Comments on: If This Is Failure, I Like It http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sun, 12 Feb 2012 22:02:53 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: alephblog » Blog Archive » On Benchmarkinghttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-26993 alephblog » Blog Archive » On Benchmarking Tue, 29 Jun 2010 00:35:31 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-26993 [...] one will think that much about that one.” That’s kind of what I felt about, “If This Is Failure, I Like It.” So it attracts a lot of comments, and what I thought was a more controversial post on [...] [...] one will think that much about that one.” That’s kind of what I felt about, “If This Is Failure, I Like It.” So it attracts a lot of comments, and what I thought was a more controversial post on [...]

]]> By: Bill aka NO DooDahs!http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16396 Bill aka NO DooDahs! Sat, 05 Jan 2008 21:17:58 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16396 Bizarre, maybe, but a bug nonetheless. Perhaps they get their data from a provider that would charge too much for a total return series on an index? After all, Yahoo is passing it along as a loss leader. Regardless, for total return I would use the div adj return on an ETF or an index fund, or got to the S&P website, or RFE and pay for the series. I do think the proper relative benchmark for a stock index is the total return, so the S&P 500 was more like 5.5% than 3.5% in 2007, and I would count dividends and transactions expense in my returns. Taxes are different for everybody based on other items, so I do pretax returns or, if I ever try to add in taxes, assume the maximum. Bizarre, maybe, but a bug nonetheless. Perhaps they get their data from a provider that would charge too much for a total return series on an index? After all, Yahoo is passing it along as a loss leader. Regardless, for total return I would use the div adj return on an ETF or an index fund, or got to the S&P website, or RFE and pay for the series.

I do think the proper relative benchmark for a stock index is the total return, so the S&P 500 was more like 5.5% than 3.5% in 2007, and I would count dividends and transactions expense in my returns. Taxes are different for everybody based on other items, so I do pretax returns or, if I ever try to add in taxes, assume the maximum.

]]> By: Josh Sternhttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16382 Josh Stern Fri, 04 Jan 2008 04:25:41 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16382 Bill, that's kind of bizarre in the sense that if they are calculating splits and dividends correctly for the individual constituents, the adjusted daily return for the indices would just be the sum of the appropriate weighting factors (equal for the ^VAY and cap weighted for the S&P) times the adjusted daily returns. So if they really get it wrong, it's a simple matter of using the wrong variable in some piece of code when the right the right one must be equally available in the same database. Bill, that’s kind of bizarre in the sense that if they are calculating splits and dividends correctly for the individual constituents, the adjusted daily return for the indices would just be the sum of the appropriate weighting factors (equal for the ^VAY and cap weighted for the S&P) times the adjusted daily returns. So if they really get it wrong, it’s a simple matter of using the wrong variable in some piece of code when the right the right one must be equally available in the same database.

]]> By: Louis Hillhttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16377 Louis Hill Thu, 03 Jan 2008 19:49:13 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16377 Hi David I should add acouple of comments to # 14 above. There is more attrition (lack of survivorship) in the growth stocks. I can't cite the article for this. If you define Value as P/B though value is a growth stock that has stopped growing. If you use Buffet's intrinsic value then you come up with a different universe. The second drag on growth that is much larger now than in the past is the "naked shorting" that is taking place. If you look at the "failed to deliver" list at the SEC there are many more growth stocks on it than value. Louie Hi David

I should add acouple of comments to # 14 above. There is more attrition (lack of survivorship) in the growth stocks. I can’t cite the article for this. If you define Value as P/B though value is a growth stock that has stopped growing. If you use Buffet’s intrinsic value then you come up with a different universe.

The second drag on growth that is much larger now than in the past is the “naked shorting” that is taking place. If you look at the “failed to deliver” list at the SEC there are many more growth stocks on it than value.

Louie

]]> By: Louis Hillhttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16376 Louis Hill Thu, 03 Jan 2008 19:39:22 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16376 Happy New Year David You know, Fama & French showed that Value beats Growth. I think they were using P/B to discern between the two styles. There is an interesting paper in the current CFA Financial Analysts Journal discussing this if you have access to one. The citation is; The Anatomy of Value and Growth Stock Returns; Fama & French; FAJ Vol63, Number 6, page 44. Happy New Year David

You know, Fama & French showed that Value beats Growth. I think they were using P/B to discern between the two styles. There is an interesting paper in the current CFA Financial Analysts Journal discussing this if you have access to one. The citation is; The Anatomy of Value and Growth Stock Returns; Fama & French; FAJ Vol63, Number 6, page 44.

]]> By: Bill aka NO DooDahs!http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16375 Bill aka NO DooDahs! Thu, 03 Jan 2008 18:32:13 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16375 For most items, ETFs and stocks, mutual funds, the splits and dividends adjusted column works just fine. However, for stock indices, like S&P 500 and ^VAY, it doesn't work. Verify for yourself. Click historical prices, download the data, and compare the close vs. adjusted closes from 10 years ago for the indices versus their ETFs. I think their retaining the adjusted column when it isn't adjusted is a bug in their data. For most items, ETFs and stocks, mutual funds, the splits and dividends adjusted column works just fine. However, for stock indices, like S&P 500 and ^VAY, it doesn’t work.

Verify for yourself. Click historical prices, download the data, and compare the close vs. adjusted closes from 10 years ago for the indices versus their ETFs.

I think their retaining the adjusted column when it isn’t adjusted is a bug in their data.

]]> By: Josh Sternhttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16372 Josh Stern Thu, 03 Jan 2008 16:44:30 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16372 So what is Yahoo doing when they say "Close price adjusted for dividends and splits"? http://finance.yahoo.com/q/hp?s=%5EVAY In any case, the positive benefit of transaction amd slippage free rebalancing likely exceeds whatever dividends are missing. http://finance.yahoo.com/charts#chart2:symbol=^vay;range=my;compare=^gspc;charttype=line;crosshair=on;logscale=on;source=undefined So what is Yahoo doing when they say “Close price adjusted for dividends and splits”?

http://finance.yahoo.com/q/hp?s=%5EVAY

In any case, the positive benefit of transaction amd slippage free rebalancing likely exceeds whatever dividends are missing.

http://finance.yahoo.com/charts#chart2:symbol=^vay;range=my;compare=^gspc;charttype=line;crosshair=on;logscale=on;source=undefined

]]> By: Bill aka NO DooDahs!http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16371 Bill aka NO DooDahs! Thu, 03 Jan 2008 15:24:56 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16371 The Yahoo!Finance adjusted column does !NOT! take into account dividends for indices. The best choice for the S&P 500 is the StandardandPoors dot com website for long-running total returns, and the tracking ETFs for Yahoo!Finance data. The ETFs !ARE! properly adjusted for splits and divvies, which is why I suggested using them for relative benchmarks. I think the "what would I have bought if I wasn't active" is the best index solution for those seeking a relative benchmark. If that's Value Line Arithmetic for one person, then that's it - if it's SPY for another, VTI for another, DSV or EMM, etc. For those that prefer an absolute return benchmark, a compounding target above projected increase in cost of living may be appropriate, but I'd watch the language! "Inflation" is a monetary phenomenon, a cause of increased prices, not increased price per se. Perhaps a long-term average or projection plus some percent. Another choice for absolute return benchmark may be [cost of living today as percent of equity] + [projected increase rate in cost of living] + [desired compounding]. Think about someone living off of their trading ("investments"), and you'll see what I mean. The Yahoo!Finance adjusted column does !NOT! take into account dividends for indices. The best choice for the S&P 500 is the StandardandPoors dot com website for long-running total returns, and the tracking ETFs for Yahoo!Finance data. The ETFs !ARE! properly adjusted for splits and divvies, which is why I suggested using them for relative benchmarks.

I think the “what would I have bought if I wasn’t active” is the best index solution for those seeking a relative benchmark. If that’s Value Line Arithmetic for one person, then that’s it – if it’s SPY for another, VTI for another, DSV or EMM, etc.

For those that prefer an absolute return benchmark, a compounding target above projected increase in cost of living may be appropriate, but I’d watch the language! “Inflation” is a monetary phenomenon, a cause of increased prices, not increased price per se. Perhaps a long-term average or projection plus some percent.

Another choice for absolute return benchmark may be [cost of living today as percent of equity] + [projected increase rate in cost of living] + [desired compounding]. Think about someone living off of their trading (“investments”), and you’ll see what I mean.

]]> By: Josh Sternhttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16370 Josh Stern Thu, 03 Jan 2008 15:05:29 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16370 Brent, the Yahoo Finace version of Value Line Arithmetic, ^VAY, is adjusted for dividends and splits. They probably offer the same calcs for other indices. Brent, the Yahoo Finace version of Value Line Arithmetic, ^VAY, is adjusted for dividends and splits. They probably offer the same calcs for other indices.

]]> By: James Daileyhttp://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/comment-page-1/#comment-16368 James Dailey Thu, 03 Jan 2008 14:52:28 +0000 http://alephblog.com/2008/01/02/if-this-is-failure-i-like-it/#comment-16368 By the way - I forgot one last point. Personally, I benchmark to absolute returns and that is how we talk to clients. For example, for most people we talk about targeting inflation plus 3-5%. Of course the challenge there is using an accurate inflation figure! With the pre-1990's cpi running in the high single digits, that sets a pretty high hurdle rate! By the way – I forgot one last point. Personally, I benchmark to absolute returns and that is how we talk to clients. For example, for most people we talk about targeting inflation plus 3-5%. Of course the challenge there is using an accurate inflation figure! With the pre-1990′s cpi running in the high single digits, that sets a pretty high hurdle rate!

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