JF10977

@QuietProsperity @BarbellFactors @benjaminfelix @OptimizedPort @egr_investor @HML_Compounder @dollarsanddata @awealthofcs What's interesting is if you closed your eyes and just looked at year end numbers, you'd think small caps are less volatile than they actually are. You'd miss everything that happens along the way.

@jf10977 @BarbellFactors @benjaminfelix @OptimizedPort @egr_investor @HML_Compounder @dollarsanddata @awealthofcs This makes sense. Any single style factor fund is bound to be more volatile at times compared to the market. More tracking error. SCV has always carried more volatility. It’s part of what makes it tough for investors to hold it over time.

Imagine DIY retail investor in 2019 was told they should invest 100% to US Small Cap Value & NOT participate in the mega-cap tech & AI. That would be a no-go for many. Yet in fact, $AVUV (a systematic multi-factor US SCV approach w/flexible trading) has matched or exceeded VOO.

@QuietProsperity @BarbellFactors @benjaminfelix @OptimizedPort @egr_investor @HML_Compounder @dollarsanddata @awealthofcs Portfolio methodology matters more then the portfolio factor regression.

@jf10977 @BarbellFactors @benjaminfelix @OptimizedPort @egr_investor @HML_Compounder @dollarsanddata @awealthofcs AVLV does not go as far back and 2020 would have made quite a difference of course. But since Oct 21' it's been roughly the same.

@realkpr16 @myersbradley US was from the lower performers in 2025. There is still lots to catch up for the decade.

@jf10977 @myersbradley I have international and SCV stocks. Might take me another 15 years of returns like this year to break even versus those mags.

I'm not waiting for a market crash and would be perfectly content if one never happens. But if an extreme decline brought Shiller CAPE valuations back to their historical average, I'd likely: >Return to market-cap-weighted indexing
>Increase my equity allocation by 15-25%

@myersbradley @50miles_ahead Eduardo Repetto on companies staying private longer, pushed back. From an owners view, you go where you get the higher valuation. If a small company cant get a good price publicly, it stays private. Once it can't get that valuation, it has no choice but to accept public pricing.

@myersbradley @50miles_ahead There's a podcast from July 10 claiming nothing was wrong with SPCX's IPO price and that there was no index effect. No fact-checking that thematic ETF buying, sold heavily to retail, pushed the price up. It's now down almost 27% since IPO. podcasts.thecompoundnews.com/show/TCAF/the-…

In theory, markets are perfectly efficient (e.g. Efficient Market Hypothesis (EMH)) In practice, if you study the history of S&P 500 valuations and certain periods where there was sudden and drastic stock valuation shifts, it becomes really hard to believe that. I think it’s half EMH and half irrational exuberance.

@realkpr16 @myersbradley Go back and look at the market's lost decades, it was really a mega cap lost decade. Everything else was fine, maybe not the best, but enough to match your liabilities. The point is really just trimming mega caps and going international, which today gets called value.

@myersbradley Seems reasonable. How big is VGYAX’s value tilt? Better to not try to time factors, just like total market beta, no? But I get the allure, I’d sin a bit based on valuations.

@myersbradley I think a portfolio should be weighted based on the probability of a good right tail outcome and lowering the left tail. But the mainstream view focuses on tracking error relative to a cap weighted portfolio, rather than tracking error to actually achieving your savings goal.

@BarbellFactors @QuietProsperity @benjaminfelix @OptimizedPort @egr_investor @HML_Compounder @dollarsanddata @awealthofcs Also interesting how AVUV has a much better lost year but a higher maximum drawdown.

@BarbellFactors @QuietProsperity @benjaminfelix @OptimizedPort @egr_investor @HML_Compounder @dollarsanddata @awealthofcs Would be interesting to see results AVLV + AVUV instead of large cap growth

@PFOInvestor @egr_investor Are you aware of such comparsions?

@PFOInvestor @egr_investor Mauboussin's research finds, funds that underperform tend to have either low active share or high turnover. It'd be more useful to compare active managers who share the same portfolio characteristics as the S&P 500 — securities selection quality (profitability) and low turnover.

I have more than $50k in unrealized gains from individual stocks in my “YOLO” account, mostly purchased about a decade ago. I’ve picked a few duds, but the gains have far outweighed the losses. Critically, I don’t confuse luck with skill, and my results were almost certainly driven more by the former. I still hold many of these stocks today largely because I have no idea when to sell. Given the embedded capital gains, the most practical ways to exit without immediately triggering a large tax bill would likely be a 351 exchange or donating appreciated shares to charity. Sticking to index funds is much simpler.

@PFOInvestor Im not so sure that the author of the papaer got to your same conclusion. Returns to "Do-Nothing" Portfolios papers.ssrn.com/sol3/papers.cf… x.com/ReformedTrader…

Great study from Hendrik Bessembinder, looking at 100 years of stock market returns in the US. The study found that out of 29,754 stocks analyzed: -Only 27.6% outperformed the market -The median stock return was -6.9% -Shareholders’ wealth was enhanced by $91 trillion over the century, but long term investors in nearly 60% of stocks incurred wealth reductions. -Just 46 firms, 0.15% of the total sample, account for half of the $91 trillion in net wealth creation over the full century. -"long-term stock market outcomes demonstrate strong positive skewness, and the success of the overall markets is attributable to a substantial extent to very strong outcomes for a relatively few firms." The research highlights that while the stock market as a whole is a reliable engine for wealth creation, individual stock ownership is an exercise in extreme uncertainty. It confirms that the best way to ensure you capture the market return is to stop trying to beat the market and instead ensure you own the market. Full Paper: papers.ssrn.com/sol3/papers.cf…

@myersbradley @MebFaber But Japan said the same thing, and it was proven wrong. Point is to build a portfolio that can ride through these macro regimes, not bet on one framework holding forever.

@myersbradley @MebFaber Also, who decides markets are expensive? P/E alone doesn't account for whether the economy has structurally changed. Tangible to intangible transition, R&D not capitalized, lower tax rates, lower inflation expectations. all can justify higher P/E.

The S&P500 functions a little bit in an evil manner. That crash doesn’t show up until it makes sure all the suckers lock in a massive long position first at nosebleed prices.

@PFOInvestor Point being, prepare your portfolio for any regime, not just the one we're used to.

@PFOInvestor There's also the Nifty Fifty scenario worth thinking about of high valuation concentration at the top, but instead of getting wiped out, the rest of the market just caught up and it evened out over time.

The best thing I ever learned about company analysis came from a forensic accountant, who told me 'never trust management.' This has served me well, and this time is no different. We've seen this before. Micron traded at a low forward multiple in 2000 because earnings were nearing a cyclical peak. Then DRAM prices collapsed, earnings evaporated, and the stock lost over 98%. The demand is limitless...until its not.

@EricBalchunas We don't want to realize that markets don't need a bear market to have low returns. They can just go sideways too.

Couple quick notes: this isn't about garden variety pullbacks, I'm talking big-time scary selloffs or a prolonged bear market. Also Fed may find easier to buy bond ETFs, altho if they can pull it off legally, equity etfs give them better ways to target sectors etc. Bottom line: I just see the stock market getting increasingly socialized in the future. It's societal role is too imp.

I published a note today that I've been thinking about for months.. About how the US stock market has arguably become too big and too imp to fail.. It's basically America's retirement fund now and poss even the savior of social security which is expected to run out of money in less than 10yrs -Curr 55% of ppl own stocks, by far most in world. And w/ Trump Accounts bringing in 28 million add'l americans into stock ownership the vast majority of ppl (incl Top 1% (who own HALF of stock mkt), middle class and lower income) will have financial interest in the health of stock mkt and they're all voters = the political pressure to keep stocks out of a prolonged bear market is going to be very powerful. -As such I think there's good chance the Fed will buy equity ETFs in the next major downturn to support market and it will be common practice going fwd. China and Japan already do this. They may even target certain sectors or Capex cos with the purchases. -This is a massive variable that I feel like is a blind spot among the experts out there and why the bears get run over time and time again altho I think investors are onto it as evidenced by the persistent flows into ETFs during pullbacks as well as a survey of 1000 ppl showing 3/4 of them are confident the Fed will bail out markets in next crisis. -This is just one byproduct of the 'Nothing Stops This Train' monetary supply explosion and debt extravaganza sweeping the world but esp in US which at this point feels irreversable.. Thoughts? lol