Skjellifetti

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  • Checking In on the All-ETF Portfolio
    From your Feb article [my substitution]:

    If we have [$BLACK_SWAN], the short-term losses to any portfolio are likely to be far greater than Quantext Portfolio Planner or any other portfolio model can estimate. This kind of massive disruptive event is not what these models are capable of estimating.

    ...

    Ultimately, portfolio models are perhaps most useful because they give investors objective tools to:

    1. examine diversification benefits in their portfolios
    2. estimate total portfolio risk (albeit not very well for market crashes, wars, epidemics, etc.)
    3. estimate total portfolio returns in light of assumptions

    It is point number two that I was trying to highlight. MPT is all about creating portfolios with the best return for a given amount of risk. But if we are doing a poor job of estimating risk, then it is not at all clear that we are, in fact, maximizing expected returns per unit of risk. Tools such as QPP may thus be giving us a false sense of security when they recommend, say, a concentrated position in Malaysia over a larger more diversified basket of emerging market stocks.
    Aug 05 10:56 am |Rating: 0 0 |Link to Comment |View article
  • Checking In on the All-ETF Portfolio
    This may also show the limits of using MPT for divining the best risk-adjusted allocations. You have 5% devoted to Malaysia. But in 1998, during the Asian crisis, Malaysia, IIRC, put strict limits on the repatriation of international investments. That would have meant that 5% of your portfolio was suddenly unavailable. How does a tool like QPP account for this kind of risk (or is this uncertainty)?

    I'm not a big fan of Nassim Taleb. He is a terrible writer who is guilty of some egregious rhetorical fallacies. But his main point, that MPT has a terrible time coping with the unknown and that it is this kind of uncertainty that is the biggest source of investment losses, is spot on. That QPP would include Malaysia in a hypothetical best risk-adjusted portfolio is a good example of Taleb's point.
    Aug 04 17:04 pm |Rating: 0 0 |Link to Comment |View article
  • The End of U.S. Investing as We Know It?
    Perma Bull vs Perma Bear? Who cares? With 20 years to go before I retire, I'll just keep maxing out my 401(k) and my IRA and each month buy a little of whatever no-load index fund is currently cheapest relative to my long-term asset allocation plan. The financial services industry hates people like me.

    But I do enjoy reading the doom and gloom scenarios on blogs like this. They provide the same kind of thrills, chills, and adrenalin rush of a B grade horror film. That reminds me - Gotta pick up some popcorn on the way home tonight.
    Mar 20 15:10 pm |Rating: 0 0 |Link to Comment |View article

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