Tag Archives: portfolio

Past Performance Does Predict Future Performance

Market predictions can be made for several reasons: industry fundamentals, technical analysis, etc. However, the most influential factor in market predictions is past performance. The psychological mindset of the investor dominates the assessment of the future. This is obviously an unintended and unwanted circumstance. Successful long-term investing requires the elimination, or significant reduction, of this behavioral risk. Predictions are not inherently bad. But it is less about the prediction itself and more about the hypothesis that created it. Continue reading

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When the tipping point arrives, how will the market react?

With QE2 ending in June, I can’t help but wonder if we are at a tipping point in anticipation of that date. On the one hand, you have Bill Gross, who runs the world’s largest fund—PIMCO Total Return. On the other, you have Jeff Gundlach, whose Doubleline bond fund outperformed all other bond funds in 2010; gathering $4.5 Billion assets in the process. PIMCO has eliminated Treasuries from its holdings in search for better opportunity—and less risk—elsewhere. The question he poses is this: Who will buy Treasuries? If there is no demand, price will decline. Unless of course, supply also declines and there is demand. Gundlach approaches the situation from this angle, “In any kind of deficit cutting exercise, like we are now heading into, stocks are the losers and bonds are the winners.” Continue reading

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The Individual Investor is at a Disadvantage

In the following video, Michael Lewis, author of “The Big Short,” delivers his personal experience with investment management during the financial crisis. He describes the inherent conflict of interest investment banks have because of their dual roles as both client advisors and proprietary traders. Continue reading

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What’s the equation for long-term, consistent returns?

Clients and advisors ask me–all too frequently–“What is a good ETF/Mutual Fund/Stock to invest in?” Generally, these questions are accompanied by some type of buy-and-hold comment indicating these monies are for retirement. Let’s break this question apart in this way: … Continue reading

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Playing by the Rules and Winning the Game

You can distinguish one money manager from another by how well they play the game. In order to determine the winners and losers, you must know the objectives. Here they are: consistent returns, positive returns, and–for the bonus round–outperformance of equity benchmarks at all times. There is no rulebook for this game. Nor was this game shrink-wrapped neatly on the shelf of a Toys-R-Us [sic]. These are the rules imposed by clients. While these requirements do change, the past ten years and the current “new normal” economy have formed these parameters. Continue reading

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The Positive Effects of Consistent Returns

What I am about to suggest could very well revolutionize portfolio management. In the current market environment—an environment in which one needs to prepare for both the journey and the destination—portfolio strategy and structuring needs to be addressed from a different perspective. The essence of portfolio strategy, for the time being, is this: allow yourself room for error while outperforming absolute and relative benchmarks. Continue reading

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Preparing for the New Investment Paradigm

While both fundamental and technical analysis have their place at 85 Broad St, equity markets have structurally changed. No longer is the environment fit for the retail investor. Retail investors, and most asset allocators, are at distinct disadvantages.

Behavioral risk dominates most investment decisions. The investments that generate the largest returns over the next decade are likely to have some of the most volatile price swings. Do you have the tolerance for this volatility? I think not. Therefore, long term investments are not appropriate for you. But it is questionable if you have to capacity to make objective and accurate decisions on a shorter time frame. Whatever your goals are for your investments (e.g. college, retirement, etc), you must invest for both the journey and the destination.

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