A Favorite Performance Chart Hi Guys,
Thank you for the really nice exchange coupling charts like those generated by Callan and a reversion-to-the-mean investment strategy. A discussion of the merits and shortfalls of those charts and how they can be interpreted to improve investment outcomes was the main purpose of my original post.
I have been familiar with both the Callan charts and the reversion concept for many years. I am a fan of both. About a decade ago I asked myself the same question that is currently being explored on this thread.
Can you exploit the Callan rankings to better your investment returns?
A decade ago I did some analyses on this specific question; my answer was NO. Investing in last year’s top ranking winners or last year’s bottom ranking losers did more poorly than the S&P
500 Index as a benchmark. Unfortunately, I can not find my analyses, so I am reporting results from memory alone. That’s not reliable enough.
The good news is that professional financial organizations have completed similar analyses. These studies are just a little dated but they backstop my own work. One report is from Bearing the Bull that uses a J. P. Morgan chart similar to the Callan study. Here is the reference:
http://bearingthebull.com/2012/02/01/the-callan-conundrum/This article demonstrates the benefits and the shortfalls of asset allocations. One shortfall is that a diversified portfolio has a low likelihood of reaching the best performance ladder heights. The benefits are that annual losses are never maximized and that portfolio volatility is significantly reduced.
Given that diversification lowers return standard deviations, here is a Link to a short Fidelity report that provides some excellent practical examples:
https://www.fidelity.com/learning-center/investment-products/mutual-funds/diversificationBy exploring enough options, it is almost always the case that some correlation can be identified that ties one variable to some desired output. Of course, the challenge is to locate a strategy that holds water over the long-term future. It seems like holes always develop in the water buckets and leakage compromises the “great” correlation.
It appears that the Callan-like charts provide no immediate solutions other than the promise that portfolio diversification is a pretty good plan. That’s something. Enjoy the references.
Best Wishes.
$100k to Invest I would suggest 40% in Vanguard total stock market or ETF 20% in a municipal bond fund (I don't know much about you but a reference to 100k as fun money suggests at least a fairly high tax bracket. Total stock market is relatively tax efficient and will make sure you are diversified . With the remaining 40% I would make a number of bets(fun of course) you think are wise) These could include sector funds like health care. very management dependent funds that have very few stocks (50 or fewer ) like Oakmark Select,funds investments in frontier market and/or hedged international funds. Note in each case if you make the wrong bet you will underperform and outperform if you are correct.
Jeffery Gundlach's Surprising Forecast Gotta respect His opinion (bummer), He's BEEN right too many Times, but I tend to lump all doomsayers in same hat, sooner or later they will be right....but they are wrong MOST of the time, and no backlash, they keep pitching and losing
not ME; I'm going with "making money in 2015" ( Jeff will too) if adjustments necessary? a minor inconvenience...
GMOM No worries.
I reached out to the source and here is response from Meb:
From: Mebane Faber
Date: Sun, Jan 4, 201
5 at 8:09 PM
Subject: Re: GMOM Question
To: Charles
Just GAA is 0%, rest of ETFs are around 59 to 69 bps...and hopefully declining over time!
GMOM Charles I got that from you. Read my 10:15 AM post. This was taken directly from the MFO, Nov. fund discussion. If it's not true than you miss-reported. However I think I've seen that reported elsewhere as well.
$100k to Invest Hi alaska.
Couple more questions...
What's your risk tolerance? On a scale 1 to 5. 1 being Very Conservative, hate seeing even slight temporary pull backs. To, 5 being Very Aggressive, which means you're ok with 50-60% drawdowns as long is there is no permanent loss of capital ... and any decline will recover over say 4-6 years.
What's your investment time horizon? 1, 3, 5, 10, or 20 years?
Of the two, the former is probably most important. So, be as sure as humanly possible in your self assessment.
c
GMOM Charles, GMOM has changed the .59 management fee, that you cited above in Nov. to Zero.
Has anyone investigated the Matthew 25 fund MXXVX ? Am also trying to add to my small and micro-cap. Am particularly fond of WEMMX and BCSIX. May buy IWC (micro-cap ETF) instead.
For what its worth, micro caps are one area it possibly pays to go active.
Because of liquidity, issues most passive funds trail their benchmark, iirc. Essentially indices have problems rebalancing in thinly traded markets because the required trades move the markets so much. You end up losing the benefit of the liquidity premium, which is what you want from micro caps to begin with.
GMOM Right, I don't think anything has changed...
Am I missing something?
GMOM Charles November 2014 in Fund Discussions
GTAA ETF to be dissolved at AdvisorShares, Cambria plans relaunch of strategy as GMOM ETF
Honestly, think this is good news...
Letter yesterday:
Cambria Investment Management, LP and AdvisorShares issued notice today that the two parties plan on separating, and Cambria will move on from sub-advising the Cambria Global Tactical EtF (GTAA) pending board and shareholder approval.
Cambria, as a fiduciary, is committed to offering the best possible investment portfolios to our investors. Cambria will be launching the successor to GTAA, the Cambria Global Momentum EtF (GMOM), at a management fee of 0.59% in the coming months. GMOM is currently subject to an effective registration statement, and we are finalizing the terms of the listing with the NYSE and the SEC.
Cambria has been managing global tactical portfolios since 2007, and together with GMOM we will continue to manage these strategies in separate accounts and private funds.
Cambria has launched three EtFs under our own sponsorship, including the Cambria Shareholder Yield EtF (SYLD), the Cambria Foreign Shareholder Yield EtF (FYLD), and the Cambria Global Value EtF (GVAL).
