Publication Date: June 2010
Overview
This book provides an overview of key investing topics that investors and advisors need to understand in developing investment management strategies to provide for long-term income or other goals. The book draws together core concepts that Geoff Considine has explored in his articles on portfolio planning, along with new insights and strategies. We explore the tools of portfolio management, the core asset classes that investors need to be aware of, and how to quantify risk and to determine whether a portfolio is a good match to a specific investor's needs. A major theme that we explore is how to deal with risk and uncertainty in long-term planning. Monte Carlo simulation is used to motivate many of the examples and we show a series of ways to get comfortable with Monte Carlo as a planning tool.
Table of Contents
Introduction 7
Chapter 1: Starting From the Start 11
Making a Plan 14
Grappling With Uncertainty 14
Where Do We Start? 17
The Tools of the Trade 19
Chapter 2: Overview of Key Investing Topics 23
Investment Classes 23
Topic 1: Looking Forward vs. Looking Back 27
Topic 2: Equivalent Portfolios 28
Topic 3: Basic Diversification 31
Topic 4: Broader Diversification 34
Topic 5: Allocation to Bonds 36
Topic 6: Funds vs. Individual Stocks 38
Topic 7: Choosing the Right Level of Risk 42
Topic 8: Strategic vs. Tactical Asset Allocation 46
Wrapping Up The Overview 47
Chapter 3: Matching Your Investments to Your Goals 49
The Human Capital Model 49
Maximizing Your Odds 50
Stress Test Your Plans 51
Flexibility in Your Goals 51
Liability Driven Investing (LDI) 52
Comparing Portfolios 52
Figuring Out Your Own Risk Tolerance 56
Chapter 4: Factors That Determine Portfolio Performance 57
Risk vs. Return 57
Beta vs. Return 58
The Four Factor Model 59
Low Beta Portfolios 60
Liquidity as a Factor 61
Factor-Driven Portfolios 62
Chapter 5: Building Portfolios 63
The Palette of Asset Classes 64
Putting the Pieces Together 66
Case Study of the Value of Diversification 72
The Investment Universe 75
Chapter 6: Getting a Handle on Risk 77
Chapter 7: Creating Expectations for Asset Class Performance 81
Historical Risk vs_ Return 81
Projections of Risk vs_ Return 83
Chapter 8: Tactical Asset Allocation 87
Defining Tactical Asset Allocation 87
Berkshire Hathaway 88
Overvaluation of Equities in 2007 89
Extreme Risk Aversion in Early 2009 91
The View from Early 2010 93
Summary of Tactical Asset Allocation 94
Chapter 9: Individual Stocks vs. Funds 97
How Many Stocks Do You Need? 98
Does Stock Specific Risk Add Value? 99
Different Kinds of Risk 100
Revisiting Berkshire Hathaway 105
Strategies with Low-Risk Individual Stocks 107
Strategies with Higher Risk Stocks 109
Additional Benefits of Owning Portfolios of Individual Stocks 112
Summary on Individual Stocks 113
Chapter 10: Bonds 115
Bonds as an Asset Class 115
Considerations in Choosing Allocation to Bonds 117
Liquidity Risk With Bond ETF’s 119
Chapter 11: Actively Managed Funds 121
Invisible Expenses 121
Loading Up on Risk 122
The Perverse Incentives of Fund Management 124
Choosing Active Funds 125
Chapter 12: Developing a Strategy 127
Super Simple 127
Glide Path Strategy 128
Passive vs_ Active 128
Market Cap Weighting vs. Slice and Dice 128
Factor-Based Investing 129
Individual Stocks vs. Funds 129
Strategic vs. Tactical Asset Allocation 130
The Endowment Model 130
The Bodie Model 131
Defining a World View 132
The New Normal 132
Grantham 134
A Coherent World View 135
Chapter 13: Savings Rates and Income Draws 137
How Much Do We Need to Save? 138
How Much Income Can We Draw? 140
Periodic Re-Evaluation 141
Final Thoughts on Savings Rate and Income Draw 142
Chapter 14: The Five-Step Portfolio Checkup 145
1_ Evaluate Re-Balancing 145
2_ Check on Current Plan 146
3_ Check on Relative Valuation of Core Asset Classes 147
4_ Check on Portfolio Risk and Valuation 147
5_ Evaluate Individual Stocks 147
Putting a Plan Through its Paces 148
Chapter 15: Concluding Thoughts 149
Appendix A: Monte Carlo Simulation 153
Appendix B: Monte Carlo Analysis of Major Berkshire
Hathaway Holdings 157
Appendix C: A Few Thoughts on Investing for income 163
Bio of the Author 164
Purchasing
This book can be purchased as an e-book (in Adobe Acrobat format) or as a physical book. The hardcopy book is printed on 24# laser paper, with a card stock front cover and a vinyl back cover and a coil binding. This format allows the book to be folded open and we have found it useful. The paper and printing is better than standard softback books. The e-book is $25 and the hardcopy book is $40 + $13 or $7.50 S&H (depending on whether you want First Class or Media Mail. International prices are listed below. Please email tryqpp@yahoo.com with questions.
The e-book will be emailed to buyers.
The buttons for purchasing the Survival Guide are listed below:
