RR

Рет қаралды 8,472

Күн бұрын

How we model our expected returns hugely impacts our financial decision-making, with poor models leading us to retire either too early or too late. Today’s episode is a deep dive into two topics: how we model expected returns and how fixed income bonds fit into your portfolio allocation. We open the show by talking about the books and news of the week before unpacking the relationship between bond terms, credit, and fixed income returns. We then explore why it’s easier to forecast the expected returns of bonds than stocks, with insights into how this affects your allocation. After reflecting on the predictive power of yield curves and expected capital appreciation and depreciation, we look into how the forward rate can be used to forecast expected term premiums. Touching on conflicting research, we present our conclusions on how you can determine your expected bond returns while also providing a summary of your risk premiums. We round off the topic by assessing alternatives to fixed income investments. From fixed income, we leap into the world of expected return assumptions and how they can best be modelled. We chat about the dangers of operating from poor expected returns models and discuss the successes and drawbacks of the most commonly used ones. While establishing the predictability underpinning average returns, we explain the limits on using historical returns to forecast expected returns. Later, we open up about PWL Capital’s approach to measuring expected returns. We close off another informative episode by sharing this week’s bad advice and answering left-field questions in our ‘Talking Sense’ segment. Tune in to hear more about the role of fixed income bonds and returns models in your portfolio.
Links From Today’s Episode:
Rational Reminder on iTunes - itunes.apple.com/ca/podcast/t....
Jennifer Risher - jenniferrisher.com/
‘Bitcoin consumes 'more electricity than Argentina' - www.bbc.com/news/technology-5...
‘Common risk factors in the returns on stocks and bonds’ - www.sciencedirect.com/science...
‘Forward rates as predictors of future spot rates’ - www.sciencedirect.com/science...
‘Term premiums in bond returns’ - www.sciencedirect.com/science...
‘Corporate Bond Default Risk: A 150-Year Perspective’ - www.nber.org/papers/w15848
‘What Drives the Cross‐Section of Credit Spreads?: A Variance Decomposition Approach’ - onlinelibrary.wiley.com/doi/a...
‘An Old Friend: The Stock Market's Shiller P/E’ - www.aqr.com/Insights/Research...
‘Stock Returns, Expected Returns, and Real Activity’ - onlinelibrary.wiley.com/doi/a...
Aswath Damodaran - pages.stern.nyu.edu/~adamodar/
‘Equity Risk Premiums: Determinants, Estimation and Implications - The 2020 Edition’ - papers.ssrn.com/sol3/papers.c...
‘Here's how to incorporate Bitcoin into your retirement investments’ - www.cashay.com/bitcoin-retire...

Пікірлер: 17

@NoUseForMySoul 3 жыл бұрын

In computer sciences - simulation tech, to be more precise - new systems usually need time (or additional data) to deliver meaningful results. Until they do, they swing, usually around their regressional value. I'm sure you're familiar with it, you use Monte Carlo after all. Some of these systems never come to a state of quasi absolute rest. Even then, If you apply external pressure on such a system (shocking a normal distributed input with fixed values for a while), they may start swinging again, at least for a while. The topics of this podcast remind me of it. My point being, that the market may be comparable to such a system, but it's under the constant influence of external pressure from different (e.g. political or economical) factors that might change without prior notice. The system however, is stable enough, which implies that there is a fixed growth value at its core. We're just not sure about its size, because the system never gets to rest. Even if it did, we may have seen a phase of heavy external pressure or small external pressure and the average value might change in accordance. One could have a look at average returns over 5/10/20 year samples to get a average period of such swings. What's somewhat safe, however, is the regression to a average value. So, in other words, the factors you describe may be seen as side parameters of the well know mathematical regression to theaverage value. If the interest of your investments were good for your time interval so far, expect worse. If it was bad, I'll probably get better. For a long period of time, the probability to experience different phases increases, so you can alter your expectations in accordance as long as you don't take them for absolutely granted. Not sure if all of that makes sense, but thank you for the input. The more I hear about it, the more I'm interested. I did not realize until now how close my computer sciences masters topics are to economics.

@KarYungTom 3 жыл бұрын

I didn't know anything before you guys started creating content.

@lpgoog 3 жыл бұрын

You guys have an absolutely killer podcast! Amazing guests (Larry Swedroe, Fred Vettese, etc.etc.) and amazing information. Thanks.

@Steven-wq8tx 3 жыл бұрын

Liked before watching

@timelston4260 3 жыл бұрын

I agree with Ben's point that bonds are more than yield. Seems like every year they tell me bonds yielded only so much, the value of my bond funds went up by a rate quite a bit higher.

@DekarNL 3 жыл бұрын

I'm not on goodreads but I do have some great recommendations: -Humble Pi -How not to be wrong -Surely you're joking Mr Feynman -What do you care what other people think

@stephenlight647 3 жыл бұрын

Cameron looks like I did listening to this. It was a close call between this and root canal! I needed a white board and coffee to even attempt this.

@GhettoFabulousLorch 3 жыл бұрын

A note about Bitcoin's energy usage: it is spread out across the world and it is concentrated in countries that can generate a lot of energy. Argentina for example is not big and it is not a relatively high energy country. Not saying that mining is low energy just that it is misreported and distorted for clicks.

@neodenjin 3 жыл бұрын

Great episode, thanks guys. When do you think your going to publish the results on your "expected returns" analysis?

@rudi5764 3 жыл бұрын

Great podcast!

@PauloFassina 3 жыл бұрын

Great podcast! Thank you for all the advice. If I could give a suggestion, iIt would be really nice if these videos had chapters for easier navigation.

@og7952 3 жыл бұрын

So what bond ETF can we buy to diversify according to these conclusions

@InfecteddBG 3 жыл бұрын

Could you provide a link to the DFA whitepaper on bond premiums using indices? (if you've already provided it in the description, could you please label it more clearly?)

@ElektrikaCo 3 жыл бұрын

Is there any way a DIY investor can view the current shape of the yield curve in Canada without access to services like Bloomberg?

@Sluttybags 3 жыл бұрын

BTCC has actually done so hot, but I'm hodling :D

@bjohns347347 3 жыл бұрын

Ben- you’re probably right about bitcoin being a silly thing to invest in but please keep an open mind about crypto and come out with a pt 3 crypto video if necessary. The problem with bitcoin is that it’s too energy intensive. Other blockchains like cardano or polka dot use proof of stake which uses a tiny fraction of energy compared to bitcoin. Choosing which cryptos will be adapted in the long run may be no better than picking stocks. Either way, it does appear that crypto could become a major part of global finance.

@fib6156 3 жыл бұрын

Get Plan B on the show; he is an experienced institutional investor with 25 years of experience in running bank and insurance books. Check out his stock to flow models