We have posted a lot of research on fairly complex asset allocation topics, but I think many readers would be surprised to learn that I am actually highly skeptical about historical market statistics. I don’t think that we can draw any meaningfully precise …
Keep ReadingAsset Allocation
3 Reasons to Ignore Dow 20,000 and Focus on Better Portfolio Outcomes
It is simple to achieve better portfolio outcomes by going global, thinking differently about diversification, and targeting optimal portfolio balance.
Keep ReadingThe Definitive Book on Factor Based Investing
Smart beta. Empirical finance. Evidence-based investing. These terms have migrated from the periphery of the investment ecosystem just ten years ago to become the investment world’s most popular memes today. Why?
Keep ReadingRising Rates, Valuation, and Bias: Round 2 with the Meb Faber Podcast
Recently, ReSolve’s fearless leaders – Mike Philbrick, Adam Butler and Rodrigo Gordillo – were invited to join Meb Faber on his new podcast. Meb was kind enough to geek out with us for almost an hour about a wide variety of topics. In this second of two posts …
Keep ReadingGold, Risk & Leverage: ReSolve Visits the Meb Faber Podcast
he fundamental recognition is that asset allocation completely dominates long-term portfolio outcomes. There’s a pile of research out there, most of it is really misunderstood. For instance, Brinson’s a perfect example where the original research claimed that …
Keep ReadingStop Paying for Active Management Beta
For evidence, look no further than sales of bottled water in the first world. Our ancestors spent hundreds of billions of dollars developing the infrastructure to deliver potable water to every home, yet we spend billions each year to purchase bottled versions of …
Keep ReadingRisk Parity isn’t the Problem, it’s the Solution
Bank of America Merrill Lynch recently released a research note suggesting that Risk Parity investment strategies currently represent a substantial source of systematic risk in global markets. The note was picked up breathlessly by several media outlets and posted under …
Keep ReadingThe Importance of Asset Allocation vs. Security Selection: A Primer
By far the greatest source of personal consternation as a professional in markets is investors’ obsession with finding the best stocks, or the best stock pickers. The fact that investors pursue this objective at all undermines all meaningful arguments about efficient markets …
Keep ReadingMissing the forest for the trees: Asset allocation over security selection
Tactical Alpha in Theory and Practice (Part II): Principal Component Analysis
In Part I of this series, we explored Grinold’s Fundamental Law of Active Management, and why the theory leads to misguided conclusions in the presence of asset correlations. In this article we will offer a primer on a useful tool for portfolio evaluation, Principal Component Analysis (PCA), and illustrate how PCA can help quantify the number of independent bets in a portfolio of correlated assets.
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