Endowment Posts
1. Endowments the Easy Way: Why passive investing makes sense for many school endowments.....that is, if your board has the discipline to endure the inevitable bear markets
Summary: Overseeing endowments during bear markets is never "easy", but establishing sound policies now will make the inevitable declines less painful, and maybe even less costly.
By acting prudently to worrying economic news, trustees can hurt their endowment's returns over the long term
2. Efficient Portfolios (Part 1): Stepping through how Modern Portfolio Theory constructs Efficient Portfolios.
Summary: Modern Portfolio Theory (MPT) can be a useful tool to understand and improve endowment portfolio performance. However, since its inputs are based on past market data, it should be used prudently as one of several factors influencing portfolio construction.
Diversification across uncorrelated assets is the key to Modern Portfolio Theory
3. Optimize with Caution - Efficient Portfolios (Part 2): MPT and Sharpe Ratio optimization is applied to some actual market data, showing how it can lead to portfolios that perform poorly in the future if not executed with a disciplined process
Sharpe Ratio optimization yields the portfolio with the highest Return:Risk ratio - that is, if you can go backward in time
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5. How Markets Fool Algorithms, and Us. Since 2015, Deep Learning's neural networks have solved a number of problems that frustrated other Machine Learning algorithms, taking AI and the associated hype to the next level. Companies like Google have shared powerful open-source libraries that are relatively straightforward to implement in code, making it relatively easy to apply Deep Learning to historical stock market data. However, as the simple simulations in this post show, the randomness of markets can easily fool these algorithms if they are applied naively. |
Curve fitting market data can increase prediction errors
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6. Portfolio Builder: Build custom portfolios from a dozen indices of major asset classes, and compare your rolling risk/reward to an equally weighted portfolio.
Wade Vagle, CFA, CAIA
Get in touch at Wade@SchoolsThatLast.com