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Three things I’ve changed my mind about during 20 years of investing [Members]
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> It doesn’t take much to make Mrs Accumulator and I feel like royalty after the austerity years on the road to FIRE.
Amen to that bro.
I would be interested to read an article on Monevator’s take on Equity Market Neutral and Trend strategies as part of a 60/40 discussion.
AQR research:
https://www.aqr.com/Insights/Perspectives/A-Positive-Stock-Bond-Correlation-Is-a-Terrible-Reason-to-Add-More-Equity-Risk-to-Your-Portfolio
Second comment.
I would love to see an article running through all the various AQR funds available in UK and explaining the differences in plain English. Or similar funds from other providers.
Essentially an idiot’s guide to liquid alternatives.
> In the end, Lars Koijer had it right many years ago
Kroijer
I recently gave my old Kroijer and Hale books to someone I heard say he thought he might get advice from AI.
And has TA forgotten the 3rd commandment?
Great post, thank you!
V interested on the continuing and evolving discussion on defensive assets in the days that bonds are less reliable than bond st in monopoly….
Love also the chat re life after work / does work have to pay / intrinsic value of work? It’s so tempting to get fixed on “can’t wait to stop working these BS PowerPoints” but I’m certainly musing on what post FIRE might look like for me. I work with fab people and have a real laugh most days so I know I will miss the social as a (mostly) extrovert … But I won’t miss the endless made up stress, deadlines and decks which are endemic in modern office life.
“I don’t think I need to work in the conventional sense to maintain my sense of worth, purpose, need for challenge, or sense of engagement with the world.”
I fall more on the TA rather than TI side of the fence on the work-issue. But I definitely ‘feel’ what TI describes, but I look on it as a type of cultural institutionalisation that needs to be overcome. I think it is learnt in as much as kids don’t seem to need to be paid to get through their days without having a mental breakdown. Granted they have the benefit of having their cost of living subbed, but I don’t think that paying the bills or providing for the ‘bottom of Maslows hierarchy’ is what TI is talking about here.
Someone said ‘all political careers end in failure’ and I suppose a lot of normal careers end in retirement, so you are in a bit of bother if you can’t eventually agree with TA (or Ermine) on the matter of paid work. I guess David Attenborough is the outlier here, picking up interesting work into his 100s. He is quite a serious outlier though?
The linkedin finale is brilliant. For me, personally, it is by a country mile the most repellent instantiation of social media out there.
@KTB #5 > I work with fab people and have a real laugh most days so I know I will miss the social as a (mostly) extrovert
I have softened the view that all this work stuff is Stockholm syndrome for everyone, but may I remind you:
logically, since World > Work, you will find more fab people in the World than you found at Work, and not only that, as an extrovert you will find it easier (but more necessary) to find them
> It’s so tempting to get fixed on “can’t wait to stop working these BS PowerPoints”
I do agree with you that as a philosophical principle, it is better to run towards the light rather than away from the darkness. Like all principles, they aren’t absolute. I ran like hell away from the darkness, and not having to sell my time for money has never gotten old for well over a decade 😉
@Rhino #6 > type of cultural institutionalisation that needs to be overcome
This really isn’t hard, though perhaps a fellow running away from the darkness as you shouldn’t do finds it easier to throw the switch.
There is a peculiar middle-class valorisation of Work being A Good Thing in and of itself, perhaps a cultural hangover for the devil makes work for idle hands etc. It is possible this was made easier for me by not having a traditionally middle-class upbringing. Or else I am just a curmudgeonly outlier. Either way, I have nearly 15 years out of the office, and it still rocks. For the vast majority of my time I didn’t hate what I did and found it intellectually diverting and with good people. I still see some of these guys. But you know what? You can do better, when you repossess your time from The Man.
@Ermine ‘This really isn’t hard’ – to be honest, I think for a lot of people it is. Can take several years and a number of false starts to come to terms/get to grips with stopping working, certainly stopping the traditional 9-5. As well as the middle-class thing, the whole Protestant/Calvinist angle can be problematic if you’ve been exposed to that over your lifetime.
Brilliantly written @TA. Thank you
Per @Index #2, #3, I’ll second the humble plea for coverage of both Equity Market Neutral strategies and Trend Following (and pretty please also for running your wise investment ruler both over Risk Parity and also (and especially) over rules based systematic Tactical / Dynamical Asset Allocation). These (TAA/DAA) are not about predicting, but rather preparing by having evidence based rules to make the decision for you before the stressful event point arrives.
To echo the title
1) Being brave enough to wrest control of my portfolio from an IFA.
2) Holding linkers to maturity in a ladder rather than a bond fund.
3) Holding a decent amount of gold.
@Ermine – appreciate the sage advice there (and I also enjoy your blog!) thank you.
As I said to someone recently, I know I’m a bit of a reluctant workaholic. Every other ‘holic’ we tell people to stop… Except work!
I’ve often wondered what maturity the bond returns in the DMS database represent (does anyone know?). From my database of gilt fund returns (and cpi from macrohistory.net), for the 1930 to 1975 period the real annualised returns strongly varied with maturity from -0.24% (i.e. fall of 10% in real terms over the 45 year period) for under 15 year gilts to -1.77% for over 15 year gilts and consols (i.e., a fall of 55%). The worst historical cases for bonds all appear to start in 1937 or thereabouts with the subsequent 45 year period seeing real drops of 53% (under 15 year gilts) to around 70% (over 15 year gilts or consols). The real income from a nominal gilt ladder (all that was available at the time) would have done no better once inflation kicked in (a reduction in real income by factor of about 16.5 between 1937 and 1982). None of this is a great advert for nominal bonds or bond funds!
“TI, on the other hand, contended that us moderns are generally ill-suited to self-directed purposefulness sans cash.”
I appear to be an exception to this since my unremunerated ‘hobby’ of research in retirement finance (which is essentially only a change of field to what I did when working for money) has some purpose (intellectual interest being one aspect). I suspect anyone with an ‘active’ hobby (i.e., actually doing things rather than just watching things) whether it is creative or sporting, etc. is to some degree self-directed.
@Rhino #8 > the whole Protestant/Calvinist angle can be problematic if you’ve been exposed to that over your lifetime
Yep, but remember, this is the rest of your life we are talking about, not a mere trifle. It could be half of your adult life, in the case of modestly early retirees. Breaking habits is hard, but try the thought experiment. At the end of your life, as you recapitulate a life hopefully well lived, and you reflect back on the switchpoints where you directed it, how are you going to feel? Would you view on the switchpoint at retirement, perhaps two thirds of the way through your journey along this mortal coil, when you chose ‘I worked on, because I couldn’t face the change’ as helpful or harmful to your wild journey across life as a conscious entity?
@ Alan S #12 > I suspect anyone with an ‘active’ hobby (i.e., actually doing things rather than just watching things) whether it is creative or sporting, etc. is to some degree self-directed.
^ This. Create more, consume less. What you do with your days should change you a little bit, in learning, experience of something new, whatever.
An awful lot of what is pushed as ‘entertainment’ is passive consumerism, a bit of that is fine, but consumerism is both expensive, because it’s making other people rich, and often very passive. Take part in life, and Work is not the only way to do that, and a very large part of the problem with Work is that you often have limited control. Possibly a business that someone has built up over a time is an exception to that lack of control.
The world becomes a more interesting place when you remove the dead hand of ‘this must make money’ from the question you face every morning ‘What shall I do with this brand new day?’
@Alan S — I wouldn’t necessarily summarise my position exactly as @TA did, though I see why he went there. Personally I have hobbies that I’ve pursued since a child that don’t make any money. (On the contrary, my aquarium habit since childhood that now maintains amongst other things a tank of growing corals is my alternative to a crack habit 😉 ).
However I do believe/suspect/observe that somebody doing something for money –- even just a couple of days a week — almost invariably seems to be more plugged into and even sustained by wider society, whereas someone who has entirely stopped earning anything is almost invariably distanced. The only alternatives that come to mind are a couple of ex-public sector workers in my wider family, ex-police for example, who seemed to maintain something of an esprit d’corps that went beyond even the odd meet-up with old peers.
I felt this in my own life, too, when I took a work break in my early 30s. I expected to feel overwhelming relief (I’d left an intense set-up) but instead I felt mild ennui. It changed my view about the desirability of never working again.
As has been said above most of us end up not working sooner or later. My comments are more directed to the RE aspect of FIRE than a traditionally retired 75-year old. Even then, I expect the sort of 75-year old who reads Monevator wouldn’t begrudge the many benefits (not just financial) of doing a couple of days work a month and having people see a good job and giving them money for it. It may not be at all necessary financially (probably won’t be!) but there are other dividends.
I accept not everyone is like this, of course. @Ermine famously excepted for starters! And again, I’m thinking primarily of young retirees. Who can of course also do non-monetary things that’d make earning my two days a month wages seem like small beans. (e.g. travel the world, build their own cabin in the woods, or whatnot).
I’d read the debate @TA links to in his piece for more, it featured @YoungFIGuy too and was a nice ramble through the issue 🙂
I’m with Ermine on the “there’s more to life than work” discussion. Although I actually enjoyed much of my work and some was very creative, I always ascribed to work to live, not live to work, and built up collections of music I want time to listen to and books I hope to read before I shuffle off.
Alongside my partner, we’ve gardened through our lives, providing a permanent vein of creativity that we enjoy sharing with others for charity, plus we’ve birdwatched around the globe over the years. So there was never a question what I would do when I retired, just when could I manage it?
We’d not heard of FIRE though and spent our money as above, reliant only the prospect of two DB pensions that arose from our more or less accidental choice of careers, plus the slowly receding prospect of the state pension. Our FIRE moments came likewise by accident. My partner’s company moved to a new location, providing her with a reasonable offer of redundancy at the tender age of 38. We decided I could support us both, so she could concentrate on house, garden, aging parents and chores to give us more quality time together as a couple. I’d always imagined I would do my time until 60 before I could escape, but an unforeseen opportunity for early severance came my way at 56 which I grasped with both hands.
Only after moving to a cheaper but more scenic area (with a new house and garden project of course) did I ever think what to do to make the most of the money left over from our new life of freedom, which turned into another hobby of managing our own portfolio.
Helped by Monevator, I’ve kept our portfolio heads above the choppy waters of inflation so far and learned a lot along the way with a mix of indexation and active investing, while regarding our pensions as the proxy for bonds. The nice thing is that, unlike everyone here who relying on their portfolios to live, we can suffer a downtown with equanimity. Health is the biggest risk we face. It’s not exactly FIREside chat material, I’m certainly no Mogul in reality and I’m sure my portfolio would raise some questioning eyebrows but it’s just one more example of life’s what you make it, even if you didn’t mean to. So good luck to everyone and thanks to TI and TA for all your hard work, and good health too, too often taken for granted.
@Ermine – I think you make a strong case. I love this:
“The world becomes a more interesting place when you remove the dead hand of ‘this must make money’ from the question you face every morning ‘What shall I do with this brand new day?’”
That’s exactly how I feel about it.
The thing about the work I do is it allows me to feel this way. I won’t try to replace the income when it goes. I won’t be out there networking or uploading my particulars to an AI-powered CV culling zone. That’s the joy of the FI part. The money is optional.
Yet the money does change my relationship with the work. Certainly I think it helps me put more into it when I otherwise might have given up or goofed off. As in, if people are prepared to give me money then I better make it worth their while.
That’s a different relationship to work from the one I was satirising in the linkedin post and brilliantly encapsulated by KTB in the line: “can’t wait to stop working these BS PowerPoints.”
I think those aspects of knowledge work point to three trends:
1. Every job is sales and marketing now.
2. Everyone has to justify their worth in a world awash with data. No hiding places.
3. In an atomised workplace where nobody understands what anyone does anymore, everyone has to explain themselves again and again and again.
Those trends amped up in my life after the GFC. Definitely made work worse.
I think TI is onto something with his point about engagement and I feel, literally feel, Rhino’s point about having to deprogram yourself.
To come full circle though, I’ve read with admiration your descriptions of how you fill your time. Same with @No Longer Civil’s testimony above. If Monevator imploded then I hope I would transition to feeling as fulfilled as you both do. I think I likely would but I can’t be certain until the time and space opens up.
@No Longer Civil – Having read your comment above I deffo think your story would make for a great FIREside chat.
@Index and Delta Hedge – If it’s an Idiot’s guide we’re talking about I’m definitely your man 🙂 This is something I need to get into when I can free up some time to properly dive into it. Please do keep nudging me, or throwing in comments about topics of interest. There’s any number of Monevator comment threads where this discussion ignites. It’s all useful direction for me re: what people care about.
@Beardy Billionaire Bloke – I have forgotten! What’s the 3rd commandment again?
@Bassavoce – Thanks for playing along! Yes, me too on gold. And same on linkers in a ladder not a fund. I did initially flirt with an IFA twenty years ago but he wanted way more than a pound of flesh.
Costs was going to be my next one. It’s very important to get annual fees down from say 1% to 0.5%. Much less important to go from 0.2% to 0.1%.
@Rhino – the requirement to post this type of guff on linkedin is unbelievable. It’s one of the clearest cases of a coordination problem I’ve ever seen. If everyone could turn to each other and say, “Stop the madness!” then I’m sure it would all end tomorrow.
@Alan S – DMS provide this description of their gilt index in Triumph of the Optimists:
“We also compiled a new set of UK government bond indexes especially for this study. First, we constructed an index of the returns on default-free long bonds. For the 1900–54 period the returns are based on perpetual bonds issued by the UK government. At the start of 1900, there was only one true UK gilt-edged stock (UK government stocks are referred to as “gilts”),
the 2¾ percent (later 2½ percent) Consol. This was an undated, or “perpetual”, stock. Early in the century this was joined by another perpetual, War Loan. Over time, further perpetuals, as well as dated stocks, joined the list. But for much of the first half of the last century, the government bond market, and market liquidity, was dominated by the perpetuals.
Our new long bond index therefore tracks the returns (coupon plus capital gains) on 2½ percent Consols for the first half of the twentieth century, until end-1954. By then, Consols had declined in importance and liquidity, while the UK government bond market had broadened sufficiently to enable the construction of an index of dated long bonds. From 1955–2000 our long bond index thus measures the return on a portfolio of government bonds with a mean maturity (at mid-year) of twenty years. It is designed to measure returns to a tax-exempt investor, and historically, this has implied a high-coupon strategy. From start-1955, the long bond index is thus based on high coupon bonds, defined as those that fall within the top third of all coupons for the long bond maturity range. On average, there are four constituents in the index each year. We also constructed an index of intermediate term bonds, starting in 1955. This mid-maturity bond index follows the same design principles as the long-bond index, but has a maturity (at mid-year) averaging five, rather than twenty, years. On average, this index contains two constituents per year.”
Using Macrohistory annual returns and inflation I get a drawdown of equivalent severity to DMS. But it begins in 1935.
Using your All Stock gilts monthly figures and MOMED / ONS monthly inflation: peak drawdown is -58% but not until 1981. Drawdown begins in 1946 as per DMS. But only because the index broke even for 2 months in Oct and Nov 1946. Discount that and drawdown begins in 1935 as per Macrohistory.
@TA Great piece. Some random thoughts.
60/40
Entirely agree that stocks/bonds aren’t the only or best assets, though I approach it from a slightly different angle. Rather than looking for a “defensive” partner for equities, I’ve been recently convinced by risk parity*, where you’re looking for multiple uncorrelated asset classes. In this framework, if they’re genuinely uncorrelated, you actually want them to be more volatile, not less. Finding truly uncorrelated assets that stay that way is the trick though! This approach is particularly good in retirement, or when you’re in the run up to retirement, according to backtesting. So I have equities, bonds, gold, trend and a splash of crypto (planning to reduce crypto and increase gold over time). With a bit of leverage via the Return Stacked ETFs as I’m fortunate enough to be categorised as a professional investor.
*Although this is what it tends to be called by the fraternity (Risk Parity Radio, Risk Parity Chronicles, Portfolio Charts etc.) it isn’t really accurate as equities still tend to provide the lion’s share of the volatility. You need heroic leverage to create a true risk parity portfolio, which isn’t generally available to the retail investor. “Multi-asset” would be a better description. “All weather” is obviously closely related but comes from a macro perspective, risk parity is more mathematical (see Finumus’ great piece on Shannon’s Demon – I disagree about leveraged ETFs but that’s another story…)
(It should be obvious from the above that I too would love to read your take on risk parity/liquid alts/trend following!)
Equity diversification
I’m half way with you I guess? Until very recently I had an exceedingly complicated portfolio which was mostly in single country ETFs, weighted according to an arcane metric of my own but which was basically based on valuations. I had some great successes (e.g. I was very overweight Korea last year) but I ultimately decided that the game wasn’t worth the candle. However I’m still very overweight the UK because 1. I’m still a value investor at heart and 2. backtesting suggests that a home country bias is beneficial for decumulation – Tyler at Portfolio Charts suggests this is to do with local inflation but it seems a persistent result across many countries. I’m several years from retirement yet but am trying to glidepath towards my decumulation portfolio.
Working after FIRE
(Or FIR in my case). The way I see this is that I’d rather semi-retire at an earlier age with an aggressive WR, on the basis that I’ll have to do some part time work for a while but will be in a reasonable position to pick and choose what that is, than wait until I can fully retire on a super safe WR. That’s the dream anyway, I’m aware of course that there are a lot of risks and path dependencies. I think I’d be perfectly happy doing zero work if I magically hit the (safe WR) “number”, but @TI makes some good points too.
I’m more inclined towards Bonds now than 5 years ago. Simply they were crazy expensive 5 to 10 years ago, with deeply negative real yields on linkers and now they are not, with real yields around 2.5% real at the long end.
Given the data says we are to expect a real return of 1% real on gilts over time, you have the opportunity to lock in at 2.5% real for decades ahead, whether it be individual bonds or an index fund, 1.5% or so for 10 years…
Equity is expensive, valuations are high, because valuations are high we have seen recent great performance , I’m sure we’ll see great performance in the future, but there may be hiccups along the way. A decent slug of bonds, around ½ of which are index linked, is my way to secure a chunk of my income needs for the next 10 or 15 years.
Bonds were very expensive and subsequently disappointed, equities are very expensive and …
No one knows but I think bonds do what they say, at purchase you know exactly what you are getting, although you need to take a view on credit risk, interest rate risk and inflation. Prior to 2022 people forgot to consider those risks in terms of what they bought.
@TI #14 > someone who has entirely stopped earning anything is almost invariably distanced.
I sort of give you that one. It’s difficult to separate the variables, after all I am also getting older as well as being retired for over 10 years, and as you get older culture gets away from you a bit. Perhaps free and clear early retirees are a little bit in this world but not of it, without the other connotations of the phrase. It is important for retirees to do things together with people of working age and younger. I found the u3a totally alienating (I tried it when I was only just old enough) and I don’t want to live in a ‘retirement community’ slightly along that same axis of connectivity. This may be an aspect of being child-free, many people of retirement age live vicariously through children and grandchildren, it’s a totally valid way of life, though doesn’t always make for scintillating conversation 😉
As an example of this distancing, I do not live in a smartphone and don’t routinely carry one. I don’t do social media, and I have never seen TikTok, and while I have read Mr Beast’s operations manual I’ve never seen his output. I listen to music on my hifi via speakers and not headphones. When I walk I listen to the sparrows rather than with headphones/earbuds clamped to my head trying to be in a different world.
I found this section (my emphasis) perhaps key to our different views:
I am of the view that a tree falling in a forest with nobody to hear it does make a sound. But I acknowledge that view isn’t universal 😉
@TA #16 > I think those aspects of knowledge work point to three trends
I think you have summarised the enshittification of while collar work well. ERE called it gamification and it’s part of a wider problem of Western society – we lack the courage to take responsibility for our values and actions, increasing hiding behind metrics and rules and regulations and service level agreements. Not everything that matters can be measured, and not everything that can be measured matters, in that respect Lord Kelvin was wrong, in respect of human affairs.
And that, as you say, is the joy of FI. You can turn round to The Man with is pettifogging KPI’s, performance management theatre and the rest, and say ‘bollocks to all that’. I found no consumer frippery tasted as good as freedom feels. And I didn’t need a daily connection to The Machine to feel alive.
@TA, @C strong @Index (and likewise @Mr Batch and @Algernond on the @Finumus TF thread): to me personally, bringing in Return Stacking/Capital Efficiency, Risk Parity, Trend Following/Managed Futures, Multi Factors (and cross factors like SVC or single powerful anomalies like Momentum/High minus Low) and Tactical/Dynamic Asset Allocation (with and without leverage) takes what can be an artificially binary conversation about Active (stock selection) v Passive (cap weight index tracking) and about Equities only v a 60/40 (with High Quality Gov Bonds) from a black and white canvas rendered in 2D into a vivid 3D colour montage with sound to boot.
To repeat, asset allocation, as opposed to stock selection, is about preparation not prediction, and evidence based and systematic rules, and not idiosyncratic judgements.
Although I do a little (<<5% currently) single name stock picking for 'fun' (special situations are especially intriguing), there's just no way that I could ever (at least a priori) have sufficient conviction in any system or approach (or, indeed, having no discernable approach) to single name stock picking to run my portfolio off of it.
It has to be rules based and at the asset class level. Companies can (and very often do) go bust, but asset classes endure.
But that very definitely does not mean, and should not mean, an artificially restricted choice of either being all in on single name company shares or just going 60/40 Global equity cap weight tracker / Gov Bonds with B&H (or being a 100% in VWRL/VWRP or Vanguard Global All Cap with B&H).
There's really so, so much more available.
The AWP and variants on the Harry Browne Permanent Portfolio are a start down to road to expanding the horizon here, but there's a vast number of other approaches to consider which are systematically implemented and founded on data; and, fundamentally, arguably the most effective form of diversification (and the biggest free lunch that it brings) is diversification across different and negatively correlated strategies; rather than just and only between different asset classes.
@TA (#18)
Thanks for that (I’ve never owned a copy of the Triumph of the Optimists). It would appear that their long index is similar to the Barclays index (which is the one underpinning macrohistory until 2016) in that, the Barclays gilt index contained consols until 1962, then a portfolio of dated gilts where “the portfolio was chosen to represent as closely as possible a 20-year security on a par yield, and contains a weighted combination of four long-dated stocks with a mean life of 20½ years (so that the average life of the stocks for the year in which they are in the portfolio was 20 years)”, and then from 1990 onwards a target of 15 years maturity. From 2016 onwards macrohistory use the “Total return on the United Kingdom benchmark 10-year government bond index” from datastream.
I note that DMS were incorrect to categorise the ‘War Loan’ as a perpetual since it was a callable, dated gilt (e.g., the 4.5% War loan issued in June 1915 was repayable at par on 1 December 1925/45).
Anyway, the point is that drawdown was dependent on the maturity of the gilts chosen – as might be expected in a period (i.e., 1940-1980) where yields trended upwards shorter maturities did better (or should I say, in real terms less badly) than longer ones. For the ‘passive’ index investor choosing an intermediate maturity results in an intermediate outcome, although defining ‘intermediate’ is non-trivial (e.g, All-stocks is wholly dependent on weighted maturity of the gilts issued by the UK so the weighted maturity can be variable). Personally, I use two funds and one-year fixed rate savings accounts to target a weighted average duration of between 1 and 3 years (a bit at the short end, but that’s just me!).
@C-strong – I’m interested in learning more about risk parity. Do you have a formula for converting those asset class relationships into an asset allocation?
Is there anywhere you’d recommend I go for a grounding in the essentials?
I remember reading Portfolio Chart’s excellent piece about home bias but not doing anything. I can’t remember why. I’ll need to fish out Tyler’s post again. It may be because Tyler confines his observations to the post-1970 era?
Alan S recently pointed out to me that UK equities beat the MSCI World (from 1970 to the present day – just about). But UK stocks don’t beat a World index from 1900. The same probably holds true for a number of European economies. The situation would be exacerbated if Tyler brought bonds into play but I only have the very vaguest recollection of the piece now.
I think your FIR strategy has much to recommend it. That’s the path TI consciously carved out, and it could be argued that I’ve fallen into it. I think it’s a great way to go.
@Hariseldon – I have a great deal of sympathy with that view. As long as we’re talking about locking in the yield with index-linked gilts. I still hold nominals too but don’t think I’ll ever hold anything close to 40%.
@Ermine – “I found no consumer frippery tasted as good as freedom feels.” Bang on.
“I am of the view that a tree falling in a forest with nobody to hear it does make a sound.”
That’s a wonderful way to put it. I suppose I hope that someone hears it even when I know there’s probably no-one within earshot.
“It is important for retirees to do things together with people of working age and younger.”
This also seems critical to me. I guess that’s baked in for most people but we’re also child-free. Nieces and nephews variously pop up to tell us how it is 🙂
“I do not live in a smartphone and don’t routinely carry one.”
I would like to know more about this. Maybe you have a more rounded post about it? Your position comes across as more ideological in the comments I’ve read. I doubt this is actually the case but that’s how it reads to me, rightly or wrongly.
I think smartphones are a grey technology. They can be used for good or ill. Use them well and they’re wonderful devices. Use them to follow wellness influencers on Insta, or pro-anorexia content on Skinnytok, and you’re opening yourself up to a world of hurt. Should be obvious to most adults. I support heavily mediating smartphone + social media time for kids.
Missing out on the sparrows is obviously a crying shame 🙂
@Delta Hedge – Where should I go for the best in supporting evidence and sensible takes on the systematic rules?
@Alan S – Triumph is so old now you should be able to get it as a downloadable pdf in exchange for an email address. It’s still interesting and a good source of useful references.
Hi @TA #24: I would humbly suggest:
– pictureperfectportfolios.com (quite a fun site to start with);
– search SSRN.com for papers, especially under Professor Emeritus Wouter J. Keller of VU University Amsterdam;
– likewise search arxiv.org;
– allocatesmartly.com;
– quantocracy.com;
– optimizedportfolio.com;
– travisgiffin.com (interesting practical experience);
– optimizedinvesting.net;
– everything on risk parity, return stacking and LETFs at the7circles.uk;
– riskparityradio.com;
– testfol.io/tactical;
– portfolio123.com;
– portfoliovisualizer.com;
– dualmomentumsystems.com,
– twocenturies.com,
– r/LETFs / r/TQQQ; and, possibly most fruitfully,
– search Substack for free posts on quantitative systems. I’m up now to over 800 free (and 3 paid for) Substacks (adding 2 to 20 Substacks a day now to my feed); 95% of which are investments related (or adjacent), and about 30% of those, give or take, are pure quant.
p.s. FundExpert also have some good materials on momentum using OEICS.
@TA A slightly random grab bag of articles below, I also agree with those of @Delta Hedge’s sources that I’ve read (and will look forward to reading the rest, thanks DH!)
This is a good general outline of risk parity principles, albeit from the classical hedge fund perspective that uses (probably a lot of) leverage: https://www.aqr.com/-/media/AQR/Documents/Insights/White-Papers/Understanding-Risk-Parity.pdf
Classic Bill Bernstein mathy piece on correlations, volatilities and the rebalancing bonus: https://www.efficientfrontier.com/ef/996/rebal.htm
More maths, focusing on Shannon’s Demon: https://www.richmondquant.com/news/2021/9/21/shannons-demon-amp-how-portfolio-returns-can-be-created-out-of-thin-air
There is tons of good stuff on Portfolio Charts as you know, both the articles and the backtesting tools. This is one of the best (maybe the one you meant about home bias?): https://portfoliocharts.com/2024/04/01/what-global-withdrawal-rates-teach-us-about-ideal-retirement-portfolios/
You’re right that he only goes back to 1970. I believe this is partly because gold is such a big part of his approach, and there is no point including gold in backtests before the end of Bretton Woods. This is an issue with a lot of risk parity / multi-asset backtesting actually – the record doesn’t go nearly as far back as for stocks and bonds. But this is an eloquent defence by Tyler (vs big ERN ) of his approach: https://portfoliocharts.com/2025/06/11/the-human-complexities-of-correcting-the-record/
Talking their book of course, but this is a good one on managed futures specifically: https://www.imgp.com/documents/iMGP_The_Case_for_Managed_Futures_in_an_Investment_Portfolio.pdf
For me the Italian Leather Sofa blog is required reading. Here’s a piece on risk parity: https://theitalianleathersofa.com/risk-parity/
Plenty to get my teeth into there! Much obliged @DH and C-strong
@c-strong – just reread the Tyler Vs ERN piece. On that score I fully stand with Tyler, having noticed the same omissions and the problem of overly focusing on US centric data.
I still don’t understand why Tyler doesn’t move beyond 1970. Failing to do so excludes a range of economic conditions that affect all asset classes, not just gold. The picture looks far rosier across the board if you begin from 1970.
Re gold. Tyler is right that gold standard returns are irrelevant. But the upshot is you have to treat with caution long term results that feature a heavy dose of gold before 1975. Inevitably this caveat gets lost in the noise though I know Tyler has addressed it in his posts. For the record, I respect and enjoy the work of Tyler and ERN enormously. No truer word has been spoken than Tyler’s note that we all have blind spots.
@all — Just FYI @TA is having some technical difficulties and might be a tardy replying to any comments for a day or two. Apologies in advance!
@TA #28-29: more important (especially perhaps in this emerging era of so called Machine Learning and AI) than any item on any (especially my own) reading lists, any supposed correlation or pattern, or any backtest, or any data set; are three interrelated questions (none of which are remotely original to me):
First “How and why has this worked?”
Second “Who is losing money to make this work?” (Or, put another way, “Who (or what) is providing the excess return?”)
Third “Why might this continue?” (E.g. institutional or other limits to arbitrage, behavioural heuristics, persistent market structural imbalances etcetera).
If you can’t answer all three questions sufficiently convincingly then you walk away every time regardless of what the past data (actual and/or bootstrapped / Monte Carlo) purports to show.
Above all, one has to constantly remember that the past is not necessarily a prelude.
It may guide. It may not. It might illuminate. It might mislead.
But, regardless, returns always come from the future.
I can very much relate to this. When I started out ~10 years ago, I was concerned about stock market valuations, so country weights by CAPE seemed a good idea. Still concerned about valuations, and still waiting for this to come good… If I were to start again, it would be simple market cap weights but a limit for the US (or any other country in future) at 50% of all stocks in the portfolio. And I’d keep a chunk in small cap value.
The defensive part was more difficult, this took years figuring out and Monevator has been really helpful. Bonds offered “returnless risk” at the time, which made little sense especially as there were cash accounts with better interest.
I’m still sceptical of nominal bonds for retirement because of the inflation risk, but have added linkers and TIPS at positive real returns. Gold, commodities, global macro and trend-following funds are all in the mix too.
Our society tends to glorify “Work”, with a quite narrow definition. In my experience from the corporate world, it gives people a fake sense of community and purpose. Fake because the relationship is one-sided; companies have loyalty only to their shareholders, and their only purpose is making profit. That’s the reality of it, but it is profitable to make employees believe otherwise.
Seeing this rationally is not enough. Social programming runs deep. Having freedom and autonomy should improve life, and if one hankers after “Work” instead, it is probably subconscious programming rearing its ugly head. People may need a long period of reflection, or meditation, or therapy, or all of these, to get over it.
Why the three questions under my #31?: Because almost ever strategy is noise, almost every backtest shows the returns that nobody actually achieved, and every impressive Sharpe or CAGR are data artifacts and overfitting.
Of 131,441 backrests if rules based systems tested, just 65 passed muster, and 131,376 (99.95%) failed. Mean reversion dominates those 65 survivors, the simplest and easy to explain approach:
https://youtu.be/XFocx6K4Ers?si=RMFnp04H-NjubMbB