Tag Archives: volatility

The Risk of the Unknown: A New Perspective on Equities

The objective of these viewpoints is to question commonly accepted pillars of financial advice. So I took notice when Consuelo Mack interviewed Lubos Pastor, Professor of Finance at the University of Chicago. Pastor recently completed research stating that stocks become more risky over longer investment horizons. His research takes the investor point of view (i.e. forward looking and accounting for uncertainty) rather than a historical (i.e. backward looking) point of view. Furthermore, he suggests that the 7% annualized real return stocks experienced during the last century–based on Jeremy Siegel’s analysis–is uncommonly high with several lucky events bolstering that figure. Pastor’s final pearl of wisdom suggests that human capital should play a significant role in portfolio construction. Continue reading

Posted in Investment, Portfolio Strategy | Tagged , , , , , , | 1 Comment

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

Posted in Portfolio Strategy | Tagged , , , , , , , | Leave a comment

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

Posted in Analysis, Portfolio Strategy | Tagged , , , , , | Leave a comment

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

Posted in Portfolio Strategy | Tagged , , , , , , | Leave a comment

Equities with a Volatility Hedge: VQT

For the individual investor, I generally like strategic/dynamic funds whose weightings adapt—it alleviates a lot of the due diligence burden. Target date funds are probably the most widely known example, although VQT might hold the honor of most unique.

Barclays Capital recently launched an exchange traded note: Barclays ETN+S&P VEQTOR (Symbol: VQT). The index underlying this note is a great concept. The S&P 500 Dynamic VEQTOR Index allocates between equity and volatility based on the combination of realized and implied volatility trend decision variables. Continue reading

Posted in Investment, Portfolio Strategy | Tagged , , , | Leave a comment

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.

Continue reading

Posted in Portfolio Strategy | Tagged , , , , , , | Leave a comment