The Perfect Portfolio

[kyounge1956]

I just read this book and found some aspects of it very interesting. The author, Leland B. Hevner, president of the National Association of Online Investors. Judging from a quick glance at the Association's website, I would estimate the book covers much of the same materials as the first three sections of their "Confident Investing" series of courses. The "Perfect Portfolio" consists of two segments. The Core segment is made up of US stock, foreign stock & bond index funds, plus cash, and the Target Market segment is made up of ETFs in REITs, gold, energy, agricultural commodities and/or emerging markets; the specific selection of asset classes in the Target Market segment is based on technical analysis. The book clearly spells out a process for deciding how much of your assets to put in the Core segment and how much in Target Market, and how to decide which of the five possible Target Market assets to include. Worksheets and other helps are available online but I haven't looked at them.

Completely new to me in this book was the information on trailing stops and other automated orders. I suppose this is nothing new to some of you, but I'd never heard of them before. I'm far from convinced that technical analysis has any validity, but it struck me as I was reading the book that this type of orders could be used in a buy/hold/rebalance style of investing too. The author uses these orders to get completely in or completely out of the assets in the Target Market segment, but I think they could also be used to trigger some action if the portfolio drifts too far away from one's chosen asset allocation, either to rebalance automatically or to get an email notification that the portfolio is out of balance.

A surprising omission is that the book makes no mention at all of TIPS. I would think these deserve consideration at least, for inclusion in the Core segment. Suggested funds for the bond allocation in the Core segment are broad bond index funds like VBMFX or FTBFX, or an ETF along the same lines, such as AGG. As far as I can tell from a Morningstar Instant Xray of each fund, none of the three include TIPS.

 

[chinaco]

Nothing new under the sun.

I could not find where this is a non-profit... for the betterment of mankind!

I searched the entire site for any combination of that word and could not find it.

Therefore, I assume this guy is in his second career peddling books and training material.

One example of a non-profit that is focused on helping small individual investors is the American Association of Individual Investors.

They clearly state in their about page that they are a non-profit along with their mission statement.

About AAII | AAII: The American Association of Individual Investors

The public library is much cheaper. Plus, you have already paid for it.

 

[kyounge1956]

Nothing new under the sun.

I could not find where this is a non-profit... for the betterment of mankind!

I searched the entire site for any combination of that word and could not find it.

Therefore, I assume this guy is in his second career peddling books and training material.

One example of a non-profit that is focused on helping small individual investors is the American Association of Individual Investors.

They clearly state in their about page that they are a non-profit along with their mission statement.

About AAII | AAII: The American Association of Individual Investors

The public library is much cheaper. Plus, you have already paid for it.

Neither I nor the author claimed NAOI was a non-profit. As far as I can tell it's a business or subscription service that sells investor training courses. How is that a problem?

I assume you mean I've already paid for the library, not the book, which is correct—I got the book from the library. Having read it, I wouldn't buy it (at least not at full price). If I saw it cheap on the remainder table or a garage sale, I might pick it up for the information about limit orders. I started the thread because I think other E-R members might find some of the information interesting and/or useful and the book worth reading (for free) at their local library.

 

[Gumby]

Completely new to me in this book was the information on trailing stops and other automated orders. I suppose this is nothing new to some of you, but I'd never heard of them before.

Trailing stops can be extremely dangerous. Just ask some of the people who got sold out of their positions during the May 6, 2010 flash crash, at prices far below the stop price.

Lessons From The

 

[kyounge1956]

Trailing stops can be extremely dangerous. Just ask some of the people who got sold out of their positions during the May 6, 2010 flash crash, at prices far below the stop price.

Lessons From The

The book was published in 2009, so it doesn't specifically mention the flash crash, but it does point out the risk that the price you get may below the stop price. Also, the action triggered by hitting the stop price could also be an email message rather than an immediate sale, and if I were to use these automated features that's what I think I'd do. I don't know if there are any studies about rebalancing based on bands rather than on a time schedule, but it seems to me there could be some advantage of rebalancing whenever one asset class has gone up a lot, regardless of time. If done on a schedule, by the time the next rebalancing date comes around it may have gone back down again and the opportunity to benefit by that rise in price is lost. But OTOH I'm lazy, so I'd like it if my portfolio sent me a message when any asset has gone up by a certain percentage, rather than have to check frequently and still have the possibility of missing a rebalancing opportunity.

 

[LOL!]

....
I don't know if there are any studies about rebalancing based on bands rather than on a time schedule, but it seems to me there could be some advantage of rebalancing whenever one asset class has gone up a lot, regardless of time. If done on a schedule, by the time the next rebalancing date comes around it may have gone back down again and the opportunity to benefit by that rise in price is lost. But OTOH I'm lazy, so I'd like it if my portfolio sent me a message when any asset has gone up by a certain percentage, rather than have to check frequently and still have the possibility of missing a rebalancing opportunity.

Study on rebalancing bands:
http://www.tdainstitutional.com/pdf/Opportunistic_Rebalancing_JFP2007_Daryanani.pdf

The reality is that you do not need to check very often since if your rebalancing bands were not hit yesterday, then chances are they will not be hit today nor tomorrow unless there was a major move in the market. And you will know if there has been a major move in the market because the media will cover it like flies on sh!t.

You can easily estimate how much the market might have to move to hit one of your rebalancing triggers. Or at least you can pre-calculate it easily. For example, you can say, "The market needs to go up 5% from here before I need to sell" or "The market needs to go down 5% from here before I need to buy". Replace "need to sell" and "need to buy" with "need to check if my rebalancing bands have been triggered" and you are all set.

Furthermore, just because a trigger was reached does not mean you have to act instantly. You generally have more than few days to do something.

 

[chinaco]

.. How is that a problem?

....

My comment was not targeted at you.

It is not a problem. He can name his company whatever he chooses.

But at first glance, I thought it was a little misleading to include the words National Organization in the title. Just my reaction to it!

 

[obgyn65]

My portfolio generates about 3.6% a year (without any stocks) and I am happy with it.

The "Perfect Portfolio" consists of two segments. The Core segment is made up of US stock, foreign stock & bond index funds, plus cash, and the Target Market segment is made up of ETFs in REITs, gold, energy, agricultural commodities and/or emerging markets

 

[Danmar]

My portfolio generates about 3.6% a year (without any stocks) and I am happy with it.

You are very easy to please.

 

[packrat44]

My portfolio generates about 3.6% a year (without any stocks) and I am happy with it.

Until inflation rises significantly.

 

[slazenger]

My portfolio generates about 3.6% a year (without any stocks) and I am happy with it.

If you absolutely can't stand stocks or think a crash is imminent or that valuations are through the roof, .... then you should have about a 30% position, 10-15% bare minimum. It's statistically illogical to have less, or none at all.