Because cash represents a poor asset class for investors with long time horizons, market timing strategies employing cash pose particularly great dangers to endowment assets. If investors mistakenly overweight cash and underweight higher expected return assets, subsequent rallies in long-term asset prices might cause permanent impairment of value. While less severe damage may result from mistakes made in timing one high expected return asset class relative to another, the ultimate consequences depend on disciplined contrarian responses to initial market timing losses. Such discipline might be a lot to expect from parties engaged in market timing in the first place. (查看原文)
While nearterm profitability of post-crash equity purchases illustrate a positive aspect of rebalancing activity, investors face the possibility of confusing the important risk control function of rebalancing with the unreliable return-oriented activity of “buying the dips.” (查看原文)
Yale economist Robert Shiller argues that markets exhibit excess volatility.That is, security prices tend to fluctuate more than necessary to respond to fundamental factors, such as earnings and interest rates, that determine intrinsic value.
In a world with excess volatility, investors care about the direction of security price fluctuations. Price declines provide opportunities to buy and price increases provide opportunities to sell. Under some circumstances, following a significant decline in price an asset actually becomes less risky, since it can be acquired more cheaply. The common-sense conclusion of bottom-fishing investors contrasts with the statistician’s conclusion that a dramatic drop in price increases observed (historical) volatility, implying a higher risk level for the asse... (查看原文)
Even though rebalancing profits produce a nice bonus for investors, the fundamental motivation for rebalancing concerns adherence to long-term policy targets. In the context of a carefully considered policy portfolio, rebalancing maintains the desired risk level. Generating profit while controlling risk represents an unbeatable combination. (查看原文)
Because of the difficulty of proving the efficacy of value-investing strategies, investors accept the approach almost as an article of faith.
Only if careful analysis confirms expectations of superior future performance should investors purchase securities.
Purchasing stocks with low price-to-earnings ratios or price-tobook ratios represents a naïve strategy. Simply selecting the cheapest stocks, measured relative to current earnings or book value, neglects important factors such as the quality of a business’s management and future earnings prospects.
True value can be acquired by purchasing assets at prices below fair value, a forward-looking concept that considers anticipated cash flows with adjustment for the level of risk. (查看原文)
Superb opportunities to purchase assets at prices significantly below fair value tend to be hidden in deeply out-of-favor market segments. At market bottoms, the broad consensus so loathes certain asset types that investors brave enough to make commitments find their sanity and sense of responsibility questioned. (查看原文)
The Morningstar study indicates that individual investors exhibit return-damaging performance-chasing behavior with remarkable consistency. Adding the effects of persistently perverse cash flows to the costs of active management leaves little room for individual investor success
If pursued in a steadfast manner, value strategies provide a measure of stability to investment programs, reducing dependence on the vicissitudes of the market and serving to mitigate risks faced by portfolio managers. (查看原文)
Committing less than 5 percent or 10 percent of a fund to a particular type of investment makes little sense; the small allocation holds no potential to influence overall portfolio results. Committing more than 25 percent or 30 percent to an asset class poses the danger of overconcentration. Most portfolios work well with around a half a dozen asset classes. (查看原文)
If investors want fixed income assets to provide a hedge against financial accidents, then only high quality, long-term, noncallable bonds satisfy the requirement.
Junk bonds contain equity-like risks, as payments depend mightily on the financial health of the issuer.
Government bonds dominate portfolios designed to hedge against financial trauma, providing high quaility portfolio protection.
First, foreign bonds have no role in a fixed income portfolio designed to protect against deflation or financial trauma.Second, as a separate asset class, high quality foreign bonds hold little interest.The combination of low, bond-like expected returns and foreign exchange exposure negates any positive attributes associated with nondomestic fixed income. (查看原文)
Evidence suggests that security returns do not correspond to a normal distribution, with markets exhibiting more extreme events than would be consistent with a bell curve distribution.
The way in which asset classes relate to one another may not be stable.Most investors rely heavily on historical experience in estimating quantitative inputs; yet continuous structural evolution reduces the predictive value of historical returns, risks, and correlations. Quantitative modelers face the daunting task of assigning an appropriate weight to historical data and an appropriate weight to well-considered intuitive projections.
Mean-variance optimization defines return distributions completely in terms of expected return and risk. The framework fails to consider other important attributes, such as liq... (查看原文)
For example, an investor could express a preference for diversification by limiting any individual asset class to no more than 30 percent of assets.Such a constraint ensures that no single asset class dominates a portfolio.
In addition, prospective allocations to private equity could logically be limited to a modest increase over the current allocation. Since illiquidity and lumpiness of opportunities limit prudent expansion of private equity holdings, incremental changes make sense.
Gradualism represents a virtue in and of itself. Substantial uncertainty surrounds the asset allocation process.
Limiting asset allocation changes by constraining asset class movements represents a sensible modification of the optimization process.
Care must be taken, however, to avoid using asset class constr... (查看原文)
虽然积极投资管理策略面临巨大障碍，但是绝大部分市场参与者还是选择了这种失败者的游戏。就像沃伯根湖（ Lake Wobegon）的居民都相信自己的孩子比一般的孩子要聪明一样，所有投资者都认为他们的积极投资管理策略一定能够带来优异的业绩。然而残的现实表明，总体而言，积极型投资经理参与的是一个“负和博弈”，因为就总和来看他们必然会输掉博弈成本，包括管理费、交易佣金与中间商买卖差价。那些试图超越大盘的投资者的总损失正是华尔街分得的蛋糕份额 (查看原文)
