On Long Term Bonds

gee what heart felt story.

Is this an approved cult story as I've heard almost the exact same thing from about 5 visiting vets and 4 GPs.

Step away from the pickle barrel and just get over your past "heroics" and just fade away.

Wow...that's almost an admission of malpractice from my perspective.  I don't know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It's certainly not a very flattering picture if you're in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

Thanks for another good post NASD......did you start taking your meds again or something?  We all need to hear these stories from time to time to remind us of why we are needed so desperately.

[quote=Indyone]

  Edd, why on earth would Jones tell a story like this? 

[/quote]

pssst... "Touch down bonds".....

[quote=Indyone]

Wow...that's almost an admission of malpractice from my perspective.  I don't know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It's certainly not a very flattering picture if you're in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

[/quote]

Malpractice?  You are lucky that you have the benefit of history so that you would not make the same mistake.  Those of us who were offering advice in the late '60s and early '70s did not have the benefit of realizing that interest rates could soar into the double digits.

The industry today is filled with smart ass punks who think they're golden because they have ridden the biggest bull market in history.

Get back with me when you're a real veteran instead of simply older.

The industry today is filled with smart ass punks who think they're golden because they have ridden the biggest bull market in history.

Get back with me when you're a real veteran instead of simply older

Ditto that statement.

Nothing personal Indyone. I think you are a level headed and experienced advisor from your posts.  We would never position a client today in the portfolio that NASD said he did back in 1970 because we know from history the pitfalls of that strategy.  In 1970 the idea that rates could get as high as they did was unimaginable. Now we know it is possible.

I get the feeling that some on this board refuse to look at history, think that 10 years ago is the distant past and think that things couldn't possibly be different or get worse in the future.  And I'm not just talking about investing but life in general.  This current generation (people aged 35 and younger) has grown up never knowing real hardship or struggle and have no frame of reference since schools stopped teaching anything vaguely resembling an education starting in the 1970's.

The inability to listen or even attempt to learn from people who have been in the business longer than you have probably been alive is evidenced by the snotty attitude in eddiejones response.  It is also a general cultural disdain of people who are older.  Why bother to learn anything from your Grandfather after all what does he know....he's old and doesn't even own an IPod.

Wow I'm cranky today.    I should go beat up on some golf balls.

[quote=babbling looney]

Wow I'm cranky today.    I should go beat up on some golf balls.

[/quote]

A great therapy and pretty inexpensive I use it often. 

[quote=NASD Newbie

The industry today is filled with smart ass punks who think they're golden because they have ridden the biggest bull market in history.

Get back with me when you're a real veteran instead of simply older.

[/quote]

Although I'm probably not as dated as you gramps as I only started in '85 I seem to be open to new ideas instead of those that are mixed in with kool-aid.

Baldwin United ring a bell? Perhaps that was one of those "highly" rated bonds you sold and might that also be why the son came back to speak with you and NEVER invested with you again?

Might you also be good 'ole JB or $3 mill Bill?

I actually enjoyed that story and lesson.  Than you for sharing that NASD Newbie.

So the point of this story is that you do watch cartoons. Got it. I'm going to go play some videogames now and be awesome (maybe do some reflecting on your story).

In all seriousness, thanks though.

[quote=NASD Newbie][quote=Indyone]Wow…that’s almost an admission of malpractice from my perspective.  I don’t know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It’s certainly not a very flattering picture if you’re in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

[/quote]Malpractice?  You are lucky that you have the benefit of history so that you would not make the same mistake.  Those of us who were offering advice in the late '60s and early '70s did not have the benefit of realizing that interest rates could soar into the double digits.

The industry today is filled with smart ass punks who think they're golden because they have ridden the biggest bull market in history.

Get back with me when you're a real veteran instead of simply older.[/quote]

Admittedly I wasn't running portfolios in 1970, and such a portfolio probably seems inappropriate to me at least partially because of lessons learned and taught to me when I started investing institutional portfolios in the late 80's, but it's hard to imagine not understanding the effects of even mild inflation and modestly fluctuating interest rates over a thirty-year time horizon.  I'll agree that the industry's brightest could not have foreseen the degree of what happened in the late 70's and early 80's, but again, even modest inflation and interest rate fluctuation would have made this a questionable strategy when you consider that it was set up to put on auto pilot for 30 years.  Sure, I have the benefit of 20/20 hindsight, but surely diversification wasn't invented after 1970?

...and I would hardly call riding out 2000-2002 the greatest bull market in history, but I survived it by having clients invested relatively conservatively (lots of value stocks and short/intermediate bonds).  I've never invested a client 100% in a single maturity year and I'd like to think I wouldn't have done that 35 years ago.  That being said, don't take my perspective so hard the next time...I was only reacting to how it looks in today's world.

and BL...yes, you are cranky...go hit a bucket of balls

[quote=Indyone]

...and I would hardly call riding out 2000-2002 the greatest bull market in history,

[/quote]

That was a blip on the radar screen.  As I said if you were not registered before 1975 you have no idea what it's like to be a retail broker.

In the middle of the tech implosion September 11th happened.  The nation rallied around the cause and people took their financial setback in stride.

Check to see what the Dow did between 1968 and 1982---that's a fourteen year period where 50% of what you had in 1968 was gone by 1972, it started to come back and then was gone again.

Fourteen years--as in one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen, fourteen--of nobody being happy.

I have talked with countless people who have no memory of those days who talk about how good they are at managing money.  Hell, a monkey with a pencil could do since 1982--the industry has started to hire functionally illiterate types because it's been so easy for so long.

There are "veterans" with more than twenty years who have never experienced a protracted bear market accompanied by investor who were not willing to excuse the failures because the nation was attacked.

Most of them are jokes.

OK, NASD…putting up my sword…have a good weekend…

Selling 30-year bonds isn’t the problem. The problem, unless I missed its previous mention, is selling 30-year bonds without informing the client of potential interest and credit risk. 

[quote=NASD Newbie]

[quote=Indyone]

...and I would hardly call riding out 2000-2002 the greatest bull market in history,

[/quote]

That was a blip on the radar screen.  As I said if you were not registered before 1975 you have no idea what it's like to be a retail broker.

In the middle of the tech implosion September 11th happened.  The nation rallied around the cause and people took their financial setback in stride.

Check to see what the Dow did between 1968 and 1982---that's a fourteen year period where 50% of what you had in 1968 was gone by 1972, it started to come back and then was gone again.

Fourteen years--as in one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen, fourteen--of nobody being happy.

I have talked with countless people who have no memory of those days who talk about how good they are at managing money.  Hell, a monkey with a pencil could do since 1982--the industry has started to hire functionally illiterate types because it's been so easy for so long.

There are "veterans" with more than twenty years who have never experienced a protracted bear market accompanied by investor who were not willing to excuse the failures because the nation was attacked.

Most of them are jokes.

[/quote]

That's a specious argument, at best.

First of all, by you're logic, if one wasn't a soldier during the period from 1941-1945, he or she isn't a real soldier.  Ridiculous on the face of it.

Secondly, by your own admission, you were a broker for only 6 years, and at two different firms at that.  That hardly qualifies as experienced by anyone's standard, except by yours.

Last but not least, if the bond story is typical of that remarkable prowess of yours, small wonder you were relegated to middle management.  Quite frankly, I'm amazed that they kept you around at all.  Most probably, you knew where some of the corporate bodies were buried.

Ah well.  Makes no difference to me.  Have a great weekend, all!

NASD Newbie- Actually, I really enjoy most of your posts.  I want to ask you if your real name is Leroy Gross, as your work histry "somewhat" resembles his.

These days, I stick with floaters.  Currently over 4% tax-free and 5.25& taxable wit no additional costs' to clients'.

BTW- As an 11 year vet I remember hearing the comparisons- I would say that a 80% Nasdaq correction and a 50% S&P correction qualifies as a tough time.  To say the least.

[quote=The Judge]

NASD Newbie- Actually, I really enjoy most of your posts.  I want to ask you if your real name is Leroy Gross, as your work histry "somewhat" resembles his.

These days, I stick with floaters.  Currently over 4% tax-free and 5.25& taxable wit no additional costs' to clients'.

[/quote]

I think LeRoy is dead--don't know where I heard that, but I did hear it somewhere along the way.  So, no I am not LeRoy Gross although he is, or was, a hero of mine.

He had an acolyte named Alan Snyder--I'm not him either.

The reference to LeRoy conjures up an image.

In the 1970s he was a superstar broker at the firm Reynolds Securities--which was to become the Reynolds in Dean Witter Reynolds.

He used to be a featured guest in training classes.  They'd trot him in to show the rookies how to sell intangibles.  Part of his routine went like this.

He would ask somebody to grab a Manhattan phone book, then choose a name at random and call out the phone number, which he would write on the blackboard.

Then he would ask somebody to name one of the Dow thirty.  He would write that symbol on the board.

Then he would pick up a phone and call the number and sell 200 shares of that stock on the first call--on a speaker phone so everybody in the room could hear the call.

It would leave the trainees mezmerized and in awe.

Sometimes they, the trainees, would figure out that there was no way to know for sure if he called the number on the board or some prearranged shill.

Regardless, it was great showmanship.

Later he became a national spokesman for the firm's options department. He used to ask the audience, "Sir, what's your name?"

Bob Jones

"Well OK, Bob let me ask you.  If you buy a stock and it does not go up do you lose any money?"

Bob would generally indicate that you don't.  LeRoy would boom out

"That's wrong Bob, you lose commissions and you lose opportunity. What you do not want to do is buy a stock that does not move."

I won't go through the entire routine but the bottom line was always, "....you make money if the stock goes up, you make money if the stock stays the same, and you make money if the stock goes down as long as it doesn't go down too much."

The logic behind call writing that became the standard for a generation.  It was not until the market rally in 1983 and beyond that covered call writing lost its luster.  Not because it was not profitable but because it was too conservative in the roaring bull market.

++++++

While I'm telling stories indulge me for another.

There was--I think still is--a guy named Joe Granville.  He was a technician, and a good one at that.  He was also the consumate showman.

He wrote one of those $1,000 per year newsletters and to promote it he would show up in your hometown to do a seminar.  He was a cult type figure circa 1980 because his theme was that you can make money going up and down.  He is known for the phrase "Bulls make money, Bears make money, but Pigs get slaughtered."

He also used to draw the up and down chart pattern and tell the seminar, "If you take that line and stretch it out it there is a lot of profit to be made."

He also did this--if the logistics allowed.  Lots of hotel meeting rooms are situated so that there is a wall of windows overlooking the swimming pool.

If that was possible he would get a bellhop to help him measure the width of the pool then go to a lumber yard and buy a 4X4 and have it cut to fit.  He installed it in the drain gutters of the pool so that it formed a bridge across the pool, but just below the water surface.

Yep, he walked on water as he made his way into the seminar to whoops and cheers of his showmanship.

No doubt there were people who were whispering to each other about how sacreligous it was--but he was a good Jewish kid who wasn't much worried about that.

[quote=NASD Newbie]

[quote=Indyone]

...and I would hardly call riding out 2000-2002 the greatest bull market in history,

[/quote]

That was a blip on the radar screen.  As I said if you were not registered before 1975 you have no idea what it's like to be a retail broker.

In the middle of the tech implosion September 11th happened.  The nation rallied around the cause and people took their financial setback in stride.

Check to see what the Dow did between 1968 and 1982---that's a fourteen year period where 50% of what you had in 1968 was gone by 1972, it started to come back and then was gone again.

Fourteen years--as in one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve, thirteen, fourteen--of nobody being happy.

I have talked with countless people who have no memory of those days who talk about how good they are at managing money.  Hell, a monkey with a pencil could do since 1982--the industry has started to hire functionally illiterate types because it's been so easy for so long.

There are "veterans" with more than twenty years who have never experienced a protracted bear market accompanied by investor who were not willing to excuse the failures because the nation was attacked.

Most of them are jokes.

[/quote]

Sounds like a great argument for the use of a VA with someone's nestegg (IRA), using a GWB rider

[quote=Bankrep1]

Sounds like a great argument for the use of a VA with someone's nestegg (IRA), using a GWB rider

[/quote]

Imagine.  A bank broker talking up the only thing he has to offer.

VA's even with a guarantee are rarely if ever an appropriate choice for the customer but always a good idea for a salesman who is behind on his mortgage.

You just stated the markets hacked a portfolio in half for 14 years and implied it could happen again.  Do you really think anybody will stay fully invested over a 14 year decline?

Let's talk about the VA.  Why is it so bad?  I admit there is alot of garbage in the VA world, just like mutual funds some are good some are not.

The VA I use total costs about 1.8% that is with funds, add in a rider your at about 2.25%

Let see, mutual fund 1% + 1% (lot's of people charging more than this) wrap fee = 2% with no guarantee or 2.25% with a guarantee I think most people would pay a .25 for a guarantee.

Why is it bad?  Do you really understand them?  When I started at the wirehouse nobody knew anything about VA's

[quote=bankrep1]

When I started at the wirehouse nobody knew anything about VA's

[/quote]

Nonsense, of course wirehouses know about variable annuities.

And they decided that they are rarely, if ever, an appropriate investment vehicle.

What a dumb thing to conclude that a wirehouse broker is not aware of anything that is available.

I am telling you I worked in an office of 15 guys and none of them got VA's.  They were slowly being introduced by the firm, back then very few guys did mutual funds.  Mostly stocks, UIT's,closed end funds and bonds.

Newbie if you get it, explain to me why they are not a viable option?

[quote=NASD Newbie]

[quote=Bankrep1]

Sounds like a great argument for the use of a VA with someone's nestegg (IRA), using a GWB rider

[/quote]

Imagine.  A bank broker talking up the only thing he has to offer.

VA's even with a guarantee are rarely if ever an appropriate choice for the customer but always a good idea for a salesman who is behind on his mortgage.

[/quote]

Thsi from a self-proclaimed genius who put a widow's entire account into one bond issue and claims that no one knew at the time that a strategy like that could blow up.  (And of course brokers back then were REAL brokers.  Not at all like brokers today.)

2.25% total costs for a VA is very reasonable.

scrim

[quote=Philo Kvetch]

Thsi from a self-proclaimed genius who put a widow's entire account into one bond issue and claims that no one knew at the time that a strategy like that could blow up.  (And of course brokers back then were REAL brokers.  Not at all like brokers today.)

[/quote]

Who was dumb enough to put a widow's entire account into one bond issue?

[quote=scrim67]

2.25% total costs for a VA is very reasonable.

scrim

[/quote]

It depends on what the client's needs whether that is reasonable. Why pay the extra cost if it isn't warranted?

I think he was saying in the VA realm that the costs were reasonable.  I doubt he was comparing it an index fund.

Noggin I am curious what vehicles do you use for your clients and how are you compensated for your craft?

[quote=mikebutler222][quote=babbling looney]

Wow I'm cranky today.    I should go beat up on some golf balls.

[/quote]

A great therapy and pretty inexpensive I use it often. 

[quote=Indyone]

Wow...that's almost an admission of malpractice from my perspective.  I don't know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It's certainly not a very flattering picture if you're in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

[/quote]

Indy, you're a good advisor but, I have to go with NASD on this one. Today we rely on Modern Portfolio Theory to help guide our allocation decisions. Modern Portfolio Theory is just that, modern. I'm one of the non vet vets Newbie refers to, having started in 1983. At that time noone was telling me that putting 100% of one's assets in one maturity was a no no. Asset allocation wasn't around then. The industry was product driven and I for one don't think that's a bad thing. Putting 100% of a client's assets into a porfollio of high quality bonds would be considered a good thing. I think it still is.

Secondly, there were and are client's who want or need all the income a portfolio can deliver. A talk about inflation's effect on buying power falls short when the wolf is at the door. It also falls short today when we look at how the market has done over the past 5 years. With many stock investors still trying to get back to even the concept of the stock market as an inflation hedge has lost some of it's allure. Fact is, the market looks alot better as an inflation hedge on paper than in reality. There are many long stretches, NASD points out one such 14 year period, where the market did nothing but go down and come back to even, or did nothing at all. While the upward trend of the market over time is undeniable, the market as an inflation hedge isn't a sure bet.

Lastly, modern portfolio theory was developed over the nineties and refined from there. It was and is used, and abused as a reason to collect fees in managed programs. It's based on risk/allocation theory that back dates data over a long period of time. Unfortunately, for investors and advisors who have bought into it hook, line and sinker, it's only a theory. The reality is that those who bought MPT as the defense against getting thwacked (NASD, Is thwacked a word?) by the market found out the hard way in 01-03, with their hard earned money, that it does nothing to protect them. Instead of losing money in just one investment, they lost money in a wide variety of investments. Ironically, the only people who didn't lose were those with all their assets in the bond market, even those in just a single maturity of the bond market. Many of the mpt investors wish they could get a do over to buy "dumb old bonds." Who knows were this group will be in 10 years. For now, many are still trying to get back to even. Even tougher when they're paying 1 to 2%  a year off the top for advise that cost them 30 to 70% of their assets.

The market as an inflation hedge seems on it's face to make sense. Yet for the client who needs max income, it's not always the answer.

[quote=tjc45]

 Unfortunately, for investors and advisors who have bought into it hook, line and sinker, it's only a theory. The reality is that those who bought MPT as the defense against getting thwacked (NASD, Is thwacked a word?) by the market found out the hard way in 01-03, with their hard earned money, that it does nothing to protect them. Instead of losing money in just one investment, they lost money in a wide variety of investments. Ironically, the only people who didn't lose were those with all their assets in the bond market, even those in just a single maturity of the bond market.

[/quote]

Tjc45, I have great respect for your postings and I agree with most everything you'd said in this post, but I have to quibble with the above. I agree MPT is a theory, and anyone who thinks using it means you never have a period where portfolio values decline is a fool, but the bit about 01-03, if applied to even a marginally well balanced MPT model isn't correct. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Fixed Income well out performed every equity component in 2001 and 2002, but it lagged behind greatly in 2003. A balanced MPT portfolio lost a modest amount in 2001 (3-4%) and larger amount in 2002 (8-9%) but had a massive 24-25% positive return in 2003. Balanced MPT portfolios (and granted, the term “balanced” is very open to interpretation) not only did better than single equity and fixed income indexes in relative terms in those years, they did well in absolute terms.

None of the above contradicts your over-all point, which I completely agree with.

[quote=mikebutler222]

[quote=tjc45]

 Unfortunately, for investors and advisors who have bought into it hook, line and sinker, it's only a theory. The reality is that those who bought MPT as the defense against getting thwacked (NASD, Is thwacked a word?) by the market found out the hard way in 01-03, with their hard earned money, that it does nothing to protect them. Instead of losing money in just one investment, they lost money in a wide variety of investments. Ironically, the only people who didn't lose were those with all their assets in the bond market, even those in just a single maturity of the bond market.

[/quote]

Tjc45, I have great respect for your postings and I agree with most everything you'd said in this post, but I have to quibble with the above. I agree MPT is a theory, and anyone who thinks using it means you never have a period where portfolio values decline is a fool, but the bit about 01-03, if applied to even a marginally well balanced MPT model isn't correct. <?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Fixed Income well out performed every equity component in 2001 and 2002, but it lagged behind greatly in 2003. A balanced MPT portfolio lost a modest amount in 2001 (3-4%) and larger amount in 2002 (8-9%) but had a massive 24-25% positive return in 2003. Balanced MPT portfolios (and granted, the term “balanced” is very open to interpretation) not only did better than single equity and fixed income indexes in relative terms in those years, they did well in absolute terms.

None of the above contradicts your over-all point, which I completely agree with.

[quote=tjc45][quote=Indyone]

Wow...that's almost an admission of malpractice from my perspective.  I don't know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It's certainly not a very flattering picture if you're in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

[/quote]

Indy, you're a good advisor but, I have to go with NASD on this one. Today we rely on Modern Portfolio Theory to help guide our allocation decisions. Modern Portfolio Theory is just that, modern. I'm one of the non vet vets Newbie refers to, having started in 1983. At that time noone was telling me that putting 100% of one's assets in one maturity was a no no. Asset allocation wasn't around then. The industry was product driven and I for one don't think that's a bad thing. Putting 100% of a client's assets into a porfollio of high quality bonds would be considered a good thing. I think it still is.

Secondly, there were and are client's who want or need all the income a portfolio can deliver. A talk about inflation's effect on buying power falls short when the wolf is at the door. It also falls short today when we look at how the market has done over the past 5 years. With many stock investors still trying to get back to even the concept of the stock market as an inflation hedge has lost some of it's allure. Fact is, the market looks alot better as an inflation hedge on paper than in reality. There are many long stretches, NASD points out one such 14 year period, where the market did nothing but go down and come back to even, or did nothing at all. While the upward trend of the market over time is undeniable, the market as an inflation hedge isn't a sure bet.

Lastly, modern portfolio theory was developed over the nineties and refined from there. It was and is used, and abused as a reason to collect fees in managed programs. It's based on risk/allocation theory that back dates data over a long period of time. Unfortunately, for investors and advisors who have bought into it hook, line and sinker, it's only a theory. The reality is that those who bought MPT as the defense against getting thwacked (NASD, Is thwacked a word?) by the market found out the hard way in 01-03, with their hard earned money, that it does nothing to protect them. Instead of losing money in just one investment, they lost money in a wide variety of investments. Ironically, the only people who didn't lose were those with all their assets in the bond market, even those in just a single maturity of the bond market. Many of the mpt investors wish they could get a do over to buy "dumb old bonds." Who knows were this group will be in 10 years. For now, many are still trying to get back to even. Even tougher when they're paying 1 to 2%  a year off the top for advise that cost them 30 to 70% of their assets.

The market as an inflation hedge seems on it's face to make sense. Yet for the client who needs max income, it's not always the answer.

[quote=Revealer][quote=tjc45][quote=Indyone]

Wow...that's almost an admission of malpractice from my perspective.  I don't know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It's certainly not a very flattering picture if you're in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

[/quote]

Indy, you're a good advisor but, I have to go with NASD on this one. Today we rely on Modern Portfolio Theory to help guide our allocation decisions. Modern Portfolio Theory is just that, modern. I'm one of the non vet vets Newbie refers to, having started in 1983. At that time noone was telling me that putting 100% of one's assets in one maturity was a no no. Asset allocation wasn't around then. The industry was product driven and I for one don't think that's a bad thing. Putting 100% of a client's assets into a porfollio of high quality bonds would be considered a good thing. I think it still is.

Secondly, there were and are client's who want or need all the income a portfolio can deliver. A talk about inflation's effect on buying power falls short when the wolf is at the door. It also falls short today when we look at how the market has done over the past 5 years. With many stock investors still trying to get back to even the concept of the stock market as an inflation hedge has lost some of it's allure. Fact is, the market looks alot better as an inflation hedge on paper than in reality. There are many long stretches, NASD points out one such 14 year period, where the market did nothing but go down and come back to even, or did nothing at all. While the upward trend of the market over time is undeniable, the market as an inflation hedge isn't a sure bet.

Lastly, modern portfolio theory was developed over the nineties and refined from there. It was and is used, and abused as a reason to collect fees in managed programs. It's based on risk/allocation theory that back dates data over a long period of time. Unfortunately, for investors and advisors who have bought into it hook, line and sinker, it's only a theory. The reality is that those who bought MPT as the defense against getting thwacked (NASD, Is thwacked a word?) by the market found out the hard way in 01-03, with their hard earned money, that it does nothing to protect them. Instead of losing money in just one investment, they lost money in a wide variety of investments. Ironically, the only people who didn't lose were those with all their assets in the bond market, even those in just a single maturity of the bond market. Many of the mpt investors wish they could get a do over to buy "dumb old bonds." Who knows were this group will be in 10 years. For now, many are still trying to get back to even. Even tougher when they're paying 1 to 2%  a year off the top for advise that cost them 30 to 70% of their assets.

The market as an inflation hedge seems on it's face to make sense. Yet for the client who needs max income, it's not always the answer.

[/quote] Sorry guys. "Modern" Portfolio Theory is NOT modern. Doctoral thesis by Harry Markowitz U. of Chicago early 1950's. [/quote]

You're right that MPT began with Markowitz's 1953 (I think) paper, but that was the cornerstone. I don't think anyone would tell you that paper gave investment professionals a process they could institute. There was a great deal of work to be done on that first paper by Marokwitz and other Nobel winners before it was ready for prime time.

[quote=tjc45][quote=Indyone]

Wow...that's almost an admission of malpractice from my perspective.  I don't know what all you had at your disposal or what this lady would have tolerated risk-wise, but this is an example of something I see alot in local competitor-managed portfolios.  The entire focus is on current income, with no thoughts of inflation hedging, adequate diversification or staggered maturies to protect against interest rate risk.  Edd, why on earth would Jones tell a story like this?  It's certainly not a very flattering picture if you're in the position of recommending such a portfolio.  It sounds almost like the old Boones & Claussens story that American Funds tells to sell being in the market.

[/quote]

Indy, you're a good advisor but, I have to go with NASD on this one. Today we rely on Modern Portfolio Theory to help guide our allocation decisions. Modern Portfolio Theory is just that, modern. I'm one of the non vet vets Newbie refers to, having started in 1983. At that time noone was telling me that putting 100% of one's assets in one maturity was a no no. Asset allocation wasn't around then. The industry was product driven and I for one don't think that's a bad thing. Putting 100% of a client's assets into a porfollio of high quality bonds would be considered a good thing. I think it still is.

Secondly, there were and are client's who want or need all the income a portfolio can deliver. A talk about inflation's effect on buying power falls short when the wolf is at the door. It also falls short today when we look at how the market has done over the past 5 years. With many stock investors still trying to get back to even the concept of the stock market as an inflation hedge has lost some of it's allure. Fact is, the market looks alot better as an inflation hedge on paper than in reality. There are many long stretches, NASD points out one such 14 year period, where the market did nothing but go down and come back to even, or did nothing at all. While the upward trend of the market over time is undeniable, the market as an inflation hedge isn't a sure bet.

Lastly, modern portfolio theory was developed over the nineties and refined from there. It was and is used, and abused as a reason to collect fees in managed programs. It's based on risk/allocation theory that back dates data over a long period of time. Unfortunately, for investors and advisors who have bought into it hook, line and sinker, it's only a theory. The reality is that those who bought MPT as the defense against getting thwacked (NASD, Is thwacked a word?) by the market found out the hard way in 01-03, with their hard earned money, that it does nothing to protect them. Instead of losing money in just one investment, they lost money in a wide variety of investments. Ironically, the only people who didn't lose were those with all their assets in the bond market, even those in just a single maturity of the bond market. Many of the mpt investors wish they could get a do over to buy "dumb old bonds." Who knows were this group will be in 10 years. For now, many are still trying to get back to even. Even tougher when they're paying 1 to 2%  a year off the top for advise that cost them 30 to 70% of their assets.

The market as an inflation hedge seems on it's face to make sense. Yet for the client who needs max income, it's not always the answer.

[/quote]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........Now Mikey, hold on there as I know the beast is about to be unleashed.....I'm not saying that MPT IS a scam. O.K.?  I think we all know where you and I stand on this issue so let's let a dead horse lie.

I am so proud that a thread I started has four or five pages of responses and that several of them are long well considered discussions.

It's almost as if I was as effective as Put Trader at getting things rolling.

I hope Put is doing well, wherever he is.

Points well taken from all above.  I guess it's just a matter of perspective and how you learned the trade.  I started in the late 80's managing investments for a regional bank trust department and was raised on bond ladders and diversified stock portfolios, consisting of mostly blue chips.  These were far from new concepts for my employer, as I recall seeing statements that were 20-30 years old with bond ladders and diversified portfolios of blue chip stocks.  Some of the accounts I managed had positions that originated in the 60's and 70's, and in fact, one of the thorniest issues we dealt with in the late 80's was reducing/eliminating concentrations without committing tax suicide, due to the huge embedded gains in some of the star performers.  Generally, we reduced position concentrations over a period of years, unless we had compelling evidence that a given position was ready to implode.

My point is, not everyone thought that the bond portfolio, as described in NASD's original post, was a good idea...even in the early 70's, although it's become painfully obvious that plenty of advisors invested in a similar manner, at least before the interest rate disaster of the late 70's/early 80's.  From the feedback to my original post, it appears that trust departments (or at least the one I worked for), invested in a markedly different manner than retail advisors back when the bond portfolio in question was created, and there's not a doubt in my mind that my mentor would have, at the very least, staggered the bond maturities for the widow in question.

...and yes, I do believe that he would have labled the portfolio as described as malpractice.  He was much like our friend NASD...you did it his way, or you did it wrong.

I appreciate the civil discussion, even if our opinions aren't all in lockstep...

[quote=Indyone]

...and yes, I do believe that he would have labled the portfolio as described as malpractice.

[/quote]

He would not have been capable of carrying the briefcases of the guys who cut their teeth in the 1970s.

The buy side has always been a bunch of simpering whiners quick to claim credit for success while more than happy to blame their losing choices on their brokers.

If they weren't necessary as clients most brokers wouldn't walk across the street to piss on a bank portfolio manager if he were on fire.

Just my opinion of course--the only one I am allowed to give.

For clarification, he didn’t manage the bank’s investment portfolio, he managed trust client portfolios.

[/quote]

If they weren't necessary as clients most brokers wouldn't walk across the street to piss on a bank portfolio manager if he were on fire.

[/quote]

Now, that's funny!

[quote=Indyone]For clarification, he didn't manage the bank's investment portfolio, he managed trust client portfolios.[/quote]

Indy, I always respect your opinion.

[quote=Indyone]For clarification, he didn't manage the bank's investment portfolio, he managed trust client portfolios.[/quote]

Quibbling difference. There is no worse investor than those who manage money for banks--regardless of their title or who owns the money being managed.

[quote=Indyone]For clarification, he didn’t manage the bank’s investment portfolio, he managed trust client portfolios.

Quibbling difference. There is no worse investor than those who manage money for banks--regardless of their title or who owns the money being managed.[/quote]

Well, you're entitled to your opinion, although your argument is a bit ironic given your self-admitted investment "strategy" with the widow...

[quote=Indyone]For clarification, he didn’t manage the bank’s investment portfolio, he managed trust client portfolios.

Indy, I always respect your opinion.[/quote]

...and likewise, tjc...we can act as gentlemen between the two of us at least...even when our perspectives differ.

...and despite appearances, I generally enjoy exchanges with NASD/PutEasy.  He's got some interesting insights...you just have to work around his tender ego (see earlier in this thread) and tendency to insult when someone disagrees with him, or otherwise doesn't measure up to his self-perceived social worth.  It's interesting to watch him casually throw insults...and then see his reaction when someone tosses a perceived slight back at him...

[quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

[quote=dude]

Now Mikey, hold on there as I know the beast is about to be unleashed.....I'm not saying that MPT IS a scam. O.K.?  I think we all know where you and I stand on this issue so let's let a dead horse lie.

[/quote]

OK, I'll admit confusion here. Could you explain what appears to be a contradiction in your posts? Sure sounds like you're calling something a scam....

[quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

Yes and no. Yes, abused and over sold by wirehouses eager to fee every client up. Especially true of the young sales force that doesn't know its ass from a hole in the ground when it comes to investing and also true of the one size fits all crowd. No, it's not a scam. It's a valid investment theory. However, it doesn't save you from a down market,even though it often advertised by the abusers as being able to do so.

[quote=NASD Newbie]

I am so proud that a thread I started has four or five pages of responses and that several of them are long well considered discussions.

It's almost as if I was as effective as Put Trader at getting things rolling.

I hope Put is doing well, wherever he is.

[/quote]

You are a serious cheeseball there NASD Easy Trader.

[quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

[quote=dude]

Now Mikey, hold on there as I know the beast is about to be unleashed.....I'm not saying that MPT IS a scam. O.K.?  I think we all know where you and I stand on this issue so let's let a dead horse lie.

[/quote]

OK, I'll admit confusion here. Could you explain what appears to be a contradiction in your posts? Sure sounds like you're calling something a scam....

[/quote]

Use your eyes and read the above post by TJC.  I think he is being a little more articulate than I.  Maybe SCAM is a little harsh of a word but as you quoted ME, I clearly said that MPT is NOT a scam.  Just using it as an excuse to collect fees for an army of brokers who are getting paid to be asset gatherers not managers.  C'mon Mikey, we've had this conversation too many times before and like I said let's let a dead horse lie.

[quote=tjc45][quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

Yes and no. Yes, abused and over sold by wirehouses eager to fee every client up. Especially true of the young sales force that doesn't know its ass from a hole in the ground when it comes to investing and also true of the one size fits all crowd. No, it's not a scam. It's a valid investment theory. However, it doesn't save you from a down market,even though it often advertised by the abusers as being able to do so.

[/quote]

I’m in complete agreement with you about younger FAs and the “one size fits all” crowd (although I usually find that crowd selling everyone their fav three mutual funds or their investment strategy (read: portfolio of individual stocks run by the FA that every client must own)). Also agreed that it’s abuse to claim it means your account will never decline.

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

OTOH, I don't think in my experience (all day, now) that I've seen a "down market" where every asset class is down for any real length of time, and using MPT has ensured that every portfolio has within it those elements that didn’t decline or even grew as other elements declined. My clients in balanced portfolios have seen significant gains in this period of what some people call a "down market".

What is it you mean by “fee every client up”? Should I take it to mean you don’t approve of SMAs or flat fee accounts?

[quote=dude][quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

[quote=dude]

Now Mikey, hold on there as I know the beast is about to be unleashed.....I'm not saying that MPT IS a scam. O.K.?  I think we all know where you and I stand on this issue so let's let a dead horse lie.

[/quote]

OK, I'll admit confusion here. Could you explain what appears to be a contradiction in your posts? Sure sounds like you're calling something a scam....

[/quote]

Use your eyes and read the above post by TJC.  I think he is being a little more articulate than I.  Maybe SCAM is a little harsh of a word but as you quoted ME, I clearly said that MPT is NOT a scam.  Just using it as an excuse to collect fees for an army of brokers who are getting paid to be asset gatherers not managers.  C'mon Mikey, we've had this conversation too many times before and like I said let's let a dead horse lie.

[/quote]

Just trying to figure you out, dude. You use words like scam and excuse and it makes me wonder just how you think MPT should be implemented (and priced) and why brokers shouldn't be asset gatherers (to completely ignore the work they do after the assets are gathered) and hand the active management (if that’s what’s being used) off to people better able to do it.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

If you want to, what at least sounds like to me, impugn the integrity and business model of others and then leave the subject alone, fine.

[quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

Yes and no. Yes, abused and over sold by wirehouses eager to fee every client up. Especially true of the young sales force that doesn't know its ass from a hole in the ground when it comes to investing and also true of the one size fits all crowd. No, it's not a scam. It's a valid investment theory. However, it doesn't save you from a down market,even though it often advertised by the abusers as being able to do so.

[/quote]

What is it you mean by “fee every client up”? Should I take it to mean you don’t approve of SMAs or flat fee accounts?

[/quote]

Just my cynical view of the wires that have figured out that fee biz is in their best interest regardless of whether that's true for the clients. The wires are pushing fee big time, thus the move to six figure minimum acct requirements. Cookie cutter one size fits all, off the rack progams presented as custom tailored pushed on those who don't understand what they're buying. And in many cases pushed on those who would benefit from a conventional acct. 

I'm closing a 600K new acct next week that will be fee. So I have nothing against fees. About 30% of my book is fee based. Part of that is flat fee accts. Fee based versus commission is a case by case decision. Fee is almost always the better way to go for me. However, it's got to be the best way for the client to go before we'll consider it.

Just my cynical view of the wires that have figured out that fee biz is in their best interest regardless of whether that's true for the clients.

Well, there's no doubt the wires benefit from a stable fee structure over the ebb and flow of a commission based process. There's also the fact that their arbitration costs are lower. OTOH, if the issue was what's most profitable for the wires, they'd be pushing in-house mutual funds, and B shares at that.

 The wires are pushing fee big time, thus the move to six figure minimum acct requirements. 

I really do think those two issues are largely unrelated. Larger accounts, whether in fee or commission based accounts are more profitable and expose the firm to less liability.

Cookie cutter one size fits all, off the rack progams presented as custom tailored pushed on those who don't understand what they're buying.

I'm trying to think of an example of that, and aside from a descretionary mutual fund fee acount, I'm coming up short. Could you provide another example? Also, as to "one size fits all", I really do think the biggest offenders there are guys, usually working as RIAs, that run a portfolio that every client has to own.

Fee based versus commission is a case by case decision. Fee is almost always the better way to go for me. However, it's got to be the best way for the client to go before we'll consider it.

Isn't that what every ethical advisor does? BTW, do you use any SMAs or is this in-house decretionary?

[quote=tjc45][quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

Yes and no. Yes, abused and over sold by wirehouses eager to fee every client up. Especially true of the young sales force that doesn't know its ass from a hole in the ground when it comes to investing and also true of the one size fits all crowd. No, it's not a scam. It's a valid investment theory. However, it doesn't save you from a down market,even though it often advertised by the abusers as being able to do so.

[/quote]

Thank you. 

I had this same argument with scrim in the holding VAs in an IRA thread.  He seems to think that asset allocation is the holy grail and using it will bullet proof a portfolio and a client might not need to, or want to have the extra guarantees of a VA. That last part has nothing to do with the asset allocation/ modern portfolio theory that you guys are discussing. 

I agree with the valid investment theory remark. HOWEVER, I firmly believe that we get paid to manage peoples portfolios in a dynamic world and not to just pigeon hole assets according to a static computer generated module.  Anyone can do that. Who needs us if that is the investment style that is being proposed?

One size does not fit all and the world changes fast. We need to be flexible and offer more than just a cookie cutter asset allocation plan.

[quote=babbling looney]

One size does not fit all and the world changes fast. We need to be flexible and offer more than just a cookie cutter asset allocation plan.

[/quote]

Yeah, but that's so haaaard and, like, really time consuming.  I came into this gig so that I could make a six figure income without working.

I've been doing it like forever, I took my Series 7 way back on the last Halloween and I am getting tired of working.

[quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=dude]

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

OTOH, I don't think in my experience (all day, now) that I've seen a "down market" where every asset class is down for any real length of time, and using MPT has ensured that every portfolio has within it those elements that didn’t decline or even grew as other elements declined. My clients in balanced portfolios have seen significant gains in this period of what some people call a "down market".

[/quote]

Mike I respect that your are doing a good job for your clients however your experience is much different than what I'm finding here in the northeast. Over the 01 to mid 03 era I found zero MPT portfolios that weren't suffering. Which goes to the thread topic of a 100% bond portfolio being right or wrong. In theory there is no arguement as to whether a balanced portfolio will outperform a concentrated portfolio in a down market. The problem comes from weighting the portfolio to meet a goal. And the problem occurs when several portions of the allocation are splitting hairs type of allocations. Such as LCG and LCV. Both are large cap and both got whacked. And degrees of whacked doesn't matter to retirees watching their life's savings go down the drain. Most of the allocations, even though advertised as non corelating are only partially non correlating. And in a market like 01-03 or 68-82 partial just isn't good enough. Thus my comment on MPT being unfortunately only a theory. And that being the case or at least my belief based on the experience of what I'm finding out in the world maybe a 100% bond portfolio wouldn't be such a bad thing for an income investor. That being, there is no reliable way to hedge against inflation without putting at least part of the assets on the pass line. And yes bonds have and will perform at X minus from time to time. A non event for a hold to maturity investor.

MPT balanced porfolios for those short of goal is a valid, but not foolproof strategy to attain goal. Mike, your past performance shows are among the minority correctly using this tool.

[quote=babbling looney][quote=tjc45][quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

Yes and no. Yes, abused and over sold by wirehouses eager to fee every client up. Especially true of the young sales force that doesn't know its ass from a hole in the ground when it comes to investing and also true of the one size fits all crowd. No, it's not a scam. It's a valid investment theory. However, it doesn't save you from a down market,even though it often advertised by the abusers as being able to do so.

[/quote]

Thank you. 

I had this same argument with scrim in the holding VAs in an IRA thread.  He seems to think that asset allocation is the holy grail and using it will bullet proof a portfolio and a client might not need to, or want to have the extra guarantees of a VA. That last part has nothing to do with the asset allocation/ modern portfolio theory that you guys are discussing. 

IMHO nothing "bullet proofs" a portfolio ( I haven't seen anyone here suggest that it does), especially if you're willing to cherry-pick beginning and end dates for specific periods and say "see, it went down". OTOH, we're smarter and more reasoned than our clients who would cherry-pick and couple of dates and not examine the entire length of the investment's lifespan. My only point is while a client might "want" a guarantee for his lifetime retirement income we know he doesn't really "need" one, unless "need" means "can't sleep witout despite knowing the facts". Those are the sort of clients I've put in annuities in IRAs, the ones who say "I know Mike, you're right, it's a waste of money, but I can't sleep without it".

I agree with the valid investment theory remark. HOWEVER, I firmly believe that we get paid to manage peoples portfolios in a dynamic world and not to just pigeon hole assets according to a static computer generated module.  Anyone can do that. Who needs us if that is the investment style that is being proposed?

I haven't seen MPT protfolios that are completely static (even if you're unwilling to make tactical moves, the mix changes and becomes more conservative throughout the client's lifetime) nor have I seen any that are invested (remember MPT and AA only give you a mix tailored to a specific client, they don't give you underlying investments) in something you can buy and then ignore. Even the most fire-and-forget portfolios I can think of, ETFs, require manitenance.

One size does not fit all and the world changes fast. We need to be flexible and offer more than just a cookie cutter asset allocation plan.

I'm sure there's a guy selling this cookie-cutter I keep hearing about, but I'm betting his doe it with his favorite three mutual funds and every one of his clients own.

[quote=mikebutler222]

Just my cynical view of the wires that have figured out that fee biz is in their best interest regardless of whether that's true for the clients.

Well, there's no doubt the wires benefit from a stable fee structure over the ebb and flow of a commission based process. There's also the fact that their arbitration costs are lower. OTOH, if the issue was what's most profitable for the wires, they'd be pushing in-house mutual funds, and B shares at that.

B shares are out, too much pressure from the NASD. As are proprietary funds.

Are arb costs down?

Fees are the mantra at the wires. They've taken a consulting process and turned it into a product.

 The wires are pushing fee big time, thus the move to six figure minimum acct requirements. 

I really do think those two issues are largely unrelated. Larger accounts, whether in fee or commission based accounts are more profitable and expose the firm to less liability.

Mike, I don't see the less liability. In fact I see a new layer of liabilty. With SMA accts it goes to the managers losing money in the markets, when they are the world's most elite managers. That the market went down is lost on the main street investor. Especially in cases where the investor was told the manager was good at managing downside risk. And with fee accts, is the fee justified? This is a whole new frontier for the NASD and they are exploring it with zeal.

A large non fee account may not be profitable to the firm. I have a 2 mil bond acct with an ROA of  .36%. I'm sure the firm would be happier at a .75% fee. Yet, I'm not changing a thing. I have many accts like that one. Big low ROA accts with completely unpredictable revenue streams. Good for the client, bad for the company's CFO scratching his head trying to project cash flow. The two, large accts and fees are most definately linked.

To take this another step, a friend of mine who has a 100 million dollar plus muni book recently quit his wirehouse firm under pressure to up his revenue. He was producing about $350K. The same office pressured a 57million dollar asset size broker to quit because she only produced about 100k during the market rout of 01-03. She correctly saw the writting on the wall and moved her mostly equity book into the money market to ride things out. Right thing for the clients, wrong for the firm. They forced her out after several warnings and gave her book to some brokers who had no problem putting the money to work- for the firm that is. 

Cookie cutter one size fits all, off the rack progams presented as custom tailored pushed on those who don't understand what they're buying.

I'm trying to think of an example of that, and aside from a descretionary mutual fund fee acount, I'm coming up short. Could you provide another example? Also, as to "one size fits all", I really do think the biggest offenders there are guys, usually working as RIAs, that run a portfolio that every client has to own.

Mike this is an easy one. The pitch: Mr. Butler we're going to custom tailor a portfolio to meet your goals using our team of world class institutional managers. The reality: The money is split between 3 or 4 managers who co-mingle it with the rest of dough from that particular firm, buying and selling exactly the same stocks at the same time for everyone. As I said "off the rack"

One size fits all and cookie cutter in that everyone gets the same thing. The differences come in the amounts allocated to the various mgrs. This is exactly how it is at SB and UBS. There is nothing custom about it.

There is no difference between an RIA portfolio and a SMA portfolio. The client gets whatever portfolio is being offered with little or no opt out ability.

Fee based versus commission is a case by case decision. Fee is almost always the better way to go for me. However, it's got to be the best way for the client to go before we'll consider it.

Isn't that what every ethical advisor does? BTW, do you use any SMAs or is this in-house decretionary?

[/quote]

No decretionary. I did that years ago with good results, just no need to go that way with my current investment program. We use SMA and fee accts. Some managed MF program, where we  run the show. We were using C shares but we believe that C shares will become the next B share, causing the NASD to spotlight those accts looking for justification. So now we're starting to go with the MF fee program where it makes sense.

Ethical advisor? Where?

[quote=tjc45][quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=dude]

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

OTOH, I don't think in my experience (all day, now) that I've seen a "down market" where every asset class is down for any real length of time, and using MPT has ensured that every portfolio has within it those elements that didn’t decline or even grew as other elements declined. My clients in balanced portfolios have seen significant gains in this period of what some people call a "down market".

[/quote]

Mike I respect that your are doing a good job for your clients however your experience is much different than what I'm finding here in the northeast. Over the 01 to mid 03 era I found zero MPT portfolios that weren't suffering.

Well, as I've said, I respect your opinion, but I'm still at a loss to understand how a real MPT portfolio with elments of intl, emrmkts, and FI (and in a retiree's port we're talking a bucketload of FI) were hurting during that time period. If nothing else 2003 was a massive up year even for domestic equities. The only thing I can assume is 1) The portfolio was in mutual funds or SMAs that weren't style-pure regardless of what the name implied, and thus didn't really fill those appropriate pie slices assigned  2) was MPT in name, but really held only domestic, probably large cap stocks, 3) was style pure, but employed the very worst managers on the planet.

In theory there is no arguement as to whether a balanced portfolio will outperform a concentrated portfolio in a down market. The problem comes from weighting the portfolio to meet a goal.

I'm not clear on that last bit. Please explain.

And the problem occurs when several portions of the allocation are splitting hairs type of allocations. Such as LCG and LCV. Both are large cap and both got whacked. And degrees of whacked doesn't matter to retirees watching their life's savings go down the drain.

I would really disagree with you there. I don't think it's splitting hairs and more importantly, when you consider the investment styles involved in selecting each (Buffett's deep value, versus, say, Marsico's momentum growth LC,) the delta in results can be massive. For example, 2001, the Russell 1000G was down 20.42%, while the R1000V was off 5.59%. When you consider there should have been part of that portfolio in R200V (+14.) LBAG (+8.44) the difference between a absolute positive return when hairs were split between the LCs is pretty obvious.

Secondly, even in those very rough years of 2001 and 2002 (2003 was big, big up year) when balanced MPT portfolios lost 4-5% and then 8-9%, I find it hard to call that "down the drain". Down the drain was the guy not using MPT who was in LC and lost 20.42% in 2001 and another 27.88% in 2002. Were there really retirees who were told they'd never have a down year or were positioned in such a way that down 5% and then down 9% killed their retirement?

Most of the allocations, even though advertised as non corelating are only partially non correlating.

Someone is misrepresenting the facts if they're saying their equity components are "non-correlating". That description has to be reserved for AI and the like.

MPT balanced porfolios for those short of goal is a valid, but not foolproof strategy to attain goal.

As soon as they build a "fool-proof plan" nature makes a better fool. Having said that, unless you're dead, it's hard for me to think of a investment aim that isn't "short of a goal". Even those who have enough cash that they make make their required income out of a MM balance are using MPT.

Mike, your past performance shows are among the minority correctly using this tool.

Again, that's not been my experience. I've seen many FAs screw the pooch, but that's been their error, not MPTs. In fact, I can't think of serious money being handled anywhere that's not using MPT as an underpinning.

[/quote]

Again, none of this is meant to take away from your comments about the long term bond portfolio, which in specific circumstances is the right answer.

When I think cookie cutter, I think lifestyle or index funds, as those seem to be a couple of one-size-fits-all approaches that have been popular recently.  LPL has some fee-based models called OMP that might be considered as “cookie cutter” portfolios.

Sorry if this is getting too difficult to read, I'll use blue here.

[quote=tjc45][quote=mikebutler222]

Just my cynical view of the wires that have figured out that fee biz is in their best interest regardless of whether that's true for the clients.

Well, there's no doubt the wires benefit from a stable fee structure over the ebb and flow of a commission based process. There's also the fact that their arbitration costs are lower. OTOH, if the issue was what's most profitable for the wires, they'd be pushing in-house mutual funds, and B shares at that.

B shares are out, too much pressure from the NASD. As are proprietary funds.

Ahh, but they're not out, they're out in "big" amounts. A drive for pure profits would have wirehouses looking to open the "small" accounts where B shares can be used. Secondarily they'd "stress" in a legal way, proprietary funds, which are only "out" when dumb things like contests or paying brokers more to sell them are in play.

Are arb costs down?

They sure are in managed accounts. When the managers are external, you've documented the process to select an AA and the manager's selection, they most certainly are.

Fees are the mantra at the wires. They've taken a consulting process and turned it into a product.

No doubt about that, but, imho, for the reasons I explained.

 The wires are pushing fee big time, thus the move to six figure minimum acct requirements. 

I really do think those two issues are largely unrelated. Larger accounts, whether in fee or commission based accounts are more profitable and expose the firm to less liability.

Mike, I don't see the less liability. In fact I see a new layer of liabilty. With SMA accts it goes to the managers losing money in the markets, when they are the world's most elite managers. That the market went down is lost on the main street investor. Especially in cases where the investor was told the manager was good at managing downside risk.

There's far less liability. 1), churning is completely off the table. 2) Suitability is a minimal liability when everything along the way from AA selection to the selection of the individual managers is documented. 3) Details of the manager's methods and history is documented for the client along with all the usual disclaimers. 4) The firm has no conflict of interest with external managers and a DD process moves them in and out of programs. 5) Losing money in a down market in a descretionary account isn't the sort of thing firms lose often about in arbitration, especially when compared to broker handed non-desc accounts.

 And with fee accts, is the fee justified? This is a whole new frontier for the NASD and they are exploring it with zeal.

They are, but at this point it's to weed out accounts that sat dormant when in "commission" accounts and were moved to a fee basis, and still laid dormant and untouched. Those are pretty much layups for regulators, and should be. I doubt the SEC or NASD will march in and dictate fee rates at current levels as violations of some sort.

A large non fee account may not be profitable to the firm. I have a 2 mil bond acct with an ROA of  .36%. I'm sure the firm would be happier at a .75% fee. Yet, I'm not changing a thing.

It sounds like you're doing the right thing. I've never found a good reason for an on-going bond account to be in fee accounts if the strategy is buy and hold.

To take this another step, a friend of mine who has a 100 million dollar plus muni book recently quit his wirehouse firm under pressure to up his revenue. He was producing about $350K.

That's an amazingly small ROE, even on a bond account. Could it be that production wasn't the issue, but WHY the ROE was so small? A judgement issue? You could almost do that sort of ROE buying nothing but ultra-short (7 to 90 day) auction notes.

If he were really pressured out on ROE basis, he has a great case to take his former firm on about.

The same office pressured a 57million dollar asset size broker to quit because she only produced about 100k during the market rout of 01-03. She correctly saw the writting on the wall and moved her mostly equity book into the money market to ride things out. Right thing for the clients, wrong for the firm.

I think we've dicussed this before. I can fully understand a firm having a problem with a broker making a massive market timing call like that, issues of ROE aside. Imagine the liability issues involved. I doubt her firm's AA policy at the time was move almost all out of equities into the MM. BTW, how did she liquidate a $57M mostly equity book and only generate 100k (was that for the full three years?). Her clients missed the massive up year of 2003 because of a market call to almost 100% cash?

 They forced her out after several warnings and gave her book to some brokers who had no problem putting the money to work- for the firm that is. 

Again, market timing FAs (especillay on that scale)  probably will have a tough time at a wirehouse. You could do that as an indy and carry the liability yourself, but not at a wirehouse. If she felt she had a case, she should have pressed it. It's obvious wirehouse can be successfully sued for nonsense (overtime) so why not try this.

I'd love to see those two cases in detail, something isn't kosher in either story, no offense intended.

Cookie cutter one size fits all, off the rack progams presented as custom tailored pushed on those who don't understand what they're buying.

I'm trying to think of an example of that, and aside from a descretionary mutual fund fee acount, I'm coming up short. Could you provide another example? Also, as to "one size fits all", I really do think the biggest offenders there are guys, usually working as RIAs, that run a portfolio that every client has to own.

Mike this is an easy one. The pitch: Mr. Butler we're going to custom tailor a portfolio to meet your goals using our team of world class institutional managers. The reality: The money is split between 3 or 4 managers who co-mingle it with the rest of dough from that particular firm, buying and selling exactly the same stocks at the same time for everyone. As I said "off the rack"

You mean they hire the same 3 or 4 managers for everyone and in the same AA mix? I agree, that would be a cookie cutter. I don't have a problem with managers buying the same stocks for everyone within their SMA account. That's exactly as it should be. BTW, the money isn't co-mingled anywhere that I know of, but it is block traded.

BTW, just how is that different than a mutual fund fee program? Do the mutual fund managers make different trades in each account, or do they trade for the entire fund?

One size fits all and cookie cutter in that everyone gets the same thing. The differences come in the amounts allocated to the various mgrs. This is exactly how it is at SB and UBS. There is nothing custom about it.

The "custom" isn't supposed to be in what the managers  buy. They were hired to run money the way they do it, with individual cost basis and position ownership for each client. The "custom" should come in the tailoring of the AA and the managers (of hundreds) selected. The only input to what individual managers are doing that should be allowed, imho, is loss harvesting, eliminating positions in an SMA that a client may hold elsewhere and perhaps a prohibition (pardon the pun) on certain "sin stocks". After all, if you didn't want that manager running money for you the way he does, why hire him?

There is no difference between an RIA portfolio and a SMA portfolio. The client gets whatever portfolio is being offered with little or no opt out ability.

If you're talking about a client at the local RIA, there is no choice. You hire what they do there, in house, or you don't hire them. With an SMA at least you choose from hundreds of managers with various styles and approaches, mix and match them as you like from in-house or out.

Fee based versus commission is a case by case decision. Fee is almost always the better way to go for me. However, it's got to be the best way for the client to go before we'll consider it.

Isn't that what every ethical advisor does? BTW, do you use any SMAs or is this in-house decretionary?

[/quote]

We were using C shares but we believe that C shares will become the next B share, causing the NASD to spotlight those accts looking for justification.

Agreed.

[quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=dude]

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OTOH, I don't think in my experience (all day, now) that I've seen a "down market" where every asset class is down for any real length of time, and using MPT has ensured that every portfolio has within it those elements that didn’t decline or even grew as other elements declined. My clients in balanced portfolios have seen significant gains in this period of what some people call a "down market".

[/quote]

Mike I respect that your are doing a good job for your clients however your experience is much different than what I'm finding here in the northeast. Over the 01 to mid 03 era I found zero MPT portfolios that weren't suffering.

Well, as I've said, I respect your opinion, but I'm still at a loss to understand how a real MPT portfolio with elments of intl, emrmkts, and FI (and in a retiree's port we're talking a bucketload of FI) were hurting during that time period. If nothing else 2003 was a massive up year even for domestic equities. The only thing I can assume is 1) The portfolio was in mutual funds or SMAs that weren't style-pure regardless of what the name implied, and thus didn't really fill those appropriate pie slices assigned  2) was MPT in name, but really held only domestic, probably large cap stocks, 3) was style pure, but employed the very worst managers on the planet.

03 ended as an up year, I refer to it as the end of the down market.

In reality there is no such thing as a pure MPT portfiolio. All are weighted to a goal, income, growth, aggressive growth, or weighted a risk parameter, conservative, moderate, aggressive. Few if any clients have enough assets to hit every style box in a pure allocation. The weightings and the lack of exposure to all the style boxes has shown me that noone gets optimum performance and risk protection. The numbers are all over the place, yet all were down during the down markets.

These are mostly SMA accts.

In theory there is no arguement as to whether a balanced portfolio will outperform a concentrated portfolio in a down market. The problem comes from weighting the portfolio to meet a goal.

I'm not clear on that last bit. Please explain.

Client wants more growth so advisor gives them a doulbe dip of growth at the expense of another allocation. Or, research shows X will under perform Y so let's skip X and double up on Y. Fill in the blank, there is no such thing as a pure allocation.

And the problem occurs when several portions of the allocation are splitting hairs type of allocations. Such as LCG and LCV. Both are large cap and both got whacked. And degrees of whacked doesn't matter to retirees watching their life's savings go down the drain.

I would really disagree with you there. I don't think it's splitting hairs and more importantly, when you consider the investment styles involved in selecting each (Buffett's deep value, versus, say, Marsico's momentum growth LC,) the delta in results can be massive. For example, 2001, the Russell 1000G was down 20.42%, while the R1000V was off 5.59%. When you consider there should have been part of that portfolio in R200V (+14.) LBAG (+8.44) the difference between a absolute positive return when hairs were split between the LCs is pretty obvious.

OK, if you happened to guess that one right. Most didn't and most sub $500,000k accts don't have enough in assets to cover every style box. Now that minimums are moving to $250k, this is more the case.

Secondly, even in those very rough years of 2001 and 2002 (2003 was big, big up year) when balanced MPT portfolios lost 4-5% and then 8-9%, I find it hard to call that "down the drain". Down the drain was the guy not using MPT who was in LC and lost 20.42% in 2001 and another 27.88% in 2002. Were there really retirees who were told they'd never have a down year or were positioned in such a way that down 5% and then down 9% killed their retirement?

You know as well as I do that the Drink the Cool Aid (or is it Kool Aid?) crowd is pushing equities as the only inflation hedge out there. An inflation hedge isn't suppose to lose money, it's suppose to make more of a return than the bonds/fixed income investments that the client needs, understands, and wanted in the first place. So in that sense, yes, these clients were led to believe that this portion of their portfolio would increase in value, not decrease. They listened to well meaning young men and woman who looked at the long term trend while ignoring those pesky down years and didn't bother to calculate the time it takes to recover even a small loss. Which by the way,  it takes a about a 16% gain to get back the loses you mention. So instead of the equity portion of the portfolio being an inflation hedge, it's a drain that takes time to recover. In this case, had investors invested exactly with the timing you mention that recovery time took over three years. Also we in this business talk "Wall Street" speak when discussing loses. That is we talk percentages. Try telling a conservative investor with $500k invested with you, $375K in the stock market, allocated as you've shown above, that they've lost $56k and what a good job your doing for them because everyone else lost $100k. That's the reality, it's real money. It's not 5% one year and then 9% the next. It's 50 grand! It's 50Grand that this client had to work for, and save. It's where  any advisor who tries to soft pedal that is out on their ass. And that's were MPT fails.

Most of the allocations, even though advertised as non corelating are only partially non correlating.

Someone is misrepresenting the facts if they're saying their equity components are "non-correlating". That description has to be reserved for AI and the like.

MPT balanced porfolios for those short of goal is a valid, but not foolproof strategy to attain goal.

As soon as they build a "fool-proof plan" nature makes a better fool. Having said that, unless you're dead, it's hard for me to think of a investment aim that isn't "short of a goal". Even those who have enough cash that they make make their required income out of a MM balance are using MPT.

Mike, your past performance shows are among the minority correctly using this tool.

Again, that's not been my experience. I've seen many FAs screw the pooch, but that's been their error, not MPTs. In fact, I can't think of serious money being handled anywhere that's not using MPT as an underpinning.

Is there a difference, between the advisor and the practice of MPT?

[/quote]

Again, none of this is meant to take away from your comments about the long term bond portfolio, which in specific circumstances is the right answer.

Same, I respect your position, even if we're not in agreement.

[quote=mikebutler222][quote=dude][quote=mikebutler222][quote=dude]

Damn tjc, great post.  A breath of fresh air to have someone articulately address the MPT scam that's going on (using it as an excuse to collect asset management fees).........[/quote]

tjc45, is this an even remotely accurate description of what you were saying?

[quote=dude]

Now Mikey, hold on there as I know the beast is about to be unleashed.....I'm not saying that MPT IS a scam. O.K.?  I think we all know where you and I stand on this issue so let's let a dead horse lie.

[/quote]

OK, I'll admit confusion here. Could you explain what appears to be a contradiction in your posts? Sure sounds like you're calling something a scam....

[/quote]

Use your eyes and read the above post by TJC.  I think he is being a little more articulate than I.  Maybe SCAM is a little harsh of a word but as you quoted ME, I clearly said that MPT is NOT a scam.  Just using it as an excuse to collect fees for an army of brokers who are getting paid to be asset gatherers not managers.  C'mon Mikey, we've had this conversation too many times before and like I said let's let a dead horse lie.

[/quote]

Just trying to figure you out, dude. You use words like scam and excuse and it makes me wonder just how you think MPT should be implemented (and priced) and why brokers shouldn't be asset gatherers (to completely ignore the work they do after the assets are gathered) and hand the active management (if that’s what’s being used) off to people better able to do it.<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

If you want to, what at least sounds like to me, impugn the integrity and business model of others and then leave the subject alone, fine.

[/quote]

If I were to tell all the clients that are in a Portfolio Architect type wrap program the actual amount of work that most (key word here, not ALL) brokers (at least the 40 I worked with at Morgan) actually do for the 1.5% fee that many of them are paying I think the clients would feel at least a little SCAMMED. 

Like I said you know my attitude about how we get paid and what constitutes a FAIR compensation for ACTUAL work done.  Most clients would not be thrilled (in my opinion) at the idea that they are in essence paying a 1.5% fee annually for the broker to GENERALLY just sit on the assets and maybe make occasional changes that end up not delivering much value.....eg: "Gee Mr. Schmuck, I see that the manager on your XYZ international fund left and some unknown is now running it, let's change over to this other fund, yeah I know it only represents 5% of your overall allocation (and therefore most likely isn't going to make much difference to you) but hey I've got to do SOMETHING to seem like I'm actually earning these fees, right?"

Anyway as we have debated this particular topic too many times to count, I am not interested in regurgitating it.  I believe MikeB that you are not the type of broker I am describing (sitting on assets not adding much value) based on your representation of your approach, O.K.?  It seems to me that you are doing a little more than most I have known to justify your cost.  It's my contention that you should be agreeing with me if you are interested in preserving the integrity of our business.  There is no reason why an asset gatherer should be compensated by his/her clients to sit on assets, which as I'm sure you would concede, a lot of brokers do.

[quote=dude]

There is no reason why an asset gatherer should be compensated by his/her clients to sit on assets, which as I'm sure you would concede, a lot of brokers do.

[/quote]

Thanks for the kind words. Refresh my memory, you're talking about a non-desc MF account, right? If the client's paying a fee and the broker's doing zero, I'm with you.

Exacto.

[quote=tjc45][quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=tjc45][quote=mikebutler222][quote=dude]

<?:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" /> 

OTOH, I don't think in my experience (all day, now) that I've seen a "down market" where every asset class is down for any real length of time, and using MPT has ensured that every portfolio has within it those elements that didn’t decline or even grew as other elements declined. My clients in balanced portfolios have seen significant gains in this period of what some people call a "down market".

[/quote]

Mike I respect that your are doing a good job for your clients however your experience is much different than what I'm finding here in the northeast. Over the 01 to mid 03 era I found zero MPT portfolios that weren't suffering.

Well, as I've said, I respect your opinion, but I'm still at a loss to understand how a real MPT portfolio with elments of intl, emrmkts, and FI (and in a retiree's port we're talking a bucketload of FI) were hurting during that time period. If nothing else 2003 was a massive up year even for domestic equities. The only thing I can assume is 1) The portfolio was in mutual funds or SMAs that weren't style-pure regardless of what the name implied, and thus didn't really fill those appropriate pie slices assigned  2) was MPT in name, but really held only domestic, probably large cap stocks, 3) was style pure, but employed the very worst managers on the planet.

03 ended as an up year, I refer to it as the end of the down market.

It was a massive up year.

In reality there is no such thing as a pure MPT portfiolio. All are weighted to a goal, income, growth, aggressive growth, or weighted a risk parameter, conservative, moderate, aggressive.

It isn't a violation of MPT to be weighted to a goal. In fact, they should be.

Few if any clients have enough assets to hit every style box in a pure allocation.

I suppose that depends what tools are available to you. I can do it for accounts north of $50k. Granted, that's thanks to a new process, but we do it regularly with accounts north of $200k. Perhaps it's accounts unable to hit every style box that you've seen that were hurting.

The weightings and the lack of exposure to all the style boxes has shown me that noone gets optimum performance and risk protection. The numbers are all over the place, yet all were down during the down markets.

I would say those weren't genuine MPT accounts since they skipped styles and classes, but I see your point.

These are mostly SMA accts.

I can see the problem now. You're looking at accounts where there's a $100k min for each style box, so MPT isn't fully or evenly employed.

In theory there is no arguement as to whether a balanced portfolio will outperform a concentrated portfolio in a down market. The problem comes from weighting the portfolio to meet a goal.

I'm not clear on that last bit. Please explain.

Client wants more growth so advisor gives them a doulbe dip of growth at the expense of another allocation. Or, research shows X will under perform Y so let's skip X and double up on Y. Fill in the blank, there is no such thing as a pure allocation.

There is pure allocation, but when FAs bastardize it as in your example you don't blame MPT, you blame the FA. That's exactly the half-assed application that causes problems.

And the problem occurs when several portions of the allocation are splitting hairs type of allocations. Such as LCG and LCV. Both are large cap and both got whacked. And degrees of whacked doesn't matter to retirees watching their life's savings go down the drain.

I would really disagree with you there. I don't think it's splitting hairs and more importantly, when you consider the investment styles involved in selecting each (Buffett's deep value, versus, say, Marsico's momentum growth LC,) the delta in results can be massive. For example, 2001, the Russell 1000G was down 20.42%, while the R1000V was off 5.59%. When you consider there should have been part of that portfolio in R200V (+14.) LBAG (+8.44) the difference between a absolute positive return when hairs were split between the LCs is pretty obvious.

OK, if you happened to guess that one right.

The point is you didn't have to guess.

Most didn't and most sub $500,000k accts don't have enough in assets to cover every style box. Now that minimums are moving to $250k, this is more the case.

See above about account mins, that's not a fault with MPT, that's a fault with the tool used. Again, however, I see your point.

Secondly, even in those very rough years of 2001 and 2002 (2003 was big, big up year) when balanced MPT portfolios lost 4-5% and then 8-9%, I find it hard to call that "down the drain". Down the drain was the guy not using MPT who was in LC and lost 20.42% in 2001 and another 27.88% in 2002. Were there really retirees who were told they'd never have a down year or were positioned in such a way that down 5% and then down 9% killed their retirement?

You know as well as I do that the Drink the Cool Aid (or is it Kool Aid?) crowd is pushing equities as the only inflation hedge out there. An inflation hedge isn't suppose to lose money, it's suppose to make more of a return than the bonds/fixed income investments that the client needs, understands, and wanted in the first place.

Inflation hedges obviously can and do lose money over some timeframes. People saying otherwise are fools are liars, or drink kool-aide by the gallon 

Try telling a conservative investor with $500k invested with you, $375K in the stock market, allocated as you've shown above, that they've lost $56k and what a good job your doing for them because everyone else lost $100k.

1) A conservative investor with 75% in the market? 2) He was so poorly prepared that with 75% of his money in the market he was shocked to see a 11% loss?  4) Who told him the market wouldn't dip and flow? 5)Ignoring that the portfolios we're talking about were above water by  2003 (from 2001),  just what's the alternative? What WILL lose nothing when "the market" goes south? Even the long bong portfolio (which I don't think is the issue here) will "lose" money, and even buying power.

 It's where  any advisor who tries to soft pedal that is out on their ass. And that's were MPT fails.

I have to say that's were a poor FA who either mislead or didn't properly prep a client failed. The FA also failed when he allowed a 30+ year investment time horizon to get cut to two years, as if anyone ever said a portfolio can't lose money because it's invested along the lines of MPT?

Most of the allocations, even though advertised as non corelating are only partially non correlating.

Someone is misrepresenting the facts if they're saying their equity components are "non-correlating". That description has to be reserved for AI and the like.

MPT balanced porfolios for those short of goal is a valid, but not foolproof strategy to attain goal.

As soon as they build a "fool-proof plan" nature makes a better fool. Having said that, unless you're dead, it's hard for me to think of a investment aim that isn't "short of a goal". Even those who have enough cash that they make make their required income out of a MM balance are using MPT.

Mike, your past performance shows are among the minority correctly using this tool.

Again, that's not been my experience. I've seen many FAs screw the pooch, but that's been their error, not MPTs. In fact, I can't think of serious money being handled anywhere that's not using MPT as an underpinning.

Is there a difference, between the advisor and the practice of MPT?

[/quote]

Again, none of this is meant to take away from your comments about the long term bond portfolio, which in specific circumstances is the right answer.

Same, I respect your position, even if we're not in agreement.

Mike, I think I'm out of colors so I reply the old fashion way.

Reading your posts has made it clear to me that you are a true student of MPT. I respect that and the way you practice it.

Having said that, our discussion has made me realize that my aruement with MPT isn't with MPT but, with the practice of MPT. Or how MPT is practiced.

One of your comments was about your ability to pick and chose from so many managers. And that's the problem. As good as you may be at this,most aren't nearly so. The problem isn't with the plane, it's with the pilot. If the pilot makes good choices the plane has an uneventful flight. If the pilot makes poor choices the plane crashes when trouble is encountered. And like the real deal plane crash, a porfolio crash, it doesn't matter much what caused it. The result is the same. In the end the two are inseperable. I was blaming the plane when all along I should have been blaming the pilot. Not that it matters. From where I sit the smoking hole is just as deep regardless of fault.

Mike, you are definately among the minority if you managed to make all the right choices to deliver positive returns during a horrible time in our stock market history. I have yet to see a comparable portfolio in my experience. Most are the butched portfolios you speak of where some goal skewed the weighting leading to disaster.

I think we've beaten this one to death.

tjc & Mike, well done on the exchange of  opinions!<!–
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And the use of so many pretty colors… Its FAN- tastic !!!