Post-Modern Portfolio Theory

Serious investors interested in digging deeper into the issue of portfolio risk management will find the article titled, Post-Modern Portfolio Theory of great interest. Any link is bound to produce different references over time so here is a clue to finding the article. Google the term, “Post-Modern Portfolio Theory” and then look for the PDF article by the same name. The article is authored by Pete Swisher and Gregory W. Kasten. Download the PDF file and open.

Post-Modern Portfolio Theory is the study of moving a 60 year-old theory forward. One issue that needs transformation is portfolio risk management. Mean-variance or standard deviation is an inadequate method for measuring portfolio risk. I learned this many years ago when I first started using the Windows version of Captool. Later, I read in Harold Evensky’s book, Wealth Management, the advantage of using semi-variance instead of mean-variance to measure portfolio risk. Verbiage from many sources did not translate into actual measurement until a few months ago when I was able to convert these ideas into a workable Excel worksheet within the TLH portfolio monitoring spreadsheet. [Read more…]

Can You Beat The Market?

As an investor, ask yourself the following questions.

  • Am I selecting individual stocks as the primary building blocks for my portfolio?
  • Do I use actively managed mutual funds as my investing vehicles?
  • Do I even know what active management means?
  • Have I turned my investments over to an investment manager?
  • What are the total management fees charged by the investment manager?
  • If the funds are managed by an investment manager, how well is the portfolio performing with respect to an appropriate benchmark?
  • What is an appropriate benchmark?
  • Does my investment manager provide detailed information of portfolio performance with respect to an appropriate benchmark?
  • What risk (portfolio volatility) is involved in my portfolio?
  • Can I live with that risk and is it explained carefully?
  • How can I reduce expenses?
  • Is my portfolio beating the market and how do I define the market?

The Financial Express article points out that 100 billion a year is spent on trying to beat the market.  Check it out as it is a real eye opener, particularly since the majority of investors are throwing their money away.  Is it possible to both reduce expenses and enhance returns?  The simple answer is yes, although it does take discipline and some effort to learn a new way of investing.  Platinum members are walked through a process of using index funds (primarily index ETFs) as the core portfolio building blocks.  A spreadsheet (TLH) is provided, including on going instructions how to track the portfolio performance, the performance of a customized benchmark, and portfolio uncertainty using a semi-variance calculation.

Platinum membership is available for a mere $5.00 per month.  Become your own financial advisor by building a portfolio using index ETFs.

Photograph: Zion National Park – Utah – USA

Newton Portfolio Review: June 29, 2011

It is time to update the Newton Portfolio and I am posting the results using 11:00 a.m. data from June 29th.  Two new stocks were added this month.  I purchased CVR and AEY, two relatively unknown stocks that showed up in one of my tight screens.  Since the Newton is one of the larger portfolios I track, the owner permits a higher percentage to be investing in individual stocks.  The core of the portfolio continues to be held in tax advantage ETFs.

New members need to know the following screen shot comes out of the TLH Spreadsheet.  It is the Dashboard worksheet and this is where the Strategic Asset Allocation plan for the portfolio is displayed.  This page is the key to forming an investment philosophy.  Note how the portfolio is skewed toward the left side or value ETFs.

The Newton, as currently constructed, is totally out of balance.  Limit orders are in place, but they will not be triggered so long as the market marches forward.  I do not plan to chase this market.


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