This is the opposite of what I am doing today, I am up to my eyeballs busy. There is no tactical shift to tell you about just a lot of new accounts to implement.I find it interesting how the gang on the tube talked incessantly during the last two weeks of August about when the adults get back yada yada.
Volume does not seem crazy low but we are as flat as we have been for most of the last couple of weeks. The notion that the adults were paying no attention when they were away and were going to go hog wild when they came back made no sense.
A comment just came in that makes an interesting point in response to my post on Jim Lowell.
My feeling is that if a manager can't at least match the index, he or she isn't worth the risk. Alpha is everything in fund management and if the manager isn't adding any value, why would you pay him or her any commissions or bonuses?
Fair point but I think client needs are more complex than this. A person who has more than enough and is conservative needs less alpha than some other folks. Another type of investor who will be less concerned about alpha is the person who maybe is not all set but is beta adverse. The notion of keeping close to the market with less volatility will appeal to a lot of people. There is absolutely value in delivering that to people that need it.
Clearly the Lowell portfolio is trying to beat the market and I have no idea what his track record is but based on what I read, the tactics are still lost on me.
5 comments:
Hi Roger, I hope you're doing well. I can't imagine a better way of spending time after a long weekend than allocating new accounts. Congrats!
You're viewer made an excellent point regarding alpha and professional managers. Interestingly enough, BusinessWeek ran an article this week titled "Taking Stock of Your Advisor," which I'm sure you've read. Astonishingly, 92% of the more than 1,000 investors polled in the article don't know how to assess their advisors...
Justin,
I did read the B-week article. I try to avoid delving too much into this stuff. I do not want this site to ever be viewed as being salesy.
I think the point of the blogospere is about teaching to fish for those that want to learn.
As far as how to assess the person helping you, this is complex. We don't charge anywhere near 2% like mentioned as a red flag but knowing what I know about clients some have extra needs for service, almost like a family office-we have a couple of clients that fit this description.
I am prepared to concede there is more to this than I fully understand.
Thanks for stopping by.
Just for the record, an investment that has a low beta but performs near its passive index would indeed generate alpha, since alpha is a measure of risk-adjusted performance
Roger, I read somewhere, I think Time magazine, about "Quants"(i.e, neo modern portfolio theory applied) being on the rise as analysts (versus "Fundies", i suppose). These two groups, as well as others like those that read eliot waves, are so different in psychology that I think it's a venus and mars communication divide. Some folks have an intuitive knack for one or the other. Some, or most, chose one and never look back. The groups become a religion with dogma and jargon...i.e. "group think." The average client, on the other hand, I think, wants a relationship where they can project their hopes. A performance criteria is only very reluctantly applied. Not too long ago brokerages and money managers left performance calculations up to the client.
Way back in its heyday (circa 1990) I was a system operator (sysop) for the Investors Forum on CompuServe. Used to field close to a 1,000 posts a day back in then but CompuServe was acquired by AOL and the forum no longer exists other than as a couple sections in the remaining CompuServe Money Forum. Still, Anon's comment above reminded me of a summary of Harry Brown's wisdom (cite below) that I wrote and posted back then. It seems sufficiently germane that I thought readers of Roger's blog might enjoy it now and, as someone who attempts to teach people how to fish, Roger might enjoy it as well. –RW
PS: Browne promoted an investing concept he referred to as the permanent portfolio which lives on in a mutual fund of the same name although the tactics of that fund differ somewhat from those Browne originally proposed (note: I have no connection to the fund or to Browne).
PPS: Some may also recall Harry Browne as the Libertarian candidate for President of the United States (note: I have no connection to the Libertarian Party).
----------------------
10/15/91
Harry Browne was one of the great "Gold Bugs" of the 70's and in turn, became one of the early promoters of global asset allocation in the 80's. He seems to believe in what works but doesn't put too much faith in any of it. His brand of skepticism and rationality is refreshing and worth paying attention to since his message is actually quite simple: To be free in an essentially un-free world requires respect for uncertainty, understanding of investment markets, and insight into human nature - especially your own. I am not a "devotee" of Browne although I do use his global asset allocation strategy as a (rough) model for my own. He is no guru, but worth listening to none-the-less (or perhaps for that very reason).
IN THE REAL WORLD:
No one accurately predicts human behavior in other matters, so there's no reason to expect anyone to predict future investment prices.
Coincidence and luck play a large part in any investor's results and they can make a nonsensical technique appear to have been confirmed by history; so be skeptical of "past performance".
The truth often is stretched in the investment business, just as it is elsewhere - so take all claims for an advisor, trading system or method of analyses with a grain of salt.
Any assertion that a particular method of investment analyses is "scientific" should be ignored. Controlled tests aren't possible for economic theories.
Don't believe an investment rule simply because it seems to be widely respected.
If there were a single trading system or school of investment analysis that could beat the market, investment advisors and system creators wouldn't be continually devising new systems they hope will beat the market.
If anyone had found the magic key to investment riches, he wouldn't be telling you of the profits his system would have produced, he would be telling you of the profits it did produce.
Testimonials for investment systems and advisors are of no more value than they are for gurus, astrologers and used-car dealers.
Some people are especially talented as investors or speculators - just as some people are talented athletes or musicians. Don't expect to imitate them successfully unless you have similar talents.
THE IMPOSSIBLE DREAM:
Efforts to understand and control the apparent randomness of financial events often follow a predictable pattern. Whether it's trading systems, numerical projections, cycle theories, most rules of technical analyses, or whatever:
1. Grain of Truth: A fantasy is usually founded on a principle that makes common sense as a generality - an observation about life or the investment markets that seems self evident when called to your attention.
2. Over the Edge: This principle is then stretched beyond the limits of its usefulness. Instead of being a reminder it becomes a school of analyses.
3. Scientific Posture: Mathematics and the name of science are invoked.
4. Coronation: The fantasy becomes enthroned. The market pattern that now and then seems to hold true becomes a tenet of natural law - it simply happens too often to be coincidence.
5. Sweet Superiority: Those who follow the system, advisor, etc. become the "elite". No matter how many times the plan goes wrong, they must be better off than the poor boobs who are not "with it".
6. Dogma: In fact, there is never a need to acknowledge that something went wrong because:
a. It really did work but was offset by factors that were stronger in this case.
b. The system is perfect but people practice it imperfectly.
c. This was the exception that proves the rule.
d. It happened exactly as expected; you must have misunderstood the expectation.
e. It was a clear cut, textbook example, of the principle working on an inverted basis.
f. The result has been delayed, pressure is building, so the effect will be even more powerful.
g. (place your favorite rationalization here).
The study of the paranormal and the para-economic can be fun but in the real world there are principles of logic and truth that can't be overruled; if a theory in economics can not, step by step, be explained in terms of the actions of human beings then the idea is simply superstition. Just ask yourself: By what process are human beings moved to acquire an investment when its price touches a trend line, or to dump stocks when a price falls below a moving average, or to keep buying until a price rises 1.618 times a previous price and then start selling? Is the action of a human investment hormone revealed in cycles and waves like those in a biorhythm chart? Is the majority always wrong?
BACK IN THE REAL WORLD:
People achieve because of a philosophy of life which has helped them deal with problems and complications, to learn what they can know and to allow for what they don't know; to handle conflicts between competing ambitions and desires; to accept uncertainty and plan for it. The logic of investments is the same logic used in day to day life, invoking standards of proof that are consistent and comprehensible to the individual.
Principle #1: Look at your investments in the same way you view the rest of the world.
Principle #2: No one can get you into and out of any market with precise and consistently profitable timing.
Principle #3: Don't keep all of your capital in one market (acquiring 20 different stocks is only a parody of real diversification).
Principle #4: Recognize the difference between investing and speculating - trying to earn what the market offers and trying to outguess it.
Principle #5: No one can predict the future. Forecasts are often interesting, and sometimes even profitable, but it is foolish to base an investment decision on one without extensive corroboration.
Principle #6: No trading system or market indicator will get you into and out of markets profitably over an extended period of time.
Principle #7: In the investment world, as in life, almost nothing turns out as expected. So planning for the unexpected is the only rational course of action.
THE FIRST INVESTMENT RULE:
Risk is a part of life and it is impossible to remove or entirely avoid it. Analyzing and seeking the premium you require to compensate you for a risky investment is part of the game - a minimum ratio of 5:1 is a good rule of thumb (you require at least five times as much in return as you risk losing) - still, it is always wise to remember:
Investment rule #1: When in doubt about an investment decision, it is always better to err on the side of caution; In other words, it is better to lose an opportunity than to lose money.
Browne, Harry; “Why the Best-Laid Investment Plans Usually Go Wrong & How You Can Find Safety and Profit in an Uncertain World", (New York: Fireside Books, 1989).
Post a Comment