Many Russian stocks had some of the lowest valuations and some of the highest shareholder returns (dividends) globally, during the years before the Ukraine invasion. Many global deep value investors overweighed Russia. But I trust you that they didn't pass your filter for whatever reason.You are basically saying risk is drawdown. Since my portfolio had less drawdown than the market does that mean my portfolio was less risky than the market? You said risk is real and actionable so can you measure the drawdown risk of my portfolio and the market? Who really knows the drawdown risk of any stocks or the market? If you can’t, then we both agree that risk is very abstract.Your formula "Return = dividend yield + growth + multiple expansion" is correct; I think surprises usually come with the long-term trajectory of the "growth" component of individual stocks, which can be quite dynamic and unpredictable. It might be educational to familiarize yourself with the distribution of stock returns, then at the distribution of small cap stock returns, if you have not yet done so. A large percentage of stocks goes to zero; most stocks greatly underperform the market, even though I'm sure almost every stock had growth and a potentially prosperous future at some point. I don't know how much different is the distribution for stocks with high dividends and growth.Return = dividend yield + growth + multiple expansion
The dividend yield of my portfolio is about 10%.
From my analysis of the individual stocks in the portfolio dividends have been growing and there should be more growth in the future.
Multiple expansion is anyone’s guess but from my experience stocks don’t trade at 10% yield for a long time. There have been massive multiple expansion in the past few years and there should be more in the future.
Add them together I am satisfied with such returns. I am not looking for alpha because there’s no guarantee any portfolio will outperform the index. So the index could go up 30% a year while I get 20% a year return and that’s fine by me.
Risk is a very abstract concept. I don’t think volatility is risk. But my portfolio’s volatility has been very close to the market and drawdown has been smaller than the market if you look at some previous discussions. There’s definitely not enough data though and there won’t be a way to backtest it.
And I don’t know much about factor theories but I’ll need a deep value and high yield factor ETF to compare against. I don’t think such ETFs exist because ETFs are there to make management fees so they will never employ a strategy that could run out of stocks to buy.
You are correct that volatility alone is not a good risk measure, especially portfolio volatility. What counts is the end result after x years. But "risk" is definitely not an abstract concept, but very real and actionable. There is a reason why assets with more drawdown risk have higher expected returns, as it controls the leverage you can apply to make the risk equal between portfolios; I gave you a simple illustration in my previous post. It's a very easy, rational, and actionable utility function. If you ignore and reject that, there is little point discussing your portfolio.
You could certainly backtest your strategy if you spend some time. Go back a few years and simulate your strategy by selecting stocks using then current data and your criteria. The problem is, you would have to be honest to yourself and avoid hindsight bias, i.e. you would have to include all stocks in your backtesting universe, even those that now don't exist any more. Many of the names that ceased to exist due to bankruptcy or takeovers disappear from most data sheets. For example, you would have to include any Russian stocks that you would have included in your portfolio back then based on your criteria and that went to zero for Westerners, not knowing beforehand whether Russia, Brazil, or China tensions escalate and relations with the West break. In your backtest you probably also want to include at least one of the market drawdown events that typically occur every 10-20 years, e.g. the 2007-2009 period. I would be genuinely curious how your strategy would have fared. Others including myself tried similar "deep value" strategies. You basically have only one shot in life with your portfolio strategy; there is not much time for experimentation. So it's good to be informed beforehand rather than later.
I started running a similar strategy with a portion of my money since around 2016. Russian stocks historically did not pay much to shareholders so I probably wouldn’t have bought any of them. I was only able to find AAPL and a few Australian iron ore miners in 2016 that rewarded shareholders well. Those stocks all did extremely well in the following years. I shifted to 100% of my strategy in 2020-2021 and also had phenomenal returns since then.
And is it really fair to ask someone to go back 20 years to investigate tens of thousands of stocks just for backtesting? If I had that time I would just investigate what I want to buy today. You are asking an impossible task and you might as well just reject all stock-pickers since they can’t backtest. Yes you only have one shot in life and I prefer not to dwell in the past.
Drawdown risk is very actionable; I gave you a simple illustration a few posts up. You can only compare portfolios or strategies adjusted to the same risk. The risk is very actionable, because every retail investor nowadays can readily leverage any portfolio at institutional interest rates (i.e. near fed fund rates) to any risk level of your choosing.
We cannot measure the drawdown risk nor the returns of your portfolio or strategy in a meaningful way, because 2 years are almost meaningless, especially 2 years of bull market. We currently cannot asses your strategy because of lack of data of your strategy, not because the risk framework is faulty.
Like I said, if you refuse the concepts of risk and return (CAPM) that are used in this forum and in the entire asset management industry, and you don't provide any alternative framework, nor any backtesting or any other rationale (except the simplistic formula that you mentioned where the future "growth" is pure speculation), then I don't know what to say.
It looks like you dismiss and reject almost any commonly used framework or method; in fact you really reject anything constructive or investigative that I can think of that can possibly be said, and you don't provide anything except your position and 2 year returns.
I'm not forcing you to do anything. It's just that without any backtest or any other framework of estimating expected risk and return, there is little to say or to discuss except for praying and cheerleading.
Statistics: Posted by comeinvest — Sun Jun 09, 2024 11:34 pm