Daily Reading suggestions/ideas/criticism
 

Use this thread to post whatever you want about the new daily reading sticky. If you want to actually discuss one of the articles I'd suggest making another thread specifically for that article. This thread should be used for feedback.

Re: Daily Reading suggestions/ideas/criticism
 

daily reading links seem to be broken. i clicked 3 and all went to an error page.

Barron

Re: Daily Reading suggestions/ideas/criticism
 

Oops. It's fixed now.

I had running the feeds but it got messed up sometime today and I haven't figured out how to fix it yet. I tried to do a quick fix with feedblendr but that seems to mess up the links. I reverted back to my original shared items feed for now. That leaves out anything I share from my phone (i.e. anything I share while on the toilet). I'll work on getting the Yahoo Pipe working again tonight.

Anyway, it's working for now. I will make sure to test out any changes I make next time.

Re: Daily Reading suggestions/ideas/criticism
 

Good stuff, thanks.

Re: Daily Reading suggestions/ideas/criticism
 

omg why did i register business.com when i was younger.

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
Use this thread to post whatever you want about the new daily reading sticky. If you want to actually discuss one of the articles I'd suggest making another thread specifically for that article. This thread should be used for feedback.

[/ QUOTE ]
Geez, why do you need to read so much? I am a financial advisor and I read almost nothing day-to-day. I read nothing about the markets or the economy. If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

-Tom

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
Use this thread to post whatever you want about the new daily reading sticky. If you want to actually discuss one of the articles I'd suggest making another thread specifically for that article. This thread should be used for feedback.

[/ QUOTE ]
Geez, why do you need to read so much? I am a financial advisor and I read almost nothing day-to-day. I read nothing about the markets or the economy. If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

-Tom

[/ QUOTE ]

[img]/images/graemlins/confused.gif[/img] [img]/images/graemlins/confused.gif[/img]

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
Use this thread to post whatever you want about the new daily reading sticky. If you want to actually discuss one of the articles I'd suggest making another thread specifically for that article. This thread should be used for feedback.

[/ QUOTE ]
Geez, why do you need to read so much? I am a financial advisor and I read almost nothing day-to-day. I read nothing about the markets or the economy. If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

-Tom

[/ QUOTE ]

yea, but the validity of that "if" (accompanied by the "and do not fall into either catagory below:) for each person is the why behind the "read so much."

1) if you are actively trading and trying to beat the markets, then what occurs in the present and what has occured in the past and why is extremely important.

2) if you enjoy thinking about and reading about the markets, then you also care and thus read alot about what is going on.

so here's to the IF!

Barron

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
Use this thread to post whatever you want about the new daily reading sticky. If you want to actually discuss one of the articles I'd suggest making another thread specifically for that article. This thread should be used for feedback.

[/ QUOTE ]
Geez, why do you need to read so much? I am a financial advisor and I read almost nothing day-to-day. I read nothing about the markets or the economy. If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

-Tom

[/ QUOTE ]
I don't need to read so much, I just like to. Everything I read is something that is interesting to me, so it's free knowledge about stuff I like.

Not that this is the point of the thread, but I'd certainly never give my money to an adviser that doesn't read daily news. Are you basically just taking people's cash and saying "stick it in an index fund...and give me 1% off the top?"

Re: Daily Reading suggestions/ideas/criticism
 

In case anyone is interested, here's the section of my Google Reader feeds that relate to this forum:

37 Signals
http://www.37signals.com/svn/posts
CrunchGear
http://crunchgear.com
GigaOM
http://gigaom.com
Lifehacker
http://lifehacker.com
TechCrunch
http://www.techcrunch.com
Ask The VC
http://www.askthevc.com/
Brad Feld
http://www.feld.com/blog/
Dick Costolo
http://www.burningdoor.com/askthewizard/
Found+READ
http://www.foundread.com/
Fred Wilson
http://avc.blogs.com/a_vc/
Guy Kawasaki
http://blog.guykawasaki.com/
Josh Kopelman
http://feeds.feedburner.com/redeyevc
Marc Andreessen
http://blog.pmarca.com/atom.xml
Mark Cuban
http://www.blogmaverick.com
Paul Kedrosky
http://paul.kedrosky.com/index.rdf
Startupping Blog
http://www.startupping.com
Valleywag
http://valleywag.com
VC Confidential
http://www.vcconfidential.com/
Venture Hacks
http://www.venturehacks.com
VentureBeat
http://venturebeat.com
VentureBlog
http://p6.hostingprod.com/@www.ventureblog.com/


There are other sites that I read occasionally or I'll read via links from the ones above, and those will occasionally make it into the feed in this forum via del.icio.us. That's 21 feeds above, and there's probably about 25 non business or tech feeds. It's probably higher than average, but there are definitely people that read WAY more than me.

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
[...]If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

[/ QUOTE ]
Not that this is the point of the thread, but I'd certainly never give my money to an adviser that doesn't read daily news. Are you basically just taking people's cash and saying "stick it in an index fund...and give me 1% off the top?"

[/ QUOTE ]
It seems you are not my ideal client. Anyway, a globally diversified and balanced passive portfolio is not one index fund. I bring tremendous discipline to the investing experience, preventing my clients from making costly mistakes. And I am an expert in finding all of your lifetime goals, making a plan that gives you a high degree of confidence in meeting the goals that you value, and making adjustments along the way when things change. My clients value me, and are comfortable paying me to have me as their advisor.

-Tom

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[...]If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

[/ QUOTE ]
Not that this is the point of the thread, but I'd certainly never give my money to an adviser that doesn't read daily news. Are you basically just taking people's cash and saying "stick it in an index fund...and give me 1% off the top?"

[/ QUOTE ]
It seems you are not my ideal client. Anyway, a globally diversified and balanced passive portfolio is not one index fund. I bring tremendous discipline to the investing experience, preventing my clients from making costly mistakes. And I am an expert in finding all of your lifetime goals, making a plan that gives you a high degree of confidence in meeting the goals that you value, and making adjustments along the way when things change. My clients value me, and are comfortable paying me to have me as their advisor.

-Tom

[/ QUOTE ]

sounds like typical FA rhetoric from what i've heard. can you please list the asset classes you use to meet your clients goals?

thanks,
Barron

Re: Daily Reading suggestions/ideas/criticism
 

Evan, just wanted to say that I added your collection of feeds to my Google reader and I enjoy your pick of blogs/sources as a nice addition to my daily reading.

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]

Geez, why do you need to read so much? I am a financial advisor and I read almost nothing day-to-day. I read nothing about the markets or the economy. If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

-Tom

[/ QUOTE ]

Some people actually enjoy reading. And reading isn't only about managing your portfolio for higher returns or whatever...in fact, for me, it's rarely about that. It's about gaining a broader perspective on the things happening around you (or even not around you). You never know when you'll need or use knowledge gained through reading, but it's an invaluable opportunity to take advantage of (and even better, it's free.)

I could've closed my eyes and came up with an adequate portfolio of index funds using Vanguard without ever reading a word.

"I read nothing about the markets or the economy." This worries me, regardless of the success of your portfolios. How can you really understand the environment in which your clients live and operate without ever reading about it?

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
Evan, just wanted to say that I added your collection of feeds to my Google reader and I enjoy your pick of blogs/sources as a nice addition to my daily reading.

[/ QUOTE ]
In case anyone else wants to do this, here's the opml text that you can load right into Google Reader (and other readers).

Copy the next below into a text editor (notepad, for instance) and save it as an xml file. You can then import that file into your feed reader. WARNING, this may or may not affect the feeds you have in place. To be safe, you might want to export your existing opml and then edit that file by adding the relevant text here (everything in "outline" tags, including the tags themselves).

<font class="small">Code:</font><hr /><pre>
&lt;opml version="1.0"&gt;
&lt;head&gt;
&lt;title&gt;Evan subscriptions in Google Reader&lt;/title&gt;
&lt;/head&gt;
&lt;body&gt;
&lt;outline title="tech" text="tech"&gt;
&lt;outline text="37 Signals" title="37 Signals" type="rss"
xmlUrl="http://feeds.feedburner.com/37signals/beMH" htmlUrl="http://www.37signals.com/svn/posts"/&gt;
&lt;outline text="CrunchGear" title="CrunchGear" type="rss"
xmlUrl="http://feeds.feedburner.com/crunchgear" htmlUrl="http://crunchgear.com"/&gt;
&lt;outline text="GigaOM" title="GigaOM" type="rss"
xmlUrl="http://gigaom.com/feed/" htmlUrl="http://gigaom.com"/&gt;
&lt;outline text="Lifehacker" title="Lifehacker" type="rss"
xmlUrl="http://lifehacker.com/index.xml" htmlUrl="http://lifehacker.com"/&gt;
&lt;outline text="TechCrunch" title="TechCrunch" type="rss"
xmlUrl="http://feeds.feedburner.com/TechCrunch" htmlUrl="http://www.techcrunch.com"/&gt;
&lt;/outline&gt;
&lt;outline title="business" text="business"&gt;
&lt;outline text="Ask The VC" title="Ask The VC" type="rss"
xmlUrl="http://feeds.feedburner.com/askthevc" htmlUrl="http://www.askthevc.com/"/&gt;
&lt;outline text="Brad Feld" title="Brad Feld" type="rss"
xmlUrl="http://feeds.feedburner.com/FeldThoughts" htmlUrl="http://www.feld.com/blog/"/&gt;
&lt;outline text="Dick Costolo" title="Dick Costolo" type="rss"
xmlUrl="http://feeds.feedburner.com/askthewizard" htmlUrl="http://www.burningdoor.com/askthewizard/"/&gt;
&lt;outline text="Found+READ" title="Found+READ" type="rss"
xmlUrl="http://www.foundread.com/rss.xml" htmlUrl="http://www.foundread.com/"/&gt;
&lt;outline text="Fred Wilson" title="Fred Wilson" type="rss"
xmlUrl="http://feeds.feedburner.com/AVc?format=xml" htmlUrl="http://avc.blogs.com/a_vc/"/&gt;
&lt;outline text="Guy Kawasaki" title="Guy Kawasaki" type="rss"
xmlUrl="http://feeds.feedburner.com/guykawasaki/Gypm" htmlUrl="http://blog.guykawasaki.com/"/&gt;
&lt;outline text="Josh Kopelman" title="Josh Kopelman"
type="rss" xmlUrl="http://feeds.feedburner.com/redeyevc" htmlUrl="http://redeye.firstround.com/"/&gt;
&lt;outline text="Marc Andreessen" title="Marc Andreessen"
type="rss" xmlUrl="http://blog.pmarca.com/atom.xml" htmlUrl="http://blog.pmarca.com/"/&gt;
&lt;outline text="Mark Cuban" title="Mark Cuban" type="rss"
xmlUrl="http://www.blogmaverick.com/rss.xml" htmlUrl="http://www.blogmaverick.com"/&gt;
&lt;outline text="Paul Kedrosky" title="Paul Kedrosky"
type="rss" xmlUrl="http://paul.kedrosky.com/index.rdf" htmlUrl="http://paul.kedrosky.com/"/&gt;
&lt;outline text="Startupping Blog" title="Startupping Blog"
type="rss"
xmlUrl="http://feeds.feedburner.com/startupping" htmlUrl="http://www.startupping.com"/&gt;
&lt;outline text="Valleywag" title="Valleywag" type="rss"
xmlUrl="http://valleywag.com/index.xml" htmlUrl="http://valleywag.com"/&gt;
&lt;outline text="VC Confidential" title="VC Confidential"
type="rss"
xmlUrl="http://feeds.feedburner.com/vcconfidential" htmlUrl="http://www.vcconfidential.com/"/&gt;
&lt;outline text="Venture Hacks" title="Venture Hacks"
type="rss"
xmlUrl="http://feeds.venturehacks.com/venturehacks" htmlUrl="http://www.venturehacks.com"/&gt;
&lt;outline text="VentureBeat" title="VentureBeat" type="rss"
xmlUrl="http://venturebeat.com/?feed=rss" htmlUrl="http://venturebeat.com"/&gt;
&lt;outline text="VentureBlog" title="VentureBlog" type="rss"
xmlUrl="http://feeds.feedburner.com/ventureblog" htmlUrl="http://p6.hostingprod.com/@www.ventureblog.com/"/&gt;
&lt;/outline&gt;
&lt;/body&gt;
&lt;/opml&gt;
</pre><hr />

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[...]If you have globally diversified and balanced passive portfolios (like all of my clients), you can relax and enjoy the long-term growth without watching it day to day.

[/ QUOTE ]
Not that this is the point of the thread, but I'd certainly never give my money to an adviser that doesn't read daily news. Are you basically just taking people's cash and saying "stick it in an index fund...and give me 1% off the top?"

[/ QUOTE ]
It seems you are not my ideal client. Anyway, a globally diversified and balanced passive portfolio is not one index fund. I bring tremendous discipline to the investing experience, preventing my clients from making costly mistakes. And I am an expert in finding all of your lifetime goals, making a plan that gives you a high degree of confidence in meeting the goals that you value, and making adjustments along the way when things change. My clients value me, and are comfortable paying me to have me as their advisor.

-Tom

[/ QUOTE ]

So basically, you don't do anything that a well-trained monkey couldn't do.

(Disclosure: I work for FA's at a big bank.)

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
sounds like typical FA rhetoric from what i've heard. can you please list the asset classes you use to meet your clients goals?

[/ QUOTE ]
US stocks (tilting toward small and value stocks)
(Developed) International stocks (tilting toward small and value stocks)
Emerging Market stocks (tilting toward small and value stocks)
Real estate stocks - US and international
Short-term bonds (high quality, US and currency-hedged international)
Intermediate-term bonds (high quality, US and currency-hedged international)
Money market funds

-Tom

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
"I read nothing about the markets or the economy." This worries me, regardless of the success of your portfolios. How can you really understand the environment in which your clients live and operate without ever reading about it?

[/ QUOTE ]
I don't believe in market timing. I don't believe in stock picking. So what am I going to read that makes me what to make investment changes?

People's forecasts about the economy or interest rates? Individual stocks' earnings disappointment? I don't make investment changes based on anything like that.

-Tom

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
sounds like typical FA rhetoric from what i've heard. can you please list the asset classes you use to meet your clients goals?

[/ QUOTE ]
US stocks (tilting toward small and value stocks)
(Developed) International stocks (tilting toward small and value stocks)
Emerging Market stocks (tilting toward small and value stocks)
Real estate stocks - US and international
Short-term bonds (high quality, US and currency-hedged international)
Intermediate-term bonds (high quality, US and currency-hedged international)
Money market funds

-Tom

[/ QUOTE ]

so, to sum, you use:

-Stocks
-Bonds
-Cash
-Real estate stocks (as in REITs or companies that RE cenetered??)

this is why i asked. in the discussion about the real return of commodities, i noted that institutional investors move slowly.

additionally, financial advisors move slowly for a number of reasons that also relate to institutional investors. commodities seem riskier to ivnestors and many investors are very tied to their advisors. if their advisors recommend something that doesn't work out in the short term, they may risk losing that relationship (and that asset base). so peer group risk also applies to them, but in a more direct way.

the above portfolio, no matter how you structure it (i.e. one that has access to real estate, stocks, bonds, and cash) is not optimal for long term investing.

it is mostly geared towards economic environments that favor stocks. especially when you consider that (and i'm guessing here), the financial advisor's clients are far more likely to have a majority of their CAPITAL in stocks. consider that a 50% capital allocation to stocks w/ a 50% allocation to bonds actually means your portfolio is about 75-90% stocks in risk space.

additionally, small commodity allocations and leverage (for TIPS and other S-T nominal bond allocations to bring them to the same risk level as equities) is simply not used.

i'm not saying that you SHOULD use them (clients have different tastes etc.), but it does go to show that the premium achieved (in terms of risk adjusted returns) from diversification and leverage is a long time in dilution from retail &amp; institutional investors.

these additions would significantly improve your (and your client's) risk adjusted returns.

one additional question (are you developed &amp; emerging mkt international ) stock allocations hedged for currency risk?

if not, that is another area where your (and your client's) risk adjusted returns are being hampered by being exposed to risk while not being compensated for it, thus lowering your risk adjsuted returns. i think it is also very funny that the int'l bond allocations you mentioned ARE hedged, though the risk coming from hedging that allocation is far smaller than from your int'l stock allocations both a) because the stock allocations are likely far larger, and b) because the stock allocations are definitely way more risky.

note i'm not blaming you, or saying you should do your job in any other way (since if i were a financial advisor, i'd operate the same way), i'm just saying the non-optimal investment practices leave a ton on the table for anybody willing to capture the diversification, leverage, and intelligent hedging premiums to risk adjusted returns that are available.

again, while it is important to note the role that you serve (clients wouldn't be able to structure a portfolio you provide them by any stretch and therefore you provide value to them), that role could be even greater if investors would clammor for it or if you would lead the way. the latter is even less likely though than the former due to peer risk and client aversion to it at the present.

so while financial advisors tout their "diversification," (even though their clients may be better off than they woudl be without them), it is clear that a similar portfolio can be constructed via vanguard with a small amount of effort (and without the fees). these stock based portfolios though likely have risk adjusted returns around .30 vs. the acheivable # of around .4 (with more diversification and hedging) and .5-.7 with intelligent use of leverage and full diversification.

index funds via vanguard or other index providers would do just as well.

fortunately for financial advisors though, the absolutely massive majority of people don't understand portfolio construction so the game is not zero sum (clients gain from being far more well invested than they would be otherwise, and advisors gain in that they have a living)

sorry for the off-topic rant, but i did want to tie it back to how slowly investors move into things that would benefit them a ton. and this is just another reason why i'd expect real returns from commodity exposures for the next at least 20-50 years.

Barron

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
so, to sum, you use:

-Stocks
-Bonds
-Cash
-Real estate stocks (as in REITs or companies that RE cenetered??)

[/ QUOTE ]
REITs

[ QUOTE ]
this is why i asked. in the discussion about the real return of commodities, i noted that institutional investors move slowly.

[/ QUOTE ]
Are you talking about a thread here? What do you think the real return of commodities will be on average for the next 20-50 years?

[ QUOTE ]
the above portfolio, no matter how you structure it (i.e. one that has access to real estate, stocks, bonds, and cash) is not optimal for long term investing.

it is mostly geared towards economic environments that favor stocks. especially when you consider that (and i'm guessing here), the financial advisor's clients are far more likely to have a majority of their CAPITAL in stocks. consider that a 50% capital allocation to stocks w/ a 50% allocation to bonds actually means your portfolio is about 75-90% stocks in risk space.

[/ QUOTE ]
I don't really know what you mean by "risk space." Yes, the stock portion has a lot more risk than the fixed income portion. I go by the principle that the only purpose of fixed income is to reduce the risk of the entire portfolio. By using short and intermediate term only (no long bonds), and only high quality (no junk bonds), I am able to take more stock risk, using Int'l small stocks, EM small stocks, and so on, and have good risk-adjusted returns.

[ QUOTE ]
additionally, small commodity allocations and leverage (for TIPS and other S-T nominal bond allocations to bring them to the same risk level as equities) is simply not used.

these additions would significantly improve your (and your client's) risk adjusted returns.

[/ QUOTE ]
I basically build my portfolios based on the academic research done by the folks affiliated with DFA: Fama, French, and so on. I think their thoughts are that there is no reason why commodities should have a positive return. Stocks have +EV because the companies are profitable and growing. Bonds have +EV because the issuer is paying interest for borrowing our money.

Commodities trade based on supply and demand. There is no profit, and no income. They probably will go up over time near the rate of inflation, but there are better investments to deal with that (like a 1-year bond fund).

It is true that commodities do have a low correlation with stocks and bonds, and that in the past, using them may improve the portfolio a little. We currently use 10% of the equity portion into REITs. If we swapped out commodities for a portion of that, we may get a little improvement, but I don't think it would be that significant.

As for leveraging short-term bonds or TIPS, do you have a history of returns to show that it is good to add to a portfolio? Is there a low-cost investment available to the average investor (meaning, not a hedge fund)?

[ QUOTE ]
one additional question (are you developed &amp; emerging mkt international ) stock allocations hedged for currency risk?

if not, that is another area where your (and your client's) risk adjusted returns are being hampered by being exposed to risk while not being compensated for it, thus lowering your risk adjsuted returns. i think it is also very funny that the int'l bond allocations you mentioned ARE hedged, though the risk coming from hedging that allocation is far smaller than from your int'l stock allocations both a) because the stock allocations are likely far larger, and b) because the stock allocations are definitely way more risky.

[/ QUOTE ]
The Intl and EM stocks are not currency hedged. You can certainly try to show me research to the contrary, but I think the long-term EV of hedged or non-hedged international stocks should be about the same. However, by keeping them unhedged, there is much less correlation, so the overall portfolio has lower risk.

[ QUOTE ]
so while financial advisors tout their "diversification," (even though their clients may be better off than they woudl be without them), it is clear that a similar portfolio can be constructed via vanguard with a small amount of effort (and without the fees).

[/ QUOTE ]
Vanguard is good, and I recommend Vanguard for people on here that do not want to use an advisor. However, DFA's funds are generally better, because the small funds have greater exposure to small stocks, and value stocks have greater exposure to deep value. Plus, intl small, intl small value, EM value, and EM small are not readily available at Vanguard.

[ QUOTE ]
these stock based portfolios though likely have risk adjusted returns around .30 vs. the acheivable # of around .4 (with more diversification and hedging) and .5-.7 with intelligent use of leverage and full diversification.

[/ QUOTE ]
Not really sure what you are using here with .3, .5... Expected return / SD? Sharpe ratio?

-Tom

Re: Daily Reading suggestions/ideas/criticism
 

[ QUOTE ]
[ QUOTE ]
so, to sum, you use:

-Stocks
-Bonds
-Cash
-Real estate stocks (as in REITs or companies that RE cenetered??)

[/ QUOTE ]
REITs


[/ QUOTE ]

thats good since you gain dividend access that you wouldn't get via those companies. REITS have two sources of returns: price changes and dividend payments. they perform differently than stocks and provide a degree of diversification

[ QUOTE ]

[ QUOTE ]
this is why i asked. in the discussion about the real return of commodities, i noted that institutional investors move slowly.

[/ QUOTE ]
Are you talking about a thread here? What do you think the real return of commodities will be on average for the next 20-50 years?

[/ QUOTE ]

&gt; 0%. that is all that matters since their diversification (after deleverageing, which is apparantly easily available in CCFs) can then be used to boost risk adjusted returns.

[ QUOTE ]


[ QUOTE ]
the above portfolio, no matter how you structure it (i.e. one that has access to real estate, stocks, bonds, and cash) is not optimal for long term investing.

it is mostly geared towards economic environments that favor stocks. especially when you consider that (and i'm guessing here), the financial advisor's clients are far more likely to have a majority of their CAPITAL in stocks. consider that a 50% capital allocation to stocks w/ a 50% allocation to bonds actually means your portfolio is about 75-90% stocks in risk space.

[/ QUOTE ]
I don't really know what you mean by "risk space." Yes, the stock portion has a lot more risk than the fixed income portion. I go by the principle that the only purpose of fixed income is to reduce the risk of the entire portfolio.

[/ QUOTE ]

this is one of the issues at hand. bonds shoudl be diversifying rather than just "risk reducing." you can lever short term bonds to match the duration of long term bonds (and higher) to get the same risk profile as equities. thus you gain diversification while not sacrificing expected returns. this will improve returns &amp; performance more than it will increase risk, thus improving risk adjsuted returns.

[ QUOTE ]


By using short and intermediate term only (no long bonds), and only high quality (no junk bonds), I am able to take more stock risk, using Int'l small stocks, EM small stocks, and so on, and have good risk-adjusted returns.

[/ QUOTE ]

right, but your portfolio is still massively stock based. and you could have BETTER risk adjusted returns.

[ QUOTE ]


[ QUOTE ]
additionally, small commodity allocations and leverage (for TIPS and other S-T nominal bond allocations to bring them to the same risk level as equities) is simply not used.

these additions would significantly improve your (and your client's) risk adjusted returns.

[/ QUOTE ]
I basically build my portfolios based on the academic research done by the folks affiliated with DFA: Fama, French, and so on. I think their thoughts are that there is no reason why commodities should have a positive return. Stocks have +EV because the companies are profitable and growing. Bonds have +EV because the issuer is paying interest for borrowing our money.

[/ QUOTE ]

and commodities are paying returns since production hedgers likely out number purchasing hedgers and net short positions exist and are thus transfering returns to holders of net long positions.

[ QUOTE ]


Commodities trade based on supply and demand. There is no profit, and no income. They probably will go up over time near the rate of inflation, but there are better investments to deal with that (like a 1-year bond fund).

[/ QUOTE ]

see directly above. further, they provide FAR more diversification than a 1 year bond and in a deleveraged vehicle (CCF) provide income via bonds while still deliver diversificaiton and returns.

[ QUOTE ]


It is true that commodities do have a low correlation with stocks and bonds, and that in the past, using them may improve the portfolio a little. We currently use 10% of the equity portion into REITs. If we swapped out commodities for a portion of that, we may get a little improvement, but I don't think it would be that significant.

[/ QUOTE ]

it would be more significant if you took that allocation out of your largest equity position. while being a little less deleveraged to maintain relatively high returns (not comparable to equities but the diversification would more than compensate for loss of return in risk adjusted returns)

[ QUOTE ]


As for leveraging short-term bonds or TIPS, do you have a history of returns to show that it is good to add to a portfolio?

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abso-freaking-lutely. this is what we researched at my old employer. it improves portfolio efficiency greatly. and it isn't short term bond OR TIPS, it's leveraging short term bonds AND tips! you lever everything (or delever as the case may be) to hit a target risk level.

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Is there a low-cost investment available to the average investor (meaning, not a hedge fund)?

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you can do it yourself for minimal cost via leveraged TIPS funds (i think available via IB). or, if you have massive assets behind you, engage in continually rolling repos yourself.

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one additional question (are you developed &amp; emerging mkt international ) stock allocations hedged for currency risk?

if not, that is another area where your (and your client's) risk adjusted returns are being hampered by being exposed to risk while not being compensated for it, thus lowering your risk adjsuted returns. i think it is also very funny that the int'l bond allocations you mentioned ARE hedged, though the risk coming from hedging that allocation is far smaller than from your int'l stock allocations both a) because the stock allocations are likely far larger, and b) because the stock allocations are definitely way more risky.

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The Intl and EM stocks are not currency hedged. You can certainly try to show me research to the contrary, but I think the long-term EV of hedged or non-hedged international stocks should be about the same.

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of course they are, but not even close on a risk adjusted basis.

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However, by keeping them unhedged, there is much less correlation, so the overall portfolio has lower risk.

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right, but for the wrong reason. the "less correlation" comes from the ADDED ON exposure to currencies (currencies have about a 0 correlation. it is "added on" in the sense that a 100% unhedged int'l equity allocation has an addition exposure to currencies that you didn't purposely allocate to). you haven't allocated to this risk, you are exposed to it, and it delivers 0 expected return. it hurts your risk adjusted returns by delivering significant volatility without any compensation for it.

you can break an unhedged in'tl stock exposure into 2 pieces:

1) the int'l return from equities
2) the added on exposure to currencies.

if currencies were truly good to have, then why hedge the int'l bond exposure?

in fact, they are detrimental to risk adjusted returns in all applications since they deliver volatility without any compensation.

i've researched this personally for training and studied the research of some of the sharpest minds out there and can tell you for certain: it is a fact.

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so while financial advisors tout their "diversification," (even though their clients may be better off than they woudl be without them), it is clear that a similar portfolio can be constructed via vanguard with a small amount of effort (and without the fees).

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Vanguard is good, and I recommend Vanguard for people on here that do not want to use an advisor. However, DFA's funds are generally better, because the small funds have greater exposure to small stocks, and value stocks have greater exposure to deep value. Plus, intl small, intl small value, EM value, and EM small are not readily available at Vanguard.

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i don't know product offerings well enough to comment here. all i do know is even for 401k investments, my old company gave us a very good allocation plan that mimicked (sp?) a very well managed passive product the hedge fund managed fairly closely relatively speaking. so i do know it is definitely possible despite the possible shortcomings you mentieond.

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these stock based portfolios though likely have risk adjusted returns around .30 vs. the acheivable # of around .4 (with more diversification and hedging) and .5-.7 with intelligent use of leverage and full diversification.

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Not really sure what you are using here with .3, .5... Expected return / SD? Sharpe ratio?

-Tom

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i mean exactly what i said: risk adjusted return. that is not expected return, nor is it standard deviation. sharpe ratio would be the most apt description since we are dealing with passive allocations. since terminology is varying, i use risk adjusted returns or sharpe ratio when talking about passive allocation and risk adjusted returns or "information ratio" when dealing with active allocations.

either way, it is the expected or historic excess return divided by the expected or historic volatility (however you measure it) depending on your perspective.

normal portfolios that you mention, based on research and analysis of their (like institutional investor) return streams result in about a .3-.35 expected risk adjusted return.

a higher risk adjusted return is available (acheived at the hedge fund i worked for) of .69 (historic) or ~.7 (expected) through the use and application of all methodologies i've mentioend. (fees for this passive product were about 50bps/year so net performance was still extremely high: around .65 IIRC though don't gquote me on the net figure)

given that not all are legitimaately available to the normal investor, an actual risk adjusted return of about .5-.6 can still be achieved ideally or even .4-.55 without as much work/research/etc.

that is still higher than the typical portfolio you speak of which delivers about .3-.35 in expectation based on research i've done and seen.

Barron

Re: Daily Reading suggestions/ideas/criticism
 

Barron and jively,

Step 1) Read the title of this thread
Step 2) Read the posts in it
Step 3) Smack forehead repeatedly with open palm while saying, "idiot, idiot, idiot."

Re: Daily Reading suggestions/ideas/criticism
 

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Barron and jively,

Step 1) Read the title of this thread
Step 2) Read the posts in it
Step 3) Smack forehead repeatedly with open palm while saying, "idiot, idiot, idiot."

[/ QUOTE ]

but daddy...i hurted myself with the smacking [img]/images/graemlins/frown.gif[/img]

(seriously, sorry about that. Tom, to continue in another thread i think would be the best way to move the discussion along if you want)

Barron