UnThreaded | Threaded | Whole Thread (21) | Ignore Thread Prev | Next
Author: zol Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75381  
Subject: Re: Asset Allocation Date: 2/17/2014 4:45 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
I'm trying to figure out if this is "tongue in cheek."

Bob,

I believe joelxwil is talking about two concepts:

(1) Momentum investing - "You need to be in those assets that are moving up and out of those that are moving down." - Mebane Faber published a paper in 2006 with a follow-up in 2013 describing how to evaluate different asset classes and invest in the ones that are more likely to outperform going forward based on their recent performance. The 2013 paper (Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461 ) shows how the strategy worked out since it was originally published. This strategy is followed in the Mechanical Investing board under QTAA - http://boards.fool.com/qtaa-013114-31095614.aspx

(2) Deworsification - "The idea that you should be in a little bit of everything is just really stupid." - The concept here is that spreading your funds too thin will not improve returns. A 50% increase in one of your holdings will make more impact if you only have 5 holdings vs 100, for example. This article (Link: http://news.fredericksburg.com/businessbrowser/2010/08/10/th... ) talks about a study of managed funds. The study found that managers willing to concentrate their holdings and "bet big on their highest-conviction ideas" outperform the stock market. They quoted a few famous investors regarding this concept:
"This brings to mind a famous saying of Warren Buffett: “Diversification is protection against ignorance.” Star manager Peter Lynch has referred to diversification as “deworsification,” and Buffett’s partner Charlie Munger has said that “wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”"

-zol
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (21) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Mylan Transitioning from Generics
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement