A portfolio addition that adds to diversification and thus reduces a risk in a portfolio i.e. it should have low or negative correlation with othe holdings,.. Listening to those gold ads one certainly gets the impression that is the relationship between gold and stocks and would be the results of adding gold to a portfolio.
Remember if 2 holdings move in tandem even if one outperforms the other they can still be highly correlatted. For instance emerging markets have strongly out performed the US market but in the same direction hence
their correlation for one year is ,88(88%), I didn't have access to the data for gold but just eyeballing the charts for een vs sp 500 ( top chart) it is surely very similar to the gold sp500 one year (middle) and 2 year (charts) i,e, high correlation.
Btw
gold's (GLD)return ytd is 22.7%
S+P 500 (SPY) 25.97%
emerging markets index (VWO) 71.23%
DBB (base metals ) +82.79%
mention that to Glenn et al when you call in
Wednesday, December 23, 2009
Sunday, December 20, 2009
Some Good Investing Lessons
From the LA Times
Tom Petruno of the LA Times published a column with his 5 "investment lessons of 2009" They are nothing remarkable, but 3 of them are worth reprinting here. The fact that they need to be pointed out shows how often investors fall into the traps pointed out by researchers in behavioral finance.
But I would make these 2 observations about the ones I reprinted here:
1. Probably the most important role a professional investment advisor can provide is to "save investors from themselves" by preventing them form learning these lessons with their own money. The saving in "tuition" alone is often worth the fee. Although of course the advisor should do more.
2. On the other hand if you have a professional investment advisor and he has not avoided the pitfalls listed below....fire you advisor.
From tHe article here are the 3 of the article's 5 investing lessons that will stand the test of time
Tom Petruno of the LA Times published a column with his 5 "investment lessons of 2009" They are nothing remarkable, but 3 of them are worth reprinting here. The fact that they need to be pointed out shows how often investors fall into the traps pointed out by researchers in behavioral finance.
But I would make these 2 observations about the ones I reprinted here:
1. Probably the most important role a professional investment advisor can provide is to "save investors from themselves" by preventing them form learning these lessons with their own money. The saving in "tuition" alone is often worth the fee. Although of course the advisor should do more.
2. On the other hand if you have a professional investment advisor and he has not avoided the pitfalls listed below....fire you advisor.
From tHe article here are the 3 of the article's 5 investing lessons that will stand the test of time
* Keep the faith in the world's emerging markets. For much of this decade, Americans have been advised to invest overseas because that's where economic growth was likely to be fastest in the long run -- particularly in developing economies such as China, India and Brazil.
The story line still holds up. If anything, it's more appealing now than a year ago. No surprise, then, that many emerging markets, after falling more sharply in 2008 than the U.S. market, also have come back much faster this year.
The average emerging-markets stock mutual fund is up 68% in 2009 after losing 55% last year.
Obviously, emerging markets are more volatile than developed markets, and that isn't going to change soon. But the world is a much different place from even a decade ago. It isn't just that emerging economies are growing faster; they also have accumulated vast wealth that gives them economic critical mass.
We are the debtor now; they are the creditors. Why would you not want a long-term stake in the creditors?
* You can still trust basic portfolio diversification. In other words, making sure your portfolio has a broad mix of investments remains the best strategy for achieving growth without undue risk to your nest egg.
In the fall of 2008 nearly every type of asset was collapsing, largely because hedge funds and other big investors had to sell whatever they could to raise cash as credit dried up and lenders called in loans....
Simply put, broad-based diversification raises the likelihood that you'll always have some assets doing well, at least partly offsetting those that aren't. And if some chunk of your portfolio is holding up in tough times, you will be less inclined to sell your losers at the wrong point -- i.e., at or near the bottom.
Diversification is such a simple concept, and so easy to accomplish. It's amazing to me how many investors think there must be some trick to it.....
* Don't invest solely by looking in the rearview mirror. After a year like 2008, it may be hard to take your mind off how much you've lost. That's understandable, but it also can obscure the opportunities in front of you.
Classic rearview-mirror investing leads to buying what has recently performed best. That's the opposite of what people know they should do, which is to buy low.
I think the greater problem now with the rearview mirror is that many people can't stop thinking about how much they're down. Stop counting your losses, and focus more on what your portfolio needs to meet your long-term goals. You'll feel better.
Friday, December 18, 2009
We Know We Should Index But We Can't Seem to Resist....
But that doesn't prevent the "seeking alpha syndrome" from being alive and well there. Human nature seems the same around the world From Slate
The Myth of the "Typical" Investor
Who is Mrs. Cohen from Hadera, and should Israelis care where she puts her money?
By Daniel Gross
Posted Tuesday, Dec. 15, 2009, at 1:44 PM ET
T
EL AVIV, Israel—Amram Aharoni has a serious résumé, but he has the mien of a comedian. On Sunday at the Globes' Israel Business Conference, Aharoni, who teaches investment theory and finance at the Herzliya Interdisciplinary Center, ran through his many qualifications—degrees from Tel Aviv University, a doctorate in finance from New York University, many years of experience in the financial sector—before throwing up his hands. "I'm supposed to be a specialist in the capital markets, but I want to confess that many times I know nothing. How can I not foresee the future and any junior analyst can tell me what's going to happen?" In laying out the modern case against active asset management, Aharoni name-checked the efficient markets hypothesis, Nassim Nicholas Taleb's The Black Swan, and ran through a bunch of gems from the behavioralist playbook (like those surveys that show most people think they're above-average drivers). Aharoni assembled a series of analysts' quotes making foolish and wrong short-term market projections, and displayed a chart showing that out of a few dozen Israeli investment funds, only three beat their benchmark indices over eight years.
And then … he turned over the session to a panel of six Israeli economists and asset managers who offered opinions on what would happen next in the markets and where people should put their money.
The conference's schedule was full of boldface names, including Prime Minister Benjamin Netanyahu, technology entrepreneurs, and Israeli business leaders. But the name on everybody's lips in this session was someone I had never heard of: a Mrs. Cohen from Hadera—G'veret Cohen m'Hadera, in Hebrew. How would she react to the news? Where is she putting her money now? Given the knowledge that it's tough to beat the market, should she just invest in index funds? Is she buying bonds, or gold, or avoiding the dollar? And what should she be doing
She's a housewife, manager of her home's finances; she's skeptical, careful, conservative yet susceptible to advice and prone to fads, but ultimately influential to the direction and performance of the domestic capital markets.
Despite the Hype... Many Investors Seem to Be Getting the Right Message....
....and voting with the dollars in a landslide money is going into low cost etfs and coming out of illiquid expensive hedge funds of funds (the hedge fund vehicle targeted at individual investors. See the two articles below
But the dollar$ still in the hedge fund area relative to etfs is still shockingly high imo. At $440 billion worldwide it is a big number. Even if the number of $752 bln in US assets invested in etfs doesn't include the indexed assets invested in US mutual funds and indexed investments outside the US, it is still too low imo relative to the hedge funds of funds numbers.
The most common fee structure for the hedge funds of funds is 2% annual fee + 20% of profits. A well diversified portfolio if etfs could be constructed with an annual fee of .25% with no performance fee at all. That means the hedge fund of fund investors with their $440 billion in assets will be paying an absolute minimum of $7.7 bln in additional fees
my bolds, my comments in bold italics
Assets at Funds of Hedge Funds Drop by Nearly Half Since Peak .
By WILLIAM HUTCHINGS
The fund-of-hedge-funds industry has seen its assets continue to drop sharply this year, amid investor withdrawals as its performance has fallen farther behind actual hedge funds.
In terms of asset flows, 2009 has been the worst year on record for funds of hedge funds, with net redemptions amounting to $164 billion world-wide in the first 11 months of the year, leaving total assets at $440 billion, according to data provider Eurekahedge. Value of assets under management peaked at $823 billion in May 2008, meaning assets have now dropped by nearly half.
not only are hedge funds a poor investment, hedge fund of funds the vehicle targeted at "mass affluent" investors perform even more poorly than the overall universe of hedge funds (and often charge additional fees)
Funds of hedge funds have underperformed the hedge-fund industry by more than eight percentage points so far this year, significantly worse than in previous years. The Eurekahedge fund of funds index was up 9.17% for the year to the end of November, while the overall Eurekahedge hedge fund index was up 18.24%; similarly, the HFRI fund-of-funds index published by data provider Hedge Fund Research was up 10.69%, while its overall hedge-fund index was up 18.72%.
In previous years, funds of hedge funds generally underperformed hedge funds by at most a couple of percentage points, according to Hedge Fund Research's figures, with the difference largely attributable to fees.
The fund-of-hedge-funds industry comprises 3,110 funds, according to Eurekahedge. This is 15% down from the total at the end of 2007. The fact that the number of funds has fallen by only 15%, while assets under management have fallen by 50%, indicates that most managers have continued to run their funds but with reduced assets.
The money flows have been in the other direction with regard to etfs:
from index universe
November ETF Assets Hit Record Levels
Investors poured $17.5 billion in new cash into exchange-traded funds and exchange-traded notes in November, according to new data released from the National Stock Exchange, pushing total assets under management in the U.S. to a new record of $752 billion.
Year-to-date, investors have poured $89.7 billion in new cash into various exchange-traded products; down from $132 billion for the first 11 months of 2008, but a strong showing nonetheless.
Most of the inflows were into ETFs, which gathered $17.1 billion, and now have $743 billion in assets under management. ETNs gained $354 million in new flows; combined with market returns, that brought their total AUM to $8.2 billion
But the dollar$ still in the hedge fund area relative to etfs is still shockingly high imo. At $440 billion worldwide it is a big number. Even if the number of $752 bln in US assets invested in etfs doesn't include the indexed assets invested in US mutual funds and indexed investments outside the US, it is still too low imo relative to the hedge funds of funds numbers.
The most common fee structure for the hedge funds of funds is 2% annual fee + 20% of profits. A well diversified portfolio if etfs could be constructed with an annual fee of .25% with no performance fee at all. That means the hedge fund of fund investors with their $440 billion in assets will be paying an absolute minimum of $7.7 bln in additional fees
my bolds, my comments in bold italics
Assets at Funds of Hedge Funds Drop by Nearly Half Since Peak .
By WILLIAM HUTCHINGS
The fund-of-hedge-funds industry has seen its assets continue to drop sharply this year, amid investor withdrawals as its performance has fallen farther behind actual hedge funds.
In terms of asset flows, 2009 has been the worst year on record for funds of hedge funds, with net redemptions amounting to $164 billion world-wide in the first 11 months of the year, leaving total assets at $440 billion, according to data provider Eurekahedge. Value of assets under management peaked at $823 billion in May 2008, meaning assets have now dropped by nearly half.
not only are hedge funds a poor investment, hedge fund of funds the vehicle targeted at "mass affluent" investors perform even more poorly than the overall universe of hedge funds (and often charge additional fees)
Funds of hedge funds have underperformed the hedge-fund industry by more than eight percentage points so far this year, significantly worse than in previous years. The Eurekahedge fund of funds index was up 9.17% for the year to the end of November, while the overall Eurekahedge hedge fund index was up 18.24%; similarly, the HFRI fund-of-funds index published by data provider Hedge Fund Research was up 10.69%, while its overall hedge-fund index was up 18.72%.
In previous years, funds of hedge funds generally underperformed hedge funds by at most a couple of percentage points, according to Hedge Fund Research's figures, with the difference largely attributable to fees.
The fund-of-hedge-funds industry comprises 3,110 funds, according to Eurekahedge. This is 15% down from the total at the end of 2007. The fact that the number of funds has fallen by only 15%, while assets under management have fallen by 50%, indicates that most managers have continued to run their funds but with reduced assets.
The money flows have been in the other direction with regard to etfs:
from index universe
November ETF Assets Hit Record Levels
Investors poured $17.5 billion in new cash into exchange-traded funds and exchange-traded notes in November, according to new data released from the National Stock Exchange, pushing total assets under management in the U.S. to a new record of $752 billion.
Year-to-date, investors have poured $89.7 billion in new cash into various exchange-traded products; down from $132 billion for the first 11 months of 2008, but a strong showing nonetheless.
Most of the inflows were into ETFs, which gathered $17.1 billion, and now have $743 billion in assets under management. ETNs gained $354 million in new flows; combined with market returns, that brought their total AUM to $8.2 billion
Wednesday, December 16, 2009
Bad Investing Advice From the WSJ (again) This Time on Foreign Bonds
Another bad source for investment advice
WSJ December 8, 2009 my bolds
advice for the individual investor:
Why Foreign Bonds Make Sense For Income-Oriented Investors . by Jennifer Levitz
actual news from the foreign bond market
DECEMBER 9, 2009
Countries' Debt Woes Pose Risk to Upturn
By JOANNA SLATER, BRIAN BLACKSTONE and MARCUS WALKER
WSJ today page one
Debt Fears Rattle Europe
By MARCUS WALKER
The euro tumbled as debt woes spread around the euro zone from Greece, where pledges of austerity and fiscal rigor failed to stem growing fears that the Continent's economic recovery could be derailed.
The euro fell as low as $1.4505 on Tuesday, its lowest level since early October. New worries about Austrian banking also roiled markets, with rumors of trouble at an Austrian lender with shaky investments in Eastern Europe following Monday's surprise nationalization of another Austrian bank at the behest of the European Central Bank.
Greece is just "the tip of the iceberg," said Norbert Barthle, budget spokesman for the ruling Christian Democratic Union of German chancellor Angela Merkel. The exploding budget deficits of weaker economies have forced Germany and other financially stronger countries to think about how to shore up other members of the euro zone against a potential financial-market rout.
Portugal, Ireland, Italy, Greece and Spain, a group traders have disparagingly dubbed "PIIGS," all have huge budget deficits and very low growth prospects, which means their debt is on course to rise further, fast.
The countries' wages and costs have steadily risen, but as euro-zone members they can't respond by devaluing their currency, a problem that strains the bonds tying together the currency bloc. Their soaring deficits are testing the credibility of the euro zone's so-called stability pact, in which governments promise not to spend wildly.
WSJ December 8, 2009 my bolds
advice for the individual investor:
Why Foreign Bonds Make Sense For Income-Oriented Investors . by Jennifer Levitz
actual news from the foreign bond market
DECEMBER 9, 2009
Countries' Debt Woes Pose Risk to Upturn
By JOANNA SLATER, BRIAN BLACKSTONE and MARCUS WALKER
WSJ today page one
Debt Fears Rattle Europe
By MARCUS WALKER
The euro tumbled as debt woes spread around the euro zone from Greece, where pledges of austerity and fiscal rigor failed to stem growing fears that the Continent's economic recovery could be derailed.
The euro fell as low as $1.4505 on Tuesday, its lowest level since early October. New worries about Austrian banking also roiled markets, with rumors of trouble at an Austrian lender with shaky investments in Eastern Europe following Monday's surprise nationalization of another Austrian bank at the behest of the European Central Bank.
Greece is just "the tip of the iceberg," said Norbert Barthle, budget spokesman for the ruling Christian Democratic Union of German chancellor Angela Merkel. The exploding budget deficits of weaker economies have forced Germany and other financially stronger countries to think about how to shore up other members of the euro zone against a potential financial-market rout.
Portugal, Ireland, Italy, Greece and Spain, a group traders have disparagingly dubbed "PIIGS," all have huge budget deficits and very low growth prospects, which means their debt is on course to rise further, fast.
The countries' wages and costs have steadily risen, but as euro-zone members they can't respond by devaluing their currency, a problem that strains the bonds tying together the currency bloc. Their soaring deficits are testing the credibility of the euro zone's so-called stability pact, in which governments promise not to spend wildly.
WSJ Updates US Again On International Bonds....
another bad source for investment advice
WSJ December 8, 2009 my bolds
Why Foreign Bonds Make Sense For Income-Oriented Investors . by Jennifer LEVITZ
DECEMBER 9, 2009
Countries' Debt Woes Pose Risk to Upturn
By JOANNA SLATER, BRIAN BLACKSTONE and MARCUS WALKER
WSJ today
http://online.wsj.com/article/SB10001424052748704398304574597832779853024.html#mod=todays_us_page_one
Debt Fears Rattle Europe
By MARCUS WALKER
The euro tumbled as debt woes spread around the euro zone from Greece, where pledges of austerity and fiscal rigor failed to stem growing fears that the Continent's economic recovery could be derailed.
The euro fell as low as $1.4505 on Tuesday, its lowest level since early October. New worries about Austrian banking also roiled markets, with rumors of trouble at an Austrian lender with shaky investments in Eastern Europe following Monday's surprise nationalization of another Austrian bank at the behest of the European Central Bank.
Greece is just "the tip of the iceberg," said Norbert Barthle, budget spokesman for the ruling Christian Democratic Union of German chancellor Angela Merkel. The exploding budget deficits of weaker economies have forced Germany and other financially stronger countries to think about how to shore up other members of the euro zone against a potential financial-market rout.
Portugal, Ireland, Italy, Greece and Spain, a group traders have disparagingly dubbed "PIIGS," all have huge budget deficits and very low growth prospects, which means their debt is on course to rise further, fast.
The countries' wages and costs have steadily risen, but as euro-zone members they can't respond by devaluing their currency, a problem that strains the bonds tying together the currency bloc. Their soaring deficits are testing the credibility of the euro zone's so-called stability pact, in which governments promise not to spend wildly.
WSJ December 8, 2009 my bolds
Why Foreign Bonds Make Sense For Income-Oriented Investors . by Jennifer LEVITZ
DECEMBER 9, 2009
Countries' Debt Woes Pose Risk to Upturn
By JOANNA SLATER, BRIAN BLACKSTONE and MARCUS WALKER
WSJ today
http://online.wsj.com/article/SB10001424052748704398304574597832779853024.html#mod=todays_us_page_one
Debt Fears Rattle Europe
By MARCUS WALKER
The euro tumbled as debt woes spread around the euro zone from Greece, where pledges of austerity and fiscal rigor failed to stem growing fears that the Continent's economic recovery could be derailed.
The euro fell as low as $1.4505 on Tuesday, its lowest level since early October. New worries about Austrian banking also roiled markets, with rumors of trouble at an Austrian lender with shaky investments in Eastern Europe following Monday's surprise nationalization of another Austrian bank at the behest of the European Central Bank.
Greece is just "the tip of the iceberg," said Norbert Barthle, budget spokesman for the ruling Christian Democratic Union of German chancellor Angela Merkel. The exploding budget deficits of weaker economies have forced Germany and other financially stronger countries to think about how to shore up other members of the euro zone against a potential financial-market rout.
Portugal, Ireland, Italy, Greece and Spain, a group traders have disparagingly dubbed "PIIGS," all have huge budget deficits and very low growth prospects, which means their debt is on course to rise further, fast.
The countries' wages and costs have steadily risen, but as euro-zone members they can't respond by devaluing their currency, a problem that strains the bonds tying together the currency bloc. Their soaring deficits are testing the credibility of the euro zone's so-called stability pact, in which governments promise not to spend wildly.
Some Better News For An Endowment Using the "Yale Model" for Investing
After all the bad news regarding endowments using the "yale model" with a heavy weighting towards "alternative asset classes" such as venture capital, the year end news is much more positive: Nevertheles imo the issue of limited liquidity and potential liquidity crises due to venture capital investments, has not gone away. I'll leave it to readers to decide whether Stanford dodged a bullet in terms of liqudity needs or if this proves the efficacy of the strategy,
my bolds my comments in blue
from Bloomberg
Stanford Cancels Private Equity Stake Sale as Endowment Gains
By Gillian Wee
Dec. 15 (Bloomberg) -- Stanford University, the fourth wealthiest school in the U.S., canceled its plans to sell portions of its $6 billion in buyout funds, distressed securities and energy funds, as its endowment gained in the last six months.
“We didn’t have to have the liquidity,” John Powers, chief executive officer of Stanford Management Co., said today in a telephone interview. “As we felt better about the liquidity situation, we’ve been more price-sensitive and felt less the need to sell.”
Stanford, near Palo Alto, California, decided not to sell its stakes as its endowment made money over the last six months, Powers said. The school was seeking to sell as much as $1 billion, or 8 percent of its $12.6 billion fund to capitalize on rising private-equity values tied to the 60 percent increase in stock prices since March. The university’s investments lost 26 percent in the 12 months ended June 30.
It seems from the above that the reason that Stamford didnt need to sell its venture capital stakes was because it's liquid uinvestments increased in value (along with the overall equity market) enough to meet their liquidity needs. It also seems from this (below) that the buyers wanted to cherry pick from Stanford's holding interested in buying the assets that Stanford was probably least interested in selling. Also note that one category the potential buyers were interested was growth equity, a highly liquid asset class
Stanford’s bidders, a mix of secondary funds and sovereign wealth funds, were most interested in its buyout funds, followed by growth equity and natural resources, Powers said. The school’s decision to cancel the auction was first reported today by the Wall Street Journal.
Stanford’s buyout funds comprised a quarter of the portfolio’s value, including future commitments, according to a transaction summary obtained by Bloomberg. Private-equity funds that invest in oil and gas account for 17 percent and firms that buy distressed securities constitute 14 percent.
The school’s illiquid investments offer “immediate access to a mature and diversified portfolio of funds ready to be harvested, as well as exposure to 2008 and 2009 vintage funds with significant capital to deploy in a very attractive investment environment,” according to the document, which was prepared by Cogent Partners, the Dallas-based firm handling the sale. The stakes also carry $4.92 billion in future commitments to the managers.
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