Saturday, July 3, 2010

VIDEO TOP 5 ASSET ALLOCATION - Contribution 2: DIVERSIFY! DIVERSIFY! DIVERSIFY!

The second contribution to our Video Top 5 on Asset Allocation is a relatively simple on. Nothing too fancy, just an explanatory video of the How and Why of Diversification and the value of Low Correlations.

As you know we have worked for quite a few years with Noble Prize Laureate Dr Harry Markowitz on Asset Allocation and Portfolio Optimization. This cooperation lead to our LMG Global Tactical Asset Allocation Approach. And it did of course resulted in a few academic publications loaded with Math.

However, if you want the average investor to understand what Asset Allocation is about plain English and not Math is what is needed.

We believe that the attached video succeeded in doing that. The more investors know about 'boring' top-down asset allocation and diversification, the less harmful periods of bad news will be. Why? Because it will avoid panics and overshooting, so that we can either leave a bad period quicker behind us and/or end up in a situation in which irrational exuberance is less severe.

Look at it like a chess competition. The better the average player, the more the top players need to do to win. The higher the average level of play, the better the return-risk ratios and that is what it is all about.

And we will need it in a future in which international correlations will go up due to capital market integration and globalization. Higher correlations will make the boring diversification game more complicated.

Our VIDEO TOP 5 ASSET ALLOCATION (see also our Youtube Channel) has now 2 entries:

2) Diversify! Diversify! Diversify! - A Primer on Low Correlations and Asset Allocation

No comments:

Post a Comment