Scientific Alpha

@HistoryInvestor is a dividend portfolio manager and author. On the Paradigm Shock Podcast, he dropped a take that stopped me cold: Capital gains are a forced reduction of ownership. Dividends aren’t. It’s a powerful - and, for many uncomfortable - idea. Let’s unpack it 🧵

@ServoWealth Thank you for this, it is very helpful. What is your view on DUSLX vs DURPX?

I prefer to hold a more focused asset class portfolio: High Profitability for LG/large market Large Value for value exposure Small Value for small cap exposure Internationally I don’t see a reason for profitability or EM; I just use int’l large value and small value For bonds, a global bond fund (also developed markets only) with a variable maturity (max 5yrs) approach and high credit quality is sufficient I’ve explained this approach to hundreds of investors (clients and prospects) and it has very practical appeal (and very high/more than sufficient expected returns)

@ServoWealth Thank you, Eric!

@ScienceofInv Misunderstanding. Vector is a deeply size/value/profitability all-cap, one and done fund. It’s the edge of the market-wide tilted series of Core funds

Think “stocks are expensive”? Think again. A globally diversified, small/value tilted portfolio trades at a P/E of 15 vs 23 for the S&P 500, and US small value, international & emerging markets value trade at a P/E of 8. This is a great time to be an equity investor.

@ramit @mike_kothakota Isn't lumping them all together unfair? There are major differences between credentialed fiduciaries and sales people. Yet both may charge AUM. Educated and credentialed advisors provide a valuable service to clients that goes far beyond just investments.

@mike_kothakota Correct! I've never seen data showing that paying AUM fees produces better outcomes than paying an hourly or flat fee. If you have seen that data, please let me know. In the absence of that data, I recommend individual investors minimize their costs and not pay AUM

Here are just a few comments from readers who were paying AUM fees and had ***no idea*** how much it was actually costing them More below

@TeeplesCY This data is from 2010-2011. I would guess it would be much different if taken today.

81% of Latter-day Saints say being a good parent is one of their most important life goals, compared to 50% of the general public. 73% of Latter-day Saints say having a successful marriage is one of their most important life goals, compared to 34% of the general public.

@HML_Compounder @MaciejWasek @IndexWealthy @andrewdbeer1 I think @IndexWealthy is also missing that you do not look at managed futures in isolation, but as part of a portfolio. The long term record is in favor of managed futures.

@MaciejWasek @IndexWealthy @andrewdbeer1 Ya yields matter but I always think about these strat returns as excess return above cash. Especially important if you are overlaying/stacking them.

@IndexWealthy @MaciejWasek @David78140926 @larryswedroe @ErnRetireNow @egr_investor When you say 100% equities, do you mean 100% beta, or multi-factor?

Interesting read. I disagree with most of the arguments, though the one about correlations in the modern world is important, which is why 50/50 seems to make little sense for US based investors. I also agree with this author that 100% equities in retirement is foolish and diversification and adding different sources of risk isolates the portfolio from SRR. In accumulation phase though the papers authors are correct, investors want to take on maximum risk especially because they are contributing on a routine schedule, they can take advantage of any drawdowns in equities. Once they reach retirement, a different approach is needed.

@money_cruncher The BOI requirement doesn’t apply if your LLC is inactive (no business transactions) correct?

If you have an LLC or a Corporation, listen up... FinCEN appealed the preliminary injunction regarding the BOI report filing due on January 1, 2025. Here's the latest update: 🧵

@BullandBaird Agree on all 3!

3 of the most overrated things ever: Lobster Prime rib Real Christmas trees. Yea I said it.

@TrendingValue How is he defining "recent" and "atrocious"? SCV returns for the last 5 years CAGR 14.56% narrowly trailing the S&P 500, 3 years 11.25% beating the S&P 500, YTD 18.96%. Hard to call this kind of performance "atrocious." @ErnRetireNow

I am a big fan of Karsten but this is just a classic case of resulting.

@DominantPort @MarkMcGrathCFP @RationalRemind I get it. Not everyone is meant to hold a scientifically constructed, evidence based portfolio with high tracking error. My point is that owning broad indexes with 13K securities is speculating not investing.

@ScienceofInv @MarkMcGrathCFP @RationalRemind And with consideration of multiple viewpoints over a long, long period together with an understanding of working directly with human behavior, one often comes to different sets of conclusions than a single source could ever allow for on its own.

I own more than 13,000 global stocks, in a single fund. How many stocks are in your portfolio?

@DominantPort @MarkMcGrathCFP @RationalRemind Not sure what the point of bringing this up is.

@ScienceofInv @MarkMcGrathCFP @RationalRemind has already interviewed and discussed with Alpha Architect directly over multiple occasions...

@ramit People have been conditioned by the real estate lobby and simple inertia (thats what you do) that buying a house is the surest way to wealth. A look at the historical data will reveal that housing is a horrible investment in the aggregate. But you are right, few run the numbers.

I’m not against buying a primary residence. I’m pro- running the numbers I talk about RE because the religious fervor of homeownership in America is irrational & hilarious. If you want to live a Rich Life, you 100% must run the numbers on the biggest purchase of your life

To all the people who believe real estate is the best investment and only goes up and rent is “throwing money away”: If it only goes up, shouldn’t you buy at any price? Including $28,000/mo? No? Why not?

@LoonieDoctor @MarkMcGrathCFP Happy to. 1: amazon.com/Quantitative-V… 2: alphaarchitect.com/2014/09/how-ma… There is a broad range of studies which support the conclusion that hyper-diversification, which we will define as diversification beyond 50-100 names in any one market, is counterproductive.

@ScienceofInv @MarkMcGrathCFP I am open to the idea obviously & want to use the best evidence - can you link me to the research so that I can critically appraise it?

@ValueStockGeek Also interesting that this new love of mid caps is making the case for CRSP indexes over the formerly preferred S&P.

@LoonieDoctor @MarkMcGrathCFP Agree that you need more than 50 names total to have a diversified portfolio. But the idea that you need thousands has been disproven by the research. The relationship between concentration and excess returns is convex. You need maybe 150 names globally.

@MarkMcGrathCFP @ScienceofInv Also that "50 stocks research" is for a single market. To diversify across multiple industries & geographic regions probably takes thousands. Especially given the high correlations within a given industry or region. investopedia.com/articles/stock…

@MarkMcGrathCFP 2 things drive investment success: 1. Exposure to the factors 2. Ability to hold that exposure even when it gets difficult to do so. Research shows focused factor exposure leads to better outcomes. Read Quantitative Value.

@ScienceofInv Diversification as in a reduction in unsystematic risk, yes. But a handful of companies drive most of the returns of markets.

@MarkMcGrathCFP Just saying it is an irrelevant data point. Research has proven investors can achieve sufficient diversification with 50 names. Owning 13,000 is unnecessary.

@ScienceofInv Not sure why you thought this was bragging