Оглавление
C. Thomas Howard. Behavioral Portfolio Management
Publishing details
Praise
About the author
Preface
Emotional crowds and behavioral data investors
Power of releasing and harnessing
A professional journey
Reluctantly rejecting MPT
A personal journey
About this book
Acknowledgements
Executive Summary
Chapter 1: Behavioral Portfolio Management
The triumph of reality over rationality
My BPM transformation
Evolving market paradigm
Behavioral portfolio management
The Emotional Crowd, BDI interplay
The basic principles of BPM. Basic Principle I: Emotional crowds dominate pricing
The ineffectiveness of arbitrage
Basic Principle II: Behavioral data investors earn superior returns
Figure 1.1: Analysis of funds’ top stock picks
Reconciling two stock picking skill research streams
Basic Principle III: Investment risk is the chance of underperformance
Risk and volatility are not synonymous
Assimilating Basic Principle III
Summarizing the three Basic Principles
Endnotes
Chapter 2: Emotional Brakes
Investor cognitive errors
Myopic loss aversion (MLA) [19]
Social validation
Stories
Anchoring
Availability bias
Representativeness
WYSIATI
Peak-end memory
Personal experience trumps data
Substituting an easier question for a harder one
Fallacy of information
Fallacy of control
Mental accounting
Framing
Phantastic objects
An absence of rational decisions
Endnote
Chapter 3: Randomness
Randomness or logical explanation?
Uneasy roommates: randomness and the human mind
Figure 3.1: Actual S&P 500 price series or created by random drawings from a probability distribution? (Each series origin is set at 500 for comparability)
Figure 3.2: Cumulative real and made up coin flip series
Challenging tail events
Mental accounting strikes again
The law of small numbers
Is formal education necessary?
60/60/60
Endnotes
Catering versus mitigating
MPT: the CE toolkit
Faux due diligence
The lawyers pile on
It is hard to leave the cult
Endnotes
Chapter 5: How the Cult of Emotion Invests
The investing habits of a Coean
Developing investment strategy
Intuition and anecdotal information
Purchasing “brand” stocks
Current economic events
Holding more than 20 stocks
Overly focusing on debt
The price paid
Holding a stock until it gets back up to the price you paid for it
Building a long-term portfolio
Volatility and correlation
Eliminating tail events
Asset allocation models
Exiting the market when volatility increases
Choosing an investment manager
Past performance
A fund’s “brand”
Large active equity funds
Volatility, beta, max drawdown
Style drift and tracking error
Endnotes
Chapter 6: Forty Years in the Desert – The Disappointing Tale of MPT
The rise of MPT
Those annoying anomalies
The decline of MPT
Rejecting the world rather than rejecting the paradigm
Let the transition begin
Endnotes
Chapter 7: Releasing Emotional Brakes: a 12-Step Program
Step 1: Hello my name is _______________ and I am a Coean
Step 2: It is OK to be wealthy
Step 3: I will strive to eliminate my MLA affliction and reduce my need for social validation
Step 4: I believe that volatility, along with close cousins the Sharpe ratio, max drawdown and tracking error, are largely measures of emotion and should not be used in constructing and evaluating portfolios
Step 5: I believe that volatility and risk are not synonymous and that most references to risk are really references to emotion
Step 6: I believe that increased stock market volatility represents an opportunity for, rather than a risk to, my portfolio
Step 7: I will divide my portfolio into buckets as a way to reduce emotional sensitivity to volatility
Step 8: I will focus on expected and excess returns, while largely ignoring correlation and volatility, when building long-horizon portfolios
Step 9: I will forget the price I paid for an investment, as well as its name, to mitigate these emotional anchors
Step 10: I believe past performance is a poor predictor of future performance, so I will not use it when evaluating an investment manager
Step 11: I believe unreasonably constraining a portfolio, such as keeping a manager in a style box, hurts performance and thus will be avoided
Step 12: I will consistently pursue a narrowly focused investment strategy while taking only high-conviction positions when managing a portfolio
Endnotes
Chapter 8: Mitigating Emotional Costs
Communicating with clients
The listening model
The planning model
I’m the boss model
Feathering in investments
Mountain chart problems
Figure 7.1: S&P performance, January 1975 to June 2013
Randomness disguised
The return histogram advantage
Figure 7.2: Monthly S&P 500 returns, January 1975 to June 2013
The self-healing return distribution: matched returns
Mitigating emotional costs
Endnotes
Chapter 9: Style Grid Performance Drag
A leaderless stampede
Style drift and performance
Bizarre tale of the style grid
Endnotes
Chapter 10: Diversification: Applying Bubble Wrap
Short-term volatility
Figure 10.1: Stocks, T-bonds, T-bills and inflation, 1951 to 2012
Infatuation with alternatives
Stock portfolio diversification
Figure 10.2: Portfolio standard deviation reduction by number of stocks
Can bubble wrap be beneficial?
Global mush
Endnotes
Chapter 11: The Volatility Trap
Figure 11.1: The Volatility Trap
Market volatility
Figure 11.2: Average 13-week S&P 500 Index weekly standard deviation by year
Contemporaneous market volatility and market returns
Figure 11.3: S&P 500 price change by matching standard deviation
Fighting the urge to bail
Table 11.1: regression slope coefficient of subsequent SD on trailing SD
Table 11.2: regression slope coefficient of subsequent S&P 500 price change on trailing SD
Figure 11.4: Future annual S&P 500 return by recent volatility, 1950 to 2011
Staying the course
Endnotes
Chapter 12: Will True Risk Please Stand Up!
Failure of CAPM
False hope of factor models
Volatility and risk are not synonymous
Measuring underperformance
Athena Pure Portfolio: an example
Figure 12.1: Athena Pure and Russell 2000 Performance October 2003 to September 2013
Table 12.1: Athena Pure Performance Measures, October 2003 to September 2013
Building long-horizon wealth
Sources of investment risk
Volatility and advisor/fund business risk
Toward a measure of risk
Endnotes
Chapter 13: Investment Strategy
Importance of investment strategy
Essence of strategy
Equity strategy framework
Table 13.1: US and international equity strategies
Strategy stock pools
Figure 13.1 A: US strategy stock pools, January 2012
Figure 13.1 B: US strategy stock pools, January 2013
Measuring strategy consistency
Figure 13.2: Active equity annual net return by beginning of the month fund consistency rating
Central role played by strategy stock pools
Figure 13.3: Average months in the strategy stock pool
Specialist versus generalist
Figure 13.4: annual gains to narrowly defined strategy
Strategy consistency and style drift
Measuring strategy conviction and rating funds
Table 13.2: Average net returns by fund rating and return advantage
Strategy-based investing
Endnotes
Chapter 14: The Best (and Worst) Ideas of Equity Managers
Stock picking skill
Behavioral factors versus information mosaic
Why then do managers underperform?
Industry-driven over-diversification
Identifying best idea and worst idea stocks
Table 14.1: Monthly subsequent and adjusted stock returns by stock rating
Social validation and opinion aggregation
Endnotes
Chapter 15: Building an Equity Strategy
Strategy elements
Table 15.1: Strategy elements
Anomaly research
Building an equity strategy
Table 15.2: US active equity mutual funds by primary and secondary strategy
Table 15.3: Top five elements by strategy
Building the Pure strategy
Endnote
Chapter 16: The Power of Dividends
Dividend yield, returns and volatility
Figure 16.1: Annual compound return, January 1973 to September 2010
Figure 16.2: Annual standard deviation, January 1973 to September 2010
Dividends, market cap and taxes
Figure 16.3: Annual return increase and volatility reduction per 1% dividend yield increase
Dividends as a measurable and persistent behavioral factor
The power of dividends
Endnotes
Chapter 17: Behavioral Market Timing
Expected market returns
Sentiment index (SI)
Strategy market barometers
Figure 17.1: Relative performance of US equity strategies
An initial eyeball test
Figure 17.2: behavioral measures, June 1981 to December 2011
Table 17.1: Eyeball test of behavioral measure prediction of S&P 500
Predictive power of behavioral measures
Figure 17.3: S&P 500 annual expected return differences by time horizon
Figure 17.4: Russell 2000 annual expected return differences by time horizon
Figure 17.5: US$ EAFE annual expected return differences by time horizon
Variation in expected market returns
Table 17.2: Expected versus actual annual return ranges, January 1981 to January 2011
Behavioral market timing
Figure 17.6: 12-month return improvements based on simple trading rule versus buy and hold
Figure 17.7: 36-month annual return improvements based on a simple trading rule versus buy and hold
Implementing behavioral market timing
Endnotes
Chapter 18: What Future May Come
Will these opportunities last?
Rational to emotional
Style grid and closet indexers
Dr. Semmelweis: a cautionary tale
The Future is here
Appendix: The Bucket Model – a Case Study
Figure A1: Potential maximum and minimum returns of S&P 500 investment over various holding periods
Table A1
Figure A2: Average investor hold times
Figure A3: Average one-year returns for 2011
Strategy Allocation
1. Your Operating Portfolio
2. Your Capital Appreciation Portfolio
3. Your Strategic Portfolio
Bibliography
Supplemental bibliography
Now complete your Harriman House investing library
The 17.6 Year Stock Market Cycle: Connecting the Panics of 1929, 1987, 2000 and 2007
101 Ways to Pick Stock Market Winners
Deep Value Investing: Finding bargain shares with big potential
Free Capital: How 12 private investors made millions in the stock market
How to Value Shares and Outperform the Market: A simple, new and effective approach to value investing
Multi-Asset Investing: A practical guide to modern portfolio management
Quantitative Investing: Strategies to exploit stock market anomalies for all investors
