Geoff Considine

http://quantext.com
Total Rating:
+2 / 0

304 Comments

    • Sat Apr 12th 10:51 AM | Rating: 0 0
      Commented on:
      What Is Diversification Worth?
      To Gale Whitaker:

      Your points are addressed in my article her on SA called Black Swans, Portfolio Theory, and Market Timing. Quite to the contrary of what you have said:

      1) Market timing costs investors on average 2.5% per year (see DALBAR, for example)

      2) People like David Swensen and Warren Buffett have delivered the most consistent risk adjusted returns we have records for and they believe in strategic diversification.

      3) A solid diversification strategy does not incur high brokerage / transaction fees--but trying to time the market sure does. There is abundant data that the more, on average, people trade, the worse their results.

      4) Actually, a well diversified portfolio has helped many portfolios to reduce losses substantially in this market, without incurring taxable events or transaction fees.

      There are all these books on timing strategies for retail investors and they are in opposition to the solid research that institutions use. Hmm.

      diversification does not mean simply "buy and hold"---read the article I refer to above.

      Regards,

      Geoff
      View article »
    • Fri Apr 11th 11:12 AM | Rating: 0 0
      Commented on:
      What Is Diversification Worth?
      To robohogs/jon:

      The fundamental weighting issue is not the only reason that portfolios of individual stocks can be better--there are other important features of individual stocks, as I have shown in a range of my analysis. This remains a controversial topic among financial theorists.

      QPP suggests that Buffett's highly concentrated portfolio of individual stocks is more diversified than many portfolios which employe massive diversification via index funds. This goes to one of my axioms: if your investing theory suggests Buffett is wrong, your theory is probably wrong.

      Diversification can be statistically measured and its not just about buyign lots of individual holdings. This is considered common sense among the high end of institutional investors (as shown here) but this idea is radical for most individual investors and even for many advisors.
      View article »
    • Thu Apr 3rd 09:52 AM | Rating: 0 0
      Commented on:
      Risk Management Lessons from Bear Stearns
      To Eric and User (above):

      You are both correct that high volatility and higher default risk go hand in hand. This is actually a fact that makes portfolio theory look even more effective. default risk is the extreme tail risk in a fairly efficient market. These banks are high vol and therefore have higher tail risk. These are high risk / high return assets. I am working on a paper that looks at a wide range of financials and a significant fraction are very risky--but the spread is amazing. Some are reasonable and some are downright scary.

      I am going to continue to study this theme and write more, so suggestions for stocks to examine are useful.

      As far as 'false positives' this is always an interesting issue and it relates to QPP and Moody's KMV and CDS's. Because default and extreme distress is rare, you have limited cases to really validate against. People use case studies as I have done here--and Altman does in his work. It is often called stress testing.

      Geoff

      View article »
    • Wed Apr 2nd 09:44 AM | Rating: 0 0
      Commented on:
      Risk Management Lessons from Bear Stearns
      to comments above:

      I did not profile BSC in my earlier piece because it was not something I was looking at. Many of the large financials are showing higher risk than I want. It is hard to screen the entire universe--your point is correct--but it is fairly easy to screen the companies you are considering buying or own.

      A lot of my point here was the following. CDS (credit default swaps) are priced in large part by implied volatility, and QPP outlooks for volatility track implied vol quite well--hence the agreement (on average)--this is well documented in quant circles. The market data contains 'priced in' default risk--which is why CDS prices track implied vol. Many professional firms track these stats and use these models--but retail investors and wealth managers tend to be unaware of these tools / metrics / stats.

      The BSC debauchle has brought this issue to the fore and it emphasizes the importance of risk management--as Enron and Worldcom did before.
      View article »
    • Wed Apr 2nd 09:37 AM | Rating: 0 0
      Commented on:
      From The Horse’s Mouth: Yale's Endowment Officer Makes Financial Sense
      Pizon:

      Good question on taxes. In taxable accounts (obviously) it is generally better to hold individual securities and to rebalance only when the risk-return balance of the portfolio shifts outside of your desired range or when the diversification benefits shrink because of some over-concentration. This is the best approach. Many investors and advisors feel uncomfortable comparing the risk/return benefits of ETF's / index funds to a basket of individual securities because they lack the tools to really capture equivalence and risks of default in individual stocks--but that can be handled.

      The average retail investor will capture the vast majority of the benefits of this kind of strategy with index funds, however, and he/she is typically not willing or unable to manage the individual securities to capture these benefits.

      Geoff
      View article »
    • Sun Mar 30th 13:13 PM | Rating: 0 0
      Commented on:
      Portfolio Theory Vindicated
      Aquater:

      QPP is perhaps the best documented portfolio management tool ever built. There are over 800 pages or tests and analysis available at quantext.com. It does not make sense to describe the tool in depth in every article.

      Geoff
      View article »
    • Thu Mar 27th 11:42 AM | Rating: 0 0
      Commented on:
      Rolling 10-Year Market Return Hits 30-Year Low
      Nice one guys! Bespoke has some of the best graphics around in terms of bringing issues to the fore!
      View article »
    • Wed Mar 26th 15:55 PM | Rating: 0 0
      Commented on:
      How Counter-Productive Is Realtor Association Spin?
      Barry:

      This is a useful and insightful article. As Buffett says "you don't ask the barner if you need a haircut." By the same token, you don't ask a realtor (or their trade group) if its a good time buy a house. That said, the blunder in the Journal suggests a sad state of affairs in terms of fact checking.
      View article »
    • Thu Mar 20th 12:22 PM | Rating: 0 0
      Commented on:
      The Cost of Volatility To Your Portfolio
      Hmm--look at the VIX chart comapred to what happened. Perhaps history does repeat itself.
      View article »
    • Thu Mar 20th 11:47 AM | Rating: 0 0
      Commented on:
      Using Default Risk to Limit Downside in Individual Stock Investing
      Quaazy1:

      Any Monte Carlo model that does not account for correlation between positions is essentially pointless. QPP has a sophisticated tool for capturing and managing the correlations between all positions. QPP is actually considerably more sophisticated that a tools based on Style Analysis in this regard because it captures all correlation effects and not just correlations due to mutual correlation to indexes.

      I have performed long-term out-of-sample tests on portfolios of assets and have shown that QPP does a solid job of generating expected risk and return in total portfolios of correlated assets.
      View article »
    • Wed Mar 19th 13:42 PM | Rating: 0 0
      Commented on:
      An Optimised Portfolio Using Only ETFs (IVV, IJH, IWM, EFA, EEM, SHY, IEF, TLT, RWR, IDU, IXC, IGE)
      Hi Barb G:

      I have come to fully appreciate the power of TIPS as diversifiers since I wrote this article. I discuss TIPS in many of my later articles.
      View article »
    • Wed Mar 19th 13:39 PM | Rating: 0 0
      Commented on:
      Using Default Risk to Limit Downside in Individual Stock Investing
      Hi Quaazy1:

      The current version of QPP assumes no serial correlation in return in the simulation. This is measured historically, however. This is okay for investors with time horizons beyond about a year because the dcay time scale for autocorrelation is about a year in most studies. QPP is not intended to be a momentum investing tool.
      View article »
    • Mon Mar 17th 16:07 PM | Rating: 0 0
      Commented on:
      Using Default Risk to Limit Downside in Individual Stock Investing
      Bear Stearns Part 2: The comment above is especially notable given that Moody's had BSC rated at A2 until 3/14/08, at which time Moody's downgraded BSC to Baa1. QPP's projected 1% / 1 year risk as calculated at the end of February is in line with credit ratings right on the edge of junk (see chart in this article).
      View article »
    • Mon Mar 17th 12:33 PM | Rating: 0 0
      Commented on:
      Portfolio Theory Vindicated
      Piker:

      The addition of IDU, IGE, etc. could either have been a lucky guess or good planning. BUT QPP is an objective model and it clearly showed that these made sense. This is not a lucky guess.
      View article »
    • Mon Mar 17th 11:23 AM | Rating: 0 0
      Commented on:
      Using Default Risk to Limit Downside in Individual Stock Investing
      FYI: Bear Stearns had a 1-year, 1% ile projected return in QPP of -75% for the period ending 2/29. In the article above, I suggested that individual investors avoid stocks with 1% ile projected return worse than -50% to -60%. BSC would have been avoided on this basis.
      View article »
Loading...
Symbols:
Authors:
Quick Links:
Contribute an Article Become a Seeking Alpha Contributor

Transcripts

More Transcripts»