This is not only a world of low bond yields. Virtually all long-only assets appear expensive compared to their own histories. (Location 696)
Research-oriented investment practitioners and academics have converged over time in their opinions on which factors have been historically well rewarded. Empirical evidence over recent decades or even longer histories point to certain asset class premia as well as certain style premia. (Location 737)
Evidence on alternative risk premia, notably five style premia, has become more widely known. Favoring cheap assets (value), recently outperforming assets (in relative sense in momentum and in absolute sense in trend), high-income assets (carry), and stable or high-quality assets (defensive) (Location 750)
Many investors count on manager-specific “alpha,” but empirical evidence argues against confident predictions of positive alpha. (Location 780)
Mean-variance optimization is a common workhorse in portfolio construction, despite its various pitfalls. I emphasize the role of constraints (on, say, illiquidity and leverage) in driving actual asset allocation choices. (Location 811)
Diversification remains the one almost-free lunch in investing, though its costs include unconventionality and lesser intuition. Diversification is short stories and long evidence. (Location 820)
The last chapters argue that strategic diversification trumps tactical timing as a method of improving investment outcomes and that multiyear return chasing is a premier bad habit among investors. (Location 825)
Not just bond prices! It is less widely understood that a similar discount rate effect applies to other asset classes, including equities. (Location 1013)
As one casualty of the low-return world, compound interest may lose its status as the eighth wonder of the world. Compounding cannot help as much even over long horizons if we face persistent low returns. (Location 1041)
It illustrates that the yield-based estimate has some, albeit imperfect, ability to predict future returns (Location 1049)
Horizon matters: The yield-based approach seems most relevant for a ten-year horizon, while for longer horizons, starting yields and valuations matter less, whereas for shorter horizons, momentum and macro forces can be important. (Location 1076)
The irony is that unattractive expected returns on financial investments may prompt more saving. (Location 1158)
In a DB plan, a sponsor – a public entity or a private company – sets up a retirement plan for its employees. The plan promises defined retirement benefits to the participating employees according to some formula (often tied to the salary in the final working years and the number of working years). (Location 1363)