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Death of long only management?

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Aug 16, 2008 2:05 pm

I have a question for you Ice, and I’m not trying to start the portfolio management thread again, but do you think there ever is a reason the change the mix for a client?  Not including change in risk tolerance, age blah blah blah, but making a change for investment purposes?

Aug 16, 2008 2:31 pm

Sure.  Going back to the portfolio management thread…there are some places where I think market inefficiency can be exploited for a gain.

    If you wouldn't mind, please give a specific current example.
Aug 18, 2008 5:03 am

Let me start by saying that I, fortunately, do not have as much free time as you do (self-admitedly) to engage in mental masturbation on this forum.



[quote=iceco1d] [quote=skeedaddy2]Perfect, you’ve finally convinced me and all the others on this board that: Markets only go up,



I never said that. I am saying they go up, more than they go down. Your ability to pick tops and bottoms (when to be long/short) is completely random.



Does YOUR investment process only allow you to go “long” at market bottoms? If so, please share with us in which academic journal did this breakthrough first appear?



According to your criteria, when I decided to short CountryWide, it only counts if I did it at the absolute top ? Also, please explain how my choice was a random one?



You will be wrong more times than you will be right. Your returns will be lower in the end (even without considering transaction costs).


Incorrect again. Over the last 16 years that I’ve been in this business, I am only right about 65% of the time, which is more than enough to justify my “value proposition”.





Buy & hold is the only “valid” investment strategy,

I didn’t say that either. I use short positions, alternatives, and negatively correlated investments in portfolios for clients that are in, or near, retirement. I only use enough to bridge bear markets This sounds like “timing” to me folks, you too? It’s at least a hedge statement at minimum.- as over time, this portion of the portfolio (5 - 15% typically) will underperform the rest.

Selling is over-rated, That almost makes sense.This is not a valid answer.



The growth in alternative investments is simply a figment of someone’s imagination,



That would be like me using the “growth in ETFs” as a way to validate my points. Growth in products is OVERWHELMINGLY decided by what we as an industry sell. Individuals dont’ seek out products, we lead them to them. High commission products, and “easy to sell” products are always going to be in vogue. You simply cannot grasp how the passive route is a benefit to the client. And that’s fine. I can. In fact, I can grasp both sides of the argument, and see where each one fits.



EIA salespeople find a way to rationalize their product.

VA salespeople find a way to rationalize their product.

Suze Orman finds a way to rationalize selling everyone the S&P 500.

People who charge fees find a way to rationalize their fees.

And on and on and on. Yes, I’m sure that the investment committees at the country’s top endowment funds have been influenced by Suze Orman and top VA salesmen too.



Long-only asset managers are seeing record net in-flows of new funds,



Does this even deserve a response?

Well-established indexes are flawed and therefore worthless to the investment process,



Bear Stearns was a well established investment bank. Enron was a well established energy company. The Bush family was a well established political family. Does well established have ANYTHING to do with what we are talking about?



The S&P 500 is flawed as an “index.” It is not mechanical. It is not formula driven. It is subject to approval by a board of human beings. A group that allowed it to be overweight technology at the turn of the century. Human intervention in what is supposed to be, and accepted to be, a mechanical process, will cause a problem. Be careful what you wish for. Your argument overlooks the aspect of intuition. Portfolio managers around the world sit with reams of computer printouts. However, they (myself included) must make judgement calls on a constant basis. You can’t buy/short everything on your screen. This is what I call, the “art” that compliments the “science”. Some of us have it and others don’t.



and Those that pursue higher risk-adjusted returns are either stupid or blind.



In certain markets, absolutely. I bet I can count the number of people on this board that actually put in the time to research both sides of this argument on one hand. Don’t criticize me for taking the time to learn wtf I’m doing before I formed an opinion on the subject. Yes, you sound like you’ve read more than just Sport Illustrated, but sonny, you might impress the rookies here but you’d better think twice before whipping out your flame thrower.



You can’t even grasp the concept of “the market” - let alone the root of what I’m talking about. Incorrect again. When will you start referencing your sources? I don’t see you mention the names of Sharpe, Markowitz, Fama & French, George & Hwang, etc. or Instutional Investor, Pensions & Investments, the Investment Company Institute or the Journal of Finance?

Well-done Ice. It’s clear to me/us that you must be at the top of your game…when you’re busy posting 4 times a day on this forum.



I am at the top of my game, and I always will be. Once again, my post count is irrelevant - sorry you don’t have the time & freedom to do as you please with your spare time.[/quote] [/quote] Again, please see above. I am busy making money. Post away, champ!
Aug 21, 2008 5:03 pm
pratoman:

A good read - i am almost done reading a book that is very relevant to this debate. Highy recommended. “When Markets Collide” by Mohamed El-Erian. Author is former manage of the Harvard Investment Management Co (not sure if thats the exact name, but its the Harvard Endowment) and is now co CEO and Co CIO of PIMCO. His views will be considered extreme by many, but he makes the point that investor behavior favors the status quo. He purports the theory that what we are seeing and have seen in the markets the last 12 months is not just noise, but a signal of a sea change. That the U.S. economy will by slow growth slow returns for a number of years to come, and traditional views on Asset Allocation are no longer the way to get a reasonable risk adjusted return. I could go on and on, but the last point i’ll make is that in his baseline allocation, he has 15% of portfolios allocated to U.S. equities, and a total equity allocation of 55% (i might be off by a % or two.) Its not an easy read, and you may not agree with his theories, but if you are considering the debate in this thread, you really need to read and consider his views. He is a genius and cannot be ignored.

  I received a very nice gift from my Allianz/PIMCO wholesaler today...the El-Erian book.   Thanks for the heads up about this book Prato...now can you please come read it to me?