iShares Russell 3000 Index (IWV)
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- A 360 View of Returns (July 2008) [view article]
- Global Investing: Get Past the Noise [view article]
- REITs Pop While Commodities Flop [view article]
- Most Heavily Shorted ETFs [view article]
- Mid-Year Report: Is a Summer Turn-around Still Possible? [view article]
- No Present Tense in the Stock Market [view article]
- Russell 3000 Sheds Nearly $2 Trillion in Cap Value [view article]
- A Month of Seeing Red [view article]
- Major Asset Class 1, 3, 5, 10 & 15 Year Returns [view article]
- Portfolio Theory: The Unnatural Alternative? [view article]
- The Rising Risk of Emerging Markets [view article]
- Calendar Year Country Fund Returns: 1997-2007+ [view article]
loading ...Recent IWV Articles
- Global Investing: Get Past the Noise
- Short-Term Returns for the Major Asset Classes
- REITs Pop While Commodities Flop
- A 360 View of Returns (July 2008)
- Most Heavily Shorted ETFs
- No Present Tense in the Stock Market
- Mid-Year Report: Is a Summer Turn-around Still Possible?
- Russell 3000 Sheds Nearly $2 Trillion in Cap Value
- A Month of Seeing Red
- Portfolio Theory: The Unnatural Alternative?
- Full List of Articles »
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Insanity Reigns in Commercial Real Estate [view article]
Timing is key to the deflation of the REIT bubble. Either buyers must recede or supply must surge to end the mania. The supply of REITs is shrinking as private equity takes it out to increase the leverage. The buyers are the same private equity buyers, plus the dedicated REIT investors who have to reinvest in a shrinking universe. Until CMBS spreads widen sufficiently to make the private equity take out math unattractive, or private equity loses access to capital for some other reason, there is no reason to expect the buyers to recede. ReplyInsanity Reigns in Commercial Real Estate [view article]
I think you are right about fundamentals, but too early on timing. Inventory of properties for sale is low, and buyer demand is strong. Pension funds are planning to increase their allocations. A new real estate fund is announced almost every week. Good listings get 15+ offers. Think housing 2003-2004. ReplyDow 15,000? (ETFs: IVV, IWV, IYY, SPY, VTI) [view article]
Dear WC:I hope you had a change of heart somewhere along the way. From our perspective, the argument still holds. Wishing you the best.
Herb Reply
Insanity Reigns in Commercial Real Estate [view article]
So, for a review,You own Puts on REITs,
The price is going up,
Your position is worth less as a result,
And you are Thankful.
Who is nuts? Reply
Insanity Reigns in Commercial Real Estate [view article]
A thorough analysis..... perhaps Sam Zell agrees. ReplyFeldman
Fundamental Indexing: New Idea, or a Repackaging of Value Investing? [view article]
Heather, Nice work. How can we get the Mazzilli and Maister report? It doesn't show up on Google or Yahoo. Do they consider risk adjusted performance as well? Does the story change at all?Barry Reply
Rebalancing An ETF Portfolio: What To Do Now? [view article]
Reit better than Internationals? Look at Fidelity Investors booklet of results and you will see that, as a class, Internationals far outdistinces individual Reit's or Sector funds though each have stellar performers as well as some laggards. Lou Hoechstetter, PhD ReplyYates
36-Month ETF Correlations with Russell 3000 [view article]
I'm not sure that 36 months is enough of a time frame to use for this research, especially given health care's underperformance and energy's outperformance during the period. If you use the Sector SPDRs, like XLF, XLV, etc, you have a more data to work with. ReplyPortfolio Building With Forward Looking Asset Allocation [view article]
Yes, it does sound like we are on the same page. Thanks for the clarification.Rod Reply
Rebalancing: Getting On With the Business of Investing [view article]
"better" is a subjective term that is varies from investor to investor. "different" is something I can talk about.Most likely, quarterly and annual rebalancing is most common when an advisor is used, although I do not have statistics on that, just anecdotal information.
The multi-billion dollar Yale Endowment (the most successful endowment in terms of long-term return) rebalances every day, but that requires a full-time level of attention and a staff. They catch the full extent of trends.
Some investors use percentage deviations from allocation policy targets instead of periods of time to trigger rebalancing. Some others use a combination of a fixed period of time and percentage deviations. There are two ways to do that. The investor could rebalance whenever either of those parameters is reached. Or, the investors could rebalance on fixed periods, but only if a minimum level of deviation has occurred.
There probably is no perfect system. The largest issue is choosing the best asset classes for your purposes and the best allocation policy targets. Secondarily, the specific scurrilities within the asset classes are important, but they a determinant of a much lower portion of your return than asset classes and allocation choices.
The frequency and timing of rebalancing is partly a matter of time and expense. If you do it for yourself, you have to decide how much time you have to devote to the process. If you have it done for you by and advisor, you have to decide how much you are willing to pay for the service. The answer to both of those questions is determined in part by how much money you are investing. What you can do with $10,000 or $100,000 or $1,000,000 or $10,000,000 or $1 billion are quite different.
Whether your money is in a tax deferred or regular tax account may also come into play, particularly near year-end for regular accounts. Concerning taxes and timing of trades, my personal experience has been that managing to the tax liability has been unfruitful. I personally prefer to manage for maximum raw return and let the taxes fall where they may. The market has taken away my gains too often in the past by waiting for capital gains to go from short to long, for example.
The point of my article was not to suggest that monthly rebalancing was best or even suitable, but rather to show the general mechanism of rebalancing using a monthly frequency. I could just as well have chosen a 1-year period, but then someone might ask why not quarterly or monthly.
The stimulus to write was to communicate to investors that asset allocation and rebalancing is a better way to go and that on difficult days like we have had recently, the process gives assurance and comfort. Reply
Rebalancing: Getting On With the Business of Investing [view article]
Are you aware of a better rebalance strategy than to simply do it monthly? As you write, selling high and buying low - but only by just a bit. There really has not been much of a change yet. I would want something to be more than 10% out from the target weight before making a move. When and if a particular trend changes, the change can continue for some time. So that what is "high" now can get much higher. And what is "Low" now can get much lower. Asset allocation strategies do give some good balance. However, there should be a better method of determining when to rebalance than simply using a calendar. BWDIK. ReplyStock Market Downside Scenario Increasingly Likely [view article]
That's right. China was a catalyst. I was thinking that exact same thing yesterday. Here, either you make money cheaper, or the government can't pay back enough on its debts. If you make money cheaper, you make hyperinflation worse. Depreciating the value of the American dollar is already the greatest concern in American macroeconomics, judging by Bernanke's words of inflation being his primary concern resounding in my thoughts. Earnings are below where they should be for stocks to be worth their price. Far below. Either you make money cheaper and easier to come by, or the stocks will continue to underperform, and there will be breathtaking sell-offs any time soon. ReplyConsidine
Portfolio Building With Forward Looking Asset Allocation [view article]
Rod:Obviously I need to be clearer on this issue. The best approach is to use recent data combined with long-term data on risk and return balance in asset classes. This allows a good Monte Carlo to capture the broader risk/return character of asset classes with the fact that the world does evolve and change. You will note that QPP's projections using three years of data are very consistent with long-term measures of risk and return across asset classes. This is the main point of the paper above--a good model combines the time scales--sort of like what you suggest but in a more objective framework.
I actually agree that nobody should take a quantitative model as the be all and end all, but the forward-looking perspective adds value to the process--which you say above. There is enormous uncertainty in any estimate for future market performance--you are correct--and I certainly would not want anyone to think that I am sugesting otherwise.
I believe that we are actually on the same page. A forward looking model must be consistent with the historical features of markets that persist--that is what a good model does. If QPP were to suggest something radically new or odd, I would be suspicious. In the same way, however, if an allocation worked well over the last ten years but looked bad when run through QPP, I would also be suspicious. Reply
Portfolio Building With Forward Looking Asset Allocation [view article]
I have to wonder if the only thing worse than looking in a clear rear view mirror to form an asset allocation is to look through a fuzzy cracked windshield.Clearly looking at a mere three years of data, as you do in your example above will tell you nothing useful about an asset allocation plan, but in many cases assets have a much longer history. There is little to support the notion that anyone can predict the future, even statistically, with any better accuracy.
As noted, blindly using any optimizer on noisy data (a short time history or predictions) runs the very serious risk of over fitting the data: fitting not only signal (real information), but also fitting noise. This is true regardless of whether or not one is using a short history or a prediction of where the markets are headed in the future. Indeed, even with a long history one has to worry about whether or not our future will look the same.
Perhaps the best way out of this mess of uncertainty is to use the heuristic, or something like it, you dismiss above. If looking back 10 years gives one allocation as best, looking back 20 years gives another, and looking forward gives a third, we know for certain all are most likely wrong in the fine scale, but perhaps right in the broad scale. Each is likely to tell us something like: buy a bunch of large cap, small cap, value, blend, domestic, international, and bonds, but it is silly to make overly fine distinctions about the exact percentage of each as each time we look we get a somewhat different answer. If you do anything other than pick some nice round numbers for each, you are fooling yourself with false precision.
Rod Reply