Understanding Asset Allocation: An Intuitive Approach to Maximizing Your Portfolio

Table of Contents

1. Copyright
   1. Dedication
2. Financial Times Prentice Hall
3. Foreword
4. Preface
5. About the Author
6. Introduction: You Can Do Better
7. 1. In Search of the Upside
   1. The Measurement of Risk
   2. Asset Allocation and Retirement
   3. Ranging the Possibilities: Monte Carlo Simulations
      1. A Poor Man’s Monte Carlo Simulation
         1. Likelihood of Choosing the Top-Performing Asset Class
   4. Summary
8. 2. The Case for Cyclical Asset Allocation
   1. Selecting the Different Asset Classes
   2. Finding the Optimal Combinations
      1. The Optimal Value Stocks/Growth Stocks Mix
      2. The Optimal Large Stocks/Small Stocks Combination
      3. The Optimal Domestic Stocks/International Stocks Portfolio
      4. The Optimal T-Bond/Equity Combination
   3. Putting It All Together
      1. Style Cycles
      2. Size Cycles
      3. Location Cycles
      4. Equity/T-Bond Cycles
   4. The Optimal Long-Run Allocation
   5. Summary
9. 3. Thinking in Cycles
   1. The Fixed-Income Cycles
   2. The Equity/Fixed-Income Cycles
   3. The Size Cycles
   4. The Style Cycles
   5. The Location Cycles
   6. The Case for a Cyclical Asset-Allocation Strategy
10. 4. Tax Tips
    1. Follow the Money
       1. Corporate Debt
       2. Dividends
       3. Capital Gains
    2. The 1980s Tax-Related Surge in Debt Financing
    3. The Quest for Capital Gains
    4. Did the Taxes Make Them Do It?
       1. The Solution:Realigning Incentives
    5. Summary
11. 5. Linking Up
    1. Interaction Between Inflation and the Tax Code
    2. Market Valuation: The Capitalized Earnings Model
    3. Improving the CEM: Accounting for Growth
       1. Does the Modified CEM Theory Hold Water?
    4. Policy Changes, Economic Performance, and Market Valuation
    5. A Practical Application
    6. Summary
12. 6. To Start, a Benchmark
    1. Allocations Based on the Last 30 Years
       1. Market-Based Asset Allocation Weights
          1. Performance of the Market-Based Asset Allocation Weights
       2. Comparing the Historical- and Market-Based Allocations
       3. The Lifecycle Allocation
13. 7. Taking It to the Tilt
    1. A Quick Review of Cyclical Forecasting Tools
    2. Developing and Calculating Investors’ Convictions
       1. Alternative Approaches to Estimating Conviction Levels
          1. The Cyclical Allocation Tilts: A Value-Timing Story
14. 8. The Cyclical Asset Allocation Strategy’s Versatility
    1. Case Study: An Asset Management Firm for High-Net-Worth Individuals
    2. Case Study: A Global Financial Management Plan
    3. Case Study: A Lifecycle-Fund Family
    4. Case Study: A Hedge Fund
    5. Summary
15. 9. Active Versus Passive Management
    1. The Case for Passive Management
    2. Active and Passive Management: Some Testable Hypotheses
    3. Size Cycles and Market Breadth
       1. Small-Cap Cycles Favor Active Managers
       2. The Potential Benefits of Size-Related Active/Passive Strategy
    4. What Does the Data Tell Us?
16. 10. Location, Location, Location?
    1. Free Trade Leads to Market Returns Convergence
    2. Fixed Factors Give Rise to Location Effects
    3. Global, Regional, and National Companies
    4. Small-Cap Companies and the Location Effect
       1. An Application of the Location-Based Strategy
       2. The Location Strategy: A Global Perspective
          1. Oil
          2. Commodities
          3. Terrorism
          4. Tax Rates
       3. The Elements of Location-Based Strategies
    5. Summary
17. 11. Eye on Elasticity
    1. Elasticity and Profitability: Airlines
    2. Elasticity and Profitability: Tax Rate Changes
    3. The Relationship Between Elasticity and Beta
    4. Investment Implications
    5. An Elasticity-Based Portfolio Strategy
    6. An Application: The Oil Price Hike
       1. The Equivalence Between a Supply Shift and a Tax on Oil
    7. Demand and Supply Shifts: Their Different Investment Implications
18. 12. Keeping the Wheels on the Hedge-Fund ATV
    1. Do Hedge Funds Offer Higher Returns, Lower Risks, or Both?
    2. The Size Effect and the Hedge Fund’s Performance
    3. Size Cycles and Passive/Active Cycles in Hedge Funds
19. 13. Market Timing or Value Timing?
    1. Value Timing Is Not a Market-Timing Story
    2. How Robust Are Value-Timing Cycles?
20. 14. Every Strategy Has Its Day
    1. Finding Managers with Superior Knowledge
21. 15. Putting It All Together: Value Timing
    1. Size Cycles
    2. Style Differences
    3. Ensure That the Strategy Returns to the Long-Run Allocation
    4. Develop a Way to Identify Cycles
    5. Identify the Signals That Will Tilt a Portfolio in the Proper Direction
22. Endnotes
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 5
    5. Chapter 9
    6. Chapter 10
    7. Chapter 11
    8. Chapter 12
    9. Chapter 13
    10. Chapter 14
23. Bibliography
24. Glossary