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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: Box-By-The-Riviera™ who wrote (6574)	8/3/2001 11:07:57 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 74559

so what are you doing presently? as it happens, i am all cash at the moment. until recently, i was 100% value stocks, which have had a pretty good run this year that put me up about 15%. after some more navel-gazing, i expect to redeploy cash into a wide variety of assets. lately i have been reading books like "The Intelligent Asset Allocator" by William Bernstein and "Asset Allocation" by Roger Gibson. both highly recommended. Bernstein's got a lot of free articles on his site at efficientfrontier.com (this site is well worth a look if you've never been there). Bernstein is more focused on passive investing (index funds, which is not the same as Vanguard S&P500), while Gibson's book is more oriented toward a financial advisor. but both present similar arguments for the virtues of asset allocation. books by Larry Swedroe present a more popularized version of same. Gibson's book has some very interesting charts in it. one shows a chart of reward/risk (return% on y-axis, standard deviation on x-axis) of four asset classes from 1972-1997: S&P500, EAFE (foreign large caps, which during the survey period were largely Japanese and British firms), GSCI (commodities) and NAREIT (REIT index). each of these four classes is plotted by itself on the chart, and all possible equal combinations of these assets (e.g., 50/50 S&P and REITs; 33/33/33 GSCI, EAFE and S&P) are also plotted. the worst portfolios were the individual assets by themselves (e.g., 100% GSCI). the best portfolio was a combination of all four (25/25/25/25 S&P, GSCI, EAFE, S&P). "best" in this case means a portfolio that yielded a very high return versus its standard deviation. portfolios of this type are called "efficient". i also read a book by Haugen (The New Finance: the Case Against Efficient Markets) which seems to be some academic nebbish screed against EMT (Efficient Market Theory) written in quirky prose (which i kind of liked). the Achilles heel of EMT according to him is the supposition that all investors have efficient portfolios. this decidedly is not the case. one need look no further than some stock thread whose faithful put 100% of their assets in one company (that subsequently loses 95% of value in the 2001 sequel) to realize that many individuals don't have efficient portfolios. but just because some people are reckless doesn't mean other people can't take steps to ensure their own safety. if you want to increase your odds of living longer, it makes sense to wear a seatbelt when you drive and never smoke. those are some pretty simple steps to take before getting worked up about ab crunches and Pilates. it seems the same can be said for financial self-preservation. i've also been rereading old favorites from 7 dog years ago, like Smithers' book on q (Valuing Wall St), just to keep the bad taste in my mouth about the US market.