Vig Oren

Morningstar: Impressive, But Pricey

Hi Zachary,

I have recently entered a post about MORN. Could this also explain the recent drop in M* ‘s stock?

Link to my post:

www.financial-planning...=

Excerpts:

In the news:

"While Morningstar certainly has carved out its niche and made a name for itself arming individual investors with mutual fund data and insight, the company plans to increase its focus on financial advisers and institutions, or the "pros" eager to pay for quality research. That's according to an interview with Morningstar CEO Joe Mansueto in this week's issue of BusinessWeek.

As Morningstar currently derives only 22% of its revenues from products and services for the individual investor, growing the professional side of the ledger "is a natural extension of our business," Mansueto said. Institutional business, which includes sub-advisory work, grew an impressive 58% last year, now accounting for more than 50% of revenue."


A question:

Many posters on Morningstar s (M* s) discussion forums, mostly DIYs investors, attack paid financial advisors. However, M* gets almost all of its revenue from financial advisors and institutions. So why does M* Inc., took upon itself to maintain and pay employees to administer these advisors' bashers forums? Recently, a financial advisor tried to post at the Vanguard Diehards discussion forum on M* website with the alias of " Insurance Man " (IM). Immediately, bully posters over there started to attack this IM. Consequently , the moderator (M* employees) started to remove or transfer IM's posts. Nothing would convince that moderator that paid financial advisors have the right to post there also.

Rebalancing Can Be Hazardous to Your Portfolio

Mark, notice the contrast in above report with the discussions with the following. Isn't it just mindbogglingly?:

Source Link:

www.financial-planning...=

Excerpt:

Rebalance, Rebalance, Rebalance

During this period of market turmoil, we have been following the advice of Gobind Daryanani, creator of the rules-based rebalancing software iRebal, who has conducted detailed research on the importance and logistics of portfolio rebalancing. He believes it's prudent to "look frequently" for rebalancing opportunities—instead of rebalancing over time, do it by setting a narrow tolerance band for allocation changes. Daryanani estimates that across a wide range of market conditions, the benefits of rebalancing based on returns can be more than double those garnered from traditional annual rebalancing. His data suggests a rebalancing benefit of 55bps, with 22bps of the total attributable to capturing short-term momentum and mean reversion effects of asset class performance. In a period of potentially lower and more volatile returns, this incremental return adds significant value.

According to Daryanani, it is particularly crucial to look for rebalancing opportunities during volatile market environments. Otherwise, "you are likely to miss the rebalancing benefits during periods of short-term fluctuations." His most recent research proposes an approach he calls "opportunistic rebalancing," which is designed not only to control portfolio drift, but also to capture buy-low/sell-high opportunities as asset class performances drift apart in the short term. These transient rebalancing opportunities occur sporadically and can only be captured if the advisor is monitoring client portfolios frequently—on a daily, weekly or biweekly schedule. Operational challenges would indicate that advisors would do well to look at client portfolios on a biweekly basis to ensure they identify and capture these opportunities.
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p.s. I would go with Gobind Daryanani at any time, b/c he is thee expert! Even if it's just a bonus of 35 bps annually. Heck, isn't "correct asset location" and "tax- loss harvesting" at same scale? At least enough to cover advisors' fees.

Global Giants and Diversifiers To Supercharge a Portfolio

BTW, M* Portfolio Manager now shows 3 years standard deviation of a portfolio. It also shows Expected Annual Return in the Asset Allocator (AA) tool. When I entered Geoff's "modified David Swensen's" allocation into these M* tools I got the three years SD at 11.45, same as Geoff got from the QPP. However, the expected annual return at the AA tool shows 7.5% vs. Geoff's at about 10% for the next three years. It would be interesting to wait and see which is right. M* AA also shows a possible 3 month loss of 10.3%, for this allocation (from today).

Global Giants and Diversifiers To Supercharge a Portfolio

Hi, since when Morningstar's Portfolio Manager, in the "Transaction" mode, updates account's (ticker's) number of shares without entering it manually, all the time?

Rebalancing Can Be Hazardous to Your Portfolio

Hi Phil, a bit late to the party. Glancing at the two studies from the JFP mentioned above, I see these results. Are there any other important issues involved?

Questions:

1) Why multi year frequency was not checked? Jim Otar, and Bill Bernstein are suggesting such strategies.

2) While rebalancing in taxable accounts are not the tested 35% and 15% taxrates sort of naiveté? See evolution of past taxrates since the 1960s. Would not such rates dictate the results?


Studies:

Rebalancing for Tax-Deferred Accounts: Just Do It—Don't Worry How
APR 2006

by Mark W. Riepe, CFA, and Bill Swerbenski, CFA


Two top results out of 7:

1. There's no free lunch. In all five models, the 21 techniques lined up close to linearly when plotted in risk-return space. At least with this set of techniques and the assumptions that form the basis for the study, no one technique resulted in a superior trade-off between risk and return.

2. Absolute differences between strategies are small. The values for the axes in the five figures were chosen to spread out letter codes as much as possible so that they could be visually distinguished. Inspection of the magnitude of the absolute differences in average return and risk reveals that they are small. Our conclusion is that the decision to rebalance is far more important than the decision of how exactly to do it.


And

Rebalancing for Taxable Accounts

APR 2007

Tips When Rebalancing in a Taxable Account:

1. Exert more care when rebalancing in taxable accounts.
2. Avoid generating rebalancing trades by directing new money into underweighted asset classes.
3. When sensible, execute trades to generate tax losses that can then be used to offset any capital gains generated by
rebalancing trades.
4. Be patient and wait until eligible for long-term capital gains treatment.
5. If taxable and tax-deferred accounts are both allocated toward the same goal, have the tax-deferred account bear as much of the
rebalancing load as possible.

Vig Oren