The Truth about High Dividends

Research on Safe Withdrawal Rates

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ForeignExchange
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Post by ForeignExchange »

Mike wrote:It is my understanding that Jim started several mutual funds that implement his strategy. I don't think they have done 4 times as well as the S&P. The books are interesting though.
I just want to add that James O'Shaughnessy has been doing well against his benchmarks with the three mutual funds he has available in Canada. If you go to the link below and click on

RBC O'Shaughnessy Canadian Equity, or Growth, or Value, you will see that he has done very well implementing his strategies.

http://makeashorterlink.com/?D58A138C9
Mike
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Post by Mike »

They look pretty good.
JWR1945
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Post by JWR1945 »

Thanks for the link, ForeignExchange. I compared the US Value and US Growth with the Wilshire 5000 index.

Purists, which includes James O'Shaughnessy when he writes his books, will tell you that you have to wait fourteen years to be sure that he has a winning strategy. My bet is that he is already claiming success.

[BTW, I disagree with fourteen years. You should be able to bound which short-term and intermediate-term comparisons are reliable better than that looking forward (as a result of having much more extensive data looking backwards.]

David Dreman has mentioned what has happened with value strategies. Back when his original findings became popular, value stocks under-performed for several years. Almost exactly when the news media pundits had decided that value no longer provided an advantage and would never again provide an advantage (because the secret was out and everybody knew about it), value strategies started delivering outstanding returns once again.

What is nice about your comparisons is that it shows that the problems of front running and excessive turnover have not been as serious as I had expected. It takes more time for arbitrage to cut into returns than I would have expected. [So much for new information's being translated instantaneously and accurately into market prices.]

Have fun.

John R.
peteyperson
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Post by peteyperson »

JWR1945 wrote:Thanks for the link, ForeignExchange. I compared the US Value and US Growth with the Wilshire 5000 index.

Purists, which includes James O'Shaughnessy when he writes his books, will tell you that you have to wait fourteen years to be sure that he has a winning strategy. My bet is that he is already claiming success.

[BTW, I disagree with fourteen years. You should be able to bound which short-term and intermediate-term comparisons are reliable better than that looking forward (as a result of having much more extensive data looking backwards.]

David Dreman has mentioned what has happened with value strategies. Back when his original findings became popular, value stocks under-performed for several years. Almost exactly when the news media pundits had decided that value no longer provided an advantage and would never again provide an advantage (because the secret was out and everybody knew about it), value strategies started delivering outstanding returns once again.

What is nice about your comparisons is that it shows that the problems of front running and excessive turnover have not been as serious as I had expected. It takes more time for arbitrage to cut into returns than I would have expected. [So much for new information's being translated instantaneously and accurately into market prices.]

Have fun.

John R.
It matters not whether the benefit of the value style is common knowledge. Value delivers higher returns because companies that have previously performed poorly frequently refuse to lie down and die. They rebound and add incrementally to the return via the P/E expansion (+ earnings growth + dividends). This is completely unaffected by whether everyone on the planet knows about the value style or only a handful of people. There will always be some businesses that are presently cheaper than others and one can choose to chase the pricey growth stocks or the cheaper value stocks. If you can buy a growth stock that is priced for value (as Warren Buffett loves to do), you get the P/E expansion plus faster than market growth rates to boot. This is why Buffett did so well with purchases in the 70s bought at P/Es below 10, which experienced faster-than-market growth and are now sitting overvalued at P/E 20+ on earnings many times higher than when bought.

Petey
JWR1945
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Post by JWR1945 »

This is completely unaffected by whether everyone on the planet knows about the value style or only a handful of people.
No. Prices matter.

Generally, the premium for growth companies (with great earnings growth, great predictability and so forth) as opposed to value companies varies. Sometimes, value is better. At other times, growth is better.

What happens is that people bid up the prices of value stocks (based on P/E and so forth) so much relative to the market that they no longer offer value. Similarly, there are times when very few people are willing to invest in growth stocks. Suddenly, they become great bargains.

Value stocks generally have an advantage in that they can't fall very much. Percentage price decreases are much worse for growth companies when there is bad news.

Necessarily, these statements are based upon statistical comparisons, not by evaluating of specific companies.

Have fun.

John R.
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