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 longterm risk and bonds to hedge shortterm 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 Tbill. 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 wellwritten 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%
 Shortterm 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 MultipleAssset Portfolios
 Dividing your portfolio between assets with uncorrelated results increases return while decreasing risk.
 Some key points about diversity:
 If two assets have similar longterm 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, meanvariance 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.

Meanvariance 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. shortterm 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. shortterm 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.
 Price/Earnings(P/E) ratio: How much you are paying for the earnings.

Threefactor Model: any stock asset class earns four different returns:
 The riskfree rate, that is, the time value of money. Usually set at the shortterm Tbill rate.
 The marketrisk premium. That additional return earned by exposing yourself to the stock market.
 The size premium. The additional return earned by owning smallcompany stocks.
 The value premium. The additional return earned by owning value stocks.
Implementing Your Asset Allocation Strategy

Choosing Your Allocation
 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 TaxManaged 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 SmallCap Index Fund
 Vanguard TaxManaged SmallCap Fund.
 Vanguard SmallCap 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.
 Recommended Vanguard Mutual 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 lowexpense index mutual fund.
Investment Resources
 Reading List:
 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
评价
这是一本非常高质量的书，书的作者本身是一个化学博士，还是神经科医生。作为一个科学从业者，他的写作能力非常高超，整本书的阅读体验非常好。 论点有理有据，是一本不可多得的好书。
和我的关系
这本书从纯数学角度分析了为什么多元分散的投资能够减少风险的同时提高收益。
Comments
So what do you think? Did I miss something? Is any part unclear? Leave your comments below