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
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
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
It’s not about the mountain of performance research against active funds. It comes down to one term that gets to the heart of 401k plans: reasonableness. Plan sponsors can easily be held liable if a group of participants develops a case in which it can show their investment fund offerings have fees that are not … Continue reading Why index funds may be better for the 401(k)?
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
This index fund overview and worksheet link will guide you for your 401k. Index funds are managed through 'full replication' and/or a 'sampling' strategy. Sampling is used with a large index such as the Barclays Aggregate bond index. Sampling may result in tracking error, the variance in return from the index. For replication, tracking error … Continue reading Big Three Index Providers – Evaluation xlxs
If you believe in asset allocation, then this paper (attached) is for you. In their paper "When Diversification Fails," T Rowe portfolio managers, Sébastien Page, CFA, and Robert A. Panariello, CFA, conclude that "One of the most vexing problems in investment management is that diversification seems to disappear when investors need it the most." Their … Continue reading When Diversification Fails
Author and portfolio manager Meb Faber, of "Where the Black Swans Hide," states, "We continue to advocate that investors attempt to avoid declining markets where most of the volatility lies and conclude that market timing and risk management is indeed possible and beneficial to the investor." Faber's findings certainly make a strong case for avoiding … Continue reading Where The Black Swans Hide
Nobel winner, Harry Markowitz explicitly said “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 truly needed to develop a fully … Continue reading Why two asset classes?
By 2025, the interest payment on our national debt is projected to surpass military spending. Government estimates expect interest payments will surpass Medicaid funding this year. Since President Trump suspended the borrowing limit, a question remains: how concerned should we be? The U.S. has been in debt for most of its history. However, the national … Continue reading What the future holds