# 摘录

A suboptimal strategy you can live with and execute is better than an optimal oen you can't.

It's only slight simplification to say that we own stocks to hedge long-term risk and bonds to hedge short-term risk.

Asset allocation is the only factor affecting your investments that you can actually influence.

A security of less than 1 year is called a Treasury bill, or more simply, a T-bill. An obligation of 1 to 10 years is called a note, and of greater than 10 years a bond.

It is the human nature to find patterns where there are one.

# 综述

This is a well-written book. It shows how to construct your portfolios in the modern scoiety.

# 结构和细部

## General Considerations

• Average Return: simply adding up all of the annual returns and dividing by the number of years.
• Annualized Return (time weighted return): An annualized total return is the geometric average amount of money earned by an investment each year over a given time period.
• Use the standard deviation as a measure of risk:
• Money market: 2%-3%
• Short-term bond: 3%-5%
• Long term bond: 6%-8%
• Domestic stocks(conservative): 10%-14%
• Domestic stocks(aggressive): 15%-25%
• Foreign stocks: 15%-25%
• Emerging markets stocks: 25%-35%

## The Behavior of Multiple-Assset Portfolios

• Dividing your portfolio between assets with uncorrelated results increases return while decreasing risk.
• Some key points about diversity:
• If two assets have similar long-term returns and risks and are not perfectly correlated, then investing in a fixed, rebalanced mix of the two not only reduces risk but also actually increases return.
• If two poorly correlated assets have similar returns and risks, then the optimal mix of the two will be close to 50/50.
• It is difficult to find two assets that are uncorrelated, and it is practically impossible to find three.

### Summary

• The concept of correlation of assets is central to portfolio theory—the lower the correlation, the better.
• Diversifying your portfolio among uncorrelated assets reduces risk and increases return. It is necessary to rebalance your portfolio periodically to capture this increased return.

## The Behavior of Real World Portfolios

• In the real world, the correlations usually cluster between 0.3 and 0.8
• The essence of effective portfolio construction is the use of a large number of poorly correlated assets.
• The correlation between two assets is not fixed, it can change over the time.
• The real purpose of portfolio backtesting, mean-variance analysis, or any other kind of portfolio analysis is not to find the “best” asset mix. Rather, it is to find a portfolio mix that will not be too far off the mark under a wide variety of circumstances.
• The efficient portfolois change over the time. There is no way of predicting the best portfolio for the next time period.

## Optimal Asset Allocations

• Sticking by your target asset allocation through thick and thin is much more important than picking the right asset allocation.
• Mean-variance Optimizer

• An optimizer will heavily favor those assets with high historical or assumed returns.
• If you can predict the optimizer inputs well enough to come close to the future efficient frontier, then you don’t need an optimizer in the first place.
• Three steps to design an asset allocation

• How many different asset classes do I want
• How conventional a portfolio do I want
• How much risk do I want to take
• Asset classes

• Level 1:

• U.S. large stocks (S&P 500)
• U.S. small stocks (CRSP)
• Foreign stocks
• U.S. short-term bonds
• Level 2:

• U.S. large stocks (S&P 500)
• U.S. small stocks (CRSP)
• Foreign large stocks
• Emerging market stock
• Foreign small stocks
• RETIs
• U.S. short-term bonds

## Market Efficiency

• No one cam time the market.
• Indexing is the right way to do.
• Using autocorrelation to test if we use the history to predict future.

## Odds and Ends

• Value Investing

• Price/Earnings(P/E) ratio: How much you are paying for the earnings.
• P/E=30 $$\Rightarrow$$ expensive
• p/E=10 $$\Rightarrow$$ cheap
• Price/Book(P/B) ratio
• Book Vale $$\approx$$ net value of the cooporate
• P/B>5 $$\Rightarrow$$ expensive
• P/B<1 $$\Rightarrow$$ cheap
• Dividend yield: it is simply the amount of dividend remitted to the shareholders divided by the price of the stock.
• Good companies are generally bad stocks, and bad companies are generally good stocks.
• Three-factor Model: any stock asset class earns four different returns:

• The risk-free rate, that is, the time value of money. Usually set at the short-term T-bill rate.
• The market-risk premium. That additional return earned by exposing yourself to the stock market.
• The size premium. The additional return earned by owning small-company stocks.
• The value premium. The additional return earned by owning value stocks.

## Implementing Your Asset Allocation Strategy

• Determine your basic allocation between stocks and bonds. Answer this: “What is the biggest annual portfolio loss I am willing to tolerate in order to get the highest returns?”
• Determine how much complexity you can tolerate.
• Determine how much tracking error you can tolerate.
• Vanguard and DFA

• Recommended Vanguard Mutual Fund
• Vanguard 500 Index Fund
• Vanguard Tax-Managed Growth and Income Fund
• Vanguard Total Stock Market Index Fund
• 75% large cap + 15% mid cap and 10% small cap
• Vanguard Value Index Fund
• This fund tracks the bottom 50% of market capitalization of the S&P 500 when sorted by price/book ratio.
• Vanguard Small-Cap Index Fund
• Vanguard Tax-Managed Small-Cap Fund.
• Vanguard Small-Cap Value Index
• Vanguard European and Pacific Stock Index Funds.
• Vanguard Emerging Markets Stock Index Fund.
• Vanguard Total International Stock Index Fund.
• Vanguard REIT Index Fund.
• Executing the plan

• Dollar Cost Average (DCA) is a wonderful technique, but it is not a free lunch.
• Value average is also a usful technique.
• Rebalance

• One or two years is good enough.
• Final words:

• Risk and reward are inextricably entwined.
• Those who do not learn from history are condemned to repeat it.
• Portfolios behave differently than their constituent parts.
• For a given degree of risk, there is a portfolio that will deliver the most return; this portfolio occupies the efficient frontier of portfolio compositions.
• Focus on the behavior of your portfolio, not on its constituent parts.
• Recognize the benefits of rebalancing.
• The markets are smarter than you are; they are also smarter than the experts.
• Know how expensive the tomatoes are.
• Good companies are usually bad stocks; bad companies are usually good stocks.
• In the long run, it is very hard to beat a low-expense index mutual fund.

## Investment Resources

• Random Walk Down Wall Street, Burton Malkiel
• Common Sense on Mutual Funds, John Bogle
• Asset Allocation, Roger Gibson
• Global Investing, Roger Ibbotso and Gary Brinson
• What Has Worked in Investing, Tweedy, Browne
• The New Finance: The Case Against Efficient Markets, Robert Haugen
• Value Averaging, Michael Edleson
• The Intelligent Investor, Ben Graham
• The Wall Street Journal.
• Portfolio Selection, Harry Markowitz
• Stocks, Bonds, Bills, and Inflation, Ibbotson Associates

# 和我的关系

Flyaway is the owner of this blog.

So what do you think? Did I miss something? Is any part unclear? Leave your comments below