Morningstar Conference - All Comments

Re: The Next Move for Berkowitz, Marsico, and Weitz

McMontana — Thu, 28 May 2009 20:33:00 GMT

I take it that under the Marsico comments, 1992 is meant instead of 2002 (Clinton election).

Mac

Re: The Next Move for Berkowitz, Marsico, and Weitz

mauihank — Fri, 29 May 2009 08:13:00 GMT

WHAT A WASTE OF MY TIME READING THIS BS,, FIND A NEW JOB REPORT FACTS . GET A JOB

Re: The Next Move for Berkowitz, Marsico, and Weitz

M*_Analysts — Fri, 29 May 2009 16:57:00 GMT

Thanks for the catch, McMontana. That reference should have been 1992. We updated it.

Re: Want Some Fresh Insights About Asset Allocation?

SidJnsn — Fri, 29 May 2009 15:15:00 GMT

The only nice thing about a stomach-churning market drop is the opportunity to learn some lessons.

Nobody but a masochist is tolerant of a 40-50% drop, regardless of age. I agree with Vineer; take out the tail risk and risk tolerance is less relevant at least.

Options are a possibility for cutting off tail risk, but only if everyone is not doing the same thing such that the cost of the option (insurance) is too high. I honestly can't claim to know a lot about this approach, but am interested.

A free approach to tail risk is to use a long-term moving average and volatility-based stops. The long-term (175-200 day) moving average could have told us to get out of the market early prior to the bursting of the last two bubbles. Looking at the history of the S&P, there are few false alarms. Using a faster moving average along with the slow one helps filter out the false alarms. Something like a 4-day/175 day moving average almost triples the return over that of buy and hold, based on S&P500 history since the beginning of available data. That is assuming zero return when out of the market.

Stops are handy for preventing those one-day killer drops like in 1987. Making them volatility-based lowers the risk of getting stopped out by a intra-day downward spike. Right now, I'm using 2.5 times the Average True Range to set my stops - assuming that stop is below the trend line that I'm using for support.

This may sound a bit like technical analysis, and it is, but just enough to keep me from being stupid again (I hope). Knowing when to get out has always been the toughest part for me. Although I limited my losses to 25% in this drop, I'd like to do a lot better from now on.

Re: Want Some Fresh Insights About Asset Allocation?

arvind rao — Fri, 29 May 2009 16:21:00 GMT

I think Vineet's idea is great, but what mangnitude of tail risk is he talking about? If it is just an economic crisis, the markets always recover although it takes some time (like decade long). This is theory warren or jack bogle offer, that price and value of world economies will converge over time, and so if you can buy-and-hold, an index fund will suffice. However, if there are really extreme events like a war or such, then they shutdown the market. The exchanges won't allow markets to fall 50% in a few days. I don't think it makes sense to buy insurance for such kind of extreme events. I would have liked some clarity on the magnitude of tail risk.

Re: Want Some Fresh Insights About Asset Allocation?

theDumberOne — Fri, 29 May 2009 17:36:00 GMT

Agree with Vineer that 60/40 stock/bond may have higher that 60% equity exposure due to corporate bonds. Good point.

Also I would be interested what sort of insurance he is buying to cut off tail risk. TIPS, REITs, commodities are good attempts at hedging against inflation. But nothing like an actual insurance.

Re: Want Some Fresh Insights About Asset Allocation?

erryl — Fri, 29 May 2009 03:31:00 GMT

I think that the idea of tail insurance is intriguing. I don't care what you say your risk tolerance is, I don't know of anyone that isn't plenty spooked after a 50% loss. I thought I had pretty good protection against that with diversification and fixed income, but unfortunately, a lot of my fixed income tanked like equities.

Hope to see more on this idea...

erryl