There is a David Swensen article in the NY Times this weekend.He is always a good read even though more so than other articles like this that I have read I really came away from this one believing he would not think much of the way I navigate the market. Oh well.
The article focuses on advice to individual investors that they should keep it simple, keep it diversified and not try to time the market or other big macro issues.
Hopefully his main points resonate with you because I agree with in large part with what he says. As far as not timing the market, obviously long time readers will know there is an element of timing in whether to take defensive action or not but that I write about small tweaks and adjustments and not huge bets is an acknowledgment of what Swensen says; acute awareness that defensive action could be taken at the wrong time and so the size of the defensive action would determine the consequence of being wrong.
Hence the small adjustments.
A lot of what I read on other sites or glean from some reader comments is that simple may not be the top priority for too many people but perhaps simplicity is in the eye of the investor?
Occasionally I use the term building block to refer to the most elemental aspects of portfolio management or the nature of market cycles.
Whether keeping it simple appeals to you or not I think it is crucial for all investors learn, understand and revisit the building blocks. In addition to thinking too many people stray away from simple building blocks based on some other sites and some reader comments on this blog some of the emails I get in my Street.com email account that often continue some extremely risk-ignorant ideas about how to invest.
Honestly I do not know why people would rather not keep it simple but maybe advocating that people at least learn, understand and revisit is more practical solution.
The picture is from the green sand beach down at the southern most point of the island. The sand is actually green.
15 comments:
What a life you have !
Anyone looking for simple and inexpensive, check out scott burns "couch potato" portfolios; here's a link to an article describing it: http://assetbuilder.com/blogs/scott_burns/archive/2008/01/18/put-sloth-to-work-for-you.aspx
In a nutshell it's a way to build a diversified portfolio with index funds or etf's; investing in various market segments in equal proportions and rebalancing once a year - ergo the "couch potato" name. And for those interested in figuring out how to financially navigate retirement, here's a link to a post by Scott on a little-known feature of social security that some may find useful:
http://assetbuilder.com/blogs/scott_burns/archive/2008/02/15/raise-your-living-standard-reapply-for-social-security.aspx
Hi roger
Could you elaborate on your simple building block approach. For instance what would you consider the blocks and could you give a few examples , not ecommendations, for each. This would help me understand your approcah more fully. thasnks
For building blocks I would think of things that you usually find in chapter 1 of an investment book--like what Swensen talked about in the article.
constructing a properly diversified portfolio, knowing that bear markets come along every so often, knowing that a lot of trading will lead to poor results for most people...things like that are the building blocks, IMO, to participating in the stock market.
Rodger, I read an article from Financial Planning on maintaining a low correlation among a portfolio's asset in the distribution phase etc. It was written by Craig Israelsen, PhD, Brigham Young Universtiy. The bottom line is the results of 8 different porfolios and the best being a Seven-Asset Portfolio. Large U.S. Equity, Small U.S. Equity, Non- U.S. Equity, U.S. Int. Term Bonds, Cash, REIT, Commodities, 14.3% each. It was the best in protecting the portfolio against losses.
Since I am now 74 and will retire next year (no more earned income) I found this apprach quite compelling. The space here does not allow me to detail further the results. but perhaps you might get this article from the Jan-2008 issue. The idea of not needing a 50or 60% bond holding was attractive and equal allocation to 7 asset classes. Perhaps some of the ETF's or Mutual funds would fill some of these classes. Would appreciate your thoughts.
Ron
...don’t try to time the market. Go ahead and rebalance because no one really knows where the market’s bottom is.
I assume the article is not advocating an unscheduled rebalance - which would, of course, be timing the market!
I am not a proponent of shuffling invested capital between assets. In my opinion, the proper strategy for this kind of investing is to make regular, periodic injections of new capital; using this new money to bring underweight asset classes back into balance.
i saw Israelson speak at the WS of Indexing, he either did a poor job of making his point or his point did not resonate w/me. bigger picture maybe yes, tactically not so much.
unscheduled rebalance, new term for me but that it what I have been talking about. i doubt i can make the point that it is not market timing, actually i don't care about that label.
the market does not care what the date is. if on March 22 emerging markets drifts too far from your target (as an example) that you should correct it.
Ron,
I have ha to much to drink to nite to give you a specific comment, but I can tell you Roger will not comment on something this specific. I think you are correct to focus on a lazy portfolio. I do not know the best lazy portfolio, but obviously it is worth further investigation by you.
I just got back from visiting my dad with "problems" but I think a lazy portfolio is absolutely necessary after a certain age and may be best at any age.
Search out the best lazy portfolios from several sources and settle on the most appropriate for you.
Let us know what you decide on.
Black Scholes shows that you can't predict future market moves.
Roger take a look at Moneythoughts. As a former portfolio manager, I think you might enjoy it.
Fred
i did a search and found a site called write-for-wealth.com, is that it?
Hi Ron,
Do you have a direct link for the article you referenced? I searched for it, but came up empty.
Thanks!
Roger, just click on moneythoughts identity and follow to his blog.
the market does not care what the date is. if on March 22 emerging markets drifts too far from your target (as an example) that you should correct it.
Tracking the daily ebbs and flows kind of defeats the purpose of these lazy strategies, no? I don't subscribe to these strategies (probably because I'm a data junkie), but I do admire their goal of eliminating emotion from the process. And rebalancing a portfolio on a whim (or some artificial price target) is fraught with emotion.
Mike C here's alink but you may have to register on the financial-planning website to view it.
Ron
http://www.financial-planning.com/asset/article/528647/stay-low.html?pg=
20% in REIT's sounds high. Any comments on this part of Swensen's allocation?
and would/should foreign REITS be that %age?
Thanks
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