B1tch much?

Wow…

This bear market may have scared many investors away for good.  Too bad.

Dude,

WTF?  Can’t you see that we are in a ‘secular bear?’ I mean, it’s SO clear.  If you are a tard, you probably still believe in idiotic things like “asset allocation” and “Modern Portfolio Theory!” 

If you don’t start analyzing stocks and trends, you will be fawked!!!   Seriously…MPT is BROKEN, and asset allocation is BULLsht!  I mean seriously, when you have bond funds, taking on leverage, with 20 year average durations, and an average credit quality of junk, or unrated, and then they drop along with equities, you KNOW that the whole asset allocation mantra is BS! 

Seriously folks, wake up and smell the coffee!  You need to start utilizing sector rotation.  You need to bone up on your behavioral finance.  You need to recognize trade patterns! 

Seriously morons.  The old way of buying a diversified basket of quality equities for the long term, and buying high quality, short duration, laddered fixed income investments, along with a few years of cash for really tough years is SCREWED.  I mean seriously.  Moron. 

I mean, obviously, it’s a good thing to have leverage in your bond funds…and an average credit rating of Pamela Anderson’s cup size…and an average duration of, oh, say, the age of the average financial advisor…this is all SOUND INVESTING at its finest!

You know, because that’s why you are supposed to have fixed income exposure in your portfolio right?  Junk ratings, Ron Jeremy length durations…all the stuff the “stable” part of a portfolio needs, right?!

Seriously, just like loading up on one particular sector or another of equities.  I mean, this is really prudent stuff here.

These are the exact teachings of MPT, and asset allocation, and plain vanilla investing, right?  These are the concepts that blue up in everyone’s face, right?

Oh crap…that’s right, I’m wrong!  I’ve been busy selling leveraged crap and comparing past returns to the S&P, because it’s an appropriate benchmark for EVERYTHING!!!  So now, my leveraged equity, my junk fixed income, my leveraged hedge funds, overextended real estate bets, and the WHOLE 9 YARDS blew up in my fcking face…so now, I’ll blame it on MPT!!!

Oh that’s right…my WORST 50 year old client is now down less than 10%, peak to trough, net of fees.  My 60+ year old clients are even, or positive, also net of fees.  And not a single one of them was forced to sell a depreciated asset for income!

Man, I’m a LOSER.  Plain vanilla LOSER.  I wish I could learn to be more tactical.  Maybe I should bone up on my MPT and AA and finance theory…maybe I could be legit someday. 

I should really bone up on my fundamental and technical analysis too.  I mean, maybe if Lil’ old me, here in bumblef*** USA started looking at fundy’s, I could do my clients right.  I mean, because it’s US, the retail end of the market that brings thing in and out of equalibrium…it’s not the CFAs, and the Ph.D’s on the institutional side.  It’s little old me, and my few $MM book of retail teachers and small business owners that determine prices!

sh*t, I need to stop posting, I have analysis to do and a trading algorithm to write…CLEARLY, at this stage of the game, AA, MPT, and EMH are WRONG. 

PS - DFA, and the people that run it are a joke!  Losers.

[quote=iceco1d]Dude,

WTF?  Can’t you see that we are in a ‘secular bear?’ I mean, it’s SO clear.  If you are a tard, you probably still believe in idiotic things like “asset allocation” and “Modern Portfolio Theory!” 

If you don’t start analyzing stocks and trends, you will be fawked!!!   Seriously…MPT is BROKEN, and asset allocation is BULLsht!  I mean seriously, when you have bond funds, taking on leverage, with 20 year average durations, and an average credit quality of junk, or unrated, and then they drop along with equities, you KNOW that the whole asset allocation mantra is BS! 

Seriously folks, wake up and smell the coffee!  You need to start utilizing sector rotation.  You need to bone up on your behavioral finance.  You need to recognize trade patterns! 

Seriously morons.  The old way of buying a diversified basket of quality equities for the long term, and buying high quality, short duration, laddered fixed income investments, along with a few years of cash for really tough years is SCREWED.  I mean seriously.  Moron. 

I mean, obviously, it’s a good thing to have leverage in your bond funds…and an average credit rating of Pamela Anderson’s cup size…and an average duration of, oh, say, the age of the average financial advisor…this is all SOUND INVESTING at its finest!

You know, because that’s why you are supposed to have fixed income exposure in your portfolio right?  Junk ratings, Ron Jeremy length durations…all the stuff the “stable” part of a portfolio needs, right?!

Seriously, just like loading up on one particular sector or another of equities.  I mean, this is really prudent stuff here.

These are the exact teachings of MPT, and asset allocation, and plain vanilla investing, right?  These are the concepts that blue up in everyone’s face, right?

Oh crap…that’s right, I’m wrong!  I’ve been busy selling leveraged crap and comparing past returns to the S&P, because it’s an appropriate benchmark for EVERYTHING!!!  So now, my leveraged equity, my junk fixed income, my leveraged hedge funds, overextended real estate bets, and the WHOLE 9 YARDS blew up in my fcking face…so now, I’ll blame it on MPT!!!

Oh that’s right…my WORST 50 year old client is now down less than 10%, peak to trough, net of fees.  My 60+ year old clients are even, or positive, also net of fees.  And not a single one of them was forced to sell a depreciated asset for income!

Man, I’m a LOSER.  Plain vanilla LOSER.  I wish I could learn to be more tactical.  Maybe I should bone up on my MPT and AA and finance theory…maybe I could be legit someday. 

I should really bone up on my fundamental and technical analysis too.  I mean, maybe if Lil’ old me, here in bumblef*** USA started looking at fundy’s, I could do my clients right.  I mean, because it’s US, the retail end of the market that brings thing in and out of equalibrium…it’s not the CFAs, and the Ph.D’s on the institutional side.  It’s little old me, and my few $MM book of retail teachers and small business owners that determine prices!

sh*t, I need to stop posting, I have analysis to do and a trading algorithm to write…CLEARLY, at this stage of the game, AA, MPT, and EMH are WRONG. 

PS - DFA, and the people that run it are a joke!  Losers.

Ice- I have some of the same questions. I am not on the boone’s farm though (prefer bud light and squidbillies on dvd, might be a redneck joke coming I am sure). I personally feel that a lot of Monday morning quarterback bullsht goes on in here. I would like to see some of these same guys you are referring to give an example and stop sounding like every other bullsht f***er on bloomberg, fox, etc. that says there is so much opportunity but will not give on example and why. I feel if you invest in something you can’t prove or rationalize then you might as well be guessing. I do believe in strategies that take into consideration of capitulations of the market, but even implementing that in a small manner is very time consuming. I just don’t understand how someone has the time to be an advisor and a money manager at the same time.

Dude,

WTF?  Can’t you see that we are in a ‘secular bear?’ I mean, it’s SO clear.  If you are a tard, you probably still believe in idiotic things like “asset allocation” and “Modern Portfolio Theory!” 

If you don’t start analyzing stocks and trends, you will be fawked!!!   Seriously…MPT is BROKEN, and asset allocation is BULLsht!  I mean seriously, when you have bond funds, taking on leverage, with 20 year average durations, and an average credit quality of junk, or unrated, and then they drop along with equities, you KNOW that the whole asset allocation mantra is BS! 

Seriously folks, wake up and smell the coffee!  You need to start utilizing sector rotation.  You need to bone up on your behavioral finance.  You need to recognize trade patterns! 

Seriously morons.  The old way of buying a diversified basket of quality equities for the long term, and buying high quality, short duration, laddered fixed income investments, along with a few years of cash for really tough years is SCREWED.  I mean seriously.  Moron. 

I mean, obviously, it’s a good thing to have leverage in your bond funds…and an average credit rating of Pamela Anderson’s cup size…and an average duration of, oh, say, the age of the average financial advisor…this is all SOUND INVESTING at its finest!

You know, because that’s why you are supposed to have fixed income exposure in your portfolio right?  Junk ratings, Ron Jeremy length durations…all the stuff the “stable” part of a portfolio needs, right?!

Seriously, just like loading up on one particular sector or another of equities.  I mean, this is really prudent stuff here.

These are the exact teachings of MPT, and asset allocation, and plain vanilla investing, right?  These are the concepts that blue up in everyone’s face, right?

Oh crap…that’s right, I’m wrong!  I’ve been busy selling leveraged crap and comparing past returns to the S&P, because it’s an appropriate benchmark for EVERYTHING!!!  So now, my leveraged equity, my junk fixed income, my leveraged hedge funds, overextended real estate bets, and the WHOLE 9 YARDS blew up in my fcking face…so now, I’ll blame it on MPT!!!

Oh that’s right…my WORST 50 year old client is now down less than 10%, peak to trough, net of fees.  My 60+ year old clients are even, or positive, also net of fees.  And not a single one of them was forced to sell a depreciated asset for income!

Man, I’m a LOSER.  Plain vanilla LOSER.  I wish I could learn to be more tactical.  Maybe I should bone up on my MPT and AA and finance theory…maybe I could be legit someday. 

I should really bone up on my fundamental and technical analysis too.  I mean, maybe if Lil’ old me, here in bumblef*** USA started looking at fundy’s, I could do my clients right.  I mean, because it’s US, the retail end of the market that brings thing in and out of equalibrium…it’s not the CFAs, and the Ph.D’s on the institutional side.  It’s little old me, and my few $MM book of retail teachers and small business owners that determine prices!

sh*t, I need to stop posting, I have analysis to do and a trading algorithm to write…CLEARLY, at this stage of the game, AA, MPT, and EMH are WRONG. 

PS - DFA, and the people that run it are a joke!  Losers.

Dude,

WTF?  Can’t you see that we are in a ‘secular bear?’ I mean, it’s SO clear.  If you are a tard, you probably still believe in idiotic things like “asset allocation” and “Modern Portfolio Theory!” 

If you don’t start analyzing stocks and trends, you will be fawked!!!   Seriously…MPT is BROKEN, and asset allocation is BULLsht!  I mean seriously, when you have bond funds, taking on leverage, with 20 year average durations, and an average credit quality of junk, or unrated, and then they drop along with equities, you KNOW that the whole asset allocation mantra is BS! 

Seriously folks, wake up and smell the coffee!  You need to start utilizing sector rotation.  You need to bone up on your behavioral finance.  You need to recognize trade patterns! 

Seriously morons.  The old way of buying a diversified basket of quality equities for the long term, and buying high quality, short duration, laddered fixed income investments, along with a few years of cash for really tough years is SCREWED.  I mean seriously.  Moron. 

I mean, obviously, it’s a good thing to have leverage in your bond funds…and an average credit rating of Pamela Anderson’s cup size…and an average duration of, oh, say, the age of the average financial advisor…this is all SOUND INVESTING at its finest!

You know, because that’s why you are supposed to have fixed income exposure in your portfolio right?  Junk ratings, Ron Jeremy length durations…all the stuff the “stable” part of a portfolio needs, right?!

Seriously, just like loading up on one particular sector or another of equities.  I mean, this is really prudent stuff here.

These are the exact teachings of MPT, and asset allocation, and plain vanilla investing, right?  These are the concepts that blue up in everyone’s face, right?

Oh crap…that’s right, I’m wrong!  I’ve been busy selling leveraged crap and comparing past returns to the S&P, because it’s an appropriate benchmark for EVERYTHING!!!  So now, my leveraged equity, my junk fixed income, my leveraged hedge funds, overextended real estate bets, and the WHOLE 9 YARDS blew up in my fcking face…so now, I’ll blame it on MPT!!!

Oh that’s right…my WORST 50 year old client is now down less than 10%, peak to trough, net of fees.  My 60+ year old clients are even, or positive, also net of fees.  And not a single one of them was forced to sell a depreciated asset for income!

Man, I’m a LOSER.  Plain vanilla LOSER.  I wish I could learn to be more tactical.  Maybe I should bone up on my MPT and AA and finance theory…maybe I could be legit someday. 

I should really bone up on my fundamental and technical analysis too.  I mean, maybe if Lil’ old me, here in bumblef*** USA started looking at fundy’s, I could do my clients right.  I mean, because it’s US, the retail end of the market that brings thing in and out of equalibrium…it’s not the CFAs, and the Ph.D’s on the institutional side.  It’s little old me, and my few $MM book of retail teachers and small business owners that determine prices!

sh*t, I need to stop posting, I have analysis to do and a trading algorithm to write…CLEARLY, at this stage of the game, AA, MPT, and EMH are WRONG. 

PS - DFA, and the people that run it are a joke!  Losers.

It is totally Monday Morning QB with these guru’s. Look at my topic about 200k in new money a few months back. Dow was at 7k and not a single one of these guru’s would go 100% equities. They have given up on asset allocation, rebalancing, diversification, and the power of equities. They are chanting their death mantra, “This time is different.” !!!

[quote=Ron 14]blah blah blah, words words words blah buy words hold blah rebalance words diversify blah lucky words market timer blah impossible words unrepeatable blah blah blah !!!

[quote=iceco1d]

Let me tone it down a bit. Someone, please kindly explain to me how this strategy has led to the destruction of MPT, AA, EMH, etc.I’m near retirement. I’m putting 40 - 60% of my reitirement assets in a low cost basket of diversified equities. If I’m ultra conservative, or thinking I’m taking a bit too much risk than prudent (but too greedy to avoid it), I systematically buy puts on that basket.Great, this strategy sucked a fatty last year. It’s recovered reasonably thus far. It doesn’t matter BECAUSEwith another 40 - 60% of my money, I’ve invested in…A diversified mix of high quality corporate bonds, government securities, and maybe even some munis. I’ve stuck to high end investment grade stuff, and prudently laddered out my fixed income investments. I haven’t tried to squeeze out extra yield buying junk, or stretching out my maturities (or average durations). I’ve maintained my discipline, and I’ve used the fixed income piece of my portfolio for exactly what it’s intended for…stability. I’ve also kept between 5 and 15% of my portfolio in “cash” and equivilants. CDs. Money markets. Commercial paper. Maybe even some fixed and/or EIAs. In this situation, assuming you’re being “tactical” with your withdrawals for a retireee, you shouldn’t have had to touch a depreciated asset. In fact, at 4% withdrawals, you’d still be years away from taking income from an asset that’s in the red. This doesn’t even consider if you have pensions, social security, purchased a SPIA, or are utilizing living benefits for a piece of your retirement. Nor does it consider if I’ve dedicated a piece of my portfolio (maybe 10%?) to the non-traditional asset classes (futures, real estate, currency, commodities, hedge funds, leveraged ETFs, whatever trips your trigger).So, my question remains…how did this investment strategy end in apolcalypse? Just asking for an explaination from one of the tactical gurus on this site. Or elsewhere, for that matter. I’ve been watching you guys gang up on Ron for a week or two now. I think he & I invest in a similar fashion (although, I’m not sure). I’ve got a bottle of wine, a season of Boston Legal, a laptop, and TIME. Please, edumacate me.

[/quote]



Good post. The “this time is different” will be a forgotten fad 10 years

from now. MPT and AA still and always will make sense.

Explain how MPT makes sense - always. Please educate me, as ice said.



First of all - it is a theory.



Second, most assets become correlated during a down market.



Third, why has there been so much historic deviation from the mean? Normally, these are outliers, but when it happens as often as it has - it’s part of the normal distribution, which destroys the basis of the theory.



I don’t think “this time it’s different”. I think “every time it’s different”.



There are a myriad of investment theories and philosophies. MPT and AA are used by us in the investment world so that we can tell clients that because we understand the science of investing, they need us.



Let me tell you a story of a doorknock of an incredibly wealthy prospect when I was a newbie. The guy had about eight million dollars. I got an appointment with him and sat down with him. He proceeded to explain to me how he had acquired eight million dollars.



He used the money he made as a musician (think opera not Windy’s band) to trade during the late nineties.   He even gave me his investment strategy. He asked me what I was going to do to help him manage his money. I told him, “well, that’s great how you got that money. But you know, you really need to buy and hold and diversify. Right now, your money is concentrated in five individual stocks and a TON of cash. Really, you should sell those and let PROFESSIONALS manage your money. Let me take these statements with me and I’ll come up with a plan for you.” His response, "No thank you. I learned everything I needed about how you manage money."



Now, I was a rookie, but I was confident. But this guy had created his wealth by using simple, disciplined investment strategies that had nothing to do with MPT. He was also sixty years old, so he had been around for a little while.



MPT and AA will likely never end in Apocalypse. If it did, all theories would end. MPT is good for one thing - telling people that it’s ok to lose money.



It is extremely difficult to grow wealth by investing using AA and MPT. It just is. The people that have done it have “added more” from the money they generate from their JOB, not their INVESTMENTS.



Wealthy people own individual stocks. Those people also became wealthy because they owned individual stocks.



I think all theories are valid. They just have different functions.

Uh oh.

[quote=iceco1d]

[quote=Moraen]Explain how MPT makes sense - always. Please educate me, as ice said.



First of all - it is a theory.

Indeed it is. And it is a theory that needs to be adapted when being implemented in the “real world.”



Agree. But the “real world” that we live in is populated by irrational people. MPT is like most economic theories - it assumes people are rational.



Second, most assets become correlated during a down market.

I do not believe this to be true, and I do not believe there is much evidence to support this either.Although my rant was a bit “under the influence,” I still believe most of what I said to be true. I think some of the points I touched on in my rant, are points that don’t get considered by most FAs. You have to consider the environment that most fund managers operate in; they have goals, benchmarks, targets, etc., to determine how much money they make, and even IF they keep their job. You have a lot of funds doing things are really not that prudent, just so they can tout their numbers during the good years. I don’t understand, how anyone can look at the assets that completely blew up last year, and find a way to blame it on MPT.



We’ll have to disagree on this then. You can’t blame MPT for assets themselves getting blown up, but you can blame it for why it was how people’s portfolios blew up. Agree about fund managers. Definitely is not their fault. They usually have to follow prospectuses. I believe there is plenty of evidence to support that most assets become MORE closely correlated - not perfectly correlated for sure. My bad.



Third, why has there been so much historic deviation from the mean? Normally, these are outliers, but when it happens as often as it has - it’s part of the normal distribution, which destroys the basis of the theory.

You’re going to have to elaborate on this for me. How often is “often?” Maybe I’m arguing a different point here. I’m talking the whole ball of wax. The whole idea of conventional thinking about “diversify, allocate assets, back off of equities as you get older, etc.” and the allegation that it’s a bogus strategy.



Statistically speaking, outliers happen almost never. The S &P 500, according to MPT, should never have lost more than 12.7% in one month, EVER. However, it has happened either eleven or twelve times (I can’t remember which). This puts it on the normal distribution curve, which invalidates the theory.



I don’t think “this time it’s different”. I think “every time it’s different”.



I agree. There are a myriad of investment theories and philosophies. MPT and AA are used by us in the investment world so that we can tell clients that because we understand the science of investing, they need us.



I will agree to the extent that many FAs tout “MPT” for various reasons, and have no clue what it’s really all about…nor do a lot of FAs have any idea what they are selling, or why. Most FAs get their investment strategies from other salesmen - either fellow FAs, or wholesalers. All the same.Let me tell you a story of a doorknock of an incredibly wealthy prospect when I was a newbie. The guy had about eight million dollars. I got an appointment with him and sat down with him. He proceeded to explain to me how he had acquired eight million dollars.



He used the money he made as a musician (think opera not Windy’s band) to trade during the late nineties.   He even gave me his investment strategy. He asked me what I was going to do to help him manage his money. I told him, “well, that’s great how you got that money. But you know, you really need to buy and hold and diversify. Right now, your money is concentrated in five individual stocks and a TON of cash. Really, you should sell those and let PROFESSIONALS manage your money. Let me take these statements with me and I’ll come up with a plan for you.” His response, "No thank you. I learned everything I needed about how you manage money."



Now, I was a rookie, but I was confident. But this guy had created his wealth by using simple, disciplined investment strategies that had nothing to do with MPT. He was also sixty years old, so he had been around for a little while.



I believe that 100%. Lets shift gears here for a second, and focus on the Efficient Markets Hypothesis, and how that may have applied to this particular client. 15 years ago, 25 years ago, etc., investing was a whole different ball game. You could “pick stocks.” You could “identify trends.” You could do lots of things, because the flow of info, and the “market” reacted to such info at a much slower pace. It had to. The technology didn’t exist to uncover, or disseminate that information at the pace that it can today. There was also the consideration that the shear number of people participating in the market actively, was much MUCH lower. This is a trend that is going to continue. The more and more efficient markets become, the less and less effective ANY type of active management will be, and the MORE resources it will take to uncover and exploit inefficiencies.Your 60 year old prospect, made sht-tons of money in the stock market during a time when it was simply easier to do. Your prospect probably also had some luck on his side.MPT and AA will likely never end in Apocalypse. If it did, all theories would end. MPT is good for one thing - telling people that it’s ok to lose money.



If you want to be an investor, you have to be OK with losing money on occassion. Investments are for the long term. Not just securities investments, ANY investment. When you invest in a new office, you are expecting it to be a long term payoff.I have a friend that did some auditting for MER during the BofA merger. He said it was unreal how cluttered and ambiguous their books were. He said it was basically an impossible task to audit them. Now, you’ve made mention SEVERAL times that you do your own fundamental analysis on individual securities…if you have major accounting firms that can’t make heads or tails of MER’s books, how on Earth do you have any chance? I mean, YOU can only work with numbers that someone ELSE is giving you anyway. How many times have we seen books cooked, ridiculous errors, etc.? How can you be effective using numbers like that? Heck, look at Bear Stearns? They went into the damn weekend telling the WORLD they were fine. What info could you have used to contradict that statement? How about Enron?There are people as smart as, or smarter than, you and I that do nothing but look at these firms books all day long, and STILL manage to get caught with their pants down.I want to know, what information, what algorithms, what ANYTHING are you, and your 60 year old UHNW prospect using these days?It is extremely difficult to grow wealth by investing using AA and MPT. It just is. The people that have done it have “added more” from the money they generate from their JOB, not their INVESTMENTS.

I strongly disagree with this. By following a disciplined investment strategy, using MPT and AA, you can indeed grow your wealth very effectively. Here is the difference: your prospect INTENDED to trade himself to ONE of TWO places - RICH or BROKE. It just so happens that he ended up rich. There are just as many people like him, if not MORE, that ended up BROKE. That was HIS objective.To Joe Smith, with a wife, and a 401K, and a Roth IRA, and a regular old job, they CAN’T ACCEPT BROKE. They need to grow their wealth over time. They want to retire someday. They want to leave something for their kids. They don’t want to trade themselves either rich or broke - they’d like rich, but can’t afford to risk being broke chasing it.Yes, diversification effectively kills your chances of becoming instantly wealthy a la “I put my entire savings account in Cisco in 1990 and sold it in 1999!!!” But for most people, that’s OK…because they want to avoid "I quit my job to be a trader…but I got burned in Enron, Puma Technologies, eToys.com, Bear Stearns, yada yada yada, and now I’ve lost my house!"

Wealthy people own individual stocks. Those people also became wealthy because they owned individual stocks.

Total bullsht (pardon my french). Wealthy people own stocks, yes. But they also own ETFs, UITs, individual munis, real estate, etc. Some of them even own mutual funds and annuities. HOWEVER - MOST wealthy people didn’t become wealthy because they “bought individual stocks” - most wealthy people became wealthy because they have a great job, or they started a great business, or they inherited a sht-ton of money, or they had a house in Ocean City on the boardwalk before it became a tourist haven. Most wealthy people got that way completely independent of the stock market. Besides, the number 1 goal of a HWN person is simply to STAY A HNW PERSON. They don’t NEED equities, because they don’t need that much growth. They need to keep pace with, and slightly stay ahead of, inflation, and they need to do it in a TAX-EFFICIENT MANNER.Wealthy people don’t buy as many “packaged products” (like mutual funds) because they aren’t cost efficient for the amount of money they are investing. They don’t NEED to pay Vanguard 15 bps a year to assemble an S&P 500 index fund - if they want exposure to the S&P, they can just BUY THE STOCKS for less cost on a commission basis. It’s about cost for the UHNW people (with the packaged products). Mutual funds were invented because Joe Blow can’t get exposure to what he needs $50 at a clip. It’s different when you have $5MM. I think all theories are valid. They just have different functions. [/quote]Really though, Ron makes a few good points. Where was everyone when the Dow was @ 6.6K? Why weren’t all of the quasi-analysts saying GET IN NOW!!! Why not @ 7.5K? Or 8K? Why weren’t they on here telling us @ Dow 14 or 13K to GET THE FCK OUT!More importantly, as has been stated before…if you are THAT SURE, why do you have clients? If you were that good, and that consistently good, with the volatility we’ve had this year, u hopefully made yourself a few million dollars, at least.There just seems to be a complete lack of perspective with these discussions. Perspective of what our clients need us to do for them, and what our capabilities are. I’d like to post more, but I’m out of here for the week (will probably be on briefly a few times, but that’s it). Really though, all of these theories, like any theory, don’t apply PERFECTLY to the real world, but they do indeed apply if you understand them. There is too much cliche talk of how all of these concepts are “dead” and “wrong” - it’s bull. [/quote]





OK, it’s hard for my browser to read this when I quote people. I think it is bullsh!t that people who invest in individual stocks go Broke more often than not. That’s what we tell ourselves. He was just one example.



The great thing about individual stocks is that you don’t really care what the dow is doing. At least I don’t. You can have a number of disciplined strategies that allow you to receive a return that is better than the market. Does that mean you’ll make a million dollars? Of course not. It may take a few months (or even a year) to reach certain price targets.



This means that I can’t “retire” in a few months. I don’t have predictive powers. As for valuing securities. I have a theory (yes, a theory) that I have tested on a few investment banks. IB’s are anchored to higher prices (just like people) and so are analysts. If you look at the Level II Equities and Fixed Income part of the CFA curriculum, it is obvious that a lot of analysts are using bad processes on good intel.



Going back to your point about numbers being either cooked, errors made - you are 100% correct. This requires a more conservative approach to analysis and pricing. I don’t have it to an exact science, but a conservative approach works best.



I agree that the mass affluent investors simply need some guidance in retirement. For those clients, I am happy to refer them to you and Ron (I promise). For those who like to generate wealth by investing, I believe I can help. Up market, down market, sideways market. Will they be receiving 500% returns (ice - you and I have spoken about this - even I believe it is unrealistic)? Unlikely. But can you take advantage of analysts bad pricing? I believe so.



Also, as for the markets becoming more and more efficient - big surprise here - I don’t believe in strong or semi-strong EMH. That’s a whole different topic.



I also agree that this particular prospect had a lot of luck on his side. But I think it is easy to dismiss his success as “pure luck”, when I have seen it time and again. I had another prospect who made his first million picking stocks from just picking ticker symbols in the paper - that was luck. I have seen people make money off of individual stocks too often to dismiss it as luck.



Anyway, I simply think there are other ways. The point of science is to question everything. When we think we have all of the answers, we are finished. As investors, as people. You name it.

[quote=iceco1d]
[quote=Moraen]Explain how MPT makes sense - always. Please educate me, as ice said.

First of all - it is a theory.
Indeed it is.  And it is a theory that needs to be adapted when being implemented in the “real world.” 

Agree. But the “real world” that we live in is populated by irrational people. MPT is like most economic theories - it assumes people are rational.

Second, most assets become correlated during a down market.
I do not believe this to be true, and I do not believe there is much evidence to support this either.Although my rant was a bit “under the influence,” I still believe most of what I said to be true.  I think some of the points I touched on in my rant, are points that don’t get considered by most FAs.  You have to consider the environment that most fund managers operate in; they have goals, benchmarks, targets, etc., to determine how much money they make, and even IF they keep their job.  You have a lot of funds doing things are really not that prudent, just so they can tout their numbers during the good years.  I don’t understand, how anyone can look at the assets that completely blew up last year, and find a way to blame it on MPT. 

We’ll have to disagree on this then. You can’t blame MPT for assets themselves getting blown up, but you can blame it for why it was how people’s portfolios blew up. Agree about fund managers. Definitely is not their fault. They usually have to follow prospectuses. I believe there is plenty of evidence to support that most assets become MORE closely correlated - not perfectly correlated for sure. My bad.

Third, why has there been so much historic deviation from the mean? Normally, these are outliers, but when it happens as often as it has - it’s part of the normal distribution, which destroys the basis of the theory.
You’re going to have to elaborate on this for me.  How often is “often?”  Maybe I’m arguing a different point here.  I’m talking the whole ball of wax.  The whole idea of conventional thinking about “diversify, allocate assets, back off of equities as you get older, etc.” and the allegation that it’s a bogus strategy. 

Statistically speaking, outliers happen almost never. The S &P 500, according to MPT, should never have lost more than 12.7% in one month, EVER. However, it has happened either eleven or twelve times (I can’t remember which). This puts it on the normal distribution curve, which invalidates the theory.

I don’t think “this time it’s different”. I think “every time it’s different”.

I agree. There are a myriad of investment theories and philosophies. MPT and AA are used by us in the investment world so that we can tell clients that because we understand the science of investing, they need us.

I will agree to the extent that many FAs tout “MPT” for various reasons, and have no clue what it’s really all about…nor do a lot of FAs have any idea what they are selling, or why.  Most FAs get their investment strategies from other salesmen - either fellow FAs, or wholesalers.  All the same.Let me tell you a story of a doorknock of an incredibly wealthy prospect when I was a newbie. The guy had about eight million dollars. I got an appointment with him and sat down with him. He proceeded to explain to me how he had acquired eight million dollars.

He used the money he made as a musician (think opera not Windy’s band) to trade during the late nineties.   He even gave me his investment strategy. He asked me what I was going to do to help him manage his money. I told him, “well, that’s great how you got that money. But you know, you really need to buy and hold and diversify. Right now, your money is concentrated in five individual stocks and a TON of cash. Really, you should sell those and let PROFESSIONALS manage your money. Let me take these statements with me and I’ll come up with a plan for you.” His response, “No thank you. I learned everything I needed about how you manage money.”

Now, I was a rookie, but I was confident. But this guy had created his wealth by using simple, disciplined investment strategies that had nothing to do with MPT. He was also sixty years old, so he had been around for a little while.

I believe that 100%.  Lets shift gears here for a second, and focus on the Efficient Markets Hypothesis, and how that may have applied to this particular client.  15 years ago, 25 years ago, etc., investing was a whole different ball game.  You could “pick stocks.”  You could “identify trends.”  You could do lots of things, because the flow of info, and the “market” reacted to such info at a much slower pace.  It had to.  The technology didn’t exist to uncover, or disseminate that information at the pace that it can today.  There was also the consideration that the shear number of people participating in the market actively, was much MUCH lower.  This is a trend that is going to continue.  The more and more efficient markets become, the less and less effective ANY type of active management will be, and the MORE resources it will take to uncover and exploit inefficiencies.Your 60 year old prospect, made sht-tons of money in the stock market during a time when it was simply easier to do.  Your prospect probably also had some luck on his side.MPT and AA will likely never end in Apocalypse. If it did, all theories would end. MPT is good for one thing - telling people that it’s ok to lose money.

If you want to be an investor, you have to be OK with losing money on occassion.  Investments are for the long term.  Not just securities investments, ANY investment.  When you invest in a new office, you are expecting it to be a long term payoff.I have a friend that did some auditting for MER during the BofA merger.  He said it was unreal how cluttered and ambiguous their books were.  He said it was basically an impossible task to audit them.  Now, you’ve made mention SEVERAL times that you do your own fundamental analysis on individual securities…if you have major accounting firms that can’t make heads or tails of MER’s books, how on Earth do you have any chance?  I mean, YOU can only work with numbers that someone ELSE is giving you anyway.  How many times have we seen books cooked, ridiculous errors, etc.?  How can you be effective using numbers like that?  Heck, look at Bear Stearns?  They went into the damn weekend telling the WORLD they were fine.  What info could you have used to contradict that statement?  How about Enron?There are people as smart as, or smarter than, you and I that do nothing but look at these firms books all day long, and STILL manage to get caught with their pants down.I want to know, what information, what algorithms, what ANYTHING are you, and your 60 year old UHNW prospect using these days?It is extremely difficult to grow wealth by investing using AA and MPT. It just is. The people that have done it have “added more” from the money they generate from their JOB, not their INVESTMENTS.
I strongly disagree with this.  By following a disciplined investment strategy, using MPT and AA, you can indeed grow your wealth very effectively.  Here is the difference:  your prospect INTENDED to trade himself to ONE of TWO places - RICH or BROKE.  It just so happens that he ended up rich.  There are just as many people like him, if not MORE, that ended up BROKE.  That was HIS objective.To Joe Smith, with a wife, and a 401K, and a Roth IRA, and a regular old job, they CAN’T ACCEPT BROKE.  They need to grow their wealth over time.  They want to retire someday.  They want to leave something for their kids.  They don’t want to trade themselves either rich or broke - they’d like rich, but can’t afford to risk being broke chasing it.Yes, diversification effectively kills your chances of becoming instantly wealthy a la “I put my entire savings account in Cisco in 1990 and sold it in 1999!!!”  But for most people, that’s OK…because they want to avoid “I quit my job to be a trader…but I got burned in Enron, Puma Technologies, eToys.com, Bear Stearns, yada yada yada, and now I’ve lost my house!”
Wealthy people own individual stocks. Those people also became wealthy because they owned individual stocks.
Total bullsht (pardon my french).  Wealthy people own stocks, yes.  But they also own ETFs, UITs, individual munis, real estate, etc.  Some of them even own mutual funds and annuities.  HOWEVER - MOST wealthy people didn’t become wealthy because they “bought individual stocks” - most wealthy people became wealthy because they have a great job, or they started a great business, or they inherited a sht-ton of money, or they had a house in Ocean City on the boardwalk before it became a tourist haven.  Most wealthy people got that way completely independent of the stock market.   Besides, the number 1 goal of a HWN person is simply to STAY A HNW PERSON.  They don’t NEED equities, because they don’t need that much growth.  They need to keep pace with, and slightly stay ahead of, inflation, and they need to do it in a TAX-EFFICIENT MANNER.Wealthy people don’t buy as many “packaged products” (like mutual funds) because they aren’t cost efficient for the amount of money they are investing.  They don’t NEED to pay Vanguard 15 bps a year to assemble an S&P 500 index fund - if they want exposure to the S&P, they can just BUY THE STOCKS for less cost on a commission basis.  It’s about cost for the UHNW people (with the packaged products).  Mutual funds were invented because Joe Blow can’t get exposure to what he needs $50 at a clip.  It’s different when you have $5MM.  I think all theories are valid. They just have different functions. [/quote]Really though, Ron makes a few good points.  Where was everyone when the Dow was @ 6.6K?  Why weren’t all of the quasi-analysts saying GET IN NOW!!!  Why not @ 7.5K?  Or 8K?  Why weren’t they on here telling us @ Dow 14 or 13K to GET THE FCK OUT!More importantly, as has been stated before…if you are THAT SURE, why do you have clients?  If you were that good, and that consistently good, with the volatility we’ve had this year, u hopefully made yourself a few million dollars, at least.There just seems to be a complete lack of perspective with these discussions.  Perspective of what our clients need us to do for them, and what our capabilities are.  I’d like to post more, but I’m out of here for the week (will probably be on briefly a few times, but that’s it).  Really though, all of these theories, like any theory, don’t apply PERFECTLY to the real world, but they do indeed apply if you understand them.  There is too much cliche talk of how all of these concepts are “dead” and “wrong” - it’s bull.  [/quote]


OK, it’s hard for my browser to read this when I quote people. I think it is bullsh!t that people who invest in individual stocks go Broke more often than not. That’s what we tell ourselves. He was just one example.

The great thing about individual stocks is that you don’t really care what the dow is doing. At least I don’t. You can have a number of disciplined strategies that allow you to receive a return that is better than the market. Does that mean you’ll make a million dollars? Of course not. It may take a few months (or even a year) to reach certain price targets.

This means that I can’t “retire” in a few months. I don’t have predictive powers. As for valuing securities. I have a theory (yes, a theory) that I have tested on a few investment banks. IB’s are anchored to higher prices (just like people) and so are analysts. If you look at the Level II Equities and Fixed Income part of the CFA curriculum, it is obvious that a lot of analysts are using bad processes on good intel.

Going back to your point about numbers being either cooked, errors made - you are 100% correct. This requires a more conservative approach to analysis and pricing. I don’t have it to an exact science, but a conservative approach works best.

I agree that the mass affluent investors simply need some guidance in retirement. For those clients, I am happy to refer them to you and Ron (I promise). For those who like to generate wealth by investing, I believe I can help. Up market, down market, sideways market. Will they be receiving 500% returns (ice - you and I have spoken about this - even I believe it is unrealistic)? Unlikely. But can you take advantage of analysts bad pricing? I believe so.

Also, as for the markets becoming more and more efficient - big surprise here - I don’t believe in strong or semi-strong EMH. That’s a whole different topic.

I also agree that this particular prospect had a lot of luck on his side. But I think it is easy to dismiss his success as “pure luck”, when I have seen it time and again. I had another prospect who made his first million picking stocks from just picking ticker symbols in the paper - that was luck. I have seen people make money off of individual stocks too often to dismiss it as luck.

Anyway, I simply think there are other ways. The point of science is to question everything. When we think we have all of the answers, we are finished. As investors, as people. You name it.

this is nothing more than a -tradeable bear market rall.

If it’s a tradable bear market rally, the question that has been asked multiple times is when to sell? Should you have sold in June? s&p 900? 1000? 1100?



Maybe the real quesion is whether you have even bought back in and participated in this “tradeable bear market rally?” If not, for your client’s sake, I hope you do get the dip so your pride will be enough intact to put your clients back in.

[quote=Ron 14]It is totally Monday Morning QB with these guru’s. Look at my topic about 200k in new money a few months back. Dow was at 7k and not a single one of these guru’s would go 100% equities. They have given up on asset allocation, rebalancing, diversification, and the power of equities. They are chanting their death mantra, “This time is different.” !!!

Holy guacamole.  I was lost somewhere around the middle of page 2.