Daily Reading suggestions/ideas/criticism

[jively]

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[...]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.

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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?"

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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

[DcifrThs]

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[...]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

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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

[thing85]

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.

[thing85]

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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

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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?

[Evan]

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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.

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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 />

[bills217]

[ QUOTE ]
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[...]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

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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.)

[jively]

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

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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

[jively]

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"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?

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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

[DcifrThs]

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[ 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

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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

[jively]

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so, to sum, you use:

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

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REITs

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

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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?

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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.

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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.

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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.

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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)?

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

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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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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