A reader left a thought provoking comment noting that the return of my generic portfolio was slightly ahead of his and he congratulated me.Some client accounts are more conservative than the generic account and some are less conservative so the returns will be a different so really it means little.
The thing that is thought provoking to me is the idea of competition where portfolio results are concerned. Despite all the sports I played when I was a kid I am remarkably uncompetitive.
My goal is quite simply to try to understand what a client needs combined with what they can tolerate and add value in that context versus the S&P 500. The results of another manager compared to my results does nothing to help my clients if for no other reason than during some periods another manager will get better results and at other times I will have the better result. It means nothing.
If you, managing your own portfolio, can sleep reasonably well when things are hitting the fan and you end up with "enough" when you need it, does it matter if your results were better or worse than your friend's results? What if your friend smokes you this year and next but has to take a job in retirement he does not want to take and you do not?
While this may not be a common thought process the idea of competing seems like more of a distraction from the important thing.
This is not to say results don't matter and it is not to say that results can't be satisfactory or unsatisfactory because clearly if results truly are bad a change will need to be made.
If a portfolio takes a lot more risk than the market but returns only beat the market by two percentage points you might think of that result as unsatisfactory. If a portfolio takes half the risk of the market while getting 70% of the market's return you might think those results are great.
This assessment needs to include some thought about how much you have compared to how much you need. You could reasonably conclude that someone way ahead of the game needs less exposure to volatility and so on.
Just one person's thoughts.
The picture is from just outside of Juneau.
5 comments:
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Roger, I don't know if you are interested or not, but I know that I and some of your other contributors run out of room.
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FWIW.
very cool, TY. I added it to my tool bar.
Roger, I lived in Juneau for a number of years. Your picture doesn't really reflect Juneau - Juneau = rain. :)
As Swenson said, it's asset allocation that matters. How Yale Endowment could beat the market so handedly, with the large billions involved, is simply amazing.
I'm not aware of anyone who is competitive when it comes to their asset allocation. It's all about sleeping well at night. Hedge fund manaers are competitive but they have to be.
Thanks for the thoughts Roger.
I believe one of the reasons money managers underperform over the long term is because there is too much focus on quarterly and annual returns. They're either too defensive so they don't fall too far behind their benchmark, if they do fall behind the make big bets to catch up.
Imo the success of a buy and hold portfolio can't really be determined unless you're measuring against at least 5-7 years of data. Also, I don't believe I can adequately determine the success of a TAA strategy unless you measure it against at least one full market cycle.
Roger, You keep us grounded. Having said that every weekend my wife calculates quarterly and yearly performance for the russell 3000 (very close to vti) and our retirement portfolio. She's my conscience and this routine keeps me focused and disciplined.
I put three lazy portfolios in my software that does include dividends.
Scott Burns (10 positions):1.94%
Ben Stein (5): 3.68
A.Tobias(3): 1.65
Russell 3000 my bench: .85
For my own TAA system, it has been tricky watching good assets get dumped due to a downturn, and then replaced without benefit of the bounce. For that reason I use a variety of strategies with different criteria. This takes a lot of confidence in the system in order to pull the trigger. I have to tell myself that the system has no feelings, that it just trades the prices, and prices do not lie. Per strategy trades are about 2-5x per year. The average return for the quarter was close to 7%....which is just a portion of my account. Current positions: epp(regionals get largest allocation),gld,gdx,ewn,ewd,iyz,pbw,eza
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