Phil DeMuth

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    • Sat Feb 9th 11:22 AM | Rating: 0 0
      Commented on:
      Rebalancing Can Be Hazardous to Your Portfolio
      RIchjoy: By the way, there is an recent article in the Journal of Financial Planning that makes the same point.

      www.fpanet.org/journal...
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    • Thu Feb 7th 17:16 PM | Rating: 0 0
      Commented on:
      A Practical Demonstration of the Value of Portfolio Theory
      Thanks to all who have responded.

      Foust: The Swensen portfolio you cite was down 7.4% over the study period, and that with a 30% fixed income buffer. Is there any evidence of Swensen's long-term outperformance of the market using only liquid, publicly-traded securities? I thought these were only a small fraction of the Yale endowment, and that his track record was really based on private equity and hedge funds and illiquid securities that have little to do with the transparent and efficient markets in which the rest of us fish. I do like Swensen's Boglesque stress on low fees and indexing, though.

      Big G: If you have the ability to consistently move in and out of markets as they rise and fall then I congratulate you. This skill is elusive, for all the reasons William Sharpe pointed out in his 1975 essay on market timing. As I go down the Forbes 400 list, I cannot find anyone who made his fortune in this manner. I don't know how people possessing this knack could have avoided becoming billionaires.

      Mark McHugh: I agree -- anyone who can consistently pick the top-performing asset class in advance is going to outperform a diversified portfolio. Diversification is only valuable to people who can't do this.

      Locke: The movie hasn't even edited into its final form; why not hold fire until you see it? I think you have been misinformed as to its content.

      Smart ETF: Mandelbrot urges portfolio managers build portfolios using precisely the kind of Monte Carlo simulations we perform here ("The (Mis)Behavior of Markets" p. 267). He confesses of the people trying to apply his methods in finance, "...in truth, our knowledge is still so limited that no one has yet to report great success." (ibid, p. 256). It sounds like your experience is an outlier.

      DMB: I think the 1-in-20 calculation of a 10% correction is excellent modeling. The MC-tested portfolios tend to beat market-indexed portfolios with less risk; if you have a better mousetrap then please tell how you do it.
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