Comment by evira on Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy · 2019-03-27T14:29:42.216Z · score: 1 (1 votes) · EA · GW
It takes a certain degree of investment knowledge and time to form an opinion about the historical performance of different factors and expected future performance.

People who are knowledgeable about investing, e.g. Ben Todd and Bayesian Investor, have already formed opinions about the future expected performance of different factors. Is there something wrong with non-advanced investors just following their advice? Perhaps this wouldn't be optimal, but I'm having a hard time seeing how it could be worse than not adding any tilts.

It also requires knowledge and time to determine how to appropriately incorporate factors into a portfolio and how to adjust exposure over time.

If a non-advanced investor using the recommended tilts merely maintains their current level of exposure and they shouldn't have, it seems unlikely to me that such an investor would end up under-performing a strategy that uses no tilts by much; even if the tilts no longer provide excess returns, I don't see why they would end up doing *worse* than the market. And perhaps eventually some knowledgeable investor would make a blog post saying you should stop adding tilts towards those factors.

Comment by evira on Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy · 2019-03-24T16:37:43.804Z · score: 1 (1 votes) · EA · GW

I'm wondering why Todd suggests that "adding tilts to the portfolio for value, momentum and low volatility (either through security selection or asset selection or adding a long-short component) and away from assets owned for noneconomic reasons" should only been done if you know what you're doing. Bayesian Investor's recommendations seem to do this without requiring you to be very knowledgeable about investing.

Comment by evira on Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy · 2019-03-18T15:49:03.104Z · score: 1 (1 votes) · EA · GW

What sort of other advice is out there that's somewhat conflicting but equally plausible? The only one I can think of is that you should basically just stick your money in whatever diversified index funds have the lowest feeds. But even if this advice is just as plausible as your advice, your advice still seems worth taking. This is because if you're wrong and I follow your strategy anyways, pretty much the only cost I'm bearing is decreasing my returns by only a small amount due to increased management fees. But if you're right and I don't follow your strategy, I'd miss out on a much less small amount of returns.

Comment by evira on Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy · 2019-03-17T15:07:56.040Z · score: 1 (1 votes) · EA · GW

Interesting. Do you have any thoughts on why it's so hard to invoke behavior change?

Comment by evira on Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy · 2019-03-16T14:05:40.890Z · score: 1 (1 votes) · EA · GW
Is there any empirical reason to think that knowledge about 'rationality' is particularly helpful for investing?

Yes. Rationalists are likely to know about, and adjust for, overconfidence bias, and to avoid the base-rate fallacy. Presumably Bayesian Investor already knows that most people who thought they could beat the market were wrong, and thus took this into account when forming their belief that the strategy can beat the market.

And it's not necessarily the case that Bayesian Investor's strategy is worth doing for everyone and that people just don't do it because they're stupid. The strategy carries more risk than average strategies, and this alone is possibly a good enough reason for most people to avoid it. Effective altruists, however, should probably be less risk averse and thus the strategy is more likely to be useful for them.

Also, we've been saying most people who think they can beat the market are wrong, but on reflection I'm not sure that's true. My understanding is that using leverage can, in expectation, result in you beat the market, and I suspect this is well know among those knowledgeable about investing. People just avoid doing it because it's very risky.

Comment by evira on Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy · 2019-03-15T14:35:32.704Z · score: 7 (2 votes) · EA · GW

I agree that Bayesian Investor's strategy has a high chance of not beating the market, has somewhat higher risk, and would probably result in you occasionally rebalancing your portfolio, but it still seems like it's very much worth using or at least worth having someone look into.

The funds Bayesian Investor suggests you invest in are ETFs, which I think decreases the need for doing much rebalancing. And rebalancing takes little time. All you need to do is buy and sell from a handful of ETFs; I doubt this would take much more than an hour or so. There's also the transaction cost of buying and selling stocks, but these costs are low, too, and probably under $100 per year.

I understand many people knowledgable about about investing have thought they could beat the market and were wrong, but how many people were both knowledgeable about investing and about rationality but were still wrong? Given how few rationalists there are, I doubt there have been many.

If we assign a 1/3 chance of the strategy beating the market by 3% and otherwise matches the market, then with $100,000 in investments the strategy would in expectation increase our earnings by $1,000 per year. I extremely roughly estimate the annual cost of rebalancing to be $100 per year, including lost earnings due to opportunity cost, which results in the strategy giving you a net profit of $900 per year. This sounds like a good deal to me. And with $1,000,000 invested it would net $9,900 per year.

There's also the potentially increased risk, but for the amounts of money we're dealing with, I think we should be pretty much risk neutral. This is because individuals who aren't extremely wealthy generally can only the amount of funding a non-tiny organization gets by a small amount, and when changing the amount of funding by only a small amount diminishing marginal returns to funding would have little effect.

Am I missing something?

Bayesian Investor proposes you can predictably beat the market by ~3% following a simple and easy strategy

2019-03-13T18:28:27.331Z · score: 6 (4 votes)