Author: tom_anichini
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Why Use Monte Carlo Simulations? To Guard Against Tunnel Vision
Sam Savage, author of “The Flaw of Averages,” is a missionary for making business decisions using probability distributions instead of point estimates. I’m an avid disciple, which might surprise some who read the previous post. The earlier post, “Modeling Expected Returns: The Future Is Not What It Used to Be” described a formula derived…
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Modeling Expected Returns: The Future Is Not What It Used to Be
Statistical methods that most practitioners get wrong Do you use financial planning software which projects future returns to assist you with asset allocation? Next month I will moderate several sessions at the Society of Actuaries (SOA) 2011 Annual meeting for the SOA’s Investment Section. A consistent thread running through several of these sessions will…
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Checklist Alchemy: Turning Trading Errors into Assets
Recently I was helping my eight year-old with her math homework. An impatient young lady, she tends to calculate in her head instead of showing her work. I am trying to impress on her that this habit increases her likelihood of error and will wind up costing her time and more. I have learned…
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Linked performance attribution illustration available
I’ve added a workbook that illustrates how active effects contribute to a fund’s cumulative performance over time. If you think that topic’s a cure for insomnia, get in line. This was the topic of my first project after business school. I’ve been surprised ever since how much understanding components of return affect fund performance ever…
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Risk parity “unproven”? Where is the list of “proven” allocation strategies?
Just spotted a survey from aiCIO that refers to risk parity as an “innovative but unproven” allocation strategy. The word “unproven” is pejorative and unduly presumptive. Proof of what? Compared to what? Has aiCIO identified examples of “proven” allocation strategies? All allocation strategies of which I’m aware involve investing in assets that entail risk of…
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Risk Parity Portfolio demo workbooks now available
Spurred by some readers, as previously promised I have gone ahead and added some demo Risk Parity Portfolio workbooks to the Resources section.
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Implementation Shortfall with the 200-day SMA Timing Strategy
Yesterday’s post examined the results of following the 200-day SMA rule seemed to work on daily values of the Russell 1000 and 2000. The data showed that a 1-day delay in trading would have benefited the Russell 1000 timer, but hurt the Russell 2000 timer. Today’s post looks at the cost of simply delaying until…
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More on the SMA Rule: Daily Analysis of Russell 1000 and Russell 2000
Following up on comments from my post on the SMA rule, I dug into applying the SMA rule using daily data on the Russell indexes. I only looked at the Russell 1000 and 2000 for this post. Russell’s website provides daily index values since June 1995, so the earliest decision you could have made using…
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The individual risk and systematic danger of following the 200-day SMA rule
One of the most heralded personal investment books of the past few years is The Ivy Portfolio, by Mebane Faber and Eric Richardson. In addition to writing about how successful university endowments manage their portfolios, the authors describe a tactical asset allocation model that’s uncomplicated enough for individual investors to follow. The rule is simply…
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Know the difference between investment models and rules
Investment and trading rules abound. In a realm as complex as investing and trading, not having a set of rules by which to operate can be paralyzing. So a necessary part of thriving is to abide by a set of rules that relieve you of having to decide the same thing several times. “Disciplined” and…