World Beta Blog

Currently writing a white paper on quantifying and backtesting Dow Theory.. stay tuned!

Two recent books out on the subject:

Dow Theory for the 21st Century – Schannep

Dow Theory Unplugged – Dow, Russell et al

We are up about 25% from the lows.  In the 1930 bear there were five DJIA rallies of > 20%, including a 48% rally after the first big dump. 

In Japan’s big bear (which saw 80% declines from the 1989 peak) there were even bigger rallies – four rallies of greater than 50%.

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Crayon Physics

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Two points to be made here, both obvious I think.  Trendfollowers (CTAs) don’t correlate to stocks but they do correlate to each other.

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1001 Rules for my unborn son.

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I never really thought about buying groceries or supplies through Amazon, but with Prime (free shipping) why not?  Link to household supplies 70% off or more.

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It pays to understand the mind-set

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More from Jimmy Rogers

and Soros

and Bespoke

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The Quiet Coup

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We just fully subscribed to Global Financial Data, so expect a lot of new research in the coming months.  Is it a little depressing that I get this excited about a financial returns database?  (Don’t answer that question.)

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Speaking of research, if you bought the Ivy book take a look at the Errata section on the book website.  I have fixed all of the errors and the values in the GTAA paper should be correct.

One error was a typo in 2008 – I flipped the bonds return in October from negative -0.9% to positive 0.9%.  While this is a very minor error, it did have the effect of flipping the return for 2008 for the portfolio to a slightly negative -0.59% from a positive 1.5% (because timing the bonds would have missed the huge 9% return in Nov). 

This illustrates the difficulty of timing the lower vol asset classes, and in the upcoming research we will take a look at all classes of bonds – junk, corporates, 30 yrs, etc. . .

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Anytime you hear the "death of something" it is usually a good time to invest.

I went to the GAA Summit in Carlsbad, CA Feb 1 & 2.    I was looking forward to reconnecting with an old UVa professor but he didn’t show.  Bummer. 

One of the more interesting presentations was from Premier Pacific Vineyards.

Premier Pacific Vineyards provides vineyard sourcing options for fine wine producers seeking additional world-class vineyards. We also offer creative financial solutions designed to help wineries face the challenges of a competitive marketplace.

Our aim is to help high-end wine companies capitalize on the substantial opportunities present in today’s fine wine market.Premier Pacific Vineyards (“PPV”) has created four funds in partnership with institutional investors since 2002 including the California Public Employees Retirement System
(“CalPERS”) and Commonfund Realty. These funds are fully committed, and PPV is developing and operating 36 high-end vineyard properties in fine wine regions of California (Napa, Sonoma, Mendocino, Santa Barbara), Oregon (Willamette Valley) and Washington.

We talk about timber a bit in the book, and there was another good presentation from Timbervest:

Timbervest, LLC, headquartered in Atlanta, Georgia, was formed in 1995 to manage timberland and timberland related investments for a variety of institutional investors. Timbervest currently manages over 850,000 acres and investments with a market value in excess of $1.5 Billion as of May 1, 2008.

Unfortunately there are no slides from either of these companies but you can check out their sites for more info. 

There was also a presentation from Hyman Beck, a managed futures fund.  While I have no issues with their funds (after all they did 50% in 2008), it always annoys me to see managed futures groups trot out the non-correlation to a 60/40 portfolio and all the benefits of managed futures.  The correct comparison is against a portfolio with a long only allocation to commodities, a commodity index, or a passive rules based managed futures index. 

Some cool slides from The World Gold Council presenting during lunch at the conference:

A nice review from CXO on a paper from the folks at Robeco.  While I disagree with their expected risk premium for commodities (zero!), it is interesting to note that commodities still enjoy a decent allocation to the portfolio. 

Strategic Asset Allocation: Determining the Optimal Portfolio with Ten Asset Classes

Abstract:     
This study explores which asset classes add value to a traditional portfolio of stocks, bonds and cash. Next, we determine the optimal weights of all asset classes in the optimal portfolio. This study adds to the literature by distinguishing ten different investment categories simultaneously in a mean-variance analysis as well as a market portfolio approach. We also demonstrate how to combine these two methods. Our results suggest that real estate, commodities and high yield add most value to the traditional asset mix. A study with such a broad coverage of asset classes has not been conducted before, not in the context of determining capital market expectations and performing a mean-variance analysis, neither in assessing the global market portfolio.