Staying out of trouble as a fiduciary

To avoid fiduciary breach claims due to costs, there are several things an investment committee can do to avoid being dragged into court by their participants. 1) Make certain your investment committee is proactive and members either have the expertise to perform or engage those that do. The reality is all fiduciaries have potential liability … Continue reading Staying out of trouble as a fiduciary

The Case for a 2 Asset Class Portfolio

Nobel winner, Harry Markowitz explicitly said in his paper, Portfolio Selection (attached), “It is necessary to avoid investing in securities with high covariances among themselves.” He also said to invest in an asset class one has to have “beliefs about the future performances of available securities.” Therefore the question becomes, how many asset classes are … Continue reading The Case for a 2 Asset Class Portfolio

Picking Active Managers II

In their paper, "Is Manager Selection Worth the Effort for Financial Advisors?," authors, John West, CFA, and Trevor Schuesler, CFA, conclude "manager selection fails to produce positive excess returns, on average" and "trend-chasing behavior leads to poor buy and sell decisions." They find "many advisors put their clients on the "hamster wheel" of manager selection, … Continue reading Picking Active Managers II

Picking Active Managers

To justify hiring active managers, the investor must believe 1. Some portfolio managers have the skill to deliver superior performance. 2. The investor has the talent to identify superior managers. In his paper, "Manager Selection," Scott D. Stewart from the CFA Institute found the with respect to evidence that managers can outperform their benchmarks: "evidence … Continue reading Picking Active Managers

The Multifractal Wave

Mandelbrot framed the movement in stock prices as a "multifractal." In his paper, A Multifractal Walk Down Wall Street, he sees "The mathematics underlying portfolio theory handles extreme situations with benign neglect: it regards large market shifts as too unlikely to matter or as impossible to take into account. Portfolio theory may indeed account for … Continue reading The Multifractal Wave