1/ The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets (Faber, Richardson)
"None of the assumptions about capital asset returns that would have been taken as a given before 1914 proved to be true." (p. 24)
amazon.com/Ivy-Portfolio-…
"None of the assumptions about capital asset returns that would have been taken as a given before 1914 proved to be true." (p. 24)
amazon.com/Ivy-Portfolio-…
2/ "By the end of the 20th century, investors were in stocks, not bonds, depended on capital gains, not dividends, received a premium on stocks over bonds, had risk-free T-bills, saw rates rise during most of the century, and suffered from the worst inflation in history." (p. 25)
3/ "A MV optimization performed at the beginning of the 20th century would have given far different results than one performed at the beginning of the 21st. Assumptions taken today as fact (stocks > bonds, small caps > large caps, etc.) could be unreliable in the future." (p. 25)
4/ "One of the top mistakes that individual investors make is investing all of their money in a local company or an employer's stock. You could get rich, but the risk will be very high - just ask former Enron and Bear Stearns employees." (p. 7)
5/ "The risk in placing an entire endowment's portfolio ina concentrated investment is also evident at Emory University, otherwise known as Coke University. We bet you can guess what stock it held almost all of its assets in." (p. 7)
6/ "The concentration question is often more acute in the foundation space where many of the assets are typically in the stock of the company that made the foundation possible. The Packard Foundation held nearly 90% of its assets in Hewlett-Packard stock." (p. 7)
7/ "Rewarding investments tend to hide in dark corners, not in the glare of floodlights." 2005 Yale annual report
"Over the very long run, risky assets have a return, but not too much, or they will attract a flood of money, bidding up prices and lowering future returns." (p. 30)
"Over the very long run, risky assets have a return, but not too much, or they will attract a flood of money, bidding up prices and lowering future returns." (p. 30)
8/ "Harvard's AAA credit rating allows it to borrow cheaply and implement strategies other investment managers cannot. " (p. 51)
In theory, institutions can use leverage to implement risk parity, as low volatility assets tend to have higher Sharpe ratios:
In theory, institutions can use leverage to implement risk parity, as low volatility assets tend to have higher Sharpe ratios:
9/ Investors with relatively small accounts can still borrow cheaply by using exchange-traded futures and options, which avoid the financing spreads (difference between borrowing and lending rates) that most brokers charge:
10/ "A good rule of thumb is that asset classes over the long term have Sharpe ratios around 0.2 to 0.3. A 60/40 allocation to stocks/bonds is around 0.4. However, over shorter periods, the numbers can bounce all over the place.
11/ "From 1900-2008, the S&P 500 has had Sharpe ratios per decade ranging from -0.08 (the 1970s) to 1.4 (the 1950s)." (p. 64)
In the recent past (2009-2018), the S&P 500's Sharpe ratio was at the 99.4th percentile (unlikely to repeat in our lifetimes):
In the recent past (2009-2018), the S&P 500's Sharpe ratio was at the 99.4th percentile (unlikely to repeat in our lifetimes):
12/ Regarding historical returns, "stocks had outstanding returns from 1986-1999, which inflates the Sharpe ratio for the S&P 500 to one of the highest levels it has seen in the past century. [This penalizes managers who are prudently adding diversification to the stock index.]
13/ "Many successful managers are also getting penalized for making money with upside volatility.
"To gain a full understanding of a manager's performance, investors should use alternative metrics (Sortino ratio, Sterling ratio, MAR, Ulcer index).
"To gain a full understanding of a manager's performance, investors should use alternative metrics (Sortino ratio, Sterling ratio, MAR, Ulcer index).
14/ "The average return and volatility can tell you a lot, but if you really want to get deeper in the subject, check out the third and fourth moments of the return distribution, skew and kurtosis.
15/ "Nonlinear strategies like option selling can artificially inflate the Sharpe ratio, as they have incredibly good performance until they don't - which is usually a huge or total blowup like the infamous case of Long-Term Capital Management." (p. 65)
16/ Unlike most individual investor portfolios, "endowment managers have a significant amount in real assets.
"The endowment's worst enemy is inflation. Commodities perform much better in inflationary environments (1972-1981 as opposed to 1982-2007).
"The endowment's worst enemy is inflation. Commodities perform much better in inflationary environments (1972-1981 as opposed to 1982-2007).
17/ "In periods of low inflation and declining interest rates,. stocks, bonds, and REITs all performed better, which makes intuitive sense because they are all capital assets. Investors discount their current and expected future cash flows by their cost of capital.
18/ "In periods of low interest rates, the cost of capital is low, which results in higher cash flows for investors, for which they are willing to pay higher valuations.
"Historical returns of commodity indexes have been in line with stocks' with similar volatility." (p. 69)
"Historical returns of commodity indexes have been in line with stocks' with similar volatility." (p. 69)
19/ Related research:
The Commodity Futures Risk Premium: 1871–2018
Commodities for the Long Run
The Commodity Futures Risk Premium: 1871–2018
Commodities for the Long Run
20/ "At 10% target volatility, the optimal allocation to commodities ranges from 22% to 29%. Portfolios that included commodities in the opportunity set were more efficient than those that excluded commodities." (p. 70)
21/ "Managed futures (at least the trend-following ones, which are the vast majority of CTAs) are nothing more than a tactical long/short approach to commodities (as well as interest rates and financials)." (p. 70)
Related research:
Time-Series Momentum
Related research:
Time-Series Momentum
22/ Trends Everywhere
Two Centuries of Trend Following
Two Centuries of Commodity Futures Premia: Momentum, Value and Basis
Strategic Allocation to Commodity Factor Premiums
Two Centuries of Trend Following
Two Centuries of Commodity Futures Premia: Momentum, Value and Basis
Strategic Allocation to Commodity Factor Premiums
23/ Carry
Return Seasonalities
Anatomy of Commodity Futures Risk Premia
Return Seasonalities
Anatomy of Commodity Futures Risk Premia
24/ "Avoiding fees by indexing is the simplest and best way to gain access to an asset class or passive beta. Indexing allows the investor to hold the entire market with few expenses or advisory fees, low turnover, and high tax efficiency.
25/ "On the expense-ridden underperformance of active managers:
"A miniscule 4% of funds produce market-beating after-tax results with a scant 0.6% annual margin of gain. The 96% that fail to match the Vanguard 500 Index Fund lose by a wealth-destroying margin of 4.8% per annum.
"A miniscule 4% of funds produce market-beating after-tax results with a scant 0.6% annual margin of gain. The 96% that fail to match the Vanguard 500 Index Fund lose by a wealth-destroying margin of 4.8% per annum.
26/ "John Bogle estimates the all-in costs of equity mutual funds at 3% to 3.5% a year. (Expense ratio 1.5% + portfolio turnover 1% + sales charges 0.5%)
"Add on the poor timing of individual investors, and over the past 25 years, they underperformed indexes by 5%/year." (p. 71)
"Add on the poor timing of individual investors, and over the past 25 years, they underperformed indexes by 5%/year." (p. 71)
27/ Related research:
(Thread: "Looking for a financial advisor?")
Financial Advice and Bank Profits
The Misguided Beliefs of Financial Advisors
(Thread: "Looking for a financial advisor?")
Financial Advice and Bank Profits
The Misguided Beliefs of Financial Advisors
28/ "Individual stocks don't adhere to a normal distribution. For every Microsoft, there were hundreds of below-average companies. Capitalism has resulted in a small group of enormous winners, a majority slightly below average, and a substantial number of complete failures.
29/ "About 40% of all stocks had a negative return over their lifetime, and 20% of stocks lost nearly all of their value. A little more than 10% of stocks recorded huge wins over 500%.
"The majority of this time frame includes one of the biggest bull markets in history." (p. 72)
"The majority of this time frame includes one of the biggest bull markets in history." (p. 72)
30/ "64% of all stocks underperformed the Russell 3000 index during their lifetime: relatively few stocks are responsible for a majority of the gains.
"The blind odds of picking a winner more accurately than the index against you.
"The blind odds of picking a winner more accurately than the index against you.
31/ "There are more conclusions one can draw; the first is the efficacy of momentum." (p. 74)
Related research:
Do Stocks Outperform Treasury Bills?
Enduring Effect of Time-Series Momentum on Stock Returns Over Nearly 100 Years
Related research:
Do Stocks Outperform Treasury Bills?
Enduring Effect of Time-Series Momentum on Stock Returns Over Nearly 100 Years
32/ "Far too many investors spend enormous amounts of time and energy constructing policy portfolios, only to allow the allocations they established to drift with the whims of the market....
"A simple rebalance can add 0.1 to 0.2 to the Sharpe ratio." (p. 77)
"A simple rebalance can add 0.1 to 0.2 to the Sharpe ratio." (p. 77)
33/ "In taxable accounts, time your rebalances with inflows, outflows, and distributions.
"Financial advisors could justify their entire fee by implementing a simple tax loss harvesting strategy." (p. 78)
Related research (thread):
"Financial advisors could justify their entire fee by implementing a simple tax loss harvesting strategy." (p. 78)
Related research (thread):
34/ "Most of the returns in private equity are generated by the top funds. This asset class is very difficult for the individual investor to access, and the elite funds are usually available only to institutional investors.
35/ "The investment vehicle is an illiquid partnership often having a life of 10 or more years, and there is a high bankruptcy rate. These are no problem for endowments with huge AUM and long-term time frames, but they pose major barriers for individual investors." (p. 83)
36/ "Benchmarking private equity is a headache. Annual returns don't mean a thing and can only be known in hindsight when the investments have been liquidated or distributed some 10 years later. The returns of a fund are negative at the beginning as money is invested." (p. 85)
37/ "The best private equity funds continue to generate the top returns. This is in contrast to mutual funds, where the top performers are often the worst performers in the next period.
"This is a positive feedback loop: because the fund performed well in the beginning,
"This is a positive feedback loop: because the fund performed well in the beginning,
38/ "it gets to see the best deals in the next round. The general partners may also add some value: better deal terms (lower valuations). A startup is willing to accept more stringent terms if venture capitalists provide superior management, advisory, or reputational inputs.
39/ "The results also vary across limited partners (the investors):
Median IRR by LP type:
Endowments 23.6%
Advisors 20%
Public pension funds 12.3%
Other investors 7.7%
Insurance companies 5.7%
Corporate pension funds 3.2%
Banks and finance companies -0.1%
Overall 12%
Median IRR by LP type:
Endowments 23.6%
Advisors 20%
Public pension funds 12.3%
Other investors 7.7%
Insurance companies 5.7%
Corporate pension funds 3.2%
Banks and finance companies -0.1%
Overall 12%
40/ "If you exclude the top 25% of funds, the average returns for everyone else are quite awful (negative IRRs).
"Unless you are an endowment or can pick the top 20% of private equity funds, you are better off buying a stock index and not dealing with all the headaches." (p. 90)
"Unless you are an endowment or can pick the top 20% of private equity funds, you are better off buying a stock index and not dealing with all the headaches." (p. 90)
41/ "The biggest drawback of a hedge fund of funds is fees. By the time an individual investor receives his returns from a FOF, the underlying hedge fund has collected 2% and 20%, and the FOF layers on another 1% and 10%.
42/ "To match a passive portfolio, the FOF manager must either select a lot of *really* skilled alpha producers, leverage up the portfolio, or do a combination of both. The massive fees work against the individual investor.
43/ "Fees are relative to what is delivered. Some mutual funds and ETFs are expensive at 0.75% a year. Renaissance Technologies is probably cheap at a 5% management fee and a 44% performance fee. It all depends on the edge a manager has and the alpha he produces.
44/ "Warren Buffett famously set up his partnership with a 25% performance fee over a 6% hurdle. That way, he only got paid if his clients made more than 6% a year. A good rule of thumb is that alpha should be split: 25-33% to the manager and 66-75% to the investor." (p. 106)
45/ Related research:
Financial advisors as a group add no alpha before fees. (Based on Meb's math, the vast majority have fees that are not justified by the value-add.)
Hedge fund alphas have declined and are now about zero:
Financial advisors as a group add no alpha before fees. (Based on Meb's math, the vast majority have fees that are not justified by the value-add.)
Hedge fund alphas have declined and are now about zero:
46/ "Selection, survivorship, backfill, and liquidation biases add >4% overstated returns for hedge fund performance.
"Hedge fund indices no longer resemble hedge funds but are mainly composed of stock and bond risk. You do not want to pay high fees for beta exposure." (p. 107)
"Hedge fund indices no longer resemble hedge funds but are mainly composed of stock and bond risk. You do not want to pay high fees for beta exposure." (p. 107)
47/ "Investable indices will not have the best hedge funds in them because top performers are sufficiently capitalized and are closed to new investors.
"Once you factor in the underperformance of the investable version [and large beta loadings], little appeal remains." (p. 110)
"Once you factor in the underperformance of the investable version [and large beta loadings], little appeal remains." (p. 110)
48/ "Bridgewater (in 'Hedge Funds Levering Betas') found that a number of hedge fund strategies could be explained simply with some common risk factors, including convertible arbitrage, emerging markets, merger arbitrage, distressed, and fixed-income arbitrage." (p. 117)
49/ "For the most part, public managed futures offerings are difficult to invest in for the ordinary investor and often very expensive. Frontier was a pioneer and had to go through the ringer to make its funds available to the public. Rydex's prospectus is >500 pages." (p. 117)
50/ "We feel that the appeal of merger arbitrage is limited.... If an ETF ever came out with a low fee structure, that would be a better option. All of the value comes with predicting which mergers will go through, a difficult task with a great amount of competition." (p. 118)
51/ "Dividends are only one way to return capital to shareholders. Share repurchases are another method. Since they are not taxed like dividends, it can be argued that they are a more efficient way of returning profits. Buybacks have increased steadily since the early 1980s.
52/ "The decline in the predictive power of dividends for excess stock returns is due largely to the omission of alternative channels by which firms distribute and receive cash from shareholders....
"The payout yield has remained a robust indicator for excess stock return.
"The payout yield has remained a robust indicator for excess stock return.
53/ "This is an example of how an investor needs to continually be aware of structural changes in the market and not be sold on investment stories that simply sound reasonable." (p. 120)
54/ "All of the G-7 countries have experienced at least one period where stocks lost 75% of their value.
"The unfortunate mathematics of a 75% decline require an investor to realize a 300% gain just to get back to even: the equivalent of compounding at 10% for 15 years.
"The unfortunate mathematics of a 75% decline require an investor to realize a 300% gain just to get back to even: the equivalent of compounding at 10% for 15 years.
55/ "There have been more than 30 declines of >20% since 1900 in the Dow and 10 declines of >40%.
"Buying asset classes for the long run is a good idea if you are a Sequoia tree or an endowment, but individuals usually do not have a 20-year time frame to recover." (p. 136)
"Buying asset classes for the long run is a good idea if you are a Sequoia tree or an endowment, but individuals usually do not have a 20-year time frame to recover." (p. 136)
56/ Paul Tudor Jones in Market Wizards: "I am always thinking about losing money as opposed to making money."
"There is nothing worse than watching a portfolio experience a long and painful decline. Human biases return even worse than when times are normal." (p. 138)
"There is nothing worse than watching a portfolio experience a long and painful decline. Human biases return even worse than when times are normal." (p. 138)
57/ Warren Buffett: "Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people in trouble in investing."
58/ "Investors love to herd into an asset class at the top and sell at the bottom.
"Stock funds accounted for 99% and 123% of mutual fund flows in 1999 and 2000, respectively: people were selling off their other holdings to plow money into stocks.
"Stock funds accounted for 99% and 123% of mutual fund flows in 1999 and 2000, respectively: people were selling off their other holdings to plow money into stocks.
59/ "Reported mutual fund returns are almost always higher than individual investor returns due to poor timing.
"From 1973-2002, the NASDAQ gained 9.6%/year, but because most investors pumped money in from 1998-2000, the typical dollar invested earned only 4.3%/year." (p. 138)
"From 1973-2002, the NASDAQ gained 9.6%/year, but because most investors pumped money in from 1998-2000, the typical dollar invested earned only 4.3%/year." (p. 138)
60/ "There are dozens of ways in which people are irrational when it comes to money. A few of the more insidious ones include:
"Overconfidence: 82% of drivers say they are in the top 30% of drivers, and 80% of students think they will finish in the top half of their class.
"Overconfidence: 82% of drivers say they are in the top 30% of drivers, and 80% of students think they will finish in the top half of their class.
61/ "Information overload: More information often decreases accuracy of predictions, all the while increasing confidence in those predictions.
"People who pay close attention to news updates earn lower returns (excessive trading) than people who seldom follow the news.
"People who pay close attention to news updates earn lower returns (excessive trading) than people who seldom follow the news.
62/ "Herding: From 1987-2007, the S&P returned more than 10%/year. However, the average investor in a stock mutual fund earned only 4.48%, barely keeping up with inflation. Investors exhibit poor market timing, buying at tops and selling at bottoms.
63/ "Avoiding losses: People feel pain of loss twice as much as pleasure from an equal gain. None of us likes to admit to being wrong.
"More money has probably been lost by investors holding a stock until they could 'at least come out even' than from any other single reason.
"More money has probably been lost by investors holding a stock until they could 'at least come out even' than from any other single reason.
64/ "Anchoring: Warren Buffett laments, 'When I bought something at X and it went up to X 1/8, I sometimes stopped buying, hoping it would come back down. I cost us about $10 billion by not buying enough Wal-Mart. That thumb-sucking reluctance to pay a little more cost us a lot.'
65/ "Other people's mistakes open the door for you to soak up elusive alpha: for someone to gain, someone else has to lose. People make the mistakes that are hardwired into their brains over and over again.
"A simple quantitative approach helps avoid behavioral biases." (p. 140)
"A simple quantitative approach helps avoid behavioral biases." (p. 140)
66/ Jesse Livermore (from Reminiscences of a Stock Operator):
"A loss never bothers me after I take it. I forget it overnight. But being wrong—not taking the loss—that is what does damage to the pocketbook and to the soul."
"A loss never bothers me after I take it. I forget it overnight. But being wrong—not taking the loss—that is what does damage to the pocketbook and to the soul."
67/ "Criteria necessary for a model simple enough that investors can follow and mechanical enough to remove the emotions involved in subjective decision-making:
1. Simple, purely mechanical logic
2. The same model and parameters for every asset class
3. Price-based only" (p.141)
1. Simple, purely mechanical logic
2. The same model and parameters for every asset class
3. Price-based only" (p.141)
68/ "The rules are simple, but for some people, they are hard to follow. It's for the same reason people have a hard time dieting or training for marathons or cleaning out the garage:
"Self-control and discipline." (p. 143)
"Self-control and discipline." (p. 143)
69/ "The average return for the S&P 500 since 1900 was 11.20%, while trend-following (10-month SMA) returned 11.49%.
"The compounded returns are 9.21% and 10.45%, respectively. Buy-and-hold takes a 199 bps hit due to higher volatility diminishing geometric returns." (p. 144)
"The compounded returns are 9.21% and 10.45%, respectively. Buy-and-hold takes a 199 bps hit due to higher volatility diminishing geometric returns." (p. 144)
70/ "Even small differences in geometric returns, when compounded over long periods, result in large differences in final value.
"A trend-following model will underperform during a roaring bull market; the value-add needs to be recognized over an entire business cycle." (p. 146)
"A trend-following model will underperform during a roaring bull market; the value-add needs to be recognized over an entire business cycle." (p. 146)
71/ "The 10-month simple moving average is not the optimum trend-following parameter. It is evident that there is very broad parameter stability across various moving average lengths." (p. 151)
Related research:
Dual Momentum – A Craftsman’s Perspective
Related research:
Dual Momentum – A Craftsman’s Perspective
72/ "A L/S approach has returns that are worse than long/flat, but the correlation to a buy-and-hold portfolio moves to zero.
"Further dividing up an index can create additional reductions in volatility." (p. 158)
Trend following on individual stocks:
"Further dividing up an index can create additional reductions in volatility." (p. 158)
Trend following on individual stocks:
73/ "The difficulty with leverage for individual investors is implementation. Margin fees are onerous at many brokerages. If margin rates are much higher than the interest you receive on cash, using leverage is not a good option." (p. 158)
More on this:
74/ "Trend following results in a large number of short-term capital losses and long-term capital gains." (p. 161)
Conversely, tax loss harvesting adds a momentum tilt:
It can offset short-term gains generated by other strategies:
Conversely, tax loss harvesting adds a momentum tilt:
It can offset short-term gains generated by other strategies:
75/ Richard Dennis: "You could publish my trading rules in the newspaper, and no one would follow them.... Almost anybody can make a list of rules that is 80% as good. What we couldn't do is give them the confidence to stick with those rules even when things are going badly."
76/ "The biggest question for someone following a quantitative system is, 'Can I follow it?' "
...
1. Do you have the necessary perseverance?
2. Are you independent and self-assured enough to resist constantly looking over your shoulder to see how someone else is doing?
...
1. Do you have the necessary perseverance?
2. Are you independent and self-assured enough to resist constantly looking over your shoulder to see how someone else is doing?
77/ 3. Can you accept that your portfolio will underperform the market?
4. Can you accept that your timing system will be imperfect?
5. Can you ignore the mass media?
6. Are you decisive?
...
4. Can you accept that your timing system will be imperfect?
5. Can you ignore the mass media?
6. Are you decisive?
...
78/ Ray Dalio: "The alpha geneators that make up the ultimate alpha generator should be timeless and universal. By that, I mean they should have worked over very long time horizons and in all countries' markets."
For example:
Value and Momentum Everywhere
For example:
Value and Momentum Everywhere
79/ "Returns and lower and volatility is higher when asset classes are below the 10-month moving average. This increase in volatility and its clustering is one of the reasons the timing model works."
For example:
For example:
80/ "Pundits show use missing the ten best days of the market as proof that market timing doesn't work. What they don't understand is that 70% of *both* the best and worst days occur when the market is below the 10-month moving average (due to higher market volatility).
81/ * Buy-and-hold Dow return: 17.89%/year (1984-1998)
* Missing the ten best days: 14.24%/year
* Missing the ten worst days: 24.17%year
* Missing both the best and the worst days: 20.31% (and likely with less volatility)
(p. 169)
* Missing the ten best days: 14.24%/year
* Missing the ten worst days: 24.17%year
* Missing both the best and the worst days: 20.31% (and likely with less volatility)
(p. 169)
82/ Charles Ellis, Yale Investment Committee Chairman:
"The real secret is defense, defense.
"If investors could just eliminate their larger losses, the good results would take care of themselves. We remind ourselves of the great advantage of staying out of trouble." (p. 169)
"The real secret is defense, defense.
"If investors could just eliminate their larger losses, the good results would take care of themselves. We remind ourselves of the great advantage of staying out of trouble." (p. 169)
83/ "By reviewing 13Fs, you can view the holdings of George Soros, Seth Klarman, Carl Icahn, and Warren Buffett.
"The best investors to choose for this analysis are those with long-term holding periods so that the 45-day delay in reporting times is not a major factor." (p. 174)
"The best investors to choose for this analysis are those with long-term holding periods so that the 45-day delay in reporting times is not a major factor." (p. 174)
84/ "Many of the best hedge funds are not open to new investment capital, and if they are, many of high minimum requirements ($10 million+).
"With a 13F strategy, the investor controls and is aware of the exact holdings at all times, eliminating fraud risk.
"With a 13F strategy, the investor controls and is aware of the exact holdings at all times, eliminating fraud risk.
85/ "The investor also has lower fees and can control hedging, leverage, and tax positions to suit his needs.
"However, he does not have access to the timing and portfolio trading activities of the manager.
"However, he does not have access to the timing and portfolio trading activities of the manager.
86/ "Crafty hedge fund managers also have tricks to avoid revealing their holdings on 13Fs: shorting against the book and moving positions off their books at the end of the quarter, for example. Short and futures positions are also not reported." (p. 176)
87/ "Mimicking Buffett's portfolio through the 13F process outperformed the S&P 500 by over 11%/year from 1976-2006 and was higher in 27 out of 31 years." (p. 179)
AQR formed a Buffett-replicating portfolio based on Berkshire's factor exposures:
AQR formed a Buffett-replicating portfolio based on Berkshire's factor exposures:
88/ "Instead of just tracking one manager, who may be going through a nasty divorce or growing content with his wealth, an investor can create a hedge fund of funds using 13F filings from a number of funds, using the top few holdings from each one.
89/ "A consensus approach involves purchasing stocks that are held by more than one fund manager: a verification that more than one investor has come to the same conclusion.
"Investors could also hedge by buying puts or shorting various indices." (p. 183)
"Investors could also hedge by buying puts or shorting various indices." (p. 183)
90/ "People work incredibly hard at their jobs over the course of a lifetime to build an investment nest egg and then pay only passing consideration to managing their money.
"In many cases, the investor is exposed to incredible amounts of risk without even knowing it.
"In many cases, the investor is exposed to incredible amounts of risk without even knowing it.
91/ "If people were to go about optimizing their happiness in life, many would rethink their investment programs.
"If you believe the behavioral research, losses and downside volatility should become much more of a focus than pure return." (p. 187)
"If you believe the behavioral research, losses and downside volatility should become much more of a focus than pure return." (p. 187)
92/ "All of the portfolios outlined in this book are rules-based and free of emotional biases that can cloud your decision-making.
"Isn't that the point at the end of the day? The investment portfolio is a means to an end, not an end in itself." (p. 190)
"Isn't that the point at the end of the day? The investment portfolio is a means to an end, not an end in itself." (p. 190)
93/ George Mallory: "And joy is, after all, the end of life. We do not live to eat and make money. We eat and make money to be able to live. That is waht life means and what life is for."
94/ "Efficient market theorists have long been puzzled by momentum and exclaim that it should not be possible to make money from buying past winners and selling past losers in well-functioning markets. Practitioners have been ignoring theorists and collecting money for decades.
95/ "Alfred Cowles and Herbert Jones found evidence of momentum as early 1937.
"H.M. Gartley (1945) mentions methods of relative strength stock selection.
"Robert Levy (1968) identified his own relative strength system.
"H.M. Gartley (1945) mentions methods of relative strength stock selection.
"Robert Levy (1968) identified his own relative strength system.
96/ "Other authors suggest using momentum in stock selection, including James O'Shaughnessy (1998), Martin Zweig (1986), William O'Neil (1988), and Nicolas Darvas (1960).
97/ "Elroy Dimson, Paul Marsh, and Mike Saunton found that winners (top 20% past returns) beat losers (bottom 20%) by 10.8%/year in the U.K. equity market from 1956-2007.
"Even using the top 100 U.K. stocks since 1900, they found 10.3%/year outperformance.
"Even using the top 100 U.K. stocks since 1900, they found 10.3%/year outperformance.
98/ "Cole Wilcox and Eric Crittenden (2005) concude that trend following can work well on individual equties even after adjusting for corporate actions, survivorship bias, liquidity, and transaction costs.
99/ "Rouwenhorst (1998): momentum is profitable in the European market
"Chan, Harmee, and Tong (2000): international stock indexes exhibit momentum
"Two of the oldest trend-following systems are Dow Theory (Charles Dow) and the Four Percent Model (Ned Davis)." (p. 196)
"Chan, Harmee, and Tong (2000): international stock indexes exhibit momentum
"Two of the oldest trend-following systems are Dow Theory (Charles Dow) and the Four Percent Model (Ned Davis)." (p. 196)
100/ Charlie Munger: "I've known no wise person over a broad subject matter who didn't read all the time—none, zero.
"Now, I know all kinds of shrewd people who, by staying within a narrow area, can do very well without reading. But investment is a broad area."
"Now, I know all kinds of shrewd people who, by staying within a narrow area, can do very well without reading. But investment is a broad area."
