1% in fund A, and 1% and 99% in fund B. These funds are essentially totally different, yet they have 100% overlap.
Or to give a less hypothetical example, compare an equally weighted index fund with a market weighted index fund. Significantly different, yet here too, 100% overlap.
So 7. is to compute active share. I did this a very quick and dirty way; I'm sure there are more elegant Excel functions to accomplish this. Steps are below.
The result is that SCHD has an 88% active share, relative to the S&P 500. It would be expected to, and does, behave very differently. Though over the long term it averages out to be rather similar.
As Lewis observed, the difference in behavior along the way may make SCHD a better choice (easier to hold). For the "true buy & hold types" this shouldn't matter.
7a. Copy the 500+ Ticker and weight columns of the S&P 500 components vertically on a separate page; start it in row 3 (columns A and B).
7c. Fill in the cells of matrix (504 rows x 103 columns) with a formula that computes the absolute difference of the weights if the ticker is the same for that row and column. The formula looks like: =IF(C$1 = $A3, ABS(C$2 - $B3) ,0) [this is for cell C3; cut and paste for the whole matrix]
7d. SUM the weights in the matrix.
7e. Compute the weights of all the Tickers in SCHD that are not in the S&P 500. This is done by using step 4 (with 0 if the ticker is not in S&P 500, 1 if it is). The formula looks like: =IF(T2,0,P2)
7f. Sum these weights.
7g. Repeat this exercise (steps 4 and 7e-7f) to get the weights of all S&P 500 components that are not in SCHD.
7h. Compute active share: add absolute difference of weights for securities in both indexes (7d), weights of securities only in SCHD (7e), and weights of securities only in S&P 500 (7f); divide the sum by 2.
I first tried instant X-ray before "rolling my own". I couldn't ignore the fact that M* only shows larger holdings.
Two of SCHD's top ten holdings, Lockheed Martin (LMT) and Blackrock (BLK), are not shown to overlap with the S&P 500. (They're very small parts of the S&P 500.)
These aren't isolated cases. Continuing down the list of SCHD's holdings, #11 IBM, #14 ADP, and #15 Altria are also S&P 500 components that don't appear to overlap. And so on.
What this x-ray does show is that the two funds are not all that similar.
I meant not next step but more generally, what is to be concluded and actionable, now that we know, from your labors.
Interesting 'not all that similar' bottom line. portfoliovisualizer shows 93%-97% correlation over 5y, with 93% their single figure. I'd prefer your work.
Comments
We're not even in a once in a century pandemic; we're in the middle of at least two. But that's not popular impression, so I didn't go down that rabbit hole. The HIV pandemic never ended; it just being controlled in some countries.
Read in context, my expectations about future pandemics also include economic impact. Supply chains are being modified; responses to pandemics are being studied and enhanced. Will there be another pandemic that will create a similar one month jolt to the stock markets anytime soon? I doubt it.
Will "serious pandemics [] now occur more frequently"? We can both rattle off a slew of reasons: biological, technological, political, sociological. Does this present investing opportunities as well as reason for caution. Yes.
I have problems intellectually with simplistic rules-base systems that may not be able to adapt to changing conditions.
I agree, and feel that "smart beta" was overhyped. IMHO the middle ground is, or should be, quant funds. They are rule-based but supposedly ever changing by quant managers. Unfortunately, much of what I've seen suggests that the quant managers, while not quite one trick ponies, seem limited in their ability to adapt. After enough time, conditions may change more than their models can stretch.
Maybe that's no different from saying that active fund managers are better in some markets than with others.
From your comments, that might look a lot different than things you are holding.
In the past, bonds, consumer staples, utilities, and phone companies have been the traditional refuge for the risk averse. Today some might add infrastructure and health.
But whatever you do, for heaven's sake, hold onto the FXAIX too.
Anyway, considering the rest of the M* equity boxes, I would first look at things with three year betas below 1.00, positive alpha, and relatively low standard deviation. The past three years does take in quite a bit of market excitement.
But past returns are no guarantee of future performance. So you're probably looking at funds that will under-perform if something like normal returns to the world; that era before pandemics, inflation, European land wars, and UFO's being shot down.
M* has retracted its threats against legacy portfolios. You might build a few watch lists of things you are considering. I break mine up into sector, domestic equity, and so on.
Good luck.
Yes, the wife is 63 and retired from the United States Postal Service in 2021. Her 401 came from TSP in January of 2022 in a large cash lump sum transfer that was put in Fido in CDs..... at the time...... to work into the market. FXAIX was the only fund I put money in---on pullbacks. Right now, she is happy with CDs and so am I. We don't need the money. She wants things that are safe. I'm the risk taker. So until we get a market pullback, I wait....and look for ideas. I want things easy in case I'm no more.
God bless
the Pudd
You can quote or cite the esteemed Buffet to support just about any point of view. My favorites are the ones about swimming naked + “Rule #1” and “Rule #2” .
But yes. @Mark’s reference to Buffet’s plan for wife (as vigorously discussed / debated here about a dozen years ago) is correct. Suggest a big grain of salt. As I believe Lewis intimated, not all of us have an extra billion lying around.
I wasn't being facetious in rhetorically posing the question of where the breadth sweet spot is. Or can reliably be said to be, if we seek investment goals and guidelines. Some of the above apples-oranges (categories) objections are silly, but someone else also mentioned subsets of sets; and so I began to wonder whether everything in SCHD was in SP500 and everything in SP500 in VONE, and everything in VONE in VT.
For the first it turns out not, but close, so far as I had the energy to parse. Specifically, if you exclude SCHD's last 25 or so holdings (out of ~100), which contribute a minuscule amount to performance, you do see that the remainder appear to be in SP500 (I'm not 100% positive about this, as I got tired searching within the long columns). SCHD applies a seriously delimiting quantified quality criterion. Could there be an SCHD for the VONE universe? (For some periods, of course, that is sort of what VONG and VONV do.)
Unappreciated (why I also mentioned comparative UI) was the 'leveling' effect the SCHD criteria appear to exert. But maybe UI is arguably overvalued as well. Gustibus.
Simple and relatively fast way to do this analysis:
1. Download SCHD into a spreadsheet from the Schwab site; here is the link for the .csv file.
2. Download a current (or at least recent) list of S&P 500 companies. I used Finasko; here's the direct link for an Excel file.
3. Cut and paste the ticker column (roughly 500 rows plus heading) into the SCHD spreadsheet.
4. Use COUNTIF to test whether each SCHD ticker is in the S&P 500 list. The COUNTIF function will return 1 if the SCHD ticker is in the S&P 500 and 0 otherwise. You should adjust the column letters appropriately; the expression I used is:
=COUNTIF($O$2:$O$504, B2)
5. Sum the counts. There are 55 SCHD companies in the S&P 500. The other 48 are not. The first company not in the S&P 500 is #49, First Horizon Corp (FHN).
6. By multiplying the weight of each ticker by its '1' or '0' result, you get a column of weights of just those SCHD companies that are in the S&P 500.
94.06% of SCHD companies (by weight) are in the S&P 500.
Of course the weightings of each company are completely different in SCHD and S&P 500.
I am sure I am not alone in dying to know what (7.) ff is.
>> Simple and relatively fast way
If you say so. Not for some.
>> I don't know what happened to DEESX, either.
My post and phrasing were about CAPE and CAPE only.
As for DSEEX, the M* chart for DSEEX
https://www.morningstar.com/funds/xnas/dseex/chart
shows its growth from end October 2013 to yesterday to be >203%, compared w SP500's 181%. For ytd it's >13% vs <8%.
That's all. Not making any other claims about it. Don't hold it anymore. 5y and 1y show it lags SP500 somewhat.
But with any other strategy, the truly unknown unknowns can upset investors. When the active or smart beta fund is underperforming the market, many investors get upset and sell, often at the worst time near the bottom. And when the fund is outperforming the market, investors can’t help chasing that performance, and buy, again often at the worst time, near the peak. I’ve seen such performance chasing even with sophisticated investors, sometimes even on this board. A number of studies reveal how investor returns in funds are often significantly less than the funds themselves because of such poor timing. This is especially so in volatile but top-performing funds. Investors tend to fare better in low-volatility active and smart-beta strategies. In this way, SCHD could still work for the patient long-term investor. Just don’t assume the moon.
The percentage of holding overlap, independent of weight, isn't especially meaningful. Consider funds holding just two securities: 99% and 1% in fund A, and 1% and 99% in fund B. These funds are essentially totally different, yet they have 100% overlap.
Or to give a less hypothetical example, compare an equally weighted index fund with a market weighted index fund. Significantly different, yet here too, 100% overlap.
So 7. is to compute active share. I did this a very quick and dirty way; I'm sure there are more elegant Excel functions to accomplish this. Steps are below.
The result is that SCHD has an 88% active share, relative to the S&P 500. It would be expected to, and does, behave very differently. Though over the long term it averages out to be rather similar.
As Lewis observed, the difference in behavior along the way may make SCHD a better choice (easier to hold). For the "true buy & hold types" this shouldn't matter.
7a. Copy the 500+ Ticker and weight columns of the S&P 500 components vertically on a separate page; start it in row 3 (columns A and B).
7b. Transpose (i.e. convert columns to rows) the ticker and weight columns of the SCHD components into rows 1 and 2.
https://support.microsoft.com/en-us/office/transpose-function-ed039415-ed8a-4a81-93e9-4b6dfac76027
7c. Fill in the cells of matrix (504 rows x 103 columns) with a formula that computes the absolute difference of the weights if the ticker is the same for that row and column. The formula looks like:
=IF(C$1 = $A3, ABS(C$2 - $B3) ,0) [this is for cell C3; cut and paste for the whole matrix]
7d. SUM the weights in the matrix.
7e. Compute the weights of all the Tickers in SCHD that are not in the S&P 500. This is done by using step 4 (with 0 if the ticker is not in S&P 500, 1 if it is). The formula looks like:
=IF(T2,0,P2)
7f. Sum these weights.
7g. Repeat this exercise (steps 4 and 7e-7f) to get the weights of all S&P 500 components that are not in SCHD.
7h. Compute active share: add absolute difference of weights for securities in both indexes (7d), weights of securities only in SCHD (7e), and weights of securities only in S&P 500 (7f); divide the sum by 2.
https://www.mutualfundobserver.com/active-share/
https://i.ibb.co/VtFSfBv/Screenshot-2023-02-15-10-02-14.png
Two of SCHD's top ten holdings, Lockheed Martin (LMT) and Blackrock (BLK), are not shown to overlap with the S&P 500. (They're very small parts of the S&P 500.)
These aren't isolated cases. Continuing down the list of SCHD's holdings, #11 IBM, #14 ADP, and #15 Altria are also S&P 500 components that don't appear to overlap. And so on.
What this x-ray does show is that the two funds are not all that similar.
Interesting 'not all that similar' bottom line. portfoliovisualizer shows 93%-97% correlation over 5y, with 93% their single figure. I'd prefer your work.
No, never moon-assuming!