"Skating Where the Puck Was"

[EmergDoc]

You write a book with a hockey analogy in the title and you think I'm not going to read it? Fat chance.

[BlueEars]

It occurs to me that the SV premium will not disappear because it is very erratic. Probably this has been pointed out many times. The horse race between SV and SG changes regularly. This graph of MSCI SV-SG differences (in magenta) illustrates it:




I'm rooting for SV in this horse race.

[maddyken]

I'm not sure what the problem is with holding alternative classes, conventional stock and bond portfolios like Wellington, Wellesley, etc. didn't keep pace with inflation between 73 and 82 although Wellesley came close. Wellington lost about 33% from its peak in late 2007 between 2007 and 2009. Alternatives don't just provide inflation protection. I'm not making inflation predictions, but it is possible.

Mutual funds are available which provide access to hedge fund strategies, managed futures, etc. While private equity and a few other classes may be out of reach one can build/own institutional-like portfolios, unless someone can prove a stock+bond portfolio is less risky than a multi class portfolio I think multiclass is preferable. People can decide for themselves if they want to take on the portfolio management task, my choice was to let people who work with various asset classes on a daily basis do it for me...rather than me make a mess of it. I do believe good active management is a prerequisite for multiclass investing, and that raises your ER.

An often ignored part of multiclass investing is knowing the required performance to reach the objective, there will be times when multiclass trails conventional, so knowing your still on target keeps you from undermining yourself by abandoning the approach. It's a lot easier to hold the line when your portfolio is bouncing around a lot less too.

To each his own.

[Rick Ferri]

maddyken,

The problem with alternative asset classes is that they sound better than the work. The product providers love to talk about non-correlation, alternative beta, etc while every survivorship-bias free return study that has not been bought and paid for by the industry shows that these investment underperform a simple portfolio of low cost index funds.

Rick Ferri

[matjen]

Rick was that a Freudian slip?

[ziszew]

I'm not sure what the problem is with holding alternative classes...

<--snip-->

To each his own.

I think theres a guy very familiar with alternative investments who would disagree:

Swensen still rejects the idea that the Yale model can be applied to individual investors. “No middle ground exists. Low-cost passive strategies, as outlined in Unconventional Success, suit an overwhelming number of individual and institutional investors without the time, resources, and ability to make high quality active management decisions.”

And before you use that last sentence as the proof that it just takes the "right management", he's referring to a lot of savvy investors, including institutional ones, who need to make "high quality" decisions. There are very few who can, including mutual fund managers, those in private equity, endowments, etc.

And, as many Yale-modeled endowment funds found, liquidity doesn't matter...until it does. Once you start adding management layers and liquidity to alternatives, the ER goes up wiping away potential "gains" (much like a currency hedge would). Much of the return in alternatives can probably be attributed to the liquidity premium; erase that and you erase the return premium.

As Rick said, all reliable studies have shown that the returns may be higher but so is the risk (further, getting reliable data on the actual returns is difficult), and net of fees they don't make sense for all but a very few specific, very large, investors.

Like he said

Swensen is clear that Yale’s investment advantages stem largely from its ability to uniquely align incentives with managers and the extensive resources available to him to select and monitor the best managers. Those advantages will be difficult to replicate.

To lead people to believe it is a prudent investment course, or that it will increase returns without increasing risk (even in the context of a portfolio) is irresponsible. If the returns are higher, so is the risk.

Source: Journal of Financial Planning

[grok87]

Just finished "Skating Where the Puck Was" and really enjoyed it. Best $3.59 i ever spent...

I was just at a conference this week for pension fund managers where alternatives/hedge funds and the like were being relentlessly pitched as well as Emerging markets, etc. Someone bravely put up his hand and said "Um, actually economic growth and investment returns are not even correlated so why are you pitching Emerging markets on the basis that that is where the economic growth is?" I wanted to clap but I restrained myself!

cheers,

[LadyGeek]

To the new investors, wbern is William Bernstein. So, we won't put this one in the wiki....

[Epsilon Delta]

Just finished "Skating Where the Puck Was" and really enjoyed it. Best $3.59 i ever spent...

I was just at a conference this week for pension fund managers where alternatives/hedge funds and the like were being relentlessly pitched as well as Emerging markets, etc. Someone bravely put up his hand and said "Um, actually economic growth and investment returns are not even correlated so why are you pitching Emerging markets on the basis that that is where the economic growth is?" I wanted to clap but I restrained myself!

cheers,

We need you to clap. The pitchmen thrive when it's considered ruder to hint that somebody is lying than it is to lie.

[VennData]

WJO: the best opportunities...

2) They involve real work, which is presumably what you're trying to avoid in retirement.
3) Carry with them a gargantuan amount of nonsystematic risk.

And 2) and 3) are mutually exclusive. If you work on one "project" your risk is dramatic. If you work on many, you don't have time for them all.

[azanon]

Just finished "Skating Where the Puck Was" and really enjoyed it. Best $3.59 i ever spent...

I was just at a conference this week for pension fund managers where alternatives/hedge funds and the like were being relentlessly pitched as well as Emerging markets, etc. Someone bravely put up his hand and said "Um, actually economic growth and investment returns are not even correlated so why are you pitching Emerging markets on the basis that that is where the economic growth is?" I wanted to clap but I restrained myself!

cheers,

To ensure I've done no damage, I want to again say how much I love Bill's work. This is the first book of his I didn't like, but I would be terribly let down if he didn't keep writing more.

Thanks for your response Bill, I'm honored.

[grok87]

Just finished "Skating Where the Puck Was" and really enjoyed it. Best $3.59 i ever spent...

I was just at a conference this week for pension fund managers where alternatives/hedge funds and the like were being relentlessly pitched as well as Emerging markets, etc. Someone bravely put up his hand and said "Um, actually economic growth and investment returns are not even correlated so why are you pitching Emerging markets on the basis that that is where the economic growth is?" I wanted to clap but I restrained myself!

cheers,

We need you to clap. The pitchmen thrive when it's considered ruder to hint that somebody is lying than it is to lie.

Thanks. It's a delicate balance. I've learned not to tell my hosts that they are full of crap-often I end up with the metaphorical sore tongue from "biting my tongue" so much. I sometimes wonder why I even go to these conferences. Occasionally I pick up an interesting piece of market intelligence. But the signal to noise ratio is like 1%
cheers,

[Browser]

Um, the question I have is whether the pitchmen even know that there's no relationship between economic growth and equity gains. Seems to me it would be easier to debunk these guys if they actually knew they were lying, but they usually seem to believe what they're saying, and when somebody starts picking on them, the rubes in the crowd often seem to be sympathetic with the beleaguered pitchman.

[grok87]

Um, the question I have is whether the pitchmen even know that there's no relationship between economic growth and equity gains. Seems to me it would be easier to debunk these guys if they actually knew they were lying, but they usually seem to believe what they're saying, and when somebody starts picking on them, the rubes in the crowd often seem to be sympathetic with the beleaguered pitchman.

they know, believe me they know. Maybe not every single pitchman. But the higher ups know. it's just an intrinsic part of the marketing machine. Goldman Sachs pushes EM (BRICS, MIST, etc.) because that is where they can make fees bringing new equity issues to market. The fact that the higher growth does not translate into higher returns for investors is not something they are concerned about.
cheers,

[maddyken]

While I think Swensen is a great manager I doubt he's the only one who knows the ins and outs of alternative investments, many of them are accessible to investors.

I'm not buying your claim about higher return translating to higher risk. While there aren't any guarantees with asset allocation managers like Swensen have shown your claim to be false, how else could he/they rise to the top.

As far as being irresponsible, I like to think I'm open-minded about investing. While I realize there are classes I'm unlikely to ever get exposure to I try not to introduce unnecessary restrictions into my portfolio because I don't know what the future holds nor will I project the past into the future. Irresponsible would be recommending an unnecessarily limited and inflexible approach, a portfolio which might not be able handle some situations.

[maddyken]

I'm a little more cautious on GDP growth and stocks.

[pascalwager]

More a warning than an announcement here: I've just come out with a new Kindle/Nook with the above title.

Can Bill's ebooks be viewed on a desktop PC?

[umfundi]

More a warning than an announcement here: I've just come out with a new Kindle/Nook with the above title.

Can Bill's ebooks be viewed on a desktop PC?

I believe you can download a Kindle app to view e-books on a PC.

http://www.amazon.com/gp/feature.html?i ... 1000426311

Keith

[nedsaid]

Buy and hold is the ultimate contrarian philosophy!!

I am awaiting the graphs and stats from the engineers and mathematicians trying to quantify the influence of bozos on the performance of asset classes.

I think we can over think this stuff.

[steve r]

William Bernstein...marketing genius!

I just bought one copy as a gift and one for myself. No one, not even the author, tells me what I don't need! I'll show you!

I laughed

Still laughing.
Good read.

On Brown 's PP - could it be said that two asset classes - stocks and cash are (relatively) fallen from favor?

[bigDanShan]

anyway of getting this on pdf format?

[Rick Ferri]

Just finished "Skating Where the Puck Was" and really enjoyed it. Best $3.59 i ever spent...

I was just at a conference this week for pension fund managers where alternatives/hedge funds and the like were being relentlessly pitched as well as Emerging markets, etc. Someone bravely put up his hand and said "Um, actually economic growth and investment returns are not even correlated so why are you pitching Emerging markets on the basis that that is where the economic growth is?" I wanted to clap but I restrained myself!

We need you to clap. The pitchmen thrive when it's considered ruder to hint that somebody is lying than it is to lie.

Thanks. It's a delicate balance. I've learned not to tell my hosts that they are full of crap-often I end up with the metaphorical sore tongue from "biting my tongue" so much. I sometimes wonder why I even go to these conferences. Occasionally I pick up an interesting piece of market intelligence. But the signal to noise ratio is like 1%
cheers,

You need to get on more panels at conferences. It's OK to blast other conference participants if you're on a panel because people are paying to hear your opinion. The sponsors may not like it but the audience will.

Rick

[grok87]

Just finished "Skating Where the Puck Was" and really enjoyed it. Best $3.59 i ever spent...

I was just at a conference this week for pension fund managers where alternatives/hedge funds and the like were being relentlessly pitched as well as Emerging markets, etc. Someone bravely put up his hand and said "Um, actually economic growth and investment returns are not even correlated so why are you pitching Emerging markets on the basis that that is where the economic growth is?" I wanted to clap but I restrained myself!

We need you to clap. The pitchmen thrive when it's considered ruder to hint that somebody is lying than it is to lie.

Thanks. It's a delicate balance. I've learned not to tell my hosts that they are full of crap-often I end up with the metaphorical sore tongue from "biting my tongue" so much. I sometimes wonder why I even go to these conferences. Occasionally I pick up an interesting piece of market intelligence. But the signal to noise ratio is like 1%
cheers,

You need to get on more panels at conferences. It's OK to blast other conference participants if you're on a panel because people are paying to hear your opinion. The sponsors may not like it but the audience will.

Rick

Good idea!

[Levett]

"The whole purpose of saving and investing is so you can *quit* work."

Now that's a real investment GEM.

It mystifies me why those who have achieved retirement turn their success back into work.

Lev

[gorion83]

Just finished reading this book.

It is very interesting, and I really like the series so far.
I'm a bit puzzled with the consequences of what you write. If buying the "hot" things can lead to disaster, could a strategy based on purchasing the asset classes who fell most in the last X years give the best rewards?

That would be market timing, but you'll be on the "patience" side of the field.

Perhaps a core-satellite thing, with a traditional allocation of globally, size and style diversified funds and a 10-20% of tactical satellites?

[sls239]

What happens if some artificial illiquidity is inserted so that it is not so easy to sell or selling is disincentivized, like a redemption fee or mandatory holding period?

[umfundi]

If buying the "hot" things can lead to disaster, could a strategy based on purchasing the asset classes who fell most in the last X years give the best rewards?

That sort of thing can work. Look up "Dogs of the Dow".

If you believe in Jack Bogle's "Reversion to the Mean" it should work. Except, you don't know when.

I think the correct interpretation is not that last year's winner will be this year's loser. It is that there is no correlation.

Keith

[gorion83]

If you believe in Jack Bogle's "Reversion to the Mean" it should work. Except, you don't know when.

I think the correct interpretation is not that last year's winner will be this year's loser. It is that there is no correlation.

Keith

Yes, I agree.

But, even then, if I find some asset class which under is historical mean of returns since quite some time it should, sooner or later, reverse up (unless some conditions changed).

Perhaps even funds AUM could help in identifying the unpopular asset classes?

It's starting to look like as a contrarian strategy, and I don't think there is any evidence of a payoff higher than B&H, right?

[umfundi]

If you believe in Jack Bogle's "Reversion to the Mean" it should work. Except, you don't know when.

I think the correct interpretation is not that last year's winner will be this year's loser. It is that there is no correlation.

Keith

Yes, I agree.

But, even then, if I find some asset class which under is historical mean of returns since quite some time it should, sooner or later, reverse up (unless some conditions changed).

Perhaps even funds AUM could help in identifying the unpopular asset classes?

It's starting to look like as a contrarian strategy, and I don't think there is any evidence of a payoff higher than B&H, right?

Things like reversion to the mean and momentum may exist, but I am not smart enough to do anything about it. I only see them in my rear view mirror.

Keith