Alternative Beta trumps Alpha

In general my investing strategies aim to harvest well known and documented sources of return, that are driven by risk premia and advantages exploiting investor´s consistent behavioral inefficiencies – sources of return that could be called beta and alternative beta. These sources of return are as reliable as it gets, as they have a good reason…

Adaptive Global Asset Allocation Portfolio in Detail

It´s time to dig a bit deeper into the current asset allocation of my portfolio. You can read more here about my process of structuring the portfolio in general and how I think about adapting it to different market conditions.   Let´s start with the most important foundation of my portfolio: a global asset allocation…

What metrics really count when building a diversified portfolio

The three things I look at in detail whenever I think about adding a new strategy or asset to my portfolio are:   The expected risk-adjusted return: excess returns and volatility expressed most commonly by the Sharpe ratio The correlation between different strategies and assets The return distribution characteristics of the different elements of the…

Index investing is likely to yield higher returns than stock picking

One of the key criteria in my investment process is to make sure that for every strategy I employ, I have the basic probabilities for success in my favour. (See: 4 Criteria and examples of useful strategies) One statistic* I came across quite regularly recently, has caused me to switch all the individual stock holdings…

2 Two basic ways to go about investing

Investing doesn’t come natural to the human mind, behavioral biases set us up to make a lot of mistakes.* This makes investing look superficially simple and be very hard at the same time. The primary difficulty lies not in finding a profitable portfolio strategy (a lot of resources are openly available), but in weeding through…

3 Where to start

Unfortunately there is no easy investor curriculum to follow.* Virtually unlimited resources provide great advice, useful ideas and concrete strategies – this is dwarfed by the amount of noise, useless and very expensive information (not necessarily because it costs a lot, but because it leads to losses) out there. I find it quite problematic that, in…

4 Criteria and examples of useful strategies

My goal is to create an adaptive, diversified portfolio of asset classes, factors and strategies that yields high risk-adjusted returns.  I think of it as building a personal hedge fund to manage my own money.   The investment approach is data driven, evidence based investing. There is no need to reinvent the world. A lot…

5 Combining strategies into a diversified portfolio

The basic premise for building a diversified portfolio is that uncorrelated or – better yet – negatively correlated assets and strategies will add up to produce higher risk-adjusted returns. These returns can then be leveraged up or down to suit individual risk tolerance. I want to think independently about which amount of capital exposure is…

6 Adaptive portfolio allocation

As we have already moved well into the realm of active investing, we might as well tackle the next big no-no in the world of finance: market timing. Many studies claim it doesn’t work, but in recent years more studies have appeared suggesting that it might work after all.* A commonly used argument against market…

7 Realistic goals and expectations

It is important to put down on paper clear goals about what we expect from our investments and the different outcomes that are possible. This will help to stay the course during rough times.   Frankly this is very hard to do and always just a general estimate. It´s impossible to know what the future…

8 Avoiding mistakes

The key to letting our investment strategies reach their full potential is to avoid as many mistakes as possible. A mistake is not a loss per se, but rather not sticking to your process, whether that has negative consequences or not, because over the long run it will. My main fear is not that the…

9 Writing down a plan

Finally all these elements need to be written down in a plan that is clear and easy to understand with rules that we can follow consistently. The real time performance of the portfolio, along with the process of running it, need to be recorded and analyzed in detail. Through ongoing research and experiences, the plan…