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Possibly we’ve been all wrong here over the years with all the deep mutual fund analysis, the “What are you Buying and Selling?” threads - all those damn sophisticated charts and what not.
Yes @Sven. My post of the classic Geiko caveman commercial was supposed to be a joke. It was meant as a play on the writer’s emphasis on simplicity - “AANA is amazingly simple.”
I was also alluding to what @sma3 noted earlier - also in jest … I have seen several other “simple portfolios” proposed. But if we used them, MFO would collapse!
It’’s widely acknowledged that trading in and out of assets frequently damages portfolios more often than it helps. So from that perspective, these simple portfolios are good approaches in that they help you stay the course. All of the assets included in AANA A do rise in value over time (as measured in multi-decades) due to the corrosive effects of inflation on paper currencies. You would have made money in nominal terms over 50 years with gold, real estate, the S&P 500 and the other components. Rebalancing smooths the ride and hopefully keeps the investor from panicking and selling an asset when it is down. To the contrary, it forces you to sell some of your “winners” and buy more of your “losers” (counterintuitive for many).
@hank I agree with the benefits of diversification between these asset classes and their different performance characteristics. Rebalancing can also enforce a certain value discipline as you state. I disagree with the notion that equal weighting these asset classes will produce optimal results or necessarily even good results in the next fifty years simply because it has in the last fifty years.
These back-tested rules based systems lack nuance and a failure to acknowledge that the future is different from the past. Worse, I think the promoters of these rules-based systems can have ulterior motives. They may want to create investment products off them that a simple algorithm can run for 0.05% while charging 0.50% to ETF investors in a world that has devalued active management.
In many ways I think the asset allocation decision requires more nuance and is more important than individual security selection. An active manager who is thinking seriously about how long-term economic, geopolitical, environmental and market trends are shifting in 2023 can add value where the one who is only looking backward to 1973 through 2023 may not.
The problem I admit is most active managers are not adequately equipped to make that kind of macro forward-looking analysis of asset classes. And worse, some are also drawn to short- lived trends that help gather assets instead of produce good results. Crypto as an asset class comes to mind. So I can see how the AANA strategy has a certain appeal and, I think, a dangerous simplicity to it.
The problem I admit is most active managers are not adequately equipped to make that kind of macro forward-looking analysis of asset classes. And worse, some are also drawn to short- lived trends that help gather assets instead of produce good results. Crypto as an asset class comes to mind. So I can see how the AANA strategy has a certain appeal and, I think, a dangerous simplicity to it.
Comments
I was also alluding to what @sma3 noted earlier - also in jest … I have seen several other “simple portfolios” proposed. But if we used them, MFO would collapse!
It’’s widely acknowledged that trading in and out of assets frequently damages portfolios more often than it helps. So from that perspective, these simple portfolios are good approaches in that they help you stay the course. All of the assets included in AANA
Ado rise in value over time (as measured in multi-decades) due to the corrosive effects of inflation on paper currencies. You would have made money in nominal terms over 50 years with gold, real estate, the S&P 500 and the other components. Rebalancing smooths the ride and hopefully keeps the investor from panicking and selling an asset when it is down. To the contrary, it forces you to sell some of your “winners” and buy more of your “losers” (counterintuitive for many).These back-tested rules based systems lack nuance and a failure to acknowledge that the future is different from the past. Worse, I think the promoters of these rules-based systems can have ulterior motives. They may want to create investment products off them that a simple algorithm can run for 0.05% while charging 0.50% to ETF investors in a world that has devalued active management.
In many ways I think the asset allocation decision requires more nuance and is more important than individual security selection. An active manager who is thinking seriously about how long-term economic, geopolitical, environmental and market trends are shifting in 2023 can add value where the one who is only looking backward to 1973 through 2023 may not.
The problem I admit is most active managers are not adequately equipped to make that kind of macro forward-looking analysis of asset classes. And worse, some are also drawn to short- lived trends that help gather assets instead of produce good results. Crypto as an asset class comes to mind. So I can see how the AANA strategy has a certain appeal and, I think, a dangerous simplicity to it.
@hank, i certainly appreciate the sense of humor. A healthy debate on the merits of this article is actually healthy.