Thursday, October 10, 2013

Money Honey's Portfolio Upgrades?

Well, now that I've got my core assets and vehicles already thought out and in place, I feel quite gleemingly happy with myself. After all, I would say with a fair amount of confidence that I would be able to buy and hold these assets into the long run and be relatively happy with their returns in the end game.

However, of course doing better is well, even better right? So, after clicking around and surfing the web a bit, I stumbled upon this interesting article. It is titled Adaptive Asset Allocation, or AAA.

I like AAA so far, it is very quantitatively based, and therefore logical, rational and of course comes with less bias-ness than something qualitative. What I also like about this article is that the authors have actually also analyzed the Permanent Portfolio here and here, which in my books, gives them both credibility and knowledge. Their results is very similar to the table I constantly refer to from Mebane Faber's asset allocation post, which is here.

So, in their article, they used 10 asset classes and a variety of methods, mix and matched to produce ideal results. They are rebalancing, equal weighting, volatility weighting, min variance and momentum strategies. I must say though, that the end results looks very tempting. More time and brain power is needed for me to extract out their rules for their AAA model.

In another 2 articles
here and here, they also talk about asset allocation. What I like about these articles are their clear and simple reasoning on their portfolio construction. Lots of data and links, I definitely can spend a fair amount of time here. The comments below are also constructive as well.

And finally, we have a
paper on combining value and momentum strategies together, very interesting stuff. According to them, they have significant evidence to believe that a combination of value and momentum strategies can provide positive alpha to a portfolio. The only thing that doesn't look good though is the high portfolio turnover rate.

I'll take a better look at these articles later, but I still like the first one the best. Of course, wouldn't the winning combination be a bit of everything? I must say though, that the idea of minimal rebalancing, portfolio turnovers leads to lower transaction costs, and also less effort. Both of which, are things that I believe if I can reduce now, will lead me to have a more positive experience and returns in the long run.

Investing with next to minimal effort to get above average returns and a protected drawdown? Sounds crazy doesn't it, but that what I'm going to hope for! I'm super curious about the momentum strategies, especially buy and sell signals. Well, just something else for me to read up on then!

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