"Asset Allocation, Third Edition by Roger Gibson" -- A Gem

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Taylor Larimore
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"Asset Allocation, Third Edition by Roger Gibson" -- A Gem

Post by Taylor Larimore »

Bogleheads

"Asset Allocation, Third Edition" by Roger Gibson, “Dispenses with luck, market timing, and ‘get rich quick’ schemes.” Instead his book (primarily for advisers) offers guidance for the asset allocation of portfolios including many performance tables, charts and figures. These are excerpts:
“In the early 1960s the term asset allocation did not exist.”

“Accelerating advances being made in information processing technologies will undoubtedly drive the market to become even more efficient in the future. It thus will become increasingly unlikely that anyone will be able to consistently beat the market.”

“A review of both the empirical evidence and the research work done on the subject suggests that attempts to improve investment performance through market timing will most likely fail.”

“Asset allocation is the primary determinant of portfolio performance.”

“Research studies repeatedly show that most money managers underperform the market on average over time, and those who do outperform the market in one time period do not have a better than even chance of outperforming the market in the next time period.”

“When the combined effects of inflation and taxation are considered, Treasury bills and other forms of short-term, interest bearing securities are not riskless investments.”

“It is reasonable to consider large company stocks to be a long-term inflation indexed investment.”

“A client who fully understands inflation, interest rate risk, credit risk, and equity risk is in a much better position to make intelligent investment decisions.”

“Investors have historically suffered negative annual stock returns approximately 27% of the time.”

“There will always be bulls and bears, but the evidence indicates that there is no consistent way to predict the turning points.”

“On October 19, 1987, we saw common stocks drop more than 20% in one day.”

“The additional dollar you make with a good outcome is not as valuable as the dollar that is lost with a bad outcome.”

“In assessing investment alternatives, time horizon determines appropriateness.”

“Clients tend to think in terms of nominal rather than real (after-inflation) returns.”

“For the long-term investor, volatility is not the major risk; inflation is.”

“The most important decision the that the client makes deals with the allocation of portfolio assets between interest-generating investments and equity investments.”

“The objective is to allocate assets in such a way as to own a portfoloio that lies on the efficient frontier. These portfolios have less volatility than any other portfolio with equivalent expected return.”

“The addition of a new investment alternative does not guarantee the advisability of its utilization.”

“The evidence suggests that international diversification of a U.S. bond portfolio probably will improve long-term volatility-adjusted returns.”

“The problem with diversification is that it works whether or not you want it to.”

“A computer optimization program is a very sharp tool, which can easily cut the hand of an inexperienced user.”

“Any decision involving the possible sale of an assert needs to be evaluated with respect to its tax impact.”

“A person has a 50% likelihood of living beyond his or her life expectancy.”

“The financial press thrives on writing articles than in one way or another feed the notion that there are ways to beat the market.”

“Once the fantasy of the ideal investment is dissolved, clients will understand the necessity of compromise in building an investment portfolio.”

“Time transforms the short-run enemy of volatility into a long-run friend that fuels the higher expected returns of equity investments.”

“Most clients have portfolios that are simply too small to achieve all of their desired goals.”

“It is only after the asset allocation decisions have been made that specific investment alternatives are chosen.”

“The majority of research studies suggest that markets operate relatively efficiently and that the identification of tomorrow’s superior money managers is a very difficult undertaking.”

“It is important to use IRAs to shelter those portfolio investments that on average generate the most annual taxable income per dollar of value.”

“If a specialist does not perform adequately, a replacement should be found who will be worthy of the compensation. Alternatively, index funds can be used as a portfolio building blocks.”

“Performance measurement is a particualarly troublesome issue for both investment advisors and their clients.”

“A passive rebalancing of the portfolio back to its target percentages has several advantages.”

“Clients tend to psychologically equate familiarity and comfort with safety. This can result in inertia."

“Being asked whether he would purchase the stock today if he did not already own it, the client will be liberated from his preoccupation with his low historical cost.”

“A client’s age and health also need to be considered when evaluating the disposition of an appreciated asset. Our current income tax code provides for a ‘stepped-up tax basis” for appreciated assets upon the investor’s death.”

“Successful investing will always be as much of a psychological process as it is a money management endeavor.”

“It is easy for clients to be distracted by investment schemes that promise high returns with little or no risk.”

“Today the capital markets are highly efficient and it is dangerous to presume that superior skill can be safely relied on as the primary determinant of a portfolio’s performance.”

“Money management is simple but not easy.”
More Investment Gems

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: "Asset Allocation, Third Edition by Roger Gibson" -- A G

Post by pkcrafter »

Taylor, thank you for sharing these gems.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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LadyGeek
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Re: "Asset Allocation, Third Edition by Roger Gibson" -- A G

Post by LadyGeek »

There is an on-going discussion in this thread: Asset Allocation by Roger Gibson

Taylor is quoting the 3rd edition, but the fifth edition is current. I added this book to the wiki, noting this distinction: Taylor Larimore's Investment Gems

Update: Revised for wiki update.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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