|
|
By Gary Cornell |
Article Rating: |
|
February 16, 2008 12:15 PM EST |
Reads: |
26,278 |
Any book that says it can teach you to beat the market is junk and the vast majority of these books seem to. Basically, if you don’t know
anything about investing/financial stuff, or, come to think of it, even if you think
you do, get a good primer like Andrew Tobias’s book that I mention at the end of the review.
Tobias is a great writer and, in addition to his writing skills, has a
pleasantly healthy amount of cynicism about the process. (There are other similar
books – even the dummy’s book is pretty good.) Read one (and one only) of these
books and then follow the standard advice they will give: invest for the long
term and diversify. I’ll add: and don’t ever listen to the talking heads on
financial porn channels like CNBC or what you will see/read in any other media.
All of these folks claim to have some insights into what the market is doing or
will be doing. Trust me, if they really knew, they wouldn’t be telling you.
They’d keep their advice to themselves and be even richer then James Simon, who
has made upwards of $1,000,000,000 a year for the last few years running a
hedge fund that doesn’t claim to know what is going to happen or why what
happened, happened but rather they work by harvesting small discrepancies
between investments that should correlate – often these momentary discrepancies
are actually caused by people who think they do know what is going to happen!
Yet here I am reviewing a book that purports to give a twist
on investing that you can use (admittedly under very limited circumstances) in
order to beat the results of simply buying and holding! To add insult to injury,
the idea is actually more than 20 years old and the reprint edition I am
reviewing is essentially an unchanged reprint of a book published in 1993 – 15
years ago. So what gives?
Basically the traditional mantra of investing over the long
haul is to say: “dollar cost average.” This method is very common to retirement
investing and simply means putting in the same amount of money regularly. Thus
buying more shares when things are going down and less when they are going up.
It’s disciplined, simple to follow and thus ideal for explaining to people. Trouble
is it actually doesn’t work all that well in practice and Edleson was one of
the first people to notice this and think about systematic ways to improve on
it. (The definitive analysis showing dollar cost averaging doesn’t work well can
be found here, by the way: http://www.studyfinance.com/jfsd/pdffiles/v13n1/marshall.pdf.
This is a truly excellent and very readable paper that you should read right
after you read Edleson’s book.)
What was Edleson's key insight? Basically he combined the
need to rebalance a portfolio with dollar cost averaging and came up with a
systematic strategy that, according to all the tests given it that I know of, delivers
better results than dollar cost averaging with less risk, i.e., the holy grail
of long-term investing.
Traditionally rebalancing worked like this: you had say 50%
in stocks and 40% in bonds and 10% in money market funds. The stock market goes
up, you now have 60% in stocks and only 32% in bonds and 8% in money market
funds. You sell some stocks to bring the portfolio back into balance by adding
to the bond and money market position. This is a good idea, and you should do
it.
Roughly speaking what Edleson did was throw a form of automatic
and dynamic rebalancing into the dollar cost averaging plan; roughly speaking
he says the following: let’s imagine we want our investment portfolio to increase
by 6% a year, always taking into account the added investments we are making.
We build a little spreadsheet showing what we should have each quarter and enter
what we actually had based on market performance. For example, something like Table
1 for a $1,000 a month investment where you can see that the needed monthly investment
is increased quarterly in order to keep the portfolio growing at the correct
rate. Contra wise, if the market went up more than 1.5% in a given period, you
would shrink the amount you invest in the next period – if it really went up
you may have to put no money in at all!
While Edelson gives some data showing the efficacy of this
method over dollar cost averaging, it is actually Marshall who shows in the
paper I just cited that there have been no 20 quarter periods in recorded stock
market history or even in Monte Carlo simulations of hypothetical stock market
performance based on historical norms where Edleson’s value averaging strategy would not outperform dollar cost
averaging in terms of risk/reward. He concludes that Edelson’s simple
improvement to dollar cost averaging can work wonders on your risk/reward ratio
over the long term.
Ah, but of course there “ain’t such a thing as a free lunch”:
if you have a long-term downtrend in the market the amounts you have to put in to
do value averaging can get really scary – and may not be possible for you – at
which point the strategy would break down. The downside to value averaging is
that while not quite as bad as “doubling down” at a casino, in a horrible bear
market, it has some definite resemblance to it!
Still, Edleson’s value averaging strategy is one you should
seriously consider if you have inherited a lump sum and want to deploy it over
time, or if you were lucky enough to be say one of the first 1,000 employees at
Google and have cashed in.
What Edelson’s book won’t tell you is which asset classes to
invest in nor what percentages to use for them. (Check out Bernstein’s very
nice book mentioned above for this or his great Web site http://www.efficientfrontier.com/.)
In sum I was convinced that once you have made the asset
class decision, value averaging does give you a strategy to do the investing
that seems to beat the conventional wisdom handily. Edelson’s book deserves to
be a classic of the investing literature alongside books like Graham’s. Amusingly
enough, the name of the series it has been reprinted in is the “Wiley
Investment Classics!”
Mentioned: The Only Investment Guide You'll Ever Need by Andrew
Tobias, Harvest Books; (January 3, 2005) ISBN: 0156029634
The Intelligent Asset Allocator: How to Build Your
Portfolio to Maximize Returns and Minimize Risk by William Bernstein, McGraw-Hill
(September 22, 2000), ISBN:0071362363
Gary Cornell has a PHD in mathematics from Brown University. At various times and among other things he has been a professor, a program director at the National Science Foundation, and a visiting scientist at IBM's Watson Labs. He has written or co-written numerous best-selling and award-winning computer books. Most recently he co-founded Apress (www.apress.com), which under his leadership became one of the largest publishers of books for IT professionals in the world. And he did all this while simultaneously having a truly serious case of the 'gentle madness,' AKA bibliomania.
@ThingsExpo Stories By Pat Romanski  Charles Araujo is an industry analyst, internationally recognized authority on the Digital Enterprise and author of The Quantum Age of IT: Why Everything You Know About IT is About to Change. As Principal Analyst with Intellyx, he writes, speaks and advises organizations on how to navigate through this time of disruption. He is also the founder of The Institute for Digital Transformation and a sought after keynote speaker. He has been a regular contributor to both InformationWeek and CIO Insight... Apr. 25, 2018 06:15 AM EDT Reads: 1,840 | By Yeshim Deniz  DXWorldEXPO LLC, the producer of the world's most influential technology conferences and trade shows has announced the 22nd International CloudEXPO | DXWorldEXPO "Early Bird Registration" is now open. Register for Full Conference "Gold Pass" ▸ Here (Expo Hall ▸ Here) Apr. 25, 2018 05:00 AM EDT Reads: 367 | By Yeshim Deniz  Join IBM November 1 at 21st Cloud Expo at the Santa Clara Convention Center in Santa Clara, CA, and learn how IBM Watson can bring cognitive services and AI to intelligent, unmanned systems. Cognitive analysis impacts today’s systems with unparalleled ability that were previously available only to manned, back-end operations. Thanks to cloud processing, IBM Watson can bring cognitive services and AI to intelligent, unmanned systems. Imagine a robot vacuum that becomes your personal assistant tha... Apr. 25, 2018 04:45 AM EDT Reads: 5,173 | By Elizabeth White  "MobiDev is a software development company and we do complex, custom software development for everybody from entrepreneurs to large enterprises," explained Alan Winters, U.S. Head of Business Development at MobiDev, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Apr. 25, 2018 04:00 AM EDT Reads: 4,961 | By Elizabeth White  I think DevOps is now a rambunctious teenager - it's starting to get a mind of its own, wanting to get its own things but it still needs some adult supervision," explained Thomas Hooker, VP of marketing at CollabNet, in this SYS-CON.tv interview at DevOps Summit at 20th Cloud Expo, held June 6-8, 2017, at the Javits Center in New York City, NY. Apr. 25, 2018 04:00 AM EDT Reads: 1,968 | By Liz McMillan  Recently, WebRTC has a lot of eyes from market. The use cases of WebRTC are expanding - video chat, online education, online health care etc. Not only for human-to-human communication, but also IoT use cases such as machine to human use cases can be seen recently. One of the typical use-case is remote camera monitoring. With WebRTC, people can have interoperability and flexibility for deploying monitoring service.
However, the benefit of WebRTC for IoT is not only its convenience and interopera... Apr. 25, 2018 03:00 AM EDT Reads: 3,989 | By Liz McMillan  Cloud-enabled transformation has evolved from cost saving measure to business innovation strategy -- one that combines the cloud with cognitive capabilities to drive market disruption. Learn how you can achieve the insight and agility you need to gain a competitive advantage. Industry-acclaimed CTO and cloud expert, Shankar Kalyana presents. Only the most exceptional IBMers are appointed with the rare distinction of IBM Fellow, the highest technical honor in the company. Shankar has also receive... Apr. 25, 2018 12:45 AM EDT Reads: 2,747 | By Pat Romanski  It is of utmost importance for the future success of WebRTC to ensure that interoperability is operational between web browsers and any WebRTC-compliant client. To be guaranteed as operational and effective, interoperability must be tested extensively by establishing WebRTC data and media connections between different web browsers running on different devices and operating systems.
In his session at WebRTC Summit at @ThingsExpo, Dr. Alex Gouaillard, CEO and Founder of CoSMo Software, presented ... Apr. 25, 2018 12:00 AM EDT Reads: 3,913 | By Pat Romanski  Business professionals no longer wonder if they'll migrate to the cloud; it's now a matter of when. The cloud environment has proved to be a major force in transitioning to an agile business model that enables quick decisions and fast implementation that solidify customer relationships. And when the cloud is combined with the power of cognitive computing, it drives innovation and transformation that achieves astounding competitive advantage. Apr. 24, 2018 11:00 PM EDT Reads: 2,885 | By Elizabeth White  WebRTC is great technology to build your own communication tools. It will be even more exciting experience it with advanced devices, such as a 360 Camera, 360 microphone, and a depth sensor camera. In his session at @ThingsExpo, Masashi Ganeko, a manager at INFOCOM Corporation, introduced two experimental projects from his team and what they learned from them. "Shotoku Tamago" uses the robot audition software HARK to track speakers in 360 video of a remote party. "Virtual Teleport" uses a multip... Apr. 24, 2018 11:00 PM EDT Reads: 3,672 | By Liz McMillan  Data is the fuel that drives the machine learning algorithmic engines and ultimately provides the business value.
In his session at Cloud Expo, Ed Featherston, a director and senior enterprise architect at Collaborative Consulting, discussed the key considerations around quality, volume, timeliness, and pedigree that must be dealt with in order to properly fuel that engine. Apr. 24, 2018 09:30 PM EDT Reads: 22,785 | By Elizabeth White  IoT is rapidly becoming mainstream as more and more investments are made into the platforms and technology. As this movement continues to expand and gain momentum it creates a massive wall of noise that can be difficult to sift through. Unfortunately, this inevitably makes IoT less approachable for people to get started with and can hamper efforts to integrate this key technology into your own portfolio. There are so many connected products already in place today with many hundreds more on the h... Apr. 24, 2018 09:15 PM EDT Reads: 1,307 | By Pat Romanski  When shopping for a new data processing platform for IoT solutions, many development teams want to be able to test-drive options before making a choice. Yet when evaluating an IoT solution, it’s simply not feasible to do so at scale with physical devices. Building a sensor simulator is the next best choice; however, generating a realistic simulation at very high TPS with ease of configurability is a formidable challenge. When dealing with multiple application or transport protocols, you would be... Apr. 24, 2018 08:45 PM EDT Reads: 4,114 | By Elizabeth White  Detecting internal user threats in the Big Data eco-system is challenging and cumbersome. Many organizations monitor internal usage of the Big Data eco-system using a set of alerts. This is not a scalable process given the increase in the number of alerts with the accelerating growth in data volume and user base. Organizations are increasingly leveraging machine learning to monitor only those data elements that are sensitive and critical, autonomously establish monitoring policies, and to detect... Apr. 24, 2018 08:30 PM EDT Reads: 5,013 | By Liz McMillan  In his keynote at 18th Cloud Expo, Andrew Keys, Co-Founder of ConsenSys Enterprise, provided an overview of the evolution of the Internet and the Database and the future of their combination – the Blockchain. Andrew Keys is Co-Founder of ConsenSys Enterprise. He comes to ConsenSys Enterprise with capital markets, technology and entrepreneurial experience. Previously, he worked for UBS investment bank in equities analysis. Later, he was responsible for the creation and distribution of life settl... Apr. 24, 2018 07:00 PM EDT Reads: 13,803 | By Elizabeth White  In his session at @ThingsExpo, Dr. Robert Cohen, an economist and senior fellow at the Economic Strategy Institute, presented the findings of a series of six detailed case studies of how large corporations are implementing IoT. The session explored how IoT has improved their economic performance, had major impacts on business models and resulted in impressive ROIs. The companies covered span manufacturing and services firms. He also explored servicification, how manufacturing firms shift from se... Apr. 24, 2018 06:45 PM EDT Reads: 6,044 | By Elizabeth White  DevOpsSummit New York 2018, colocated with CloudEXPO | DXWorldEXPO New York 2018 will be held November 11-13, 2018, in New York City.
Digital Transformation (DX) is a major focus with the introduction of DXWorldEXPO within the program. Successful transformation requires a laser focus on being data-driven and on using all the tools available that enable transformation if they plan to survive over the long term.
A total of 88% of Fortune 500 companies from a generation ago are now out of bus... Apr. 24, 2018 06:30 PM EDT Reads: 5,637 | By Liz McMillan  The Jevons Paradox suggests that when technological advances increase efficiency of a resource, it results in an overall increase in consumption. Writing on the increased use of coal as a result of technological improvements, 19th-century economist William Stanley Jevons found that these improvements led to the development of new ways to utilize coal. In his session at 19th Cloud Expo, Mark Thiele, Chief Strategy Officer for Apcera, compared the Jevons Paradox to modern-day enterprise IT, examin... Apr. 24, 2018 05:45 PM EDT Reads: 7,189 | By Liz McMillan  IoT solutions exploit operational data generated by Internet-connected smart “things” for the purpose of gaining operational insight and producing “better outcomes” (for example, create new business models, eliminate unscheduled maintenance, etc.). The explosive proliferation of IoT solutions will result in an exponential growth in the volume of IoT data, precipitating significant Information Governance issues: who owns the IoT data, what are the rights/duties of IoT solutions adopters towards t... Apr. 24, 2018 05:15 PM EDT Reads: 5,773 | By Elizabeth White  Amazon started as an online bookseller 20 years ago. Since then, it has evolved into a technology juggernaut that has disrupted multiple markets and industries and touches many aspects of our lives. It is a relentless technology and business model innovator driving disruption throughout numerous ecosystems. Amazon’s AWS revenues alone are approaching $16B a year making it one of the largest IT companies in the world. With dominant offerings in Cloud, IoT, eCommerce, Big Data, AI, Digital Assista... Apr. 24, 2018 04:45 PM EDT Reads: 6,825 |
|
|
|
|
|
|