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Lowell Herr

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  • Have Index Funds Become Too Popular? [View article]
    Bbarberayr,

    I should have added that one example of a passively managed portfolio does not make a case for passive management. The data from mutual funds does make a strong case for passive management or something close to it.

    I am doing some active management based on momentum ideas. It will be some time before I know how this all works out.

    Lowell
    Dec 30 10:26 AM | Likes Like |Link to Comment
  • Portfolio Rebalancing: Essential Or Overrated? [View article]
    Craig,

    Rebalancing half-way back to target is something I'm familiar with and it makes sense due to the "momentum effect."

    In an 18-year study I found that higher target limits provide better performance results so I generally use between 25% and 35% target limits. However, recently I've been concentrating on investing in the top performing ETFs from a pre-established set of securities. These are described at http://itawealth.com in a recent blog.

    Lowell
    Dec 30 09:19 AM | Likes Like |Link to Comment
  • Have Index Funds Become Too Popular? [View article]
    Bbarberayr,

    I watch over a passively managed portfolio that is now in its 14th year of operation. The Vanguard ETFs were not available when this portfolio was launched back in 2000 so I still hold some of the original iShares. Over this period the performance of the portfolio has exceeded the VTSMX index and VFINX index. This despite investing all over the globe where the international investments have been a drag on the portfolio. Most of the more actively managed portfolios are lagging the VTSMX index.

    I hasten to add that I also use customized benchmarks for each portfolio I track as benchmarks such as VFINX and VTSMX are not appropriate based on the Strategic Asset Allocation plans for the different portfolios.

    To track the performance I use a spreadsheet that has been tested for accuracy against three commercial products.

    Lowell
    http://itawealth.com
    Dec 30 08:28 AM | Likes Like |Link to Comment
  • Have Index Funds Become Too Popular? [View article]
    "•They are overconfident of their skills — an all-too-human trait that is well documented."

    It is known as the Dunning-Kruger Effect and here are two references.

    http://bit.ly/1kRaFaC

    and

    http://bit.ly/aegthf

    Enjoy.

    Lowell
    Dec 28 08:10 PM | Likes Like |Link to Comment
  • Have Index Funds Become Too Popular? [View article]
    Larry,

    I perform all of the three suggestions, but do small active investors who think they are beating the "market?"

    Lowell
    Dec 28 04:25 PM | Likes Like |Link to Comment
  • Have Index Funds Become Too Popular? [View article]
    For active investors who have convinced themselves they can outperform the market (which needs to be defined) I suggest the following.

    1. Construct an appropriate benchmark customized to your individual portfolio.
    2. Track the performance of the actively managed portfolio and compare the performance with the customized benchmark.
    3. Also compare the portfolio performance against a total U.S. index such as VTI or VTSMX.

    Since portfolio are launched at different times, have different cash flows, and contain a wide variety of investments, it is necessary for the individual investor to check whether or not they are adding alpha to the portfolio by the decisions they make. It is nearly impossible to compare the performance of one portfolio with another due to all the differences mentioned above.

    Lowell
    PS Good article Larry. It certainly sparked interest.
    Dec 28 01:37 PM | 1 Like Like |Link to Comment
  • Has The Market Lost Its Mojo? [View article]
    Mitch,

    Thank you for the recommendation.

    Lowell
    Dec 28 08:39 AM | Likes Like |Link to Comment
  • Has The Market Lost Its Mojo? [View article]
    ST,

    With the portfolios I track, I break VTI into three value and three growth asset classes. Examples are available on my blog at ( http://itawealth.com ). Most portfolios use 16 asset classes including Cash.

    I also track portfolio trends based on several benchmarks, one a customized benchmark (ITA Index) where it is designed to meet the Strategic Asset Allocation for each portfolio.

    ITA Index Reference: http://bit.ly/1ddBnH0

    Lowell
    Dec 27 02:08 PM | Likes Like |Link to Comment
  • Has The Market Lost Its Mojo? [View article]
    Pietrusikm,

    I am being quite cautious with new purchases, but I am not moving to cash unless the ETF is under performing SHY or the price dropped below its 195-Day Exponential Moving Average. Several examples where I am exiting the asset class where I use specific ETFs are: VNQ, RWX, DBC, GLD, and VWO.

    Lowell
    Dec 27 02:02 PM | Likes Like |Link to Comment
  • Dividend Aristocrats: Investing In The Best While Reducing Risk [View article]
    Paul,

    As for rebalancing, I run a review of the portfolio every 33 days. There will most likely be changes in the recommended securities, but that does not mean I will automatically switch. I check to see what other securities are in the same cluster as I am building a portfolio of low correlated stocks or ETFs. Are they close in performance rank? I also check the value of the absolute acceleration percentage. With a little judgment it is possible to keep the transactions down.

    I should explain that I primarily use commission free ETFs rather than individual stocks, but I will, on occasion, pick up a stock for inclusion as many have a low correlation with ETFs. That is a bit surprising, but I find it to be true.

    Lowell
    Dec 4 05:46 PM | Likes Like |Link to Comment
  • Dividend Aristocrats: Investing In The Best While Reducing Risk [View article]
    Charles,

    That is a proprietary calculation, but it is based on relative performance within a particular cluster, volatility, and the momentum or acceleration of the security.

    Lowell
    Dec 4 02:40 PM | Likes Like |Link to Comment
  • Dividend Aristocrats: Investing In The Best While Reducing Risk [View article]
    DlWeiss,

    I am not recommending ADP or any other securities mentioned in the article. Rather, I am laying out a model one might use to manage a portfolio based on an array of stocks, index funds, or ETFs chosen by the manager.

    Lowell
    Dec 4 11:06 AM | 2 Likes Like |Link to Comment
  • Dividend Aristocrats: Investing In The Best While Reducing Risk [View article]
    Readers of the above article may be interested in this article.

    http://bit.ly/1bgYKKT

    Lowell
    Dec 4 07:26 AM | 1 Like Like |Link to Comment
  • Dividend Aristocrats: Investing In The Best While Reducing Risk [View article]
    Realtoi,

    Other choices in the same cluster as CLX are: KMB, PG, KO, and PEP. KMB is certainly candidate for purchase with a momentum or acceleration percentage of 28.6%.

    Lowell
    Dec 3 07:02 PM | Likes Like |Link to Comment
  • Dividend Aristocrats: Investing In The Best While Reducing Risk [View article]
    DB,

    First, the cutoff value of 0.39 was selected so the clusters would fall into 10 or fewer divisions. Ten clusters is the maximum my spreadsheet will accommodate. When using only index ETFs to populate a portfolio, a cutoff value of 0.80 is very common. 0.39 is extremely low.

    Second, the correlation diagrams comes from a standard correlation matrix. Out of the correlation matrix comes the cluster hierarchy or what I call the cluster diagram. This allows the investor to combine equity securities with lower correlated assets in what some call investment pairing.

    The ideas behind the Cluster Weighting Momentum model are several. 1) Invest in securities with the best momentum and low volatility. This is also a risk reducer. 2) Use SHY as a performance cutoff as another risk reducer. 3) Watch all the "risk flags" that have the potential to fly, but are currently bullish for most securities.

    As mentioned in the article, this model is being tested with several real portfolios over on the http://itawealth.com blog.

    Lowell
    Dec 3 03:32 PM | 1 Like Like |Link to Comment
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