Which city is next?
Trendfollowing tends to perform worse in rapid drawdowns because it doesn't have time to rebalance
I wonder if it makes sense to rebalance more frequently when volatility (or trading volume) is high.
The AlphaArchitect funds are more expensive than Vanguard funds, but they're just as cheap after adjusting for factor exposure.
Do you happen to have the numbers available that you used for this calculation? Would be curious to see how you're doing the adjustment for factor exposure.
Looking at historical performance of those Alpha Architects funds (QVAL, etc), it looks like they all had big dips in March 2020 of around 25%, at the same time as the rest of the market.
And I've heard it claimed that assets in general tend to be more correlated during drawdowns.
If that's so, it seems to mitigate to some extent the value of holding uncorrelated assets, particularly in a portfolio with leverage, because it means your risk of margin call is not as low as you might otherwise think.
Have you looked into this issue of correlations during drawdowns, and do you think it changes the picture?
Ah, good point! This was not already clear to me. (Though I do remember thinking about these things a bit back when Piketty's book came out.)
I just feel like I don't know how to think about this because I understand too little finance and economics
Okay, sounds like we're pretty much in the same boat here. If anyone else is able to chime in and enlighten us, please do so!
My superficial impression is that this phenomenon it somewhat surprising a priori, but that there isn't really a consensus for what explains it.
Hmm, my understanding is that the equity premium is the difference between equity returns and bond (treasury bill) returns. Does that tell us about the difference between equity returns and GDP growth?
A priori, would you expect both equities and treasuries to have returns that match GDP growth?
But if you delay the start of this whole process, you gain time in which you can earn above-average returns by e.g. investing into the stock market.
Shouldn't investing into the stock market be considered a source of average returns, by default? In the long run, the stock market grows at the same rate as GDP.
If you think you have some edge, that might be a reason to pick particular stocks (as I sometimes do) and expect returns above GDP growth.But generically I don't think the stock market should be considered a source of above-average returns. Am I missing something?
You could make an argument that a certain kind of influence strictly decreases with time. So the hinge was at the Big Bang.
But, there (probably) weren't any agents around to control anything then, so maybe you say there was zero influence available at that time. Everything that happened was just being determined by low level forces and fields and particles (and no collections of those could be reasonably described as conscious agents).
Today, much of what happens (on Earth) is determined by conscious agents, so in some sense the total amount of extant influence has grown.
Let's maybe call the first kind of influence time-priority, and the second agency. So, since the Big Bang, the level of time-priority influence available in the universe has gone way down, but the level of aggregate agency in the universe has gone way up.
On a super simple model that just takes these two into account, you might multiply them together to get the total influence available at a certain time (and then divide by the number of people alive at that time to get the average person's influence). This number will peak somewhere in the middle (assuming it's zero both at the Big Bang and at the Heat Death).
That maybe doesn't tell you much, but then you could start taking into account some other considerations, like how x-risk could result in a permanent drop of agency down to zero. Or how perhaps there's an upper limit on how much agency is potentially available in the universe.
In any case, it seems like the direction of causality should be a pretty important part of the analysis (even if it points in the opposite direction of another factor, like increasing agency), either as part of the prior or as one of the first things you update on.
Separately, I still don’t see the case for building earliness into our priors, rather than updating on the basis of finding oneself seemingly-early.
Do you have some other way of updating on the arrow of time? (It seems like the fact that we can influence future generations, but they can't influence us, is pretty significant, and should be factored into the argument somewhere.)
I wouldn't call that an update on finding ourselves early, but more like just an update on the structure of the population being sampled from.