Tag Archives: Bill Bernstein

REIT Yield as a Predictor of Future Returns

The yield of an asset is a key component of predicting future returns.  This is true for the yield on Treasury bonds as well as the dividend yield for stock indexes.  The yield on aggregate bond indexes is considered a good proxy for future expected returns.  The dividend yield of broad stock indexes has been shown to provide significant value in predicting future stock index returns.  In both cases, low yields tend to predict high future returns, and vice versa.  These arguments that yields predict returns are not without critics, especially for equitiesContinue reading

Will Harry Browne’s Permanent Portfolio Continue To Work?

I just published an article over at Advisor Perspectives that is titled “What Investors Should Fear in The Permanent Portfolio” that looks at a very simple model portfolio proposed by Harry Browne.  This portfolio contains equal allocations to four elements: stocks, gold, long-term government bonds and cash.  Back in 1998 when Browne first proposed this portfolio in his book, Fail Safe Investing, it was decidedly harder to create your own version of this allocation model.  Today, you can easily implement this portfolio at fairly low cost using four ETFs. 

Harry Browne’s Permanent Portfolio has gotten a great deal of attention–and many new advocates–due to its solid performance in recent years when more traditional asset allocations suffered substantial losses.  However, the question that investors need to ask is whether this will be a successful way to invest in the future.  Continue reading

The Challenge of Diversified Investing in a Correlated World

Below is a Fidelity Investments heat map showing the investing terrain of the past year, particularly how correlated a variety of investment classes were to the S&P 500 Index over the 12 months ended August 2010. As has been much discussed, many investment classes have moved in close tandem to this US Stock index. It is a small world after all.

But for those defending the importance of a continued commitment to bonds despite the low yields (Jack Bogle, Bill Bernstein, and Fidelity itself, among them) this map provides much support. Investment grade bonds and 30 day T-bills are the truest counterweight to all equities in every region of the world. Precious metals in general, gold in particular, the Yen, agriculture and livestock provided balance too.

The graphic comes from Intelligent Speculator, who notes surprise at the BRIC and Emerging Market’s similarly close correlation to the US market, and also predicts a more valuable role for real estate moving forward.

(Please click on image to enlarge.) Comments, insights, questions welcome below.

Portfolio Investing 101: Bill Bernstein

In his new book, The Investor’s Manifesto, William J. Bernstein makes a strong case not just for the idea of portfolio investing, but the fact of it. Any one of us, with a modest amount of effort, can build a good portfolio, Bernstein argues.  Then he proves it.

Bernstein is not your typical individual investor. A PhD and formerly practicing neurologist, he has a wild passion for investing, and an appetite for dot matrix diagrams that can be a bit intimidating.  A bestselling author of four previous books on investing and economic history, in this tome the good doctor set out to write something accessible to the masses. He’s achieved his goal. Continue reading

Bernstein, Bogleheads, and the Permanent Portfolio

A recent piece by Bill Bernstein on Harry Browne and his “permanent portfolio” has launched an interesting debate on the Bogleheads board. Continue reading

Diversification and Investor Distrust

Investors don’t trust the equities markets. That’s the theme of a number of articles out over the past couple of days.  The Wall Street Journal’s portrait of panic on the day of the Flash Crash details how massive institutional traders’ behavior lead to the the amazing downward spiral and how only a market rumor — of a “fat” fingered mis-typed trade — slowed it. Plenty of people in the piece are worried we could see a repeat. Continue reading