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Asset Allocation: Small, Med & Lrg Cap. Value vs Growth
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peteyperson
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PostPosted: Wed Aug 27, 2003 10:51 pm    Post subject: Asset Allocation: Small, Med & Lrg Cap. Value vs Growth Reply with quote

Reading over the " Show me yours.. " thread covering asset allocation, it appears many here seem to have followed the Bernstein suggested allocations of value and sometimes total market instead of growth exposure and small instead of large cap, ignoring medium cap. I was wondering whether this was an attempt to time the market and step in and out of various asset classes before or as they become popular? The avoidance of large cap. would appear to be based on the overvaluation based on P/E, P/Book, Tobin Q indicators, made possible by tax-protected American accounts. Do you feel this "timing" is being successful?

Bernstein mentions that there will be a best case asset allocation but that we won't know what it is ahead of time. He seems to indicate placing a portfolio across a wide spectrum to cover all bets so to speak, but then goes for a lopsided value allocation and small cap allocation instead of investing 1/3 in Small Cap Blend, 1/3 in Medium Cap Blend, 1/3 in Large Cap Blend which would deliver an average performance over time rather than outperformance one year and underperformance another. Interestingly, currently US Mid-Cap is performing best, second is Small-Cap, followed by Large-Cap. I saw little exposure to Mid-Cap in the portfolios shown (Bernstein excluded Mid-Cap from his analysis in Four Pillars).

If you are not in a tax-advantaged account and FIREd, would it make more sense to split the allocation evenly between asset capitalisation as you cannot easily change allocations later without incurring heavy taxes? Further, looking ahead, if you know you are not tax sheltered, would it not be smart to take such an allocation early on rather than chase the top performing asset class(es) during accumulation only to later nearer FIRE face the problem of inadequate diversification?

According to Bernstein, for Small Cap, the Russell 2000 index has more funds invested than the S&P 600 Small-Cap index. While the Vanguard Small-Cap indexes using the Russell 2000, two iShares ETFs for Small-Cap use Russell 2000 and S&P600, with total investments of $2,257M and $812M respectively. If the indexes are similar and ETF expenses identical, why does the Russell 2000 have preference when the S&P500 is so universally known that you could imagine an investor preference for the S&P600 just because of familiarlarity with the S&P?

Value seems to still be performing better than growth in the recent market resurgence. Is this a long term trend that is expected to continue rather than a cyclical or historical event that may change?

Are there REIT funds / REIT index funds which come recommended? I have read there are several ETF REITS including the Wilshire REIT and one that appears to be an index of many REIT funds. Is there a consensus of a good approach with REITS or a fund that many here are invested in?

Interesting European ETF news:

"Europe's fund firms sour on sector ETFs"

Source: Wall Street Journal Europe
Across Europe 26 exchange-traded funds (ETFs) tracking industry sectors have closed in the past month because of low asset bases. Fund groups are now leaning towards ETFs that track broader indices or fixed income areas.

A little like Bernstein predicted, watch out for small funds, low trading, closures and stability of the ETF provider.

Cheers,
Petey




Last edited by peteyperson on Thu Sep 04, 2003 2:14 am; edited 2 times in total
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BenSolar
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PostPosted: Thu Aug 28, 2003 5:33 am    Post subject: Re: Asset Allocation: Small, Med & Lrg Cap. Value vs Gro Reply with quote

peteyperson wrote:
Reading over the " Show me yours.. " thread covering asset allocation, it appears many here seem to have followed the Bernstein suggested allocations of value and sometimes total market instead of growth exposure and small instead of large cap, ignoring medium cap. I was wondering whether this was an attempt to time the market and step in and out of various asset classes before or as they become popular? The avoidance of large cap. would appear to be based on the overvaluation based on P/E, P/Book, Tobin Q indicators, made possible by tax-protected American accounts. Do you feel this "timing" is being successful?


Greetings, Petey Smile

Personally, I am not completely avoiding large cap, though I might avoid large cap growth if I had better options in my 401k. I do have a reduced allocation to them because of valuation issues, and I probably would be doing the same thing in a taxable account. In a taxable account I have better options and would much rather be putting my contributions into something that I feel has better prospects than S&P500. I figure I can/will/would increase allocation or direct contributions towards that asset class when prices come down. When one isn't making contributions any longer, then rebalancing becomes more problematic in a taxable account. But if there I was faced with a situation where I had a lot of money in a class that had appreciated to the extent that it was overvalued while another had dropped to undervalued, then I think I'd cautiously rebalance, trying to be careful not to generate too much tax at once, and only doing so if I was pretty darn sure the valuation gap was large. Successful? To early to tell. Talk to me in 30 years. Very Happy
Quote:
Interestingly, currently US Mid-Cap is performing best, second is Small-Cap, followed by Large-Cap. I saw little exposure to Mid-Cap in the portfolios shown (Bernstein excluded Mid-Cap from his analysis in Four Pillars).

If you are not in a tax-advantaged account and FIREd, would it make more sense to split the allocation evenly between asset capitalisation as you cannot easily change allocations later without incurring heavy taxes? Further, looking ahead, if you know you are not tax sheltered, would it not be smart to take such an allocation early on rather than chase the top performing asset class(es) during accumulation only to later nearer FIRE face the problem of inadequate diversification?


I would be very careful to maintain adequate diversififcation even if making judicious valuation based bets. Raddr, for instance, is avoiding US large cap entirely, but he is widely diversified with multiple other asset classes, and his port would likely do fine if he left the US large cap out forever. I think Bernstein's non-inclusion of Mid Cap in sample portfolio was because 1) It doesn't appear to offer a lot of diversification benefit that you don't get from small cap, and 2) He was trying to keep the number of funds to a reasonably manageable number.

For me, I will likely be increasing my mid-cap exposure significantly, because our 401k plan is changing providers and there appears to be a pretty good mid-cap blend/value fund available in the new line-up. This will be one of my better options, it appears.
Quote:
Value seems to still be performing better than growth in the recent market resurgence. Is this a long term trend that is expected to continue rather than a cyclical or historical event that may change?


Both? Confused Theory indicates value should outperform growth because the value stocks are riskier. But there is definitely cyclical variation in which does better at a given time. There may even seem to be a bit of a free lunch in value in that, historically, it has outperformed and had lower risk than growth, if I'm not mistaken. This might be explained by behavioral finance type stuff where people do not act completely rational in their stock picking, preferring the blue chips even when the value stocks fall below the price where they rationally should be bought.
Quote:
Are there REIT funds / REIT index funds which come recommended? I have read there are several ETF REITS including the Wilshire REIT and one that appears to be an index of many REIT funds. Is there a consensus of a good approach with REITS or a fund that many here are invested in?


I am in Vanguards REIT fund VGSIX because I figure it's tough to go wrong with a Vanguard index of an asset class and because I aim to consolidate my holdings there in the long run. They follow the Morgan Stanley REIT index. I don't think they have an ETF yet, but wouldn't be surprised to see one down the road. I'm not really up on ETFs and could be wrong on that.

Regards,



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raddr
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PostPosted: Thu Aug 28, 2003 6:12 am    Post subject: Reply with quote

Hi Petey,

Good answers as usual from Bensolar. A couple of things I might mention here. As for mid-cap exposure, Ben is right about there not being much advantage to its inclusion in a slice and dice portfolio since, in essence, it is a "blend" of small-cap and large-cap characteristics.

In my case, my decision to exclude the S&P 500 (large-cap growth) is not really a "timing" decision. In fact, I would like exposure to this sector of the market but I feel that it is still way overvalued and I cannot justify having any at all in my portfolio. Some would argue, correctly, that these are among the best and most stable companies in the world. While this is true, they are not necessarily good investments if they're not priced properly. At this point in time there's every reason to believe that they will not return much more than TIPS over the next few decades but with much greater risk.

Looking in the rearview mirror, it would've been a huge mistake to leave out this sector. It should be remembered, however, that the performance of the S&P 500 was due largely to a generous dividend yield which averaged about 4.5% per year. While the Gordon equation is not perfect it has been a pretty good predictor of future returns on a long-term basis. According to an analysis I did recently, the chances of the S&P 500 returning 7% per year going forward is less than 1%.

On the other hand, small-cap value has consistently outperformed the S&P 500 for decades. My asset allocation models show that this sector, when combined with TIPS historically has offered better returns with less volatility than almost any other asset class combination I can find. I cannot say that I will never have any S&P 500 exposure in my portfolio but it looks pretty doubtful unless there is a 50% or more correction in the price of the index. In my opinion, there are just too many other asset classes that would be better on a risk-adjusted basis compared to the S&P 500.

I guess I am somewhat of a maverick in this regard. Certainly you would have a difficult time finding anyone on Wall Street advocating a portfolio that includes no S&P 500 exposure. There's really no sound reason for requiring that it be in your portfolio, however. After all, there must be some point where it is not worth it. I think anyone would agree that if the index was at 10,000 and the PE ratio was 300 you'd be crazy to own it. I think that it is not worth owning at 1000 and a PE ratio of about 30 which is where it is at now.

I must admit, however, that the realities of portfolio management kept me from getting to the desired 0% S&P 500 allocation until about a year ago. I was uncomfortable with valuations in the late nineties but most of what I owned was in taxable accounts so I had to take my time getting out in order to lessen the tax hit. I guess if I owned the index right now in a taxable account I probably would be careful with what I did and would probably tend to ease out of the position in order to minimize the tax consequences.


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peteyperson
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PostPosted: Thu Aug 28, 2003 8:24 am    Post subject: Reply with quote

raddr wrote:
I must admit, however, that the realities of portfolio management kept me from getting to the desired 0% S&P 500 allocation until about a year ago. I was uncomfortable with valuations in the late nineties but most of what I owned was in taxable accounts so I had to take my time getting out in order to lessen the tax hit. I guess if I owned the index right now in a taxable account I probably would be careful with what I did and would probably tend to ease out of the position in order to minimize the tax consequences.


I suppose that is one arguement for those investors with non tax-protected funds to limit exposure to any one asset class to a small percentage to enable them to slowly remove from it over 1-3 years. Doesn't allow for nifty footwork though it something goes pearshaped.

If I remember correctly I saw some iShares / ETF in your portfolio. What is your experience/knowledge of these? These are new to me. They don't have a track record to show their tracking error over time etc. I am also wondering whether if I can get my hands on a US trading account whether a UK citizen can buy one if they are traded as shares in the US markets. We have a limited range here in the UK but they cover limited aspects and only one for the US which is an S&P500 indexer! We have no indexing that I can find on Small-Cap or Mid-Cap, only actively managed funds that try to beat the relevant index. I'm hoping this may be a low cost way to get access to the American markets by Cap size. Our US indexers are only S&P500 or a FTSE total market estimation. Both of which will focus on the overvalued areas and don't do what I need.

I'm now realising that along with other things that general investors are not clear on, a total market funds is not real diversification in that relevant market due to being market cap-weighted. That was a recent pick-up for me after reading Bernstein. This only serves to highlight that whilst we now have 0.5% indexers here in the UK, they aren't refined enough like Vanguard funds and we can't yet get at specific parts of the market or more varied asset classes like small or mid-cap, value vs. growth, Gold, merging markets, REITS etc. We're left with 1.25%+ active management to aim at those asset classes..

If you only had a choice between 1.25% (sometimes with 3-4% sales load fees) actively managed market cap investing vs 0.5%-1% total market indexers in the UK, US, Europe and Pacific Rim exc Japan, what would tickle your fancy? How much stock do you put in the S&P fund reports and their A, AA, AAA rating system?

P.S. I noticed that some gold funds have done as much as 300% return over the last 3 years. In other times they perform very poorly. What are your thoughts on this kind of "counter programming"?

Thoughts?

Petey


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raddr
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PostPosted: Thu Aug 28, 2003 12:52 pm    Post subject: Reply with quote

peteyperson wrote:



If I remember correctly I saw some iShares / ETF in your portfolio. What is your experience/knowledge of these? These are new to me. They don't have a track record to show their tracking error over time etc.


What I would recommend is visiting www.ishares.com. Take a look at what indices these ETFs track and look at the charts of the tracking error of any you might be interested in. You will find that there is very little tracking error, unlike regular closed-end funds. This is because there is a built-in arbitrage mechanism which allows the ETFs to be converted to their underlying shares or vice versa. The markets won't let the ETF share price stray too much from its underlying index without triggering what amounts to program trading by institutions to correct the anomaly.
Quote:

I'm now realising that along with other things that general investors are not clear on, a total market funds is not real diversification in that relevant market due to being market cap-weighted. That was a recent pick-up for me after reading Bernstein.


Yes that is correct. There is the illusion that if you own enough companies you are diversified. However, the top names are so heavily weighted that they dominate the index almost to the exclusion of the rest of the names in the index.
Quote:
If you only had a choice between 1.25% (sometimes with 3-4% sales load fees) actively managed market cap investing vs 0.5%-1% total market indexers in the UK, US, Europe and Pacific Rim exc Japan, what would tickle your fancy?


In general, I would go with the low-cost index alternatives. The only place I found that active management tends to be worth the extra expenses involved is in the microcap sector of the market where institutions do not participate and there are some inefficiencies. Even then, you have to be very careful about who you let manage your money.
Quote:
How much stock do you put in the S&P fund reports and their A, AA, AAA rating system?


Not much. Wink
Quote:
P.S. I noticed that some gold funds have done as much as 300% return over the last 3 years. In other times they perform very poorly. What are your thoughts on this kind of "counter programming"?


Precious metals equities are one of the most misunderstood sectors of the market. It turns out that even if they give you close to a 0% real return they are worth having in your portfolio to the tune of 3 to 5%. This is because they are poorly or negatively correlated with most of the other components of a typical portfolio. This is one area of the market where I do participate in a form of market timing within one of my tax-sheltered accounts. My base allocation to this sector is around 3%. I doubled this a couple of years ago when the valuation model I use for gold became a screening buy. In general, a precious metals fund is a good buy when the XAU:gold ratio is above four and not so good when the ratio is below four. There are other factors involved which are little beyond the scope of this discussion and if you're interested you can learn more at:

http://www.hussman.net/html/gold.htm

I developed my model largely from the information in the above link. For what it's worth, gold stocks look to be pretty fairly valued if not slightly overvalued at the current time. If the model I use turns much more negative then I'm going to cut back to my base allocation.


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raddr
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PostPosted: Thu Aug 28, 2003 12:52 pm    Post subject: Reply with quote

peteyperson wrote:



If I remember correctly I saw some iShares / ETF in your portfolio. What is your experience/knowledge of these? These are new to me. They don't have a track record to show their tracking error over time etc.


What I would recommend is visiting www.ishares.com. Take a look at what indices these ETFs track and look at the charts of the tracking error of any you might be interested in. You will find that there is very little tracking error, unlike regular closed-end funds. This is because there is a built-in arbitrage mechanism which allows the ETFs to be converted to their underlying shares or vice versa. The markets won't let the ETF share price stray too much from its underlying index without triggering what amounts to program trading by institutions to correct the anomaly.
Quote:

I'm now realising that along with other things that general investors are not clear on, a total market funds is not real diversification in that relevant market due to being market cap-weighted. That was a recent pick-up for me after reading Bernstein.


Yes that is correct. There is the illusion that if you own enough companies you are diversified. However, the top names are so heavily weighted that they dominate the index almost to the exclusion of the rest of the names in the index.
Quote:
If you only had a choice between 1.25% (sometimes with 3-4% sales load fees) actively managed market cap investing vs 0.5%-1% total market indexers in the UK, US, Europe and Pacific Rim exc Japan, what would tickle your fancy?


In general, I would go with the low-cost index alternatives. The only place I found that active management tends to be worth the extra expenses involved is in the microcap sector of the market where institutions do not participate and there are some inefficiencies. Even then, you have to be very careful about who you let manage your money.
Quote:
How much stock do you put in the S&P fund reports and their A, AA, AAA rating system?


Not much. Wink
Quote:
P.S. I noticed that some gold funds have done as much as 300% return over the last 3 years. In other times they perform very poorly. What are your thoughts on this kind of "counter programming"?


Precious metals equities are one of the most misunderstood sectors of the market. It turns out that even if they give you close to a 0% real return they are worth having in your portfolio to the tune of 3 to 5%. This is because they are poorly or negatively correlated with most of the other components of a typical portfolio. This is one area of the market where I do participate in a form of market timing within one of my tax-sheltered accounts. My base allocation to this sector is around 3%. I doubled this a couple of years ago when the valuation model I use for gold became a screening buy. In general, a precious metals fund is a good buy when the XAU:gold ratio is above four and not so good when the ratio is below four. There are other factors involved which are little beyond the scope of this discussion and if you're interested you can learn more at:

http://www.hussman.net/html/gold.htm

I developed my model largely from the information in the above link. For what it's worth, gold stocks look to be pretty fairly valued if not slightly overvalued at the current time. If the model I use turns much more negative then I'm going to cut back to my base allocation.


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peteyperson
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PostPosted: Thu Aug 28, 2003 1:56 pm    Post subject: Reply with quote

Hi raddr,
raddr wrote:
What I would recommend is visiting www.ishares.com. Take a look at what indices these ETFs track and look at the charts of the tracking error of any you might be interested in. You will find that there is very little tracking error, unlike regular closed-end funds. This is because there is a built-in arbitrage mechanism which allows the ETFs to be converted to their underlying shares or vice versa. The markets won't let the ETF share price stray too much from its underlying index without triggering what amounts to program trading by institutions to correct the anomaly.


That is actually what I've been doing before I posted. www.ishares.net has the UK offers which have 1/5th of the range and don't offer the same cost savings or diversity.

I know it is difficult but possible to get a broker account in US$ and trade US stocks. Therefore if ETFs are bought and sold as indicated in that manner I see no logical reason why I shouldn't be able to buy some of the US iShares. I have to really hunt for a US broker that allows trading though as last time I looked they all required a US SSN.

I have considered Timber as an asset class, but although there has been discussions about it, it did not show up in the allocations thread. I also have concern that as the investment would be a company listed on the main exchanged, it might would fall with the market and not be a good non-correlated investment.

Thanks for the link. I shall take a look at it. Usually Gold gets written off as a poor performing asset that is pointless holding at a limited 1-5% holding as it will have a limited upside and an overall drag on performance. It will be interesting to hear other arguements to this.

http://www.hussman.net/html/gold.htm

Petey


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peteyperson
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PostPosted: Thu Aug 28, 2003 10:00 pm    Post subject: Reply with quote

Well raddr, more good news on the ETF front.

Three days ago the sector tracking ETF funds were closed down. Most investment was going rapidly into the straight cap indexing, FTSE 100 (top 100 shares on the London Exchange). iShares UK have now announced that they are working on a number of bond and equity funds for later in the year. The bond ones may trade for as low as 0.2% (unheard of in the UK) and they have confirmed one of the equity funds will be indexing the FTSE 250 (Mid-Cap). At that stage we'll be able to index large and mid cap seperately which hasn't been offered before in the UK to my knowledge.

There is also news that other providers are gearing up with their own new offerings in the coming months, especially on the bond front. I have found also that the largest UK broker sells ETFs with no fee at all, making them more affordable still. Furthermore, FTSE indexes (think MSCI) are bringing out Small Cap weighted indexes for global regional investing which creates the possibility of index funds or ETFs in the near future where we can invest internationally by market cap. If that happens we may finally have an investing opportunity in the same ballpark as Vanguard albeit with larger fees.

One of the downsides is that ETFs don't have the same kind of investor protections should they fail as regular mutual funds do, however these are Barclays Global Investment funds and I understand they're fairly big. I will certainly be happier when I could spread investments around with different providers.

http://www.ishares.net/pdf/press/uk_press_21.pdf

Petey
raddr wrote:
What I would recommend is visiting www.ishares.com. Take a look at what indices these ETFs track and look at the charts of the tracking error of any you might be interested in. You will find that there is very little tracking error, unlike regular closed-end funds. This is because there is a built-in arbitrage mechanism which allows the ETFs to be converted to their underlying shares or vice versa. The markets won't let the ETF share price stray too much from its underlying index without triggering what amounts to program trading by institutions to correct the anomaly.


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PostPosted: Thu Aug 28, 2003 11:46 pm    Post subject: Reply with quote

petey
Quote:
I know it is difficult but possible to get a broker account in US$ and trade US stocks. Therefore if ETFs are bought and sold as indicated in that manner I see no logical reason why I shouldn't be able to buy some of the US iShares. I have to really hunt for a US broker that allows trading though as last time I looked they all required a US SSN.
Have you looked at http://www.tdwaterhouse.co.uk/ ? As far as I know, you can trade any US ETF or stock you like at the UK TDWaterhouse site without having to go to a US broker, plus the US with-holding tax on dividends is reduced. From TD Waterhouse site
Quote:
ONLINE - You can buy or sell shares on all North American markets online whenever these markets are open. You can also place limit orders whilst these markets are open or closed

For non-resident aliens wanting to own US Indexes, ETFs are definitely the way to go. Presumably you may be able to hold them in whatever the UK tax-free retirement account is called these days



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peteyperson
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PostPosted: Fri Aug 29, 2003 1:48 pm    Post subject: Reply with quote

Hey Ken,

I will take a look at them. They looked a bit stuffy old fashioned to me. I read an article last night from ishares.net that suggested that 30% US dividend tax is taken and cannot be reclaimed when buyin g US ETFs because you're not supposed to be buying them. If this is true then it comes at a heavy premium prior to British 15% taxes on dividends.

I'm hoping as I mentioned in a previous post in this thread that the UK sourced ETFs will continue to expand with the rapid success of indexed funds for S&P500 & FTSE100. I have time to wait to see what they do, also the UK government is changing the pensions around over the next 3 years and are about to increase taxes by removing £250k inheritance tax allowance, double stamp duty on property purchase (making it even harder for the under-class who don't own property to ever get on the market - thanks guys!) etc.

Petey
KenM wrote:
petey
Quote:
I know it is difficult but possible to get a broker account in US$ and trade US stocks. Therefore if ETFs are bought and sold as indicated in that manner I see no logical reason why I shouldn't be able to buy some of the US iShares. I have to really hunt for a US broker that allows trading though as last time I looked they all required a US SSN.
Have you looked at http://www.tdwaterhouse.co.uk/ ? As far as I know, you can trade any US ETF or stock you like at the UK TDWaterhouse site without having to go to a US broker, plus the US with-holding tax on dividends is reduced. From TD Waterhouse site
Quote:
ONLINE - You can buy or sell shares on all North American markets online whenever these markets are open. You can also place limit orders whilst these markets are open or closed

For non-resident aliens wanting to own US Indexes, ETFs are definitely the way to go. Presumably you may be able to hold them in whatever the UK tax-free retirement account is called these days


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PostPosted: Sun Aug 31, 2003 1:20 am    Post subject: Reply with quote

petey
Quote:
........ and are about to increase taxes by removing £250k inheritance tax allowance

aaaaggghh....... where does it say that? I've got investments in the UK and rely on that allowance. I know the UK Govt have talked about it in the past but I haven't seen anything lately.



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PostPosted: Sun Aug 31, 2003 1:34 pm    Post subject: Reply with quote

Front page of one of the major newspapers the other day. There have been rumours of it for sometime.

It is not definite but it looks very possible. Stamp duty will double etc. It is the kind of tax changes you can expect in the sense that they are invisible changes rather than raising the income tax a point or two which hits every paypacket. For that reason I think it is likely. It is a politician's way of saying we haven't raised direct taxes and avoid the question of doesn't it stick it to those people who are trying to buy a home and doubling stamp duty on property purchase hurts them.

Petey
KenM wrote:
petey
Quote:
........ and are about to increase taxes by removing £250k inheritance tax allowance

aaaaggghh....... where does it say that? I've got investments in the UK and rely on that allowance. I know the UK Govt have talked about it in the past but I haven't seen anything lately.


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peteyperson
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PostPosted: Wed Sep 03, 2003 6:54 am    Post subject: Reply with quote

Raddr,

Just picking up on something that you wrote a little while ago..

Do you have a run-down on your predictions using the Gordon Equation on future returns of different asset classes and investments? Do they differ much from what Bernstein put in 4 Pillars?

Petey
raddr wrote:
Looking in the rearview mirror, it would've been a huge mistake to leave out this sector. It should be remembered, however, that the performance of the S&P 500 was due largely to a generous dividend yield which averaged about 4.5% per year. While the Gordon equation is not perfect it has been a pretty good predictor of future returns on a long-term basis. According to an analysis I did recently, the chances of the S&P 500 returning 7% per year going forward is less than 1%.


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PostPosted: Wed Sep 03, 2003 12:21 pm    Post subject: Reply with quote

peteyperson wrote:
Raddr,

Just picking up on something that you wrote a little while ago..

Do you have a run-down on your predictions using the Gordon Equation on future returns of different asset classes and investments? Do they differ much from what Bernstein put in 4 Pillars?


Petey,

I really don't have the long-term inputs that are necessary to apply the Gordon equation to other asset classes. A rough guess is that future returns will approximate the past if long term earnings growth remains constant and valuations are within reason. Some asset classes, most notably the S&P500, are significantly overvalued relative to the past and will no doubt return less in the future. Others, like small caps (domestic and foreign) are priced more sanely and should give future returns comparable to the past. Since I don't possess a foolproof crystal ball and not every asset class will perform as expected I pretty much own them all - except for the S&P500/TSM which, as you know, I think is still at bubble valuations.


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PostPosted: Wed Sep 03, 2003 6:30 pm    Post subject: Reply with quote

I really don't have the long-term inputs that are necessary to apply the Gordon equation to other asset classes. A rough guess is that future returns will approximate the past if long term earnings growth remains constant and valuations are within reason. Some asset classes, most notably the S&P500, are significantly overvalued relative to the past and will no doubt return less in the future. Others, like small caps (domestic and foreign) are priced more sanely and should give future returns comparable to the past. Since I don't possess a foolproof crystal ball and not every asset class will perform as expected I pretty much own them all - except for the S&P500/TSM which, as you know, I think is still at bubble valuations.

weasel! Wink

You clearly need to pick hocus' brain. He's making wonderful progress over at the 'research' board. Great!



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The field has eyes / the wood has ears / I will see / be silent and hear
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raddr
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PostPosted: Thu Sep 04, 2003 3:40 am    Post subject: Reply with quote

wanderer wrote:
I really don't have the long-term inputs that are necessary to apply the Gordon equation to other asset classes. A rough guess is that future returns will approximate the past if long term earnings growth remains constant and valuations are within reason. Some asset classes, most notably the S&P500, are significantly overvalued relative to the past and will no doubt return less in the future. Others, like small caps (domestic and foreign) are priced more sanely and should give future returns comparable to the past. Since I don't possess a foolproof crystal ball and not every asset class will perform as expected I pretty much own them all - except for the S&P500/TSM which, as you know, I think is still at bubble valuations.

weasel! Wink

You clearly need to pick hocus' brain. He's making wonderful progress over at the 'research' board. Great!


LaughingLaughingLaughing I think I can find better uses for my unlimited free time in retirement. Wink


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wanderer
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Location: anytown, usa

PostPosted: Thu Sep 04, 2003 7:16 am    Post subject: Reply with quote

Quote:
I think I can find better uses for my unlimited free time in retirement.


This shortness of time has come up a number of times today, raddr. I think bensolar and ataloss mentioned it, too. It's part of why I post more briefly these days. And part of why I give hocus' silliness zilch time.

I seem to be incredibly busy these days. between a virus infected computer, renting a house 10,000 miles away, locating property in seattle, lining up personnel for building next summer, the start of another semester with a new prep, locating a new car, and (gasp) dealing with my kids' head lice(!), i find I have very little time for the sorts of 'insights' hocus has to offer. i must be missing so much! Laughing



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wanderer

The field has eyes / the wood has ears / I will see / be silent and hear
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raddr
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PostPosted: Thu Sep 04, 2003 3:44 pm    Post subject: Reply with quote

[quote="wanderer"]
Quote:


I seem to be incredibly busy these days. between a virus infected computer, renting a house 10,000 miles away, locating property in seattle, lining up personnel for building next summer, the start of another semester with a new prep, locating a new car, and (gasp) dealing with my kids' head lice(!), i find I have very little time for the sorts of 'insights' hocus has to offer. i must be missing so much! Laughing


:shock:Yikes, man! You need to retire so you'll have time do all of this. Laughing


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Trex
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PostPosted: Fri Sep 05, 2003 3:59 am    Post subject: Reply with quote

Hi Petey,
I have considered Timber as an asset class

I tend to think of timber as a speculation- could be very carefully calculated though....

Trex


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wanderer
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PostPosted: Fri Sep 05, 2003 6:52 am    Post subject: Reply with quote

looks like we may have solved the car problem - found a 12 y.o. Mercedes with 123k on it for about $6k ($7k after fix up). One down.... Great!



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