Timeless Investment Classics, Part V: Reminiscences of a Stock Operator [View article]
This is an outstanding book. Do not try to emulate the main character though. His main downfall is that he would trade a respectable say .7 edge like it was a .99 - overbetting until be blew up over and over and over.
Hi Tom, what about TLT? If the value of the dollar climbs, then the future value of all those dollar denominated interest payments will be much more valuable right?
Too Big to Fail Banks: A Simple Solution [View article]
Here is a very pertinent analysis of the banking crisis. Calomiris has analyzed bank failures over a long history and around the world. "Calomiris argues that frequent episodes of failure are tied to government guarantees such as various forms of deposit insurance or similar incentives for risk-taking. "
Here is an article that suggests that "RiskCog" may be better at reducing portfolio drawdowns than MPT type mean-variance-optimal portfolios. It would be interesting to calculate the historical Sharpe ratios for portfolio construction methods besides MPT to see how they compare...
Buffett's Aversion to Gold Could Cost Him [View article]
Buffet is a great investor, I laugh and laugh when pundits suggest that he is finally making a big mistake. That said though gold is in Buffet's blind spot, but it is an intentional and carefully cultivated blind spot that allows him to focus on what he is good at. If you are not a macro or commodities investor then you will just under-perform when you play that game.
Historically speaking if Buffet had sold equities and bought cash and gold at the times when he has complained about no good values - instead of just going to cash, then BRK would have had a smoother and even more profitable investment history. If Buffet had told the 8th graders "I would buy gold if I think it is a good value" then he would be a more well rounded investor. But no one is qualified to give him that advice ;)
Australian Rate Hike: Looking at the Logic [View article]
Good article. In my view if commodities, precious metals, etc. start appreciating against a currency then it is time to raise rates period. The whole discussion of "is it politically acceptable to impact the economy right now" is really beside the point and can never be settled satisfactorily.
Asset Allocation: Seeing the Forest for the Trees [View article]
What allocation makes up the "market portfolio"? This would be useful information if I were going to use that allocation as a starting point to build a portfolio! Doing some cursory internet searching I found this:
This leaves out cash and real estate. (I couldn't find very recent real estate market info but I know it is a very large market).
The market portfolio has shifted over the years, but a back test might be informative. This "market" portfolio has returned 9.6% compound over 1972-2008. The top two losing years were 2008 @ -13.4% and 2001 @ -1.8%. For comparison the S&P 500 returned 9.3% and worst years were 2008 @ -37.2% and 1974 @ -26.9%.
So whether or not the risk of holding stocks goes down to some degree with time, it appears that the investor holding the market portfolio has been richly rewarded with more return and smaller interim losses.
ETF Ideas Based on Jim Rogers' Outlook [View article]
Good point Mookie1, Rogers would probably recommend one of the exchange traded products based on a Rogers index!
ELEMENTS Rogers International Com Index ETN (RJI) International Com – Agriculture Index ETN (RJA) International Com – Energy Index ETN (RJN) International Com – Metals Index ETN (RJZ)
Portfolio Building: Risks, Not Risk [View article]
I would like to make one comment in defense of MPT, then I will tear it apart and suggest something better.
In Defense: if most people put a variety of assets into an mean-variance optimizer and chose a modest portfolio such as 9% or 10% 20 year compound return - they would have less "risk" than their current portfolio.
Major problem: mean-variance optimal portfolios always end up being riskier than people and institutions expect because of flaws built into MPT.
Flaw #1: Average period returns for assets are used instead of compound returns. (For high volatility assets the average return is substantially higher in value than the compound return. This means that MPT based portfolios put too much weight into volatile assets.)
Flaw #2: MPT falsely equates standard deviation of returns with “risk”.
Flaw #3: MPT thinks that correlation matrices have predictive value – but they don't at all!
Flaw #4: Optimizing for the most return per unit risk, means that MVO portfolios are over-weight asset classes that have had a recent un-sustainable run up in price and are due for a correction.
The Solution: If people or institutions are currently using buy-and-hold type portfolios developed under the auspices of MPT, they should re-allocate to find the portfolio with the same return but lowest historic losses possible. This approach is called RiskCog. I have found that this simple metric has better predictive power than statistical-variance based theories. Here is an article that compares the performance of two MPT type portfolios to the RiskCog equivalents: www.riskcog.com/mean_v...
Is 5% of Emerging Markets Too Little? [View article]
On Aug 11 05:23 AM FB5000 wrote: > the site assetplay does not let you slice and dice reits and bonds > to local vs. non local that is a limitation but not a big one. I > have seen noting better that is free.
Hi FB5000, assetplay is handy. You should also know about www.riskcog.com it does portfolio back testing and optimization to increase safety. Also a free site.
Timeless Investment Classics, Part V: Reminiscences of a Stock Operator [View article]
ETFs to Help You Hedge Deflation [View article]
Too Big to Fail Banks: A Simple Solution [View article]
www.econtalk.org/archi...
Spotlight on the Sharpe Ratio: Part III [View article]
Here is an article that suggests that "RiskCog" may be better at reducing portfolio drawdowns than MPT type mean-variance-optimal portfolios. It would be interesting to calculate the historical Sharpe ratios for portfolio construction methods besides MPT to see how they compare...
Buffett's Aversion to Gold Could Cost Him [View article]
Historically speaking if Buffet had sold equities and bought cash and gold at the times when he has complained about no good values - instead of just going to cash, then BRK would have had a smoother and even more profitable investment history. If Buffet had told the 8th graders "I would buy gold if I think it is a good value" then he would be a more well rounded investor. But no one is qualified to give him that advice ;)
Who Is the Mystery Buyer? [View article]
Too Big to Fail Banks: A Simple Solution [View article]
Australian Rate Hike: Looking at the Logic [View article]
Asset Allocation: Seeing the Forest for the Trees [View article]
bonds 56.83%
ex-US stocks 20.70%
US stock 10.35%
Commodities 7.63%
Gold 4.50%
total $117.9 trillion
This leaves out cash and real estate. (I couldn't find very recent real estate market info but I know it is a very large market).
The market portfolio has shifted over the years, but a back test might be informative. This "market" portfolio has returned 9.6% compound over 1972-2008. The top two losing years were 2008 @ -13.4% and 2001 @ -1.8%. For comparison the S&P 500 returned 9.3% and worst years were 2008 @ -37.2% and 1974 @ -26.9%.
Approximate market portfolio(?):
www.riskcog.com/portfo...
So whether or not the risk of holding stocks goes down to some degree with time, it appears that the investor holding the market portfolio has been richly rewarded with more return and smaller interim losses.
ETF Ideas Based on Jim Rogers' Outlook [View article]
ELEMENTS Rogers International Com Index ETN (RJI)
International Com – Agriculture Index ETN (RJA)
International Com – Energy Index ETN (RJN)
International Com – Metals Index ETN (RJZ)
Portfolio Building with TIPS ETFs: Is Now the Time? [View article]
www.riskcog.com/portfo...
Portfolio Building: Risks, Not Risk [View article]
> Dumb question or not?...What is "risk"?
Hi David, for me risk means being sorry that I made a particular investment at some indefinite time in the future.
Portfolio Building: Risks, Not Risk [View article]
In Defense: if most people put a variety of assets into an mean-variance optimizer and chose a modest portfolio such as 9% or 10% 20 year compound return - they would have less "risk" than their current portfolio.
Major problem: mean-variance optimal portfolios always end up being riskier than people and institutions expect because of flaws built into MPT.
Flaw #1: Average period returns for assets are used instead of compound returns. (For high volatility assets the average return is substantially higher in value than the compound return. This means that MPT based portfolios put too much weight into volatile assets.)
Flaw #2: MPT falsely equates standard deviation of returns with “risk”.
Flaw #3: MPT thinks that correlation matrices have predictive value – but they don't at all!
Flaw #4: Optimizing for the most return per unit risk, means that MVO portfolios are over-weight asset classes that have had a recent un-sustainable run up in price and are due for a correction.
The Solution: If people or institutions are currently using buy-and-hold type portfolios developed under the auspices of MPT, they should re-allocate to find the portfolio with the same return but lowest historic losses possible. This approach is called RiskCog. I have found that this simple metric has better predictive power than statistical-variance based theories. Here is an article that compares the performance of two MPT type portfolios to the RiskCog equivalents: www.riskcog.com/mean_v...
Is 5% of Emerging Markets Too Little? [View article]
> the site assetplay does not let you slice and dice reits and bonds
> to local vs. non local that is a limitation but not a big one. I
> have seen noting better that is free.
Hi FB5000, assetplay is handy. You should also know about www.riskcog.com it does portfolio back testing and optimization to increase safety. Also a free site.
A Fresh Look at Indexing and ETFs [View article]