hi slacker711,
I think your identification of the most "critical" issue may be a
function of your current situation.
i will be the first to admit that my own experiences color my worldview.
however, the idea of asset allocation being the most critical issue in
investment policy is hardly the latest kooky scheme cooked up by Mucho Maas.
i think it is a pretty widely accepted idea with research backing. there is really a whole body of literature on this subject.
for example, in a rigorous academic study published in Financial Analysts
Journal in 1986, Brinson, Hood, and Beebower (BHB) wrote, "Investment
policy (the allocation of assets) dominates investment
strategy (market timing and security selection), explaining on average
93.6 percent of the variation in total [pension] plan returns...Although
investment strategy can result in significant returns, these are dwarfed by
the return contribution from investment policy--the selection of asset
classes and their normal weights."
the BHB study focused on pension plans with very low costs. in 1997, former
Vanguard chairman John Bogle did a study focusing on balanced mutual funds (having a 60-65% equity allocation similar to the pension plans in the BHB study) and found a similarly high variation of 84.9% due to asset allocation. the BHB study found just 7.5% of returns due to non-allocation issues, and the Bogle study just 15.1%.
(note that in my post to you, i made a distinction between "tactics" and
"strategy"; these terms are respectively analogous to "strategy" and
"policy" as used by BHB)
If I remember correctly (and I may not), you were 100% long Qualcomm calls
in the fall of '99. I later believe that you went 100% SDLI, prior to the
JDSU takeover.
yes, i sold out of QCOM through the spring 00 months for an average of 126, switching into SDLI in april/may. i sold out of SDLI starting in the summer of 00 and was totally out by the end of the year, getting about a double on average. both of these bets ended up being quite effective, in the financial sense. yet both of these stocks have fallen precipitously from their peaks, and even from where i sold them which was already well below their peaks on average. SDLI, in particular, would only be worth 29.45 today (3.8X the JDSU price of 7.75), which is less than 1/10th my average sell price.
thinking about this in retrospect, i think my SDLI bet was intellectually wrong (stupid) even though it worked financially--it was only a matter of luck in the markets that it went up before falling precipitously. i could say the same thing about QCOM, though its swings in the past year have not been as extreme.
i decided momo tech investing is basically a sucker's game at this point in the market. i cannot understand a mentality of complacency in the face of precipitous losses. i imagine most of those tech-heavy portfolios listed on the G&K thread are down substantially since last november, so hopefully those people saw the light and took steps to preserve capital.
in late december, i switched to value stocks only (100%) and had a decent first half of the year, up around 15%. i can't be displeased with that in a year where the dow is down 5%, S&P500 down 12%, Naz down 25% and NDX 35%. however, as i learned more about asset allocation, i decided i was just playing hot potato again, although in a less volatile form than switching from QCOM to SDLI. i therefore cashed out a few weeks ago and have been planning a new strategy based on indexing.
over the long term, i expect to have about 65:35 equity/bonds ratio, and within equities, 60:40 US/Intl, 2:1 value/growth, 1:1 large cap/small cap, with smidgens of things like commodities and emerging markets. |
