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Michael Dever

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  • Stop Chasing Yield: Seek Diversification And Allocation [View article]
    I provided the links to the chapters because the length of the comment that would have been required to describe the difference between conventional "Poor-folio" diversification and true portfolio diversification would have swamped the discussion. I strongly believe though that it is THE most important discussion we should be having, not simply which stocks to buy. Because as soon as long stock positions take up more than 10 or 20% of a portfolio, it's not diversified, regardless of which stocks you hold.
    Feb 6 02:02 PM | 1 Like Like |Link to Comment
  • Stop Chasing Yield: Seek Diversification And Allocation [View article]
    I realize you may not be open to new ideas, but I think it'd help you the most to read the book before resorting to name-calling. It was my intent to add to the dialogue with some innovative thinking. Per your suggestion, if your readers would like a complimentary book they can contact me through my SeekingAlpha profile page.
    Feb 4 12:29 PM | Likes Like |Link to Comment
  • Stop Chasing Yield: Seek Diversification And Allocation [View article]
    I guess I should have been SPECIFIC. the book was the #1 best-selling mutual fund book on the kindle for more than a year. Even today, it's still the 4th best-selling mutual fund book on the kindle.
    Feb 4 11:31 AM | Likes Like |Link to Comment
  • How I Can Explain 96% Of Your Portfolio's Returns, Part 2 [View article]
    There's way too much discussion about the finer points of MPT, risk management, etc and it all misses the point. Discussions of portfolio diversification don't discuss portfolio diversification at all. They merely talk about spreading money across stocks, bonds or some other "asset classes." That's not diversification. True portfolio diversification can only be achieved by diversifying across "Return Drivers." A Return Driver is the primary underlying condition that drives the price of a market. What market is used to exploit each Return Driver is secondary. Instead, the traditional investment literature (and almost 100% of financial discussions) revolve around the topic of asset classes. Market cap, P/B and other "factors" can be used as Return Drivers for selecting stocks, so that's a start. But why stop there? Why not identify Return Drivers that affect currency cross rates, soybean prices, and the myriad of other markets that are available to be traded? Doing so enables you to create true portfolio diversification and create a Free Lunch portfolio; one that can earn greater returns with less risk of achieving those returns.
    Feb 4 10:53 AM | Likes Like |Link to Comment
  • Future Returns From Stocks And Bonds [View article]
    Thanks for your comment. I don’t disagree with what you’ve written regarding the assumptions used in my analysis. They assume a central tendency and if “this time is different” the results will be different from what I show. So I appreciate your view that this time it is different and therefore you should expect a different result from that shown in this article. That said, I would like to correct a few points.
    You state that the article “misses the point on real growth, which runs 2% per year or better.” We actually incorporate a nominal growth rate of +4.7%, which at today’s inflation rate implies a 3% real growth rate. What you believe is different this time is the profit margins. If margins remain at today’s level, rather than decline to the longer-term average, the performance of the S&P 500 over the remainder of this decade rises to 4.3% from the 2.3% projected in the article. I could argue every assumption in the article myself as well. My goal was to project based on central tendencies. But I have no objection to you believing in a different profit margin. Also, the CAPE used in the 2020 ending value for the S&P 500 uses a 10-year look-back so doesn’t include any of the write-downs that you mention were made in 2008. It simply compounds earnings from today’s level. With regards to the 10-year treasury yield, the article does take this into account in that a person placing money today will receive over the next seven years the approximate yield from a mix of bonds (corporate and sovereign) that will mature in seven years. That projection is actually the most transparent of all in the article.
    But that’s all secondary, and extremely minor, when compared to my concern with one comment you made:
    “Anybody that listened to them for the past five years is in a world of hurt.”
    If a 12-year (as of five years ago or 7-year now) projection of what returns would be earned by passively putting money into the S&P 500 has a significant impact on the performance of a person’s portfolio - if it resulted in them being in a “world of hurt” if they were wrong - then they’re not an investor. They’re a gambler. They have far too much riding on one single decision.
    The performance of the S&P 500 should have no greater impact on the performance of a person’s portfolio than that of the sugar market, or dollar, or Korean stocks or any number of the hundred plus other active global financial and commodity markets. There are legitimate Return Drivers that can be exploited to profit from trading in those markets as certainly as there are Return Drivers to be exploited to profit from trading in the S&P 500.
    This is a major theme throughout my book and if there is one takeaway from this comment to my article, that is it.
    Feb 3 10:44 PM | Likes Like |Link to Comment
  • Future Returns From Stocks And Bonds [View article]
    I believe you are referring to the performance displayed on the web site. When we launched the actual trading of Brandywine’s globally-diversified Symphony program in July 2011 we provided two ‘risk’ options. The lower-risk Brandywine Symphony program, which targets 1/6th the drawdown risk of the S&P 500, and the more aggressive Symphony Preferred, which targets approximately ½ the drawdown risk of the S&P 500.
    Since its launch with real money in July 2011, Symphony Preferred has returned +56% (which exceeds the S&P 500 total return index’s +42% over the same period). So, despite the strong S&P 500 performance over that period, Symphony Preferred has exceeded S&P 500 returns and its global diversification across more than 100 financial and commodity markets and use of dozens of Return Drivers has allowed it to do so with substantially lower event risk than that of the S&P 500.

    The lower-risk Brandywine Symphony program, which targets 1/6th the drawdown risk of the S&P 500, returned just 12% over the same period. I believe this is the performance you are referring to. This is below our longer-term expectations for the program, which targets double-digit annualized returns (I’m obliged to state here that PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE).

    So you’re right in that the Symphony program has underperformed its expected performance over the past 2 ½ years. But its volatility has also averaged about 25% below expectations for the same period. (A brief explanation for both figures is that there have been slightly fewer ‘opportunities’ over the past 2 ½ years than in the prior period.) Neither figure is out of line with expectations over a 2 ½ year period. And in fact, after periods of low opportunities we often see greater than normal opportunities.
    Feb 3 09:11 PM | 1 Like Like |Link to Comment
  • The Correlation Conundrum [View article]
    I think we agree that a portfolio should be risk-balanced; but my approach is to make sure every trade is based on a logical "return driver."
    Aug 5 09:47 PM | Likes Like |Link to Comment
  • Bonds As Dinosaurs (Part 2): Diversification At What Price? [View article]
    Steven, in follow up to my comment made here shortly after you posted, I recently published this article that shows my math on what to expect from stock and bond investments over the remainder of this decade:
    Jul 25 01:15 PM | Likes Like |Link to Comment
  • The Correlation Conundrum [View article]
    James, your statement that "Progress in the art/science of asset allocation arrives incrementally, if at all, once you move beyond the easy and obvious decision to hold a broad mix of the major asset classes." is correct only because people constrain their asset allocation process with the use of "asset classes." In actuality, progress has made a revolutionary leap, although few people are yet aware of it.

    Two weeks ago, at a Bloomberg event in Dallas, repeating what I wrote in my best-seller two years ago, I made the comment that asset classes were archaic artifacts of investing's past. By replacing asset classes with "return drivers" and "trading strategies" investors are able to create truly diversified portfolios. I mentioned in my talk that BlackRock – which was suggesting that short volatility trading should be considered an "asset class" (just one of dozens of such examples) – was inadvertently making the case that portfolio modeling has reached the Ptolemy vs. Copernicus stage. By that I mean that we have a paradigm ("Asset Classes") that is becoming more convoluted as investors attempt to diversify their portfolios using non-correlated trading strategies. Because investors want short volatility strategies in their portfolio, but have asset allocation models based on asset classes, they are forced to turn short volatility into an asset class (or create some similarly awkward construct to enable them to incorporate it in their asset allocation model). This is akin to how the ancients added epicycles and other constructs to the original Earth-centered view of Ptolemy in order to explain the observed retrograde motion of the planets.

    This new approach is a revolutionary, rather than evolutionary, change in how investors should approach asset allocation across their portfolios. Once viewed in this way most of the issues associated with MPT, mean/variance modeling and asset classes fall away. Investors are left with the opportunity to incorporate any trading strategy, as long as it is based on a sound, logical return driver, into their truly diversified portfolio.

    I walk through a lot of this in my book, but SeekingAlpha is uncomfortable with me linking readers to that through the complimentary links I have set up. And rather than repeating the chapters in their entirety in this comment, I’ll offer to let readers contact me at my SeekingAlpha page and I’ll send them the links to the relevant chapters.
    Jul 25 12:49 PM | Likes Like |Link to Comment
  • Another View On 'Diversification Fallacies, Part 1: Asset Allocation' [View article]
    Unfortunately, the (over)abundance of academic research, "conventional" investment wisdom, and "common" knowledge spouted by financial professionals has everyone focused on the trees and not the forest. I have yet to read ANY article on SeekingAlpha that espouses TRUE portfolio diversification.

    As long as there remains a fixation on holding long equity positions as a core of most portfolios, and as long as portfolio composition is constrained by the use of "asset classes," true portfolio diversification will never be achieved.

    This lack of diversification can be highlighted with one question: Is it important to you to have the stock market go up? Does that make you feel better? Does your portfolio benefit from the stock market going up? (OK, a series of related questions!). If so, then YOU ARE NOT DIVERSIFIED.

    The performance of a truly diversified portfolio is not dependent on a single dominant market for its returns. It is diversified across "Return Drivers." There are hundreds of possible return drivers that can be exploited. To focus on just one (the one that dominates stock market returns) is akin to gambling - certainly not investing. All the discussion about spread positions across different long equity positions is looking at the trees, not the forest.

    I wrote my best-seller, "Jackass Investing," specifically because of my frustration at seeing this gambling behavior being preached and foisted on people without thought to what it really meant. (I define both gambling and Jackass Investing as the act of taking unnecessary risks with your money. Conventional investment wisdom preaches this behavior). Instead of parroting and refining the gambling behavior that is taught, real investors achieve true portfolio diversification by allocating across a diverse mix of return drivers and markets. The result is a Free Lunch portfolio that over time will produce both greater returns and less risk than a conventionally-(non)di... portfolio.

    Just because everyone is preaching or doing something doesn't make it right.

    If you’re interested in understanding more, feel free to follow these complimentary links to read the Introduction (where I introduce Return Drivers), Opening chapter (where I show the dominant returns drivers for equities) and my book’s final chapter (where I show the benefits of true portfolio diversification):
    Jul 19 11:55 AM | 1 Like Like |Link to Comment
  • Diversification Fallacies, Part 1: Asset Allocation [View article]
    Every position in a portfolio is dependent on one or a few primary "return drivers." Dane touches on this by mentioning the specific event risks and other factors that could affect each of the REITS he discusses. True portfolio diversification can only be achieved by diversifying across multiple, unrelated return drivers. As much as Dane points out different drivers for each REIT, though, the primary return driver, in the short term (less than 20 years) for these positions, is investor sentiment. I show the study behind this statement in the first chapter of my best-seller "Jackass Investing: Don't do it. Profit from it." (By the way, my definition of Jackass Investing is to take unnecessary risks. A portfolio that is dependent on just one or a few return drivers is poorly diversified and taking on unnecessary risk.

    I'm pleased to provide complimentary links to my book's introduction and the first chapter, where i show the two primary return drivers powering equity prices:
    Jul 17 09:01 PM | Likes Like |Link to Comment
  • Stop Chasing Yield: Seek Diversification And Allocation [View article]
    I fully agree that it is important to have a diversified portfolio, but a portfolio that is long stocks and bonds is NOT diversified. That portfolio is dependent on just a few "return drivers" and is highly risky. I show the return drivers powering stocks in the opening chapter of my best seller, which I'm pleased to provide on a complimentary basis here:

    You can also read the final chapter, where I show the benefits of "true" portfolio diversification, here:
    Jun 10 08:01 AM | 1 Like Like |Link to Comment
  • Your Portfolio Can Be All American [View article]
    Diversification is the one true "Free Lunch" of investing and if there’s opportunity outside a person’s home country they should take advantage of it. Unfortunately, there is a significant home team bias in investing. I wish it was caused by thoughtful decision making such as you provide here, but it’s not. It’s purely the result of fear of doing something different. There is no other reasonable explanation for the data I provide in this chapter of my best-seller (complimentary link):

    But the real issue isn’t just home team vs. international investing. It’s that not only do people concentrate their portfolios in their home country stocks and bonds, it’s that they concentrate their portfolios almost entirely in just stocks and bonds. This results in them taking unnecessary risks with their money (taking unnecessary risk is my definition of “Jackass Investing”, the title of my book).

    By focusing on long positions in stocks and bonds a person will never achieve true portfolio diversification. In fact, if a person focuses only on investing in the various defined "asset classes" they will never achieve true portfolio diversification. To do so is not investing, but gambling.

    I discuss this and present a better alternative in my book and you can see the benefits in the book's final chapter, where I present the performance of a truly diversified portfolio (which produces both greater returns & less risk than a conventionally-diversi... portfolio):
    May 21 11:12 AM | Likes Like |Link to Comment
  • The Dumbest Idea In Finance: A Diversified Hedge Fund Portfolio [View article]
    You can read why Anthony Scaramucci disagrees (and see a specific error in this article) here:
    Jul 20 03:33 PM | Likes Like |Link to Comment
  • Consider 40-50% Long-Term Equity Portfolio Allocation Towards Emerging Markets [View article]
    Here are the complimentary links:
    Jul 18 11:46 PM | Likes Like |Link to Comment