I read an interesting article in the current Bloomberg at the airport about Dimensional Fund Advisers, aka DFA. The basics, I think, of DFA is that the foundation is built on Fama and French.
The way the article reads, all the DFA believers think stock picking is a scam and that no one can predict what the stock market will do.
I met with a DFA guy a while back and he seemed to take pride in the notion that he would not take any defensive action ever.
The article was a weird read WRT to the various rules that DFA imposes on the advisers that use their funds.
I don't know a lot about DFA. It seems like their funds are structured to simply be the market yet any of their funds I have ever looked trounce their benchmark--if its even right to compare their small cap fund against the Russell 2000 and so on.
Their approach is not something I am ever going to buy into but it will appeal to a lot of folks. If you feel like you don't fully buy into what you are doing now, DFA may be something that works.
To be crystal clear this is not what I do nor will I but for some folks... Also important to remember that DFA, like every other strategy out there, will have strengths and weaknesses.
The picture is looking out the front door of where we are staying.
5 comments:
Roger,
You've got the general idea of DFA. They are a passive shop. You can compare them and their funds to the Vanguard index funds for their low fees. The key difference is that they view traditional indexes as flawed. Their funds are weighted based on the Fama/French research that shows stock returns are correlated to a book to market factor (value) and a size factor (small minus big) as opposed to just traditional beta. This explains how they beat the benchmarks as a passive firm. Their funds are weighted towards value and small cap (even their core and large cap funds) which have been shown to outperform over long periods of time. As you know, even small cap and value styles will have periods of underperformance that last months or even years.
Enjoy your stay.
I'm posting this here as a comment because I couldn't quickly find an email conduit and because the value the content (about Molokai) is subject to time decay!
Hello, Roger.
My name is Jim. I have been a regular reader of your blog for about nine months. It’s fantastic. Thank you for sharing both your professional acumen and yourself.
My folks live on the west end of Molokai and I and my family have been visiting the island regularly for more than 20 years. You probably have a good plan for how you’re going to spend your time, but I offer these ideas just in case you’re weighing some options.
If you want a vigorous hike to contrast with the Grand Canyon hiking I believe you do, the hike down to Kalaupapa is the ticket. Once you’re down in Kalaupapa you’ll want to do the tour (it may be required, I’m not sure). Time your hike back up the pala ahead of the mules, if you can, as they can rather foul the trail. The folks at this site have the concession for the trail: http://www.muleride.com/. They don’t mention the hiking option on the web site. I’d give them a call or ask/call the Molokai visitor’s center. The cost of hiking should be much less than riding a mule.
I hope you’re planning to drive out to the west end one day (from the photo you posted, I’m pretty sure you’re staying on the east end). One of the most beautiful and longest white sand beaches in Hawaii (3 miles) is Papohaku. The snorkeling at the north end, next to Kiaka Rock is pretty good. Two caveats: the west end beaches are exposed to the northwest swell; if there is a swell, the surf and currents can be treacherous. Also, if the trade winds are strong, sitting or walking on the beach can be a sand blasting. Not fun. If you know you want to visit, the best bet is to go early in the day before the tradewinds really get going. http://www.hawaiiweb.com/molokai/html/beaches/papohaku_beach.html
Another hike/snorkel option on the west end is Kawakiu. You’ll need to ask around for directions. (Or leave a response and I’ll prepare detailed instructions.) The hike is no more than two miles and the end point is beautiful, secluded Kawakiu beach where the snorkeling is usually pretty good (if there’s no swell). We usually pack a lunch and spend the day.
While you’re on the west end, you should stop in the old ranch town of Maunaloa. In truth, there is little left of the old town, but it’s worth looking around. You can get a better-than-average, if somewhat pricey lunch or dinner at the restaurant in The Lodge.
The Nature Conservancy has two preserves on the island, both are worth visiting. The Kamakou rain forest preserve is high up in the central mountains and has restricted access. http://www.nature.org/wherewework/northamerica/states/hawaii/preserves/art2355.html
You might be able to arrange a special trip by finding the right person (I don’t know who that is. I’d start with a call to the visitor’s center.) There is also Mo'omomi Dunes: http://www.nature.org/wherewework/northamerica/states/hawaii/preserves/art2353.html
Some people will tell you that Mo’omomi is restricted or hard to get to. From my experience, neither is true. Though unique and very beautiful, this is a small preserve (a couple hour stop, tops).
I’ll leave you with two dated and therefore suspect restaurant tips. My folks sometimes stop at FRIENDLY ISLE COFFEE on the Kalae Highway for a croissant sandwich...and coffee. And the KUALAPUU COOKHOUSE in Kualapuu is a long lived local haunt. Another local haunt is the restaurant at Hotel Molokai. Although the food is average, the setting and local vibe is tops. Friday nights are the BEST!
I hope that you and your wife have a great visit.
Best wishes, Jim
As a financial advisor I gain access to the DFA funds through a 3rd party manager that uses the entire lineup to build model portfolios. The returns of the models have been terrfic (even taking into account mgmt fees). I am not someone who buys into passive buy and hold but I can't see the problem in having some client assets in a passive scheme for the core part of a portfolio and pairing it up with something more tactical.
rew is spot on with his comments on DFA fund weights.
I also agree with the approach Anon 11:18 mentioned. Use a passive indexed portfolio as a core and then bolt on other strategies as you please.
In my younger years I thought Effiencient Market proponents were flat-earthers. But if you look at the evidence (passive portfolios vs. active managers) the passive folks win a lot more often over long periods. Even stock picking guru Ben Graham became a EMT proponent.
I still think there are anomalies that can be taken advantaged of - even French admitted he that the momentum anomally still persists many years after it was first identified.
Here's a great video/interview with Fama. It's about 40 minutes long but very interesting.
http://www.dfaus.com/library/videos/wmv/thinkers_fama/?speed=100k#
And here's a great interview with Ken French. He discusses momentum at some length and also gives some insight into how DFA manages their portfolios. They aren't nearly as rigid/mechanical as most index funds.
http://www.dfaus.com/library/videos/wmv/thinkers_french/?speed=100k
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