Cliff Asness Weekend

Cliff Asness of AQR Capital Management was all over the media this weekend as the interview in Barron’s and as the sole guest on WealthTrack with Connie Mack. The WealthTrack interview seemed to be of more interest. He started out talking about the fact that the market does not go up every year. He really drove home the point in a way that I think is similar to how I have tried to convey it (probably the only thing I have in common with him). He was very matter of fact, the market goes down some years, this has always been the case and always will be the case. I would add that no one can “beat” the market every year. There will be periods where someone will be ahead of the market and periods where they will not. What matters is that you have enough accumulated for when you need it. The two biggest determining factors to having enough are savings habits and avoiding the urge to act on market induced fear (panic selling). Asness also spelled out a little philosophical detail on how AQR does things. He said that stocks are about making money so people tend to be overweight stocks versus other types of assets, like bonds and commodities, which are about reducing risk. I might add to that thought that knowing what to avoid can be more important than knowing what to buy. The asset allocation target they use is to put 25% each into equities, government bonds, real assets (TIPS and commodities) and 25% into the rest of the bond market. Where it gets...

Cliff Asness Weekend

Cliff Asness of AQR Capital Management was all over the media this weekend as the interview in Barron’s and as the sole guest on WealthTrack with Connie Mack. The WealthTrack interview seemed to be of more interest. He started out talking about the fact that the market does not go up every year. He really drove home the point in a way that I think is similar to how I have tried to convey it (probably the only thing I have in common with him). He was very matter of fact, the market goes down some years, this has always been the case and always will be the case. I would add that no one can “beat” the market every year. There will be periods where someone will be ahead of the market and periods where they will not. What matters is that you have enough accumulated for when you need it. The two biggest determining factors to having enough are savings habits and avoiding the urge to act on market induced fear (panic selling). Asness also spelled out a little philosophical detail on how AQR does things. He said that stocks are about making money so people tend to be overweight stocks versus other types of assets, like bonds and commodities, which are about reducing risk. I might add to that thought that knowing what to avoid can be more important than knowing what to buy. The asset allocation target they use is to put 25% each into equities, government bonds, real assets (TIPS and commodities) and 25% into the rest of the bond market. Where it gets...

Sunday Morning Coffee

Barron’s had a brief article about absolute return funds. The article leaned a little skeptical but it brings up a good point. Generally speaking absolute return funds have not participated in the massive rally that started in March. Many are even down a little. When the market was puking down there was some sentiment about going very heavy into the space which was never a good idea, IMO, for the simple reason that too much of anything is usually a bad idea. During the worst of the declines some of the funds did heroically and now not so much. This brings up a crucial concept but if you really have a diversified portfolio then not every holding should be going in the same direction. If every holding went up 50% together with the market then how did they do when the market went down 50%? Small exposures to things like this give a chance to own a few things that either go up a little if the market goes down a lot and even if they go down a little as the market cuts in half they are reducing the volatility. That is great for a down market but not for an up market. That doesn’t make an absolute fund a sell because they still offer the same thing as the did seven months ago, they will likely offset a portion of a swift decline. Last Sunday I spoofed the Best Places to Retire theme by writing about a few towns, very small towns, in states with no income tax bordering states with no sales tax. Reader Stephen Drone...

Sunday Morning Coffee

Barron’s had a brief article about absolute return funds. The article leaned a little skeptical but it brings up a good point. Generally speaking absolute return funds have not participated in the massive rally that started in March. Many are even down a little. When the market was puking down there was some sentiment about going very heavy into the space which was never a good idea, IMO, for the simple reason that too much of anything is usually a bad idea. During the worst of the declines some of the funds did heroically and now not so much. This brings up a crucial concept but if you really have a diversified portfolio then not every holding should be going in the same direction. If every holding went up 50% together with the market then how did they do when the market went down 50%? Small exposures to things like this give a chance to own a few things that either go up a little if the market goes down a lot and even if they go down a little as the market cuts in half they are reducing the volatility. That is great for a down market but not for an up market. That doesn’t make an absolute fund a sell because they still offer the same thing as the did seven months ago, they will likely offset a portion of a swift decline. Last Sunday I spoofed the Best Places to Retire theme by writing about a few towns, very small towns, in states with no income tax bordering states with no sales tax. Reader Stephen Drone...