OMI Corp. (OMM)
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- The Do-It-Yourself Market-Neutral Portfolio
- Tanker Company OMI to Be Bought for $2.2 Billion
- OMI Corp. Might Be for Sale - WSJ
- Sinking Ships? Tanker Stocks' Difficult Week and Why They Should Soon Rebound
- Shipping Stocks Gain Steam as Fundamentals Improve, Other Factors Fall Into Place
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- Near-term Bullish Outlook for Shipping Stocks
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Considine
The Do-It-Yourself Market-Neutral Portfolio [view article]
Steve:Over the last 12 months, I get about the same result--depending on whether you drop OMM when it was delisted due to acquisition or substitute its acquirer. Either way, the portfolio is down by an amount close to the S&P500, as you suggest. That said, note that the R^2 of 20% or less over long periods of time means that it is not really a good idea to benchmark against something like the S&P500--most of the volatility in the portfolio is not due to moves in the S&P500. A "market neutral" apporoach that has fairly high volatility (like this one) may not drop when the market drops--or it may--the market direction is not the driver. In this case, the credit crisis has been a big driver because of the exposure to banks here.
This kind of portfolio is a good one to monitor over the long haul--thanks for the reminder :)
Geoff Reply
The Do-It-Yourself Market-Neutral Portfolio [view article]
Geoff,Any comment on this article in the light of a subsequent years performance?
The banks were hammered, of course, but the overall performance seems right in line with the indices.
Steve Reply
Editors
General Discussion on OMM
Is this a buy or a sell? ReplyThe Do-It-Yourself Market-Neutral Portfolio [view article]
Hello Geoff,Thanks for your software and articles; they've been insightful and helpful. I've been interested in portfolio asset allocation for many years and am a user of some complex software tools; love QPP's format, nicely done! I've been trial using your software and have some questions/observations...
Rebalancing/Optimizati... of Allocations:
One of the implementation details in using QPP is when to future adjust and at what frequency the 'final' asset/security allocations? At present, you either define an allocation weighting of equal or some proportion that 'suits' the investor's preferences for risk/return ideally based on empirical knowledge; eg, 70% equities/30% bonds.
I'm not a fan of software optimization in general as applied to portfolio allocations, I'm quite familiar with the pitfalls and the bad results that typically are produced from even excellent out-of-sample and supposedly robust models. However, since with QPP we're using monte carlo simulations of forward looking return possibilities and 'experimenting' with various assets/security combinations/allocatio... weightings anyways, there is a temptation to use Excel's built-in Solver tool to optimizatize. For example, we can maximize the forward returns by modifying the asset/security allocation weights constrained by the forward looking standard deviation for example.
Ideally, the optimized forward returns/SD yield the best weights and are robust in the sense that they deliver similar optimized/simulated results compared to the historical results over 1, 3 & 5 year time horizons; would you consider longer time horizons? I've attached a before/after example using your market-neutral article to demonstrate the effect of optimizing the allocation weights which appears quite compelling since it also improves on the portfolio beta and diversification values.
So, what frequency of re-running the simulations to adjust the allocation weightings do you normally recommend once they're established to ensure the expected return/SD results are still meaningful; annually? What's your opinion of optimizing the weightings in this manner?
Disclaimers:
1) To what index is Beta used to capture correlation; am assuming S&P500, but should be stated.
3) Based on research I've done, asset/security returns are not normally distributed. I realize that this makes the programming/math easier, but this is an area that could be improved and make QPP a more valuable tool and one that I'd be willing to pay more for!
6) Based on your articles, I assume that this refers to the 1:1 relationship normally displayed between returns and standard deviation; is this correct?
Thanks much for your time and consideration of my questions/observations...
Reply
Considine
The Do-It-Yourself Market-Neutral Portfolio [view article]
Hi Dan:Yahoo's stock screener also gives CEF's--it is free and easy. In this case, with the P/E criteria that I used, these industries ended up with high representation--this is a consequence of looking for low Beta and low P/E. Reply
The Do-It-Yourself Market-Neutral Portfolio [view article]
I'm screening for stocks using the MSN Money Deluxe Stock Screener, what tool do you use to screen closed-end funds? Is there a better tool that will scan for both concurrently?And to restate my question from above more explicitly...did you just screen and end up with concentrations in these asset classes? Or did you say "I want some debt funds, some utilities, some energy" and run screens for picks within those specific sectors? Reply
The Do-It-Yourself Market-Neutral Portfolio [view article]
Geoff, interesting article. I am a trial user of QPP and finally got it working properly last night. I have a question regarding the different sample portfolios you have profiled in you articles over the last year or so. You've done simple equally divided asset class diversification, more complex portfolios with differing percentages held in each class, sample portfolios incorporating SPY and QQQQ, mixes of ETFs and individual stocks and now another portfolio made up of primarily individual equities. Your performance / risk numbers and ratio have continued to improve as your articles have evolved. Is a portfolio of the sort profiled in this article is a fairly late stage evolution of the work you have been doing with QPP or are you just illustrating different possibilities? Or will you have a new sample portfolio next month with even better numbers an different allocations?When you screened for the sample stocks in this portfolio were you looking for individual companies to provide exposure to utilities, materials, emerging markets and other sectors that have been performign well or is it really a straight screen for low P/E and low betas with 8 years of data? I'd like to reproduce these results myself but am not sure where to start with screening for companies. Reply
Considine
The Do-It-Yourself Market-Neutral Portfolio [view article]
Well, you will note that several of the holdings are Canadian. Second, we have Mitsui ADR's. Oil companies tend to have performance that is correlated to emerging markets--just because a number of these economies are driven by oil. This study was performed in the U.S. currency and there are more domestic companies than non-U.S. companies, but the strategy will hold up with quite a few variations. Again, I stress that this article is a demonstration of a concept rather than being an ideal portfolio. ReplyConsidine
The Do-It-Yourself Market-Neutral Portfolio [view article]
Ralph:Thanks for your comments. QPP's projections do depend on historical correlations, volatility, etc. I have gone to some lengths to avoid 'over fitting' but every analysis using historical data is subject to the specifics of these data. QPP's projections do not, however, simply rehash historical returns, volatilities, and correlations. I have research showing how QPP works for a real portfolio of stocks over 30+ years. Also, this idea of a very low Beta / low R^2 / low correlation portfolio using only long positions has been demonstrated in a number of my other papers. Could correlations shift so much that this approach fails? Certainly. Any analysis is subject to the potential for the world to shift.
The fact that this portfolio has done well in recent bull and bear markets AND that the monthly returns exhibit such low R^2 and Beta makes me feel that these results are fairly robust. Obviously this portfolio has too much energy exposure to be a real choice for a total equity portfolio. I would be worried about how this portfolio would do in the event that oil drops a lot...that can can tested using the correlation of the portfolio to an oil index--I didn't do that in the article, but it would be easy enough using QPP.
BTW, DIAMX has a lot of energy exposure, too. If you look on Morningstar here:
quicktake.morningstar....;Symbol=DIAMX&...
you will see that DIAMX has an R^2 with respect to the Goldman Sachs Natural Resources Index of 71%---that is quite high. This means that movements in this index explain 71% of the variability in the returns on DIAMX. Reply
com
The Do-It-Yourself Market-Neutral Portfolio [view article]
I have not closely studied your suggested portfolio, but have you taken into account international allocation? Is this primarily a US portfolio? ReplyFinance
The Do-It-Yourself Market-Neutral Portfolio [view article]
Nice article; great variety of options (no pun intended) out there for the build-it-yourself portfolio. A few additional considerations and options out there:Some of the instruments listed, especially in the energy sector are additionally favorable in that they provide significant dividend yields; there are several CANROYs, commodity ETF and international REITs that yield between say, 7 and 10% annually. I've performed some analysis on these and own a couple myself. Not only does the high yield help differentiate the correlation of the total return, but it moves the return in a favorable direction, regardless of the major market indices. I bought into a few that started off yielding around 10% and have since increased in share price signficantly as well (of course, now the yield has dropped into the high single digits, but I'm still earning 10%+ on my initial investment).
Additionally, a great way to get some additional non-correlated performance in the 9-12%/yr range is through lending on Prosper.com. When diversifying your loans, you can asymptotically approach the returns of the overall performance measures as lists on the site for "all loans" in particular credit categories. This can be achieved simply through "average" performance. If you're good at researching and choosing your loans, you can exceed these returns, inclusive of defaults. To date, I have over 20 loans out with an average of 13.4% returns. I've also included top lender groups, strategies and learnings on my everydayfinance blog. Feel free to visit, review and leave comments by clicking on my name for this post.
Dan Reply
The Do-It-Yourself Market-Neutral Portfolio [view article]
This is a really thought provoking (and well written) article -- thank you.Question: is your analysis based just on back-testing? Could we find that stocks or funds with energy exposure do indeed exhibit correlation with the broad market going forward if there's an economic downturn? Reply
OMI Corp. Might Be for Sale - WSJ [view article]
"Shares of the company's competitors gained as well."Excluding Top Tankers (TOPT) that closed down 0.08. TOPT has some accounting problems to resolve. Previous auditors quit etc.
CrossProfit
www.crossprofit.com
(The new website is up - please send us an email if you experience any problems.) Reply
Williams MD
Sinking Ships? Tanker Stocks' Difficult Week and Why They Should Soon Rebound [view article]
Glad to see someone tackling the shipping subject. I have been trading these for sometime. Lost my shirt this week. Hope you are right. My short term investments have a way of becoming long term investments. Reply