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Lowell Herr  

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  • The Basic Portfolio [View instapost]
    Drftr,

    Looks like I got to this message first, so let me take a quick crack. 1) Gold would not be one of my big three investments. 2) Would you consider William J. Bernstein's recommendation of these three areas for investing? They are: U.S. Total Equities or 34% in VTI, 33% in VEU or Total International Markets including some Emerging Markets, and 33% in BND to cover the Total Bond Market. Then rebalance approximately once a year.

    I am setting up some portfolios that expand on these three ETFs to include International Bonds, Domestic REITs and International REIT.

    Lowell
    Apr 26, 2014. 06:39 AM | Likes Like |Link to Comment
  • Building A Simple Portfolio Using Fama-French, Novy-Marx And Swensen Principles [View article]
    Yebrevo,

    I have one passively managed portfolio, launched in late 2000, that is outperforming the S&P 500 by 0.8% annualized. However, it is lagging the VTSMX benchmark by 0.1% (-0.1%), also annualized. These values take into account all cash flowing in or out of the portfolio so it is a correct IRR calculation.

    I'm not a big fan of back testing, particularly if an effort was made to curve fit. The Feynman Study (available on my blog) does not curve fit, and it shows the benefits of momentum investing.

    Check studies by Fama-French and James P. O'Shaughnessy to find the benefits of skewing portfolios toward small and value. To gain an idea of yield, just type in the tickers on Yahoo! Finance and look at the values. My guess is that the yield is somewhere between 2.7% and 3.2%, depending on the percentage held in bonds and REITs.

    Earlier this morning I checked on performance data that is nearly 14 years old. Check out the performance values below.

    Large-Cap Growth – 48.1% These are total returns, not annualized figures.
    Large-Cap Value – 99.9%
    Mid-Cap Growth – 155.5%
    Mid-Cap Value – 324.2%
    Small-Cap Growth – 227.1%
    Small-Cap Value – 302.2%

    Lowell
    http://itawealth.com
    Apr 24, 2014. 05:02 PM | 1 Like Like |Link to Comment
  • Building A Simple Portfolio Using Fama-French, Novy-Marx And Swensen Principles [View article]
    Thanks for the additional analysis. I've not used Morningstar X-Ray for many months. I'll take another look.

    Yes, one could easily adjust the percentages to fit X-Ray.

    Lowell

    http://itawealth.com
    Apr 24, 2014. 04:01 PM | Likes Like |Link to Comment
  • Building A Simple Portfolio Using Fama-French, Novy-Marx And Swensen Principles [View article]
    Edward,

    Since the U.S. is approximately 40% to 50% of the world market, it makes sense to hold a significant amount in international markets. In Swensen's book, he recommends 15% in developed countries and 5% in emerging markets. I think he revised EM to now hold a higher percentage.

    International markets have not done all that well over the past 14-15 years so you have a point of argument.

    If you look at the Dashboard shown at this URL, you will see an allocation I've used with a portfolio this century.

    http://bit.ly/1fasuBS

    This portfolio continues to outperform the S&P by 0.8% annually, but is lagging the VTSMX benchmark by 0.1% (-0.1%) annually.

    The asset allocation plan shown in the Dashboard is not all that different from what I use with numerous portfolios. Here is another SAA plan. I don't know if you have access to see it, but give it a try.

    http://bit.ly/1fasuBW

    Lowell
    Apr 24, 2014. 11:33 AM | Likes Like |Link to Comment
  • Building A Simple Portfolio Using Fama-French, Novy-Marx And Swensen Principles [View article]
    Indy,

    I don't trade all that frequently. I prefer to stick with an investment so long as it is priced above its 195-day EMA and is performing above SHY.

    Lowell
    Apr 24, 2014. 10:11 AM | Likes Like |Link to Comment
  • Building A Simple Portfolio Using Fama-French, Novy-Marx And Swensen Principles [View article]
    Indy,

    I review the portfolio every 33 days. This moves the analysis throughout the month, avoids wash sales, and eliminates short-term trading fees from TDAmeritrade.

    The spreadsheet I use also ranks bond ETFs.

    Lowell
    Apr 24, 2014. 10:08 AM | Likes Like |Link to Comment
  • Building A Simple Portfolio Using Fama-French, Novy-Marx And Swensen Principles [View article]
    Daniel,

    Interesting you ask as I was just rereading James O'Shaughnessy's book, "What Works on Wall Street." His extensive study shows that relative strength (momentum or absolute acceleration) is a major positive factor when it comes to stock performance. That metric is built into the spreadsheet used to create the above table.

    Portfolio risk is reduced when one stays away from ETFs that underperform SHY. The Feynman Study on my blog (http://itawealth.com) goes a long way to explain this. Yes, I am saying a stock that under-performs SHY is riskier than one that is outperforming SHY. Check out this article.

    http://seekingalpha.co...

    Regarding a security priced above or below a moving average, Faber and Richardson write in their "Ivy Portfolio" book, an ETF is more volatile when the price is below its 200-Day Simple Moving Average.

    I'm testing these ideas using out-of-sample data with a number of portfolios.

    Lowell
    Apr 23, 2014. 03:50 PM | Likes Like |Link to Comment
  • Did 'Sell In May' Come Early? [View article]
    I rarely buy individual stocks as the research shows that even the pros are unsuccessful in this endeavor.

    Lowell
    Apr 15, 2014. 05:36 AM | 1 Like Like |Link to Comment
  • Building A Retirement Portfolio Using ETFs [View article]
    Igor,

    The spreadsheet has three options for setting the volatility. Two use standard deviation and the options are either a 10-Day or 20-Day volatility.

    The third option uses a semi-variance or the standard deviation of negative returns and is calculated over a 60-Day period. This is the option I prefer when making the calculation. This is the volatility used in the denominator of the Sortino Ratio calculation. Here is a reference.

    http://bit.ly/14XmHsg

    I write about this on my blog and here is the URL.

    http://bit.ly/1g3jwRA

    When it comes to investing (vs. a science experiment) we want volatility to the upside. One wants to avoid volatility to the downside. A money manager should not be penalized for generating positive returns, only negative returns. The semi-variance calculation omits upside volatility.

    Lowell
    http://itawealth
    Apr 8, 2014. 05:50 AM | Likes Like |Link to Comment
  • Building A Retirement Portfolio Using ETFs [View article]
    IndyDoc1,

    1) When the "Golden Cross" turns negative, the ETF goes on a sell alert. However, I do not sell on this basis alone if the ETF continues to outperform SHY. I pay a lot of attention to the last column, Absolute Acceleration or Absolute Momentum.

    2) I do not monitor the 49/195 day cross over. One could easily add that column to the spreadsheet.

    Lowell
    http://itawealth.com
    Apr 8, 2014. 05:38 AM | Likes Like |Link to Comment
  • Building A Retirement Portfolio Using ETFs [View article]
    IndyDoc,

    My reason for using the 195-Day EMA is that it is a little faster moving than the 200-Day SMA and therefore will generate a move before all the 200-Day folks move. The table does include the "Golden Cross" or when the price of the 13-Day EMA moves above or below the 49-Day EMA. You see it as the X/O header.

    Using the 50-Day EMA will generate more trades, something I prefer not to do. You will see from the Ranking table that I sell ETFs that are under-performing SHY regardless of the Exponential Moving Average data. This is to reduce portfolio risk.

    The study behind this is called The Feynman Study and it is available on my blog.

    Lowell
    http://itawealth.com
    Apr 7, 2014. 07:08 PM | Likes Like |Link to Comment
  • Building A Retirement Portfolio Using ETFs [View article]
    Relative acceleration normalizes the absolute acceleration so the ETF with the greatest increase over the most recent three months vs. recent six months will show up as 100%. One also needs to normalize the number of days for the three and six month calculations.

    I prefer to use the absolute acceleration (or momentum).

    Lowell
    http://itawealth.com
    Apr 7, 2014. 10:44 AM | Likes Like |Link to Comment
  • Building A Retirement Portfolio Using ETFs [View article]
    Dick,

    That data problem is now corrected. The spreadsheet I use has some adjustments built in to recognize when data is missing. Yes, it is a problem when Yahoo! fouls up the data.

    Lowell
    Apr 7, 2014. 08:22 AM | Likes Like |Link to Comment
  • Bullish Percent Indicators Show Little Change: VPU And VHT Are ETFs To Watch [View article]
    Waldo,

    Give me a little time to update this article and let's hope SA will accept it.

    Lowell
    Apr 7, 2014. 08:19 AM | Likes Like |Link to Comment
  • Building A Retirement Portfolio Using ETFs [View article]
    About the only way I know is to use a calculation method similar to what I use in a proprietary spreadsheet.

    Lowell
    http://itawealth.com
    Apr 6, 2014. 11:38 PM | Likes Like |Link to Comment
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