tag:blogger.com,1999:blog-7905515.post8451793262630302892..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Money Follows Latest PnLEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-7905515.post-82410236044235513482008-07-09T08:30:00.000-05:002008-07-09T08:30:00.000-05:00Is there any pattern to the process reversing itse...Is there any pattern to the process reversing itself on an asset class level? In your example, when does money flow OUT of commodity funds - either when another asset class offers better returns or do negative returns beget more negative returns....Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-49208160648721095692008-07-08T02:56:00.000-05:002008-07-08T02:56:00.000-05:00"Momentum" should not exist in a rational market. ..."Momentum" should not exist in a rational market. But our monkey minds are wired to copy the successful and to repeat what once produced the desired outcome. This is so much so that it is possible to eke out a living in the market playing momentum. Interesting note.Jhttps://www.blogger.com/profile/05676167615981895061noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-49682119196649584972008-07-07T21:10:00.000-05:002008-07-07T21:10:00.000-05:00peter, I would think not giving enough weight to o...peter, I would think not giving enough weight to outliers is a bigger problem. in sample testing is just not predictive, that's all.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-4087641548113779442008-07-07T20:55:00.001-05:002008-07-07T20:55:00.001-05:00that spread is too high when you consider all the ...that spread is too high when you consider all the angles. possible legislative changes which will basically increase payments to BBB strips at the expense of AAA, incompetent servicing, hard to get leverage for players who can value these strips etc.<BR/><BR/>point is the forces that distort the markets are more difficult to quantify than simple historical default rates. I came across a post on overcomingbias following your post there. <BR/><BR/>http://www.overcomingbias.com/2006/12/the_future_of_o_1/comments/page/2/#comments<BR/><BR/>in the comments discussion someone explained very plausible (to me at least) why the markets were so wrong assessing a 6% probability of $100 oil price by 2010. talking about orders of magnitude...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-73778287491669598922008-07-07T20:55:00.000-05:002008-07-07T20:55:00.000-05:00Relevant to your point on why these things don't w...Relevant to your point on why these things don't work in the future: Any decent modeler knows that if you overfit to the data, you are giving too much weight to the outliers. That will reduce the model's ability to predict. <BR/>One challenge with financial market data is that you don't usually have a "hold-out" sample, as you do when modeling some other data (say, supermarket scanner data), to test your estimates.Pete Shttps://www.blogger.com/profile/01722037274235500118noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-88243305996095970042008-07-07T20:19:00.000-05:002008-07-07T20:19:00.000-05:00Well, be careful, there is the BBB-AAA spread that...Well, be careful, there is the BBB-AAA spread that is 'too high', so BBB is the sweet spot in terms of bond investing (AAA bonds seem to have a liquidity premium). The annualized default rate for BBB bonds is only 0.25%, insignificant for a diversified portfolio, but you get an extra 120 basis points with miniscule extra vol. <BR/><BR/>As per low risk stocks, Value has a lower beta, so on that dimension it's lower risk, but fund managers tend to emphasize 'risky' value stocks. There aren't any good low risk index funds.Eric Falkensteinhttps://www.blogger.com/profile/07243687157322033496noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-78311358932899912702008-07-07T20:10:00.000-05:002008-07-07T20:10:00.000-05:00Thanks for dumbing down this post so us non-financ...Thanks for dumbing down this post so us non-finance people can understand it.<BR/><BR/>Is there a convenient way to invest in a low volatility portfolio? Wouldn't a "value" fund be pretty close? - Is there something even better? For the bond portion I can just buy AAA.Anonymousnoreply@blogger.com