what should i be doing with surplus bankroll?

[Fishhead24]

AGREE.

It would be silly to say it is the best investment bar none and certainly don't want to imply that.

Agree, fortunes are going to be won and lost in this farmland market over the next 1-8 years.

[Jeff W]

[ QUOTE ]
so before you ask me another one, please answer what you'd rather use if not the sharpe ratio to compare attractiveness of an investment?

[/ QUOTE ]

Speaking only for retirement investing:

Return(include all costs), Volatility, Kurtosis, Skewness
Human Capital Risk

But really all those boil down to a probabilistic distribution of outcomes (in this case, age when we can retire).

A set of parameters should be constructed for those according to an individual's need and then portfolios should be compared based on their adherence to the parameter set.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
so before you ask me another one, please answer what you'd rather use if not the sharpe ratio to compare attractiveness of an investment?

[/ QUOTE ]

Speaking only for retirement investing:

Return(include all costs), Volatility, Kurtosis, Skewness
Human Capital Risk

But really all those boil down to a probabilistic distribution of outcomes (in this case, age when we can retire).

A set of parameters should be constructed for those according to an individual's need and then portfolios should be compared based on their adherence to the parameter set.

[/ QUOTE ]

but you've set out an almost impossible task.

volatility (historic & logical-forward-looking) is reasonable to estimate. but the distribution is not. the parameter set would be highly sensitive to kurtosis & skewness.

estimating volatilities is reasonable but difficult, due to the large degree of randomness inherent in investing. knowing, even within a range, the kurtosis (which boils down to a #), is an impossibly hard task. how can you measure it accurately? skewness may be a tad easier but both of those distribution qualifiers need baysian estimation and the "next" observation can severely change the posterior (turned prior) distribution.

i agree with the goal, but have a hard time getting my head around the means. can you furnish an example of the process??

let's take the simple standard 60/40 equity/bond portfolio of yesteryear, what would your answers to your methodology above yield?

the goal, as you stated it above, would be to get a distribution of ages at which we can retire (likely defined as meeting some minimum total asset criteria).

thanks,
Barron

[cakewalk]

http://en.wikipedia.org/wiki/GIS

[Jeff W]

Barron,

Right now our knowledge is not advanced enough to use my 5-Factor Model. Kurtosis is perhaps an insoluble problem, however the other 4 factors should be reasonably quantifiable with time.

IIRC, Harry Kat was able to reproduce a set of Volatility, Skewness, Kurtosis specifications out of sample(but not return). Note that all these are compensated risks--to decrease kurtosis you have to sacrifice by decreasing return or increasing volatility or negative skewness. Of course, we can't truly capture black swan events.

Research is being done on human capital risk, but for the moment we can only think of it in a qualitative sense. Human capital, like any other asset, is a part of your portfolio and for many people it's the biggest part, yet it is largely ignored.

I have mainly investigated this area as regarded the small value premium. Stocks with smaller market cap and/or low price/book levels have a high correlation with the average person's human capital, which may explain their high risk-adjusted returns.

As far as implementing this model... I can't help you. [img]/images/graemlins/grin.gif[/img] For my purposes, it is enough to just consider the 5 factors and make some effort to manage my risks.

[cmyr]

So this has blown up a little bit. There's some really neat stuff in here, much of it over my head, but it's interesting to hear the discussion. To get back to practicals a bit, I'm going to elaborate a bit on my current situation.

I'm in my early twenties, and poker is my main source of income. I'm a part-time student, and the rest of my income is derived from an RESP, a Canadian tax-sheltered education-specific investment plan.



[ QUOTE ]
Some questions..
How often do find yourself depositing money into poker sites to replenish your onsite bankroll? and how much are you usually moving? In other words, have you allocated too much to readily available bankroll?

How much are you pulling out of poker in an avg month, and what are you doing with it? Are you just pulling out enough for expenses, or are you allocated some to your future? (you should be)

How much risk are you willing to accept with your money? When looking at this, you should also consider the risk you accept with in play poker funds.

[/ QUOTE ]

question one is really difficult to answer, because I will frequently go months without depositing and then deposit 10k in a few days. I play across a bunch of different sites, b/c of game availability, so I end up keeping 40+ buyins onilne in various places, since in the games I play it isn't uncommon to have 10 buyins on 4 tables at any time. If I have over 10 buyins on a site, I withdraw.

So far this year I've averaged about 14k a month, but I've moved up recently and am doing better then I was in January.

I have 5 months living expenses in the bank. Every winning month I pay myself my living expenses, and then divide the rest: 10% goes to discretionary spending (generally large unbudgeted things... trips, nice meals etc), 20% goes to long-term savings (in theory, at least, since I've been using this money lately to replenish my living-expenses-cushion) and the rest goes back into bankroll. My cash/savings and my bankroll are entirely distinct entities with their own bank accounts.

I'm hoping that within the next two months I'll meet my bankroll goal (100k) and that I will no longer be allocating so much money to bankroll growth, and can start developing a proper portfolio; when that happens I'm sure I will be back.


Anyway, my real concern now is with what I should be doing with my liquid bankroll; I think that's been fairly well answered, but I'd by no means want to dampen the discussion that's developed.




I guess a more pertinent question now would deal with my non-bankroll savings. Starting this month, I'd like to begin moving 20% of my net (earn-living expenses) income into long-term savings. My uninformed plan had been to simply dump this into my online brokerage monthly and buy vanguard products.... Can anyone suggest a better way of allocating these funds? I'd optimistically like to expect about 5k a month.