MichaelDickens

• MichaelDickens 6 Apr 2021 16:01 UTC

  3 points

  in reply to: Ramiro’s comment on: Ramiro’s Shortform

  If wild animals have bad lives on net, then indiscriminately increasing wild animal populations is bad under any plausible theory of population ethics.

• MichaelDickens 6 Apr 2021 15:56 UTC

  3 points

  in reply to: Ozzie Gooen’s comment on: A Com­par­i­son of Donor-Ad­vised Fund Providers

  Thanks for sharing your experience with Vanguard! That aligns with anecdotes I’ve heard about Vanguard’s brokerage service.

  • Are there any simple ways of making investments in these accounts that offer 2x leverage or more? Are there things here that you’d recommend?

  I just published something about DAF investing strategies: https://​​mdickens.me/​​2021/​​04/​​06/​​investing_strategies_DAF/​​ In this section, I talk about leveraged ETFs. I believe the only way to invest with leverage in a DAF is through a leveraged ETF or mutual fund, although I’ve heard conflicting things about what the actual legal requirements are. In general, I don’t think leveraged ETFs are good investments.

  • Do you have an intuition around when one should make a Donor-Advised Fund?

  If you want to use leverage, probably never. (Or just use it to convert stock into cash for donations, as akrolsmir described.) Otherwise, you want to have at least $10,000 or so, otherwise the minimum fee will eat too large a % of your assets each year. (Schwab and Fidelity both have a $100 minimum fee.)

  • How easy is it for others to invest in one’s Donor-Advised Fund?

  It’s definitely possible. I personally don’t have my own DAF, I use my parents’ DAF. I’m a full authorized user on the account, which means I had to connect my Fidelity account to the DAF. If you don’t care about managing anything and just want to donate to the DAF, I would think that should be pretty easy, but I haven’t tried it. I think it should be as simple as writing a check to Fidelity Charitable with a note that the money is for that particular DAF.

• MichaelDickens 6 Apr 2021 15:32 UTC

  2 points

  in reply to: Jonas Vollmer’s comment on: A Com­par­i­son of Donor-Ad­vised Fund Providers

  Yeah this is for US only. I actually thought I had said that in the post, but looks like I forgot to! I’ll edit it.

A Com­par­i­son of Donor-Ad­vised Fund Providers

• MichaelDickens 9 Mar 2021 16:06 UTC

  5 points

  in reply to: MathiasKirkBonde’s comment on: Mathi­asKirkBonde’s Shortform

  I think a lot of people feel this way, and it’s something I’ve experienced. I don’t have any great solutions but I generally do two things:

  1. Set reasonable expectations. The application process has a lot of randomness, and almost all applications will get ignored even if they’re good, so I should expect any particular application to have a very low chance of getting a response.

  2. Spend less time on individual applications; apply to a lot of things; use commonalities across applications to copy/​paste things I wrote on previous applications.

• MichaelDickens 12 Jan 2021 18:55 UTC

  4 points

  in reply to: ESRogs’s comment on: “Pa­tient vs ur­gent longter­mism” has lit­tle di­rect bear­ing on giv­ing now vs later

  The stock market should grow faster than GDP in the long run. Three different simple arguments for this:

  1. This falls out of the commonly-used Ramsey model. Specifically, because people discount the future, they will demand that their investments give better return than the general economy.

  2. Corporate earnings should grow at the same rate as GDP, and stock price should grow at the same rate as earnings. But stock investors also earn dividends, so your total return should exceed GDP in the long run. (The reason this works is because in aggregate, investors spend the dividends rather than re-investing them.)

  3. Stock returns are more volatile than economic growth, so they should pay a risk premium even if they don’t have a higher risk-adjusted return.

• MichaelDickens 11 Jan 2021 19:43 UTC

  3 points

  in reply to: MichaelDickens’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  (These numbers are actually more similar than I expected—I would have predicted the top-10% portfolio to have something like 5x more value factor loading than the top-half portfolio, not 2x.)

• MichaelDickens 11 Jan 2021 19:01 UTC

  3 points

  in reply to: ESRogs’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  I’m not sure how to calculate it precisely, I think you’d want to run a regression where the independent variable is the value factor and the dependent variable is the fund or strategy being considered. But roughly speaking, a Vanguard value fund holds the 50% cheapest stocks (according to the value factor), while QVAL and IVAL hold the 5% cheapest stocks, so they are 10x more concentrated, which loosely justifies a 10x higher expense ratio. Although 10x higher concentration doesn’t necessarily mean 10x more exposure to the value factor, it’s probably substantially less than that.

  I just ran a couple of quick regressions using Ken French data, and it looks like if you buy the top half of value stocks (size-weighted) while shorting the market, that gives you 0.76 exposure to the value factor, and buying the top 10% (equal-weighted) while shorting the market gives you 1.3 exposure (so 1.3 is the slope of a regression between that strategy and the value factor). Not sure I’m doing this right, though.

  To look at it another way, the top-half portfolio described above had a 5.4% annual return (gross), while the top-10% portfolio returned 12.8% (both had similar Sharpe ratios). Note that most of this difference comes from the fact that the first portfolio is size-weighted and the second is equal-weighted; I did it that way because most big value funds are size-weighted, while QVAL/​IVAL are equal-weighted.

• MichaelDickens 11 Jan 2021 18:28 UTC

  3 points

  in reply to: ESRogs’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  That could help. “Standard” trendfollowing rebalances monthly because it’s simple, frequent enough to capture most changes in trends, but infrequent enough that it doesn’t incur a lot of transaction costs. But there could be more complicated approaches that do a better job of capturing trends without incurring too many extra costs. One idea I’ve considered is to look at buy-side signals monthly but sell-side signals daily, so if the market switches from a positive to negative trend, you’ll sell the following day, but if it switches back, you won’t buy until the next month. On the backtests I ran, it seemed to work reasonably well.

  These were the results of a backtest I ran using the Ken French data on US stock returns 1926-2018:

  	CAGR	Stdev	Ulcer	Trades/​Yr
  B&H	9.5	16.8	23.0
  Monthly	9.3	11.7	14.4	1.4
  Daily	10.7	11.0	9.6	5.1
  Sell-Daily	9.7	10.3	9.2	2.3
  Buy-Daily	10.6	12.3	12.3	1.8

  (“Ulcer” is the ulcer index, which IMO is a better measure of downside risk than standard deviation. It basically tells you the frequency and severity of drawdowns.)

• MichaelDickens 11 Jan 2021 17:53 UTC

  3 points

  in reply to: ESRogs’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  The AlphaArchitect funds (except for VMOT) are long-only, so they’re going to be pretty correlated with the market. The idea is you buy those funds (or something similar) while simultaneously shorting the market.

  And I’ve heard it claimed that assets in general tend to be more correlated during drawdowns.

  This is true. Factors aren’t really asset classes, but it’s still true for some factors. This AQR paper looked at the performance of a bunch of diversifiers during drawdowns and found that trendfollowing provided good return, as did “styles”, by which they mean a long/​short factor portfolio consisting of the value, momentum, carry, and quality factors. I’d have to do some more research to say how each of those four factors have tended to perform during drawdowns, so take this with a grain of salt, but IIRC:

  • value and carry tend to perform somewhat poorly

  • quality tends to perform well

  • momentum tends to perform well during drawdowns, but then performs really badly when the market turns around (e.g., this happened in 2009)

  I’m talking about long/​short factors here, so e.g., if the value factor has negative performance, that means long-only value stocks perform worse than the market.

  Also, short-term trendfollowing (e.g., 3-month moving average) tends to perform better during drawdowns than long-term trendfollowing (~12 month moving average), but it has worse long-run performance, and both tend to beat the market, so IMO it makes more sense to use long-term trendfollowing.

  We never know how this will continue in the future. For example, the 2020 drawdown happened much more quickly than usual—the market dropped around 30% in a month, as opposed to, say, the 2000-2002 drawdown, where the market dropped 50% over the course of two years. Trendfollowing tends to perform worse in rapid drawdowns because it doesn’t have time to rebalance, although it happened to perform reasonably well this year.

  There’s a lot more I could say about the implementation of trendfollowing strategies, but I don’t want to get too verbose so I’ll stop there.

• MichaelDickens 4 Jan 2021 18:10 UTC

  2 points

  in reply to: JoshuaFox’s comment on: Where are you donat­ing in 2020 and why?

  Monthly is fine, it’s probably better for charities. I personally donate annually because it’s a lot simpler. I donate appreciated stock, and transferring stock is a substantial amount of work.

• MichaelDickens 26 Dec 2020 5:19 UTC

  12 points

  on: Big List of Cause Candidates

  At the risk of being overly self-promotional, I have written a few posts on cause candidates that I don’t see listed here.

  • Unknown existential risks (not exactly a cause, but conceptually similar)

  • Estimating the Philanthropic Discount Rate suggests that we have some reason to believe it is extremely valuable to put more effort into estimating the philanthropic discount rate.

  • Charities I Would Like to See proposes four weird and neglected ideas.

  Another potential cause area that’s not listed: reducing value drift (e.g., this post).

As­set Allo­ca­tion and Lev­er­age for Altru­ists with Constraints

• MichaelDickens 14 Dec 2020 18:14 UTC

  2 points

  in reply to: Jonas Vollmer’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  I only skimmed the linked source but my rough impression is that I’m fairly bearish on art, mainly because there’s no expectation that it will appreciate. The linked article doesn’t really present evidence to the contrary—the only relevant bit I saw was a graph showing appreciation from 2000 to 2010. 10 years of appreciation is almost meaningless, I’d want to see more like 50 years of data showing an asset class has positive real return.

  Perhaps it would be worth buying art if you have some reason to believe you can outperform the market at predicting which pieces will be more valuable in the future. The art market is probably less efficient than more liquid financial markets, but on priors I wouldn’t expect to be able to pick “winning” art pieces.

• MichaelDickens 7 Dec 2020 23:36 UTC

  3 points

  in reply to: Denkenberger’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  That’s an interesting idea, I’m thinking about the best way to model it. I think what you’d want to do is to calculate the safe withdrawal rate for different portfolios and see which is best. The problem is, we don’t have enough historical data to get good results, so we’d have to do simulations. But those simulations couldn’t assume that returns follow a log-normal distribution, because the fact that assets tend to experience big drawdowns substantially affects the safe withdrawal rate.

• MichaelDickens 4 Dec 2020 18:38 UTC

  2 points

  in reply to: Denkenberger’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  In my experience, when the market is down a lot, the payouts would increase as a percentage, because donors would not want to have inefficient cuts in charities.

  This is a good point that I hadn’t thought of. This would still reduce donations overall, right? Because if people donate a larger % when markets are down, that means they have less money to donate later. It’s not obvious to me off hand how this should be modeled, but that’s something to think about.

  I do agree that a fully market-neutral position is probably not optimal in practice. That only makes sense if you assume leverage costs the risk-free rate, you can get however much leverage you want, and you can rebalance continuously with no transaction costs. If you impose more realistic restrictions, you probably want to aim for a higher expected return with low fees rather than going for pure market neutral. I’m writing a new essay about this right now. According to my new model, the optimal allocation under realistic costs and restrictions is something like 200% long, 50% short. In my previous essay on leverage, I do think I overstated the value of reducing correlation rather than increasing expected return.

• MichaelDickens 25 Nov 2020 20:06 UTC

  5 points

  in reply to: jackmalde’s comment on: Where are you donat­ing in 2020 and why?

  There’s a good chance I will give to the long-term investment fund once it’s up and running, depending on how much I like its investment portfolio. I think the optimal altruistic portfolio (on the margin) looks pretty weird, and they might not want to invest like that. (It might be entirely rational for the long-term investment fund not to invest in a way that looks too weird, because that could make it harder to attract donations.)

  EDIT: I realized I only answered half of your question. RE my long-term plan, I honestly don’t know what to do to reduce the risk of value drift if I don’t end up giving to the long-term investment fund. Reducing value drift seems like an important open problem.

• MichaelDickens 25 Nov 2020 17:39 UTC

  10 points

  on: Where are you donat­ing in 2020 and why?

  This year, I am investing to give with 100% of my donation budget. I am moderately convinced by the arguments in favor of giving later. I’m not entirely convinced—in particular, for some types of work (such as foundational research), it seems more important to do early—but the state of knowledge on the question seems to be improving rapidly. If (to simplify) the optimal time to donate is either now or centuries from now, then it seems much less harmful to incorrectly donate a few years too late than to incorrectly donate centuries too early. So the safer choice is not to donate anything right now.

  My biggest concern with investing to give is that I will become less altruistic over time, and won’t end up donating the money. I considered putting my donation budget into a donor-advised fund, but I decided against it for the reasons explained here.

  Alternatively, I could donate a little of my donation budget and invest the rest, but I’m willing to bite the bullet on the argument that all altruistic funds on the margin should be invested.

  (My income is unusually low this year, so I barely have a donation budget anyway. But this is what I’d do if I had more money.)

• MichaelDickens 24 Nov 2020 20:01 UTC

  6 points

  in reply to: Andy_Schultz’s comment on: Un­cor­re­lated In­vest­ments for Altruists

  If you’re long-only, it probably makes more sense to buy VMOT than QVAL/​IVAL/​QMOM/​IMOM. VMOT is a fund that holds those four funds, but also includes a tactical trendfollowing component, so it moves to market neutral under certain market conditions. This tends to reduce correlation to the broad stock market, particularly during downturns.

  Here’s my basic thinking on the tradeoffs between those three options:

  • I would predict VMOT to have the highest forward-looking risk-adjusted return with moderate correlation to ordinary investments.

  • EDC probably has the highest expected return, but also the highest volatility, and pretty high correlation to ordinary investments.

  • AXS Chesapeake probably has close to zero correlation to ordinary investments, and with risk-adjusted performance that’s not much worse than VMOT.

  I’m inclined to say AXS Chesapeake would make the most sense to buy, because getting low correlation is more important than getting the highest possible expected return.

Un­cor­re­lated In­vest­ments for Altruists