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Lowell Herr

 
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  • Preparing For Bull Or Bear Market Using Low Correlated ETFs [View article]
    SVY,

    Nearly all the securities listed in the article are available commission free from TD Ameritrade. Of course BRK.B is not as it is a stock. I have no connections with TD Ameritrade other than to use them as a discount broker.

    To limit the impact of the bid/ask spread, I nearly always use limit orders. When possible I stick with Vanguard ETFs as they tend to keep the expense ratios down. While I pay attention to expense ratios, I don't let them determine my investment decisions.

    I am experimenting with a very low cost portfolio model that uses only VTI (0.05%), TLT (0.15%) and SHY (0.15%). That information is available on my blog under the Aristotle Portfolio. The portfolio is not totally positioned, but should be in another two months. Performance data is published every weekend.

    Lowell
    http://itawealth.com
    Aug 13 12:47 PM | Likes Like |Link to Comment
  • Preparing For Bull Or Bear Market Using Low Correlated ETFs [View article]
    "In the following table, the filter was set to 10...?" Is this just the number of clusters desired, or something else?"

    Another follow-up. The filter is adjusted so I come up with a minimum of four recommendations for purchase. There are times when fewer than four ETFs, representing four clusters, emerge as the ETFs are under-performing SHY. This is when we are partially or totally out of the market. That situation has not happened for a number of years due to this great bull market.

    Lowell
    Aug 12 05:53 PM | Likes Like |Link to Comment
  • Preparing For Bull Or Bear Market Using Low Correlated ETFs [View article]
    OwnPuts,

    This link will provide useful information related to this study. This is just one of 32 entries currently on my blog (http://itawealth.com). They are found under The Feynman Study.

    http://bit.ly/1sP9hHT

    Lowell
    Aug 12 05:41 PM | Likes Like |Link to Comment
  • Preparing For Bull Or Bear Market Using Low Correlated ETFs [View article]
    OwnPuts,

    I have not back-tested personally, but one of my friends has run a test beginning on 6/30/2007 and running through 6/30/2013. More tests are in the making right now. This period was tested as it includes both major bear and bull markets. The results are impressive, particularly during bear markets as the SHY cutoff keeps one from major draw-downs. I am testing the model with several portfolios and measuring portfolio trends with respect to the VTSMX index fund and the ITA Index, a customized benchmark that is designed for each portfolio. Over the last few weeks the trend has been positive as the market cooled. Results are reported each weekend on my blog. It will be many months before I know if this model outperforms a passively managed portfolio that follows a Strategic Asset Allocation model. The real test is going forward, not looking back.

    Some of the material related to these tests is free while other blog posts require a Platinum membership.

    Lowell
    http://itawealth.com
    Aug 12 05:33 PM | Likes Like |Link to Comment
  • Preparing For Bull Or Bear Market Using Low Correlated ETFs [View article]
    Herbert,

    The spreadsheet, or Cluster Weighting Momentum software handles up to 10 clusters. The weighting screen, set to 10 in this article, looks for ETFs that rank in the top 10. Look for PCY in the third slide or screen-shot. Note that it is in Cluster #5, all by itself, but it ranks number 14. Therefore it does not make the cut. If I had set the screen to 14, it would have made the cut. Cluster #1 contains a number of top ranked ETFs, but VUG at number 5 rank is the best one so it is selected to represent Cluster #1. I hope this helps a bit.

    Now for the "Ranking Filter: Buy 10, Sell 23" values. All those do is change the colors in the Rank column. Anything above 23 is coded red and anything below 10 is coded green. In between the coding is yellow.

    Lowell
    Aug 12 03:34 PM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    BlueOkie and Hardog,

    "Right on! I would ask how many fund managers last 30 or 40 years and will be there when you retire? That's the problem with letting someone else handle your funds."

    This does not address the fundamental question as we are leaving professional management out of the discussion.

    In the face of overwhelming evidence, does it make sense for an individual to take the path of selecting individual stocks to populate their portfolio vs. the path of buying the market? This is one of the basic questions addressed by each of the ten (10) recommended books.

    Another quote from William Bernstein. "...over a 10-year period, about two-thirds of stocks underperform the market; most market return comes from relatively few companies that succeed mightily..."

    Here is another piece of data. "Researcher Ron Surz constructed 1,000 portfolios each containing 15 stocks, and then followed their performance for 30 years. The "lucky" portfolios at the 95th percentile or better returned 2.5 times the end wealth of the market, but the "unlucky" ones at the fifth percentile returned only 40 percent of the final wealth of the market." Those are not good odds.

    An honest literature search on how well individual stock selectors perform with respect to the broad market provides replete data in favor of market index investing. A multi-billion dollar industry prefers to keep stock selectors in the dark.

    Lowell
    http://itawealth.com
    Aug 11 04:38 PM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    BlueOkie,

    I'm not as much concerned with how a fund manager performed as I am with my own performance. That is why I am such a strong advocate for developing an appropriate benchmark for a specific portfolio and then measuring the portfolio performance with respect to that appropriate benchmark.

    There is a collection of not-so-easy-to-read essays in a book titled, "The Portable MBA in Investment, edited by Peter L. Bernstein. I highly recommend reading the essay, 'Evaluating Investment Performance' as it includes a wide scope on benchmarking.

    Lowell
    http://itawealth.com
    Aug 11 04:17 PM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    BlueOkie,

    A lot has changed in the "index world" since 1976. Ferri's book and Bernstein's "Investor's Manifesto" provide overwhelming evidence that individual stock pickers are pushing a heavy rock up a steep incline. Chapter 2 of Manifesto, 'The Nature of the Beast' is particularly powerful. Here is one quote.

    "Trading individual stocks is like playing tennis against an invisible opponent; what you don't realize is that you are volleying with the Williams sisters. Bernstein provides a lot of data, but not quite as much as Ferri.

    Lowell
    Aug 11 04:08 PM | Likes Like |Link to Comment
  • The Ivy 20 Portfolio: Applying Cluster Weighting Momentum Analysis To Enhance Return [View article]
    Hardog,

    If this article was of interest, you will find this blog post informative.

    http://bit.ly/XEhQvN

    Lowell
    http://itawealth.com
    Aug 6 12:35 PM | Likes Like |Link to Comment
  • Show Me The Money: The Perils Of REIT ETF Investing [View article]
    It does not take much of a literature search to find many of the anti-index arguments presented above are either mis-leading or just plain false. Yes, Kathy Kristof got it wrong on several counts.

    Granted, it is nearly impossible to find performance data generated by individual active investors. We are aware of professional active managers and it is a stretch to think amateurs are doing better. Sure there will always be profitable active managers, but how many turn in great records over a lifetime of investing - say 40 years?

    The challenge to individuals actively managing their portfolios through individual stock picking is to benchmark their portfolio using an appropriate benchmark, and keep at it for 30 to 40 years. Here are a few benchmark suggestions.

    http://bit.ly/1pcMDuG

    I suspect this active-index debate will never end. That is why each person must keep their own immaculate records as that seems to be the only way to resolve this debate.

    Lowell
    Aug 4 03:56 PM | 6 Likes Like |Link to Comment
  • The Ivy 20 Portfolio: Applying Cluster Weighting Momentum Analysis To Enhance Return [View article]
    Diego,

    Thank you for the reference. When I have a little time I'll go back into the summer of 2007 data and see if the CMW model showed any unusual signs of upheaval.

    Lowell
    http://itawealth.com
    Jul 31 11:58 AM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    TL,

    Right on. Exactly what the ten books on this list suggest - it is very difficult to top the broad U.S. Equities market.

    Lowell
    Jul 30 07:24 PM | Likes Like |Link to Comment
  • The Ivy 20 Portfolio: Applying Cluster Weighting Momentum Analysis To Enhance Return [View article]
    Diego,

    I would need to go back and see what the recommendations were several months in advance of August 2007. I don't recall "overcrowding" ever being a problem. Was the "crowding" stock or ETF related? Or both?

    I've noticed the beta values of the recommended portfolios tend to be quite a bit below 1.0, or what I call conservative.

    BTW, the Cluster Weighting Momentum model will not work well with the Faber 5 or 10 portfolios as there are insufficient ETFs to find low correlations.

    Lowell
    http://itawealth.com
    Jul 30 04:45 PM | Likes Like |Link to Comment
  • The Ivy 20 Portfolio: Applying Cluster Weighting Momentum Analysis To Enhance Return [View article]
    Sure Dividend,

    See answers below each of your questions.

    1. Why was 0.65 selected as the correlation cluster threshold?
    I set the correlation value so as to break the number of clusters into 10. Ten (10) is the maximum number of clusters my software will handle. The correlation value generally varies from 0.5 to as high as 0.8. Even at 0.8 one comes up with a diverse portfolio.

    2. Do you weight by volatility after you have determined what correlation clusters and ETFs in which to invest?
    In the ranking of the ETFs, volatility is 20% of the calculation. 50% is allocated to the performance over the past three months (91 days) and 30% to the performance over the past six months (182 days).

    3. Since 11 of the ETFs in the portfolio are in clusters 1 or 2 (which are both highly correlated with equities), why not eliminate some of these ETFs from the portfolio for less correlated ETFs (maybe GLD, VXX, or an int's bond fund)?
    Keep in mind that I am working with the Ivy 20 in this article. I use a different list of ETFs when I set up to construct the portfolios I track. GLD, PCY, BWX, etc. are part of that mix.

    Lowell
    http://itawealth.com
    Jul 30 03:58 PM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    "Also no one makes any money by beating a benchmark."

    Take the oldest index (benchmark), the DJIA. One made money by topping this index. Therefore I question the accuracy of the above statement.

    As for needing to withdraw cash in a time of need, a good tracking software program (TLH Spreadsheet is an example) takes this into account. It is no different than a fund manager needing to sell stock to meet redemptions.

    Lowell
    Jul 29 11:22 AM | Likes Like |Link to Comment
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