Flav

Dividend Aristocrats Will Continue to Outperform

Geoff:
If agents are rational and forward looking, and past information of returns and risk are at their disposal; knowing that a montecarlo simulation which uses this information shows that a basket of stocks will outperform the S&P, shouldn't create an arbitrage opportunity that will soon erase the return diferential, so that the future expected return of this basket is the same of that of the S&P?

The Road Ahead for Investors

Geoff, great article (as always). You made me wait almost a month since the last one you wrote, please write more often!! :)

Kass' Short Bet on Berkshire Falls Short of Reason

Kass is just a deceptive clown. Earlier in 2008, after the Bear Sterns meltdown, he suggested that the market had limited downside. On July, he recommended initiate a long position in financials. He even disclosed he had Citi as one of its holdings (when it was trading near the low 20's). Not satisfied with that, he even disclosed (and adviced initiating) a position in LEH!!!! Want the proof? Here it is: www.thestreet.com/stor...
His sponsor web site exalts him as an investment magician, advertising him as if he had been "right as rain"... with the market falling an astonishing +30%, and running a short only fund, it was kind of impossible to have a bad performance and not beat the market (i think).
What's really ludicrous and hilarious at once, are his investments surpirses, dubbed "outlier" events. He posts a series of delirious events that never actually take place, and assimilates market deveopments to his stupid advice. How in the hell does this person gets all that media attention?
This post is getting too long, but i want to highlight other lousy advices from Mr Kass. These posts are some proof of his misjudgment: www.thestreet.com/stor..., www.thestreet.com/stor..., www.thestreet.com/stor...
Just check the stocks his fund bought at the time it did it. It would be really interesting to see what really was his funds performance, if it really did had thoso holdings on its portfolio

How We Can Avoid Another Tragic Ponzi Scheme

Quote by James Quinn: "Morality is essential for our financial system to operate. The lack of truth and morality is the reason the system is breaking down"
The thing is Mr Quinn, each one of us (human beings) have a different conception on what regards to morality. Maybe some person believes that though Madoff did scam his investors, he should be punished, but in a different way than "a place in hell with Stalin". Maybe other person (like me) thinks that in an economics and financial blog, that kind of statements are a little out of place, and involve subjects that are far from the main objective of the blog.

Another quote from Mr Quinn: "I'll stick to whatever themes I want to discuss. You are free not to read my articles"
Of course, you can (and i think you will) discuss everything you want. I was just suggesting that maybe, asserting that divine punishment will be imposed to someone is a little out of order in a financial blog.
Again, of course i'm free not to read your articles; as a matter of fact, i won't do it. The lack of economic subtstance of them are a convincing proof that you're an accountant (hope a good one) and not an economist

How We Can Avoid Another Tragic Ponzi Scheme

"Ultimately, Mr. Madoff will be judged by his Maker. A special place in Hell awaits him, next to Hitler, Stalin, and Timothy McVeigh. The victims of his crimes are many."
Maybe we should stick to economic and financial themes, don't you think? Let the moral conclusions be brought about by each one privately.

Testing Forward Looking Asset Allocation

Geoff: Again, thank you very much for your quick response. I’ve been reading past articles from yours, and i have a few questions (i must apologise first, they aren't fully related to this article):
Does QPP estimate covariances, so that you can optimize using Excel's solver in order to build the model portfolio? If that's the case, you can compute the correlation coefficients between stocks (or assets)?

If you entered QPP the time series of, for example, the SPY, using the last year and a half data, did the tail risk signal this kind of drop?

Thanks in advance

Testing Forward Looking Asset Allocation

Geoff: How would shorting stocks affect the analysis? Considering than when you short, you profit when the stock goes down, it would have a negative correlation with the other portfolio assets, and therefore, coud short-sale improve the risk/return profile of the portfolio?

Thanks in advance

Tactical Asset Allocation, Part I

Geoff: i hope you don't get tired of my posts, but i have to tell you, once again, great article!!!!!!!

Risk Management and Concentrated Positions

You can check last weekend's Barron's interview with Merril Lynch's top investment executive for more insights on the subject

Risk Management and Concentrated Positions

Geoff, once again, thanks. Maybe if you run it again now, the numbers will be much worse. Your articles are great, and you're very polite with readers' questions.
The reason i asked the first question was beacuse the main strategists of investment banks (what were investment banks) always make projections of posible market trajectories of no more than 2 years, and they say they use computational models, that's why i asked if a program like QPP could be useful for the short term, though you said to me in other question i asked you before that QPP makes long term projections

Risk Management and Concentrated Positions

Geoff, another question:
What's the tail risk for homebuilders like CTX or KBH?
Does it point to a brisk stock price change like it was for financials?

Risk Management and Concentrated Positions

Again, a great article. It is as explicative as useful.
Have a question, suppose you're just a trader, i mean, you're time horizon lasts no more than a month; does this kind of modelling is helpful for that kind of investment profile?
If you run a long-short fund, how does the model change in that circumstances? And in an only-short one?

Thanks Geoff, keep up with these great articles

The Nature of Risk

My last post brought to my mind me some questions to Geoff Considine:

What kind of information did you use to build the graph "Projected Probability of Default vs. Annualized Volatility for Stocks", credit ratings, historic quotes (to compute the Std deviation)?

When you use the QPP to build a model portfolio, do you use some data of fundamentals for a given company?

Does technical analysis play any role at the moment of building a portfolio or making an investment decision (in your investment scheme)?

This question fits better your other articles, but as you have demonstrated before, a diversified asset class portfolio is better (more return with less risk) than one concentrated in one asset class (stock for example); but is there the posibility of an all stock portfolio that, maybe with more risk, it still locates on the efficient frontier (more return with more risk, but still on the frontier) ?

Thanks in advance

The Nature of Risk

Quote by PrudentMan,
CFA: "To use statistics to try and understand risk is lazy. Considering that human nature is impossible to explain, what makes anyone think a computer can make sense of what they are going to do"
I believe you're not understanding the message of this article. Using the Montecarlo simulation, you had that there was an increase in the probability of default when you had a larger standard deviation. So there's the link between statistics (hence, volatility) and risk. As Considine remarks, there was a considerable probability of a large price move in Bear Sterns stock based on past information. It's not that it will surely happen, but there's a high probability. As you're a financial adviser, i believe that, if you recommend a client to invest in a distressed company with the characteristics described above, just beacuse it went down in price and you think will get back to normal, ignoring the great volatility on the stock, maybe you should work on other area, like casino gambling or sports bets. That's akin to that kind of reasoning.
Another quote from this guy: "Good old fundamentals combined with technical analysis, intellect, skill and guts will trump any statistician"
Who in the hell ever told you that fundamental and technichal analysis are substitutes of statistical research? They complement each other. Of course, if you are a strong believer of the efficient market theory, then fundamental and technical analysis are useless, but otherwise, all three instruments are useful

Defining a Set of Core Asset Classes

Hello Geoff:

Thank you very much for your quick response. It does clarify.
I'm an economics and finance student, and i often have discussions with classmates and friends about several subjects regarding portfolio management. I must say that i have used some of your articles to support some of my arguments. I believe that for long term planning, there's nothing better than the analysis being made in your articles. But suppose that some investor or trader has a shorter time horizon; that person is willing to take on larger risks, in order to achieve larger returns. Would you still recommend this individual to diversify? Or given the shorter time frame and less risk aversion, should this investor have a more concentrated portfolio?

Again, thank you very much

Looking forward to read more of your articles