Bob Brinker Free Discussion Site 59,820+
- Normxxx
- permabear
- allancoleman
- honeyoneohone
- Moonlight
- pete2214
- JIMMY62
- JIMMY62
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» Normxxx - DFA versus Vanguard
DFA versus Vanguard
by Christian M. Chensvold
In politics, the winner isn't necessarily the best candidate, but the most well known. A similar case exists among mutual funds. Ask an investor who the index fund frontrunner is, and he'll likely tell you Vanguard. Ask why, and he'll probably say something about selection, low expense and a straightforward index style. But ignorance isn't bliss for an investor — it's doom.
Research shows that for a long-term investment strategy, Dimensional Fund Advisors (DFA) consistently delivers superior results to Vanguard. In a survey of between 1,100 and 2,000 investment advisors held three times between 1997-2002, Dalbar Research rated DFA best overall mutual fund company, sometimes well above Vanguard. Part of the misconception lies in the fact that DFA funds are mostly owned by institutions and are not easy for the average investor to buy. There is good reason for this.
In a recent Money Magazine survey about investing, the average investor scored a paltry 37 percent. DFA keeps these less-informed investors (who are also more likely to churn) out of its funds by only selling through a select network of independent investment advisors. These advisors are able to educate investors about the failings of active management and encourage them to take a buy-and-hold approach that keeps DFA's operating expenses low and benefits all shareholders. DFA has been called an investment club for the really smart investor.
Smart doesn't begin to describe the company's founders, scholars David Booth and Rex Sinquefield from the University of Chicago, global epicenter of Nobel Prize laureates in economics. DFA's investment strategy, designed primarily by Eugene Fama and Kenneth French, is backed by academic research and a historical perspective dating back to 1926.
It all starts with a DFA's indexes, which are quite different from Vanguard's. Vanguard does not create its own indexes, choosing to employ third-party ones, such as the MSCI and Wilshire indexes. The difference is that these and other indexes like them were designed for measurement, not as investment vehicles.
DFA has custom designed its indexes to capture the risk factors that explain 95% of stock market returns since 1929: company size (market capitalization) and value (based on the company's Book Value divided by its Market Capitalization, or Book to Market Ratio (BtM)). This is a significant difference, since returns correlate with risk factors like size and value.
In nearly all asset classes DFA is more heavily weighted toward small-company stocks than Vanguard. Historically, smaller-company stocks have outperformed larger-company stocks in the long haul. In addition, value stocks outperform the more popular growth stocks. DFA's greater orientation to value (namely the lower price-book ratio of its portfolio) makes it more likely to outperform funds that are more growth oriented. Over the last 77 years, $1 dollar invested in the Fama/French Total Market Index would have returned $2,089-- over the same period, $1 invested in the Small Value Index would have returned $52,709, the Large Growth Index would have returned $1,363, the Small Growth index would have returned $1,424, and the Large Value Index would have returned $6,988.
Investors often assume that all index funds in a category like "small cap" are going to be the same. This is wrong. The average market cap of companies in Vanguard's Small Value index is about $1 billion. In DFA's same category the average market cap is $442 million. Over the past three years Vanguard's fund earned an average of 8.4% percent, DFA's 19.2 percent, or a total return difference of 42%, as of Jan 30, 2004.
Smaller company size equals greater 'risk' (standard deviation of return), but historically that has translated into a vastly greater return. In the above example, Vanguard's Small Value fund had a return per unit of risk, or Sharpe ratio, of 0.4, while DFA's was 0.7. Basically, more gain per unit of pain, due to the application of financial science.
The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.
-- posted by Normxxx
» permabear - Re: Re: Re: If Only Brinker Had...
First off, I'm not a Markettimer subscriber, so I can't speak to specific recommendations made in his Markettimer. Personally I would never pay anyone for market advice. I think there is plenty of public material out there to make my own decisions. And rather than follow any one individual, I find it more useful to try to digest a variety of different opinions to develop my own.As for specifics, yeah if you really nitpick his calls, you can find flaws. I too have wondered how much money people lost by just selling out of part of their portfolios in January 2000. If you just held 30 percent in stocks and rode them all the way down, you could have lost a good percentage of your bull market gains the previous decade. Nonetheless, in taking a broader look at Bob Brinker's major timing recommendations, the January 2000 bearish call and the March 2003 bullish call were brilliant and definitely going against the herd mentality at those times. Also his recommendation to put a good chunk of assets into Ginnie Mae funds have paid off handsomely. Bob Brinker is far from perfect as both Jimmy and Kirk pick apart in detail. Nonetheless, I don't think I've seen a better guru out there that times the major tops and bottoms of the market.
-- posted by permabear
» allancoleman - Re: If Only Brinker Had...
In response to Re: Re: Re: If Only Brinker Had... posted by arommel88:
hi aromme188 ,
my study of the Nikkei also makes me a firm believer in secular markets too . bigcharts.com / all data is a good source for that look . i'm using " JP:1804610 " as a ticker symbol for one of the Nikkei indices on that site .
and because of this belief in secular markets , i too am ' broadly ' in the Bob Brinker camp . although i do disagree with some of his other calls .
-- posted by allancoleman
» honeyoneohone - Get Acquainted With the Man Behind the Mike
.Anyone who is interested in getting acquainted with the man behind the velvet voice, here is the link to one of the collections of what he wrote under the alias "don lane" over on SI.
http://www.suite101.com/discussion.cfm/i...
This name was later changed to "mistertopes" after his true identity was revealed here. One wonders what kind of power it takes to have that monumental request done for you.
As you will see in this post, "donlane/mistertopes" wrote that brinker "always told the truth" and indeed even how brinker thought. Who in the world would know if brinker always told the truth to callers, or how brinker "thinks," except brinker himself?
To:Investor2 who wrote (1441)
From: mister topes Thursday, Sep 4, 1997 11:44 PM
Respond to of 20897
You are correct regarding the obvious change in accepting calls from
investors inquiring about specific funds. I find the comparisons of
expenses and performance quite illuminating and view them as a
public service. Would you as a Putnam investor like to know you
have been slammed for a 5.75% sales charge and an annual expense
ratio five times the index fund? Sounds like useful information.
And the performance comparisons certainly get one's attention.
I have noticed no change in Brinker's disclosures relative to
his newsletter. He has always had the integrity to tell callers
the truth about his view. Newsletter subscribers might like to see
him lead callers astray about his views, but he has never done this.
He tells callers his views in a straightforward way as he should.
-- posted by honeyoneohone
» Moonlight - Brinker tweeker.
I have listened to BB from early 1982, just retired and knew real estate but not the Market. I gradually bought into S and P 500, watched that for several years then in the mid 90's got brave and followed his SPY advice with quite a chuck of money. When he said sell 60% in 2000 , I tweeked it to 95% Jan 11, 2000 . He said buy money markets but earlier he had talked about GNMA's so I bought GNMA's and with appreciation made 19% . I did the QQQ thing but sold at $76 not riding it down. I don't like loosing money. Then March 2003, on Brinker's suggestion , put equity money in QQQ and Total stock market but only 33% of equity money. Last 5 years have bought maximum in I bonds. I got Kirk's newsletter, and in 4 months in 2004 gained 19% on speculation individual stocks .I made money on 2 of 4 I chose. I used 20% of equity money for that. Bob Brinker has educated me, but I do rely on his timing and so far since 1982 it has worked for me. I remember when he said buy Asia minus Japan. He got that right too. I try and tweek what I hear to what seems best on what information I have acumulated, most of it through Bob Brinker.-- posted by Moonlight
» JIMMY62 - Re: Brinker tweeker.
In response to Brinker tweeker. posted by Moonlight:Your story for 2000 is an example of following Bob's advice to its logical climax. That is to say, when it is time to sell equities, sell all.
It seems that Bob's "heads up" was a catalyst that spurred you to an action that turned out well. Good. Bob deserves positive credit for the "heads up." The decision to sell 95% was not Bob's (though he never corrects callers to the show who give him that recognition).
In the RW Bob did not advise selling all. Bob's advice was to create a hedged position by selling part.
I don't mind Bob's actual call. I thought it was prudent at the time and still do.
I continue to fault Bob for not recognizing and telling listeners that the market indexes runup of 1999 was a rotation to growth away from value.
I now hold that the selection of QQQ for the speculative calls was a by-product of Bob's not noticing that the froth was in QQQ-type stocks.
-- posted by JIMMY62
» JIMMY62 - Re: Re: Re: Re: If Only Brinker Had...
In response to Re: Re: Re: If Only Brinker Had... posted by permabear:the January 2000 bearish call and the March 2003 bullish call were brilliant and definitely going against the herd mentality at those times.
I certainly quibble with the March 2003 call being against herd mentality. The call was made months earler here, for example.
I certainly quibble with the March 2003 call being against herd mentality. The call was made months earlier here, for example.
The January 2000 call was what Bob’s masterpiece. Though in truth it was a hedge.
Bob Brinker is far from perfect as both Jimmy and Kirk pick apart in detail.
More quibble. Bob's calls have been pretty good. Just a whole lot less GOOD than he allows to be inferred from the comments of THE PROGRAM.
About the Ginnie Mae funds recommendations, that is a topic that I have not noticed being evaluated here.
Can you say when Bob first recommended buying Ginnie Mae funds and when he recommend selling?
The implication is that investors did better in that time period than if they had been in equal quality corporates. Is that true?
-- posted by JIMMY62
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