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Lowell Herr

 
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  • 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
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    "The Intelligent Investor" is appropriate for investors who are stock pickers. However, even Graham in his later years recommended index vehicles as the market, in his opinion, was too efficient to merit the effort that goes into stock evaluations.

    The list of books in this article (and it is an incomplete list) focus on index investing as this is what current research supports as best for the majority of investors.

    Regardless whether one is an active investor or tilts toward index investing, portfolio tracking is essential to measure how successful or unsuccessful one is in portfolio management.

    Lowell
    Jul 29 11:13 AM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    Steve,

    Touche!

    Lowell
    Jul 29 09:57 AM | Likes Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    "Lowell there are millions and millions of investors out there. You really think that every single one can be tracked and investigated to prove your point? If you really think that no one can do it or invest like Warren Buffett if they wanted to? Yes there are 1000's of Steadman's out there however I am sure there are plenty of people out there beating the indexes every year."

    Archman,

    It is not necessary to track every portfolio to make a point. The Nielson rating system is an example of how statistics is used to draw broad conclusions without testing every viewer.

    I don't deny the fact that there are investors who beat the broad U.S. Equities market as represented by the VTSMX index. However, in any given year that number is below well below 50% and as each year passes the winning percentage dwindles.

    If I might ask, what software are you using to track your portfolio performance and what benchmark are you using?

    Lowell
    Jul 29 09:46 AM | 1 Like Like |Link to Comment
  • 10 Top Investment Books For Developing An Investing Philosophy [View article]
    "*Understand that you can outperform the markets and 99% of all professional money managers regardless of what you are lead to believe."

    If one does a serious literature search of portfolio performance vs. stock market, it is quite easy to arrive at the conclusion that the above assertion is false. While there are exceptions, there are thousands of Charlie Steadman's for every Warren Buffett.

    Lowell
    Jul 29 08:40 AM | Likes Like |Link to Comment
  • It's Hard To Beat The Market: A Humbling Year-End Review [View article]
    Investing Doc,

    As for portfolio tracking software, not much is available at an affordable price. Even if the software (Quicken, or example) accurately tracks the Internal Rate of Return (NYSE:IRR) value, what is missing is the ability to track a benchmark.

    A solution is available and it is known as the TLH Software. This Excel program not only tracks the IRR of the portfolio but also handles cash flowing in and out of the portfolio for three benchmarks. In addition, it is possible to set up a customized benchmark. While not perfect, the customized benchmark goes a long way toward telling the user how well their portfolio is performing as measured against their Strategic Asset Allocation plan.

    For more information on the TLH Spreadsheet, click on this link.
    http://bit.ly/1tmMhDN

    I hope you find this helpful.

    Lowell
    http://itawealth.com
    Jul 29 08:17 AM | Likes Like |Link to Comment
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