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Re: ER check-up by intercst
Old 05-02-2006, 08:10 PM   #21
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Re: ER check-up by intercst

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Originally Posted by Veritasophia
I thought that the purpose of Asset Allocation is to increase returns while decreasing volatility.
Well, that's sort of the holy grail of asset allocation.* *Get yourself a mean-variance optimizer, and find the sweet spot on the efficient frontier.* *But in the real world, asset covariance changes with time, so what may have given you improved returns and lower volatility in the past may do the opposite in the future. Looks like that's what happened in intercst's real-world study.
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Re: ER check-up by intercst
Old 05-02-2006, 09:43 PM   #22
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Re: ER check-up by intercst

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Looks like that's what happened in intercst's real-world study.
Unless you look at the 2000-2006 data which shows the MPT portfolio doing pretty good.
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Re: ER check-up by intercst
Old 05-03-2006, 08:15 AM   #23
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Re: ER check-up by intercst

I'm always leery when someone makes a point and includes just specific ranges of years. Why 1975-1995, cutting off the greatest bull market in history? Oh yeah, because it renders the point invalid if you include the next 10 years.

I've yet to see much significance in attempts to show correlation (or lack thereof) in historic asset class allocation attempts. Almost anything that seems to correlate or show a negative correlation fails at some point, usually spectacularly. Sometimes because the correlation wasnt there. Sometimes because it was and people realized it, bought to suit, and therefore changed the dynamic.

I think even looking at it and reporting what you see causes change...
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Re: ER check-up by intercst
Old 05-03-2006, 09:02 AM   #24
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Re: ER check-up by intercst

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Originally Posted by Cute Fuzzy Bunny
I think even looking at it and reporting what you see causes change...
Like the Heisenberg uncertainty principle, to borrow a concept from quantum mechanics?
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Re: ER check-up by intercst
Old 05-03-2006, 09:14 AM   #25
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Re: ER check-up by intercst

Who said stock market investing (or at least the analysis of it) is as easy as quantum mechanics?

Something between heisenbergs uncertainty and schrodingers cat.

There are only two solutions I suppose: do not play, or play with everything at the same time, then wait 2-3 decades and see if that was correct...

Had a sort of chunk of this conversation on a long walk with gabe and the wife yesterday. She mentioned that everyone at work was really excited about oil stocks and precious metals and were jumping in. I explained the inverse emotional reaction people have to investing, where they want to buy stuff thats been run up and run screaming from things that have gone on sale. We dumped our energy and precious metals stocks, as they had done what I wanted them to: make us lots of money. As diversifiers? I dont think they're any more useful than internet stocks, the nifty 50 or tulip bulbs. They might keep making money, but we made ours and sold too soon. Which is way better than too late.

As far as slice and dice? I think its had its day. People who were going to do it did it, either through mechanical means of individual asset buying and rebalancing, purchase and rebalancing of mutual funds or purchase of a canned multiple asset balanced fund. If they didnt already do it, they soon will. Then it'll be "so much for any historic correlation/uncorrelation" and any sector that outperforms will most likely be accidental or through happenstance, not predictive.

Bearing in mind that "not playing" isnt an option for me, or most, and that I really dont care much about volatility given a 40+ year horizon and ability to live off the dividends alone, I'll just "put everything into play", go with broad equity holdings and @#%$@ bonds and excessive cash.
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Re: ER check-up by intercst
Old 05-03-2006, 12:07 PM   #26
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Re: ER check-up by intercst

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Personally I'm interested in a low-volatility high-return portfolio with a 60-year performance record.* Got any examples?
From the perspective of 60 years?* Sure I do.* They're called stocks. Search the net for a condensed graph of stock growth from 1900-2000, or 60 years if you can find it, graphed logrithmically, and i'm sure you'll find the growth to be quite steady and strong.
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