Category: Portfolio Risk
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A Glimpse at Morningstar Direct’s Asset Allocation Tool Enhancements
As a Chicagoan I spent much of my professional career with peripheral awareness of Morningstar, but not too much first-hand familiarity. Since the firm began as a mere collator of publicly available data on mutual funds Morningstar has come a long way and so has my appreciation of its offerings. These days I rely…
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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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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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If you’re not rebalancing, you’re not diversifying
My brother, not an investment professional, recently asked me whether he ought to rebalance his 401(k) portfolio. The short answer: “Yes!” One of my first projects after business school had to do with assessing the effects of different hypothetical portfolio weighting and rebalancing schemes in an international equity portfolio, using EAFE countries. Tricky to do…
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Strategy implementation: Investing discipline or investing habit?
Over the past 20 years I have spent much time meeting, researching, interviewing, and otherwise picking the brains of traders and investment managers. Most of them could talk your ear off about their discipline and the rationale supporting it. Ultimately, any investing or trading discipline requires that you recognize your edge and execute your strategy…
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How to model new ETFs? Use Matrix Returns
I recently delved into the new Russell stability indices and started inspecting the related Russell Factor ETFs. The ETFs began to trade toward the end of May. If you’ve spent any time researching the so-called “low volatility anomaly” you’re well aware that empirically we have little evidence that investment returns are related to risk.. This…