World Beta Blog

I was making a list of books that profile fund managers – are there any that I am missing?

• Hedge Hunters by Katherine Burton
• 20/20 Vision by Harry Liem
• The New Investment Superstars by Lois Peltz
• Market Wizards, The New Market Wizards, and Stock Market Wizards by Jack Schwager
• Inside the House of Money by Stephen Drobny
• Way of the Turtle by Curtis Faith & The Complete TurtleTrader by Michael W. Covel
• Extreme Value Hedging by Ronald D. Orol
• When Genius Failed by Roger Lowenstein
• No Bull by Michael Steinhardt
• Soros on Soros by George Soros
• The Snowball by Alice Schroeder
• How I Became a Quant by Richard R. Lindsey
• Fortune’s Formula by William Poundstone
• Value Investing by Bruce C. N. Greenwald
• Investment Gurus by Peter J. Tanous

Books below are reader links:

• Money Masters, The New Money Masters, and Money Masters of Our Time – Train
• The Global Investor Book of Investing Rules – Jenks
• Julian Robertson – Strachman
  
• Hedgehogging – Barton Biggs
• When Supertraders Meet Kryptonite -Art Collins
• New Market Mavericks-Cutmore
• Investing With Young Guns-Morton
• The Best:Conversations With Top Traders-Marder
• Investment All Stars-Stern
• Confessions of a Street Addict-Cramer
• Education of a Speculator-Niederhoffer
• The Mind of Wall Street-Levy
• John Neff on Investing-Neff
• The Lion of Wall Street-Dreyfus
• Trading the Worlds Markets-Gough
• Value Investing with the Masters-Kazanjian
• Wizards of Wall Street-Kazanjian
• The Bond King-Middleton
• Pit Bull – Martin Schwartz
• John Neff on Investing – Neff and Mintz
• Running Money by Andy Kessler
• Barnard Baruch – The Adventures of a Wall St Legend
• Charlie D – The Story of the Legendary Bond Trader – William Falloon
• Education of a Speculator – Vic Niederhoffer
• What I Learned Losing a Million Dollars – Jim Paul & Brendan Moynihan

FAIL

The Paradox of Active Fixed Income Investing

(HT: Anon)

Over the past 20 years investors in stock mutual funds have underperformed the S&P500 by 6.5% a year.  (8.35% vs. 1.37%.)  That return doesn’t even keep up with inflation.

They did even worse in bonds, underperforming the Barclay’s Aggregate by 6.7% a year.  (7.43% vs. 0.77%.)

From the annual Dalbar study:

“The dramatic events that continue to plague our financial markets have provoked panic, which exacerbates the ongoing carnage,” said Lou Harvey, president of DALBAR. “For 15 years, QAIB has shown that investor returns lag what performance reports and prospectuses would lead one to believe is achievable. While those returns are, in fact, theoretically achievable, the reality is that investors are not rational, and make buy and sell decisions at the worst possible moments,” he said.

Among the studies findings:

• For the 20 years ended December 31, 2008, equity, fixed income and asset allocation fund investors had average annual returns of 1.87%, 0.77% and 1.67%, respectively. The inflation rate averaged 2.89% over that same time period.
• Equity fund investors lost 41.6% last year, compared with 37.7% for the S&P 500 Index.
• Bond fund investors lost 11.7% last year, versus a gain of 5.2% for the Barclays Aggregate Bond Index. This disparity is largely due to the underperformance of managed bond funds caused by mortgage-backed securities.
• With an annual loss of 30% last year, asset allocation fund investors fared better than equity fund investors.

I actually have a Peter Bernstein book on my nightstand (The Power of Gold).  RIP to one of the best financial writers ever.

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One of my favorite blogs (if not #1) gets a redesign.  Congrats Abnormal Returns!

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There is a lot of talk lately about trading the yield curve, steepeners, flatteners etc (and here and here).  Forest from the trees, I would much rather be on the flattening side than the opposite.  It seems like a simple mean reverting series. 

I wrote about how much risk was mispriced back in June 07, and now it seems to have reversed to the opposite (obviously more in Jan but still high).  Some historical yield curve charts below – all relative to T-Bill (and yes I know there are a gazillion variations of yield curves).

Data from Global Financial Data.

Note: I am having WordPress issues so apologies for the charts.

Larger BAA here.

Larger AAA here.

Larger 10yr here. 

Below I update the post from May on mean reversion.

I’m not really sure what sort of benchmark to compare this system to, other than buy and hold of the asset class over the period, or maybe all monthly observations which is around .7% across the board.  This system may prove to be a nice complement to the GTAA timing model. The stats show the date the system triggered, then the resulting “wait a month then invest for two months performance”.

S&P500 triggered on, performance:

6/30/08: -7.6%

9/30/08: -6.2%

10/30/08: -7.6%

1/30/09: 19.17%

2/30/09: 15.69%

Average return is -0.41%

10 Yr Bonds triggered on, performance:

1/31/09: -0.59%

MSCI EAFE triggered on, performance:

1/31/08:  4.5%

6/30/08:  -17.87%

9/30/08: 0.34%

10/30/08:  -4.37%

1/30/09: 20.18%

2/30/09: 36.65%

Average return is 3.24%.

NAREIT triggered on, performance:

6/30/08:  1.67%

10/30/08:  -3.24%

11/30/08:  -32.77%

1/30/09: 33.61%

2/30/09: 30.71%

Average return is 6%

No wonder the timing model works so well on REITs.
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Ichan is having a great year. His AlphaClone portfolio (top 10) is up 25% YTD in 2009.

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New books on the way – “Nerds on Wall St” and “The Leveraged Space Trading Model“. Anything by Ralph Vince is required reading.

Customer service (or total lack of) at Stockcharts is driving me crazy. GRRRRR. Hope this works.

Timing Updates

Stockcharts now has the 10-month SMA for free (Hat Tip: GK).

Go to the tab above for timing updates!

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Swensen transcript from WealthTrack

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How to read the WSJ for free.

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I saw Tim Melvin chatting about Templeton and thought I would update this post from March where we screened for stocks trading below $1 on the New York and American stock exchanges. 

It returned about 300 stocks from a list of 2500, and we then sorted the stocks by # of insider buys.  Since then the list had an average performance of 110% vs. around 50% for the microcap index. 

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Make your own Nutella

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Awesome graphics from GOOD magazine (via Kottke)

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Cooper’s Hill Cheese Rolling - I think there are some risk management lessons in here somewhere.  Reminds me of the Us Dollar lately.

Lots of markets trending up.

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AlphaClone video from a recent conference.

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From FlavorWire, maybe I should be doing this?

FP: I read over on Galleycat that you’re doing this strange pass along thing with review copies of your upcoming book, The Adderall Diaries. What inspired that?

SE: I’m letting people who request an advance copy of my new book borrow it. They get it for a week and I send them the address of the next person they’re supposed to send it to. What inspired that is that I want people to read my book. Some people have said that I might sell fewer books if I let people read it for free. But I don’t think that’s true, and I don’t care anyway. I write books to be read. I’m 37 years old, I’ve written seven books and I share a one bedroom apartment with a 27-year-old hipster. Obviously I’ve made choices in my life that weren’t about getting rich. Whenever I speak at a school or a creative writing class people ask me about making a living as a writer and I tell them only a crazy person would go into creative writing to make a living.

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Boston magazine article on Harvard.  Also, Gross chimes in.  I see it as more of a philosophical question:  "Should the endowments be investing in risky assets at all, or just governement bonds?".  [This also starts another question - are US Bonds risk free?]

Gotta take some risk to get that return….the below chart takes the average of Harvard and Yale yearly returns, and assumes a -30% decline for fiscal year ending June 30th (and assumes 10% bond return for 2009.)