Comments on: The end of asset allocation A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Bill Bowers Thu, 16 Jul 2009 00:30:54 +0000 The end of asset allocation? That, my friend, is probably the dumbest statement I’ve read over the last 12 months. Nothing personal, but it doesn’t even make sense. Can’t measure correlations? Do WHAT?

By: Dan Tue, 14 Jul 2009 21:14:58 +0000 “And the era of asset allocation is in its waning years. The problem, of course, is that no one has a clue what might replace it.”

Asset allocation has never been more relevant. Stocks and real estate have had a rotten decade. Commodities, commodity stocks and longer government bonds meanwhile have had a great decade. Short term money and emerging markets were a wash. In 2008, stocks were horrifically bad while government bonds and cash were terrific.

By: Kris Kross Tue, 14 Jul 2009 18:40:55 +0000 read Faber’s paper in the Journal of Wealth Management for a simple solution, free on the SSRN: bstract_id=962461

By: Steve Numero Uno Tue, 14 Jul 2009 17:34:17 +0000 I observed a long time ago that the great traders are not mathematicians. Their subjective views are far more powerful than all the rigorous historical correlation analysis.

By: ac Tue, 14 Jul 2009 11:34:02 +0000 investment replaced by HFT

“…trading strategies that are based not on… fundamentals, but on arbitraging minute differences in share prices and trading speeds… “electronic liquidity providers”, represent about 2 per cent of the 20,000 or so trading firms operating in the US markets. But they accounted for 73 per cent of all US equity trading volume…” 11de-8b19-00144feabdc0.html

By: ac Tue, 14 Jul 2009 11:24:49 +0000 re: pimco discovered equities give you good diversification

July 1 (Bloomberg) — Bill Miller’s Legg Mason Opportunity Trust was the biggest-gaining U.S. stock mutual fund in the second quarter, surging 48 percent… Pimco Extended Duration Fund… was the worst-performing bond fund, Morningstar said. The fund, with $199 million in assets, dropped 13 percent. The world’s biggest bond fund, the $156.9 billion Pimco Total Return Fund, managed by Bill Gross, gained 4.9 percent… 0601213&sid=aaVrWcFFPxHs

By: dsquared Tue, 14 Jul 2009 09:42:16 +0000 [ If a certain strategy worked for your grandparents, that’s probably a good reason that it won’t work for you. (And yes, Warren Buffett counts as Gramps for these purposes.)]

surely that would make Benjamin Graham “Great-Gramps”?

By: Don the libertarian Democrat Tue, 14 Jul 2009 03:59:33 +0000 “We are in a period of forced liquidation, which has happened only eight or nine times in the past 150 years. The fact that it’s historic doesn’t make it any more fun, of course. But it is a pretty interesting time when there is forced selling of everything with no regard for facts or fundamentals at all. Historically, the way you make money in times like these is that you find things where the fundamentals are unimpaired. The fundamentals of GM are impaired. The fundamentals of Citigroup are impaired.”

I agree with Jim Rogers. We have been in a slow motion bout of Debt-Deflation. In such an environment, most assets lose value, at least until Debt-Deflation ends. That’s one reason that Debt-Deflation is so disorienting: It’s hard to read the fundamentals in such a situation.

But, when it ends, Kay’s points will still be useful, and, more importantly,understandable:

“In defying fashion, the retail investor potentially has an advantage over the professional. Professionals are judged by their relative performance. But relative performance does not pay bills. You can take a more detached view, and you should.

Most investors will, and should, begin with funds rather than individual stocks. ETFs are a good place to start. Plan to build up a portfolio of such funds, emphasising sectors that are out of favour.

Then consider an allocation to actively-managed funds. Pick two or three idiosyncratic funds with widely different styles and approaches: this gives a better balance of risk and return. But keep a close eye on charges. A company that charges 1 per cent or more for a closet index fund is ripping you off. Buying a closed-end fund with a low TER and a large discount to asset value keeps down the effect of charges.

Three simple rules – pay less, diversify more, and be contrarian – will serve almost everyone well. Financial markets are complex, but much of the complexity is for the benefit of providers rather than consumers.

If you don’t understand it, don’t do it. That simple maxim would have saved amateurs and professionals alike billions of pounds in recent years.”

Your position would seem to imply an upcoming era of financial convulsions. If that occurs, it will be hard for anyone to figure out exactly what to do. I’m not advocating any investment strategy, but it should be at least as simple and easy to understand as Kay’s post is. I would suggest that the era of complexity should be over, but I know better.

By: AY Tue, 14 Jul 2009 02:35:40 +0000 Asset allocation is both an outcome and a process. Whatever alternate strategy one uses, you always end up with some asset allocation. Felix suggest that estimating future correlations is difficult. I agree. But estimating future returns is also difficult and standard mean-variance optimization is far more sensitive to errors in return prediction than covariance prediction. But we would still take a tab at it and use intelligent approaches like Black-Litterman to sort some of these problems out.

The point is that once you develop an investment strategy (whatever approach you use) you end up with an asset allocation and and that asset allocation “implies” an estimate of returns, variance and covariance. You cant get around it. The question is do you pay attention to those or not.

By: VennData Tue, 14 Jul 2009 01:55:50 +0000 The WSJ article concludes that PIMCO discovered that equities & TIPs gives you good diversification. They’re calling themselves asset allocators and they just figured that out?

The article also claims “The theory of asset allocation emerged in the 1950s when economists such as Harry Markowitz, who would later win a Nobel Prize for his work, developed mathematical models for ways to improve investment portfolios.”

However Jacob Fugger was allocating 25% each to Stocks, Bonds, Commodities, Cash during the Renaissance. 1459-1525-Biographies/dp/1587981092