> We have used DFSVX for almost a seven years. It > has crushed the Russell 2000 Value since its > inception (March of 1993) 11.3% vs. 9.53%. Ten > year performance is 9.02% vs. 7.72%. > > Different time periods will show different > results, but it is basically due to the expression > of the “value premium”. When value does well the > DFA fund excels. When it doesn’t DFA’s fund > doesn’t do as well because it is more “valuey” > than the Russell. My firm believes that exposure > to small caps and value are priced risk and > eventually it pays off (Fama-French three factor > model). Many don’t believe in this model. > > Ironically it is a passive fund, but my firm > mainly uses passive funds. I am sure you can find > more using Morningstar. I dont have morningstar in front of me right now, so I just quickly compared DFSVX to the Russell 2000 ETF (Ticker: IWN) since the IWN’s inception on google. Doesn’t look like it over the past ten years. With that said, maybe you are right, over the longer period of 93 onwards, the DFSVX may do better. I more or less buy into the idea of enhanced indexing. Just trying to find the right parameters. 
ShintreH Wrote: ------------------------------------------------------- > > We have used DFSVX for almost a seven years. > It > > has crushed the Russell 2000 Value since its > > inception (March of 1993) 11.3% vs. 9.53%. Ten > > year performance is 9.02% vs. 7.72%. > > > > Different time periods will show different > > results, but it is basically due to the > expression > > of the “value premium”. When value does well > the > > DFA fund excels. When it doesn’t DFA’s fund > > doesn’t do as well because it is more “valuey” > > than the Russell. My firm believes that > exposure > > to small caps and value are priced risk and > > eventually it pays off (Fama-French three > factor > > model). Many don’t believe in this model. > > > > Ironically it is a passive fund, but my firm > > mainly uses passive funds. I am sure you can > find > > more using Morningstar. > > I dont have morningstar in front of me right now, > so I just quickly compared DFSVX to the Russell > 2000 ETF (Ticker: IWN) since the IWN’s inception > on google. Doesn’t look like it over the past ten > years. With that said, maybe you are right, over > the longer period of 93 onwards, the DFSVX may do > better. > > > I more or less buy into the idea of enhanced > indexing. Just trying to find the right > parameters. I am getting the same data as you from google. I don’t have time to figure out what is going on right now, but when I do I will try to report back.
jmh your attempt at an explanation of emh was not lost on me. It was just inaccurate, so since this is a public board I responded to your comments (that you of course made public by posting). I put the rest in not directed at you but more or less b/c I was just stating what I believe. Mostly b/c I just felt like it. No need to get your panties in a wad.
I can’t help it that my panties wad all up when people attack a straw man and think they’re right. Part 1: Where I’m right This is the first paper to use the term efficient markets: http://www.chicagobooth.edu/faculty/selectedpapers/sp16.pdf “An “efficient” market is defined as a market where there are large numbers of rational profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants.” Part 2: Where I’m also right In addition http://bit.ly/9JXPzI “Similarly, the market may be efficient if “sufficient numbers” of investors have ready access to information. And disagreements among investors about the implications of given information does not imply market inefficiency unless there are investors who can consistently make better evaluations of available information than are implicit in market prices.” In other words, during any bubble, an EMH advocate would argue you could have a vast number of folks who thought some securities were still going to sky high and a smaller percentage who thought they were overvalued and the market would still be efficient. However, if you could go long some internet and short some other stocks and consistently make a risk-adjusted profit, they would agree the market is inefficient.
Just to let you know I didn’t even bother to read that straw man.
justin88 Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > […] Markets being “wrong” doesn’t contradict > EMH. > > Actually, yes it does, even for the weak and > semi-strong forms of EMH. The whole point of EMH > is to say that all (!) markets are priced > efficiently/correctly. If the markets are > “wrong”, then a sharp investor can achieve excess > returns (not just due to luck) and therefore > outperform the market in the long run. > > More obviously, EMH says nothing about many > price-influencing ideas/mechanisms, such as > behavioral finance and market microstructure > problems like time-varying liquidity. That’s just not so. Markets are always wrong. EMH is about whether there is information available that is not incorporated in market prices.
jmh530 Wrote: ------------------------------------------------------- > I can’t help it that my panties wad all up when > people attack a straw man and think they’re > right. > > Part 1: Where I’m right > > This is the first paper to use the term efficient > markets: > http://www.chicagobooth.edu/faculty/selectedpapers > /sp16.pdf > > “An “efficient” market is defined as a market > where there are large numbers of rational > profit-maximizers actively competing, with each > trying to predict future market values of > individual securities, and where important current > information is almost freely available to all > participants.” > > Part 2: Where I’m also right > > In addition > http://bit.ly/9JXPzI > > “Similarly, the market may be efficient if > “sufficient numbers” of investors have ready > access to information. And disagreements among > investors about the implications of given > information does not imply market inefficiency > unless there are investors who can consistently > make better evaluations of available information > than are implicit in market prices.” > > In other words, during any bubble, an EMH advocate > would argue you could have a vast number of folks > who thought some securities were still going to > sky high and a smaller percentage who thought they > were overvalued and the market would still be > efficient. However, if you could go long some > internet and short some other stocks and > consistently make a risk-adjusted profit, they > would agree the market is inefficient. Part 2 and your explanation of this, I like. Part 1, not so sure. In fact, there is nothing in that sentence I agree with. A market doesn’t need to have lage numbers of investors to be efficient although it’s more likely to be efficient if there are large numbers of investors. “profit-maximizing” is not a utility function that anybody uses (since everyone at least puts risk in the picture). “predicting the future values of securities” is not the way that most sensible people invest, but rather they try to build good portfolios recognizing that future value prediction is much harder for individual securities than it is for portfolios. "important current information is almost freely available to all " well the “almost” runs through all different stages of efficient markets and “important” is circular and meaningless. Good thing he ends with “all” instead of some similarly namby-pamby phrase like “sufficient numbers of important”. This is BS.
JoeyDVivre Wrote: ------------------------------------------------------- > That’s just not so. Markets are always wrong. > EMH is about whether there is information > available that is not incorporated in market > prices. What on Earth are you talking about? Accounting for spread, markets are rarely “wrong”. EMH implies that every market is properly incorporating all known information at all times. That’s just silly, since different actors have access to different data and even may interpret the same data differently.
To answer the “what on earth are you talking about?”, you probably should read the thread above. The point is that markets misprice things all the time. For example, take any random commodity future. Does the futures price predict the actual commodity price at futures expiration at all well? (No) Is the futures price even a decent estimate of the expected value of the actual commodity price at expiration? (probably not) Does that mean that, say, the corn futures market is not efficient? Of course not. The sense in which we are talking about markets being right and wrong is when we use market prices to predict something (otherwise they are just prices and there is no sense of right or wrong just what the market is paying). Market prices are notoriously bad at predicting things, but that is just not part of market efficiency. BTW - You don’t have this right in your sentences here: “EMH implies that every market is properly incorporating all known information at all times. That’s just silly, since different actors have access to different data and even may interpret the same data differently.” The second sentence doesn’t make sense. A market is supposed to reflect differing opinions (or there would be no liquidity) and the price is just the result of this giant dialectic that incorporates all the information in whatever flavor of EMH you are talking about.
JoeyDVivre Wrote: ------------------------------------------------------- > To answer the “what on earth are you talking > about?”, you probably should read the thread > above. The point is that markets misprice things > all the time. For example, take any random > commodity future. Does the futures price predict > the actual commodity price at futures expiration > at all well? (No) Is the futures price even a > decent estimate of the expected value of the > actual commodity price at expiration? (probably > not) Does that mean that, say, the corn futures > market is not efficient? Of course not. Price as a predictive value is nonsense. A fair coin correctly prices at 0.5 despite the outcomes being 0 or 1. I don’t understand why you brought this up. If the price is “probably not” a decent estimate of risk-adjusted expected value, then it is “probably” mispriced and profit can be made. Or were you just trying to say that an estimate can be incorrect because of unknown/unknowable information? > The sense in which we are talking about markets > being right and wrong is when we use market prices > to predict something (otherwise they are just > prices and there is no sense of right or wrong > just what the market is paying). Market prices > are notoriously bad at predicting things, but that > is just not part of market efficiency. Pricing is very much the crux of the “efficiency” part of the EMH. The whole point of the EMH is that it is impossible (!) to beat the market in the long run. Anyone that has done so in the past has just been lucky, and will not be able to continue to do so. This implies that prices are efficient/right/correct to the extent that no amount of cleverness and effort can discern “good deals” in the market repeatedly because the “good deals” were not knowable beforehand. While it is difficult to discern good deals, to say it is impossible to do so is quite a leap, particularly when you have companies like AIG was selling billions of insurance on paper that they didn’t read. > BTW - You don’t have this right in your sentences > here: “EMH implies that every market is properly > incorporating all known information at all times. > That’s just silly, since different actors have > access to different data and even may interpret > the same data differently.” The second sentence > doesn’t make sense. A market is supposed to > reflect differing opinions (or there would be no > liquidity) and the price is just the result of > this giant dialectic that incorporates all the > information in whatever flavor of EMH you are > talking about. Why doesn’t the second sentence make sense? Financial actors, even big ones, do not have access to the same information/analyses and therefore make uninformed choices. Even with all the information, mistakes can be made in interpretation and an exhaustive search may not be possible.
Sorry man, you’re just going to have to think about it more. Read that first paragraph again and know that there is an absolute ton of research on those results and nobody thinks that violates market efficiency. BTW - virtually every option sold out there has implied vol higher than it’s realized vol is going to be. Why not just sell a diversified portfolio of options and live off the difference? Are options inefficient?
Whether the market “correctly” (in some metaphysical sense) prices assets has nothing (or at least little) to do with the difficulty (whatever that may be) of outperforming it.
JoeyDVivre Wrote: ------------------------------------------------------- > BTW - virtually every option sold out there has > implied vol higher than it’s realized vol is going > to be. Why not just sell a diversified portfolio > of options and live off the difference? Are > options inefficient? I think this is a great point that illustrates that in order to test market efficiency you need to have some asset pricing model in the back of your mind. Option prices may not follow black-scholes, but if black-scholes is not the correct option price model you haven’t proved anything about efficiency.
You can’t test the ability of the market to price assets at all because you’ll never know if you have the “correct” pricing model for anything non-trivial. That wouldn’t be the same thing as “testing market efficiency” in any case.
JoeyDVivre Wrote: ------------------------------------------------------- > Sorry man, you’re just going to have to think > about it more. Read that first paragraph again > and know that there is an absolute ton of research > on those results and nobody thinks that violates > market efficiency. If you used fewer pronouns and vague expressions like “those results”, perhaps actually referring to results, I wouldn’t have to read it more than once. Nonetheless, we can agree that there is a ton of research, and many, many people think that there are violations of market efficiency, including Buffett, Keynes, and a whole laundry list of behavorial economists. > BTW - virtually every option sold out there has > implied vol higher than it’s realized vol is going > to be. Why not just sell a diversified portfolio > of options and live off the difference? Are > options inefficient? I don’t see how this is relevant or what you’re trying to say here. Obviously short vega isn’t a consistent money-maker. Also it’s apples to oranges if you’re going to compare to a long-only index like SPX, (even with a more-legit volatility strategy like dispersion).
You’ve missed the entire point here and I’m just not playing. You’re just going to have to think harder about what is being said.
JoeyDVivre Wrote: ------------------------------------------------------- > You’ve missed the entire point here and I’m just > not playing. You’re just going to have to think > harder about what is being said. By all means, feel free to make a point.
Wooh too much heavy stuff… I am for sure happy buying boring stocks and shorting penny stocks and beating market in and out with my school money -
and showing off to my class mates. At the end of the day its all about how much money you make… but then again nothing is worth more then happiness and peace of your heart. God bless America and USD