Responding to Your Comments on Our Adaptive Asset Allocation Book

If you’ve been a regular reader of our blog, you already know that we recently published our first book Adaptive Asset Allocation: Dynamic Portfolios to Profit in Good Times – and Bad.  As of this writing, it still stands as the #1 new release in Amazon’s Business Finance category.  We’re pretty psyched about that.

This has been – and continues to be – a very interesting experience.  Again, it being our first book, since publishing it we’ve had many discussions with associates, professional peers and the media.  And while the positive feedback is most certainly welcome, the way we improve is generally by paying attention to what we could have done better.  So, we’re going to respond to some of the requests and answer some of the questions that have come up since the book launched.

Comment #1:  We Didn’t Give a Specific Portfolio Allocation.

The Idea Is:  Some people (like us!) read a lot of investment books in order to enhance knowledge. AAA has interesting ideas, but it doesn’t really lay out a tangible allocation that can be easily implemented by a “DIY” investor.

Our Response:  It’s literally not possible to give concrete allocations to portfolios that adapt over time.  After all, the book is titled Adaptive Asset Allocation.  However, for our Global Market Portfolio (GMP) – which we offer free of management fees! – we’ve never been shy about the exact allocations:

Global Market Portfolio 2012

It should be noted that this was the GMP in 2012, and the actual values may have drifted slightly since then due to market moves and security issuance/retirement.  However, in the book, we go to great lengths to philosophically justify this as the most efficient portfolio for any investor who believes in efficient markets.  And since the portfolio, by definition, requires virtually no rebalancing, it is ideal for passive DIYers.

Comment #2:  We Don’t Talk Enough About Taxes and Trade Frictions.

The Idea Is:  Any model which requires frequent rebalancing should include information regarding the impact of costs and capital gains tax on returns.

Our Response:  This is true: we don’t talk about taxes and trading costs, but there’s good reason.  The thing is, we hope that our book was read by debt-riddled college students, entrepreneurial billionaires and everyone in between.  But because of this, it would have been virtually impossible to address the multitude of tax situations that could exist across income levels, account tax statuses, and literally across international borders (yup, we have a global readership!).

That said, our stance on portfolio costs, frictions and taxes is pretty simple: for any appropriately-diversified portfolio, all-in expenses should approximate the benefit from rebalancing.  If costs are low and potential benefits are high, rebalance more often; if costs are high and benefits low, rebalance less often.  The optimal balance is the only way to maximize risk/reward tradeoffs.

And ultimately, finding the right balance is a deeply personal  task, informed by an investor’s unique objective reality and emotional tolerances.

Comment #3:  Much of the book has been previously covered in our blogs.

The Idea Is:  What’s the value of getting this book, when a lot of it’s already been covered on your blogs?

Our Response:  Much of the book’s material has been covered in the blog, yes.  In the past eight years we’ve written well over 150 posts – spanning hundreds of thousands of words – on diverse topics including investor behavior, risk management, saving strategies, retirement income and of course, portfolio design.  Because of this, it would be virtually impossible to write a book that didn’t touch on many of these topics.

But more to the point, our book was meant to be a resource that coalesced these diverse topics into a single, cohesive narrative.  See, blogging is a completely different thing than writing a book.  On a blog, we are free to write about whatever subject is currently top-of-mind.  The result is a double-edged reality where we are able to produce thoroughly-researched evergreen content, but are largely unable to connect diverse topics in an effective way.

Our book presented the opposite problem: we were less able to deep-dive any single topic, but there was a tremendous opportunity to weave diverse financial concepts together in a way that’s meaningful to readers.  Basically, a book allows us to connect all the dots.

Pushing the limits of our research is something that we love to do.  And if you prefer that type of content, make sure you follow our research blog over at GestaltU and our Twitter, @GestaltU.  But for our first book, this was the goal:

AAA book ad

Thanks to everyone for the thoughtful feedback on the book.  For those who haven’t yet picked up a copy, you can find it on Amazon or wherever quality books are sold.