Bill Bernstein at BH9

[Norbert Schlenker]

I was at the Bogleheads' ninth (almost) annual get-together in Philly last week and thought it might be interesting to report Bernstein's views on interest rates and the fixed income piece of portfolios. His general advice is to stay short, and to keep TIPS even at current derisory - sometimes negative - real yields. He's a broad thinker and his view is that fixed income investing at this point is a version of Pascal's wager, i.e. you will be hurt but not badly if rates and inflation stay low but a rise in inflation will devastate your portfolio if you bet the other way.

I'm a deflationista so I disagreed with him a number of times in private, once in public, on this issue, but the Pascal's wager argument is a powerful one which I will chew on as I continue my travels. As it stands, I remain long duration in fixed income and have recently disposed of all my inflation protection via TIPS (in both my wife's and my own IRAs) in favour of equities. Equities are no bargain in absolute terms these days but, relative to TIPS, a better bet IMO.

BTW, I've got to tell you that all but the most convinced buy-and-hold crowd are tempted to time based on their perceptions of valuation. That includes names like Bernstein and others just as well known. Bylo was one of the few in the room that stood on principle, needling me gently as occasion warranted. Maybe twenty times in two days.

[George$]

Thanks Norbert. I wish I was there with you and Bylo and BB etc.

Interested readers can also get more of BH9 at Snippets from Bogleheads 9

Plus notes from a blogger

[Shakespeare]

stay short, and to keep TIPS...fixed income investing at this point is a version of Pascal's wager, i.e. you will be hurt but not badly if rates and inflation stay low but a rise in inflation will devastate your portfolio if you bet the other way.

I agree with him on that (substituting RRBs for TIPS), and have been investing that way for several years.

[Bylo Selhi]

Maybe twenty times in two days.

Really?

And I tried sooo hard to limit myself to only half a dozen times a day

[speedbump101]

Great meeting Norbert and ByLo in Philly... along with their respective 'sidekicks' .

Hope you guys made it home ok. Take care you two, and I agree with Bylo that six nudges a day are more than enough!

SB...

[tidal]

Did Bernstein talk at all about GDP growth expectations?

Although he didn't entirely endorse this discussion he once highlighted, it's pretty compelling.

This, gulp, by the way, based on US 5-year treasuries today, would be forecasting ~ 1.15% nominal US GDP growth, and then leads to ~ 3.1% nominal for stocks.

The unnerving thing about this is that it is a pretty compelling derivation, and there are some inherent mechanisms for why it "should" work, as Bianco discusses. If you want to work around it, you are largely reduced to proclaiming that, well, it's just gonna be different this time. But why?

[Bylo Selhi]

Boglehead VictoriaF has completed her report and notes on BH9. Here's the full PDF [Warning: 46 pages!] There's lots of interesting stuff therein.

Jack Bogle is still feisty and outspoken. He's slowed down to be sure, but only to a mere 105% of full capacity. His comments on the mutual fund industry, including his rapprochement with the new Vanguard management (“Recently, I have been very comfortable at Vanguard. The new President is succeeding in restoring old Vanguard values and human relationships. I want you to know very clearly that my relationship with Vanguard is very good..."), are particularly enlightening. Jack's latest (he told me, "but hopefully not my last") book just came out:- Don't Count on It! - Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship, Idealism, and Heroes.

Enjoy!

[big easy]

Boglehead VictoriaF has completed her report and notes on BH9. Here's the full PDF [Warning: 46 pages!] There's lots of interesting stuff therein.

Jack Bogle is still feisty and outspoken. He's slowed down to be sure, but only to a mere 105% of full capacity. His comments on the mutual fund industry, including his rapprochement with the new Vanguard management (“Recently, I have been very comfortable at Vanguard. The new President is succeeding in restoring old Vanguard values and human relationships. I want you to know very clearly that my relationship with Vanguard is very good..."), are particularly enlightening. Jack's latest (he told me, "but hopefully not my last") book just came out:- Don't Count on It! - Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship, Idealism, and Heroes.

Enjoy!

Thanks for the link Bylo. Do you think Vanguard will ever come to Canada?

[Bylo Selhi]

In case anyone wants to ask him a question, the doctor is now [In] at the G&M website: Why are we convinced we're poor?

If we live in one of the richest countries in the world, why do so many of us feel left behind?

William Bernstein examines such paradoxical questions of wealth in one of his book latest books, The Birth of Plenty. Since the 1820s, wealth in the developed world has been steadily rising, raising life-expectancy and happiness. Indeed, Mr. Bernstein argues that we’re now the richest generation in history. If that’s the case, however, why is personal debt soaring and why do few feel they have the means to meet their needs? Though we live like the kings of the past we feel like the paupers of the future.

Mr. Bernstein takes you questions in a live discussion now.

[Bylo Selhi]

Bill Bernstein: Stock Prices Reflecting Fear

Q: And what exactly is that Chernobyl you’re describing?

Bernstein: A very highly linked, leveraged, complex financial system that can very rapidly spin out of control. One failure mode, for example, occurred in 2008 and 2009 when a large number of hedge funds and investment banks underwent forced deleveraging  And that’s just one possible failure mode of many.

The problem is nothing’s been fixed. We had banks that were too big to fail, we now have fewer of them and they’re bigger. We have an inherently unstable financial system.  And it’s unstable because it’s completely unregulated. To me that’s the most discouraging thing. Almost none of these banks would be here today if it weren’t for the federal government, yet in the past two years, they’ve recaptured the regulatory apparatus.

Q: Anything else worry you?

Bernstein: The greatest threat to our Republic since the Civil War is Medicare. Obviously, we shouldn’t eliminate Medicare. It’s a central part of the social safety net. But medical care in the United States has to be reformed. If it doesn’t, it will bring us down...

[Taggart]

I read the above earlier this morning at the sister site. What surprised me was (he doesn't use that term of course) his use of market timing.

Bernstein: If I thought my baseline investment policy were 60 percent stocks and 40 percent bonds, I’d probably go to 45/55 right now, and leave the other 15 percent for an opportunity. Or putting it another way, I would get mostly invested right now, and leave a little bit on the side for an opportunity. If the opportunity doesn’t arise, at least I’ve gotten some upside. And if the opportunity does arrive ,then I’ve done very well indeed.

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I borrowed Bernstein's book from the library the other day. The Investors Manifesto. I'm only into the second chapter but so far it's a great read. Hope it continues that way. I'm having trouble getting through it quicker because I find multi-tasking difficult. At the same time, trying my best to get through "The Ultimate Guide To The Canadian Bond Market 2nd Edition" by W.H. "Hank" Cunningham.

[Bylo Selhi]

I read the above earlier this morning at the sister site. What surprised me was (he doesn't use that term of course) his use of market timing.

So ask him. He's posting on the other side as wbern.