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Lowell Herr  

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  • Asset Allocation: Working With Optimizer [View article]
    heartky,

    The projected return for a portfolio with a similar asset allocation is projected to return about 100 basis points above the S&P 500. I use two different software programs to come up with these projections.

    As for verification, that needs to wait to see how the investments pan out over the coming years. I do have accurate records for one portfolio going back over 13 years and that portfolio has outperformed the VFINX index fund by 1.8% annually and the VTSMX index fund by 1.1% annually. The asset allocation is not exactly the same as the above allocations to not show how one might favor value over growth. The 13-year portfolio is skewed toward value and it does not hold precious metals, so there are some differences.

    I'm not so much interested in back-testing asset allocation plans as one can always set up in-sample data plans that work well. The quest is to set up a plan that will work well with out-of-sample data. Eleven portfolios are tracked on the ITA Wealth Management blog site to see how well these allocation plans perform over a number of years.

    Lowell
    Apr 19, 2013. 01:43 PM | Likes Like |Link to Comment
  • Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
    I don't pay much attention until a portfolio comes up for review every 33 days. Then I look at the IRR and compare it with several benchmarks, the most important one being the ITA Index, a customized benchmark designed for every portfolio I track at ITA.

    Lowell
    Apr 17, 2013. 04:36 PM | Likes Like |Link to Comment
  • Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
    Allen,

    Check out my blog for more information. The URL is the following.

    http://bit.ly/rfwO89

    Search for Hoadly, optimization, and optimizer. That should take you to critical blog posts.

    Lowell
    Apr 15, 2013. 07:47 AM | Likes Like |Link to Comment
  • Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
    While VTI is part of the above portfolio, standing along does not provide sufficient diversification. Nor is it an "optimal" portfolio. VTI has performed quite well over the last three to six months, ranking #6 among this group of securities.

    Lowell
    Apr 13, 2013. 02:07 PM | 1 Like Like |Link to Comment
  • Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
    Mark,

    From 12/1/2007 through 3/15/2009 this portfolio, with no changes, lost an annualized 43.9% with a standard deviation of 21.9%. During the same time frame the S&P 500 lost an annualized 49.7% with a similar SD of 21.2%.

    I agree with your risk management caution and that is why I try to avoid major downdrafts as we experienced during the last bear market by employing the ITA Risk Reduction model. The ITARR model is a modification of the Faber-Richardson risk reduction model explained in their Ivy Portfolio book. Here is a link explaining the ITARR model.

    http://bit.ly/Idrr35

    I've upgraded this model slightly, but the above link still provides the core of how the model works.

    Lowell
    Apr 12, 2013. 01:23 PM | 1 Like Like |Link to Comment
  • Building A 20-ETF Portfolio Using Optimization And Momentum [View article]
    Mule65,

    Since March 15, 2009 through 4/11/2013, if one made no changes in the portfolio (highly unlikely), the IRR is 20.8% with a standard deviation of 14.6%. During the same time frame the S&P 500 rose an annualized 18.1% with a SD of 14.8%.

    Lowell
    Apr 12, 2013. 01:15 PM | 1 Like Like |Link to Comment
  • Beginner's Portfolio: Using Optimization And Momentum Tools With A 10 ETF Portfolio [View article]
    Dacripe,

    Correct. Mentally I was thinking GTU and that is not part of this portfolio. Thanks for catching my mistake.

    Lowell
    Apr 10, 2013. 03:43 PM | Likes Like |Link to Comment
  • Beginner's Portfolio: Using Optimization And Momentum Tools With A 10 ETF Portfolio [View article]
    AP,

    I was curious to see how well the 10 security portfolio performed over the past five years, the time frame I used for the above analysis. The data is available at this URL.

    http://bit.ly/11JDw7y


    Lowell
    Apr 8, 2013. 12:18 PM | Likes Like |Link to Comment
  • The Basic Portfolio [View instapost]
    Varan,

    I noted this statement in your article.

    "The number of fixed income assets should be as many or preferably more than the number of equity assets."

    Is the reason for including fixed income securities to lower portfolio volatility?

    Lowell
    Apr 7, 2013. 07:38 AM | Likes Like |Link to Comment
  • The Basic Portfolio [View instapost]
    Varan,

    A similar set of ETFs available commission free from TD Ameritrade are: VOE, VBR, VEU, VWO, VNQ, DBC, BND, LQD, TLT, IEF (not free), PCY, and BIV. I would also add VTI to cover the entire U.S. Equities market.

    Lowell
    Apr 6, 2013. 03:19 PM | Likes Like |Link to Comment
  • The Basic Portfolio [View instapost]
    Varan,

    Have you been using this model since 2003 or are these back-tested results?

    I'm just in the beginning stages of implementing a momentum/volatility model. The time period I am using for momentum is longer than what you recommend.

    Thanks for the notification of the update. Keep me in the loop.

    Lowell
    Apr 6, 2013. 03:02 PM | Likes Like |Link to Comment
  • Asset Classes: How Many Should You Own? [View article]
    I track a number of portfolios built around many of the ETFs listed in the article. However, the portfolios are skewed toward value and smaller-cap stocks rather than setting them up as you describe. One of the longer running portfolios is the Schrodinger. The portfolio was launched in December of 2000 and so far has outperformed both the VFINX and VTSMX benchmarks. I use a spreadsheet called the TLH Spreadsheet to track the results. The accuracy of the calculations has been tested against three commercial portfolio tracking software programs. I don't consider this to be a robust test as one likely needs 30 t0 40 years of performance data to know if it really works.

    Lowell
    Mar 31, 2013. 08:07 PM | Likes Like |Link to Comment
  • Optimizing The "Ivy 20" Portfolio [View article]
    User,

    How true. Here is an example of using the function within Excel.
    http://seekingalpha.co...
    One needs to use judgment in placing constraints on asset classes and individual holdings. Otherwise, the recommendations get rather wild. Both William Bernstein and Harold Evensky warn investors of the dangers related to optimizers.

    The raw data, time frames, and other assumptions impact the outcome.

    Lowell
    Mar 24, 2013. 08:48 AM | Likes Like |Link to Comment
  • Optimizing The "Ivy 20" Portfolio [View article]
    LeftBanker,

    The optimizing software is an Excel add-in developed by Peter Hoadley and the cost a little under $140. You can find more at this site.
    http://bit.ly/15UtsJU
    The program does a lot more than what I use. Again, the last two screenshots are worksheets that have been added to the original program.

    Lowell
    Mar 23, 2013. 07:41 AM | Likes Like |Link to Comment
  • Optimizing The "Ivy 20" Portfolio [View article]
    Paul,

    Unfortunately, one must use the optimization software that is running underneath the worksheets shown above. The optimization software generates the efficient frontier graph. Customized worksheets were added to the original software to create the rankings (second screen shot) and the Buy-Hold-Sell recommendations (third screen shot).

    Lowell
    Mar 19, 2013. 04:43 PM | Likes Like |Link to Comment
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