[Jimmy]

Good article in Globe. Another adviser today telling you wisely to avoid long term and govt bonds. You also have to be more active and scrap traditional, inflexible investment plans. No more 'set it and forget it' approaches.

Kurt Reiman, chief investment strategist for Canada at global investing BlackRock says to find 'other' solutions for the lousy yields of govt bonds. Their mean expected return over 10yrs for bonds is only 1.7%. So for now underweight govt bonds, look at ST corporate bonds < 5 yrs only and overweight stocks.

Q: Let’s say I have a conventional 60/40 portfolio of stocks and bonds – what tweaks do I need to make to adjust for rising inflation?

If you’re holding cash or government bonds, yields are so low today that they’re not keeping pace with inflation. So the purchasing power and the intended portfolio resilience to inflation is more limited. We have to find other solutions.

In the near term, meaning our tactical investment horizon over the next six to 12 months, we’re doing a few things. We were underweight, now we’ve decreased that underweight. And, we’ve increased our allocation to inflation-protected bonds. Another step to limit inflation impact is to overweight stocks – we’ve done that. Within stocks, we would lean into, for example, U.S. small caps, which have an increased allocation to cyclical sectors like energy, materials, financial and industrials.

Q: Investors are really struggling with bonds – they understand the function bonds perform in acting as a hedge against stock market plunges, but yields are low and bond prices have fallen this year. What’s the best way to get your fixed income exposure right now?

The first approach is to shorten duration [by focusing on bonds maturing in the short term, usually meaning five years or less]. I would then ensure a reasonable allocation to corporate bonds, by virtue of the fact that they offer higher income [than government bonds]. I would also consider putting a portion in inflation-linked bonds. This requires quite a bit more due diligence than the kind of set-it-and-forget-it approach that investors used from the early 1980s to, basically, now. Fixed income is still a critical part of the portfolio, but it requires more attention than it did in the past.

It’s going to require investors to dig deeper to understand the outlook and where the opportunities lie. For Canadian aggregate bonds, our mean expected return is 1.7 per cent over 10 years.

 

[Jimmy]

lol, more terrible advice. You've got to stop reading this trash Jimmy. These are the narratives of active managers and advisors.

You might as well watch CNBC while you're at it. They will tell you how to time the market as well.

Jimmy, just being real with you and telling you man... @MrBlackhill too ... "actively" navigating markets and using facile logic to reposition oneself does not work. It's a losing strategy in the long term and studies have shown this.

Respectfully, you are becoming a fanatic and there is no pt even arguing w such hysteria.

For your sake when there is an increasing chorus of professional financial advisers who do this for a living all saying the same thing, maybe you should consider what you are doing is crazy vs trying to convince people the group are crazy. They are hardly active managers and they are not 'timing' the market either. They just know when to make some tactical adjustments to avoid making crappy 1.7% returns on long term bonds.

These advisors have forgotten probably more than any of us here will ever know about investing. They are trying to save you from yourself and the faulty outdated investment plans out there and you should be grateful

 

[Jimmy]

Active management doesn't work, and this has been proven countless times. Not sure what else I can tell you.

Advisors, active fund managers, and even hedge funds (with the smartest people on earth) cannot even beat passive investment strategies long term. So what does that tell you about their skills?

This isn't even a debate about 'active management' vs low return passive management.
Finance professionals are telling you to tweak traditional 60/40 and other out of touch investment plans for the new ST realities of low interest rates and they are right. XBB is down -3.5% ytd, XSB is down -.5%. looks like they are right.

BTW on 'active' investing again advisors holding concentrated portfolios Lynch, Pape,Buffet, Gardner Brothers, Heinzl etc etc have all destroyed low return lazy index investing but you already know this. Mutual fund managers who have to hold 200+ stocks and basically buy the index obviously aren't going to beat it.

 

[Jimmy]

"have all destroyed" cannot be true, because the index is the sum of all investors' activity. Unless you think that retail investors are collectively large enough volume and horrible investors to counteract the absolute destruction of the indexes wreaked by literally every active advisor.

I didn't say every active investor though.

You omitted the ' advisors holding concentrated portfolios ' (and their list) part. You are free to compare Berkshire's returns to the S&P 500 if you don't think Buffet can beat the lazy index.

 

[Jimmy]

@Jimmy you don't want that, right? Why would you want a drag on your returns. I think you should concentrate as much as possible into the highest returning area, especially whatever CNBC and the financial media promotes. That's what smart people do, I'm told.

Others like me will continue to hold diversified portfolios, even with some low performing components, and accept a drag on returns.

Not going to bite on your sarcasm sorry. This isn't about me or you. You are free to do what you want. You just shouldn't attack articles in the Globe just because they disagree w your eccentric ideology. There is more educational value if the forums have a variety of opinion too vs the same limited personal views repeated over and over.

 

[Jimmy]

It's very fair for me to point out that active market-timers have terrible track records. The problem is that nobody is able to predict which way these things will go, and financial writers -- including the Globe and Mail characters -- are pretending they can time markets. They can't.

Instead of being upset with me, you should be upset with those G&M writers. They are the ones using amateur analysis to advise people on how to change their investments, which is reckless and irresponsible of them.

Jimmy do you not remember a few years ago, when emerging markets were all the rage? How about commodities? Didn't you ever turn on BNN and see these people talking every single day, about how the only place to invest is in commodities, the energy sector, and emerging markets?

Think about how much money investors lost, listening to these worthless people.

I'm vocal about this because many people really get sucked in by these kinds of writers, and think that if they read the G&M or watch CNBC, or investment newsletter, that some "smart guy" can tell them which assets or sectors are the right place to be.

I don't know who you have in mind but people like Warren Buffet, Gordon Pape, Rob Carrick etc aren't talking about timing markets. They just don't share your eccentric models and overweight views on LT bonds, wisely in in my opinion. But I don't want to get into a conflated argument again

You can view them anyway you like. What is fair is others here deserve to hear their opinions either way though. The forums should be balanced. Despite that people can still make their minds up for themselves.

 

[Jimmy]

He absolutely is writing about market timing. He is predicting interest rates and inflation, and changing the asset allocation decision based on that. That's a tactical allocation change which may, or may not, work out positively for the investor.

I realize that some people like timing the markets and asset classes. That's fine, but I am pointing out that it's market timing.

Timing teh market implies predicting market tops and bottoms. He isn't predicting anything. He just sees rightly the returns on Lt bonds are not worth the risk and moving some $ into St bonds w in his FI portfolio. Same for everyone else including the recent advisor. That isn't timing the market. That is tactical investing. Either way I am not going to argue semantics w you

 

[Jimmy]

The way @james4beach invests is not eccentric in my view. I’m diversified among asset classes, I once was all equities and learned it doesn’t suit my personality after 2008. I suspect others will come to the same realization in the future. (Not saying this will be Jimmy or MrBlackhill).

Some of the plans discussed here ie the permanent portfolio are a little eccentric IMO. I never said diversification was eccentric. I have stocks in all markets, st bonds, cash, alts and preferred shares.

 

[Jimmy]

The 1970s had oil shocks that led to the stagflation. Oil rose from $4/bbl in 1974 to $39 in 1980 or almost 1000% and stayed above $25 until 1984. It sent gold soaring as well.

There is nothing like that happening now.

 

[Jimmy]

That guy is always predicting doom and gloom He finally got it right 1 year.

As far as inflation , forecasts are in the 2% range. The CBs will do what they always do w the debt. just print $ and inflate it away.

 

[Jimmy]

When you are making claims, it’s best to support them with facts.

"After the crisis, Mr. Roubini stuck with his bearish views, failing to foresee the economic rebound and powerful stock market rally that followed. In August 2011, he told The Wall Street Journal that the risk of a global recession was at least 50%. By 2014, he had turned more bullish. "

"
Eric Tyson, a former financial adviser and author of several financial books in the Dummies series, has made a hobby out of critiquing Mr. Roubini’s financial predictions.
On Mr. Roubini’s January 2009 warning that oil would stay below $40 a barrel for the entire year, Mr. Tyson pointed out that it climbed to $80 a barrel 10 months later.
He cited a March 2009 call by Mr. Roubini that the S&P 500 would fall below 600. The index gained 65% over the next nine months.
According to Mr. Tyson, after predicting recessions every year from 2004 through 2008, Mr. Roubini “was finally right in 2008.”



Not sure why you are fluffing for him but he is a notorious bear . Every year he predicts a downturn. Bound to be right once in awhile

 

[Jimmy]

The markets are overvalued only 5% according to Morningstar. An analysts on BNN today from UBS didn't see the doom some are predicting here either. Companies are having record earnings and sales growth. In fact, there is so much demand out there for energy they are talking about an energy crisis from lack of supply in China and the EU. Companies are constrained from growing from other shortages too, chips and building materials for ex.

Market Fair Value | Morningstar

Learn whether or not the current stock market is overvalued, to decide if now is a good time to invest or sell.

www.morningstar.com

 

[Jimmy]

Great posts @MarcoE


You hold a diversified portfolio so that you get decent returns even as the market environment changes. You load up on assets that perform differently in different economic regimes (which is why I have some gold too). Your diversified portfolio is going to contain some underperforming assets. That's by design!

My assets are stocks, bonds, gold. The year is 2030. Which asset will be performing best at that time? Most likely, one or two assets will perform well, while another one does terribly.

But which one?

Indexes are expected to have ~ 3.8%/yr real return going forward. Bonds .6% . Simplifying a 60/40 portfolio is expected to return 1.4% in real terms. If your goal is just to eke by then that is fine.

2021 Capital Market Assumptions for Major Asset Classes

We update our estimates of medium-term (5- to 10-year) expected returns for major asset classes. We also discuss what investors should expect from the stock-bond correlation in the coming decade.

www.aqr.com

 

[Jimmy]

Those are short/mid range forecasts, and there are also massive "error bands" on those estimates. You're taking the forecasts too literally. Analysts have a very poor history with these kinds of stock forecasts.

The stock returns over short horizons are basically a wildcard. Anything can happen. The bond returns can be more accurately predicted, because bonds have more predictable and reliable returns.

So Jimmy... instead of getting your +4% real return in stocks, what if you see something like a 20% or 40% drop over a few years instead? Is that going to be painful for you? Are you going to shrug and say "yup them's the breaks" or are you going to feel upset and stressed about losing money?

No all the professional studies and expert opinions aren't wrong, your amateur blogger views are. Almost any type of active management makes more than the cap weighted index and I'm not going to keep showing you their results Mr B and others have provided again and again. I know you like to argue this rhetorically all the time but it is ptless. Again making low risk meager returns is fine. Others invest to make better returns. Others don't share your eking out an existence approach and we'll leave it there.

 

[Jimmy]

How can this be true if Sharpe's "Arithmetic of Active Management" is true (which it must be)?

If "active" and "passive" management styles are defined in sensible ways, it must be the case that

These assertions will hold for any time period. Moreover, they depend only on the laws of addition, subtraction, multiplication and division. Nothing else is required.

That is just some weirdo oddball blog post written 20 yrs ago. This has been resolved many x over. Here are the real studies See post 57. 1964-2012 Mkt cap weighted index return 9.66% , avg all non cap weight 11.75%

As you can see all forms of active mgmt in that study beat the market cap index. We resolved this months ago whether some can accept they were wrong or not.

MrBlackhill's reckless fun and struggles

Here's more info about the status of my playground portfolio (in bold my biggest positions): 27.69% Tech 11.37% CSU 4.74% CTS 3.24% KXS 1.63% REAL 1.60% HAI 1.40% HBGD 1.39% BEW 1.17% TOI (from CSU) 1.16% RIWI 17.13% Consumer Cyclical 9.15% BYD 3.28% FOOD 3.22% RPI-UN 1.47% DOO 11.89%...

www.canadianmoneyforum.com

 

[Jimmy]

Jimmy can continue his train of thought as much as he wants. He can't get traction on it because the facts say otherwise on an all inclusive portfolio basis. Some actively managed portfolios can exceed the index some of the time. That is as far as that conversation can go.

Investors who deviate from broad market indices do so or their own specific reasons, e.g. income oriented portfolio, momentum, growth, etc. but from an equity perspective the MSCI World Index is the benchmark for global equities.

It isn't my train of thought. You can read the objective study. Again Mkt cap index 9.66% avg, active indexes 11.75 %. Sorry the facts don't agree w the lazy index views.

 

[Jimmy]

I can see that the strategies mentioned in that study beat the index. However, in order for the index to be the index then there must conversely be some other strategies that didn't beat the index. The index is just the sum of all investments put together, both passive (the index itself) and active.

Not really. The index is market weighted.So you can beat the index by having different weightings(factor tilts) or selecting the best stocks or a combo. All you have to know is active mgmt is better as the study confirmed.

 

[Jimmy]

It is not known in advance that "you can beat the index by having different weightings(factor tilts) or selecting the best stocks or a combo". No active manager of any portfolio will guarantee it with a financial back stop. Never have and never will. It is no more complex than that.

All you have to know is from the conclusive study anything beats the lazy mkt index. It is not guaranteed but nothing is. But if history holds the trend should continue.
The takeaway some seem resistant to accept is putting some thought into investing leads to better results.

 

[Jimmy]

Some seem resistant to understanding basic math. The index is literally the sum of all the investments in the world. Therefore, some MUST be beating the index, and some MUST be lagging the index.

Of course having different weightings/tilts can beat the index. But it could also lag the index. What if my stock portfolio right now was tilted toward Chinese equities?

I don't disagree at all that some strategies can beat the index. I have a fun money portfolio where I play around with different strategies myself. It entertains me and so far this year, I am beating the index. Where I take issue is when you say "ALL active management beats the index". This cannot be true due to basic math.

Some seem to have a comprehension disability. I didn't say ALL active mgmt beats the index. I said ALL active mgmt in the study which covered most active factors.

For the last time the study shows active mgmt beats the lazy index over the long term is all you need to know . All the rest is just resistance, obfuscating and deflecting.

 

[Jimmy]

I think Agent's returns are the index then you have to add the div yield to get 9.29%.

From 1929 to 2020 the geometric avg (total incl div) is 9.79%. Real return 6.47%. from NYU. ' Historical returns by market" (2nd item down ) . Not bad but not great.

Useful Data Sets

pages.stern.nyu.edu