Posts filed under “Asset Allocation”

The Purgatory of Low Returns

Click to enlarge
GMO 7-Year Asset Class Real Return Forecasts: 2007



Have a look at the charts above and below. They are from James Montier’s GMO Quarterly Letter, July 2013, titled The Purgatory of Low Returns; you can download the full PDF here (registration may be req’d).

(Note to Josh: This quarter, Ben Inker and Montier filled in for the big dog in the quarterly letter. Even Grantham misses a letter deadline sometimes! )

The chart above is forward 7 year asset class return expectations from 2007. The chart below shows the same forward 7 year asset class return expectations from 2013.

Notice where the potential best returns are: For long term and patient investors, the opportunities for the best return on investment are places that may be somewhat uncomfortable today: Emerging Markets, which have been shellacked and are widely reviled following that collapse; International large and small cap, which means in no small measure Europe. And lastly, US high quality companies — which many people insist are on the verge of rolling over.

Whether you agree with these views or not, you must recognize that Grantham’s methodology is sound and that his long term track record is outstanding. He tends to be early, but that’s no surprise when you think in terms of investment arcs of 7 years.

If you run an asset allocation model (as we do), you should think about increasing your exposure to EM and Europe — but only if you (and/or your clients) are patient investors.

Many people believe they are patient investors, but few actually behave that way.




GMO 7-Year Asset Class Real Return Forecasts: 2013
Source: GMO




The Purgatory of Low Returns
James Montier
GMO Quarterly Letter, July 2013

Category: Asset Allocation, Cycles, Investing

Asset Classes

We have all seen the standard depiction of asset allocations — I thought this version — via UBS — was a more interesting depiction of the usual chart.   Click for ginormous graphic     Source: UBS House View, July 2013 Mike Ryan Monthly Investment Guide CIO Wealth Management Research

Category: Asset Allocation

Missing the big stocks rally: Readers push back Barry Ritholtz, Washington Post June 28 2013     Last time, I talked about what investors should do if they sat out the big market rally in recent years. In brief, I advised making changes of both a behavioral and investing nature. The behavioral issues included admitting…Read More

Category: Apprenticed Investor, Asset Allocation, Investing

Unsexy Finance vs Cat Food Tacos

Yeah, this time it was my fault — in the midst of a long conversation about taking the emotions out of investing and making finance boring, I dropped a line about cat food tacos. So once again I am in the click bait headline machinery.

Actually, the heart of the advice was from the asset allocation articles in the WaPo (here and here) essentially ” Invest Boringly.”

It looks something like this:

Have a plan.
Execute it faithfully.
Be diversified.
Contribute regularly.
Max out tax-deferred accounts.
Be an asset allocator.
Think long-term.

Not exactly radical, but “Cat Food Tacos” will generate a lot more clicks than “invest boringly.”

Here’s the video:

click to start video
cat food tacos


Source: Ritholtz: You Can “Eat Cat Food Tacos In Retirement,” Or You Can Do This… (Yahoo Finance)

Category: Asset Allocation, Investing, Media, Video

Pushing Back Against the Big Rally Miss

>   Two weeks ago, I managed to anger quite a few people with a Washington Post column titled: Missed the big market rally? Here’s what to do now. There were a variety of perturbed commenters both here and at WaPo as well as angry emails and assorted bemused tweets. While lots of readers, commenters…Read More

Category: Apprenticed Investor, Asset Allocation, Cognitive Foibles

The Cost of Cash

I am not sure I fully agree with this BlackRock chart — there are times when cash makes sense. However, I cannot disagree with the takeaway that you cannot sit in cash for very long stretches of time (years) and expect any sort of return above inflation.   Click to enlarge Source: BlackRock

Category: Asset Allocation, Investing

Time, Time, Time Is On Your Side (Yes it is)

Source: Motley Fool


Morgan Housel has a very insightful column this morning, driven by one of my favorite topics: Taking yourself out of the minute-to-minute, day-to-day time frame and rethinking your investing parameters in terms of years and decades.

That longer time frame is an enormous luxury, a monstrous advantage amateurs at home have over the pros.

Here’s Housel:

“You’re trying to fund your retirement over the next 20 years. Hedge fund managers have to woo their clients every month. You’re saving for your kids’ education next decade. Mutual fund managers have to fret about the next quarter. You can look years down the road. Traders have to worry about the next ten milliseconds.

Most professional investors can’t focus on the long run even if they want to.”

Or to be even more succinct, Henry Blodget observes that professional managers are “thinking about the next week, possibly the next month or quarter. There isn’t a time horizon; it’s how are you doing now, relative to your competitors. You really only have ninety days to be right, and if you’re wrong within ninety days, your clients begin to fire you.

That is the beauty of the chart above showing (inflation-adjusted) S&P500 returns going back to 1871 relative to various holding periods.

Short term is more or less random; longer term, the odds move in your favor. And very long term approaches 100% positive returns, even after inflation.

“Hold stocks for a year (Wall Street’s territory) and you’re at the mercy of the market’s madness — maybe a huge up year, or maybe a devastating loss. Five years, and you’re doing better. Ten years, and there’s a good chance you’ll be sitting on positive annual returns. Hold them for 20, 30, or 50 years, and there has never been a period in history when stocks produced an average annual loss. In fact, the worst you’ve done over any 30-year period in history is increased your money two-and-a-half fold after inflation. Wall Street would love to think about those numbers. Alas, it’s busy chasing its monthly benchmarks.”

Go read the full piece + see the rest of the charts. Its great stuff . . .


Your Last Remaining Edge on Wall Street
Morgan Housel
Motley Fool, June 18, 2013


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Category: Asset Allocation, Investing

Looking at Asset Class Returns by Year

The pushback from the weekend’s WaPo column was surprisingly fierce. If you can tell me what asset classes will perform best each year in advance, than by all means over-weight that sector. But if you are like the other 99.99% of investors, you are probably better off saying to yourself “Why should I guess when…Read More

Category: Asset Allocation, Fixed Income/Interest Rates, Investing

What Should Investors Do If They Miss Big Moves?

>   My Sunday Washington Post Business Section column is out: Missed the big market rally? Here’s what to do now. In the office, we have been getting lots of calls from people who missed the big move off of the 2009 lows. What should they do in those circumstances? Here’s an excerpt from the…Read More

Category: Asset Allocation, Investing, Psychology

Building a Beginner Portfolio

Josh Brown takes CNBC readers to school:

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Category: Asset Allocation, Investing, Video