Is MPT and buy and hold DEAD?

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daytradah's picture
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It seems MPT is dead. The whole house burned to the foundation with everything perfectly correlated to go down 50% +  in a perfect symphony of wealth destruction.
 
Or did most forget that a healthy dose of fixed income was a key part of MPT asset classes?

today1's picture
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model portfolio isnt dead, just busted.  the firms still want you to peddle their great asset allocation models in mutual fund wrap accounts.  the money managers win, and the firm wins.  2 out of 3 aint bad.

SouthernBroker's picture
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Joined: 2008-12-18

As your screen name indicates, you don't understand the whole concept. The idea is returns of a large period of time vs. other possible outcomes. Of course I don't expect a 'daytradah' to comprehend a time horizon that's not measured in minutes.    

daytradah's picture
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SouthernBorker:
So your 50 year old growth clients are now 65 and your brilliant advice to buy and hold over the past 15 years with your MPT and Monte Carlo illustration delivered what? A break even at best?  You and Bill Miller need to drink another beer and wash down that crow stuck in your throat.
In the long run we are all dead so yes it all works out that we wont need to access our money. Your magical answer to everything is just give it time....Wow that is DEEEEEP.
Appearantly You have no concept of point in time risk or "useful life' of an investment horizon.
You are probably telling your 65 year olds they can wait this out and it will all come back.
Just hold on and close your eyes Millicent....You dont need the money right now anyway.....
Its only a "temporary" unrealized loss..
 
AHaAahahahaha
 

stocksandblondes's picture
Joined: 2008-11-06

hmm....break even?  I think not.  
 
Try 15 year annual average of 10.5% with single largest loss coming in 2008 @ -22%.  Unfortunately, 17% of that was in Oct & Nov.
 
Prior to '08, next largest loss was in 2002. That year we lost a whopping 0.8%.
 
I  doubt a daytradah can see the value of those returns--but we're pretty damn happy thus far...so are our clients that dont pay daytradah commissions...
 
Regardless of what you might think--it DOES work....and quite well.
 
 
 

Indyone's picture
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The more I watch here, the more ridiculous the talk gets..."beta-centric", "buy and hold", "MPT"...all have been recently declared dead forevermore.  Baloney.
 
I think that once all the "buy & hold is dead" talk dies down and we return to a more normalized market, all the idiot talking heads on CNBC will be the ones eating crow.  No strategy has been proven to work in EVERY kind of market scenario.  I'll take my chances with the old fashioned boring strategies that have proven time and again to work in almost any kind of market.  Based on my education in this bear, I may tweak some time-honored strategies, but I'm not going to just throw them out with the bath water simply because they didn't happen to work very well in one extreme market situation.  If you spend your entire career throwing out strategies that didn't work in all market conditions, you'll be left with nothing but chasing the latest fad and your clients will be the ones ultimately left for dead.

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B24
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Buy and hold worked perfectly fine from 1975-1999.  That's 24 years.  Secular markets turn, and we don't always know when that will be.  Buy and hold is the clear winner in a Secular Bull.  Buy and Hold kills you in a Secular Bear, even when there are Cyclical Bulls mixed in (i.e. 2002-2007 was a cyclical bull inside a secular bear - obviously just holding from 2000-2009 didn't work well, unless you knew exactly when to "stay-holding"). 
 
If you tried market timing and using absolute return strategies from 1975-1999, you would have far under-performed a simple buy-and hold strategy.  The same can be said for 1942-1972.  This is not my opinion, it is fact.
 
It's not that either camp is wrong, it's that it's about what investing "era" you are working with.

HymanRoth's picture
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Joined: 2008-08-25

Certainly buy and hold has not worked overly well over the last few years, but then again we're living in a culture where the media thinks 'history' is what we had for breakfast.It would seem that NOW we are in a PERFECT environment to start building a portfolio of good quality stocks to buy and hold for a 5-10 year time frame.  Just about everything is cheap, so now you just need to determine which ones are most likely to be survivors, which are most likely to maintain their dividend(since yields are so high) and which have the best potential to out perform.Buy a little bit of the first one you find that fits that criteria, put it away on the shelf and then go back and start digging for the next one.  Things are so cheap right now the hardest thing is figuring out what to buy first.Of course, the strategists and so-called gurus won't tell you that.  They're too busy arguing over what the market will do in the next 6 months, and whether you should have 25% or 50% gold in your portfolio.The world is on sale people.  Don't miss it because you're too busy trying to figure out which exotic trading strategy you want to deploy this week.

DixieDog's picture
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Joined: 2009-01-12

Hyman, you are correct.  My problem is trying to get people to overcome their fear, and I'm telling people to let this thing do whatever it's going to do, and then we'll start to nibble.  I'm now getting pushback on that.  Loads of fear, which of course is what a buyer wants.
 
Will keep plugging.

Anonymous's picture
Anonymous

Lets have a little fun with this...
 
For all of the "MPT is dead" and "Death of Beta-Centric Portfolio Mgmt" people...lets start a healthy discussing of why exactly you feel MPT is "dead" and/or doesn't otherwise work.  Please be SPECIFIC about the pieces of MPT that you feel are incorrect, not applicable, and/or broken/damaged.
 
Just curious. 

josephjones107's picture
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Joined: 2004-12-20

buy and hold works even through 95% of bear markets. it's that once in a lifetime economic downturn that it doesn't

stocks went down 87% from 1929 to 1932.
Ireland stock market is down 80% since it's peak a couple years ago
Japan stock market is 81% lower than it's peak in 1989

HymanRoth's picture
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josephjones107 wrote:buy and hold works even through 95% of bear markets. it's that once in a lifetime economic downturn that it doesn't

stocks went down 87% from 1929 to 1932.
Ireland stock market is down 80% since it's peak a couple years ago
Japan stock market is 81% lower than it's peak in 1989

Yep.  That horse is already out of the barn.So what is your point?

josephjones107's picture
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this is the once in a lifetime economic downturn, we could see 2800 on the dow

DixieDog's picture
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Joined: 2009-01-12

My Dad, an old Air Force pilot, told me as a boy, many times, the old "when all about you are" etc.... He really drilled that in my head.  It seems to me that now is not the time for academic discussions of mpt.  Common sense, and trying to give your gut instinct best common sense advice is the best thing we can do.
 
We know that this may be a long slog, get income on your stocks, buy highest quality balance sheets for debt and equity pieces.  Average back in, etc.....  Most of all, and I'm speaking to myself here, have the courage to face these clients with a look towards the future.  We've all probably done a pretty good job avoiding a good bit of this massacre.  Get back in the game.  Get on offense, even if its just telling people that you will get them moving forward again, if only with baby steps at first.  Common sense when dealing with people is usually a good place to start.  They are scared, acknowledge that.  They have good reason to be fearful.  It aint pretty.  But, in the end, Americans usually acknowledge and solve their problems, and historically, many of the worlds problems. 

jkl1v1n6's picture
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Joined: 2008-10-06

So 1991 levels?  Why not we're already at 1997 levels! 

buyandhold's picture
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iceco1d wrote:Lets have a little fun with this...
 
For all of the "MPT is dead" and "Death of Beta-Centric Portfolio Mgmt" people...lets start a healthy discussing of why exactly you feel MPT is "dead" and/or doesn't otherwise work.  Please be SPECIFIC about the pieces of MPT that you feel are incorrect, not applicable, and/or broken/damaged.
 
Just curious. 
 
In response to your question, I sorta feel like the guy after Hurricane Katrina who was asked to discuss specifically why the levees failed. I don't know why the levees failed, but I do know my house is under water.
More specifically, it eems the correlation models failed spectacularly, especially when pricing mortgage risk. And it turned out that bonds and stocks CAN fall at the same time, along with every other asset class (except Treasuries). And I've read some stories that suggest the historical models that built these strategies didn't go back further than 20 or 30 years. ... I know my firm built portfolios to handle inflation risk, but discounted market risk. ... I could go on, but it seems there has been a massive failure of risk management, largely caused by people believing that we had solved the business cycle. And by people who leaned on MPT and other models.
 
 
 
 

Spaceman Spiff's picture
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Joined: 2006-08-08

Alan Skrainka put out a great piece for us this morning.  I'd get in trouble if I just copied and pasted the whole thing, so I'll just pull some quotes. 
 
First, he calls this time frame a black swan event.  Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations.  Simply put, you can't statistically predict everything that will ever happen.  No matter how many times you crunch the numbers, sometimes things just go wrong.  A poet once wrote "the best laid plans of mice and men oft go awry." 
 
Second, buy and hold does work, even after a time like this.  Everyone's thinking about the Great Depression and the crash of 1929.  NOBODY is thinking about 1933, 1934, 1935, or 1936.  If you would have bought into the S&P with dividends reinvested 4/20/32, not at the bottom of the downturn but in the middle of it, your returns would have looked like this:
 
1 yr - -58.8%
3 yr -  -4%
5 yr -  +4.8%
10 yr  - +.5% (there was a good sized bear in 1937)
20 yr  -  +7.7%
 
So, you take the worst market we've ever seen and invest right smack in the middle of it and you averaged 7.7% over the next 20 years.  If you would have held on for a few more those returns would have gone up pretty well because 1954 and 1955 were phenomenal years.  Better than the 1990's. 
 
So, to my simple brain, buy and hold still works.  MPT still works.  Of course when you throw in human emotions, which are running really high right now, it might make you think that we need to reinvent the wheel.  We don't.  We just need to push on the gas so the wheel will start turning again.

DixieDog's picture
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Spaceman, excellent post.

jkl1v1n6's picture
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Spiff, 
 
I don't disagree with anything you've put in your post.  And it's all well and good but what about your 55-70 year olds that have had money invested are taking withdrawals or were going to start taking withdrawals as income.  The numbers work extremely well if you have 20 years to invest and not take an income.  Jones has always been good about touting that but I'm trying to manage portfolio' in the real world in real time.  My people under 50 aren't worried one bit about this, it's my 55 and older crowd that are freaking out. 

josephjones107's picture
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1932 was the stock market bottom in the depresssion. It's easy to use that year as a starting point to make your numbers look good

JayUT1's picture
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Joined: 2008-12-01

MPT has never worked because to much is charged in commissions a year to make it a viable strategy. It is nothing more then a scape goat, and gives branch managers a reason to say quit looking at what the market is doing an go prospect. You could effectively do it now with ETF's especially adding into it reverse etfs but then you wouldnt make enough money to survive. The problem with the whole platform is FA's cant effectively do their job for their clients and make a living. Best solution is to go with what has always worked fairly well, bear markets buy commodities and utility stocks and during the bull buy equity stocks and start phasing in fixed income.

Bodysurf's picture
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This time is different, and part of being an FA is realizing the investment climate and reacting accordingly.  When every asset class on planet earth is uniformly collapsing--including the very homes our clients are living in--you need to go to cash or, if you can, short ETF's.I resigned from Smith Barney on December 30th.  I manage accounts on a fully discretionary basis, and in September went to cash.  In October, I went short the market, and was immediately in violation of SB's investment guidelines for GPM managers.  In December, I was told to put my clients back into the market by 12/31, and that my failure to do so would be construed as my resignation from the firm.Going down the halls during those lousy Oct-Dec months (I wasn't there in Jan or Feb, but I'll assume it's the same) I would hear all the FA's with all their talking points, cajoling clients not merely to wait it out, but to add more capital if at all possible.  And every dollar that's been added is now worth two thirds that.In bull markets, everyone looks like a genius.  Buy-and-holders, daytraders, dividend players, 130/30 strategies, alternatives--everyone.  It's easy to make money in the environment we've seen in the 25 years or so leading up to 2007.  A good FA is one who saw the big picture, and acted.  There's a time to listen to what's going on in the lives of our clients', and in their companies and in their homes, instead of using every phone call from them as a chance to sell something else.

buyandhold's picture
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Spaceman Spiff wrote:Alan Skrainka put out a great piece for us this morning.  I'd get in trouble if I just copied and pasted the whole thing, so I'll just pull some quotes. 
 
First, he calls this time frame a black swan event.  Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations.  Simply put, you can't statistically predict everything that will ever happen.  No matter how many times you crunch the numbers, sometimes things just go wrong.  A poet once wrote "the best laid plans of mice and men oft go awry." 
 
 
You can tell by that piece that Skrainka hasn't even read The Black Swan. I'm not sure I grasp all the essentials, but one of the things Taleb wrote was the highly improbable events happen all the time but humans have a limited capacity to factor them into our predictions.
 
 

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B24
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Bodysurf wrote:This time is different, and part of being an FA is realizing the investment climate and reacting accordingly.  When every asset class on planet earth is uniformly collapsing--including the very homes our clients are living in--you need to go to cash or, if you can, short ETF's.I resigned from Smith Barney on December 30th.  I manage accounts on a fully discretionary basis, and in September went to cash.  In October, I went short the market, and was immediately in violation of SB's investment guidelines for GPM managers.  In December, I was told to put my clients back into the market by 12/31, and that my failure to do so would be construed as my resignation from the firm.Going down the halls during those lousy Oct-Dec months (I wasn't there in Jan or Feb, but I'll assume it's the same) I would hear all the FA's with all their talking points, cajoling clients not merely to wait it out, but to add more capital if at all possible.  And every dollar that's been added is now worth two thirds that.In bull markets, everyone looks like a genius.  Buy-and-holders, daytraders, dividend players, 130/30 strategies, alternatives--everyone.  It's easy to make money in the environment we've seen in the 25 years or so leading up to 2007.  A good FA is one who saw the big picture, and acted.  There's a time to listen to what's going on in the lives of our clients', and in their companies and in their homes, instead of using every phone call from them as a chance to sell something else.
 
Nice post.  Good points.

josephjones107's picture
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Joined: 2004-12-20

in the 20s leverage on stocks wiped people out.

today, our country has the leverage but it's on homes

good financial advise is to keep leverage low

B24's picture
B24
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Spaceman Spiff wrote:Alan Skrainka put out a great piece for us this morning.  I'd get in trouble if I just copied and pasted the whole thing, so I'll just pull some quotes. 
 
First, he calls this time frame a black swan event.  Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations.  Simply put, you can't statistically predict everything that will ever happen.  No matter how many times you crunch the numbers, sometimes things just go wrong.  A poet once wrote "the best laid plans of mice and men oft go awry." 
 
Second, buy and hold does work, even after a time like this.  Everyone's thinking about the Great Depression and the crash of 1929.  NOBODY is thinking about 1933, 1934, 1935, or 1936.  If you would have bought into the S&P with dividends reinvested 4/20/32, not at the bottom of the downturn but in the middle of it, your returns would have looked like this:
 
1 yr - -58.8%
3 yr -  -4%
5 yr -  +4.8%
10 yr  - +.5% (there was a good sized bear in 1937)
20 yr  -  +7.7%
 
So, you take the worst market we've ever seen and invest right smack in the middle of it and you averaged 7.7% over the next 20 years.  If you would have held on for a few more those returns would have gone up pretty well because 1954 and 1955 were phenomenal years.  Better than the 1990's. 
 
So, to my simple brain, buy and hold still works.  MPT still works.  Of course when you throw in human emotions, which are running really high right now, it might make you think that we need to reinvent the wheel.  We don't.  We just need to push on the gas so the wheel will start turning again.
 
Space, I have to sort of disagree on this one.  Skrainka made valid points, but if I were to go to any of my clients (even the 40 year-olds) and tell them that in 20 years, they MAY have a shot at 7.7%, and that in 10 years,  they MAY break even, I would have ACAT's coming out my behind.  I realize the point that this is theoretically the "worst case" scenario, but keep in mind that many/most clients only recently made back their 2000-2002 losses.  So there are lots of people out there with that 10-year break-even number NOW.  To think they may have to wait another 20 years to make a reasonable equity return is just egg on their faces.
 
So, the facts aren't wrong, I just don't like the message this sends.  Personally, I think Skrainka is making up for his "hold-through-anything" strategy.

SometimesNowhere's picture
Joined: 2008-12-22

This may be a point for a different thread, and of course hindsight is 20-20...but I wonder how unpredictable the "perfect storm" really was. I am no economist, but I read somewhere that at the height of the real estate boom house prices increasing almost 40% year over year, while the average income in America was only increasing it's standard 3-4% (unless you were a mortgage broker, of course). That is clearly unsustainable...in this case, there isn't a MPT that would work. I would argue that we (financial professionals), or at least the people we lean on for the nuts and bolts of the numbers, whose research we depend on, should have caught that. IMO, the lesson we should learn from the debacle is that financial professionals should have a more holistic approach and understanding of what we put our clients in, MPT's be damned.

stokwiz's picture
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With the markets down close to 50%, why sell now? Isn't that professing to have the ability to time the market? If you are confident in your conviction you can time the market, why didn't you sell or short the market at 14,164?
 
What are your options if you do sell? Go to cash at 1.5%? And how the hell will you know when to get back in the market? After it's up 50%? I know I'm preaching to the choir here.
 
Thanks to the 24 hour news, these swings are largely emotional. Emotions don't last, the value of highly skilled people and excellent business models do.
 
MPT and BAH make sense 90% of the time. Those close to retirement that were 100% in equities didn't learn from all the examples past, apparently.
 
Stok

josephjones107's picture
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Joined: 2004-12-20

Easy steps to financial success

1. Focus on having zero debt, including no mortgage
2. get 2 years of income in cash
3. your age should be the % invested in fixed income, rest in equities and some commodities

problem is most adivsors like to skip 1 & 2 b/c they don't make any money on those

jkl1v1n6's picture
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Jo Jones,
I'm not necessarily disagreeing with you on this but let's just say I'm a 40 year old teacher and my wife is a teacher and we have two kids.  We both make $45,000 a year.  We've been given zero financial help from parents.  How would we not have a mortgage and how would we have saved up $90,000 just to be sitting in cash?

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in 11 years, if they had averaged 90k per year they'd have made over a million in income before taxes. They should be able to figure out a way to live in a way where there house is paid off and they have an emergency cushion.

Squash1's picture
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Spaceman Spiff wrote:Alan Skrainka put out a great piece for us this morning.  I'd get in trouble if I just copied and pasted the whole thing, so I'll just pull some quotes. 
 
First, he calls this time frame a black swan event.  Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations.  Simply put, you can't statistically predict everything that will ever happen.  No matter how many times you crunch the numbers, sometimes things just go wrong.  A poet once wrote "the best laid plans of mice and men oft go awry." 
 
Second, buy and hold does work, even after a time like this.  Everyone's thinking about the Great Depression and the crash of 1929.  NOBODY is thinking about 1933, 1934, 1935, or 1936.  If you would have bought into the S&P with dividends reinvested 4/20/32, not at the bottom of the downturn but in the middle of it, your returns would have looked like this:
 
1 yr - -58.8%
3 yr -  -4%
5 yr -  +4.8%
10 yr  - +.5% (there was a good sized bear in 1937)
20 yr  -  +7.7%
 
So, you take the worst market we've ever seen and invest right smack in the middle of it and you averaged 7.7% over the next 20 years.  If you would have held on for a few more those returns would have gone up pretty well because 1954 and 1955 were phenomenal years.  Better than the 1990's. 
 
So, to my simple brain, buy and hold still works.  MPT still works.  Of course when you throw in human emotions, which are running really high right now, it might make you think that we need to reinvent the wheel.  We don't.  We just need to push on the gas so the wheel will start turning again.
 
I think one of the problems in comparing past returns, has to do with were the country was... We were primarily manufacturing back then, then since that point in time the country has revolutionized(real word??) itself into what it is today... Financial Capital of the world, and creators of great ideas(electronics,medicine...etc)... Where else is there to go, when you reach the top???
 
I think those past returns were predicated on the idea that this country was always evolving improving itself...
 
 
Second Point... Of course Alan is going to say that, he can't come out and say "Oh ummm by the way, that whole buy and hold thing that we thought worked... turns out it doesn't"... reminds me of what Greenspan said when he was interviewed..."My assumptions that were right for so long seemed to have been wrong" or something like that..
 
 
Third Point... technical analysis..
 
You can insert most funds, including index, and see when the price drops below the 200 day moving average, it's time to get out... worked in 2001 and 2008..and before that too...
 
 

JayUT1's picture
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With the markets down close to 50%, why sell now? Isn't that professing
to have the ability to time the market? If you are confident in your
conviction you can time the market, why didn't you sell or short the
market at 14,164?
 
What are your options if you do sell? Go to cash at 1.5%? And how
the hell will you know when to get back in the market? After it's up
50%? I know I'm preaching to the choir here.
 
Thanks to the 24 hour news, these swings are largely emotional.
Emotions don't last, the value of highly skilled people and excellent
business models do.
 
MPT and BAH make sense 90% of the time. Those close to retirement
that were 100% in equities didn't learn from all the examples past,
apparently.
 If you couldnt tell it was getting very bad at the beginning of 2008 and was going to get much worse, then you are just blind to functioning of the economy. You will never get every little up and down turn, but all it takes is going cash on half the portfolio even as early as mid 2008 to put your client in a much better situation. Know as fear sets in start buying into the market gradually increasing your positions as things get better. Its not an all or nothing deal, take a % out and add some back when levels look good. Its  just a matter of sidestepping a few big corrections every decade or so, and on the other end you can't be greedy and try to get the maximum out of the market on the bull runs.

buyandhold's picture
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josephjones107 wrote:in 11 years, if they had averaged 90k per year they'd have made over a million in income before taxes. They should be able to figure out a way to live in a way where there house is paid off and they have an emergency cushion.
 
 
Don't buy. Rent.
It's cheaper, you don't lose mobility, and you don't tie up all your wealth in a highly leveraged asset. Plus you don't have to pay a 5 percent commission to sell it.
 
 

jkl1v1n6's picture
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Jo Jones,
 
We'll agree to disagree on this but in 11 years at 90,000 a year is only $990,000, not over a million and you are assuming that the couple was at that amount from year one to year 11.  There is a real world out there, you may not live in it but your clients do!  I hope you aren't telling your clients that it's their fault they are in this mess because they're idiots!
 
Back to the MPT dead or alive:  The basic idea of MPT is diversification.  For all the people that believe MPT is dead are you saying you don't believe in diversificaton? 

Spaceman Spiff's picture
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buyandhold wrote:Spaceman Spiff wrote:Alan Skrainka put out a great piece for us this morning.  I'd get in trouble if I just copied and pasted the whole thing, so I'll just pull some quotes. 
 
First, he calls this time frame a black swan event.  Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations.  Simply put, you can't statistically predict everything that will ever happen.  No matter how many times you crunch the numbers, sometimes things just go wrong.  A poet once wrote "the best laid plans of mice and men oft go awry." 
 
 
You can tell by that piece that Skrainka hasn't even read The Black Swan. I'm not sure I grasp all the essentials, but one of the things Taleb wrote was the highly improbable events happen all the time but humans have a limited capacity to factor them into our predictions.
 
 
That was one of the quotes he used in the piece. I just didn't put it here.
 
 

Bodysurf's picture
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For all the people that believe MPT is dead are you saying you don't believe in diversificaton? * * * * Sure I do.  Right now we're diversified in short positions across international, domestic, fixed income, commercial real estate, and financials.  Also we've got a lot of cash.  We've got an extremely well-diversified portfolio of short positions.It's a little more sarcastic than you were looking for, probably.  But over the past year, MPT, well-diversified portfolios are down 60%.  Where I live, that's a failure of both theory and practice.  MPT works in bull markets, because even during up markets you have sectors that fall apart.  In deflationary bear markets, nothing works on the long side.  The key to a good manager is knowing which kind of economic climate we're really in.

jkl1v1n6's picture
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But you're diversified! 

stocksandblondes's picture
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Bodysurf wrote:It's a little more sarcastic than you were looking for, probably.  But over the past year, MPT, well-diversified portfolios are down 60%.  Where I live, that's a failure of both theory and practice.  MPT works in bull markets, because even during up markets you have sectors that fall apart.  In deflationary bear markets, nothing works on the long side.  The key to a good manager is knowing which kind of economic climate we're really in.
 
This is asolutely NOT true.  I cannot understand why seasoned intelligent professionals continue to spout this BS.  WEll diversified portfolios are NOT down 60%. Period. That is BULLsh*t! 
If yours are, you were not diversified. You did not do your research and you got lazy.
Buying 4 fking american funds that are on a glossy brochure is NOT diversfication.
 
Down 24-25% for all '08..up 5% this year.
 
Do some GD research.
 

HymanRoth's picture
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buyandhold wrote:josephjones107 wrote:in 11 years, if they had averaged 90k per year they'd have made over a million in income before taxes. They should be able to figure out a way to live in a way where there house is paid off and they have an emergency cushion.
 
 
Don't buy. Rent.
It's cheaper, you don't lose mobility, and you don't tie up all your wealth in a highly leveraged asset. Plus you don't have to pay a 5 percent commission to sell it.
 
 ....said the wise man AFTER the housing market went down 25-30% nationwide.Tell ya what...I'll buy the house and you sign a lease and I'll rent it to you.  I get the tax advantages and the equity, and you get the 'flexibility'.

daytradah's picture
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Bodysurf:
You are getting at the heart of my point. MPT assumes temporary downturns it doesnt assume collapse and WEALTH DESTRUCTION.  Can you say Nikkei.  We are 25 years of no growth and counting....
30% of the wealth that was perceived to be in the market is now carbon molecules returned to the atmosphere in the form of smoke and ash.
 
Buy and Hold is fantastic if you have a revolving 20 year time frame everytime we bear up. My main point is if you are 50 + years old and were advised to hold 70% stock because you identified yourself or your advisor told you that you were a "growth" investor, you are now looking at 50% loss for starters.  I am cleaning up a shyt load of portfolios that had far too little fixed income and were far too aggressive.
 
Any one posting that they know the market will come back in the next few years is simply expressing an opinion of HOPE.  Hope doesnt buy groceries or take you on a cruise. You are more likely to live out the remainder of your retirment years with 1/2 the income you thought you could reasonably generate.  If you are going from $5MM to $2.5MM not that big of a tragedy,  but $1MM to $500k is serious and so on down the line.
 
In short, the retirement you thought you had is TOAST. You can rationalize like this administration that we didnt really need all of that money anyway.  All of your hardwork and overtime was just your greed and you needed a good spanking.
 
The govt can do it better.  Now you will be forced to rely on the govt and learn to love the way they provide for you.
 
 

Anonymous's picture
Anonymous

70% equity and down 50% huh?  Man, I've seen 100% equity portfolios that aren't down 50% yet...you must have some real studs running that money!
Personally, I don't have any 50 y/o's with 70% equity.  Not because "I saw this coming" - it's just not necessary IMO. 
 
Finally, after 5 pages, not a single person has actually stepped up with anything to validate the claim that MPT doesn't work and/or is "dead."  In fact, the only things that I've seen posted simply validate the fact that most of us don't even really know how to quantify what MPT actually says, let alone explain why your claim of "it's dead" is broken. 
 
I don't know where some of you are getting your numbers, but I don't have a single client that's down anywhere near 50%.  And as for those you keep saying are "screwed" for retirement...I don't think I have a client over 45 that's even down 30%, let alone 50%.  I'd say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008. 
 
Really.  I just don't get it. 

stocksandblondes's picture
Joined: 2008-11-06

iceco1d wrote:
70% equity and down 50% huh?  Man, I've seen 100% equity portfolios that aren't down 50% yet...you must have some real studs running that money!
Personally, I don't have any 50 y/o's with 70% equity.  Not because "I saw this coming" - it's just not necessary IMO. 
 
Finally, after 5 pages, not a single person has actually stepped up with anything to validate the claim that MPT doesn't work and/or is "dead."  In fact, the only things that I've seen posted simply validate the fact that most of us don't even really know how to quantify what MPT actually says, let alone explain why your claim of "it's dead" is broken. 
 
I don't know where some of you are getting your numbers, but I don't have a single client that's down anywhere near 50%.  And as for those you keep saying are "screwed" for retirement...I don't think I have a client over 45 that's even down 30%, let alone 50%.  I'd say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008. 
 
Really.  I just don't get it. 
 
 
preach it, brother.   can I get an amen?

HymanRoth's picture
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Joined: 2008-08-25

stocksandblondes wrote:iceco1d wrote:
70% equity and down 50% huh?  Man, I've seen 100% equity portfolios that aren't down 50% yet...you must have some real studs running that money!
Personally, I don't have any 50 y/o's with 70% equity.  Not because "I saw this coming" - it's just not necessary IMO. 
 
Finally, after 5 pages, not a single person has actually stepped up with anything to validate the claim that MPT doesn't work and/or is "dead."  In fact, the only things that I've seen posted simply validate the fact that most of us don't even really know how to quantify what MPT actually says, let alone explain why your claim of "it's dead" is broken. 
 
I don't know where some of you are getting your numbers, but I don't have a single client that's down anywhere near 50%.  And as for those you keep saying are "screwed" for retirement...I don't think I have a client over 45 that's even down 30%, let alone 50%.  I'd say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008. 
 
Really.  I just don't get it. 
 
 
preach it, brother.   can I get an amen?Sure.  Amen.

stocksandblondes's picture
Joined: 2008-11-06

daytradah wrote:
Bodysurf:
You are getting at the heart of my point. MPT assumes temporary downturns it doesnt assume collapse and WEALTH DESTRUCTION.  Can you say Nikkei.  We are 25 years of no growth and counting... 
Any one posting that they know the market will come back in the next few years is simply expressing an opinion of HOPE.  Hope doesnt buy groceries or take you on a cruise. You are more likely to live out the remainder of your retirment years with 1/2 the income you thought you could reasonably generate.  If you are going from $5MM to $2.5MM not that big of a tragedy,  but $1MM to $500k is serious and so on down the line.
 
In short, the retirement you thought you had is TOAST. You can rationalize like this administration that we didnt really need all of that money anyway.  All of your hardwork and overtime was just your greed and you needed a good spanking.
 
 
25 yrs of no growth?? Really? NONE?
You are truly looking at some sh*t that I just dont see.  I can pull hundreds of accts in a minute that have made some TREMENDOUS gains in alot less time than that.
 
Heres my thoughts on this--and i HAVE said this to clients that wanted to go all cash--If you truly believe that this market i.e. this country is NOT gonna come back +/- a few years..Like it has EVERY TIME before...take your money, put it under your matress, and stock up on beans and bullets.cause we're all fked anyway.
 
Any if YOU believe this--your in the wrong damn profession.  Your not helping anyone.
All we've EVER had is the hope that the future will be better than the past--why else would you get out of bed in the morning?

skeedaddy2's picture
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iceco1d wrote: Lets have a little fun with this...
 
For all of the "MPT is dead" and "Death of Beta-Centric Portfolio Mgmt" people...lets start a healthy discussing of why exactly you feel MPT is "dead" and/or doesn't otherwise work.  Please be SPECIFIC about the pieces of MPT that you feel are incorrect, not applicable, and/or broken/damaged.
 
Just curious. 

There are no transaction costs in buying and selling securities. There is no brokerage, no spread between bidding and asking prices. You pay no taxes of any kind and only "risk" plays a part in determining which securities an investor will buy.

An investor can take any position of any size in any security he wishes. No one can move the market and liquidity is infinite. You can buy a trillion dollars worth of stock in a small speculative mining stock or buy one cent worth of Berkshire Hathaway. Nothing stops you from taking positions of any size in any security.

The investor does not consider taxes when making investment decisions, and is indifferent to receiving dividends or capital gains.

Investors are rational and risk adverse. They are completely aware of all risk entailed in an investment and will take positions based on a determination of risk, demanding a higher return for accepting greater volatility.

High volatility does not give better results, nor does lower volatility give lesser results.

Investors, as a group, look at risk-return relationships over the same time horizon. A short term speculator and a long term investor have exactly the same motivations, time horizon and profit target. Regardless of who you are, you will always give an investment the same amount of time to work out and volatility will be your only concern.

Investors, as a group, have similar views on how they measure risk. All investors have the same information and will buy or sell based on an identical assessment of the investment and all expect the same thing from the investment. A seller will be motivated to sell only because another security has a level of volatility corresponding to their desired return. A buyer will make a purchase because this security has a level of risk corresponding to the return that he wants.

Investors seek to control risk only by the diversification of their holdings.

All assets, including human capital, can be bought and sold on the market.

Investors can lend or borrow at the 91-day T-bill rate - the risk-free rate - and can also sell short without restriction.

Politics and investor psychology have no effect on the markets.

Bodysurf's picture
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Joined: 2008-08-02

Quit being so touchy, people.  Godalmighty.A lifestyle that emphasizes a balanced diet and exercise works over the long term too.  And yet sometimes we still have to go to the hospital, and the doc says to quit running for awhile until you get better.  So you claim to be down 25-30% last year, and up 5% THIS year, despite having the worst January in history.  Let's assume that's even true; are you "staying the course"?  Are you counseling your clients every day that this time is just like previous recessions?  Because I have one question:  what if it isn't?  The banking system isn't functioning; asset prices are collapsing across the board; we've just elected the most Socialist government in American history, who controls two branches.  Have you told your clients that we might be going into a market like the 1970's, when we have stag-deflation for two years, followed by high inflation?  What will you do then?  What if we go into a really protracted downturn, akin to the early 1930's or the 1890's?  You asked me why I get up in the morning, and I'll tell you.  I'm bearish, I've been ferociously bearish since September of last year, when this credit cycle finally ended.  I was a stay-the-course guy, a buy-and-hold guy until the second week in September, when I realized it wasn't going to work.  So our job now is to save as many as we can.  I've been telling business owners and clients, "I seriously hope I'm wrong about these markets.  And if I am, you'll see it in your business, soon enough.  Your receipts will be going up, your payrolls will expand, and your profits will be back where they were before.  And we'll miss the first 20% or so of the next bull market, which is a chance I'm willing to take.""But if I'm right, your account with me will be the only thing IN YOUR LIFE that's working."That's why I get up in the morning.  99% of FA's on planet earth go to work every day, just like you, and they believe their job is to keep clients in the worst markets, and clients wonder to themselves, "if he knows so much, why didn't he see the train wreck coming in his own company's stock?"

Bodysurf's picture
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Joined: 2008-08-02

I'd say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008. 
 * * * * *I'm curious as to what investments they have, that they're up 2% (ish) in 2008.  It's got to be cash and CD's, and some Treasuries.  Because corporate bonds, preferreds, utilities, stocks--are ALL down double digits in 2008.

Spaceman Spiff's picture
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Joined: 2006-08-08

daytradah wrote:
30% of the wealth that was perceived to be in the market is now carbon molecules returned to the atmosphere in the form of smoke and ash.

 
Boy am I glad this new stimulus bill passed then.  Perhpaps we shouldn't be all that upset about the carbon capture program that was a part of the bill.  Now I understand why it was so important.  No worries.  Prez Obama's gonna fix everything.  He's got a great plan. 

daytradah's picture
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Joined: 2006-11-05

Bodysurf:
Posters are highly anxious because their books are cut in half and clients are not buying the 'stay the course' advice. They are now or will be leaving soon. 2008 was Shock and awe. 2009 =the Grindhouse which will cruelly provide false rallies and rangebound returns that destroy any vestige of patience left in 50 year old "growth" clients
You are correct about this administration. Obama is a hardcore ideologically committed leftist. He has declared war on business and has rolled out the class warfare banner. He is pursuing the REDISTRIBUTIVE policies he told us he would. When he talks about "REBUILDING" America stronger and better, its not what Reagan pursued. 
Obamas "REBUILD" will be FRANCO style socialism that will erase decades of growth.   It is seen by many that it is unpatriotic to conclude we have indeed reached the tipping point in Americas economic productive capacity but it will not be understood until most portfolios are down well beyone 50%. 
 
There are always things we can do, short term bonds, cash rich companies corp bonds, shorting the market, capturing dividends on select stocks......and then praying for the capital appreciation portion of the story to come back in a retirees useful lifetime which is within 36 months.
 

We have an administration that is securing and successfully growing entitlement voters faster than productive voters in order to lock up the democratic powerbase for the next several elections.  Barney Frank, Dodd, Schumer have successfully deflected their responsiblility for this debacle onto greedy business people who make more than $250000 per year.
 
Everyone who owned stock funds that were in small cap, intl, large cap growth and value are down 50% plus. Anyone who denies it is fudging and pillow biting.
 
 

josephjones107's picture
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Joined: 2004-12-20

this is no recession

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