protect your portfolio

pip895

Trustnet have posted an interesting article - A tested method to protect your portfolio against tail risks

http://www.trustnet.com/News/491302/a-tested-method-to-protect-your-portfolio-against-tail-risks/3/1/?utm_medium=email&utm_source=FE&utm_campaign=3745637_20140228_retail&utm_content=Article1tail&dm_i=10MZ,28A5H,7APAXT,82ON5,1

It is basically the results of a study by Professor Andrew Clare of Cass Business School - showing a method to Reduce volatility and increase yield from a portfolio using cash as a safe haven.

It is similar to a technique I have been using for the last few years although I am a little less disciplined.

What are you thoughts?

kidmugsy

i) He's not told us how he allowed for transaction costs.
ii) He's not told us how he allowed for taxes.
iii) Perhaps most importantly, his chosen comparison seems a bit lame to me, because (a) it's versus buy-to-hold instead of with-rebalancing, and (b) it's only one comparison, heavily weighted to equities and things that correlate highly with equities (20% developed market equities; 20% emerging market equities, 20% commodities; and 20% commercial property). How about a comparison with a portfolio of 25% each of cash, bonds, equities, and gold, rebalanced annually, and other well-known diversified portfolios?
iv) It's only one 20 year spell, for goodness sake.

So I'll give it some thought, but for the moment I find it inconceivable that such a study wasn't done with much more coverage along the lines I've alluded to - so where are the results of the other parts of the study?

talexuser

Interesting idea. How do you calculate the "10 month rolling average" of a sector though?

kidmugsy

talexuser wrote: »

Interesting idea. How do you calculate the "10 month rolling average" of a sector though?

No doubt there's an App.:)

pip895

kidmugsy wrote: »

i) He's not told us how he allowed for transaction costs.

My solution to this is to use funds - on my platform there are no transaction costs for most funds

kidmugsy wrote: »

So I'll give it some thought, but for the moment I find it inconceivable that such a study wasn't done with much more coverage along the lines I've alluded to - so where are the results of the other parts of the study?

I'm sure you are right - this will just be a highly simplified and cut down appraisal of the full study.

pip895

talexuser wrote: »

Interesting idea. How do you calculate the "10 month rolling average" of a sector though?

Not sure on this - stockopedia have a momentum score but Im not sure exactly how it is generated and saltydoginvestor does something similar with funds - but both of these you have to pay for. I currently use trustnet which is free - I just look for sectors and then funds doing well over 3 months and then narrow things down looking at the 1 month & 6 month data - not anything like as rigorous as in the study but I suspect it mostly comes up with similar results.