Schlenkler’s investment principles

[Deleted User]

Norbert Schenkler is known for “inventing” and popularizing a really cool way of lowering the cost of exchanging currency within trading accounts, called “Norbert’s Gambit”.  He also outlined four investment principles, which in my opinion summarize a lot of wisdom in a very succint way:

• Pay as little to intermediaries as you can.
• Diversification reduces your risk.
• The market is largely efficient and prices are "correct" to a first degree. (For fixed income, that means yields are "correct".)
• If you can avoid looking for patterns in what is noise, you'll be better off in the long run.

itwasntme001

Agree with the first point.  Lowering costs is a no-brainer.

Diversification also should apply across asset classes as well.  Being close to 100% invested in a diversified global equity tracker is NOT diversified.

The market is efficient but its a pointless concept as it is possible to still out-perform over the long term.

Investing based on patterns is voodoo investing, based on confirmation bias that will result in random results given a large enough sample size.

tacpot12

I would wholeheartedly agree with the first three of these. I can't use the fourth as I don't look for patterns when investing. 

Linton

Deleted_User said:

Norbert Schenkler is known for “inventing” and popularizing a really cool way of lowering the cost of exchanging currency within trading accounts, called “Norbert’s Gambit”.  He also outlined four investment principles, which in my opinion summarize a lot of wisdom in a very succint way:

• Pay as little to intermediaries as you can.
• Diversification reduces your risk.
• The market is largely efficient and prices are "correct" to a first degree. (For fixed income, that means yields are "correct".)
• If you can avoid looking for patterns in what is noise, you'll be better off in the long run.

Pay as little to intermediaries as you can.
Paying plus or minus a few £100 is irrelevent in a portfolio worth n X £100K.  There are more important things to worry about such as:
Diversification reduces your risk
Diversification is key, far more important than what you pay intermediaries..  That means diversification between multiple types of asset and within asset classes.
The market is largely efficient and prices are "correct" to a first degree.
I neither know nor care what "correct" means.  The market is what it is.
If you can avoid looking for patterns in what is noise, you'll be better off in the long run.
Agreed, I have no problem avoiding it.

Mistermeaner

itwasntme001 said:

Diversification also should apply across asset classes as well.  Being close to 100% invested in a diversified global equity tracker is NOT diversified.

Can you please explain this a bit more : I understood that buying just vanguard life strategy or similar is a great way to achieve diversification with simplicity 

Thrugelmir

Mistermeaner said:

itwasntme001 said:

Diversification also should apply across asset classes as well.  Being close to 100% invested in a diversified global equity tracker is NOT diversified.

Can you please explain this a bit more : I understood that buying just vanguard life strategy or similar is a great way to achieve diversification with simplicity 

To an extent. Vanguard only market what they sell. Which is limited by today's standards. 

gm0

Some seem better than others in that they translate immediately into an action verb i.e. what you need to do about it.

• Pay as little to intermediaries as you can. 
  
  Action: Hold assets with the cheapest reputable provider for your use - accumulation or drawdown.  Review periodically.
  
  
• Diversification reduces your risk. 
  
  Action: Hold multiple asset classes and diversify across industries and geographies - understand your holdings and their overlaps and theoretical correlations, cyclical nature and any tilt you have selected.
  
  
• The market is largely efficient and prices are "correct" to a first degree. (For fixed income, that means yields are "correct".) 
  
  What does this tell you to do - so high yield junk = high credit default risk - does that mean buy it or not ?
  
  
• If you can avoid looking for patterns in what is noise, you'll be better off in the long run.
  
  Lots packed in here about not confusing short term trading with investing and not timing the market on short term fluctuations as well as the traditional old school divide between quants and more mystical chartists spotting apparently meaningful shapes in randomish data
  

itwasntme001

Mistermeaner said:

itwasntme001 said:

Diversification also should apply across asset classes as well.  Being close to 100% invested in a diversified global equity tracker is NOT diversified.

Can you please explain this a bit more : I understood that buying just vanguard life strategy or similar is a great way to achieve diversification with simplicity 

It is a great way to achieve all that for your equity allocation.  But to have your whole portfolio in one asset class such as equities is not being diversified - its the polar opposite.  Maybe it does not matter too much if you have a small portfolio and/or if you are young but 20 year bear markets in equities have occured in the past hence why diversification is important.

Diversification not only improves risk adjusted returns, it also can improve outright returns if managed and rebalanced properly.

AnotherJoe

Deleted_User said:

Norbert Schenkler is known for “inventing” and popularizing a really cool way of lowering the cost of exchanging currency within trading accounts, called “Norbert’s Gambit”.  He also outlined four investment principles, which in my opinion summarize a lot of wisdom in a very succint way:

• Pay as little to intermediaries as you can.
• Diversification reduces your risk.
• The market is largely efficient and prices are "correct" to a first degree. (For fixed income, that means yields are "correct".)
• If you can avoid looking for patterns in what is noise, you'll be better off in the long run.

That assumes that reducing your risk is a good thing. 

Which it may not be.

I know people who are far too risk averse and it's cost them a lot of money.

itwasntme001

AnotherJoe said:

Deleted_User said:

Norbert Schenkler is known for “inventing” and popularizing a really cool way of lowering the cost of exchanging currency within trading accounts, called “Norbert’s Gambit”.  He also outlined four investment principles, which in my opinion summarize a lot of wisdom in a very succint way:

• Pay as little to intermediaries as you can.
• Diversification reduces your risk.
• The market is largely efficient and prices are "correct" to a first degree. (For fixed income, that means yields are "correct".)
• If you can avoid looking for patterns in what is noise, you'll be better off in the long run.

That assumes that reducing your risk is a good thing. 

Which it may not be.

I know people who are far too risk averse and it's cost them a lot of money.

That assumes that increasing your risk is a good thing.

Which it may not be.

I know people who took on far too much risk in 1999 and 2007 and it's cost them a lot of money.

[Deleted User]

AnotherJoe said:

Deleted_User said:

Norbert Schenkler is known for “inventing” and popularizing a really cool way of lowering the cost of exchanging currency within trading accounts, called “Norbert’s Gambit”.  He also outlined four investment principles, which in my opinion summarize a lot of wisdom in a very succint way:

• Pay as little to intermediaries as you can.
• Diversification reduces your risk.
• The market is largely efficient and prices are "correct" to a first degree. (For fixed income, that means yields are "correct".)
• If you can avoid looking for patterns in what is noise, you'll be better off in the long run.

That assumes that reducing your risk is a good thing. 

Which it may not be.

I know people who are far too risk averse and it's cost them a lot of money.

Reducing your risk without reducing expected returns is a good thing.