Portfolio Optimization Software?

"kastnna" wrote

Words are everything. Newbies overwhelmingly frequent this group.

Just my opinion, but it serves the "financial critical thinking skills" of America etc. well to add an extra qualifying sentence (or words) to posts like your previous one. Otherwise, one could make a perfectly reasonable argument that there's some attempt at fraud (unconscious or otherwise) and seduction here when one uses phrases like "Our company's allocation is more efficient than yours."

Somewhat. We do "look back" to compare performance after the portfolios are constructed. The software is only used for fee-based clients. These clients get quarterly reviews that cover performance, rebalancing, AND the performance of their old portfolio had they kept it. It reassures clients to see what would have happened had they not changed their portfolio. The company that developed the software, fiserv, does most of the legwork for us. We get a wealth of performance data against numerous benchmarks. Among others, actual return and standard dev. are given so that we can do sharpe ratios.

We do not perform sharpes on ALL clients because many had portfolios that were so poorly constructed there is no question. Many underperformed us AND had higher Std Dev.

The clients that had fairly well constructed portfolios to begin with tend to be our "more demanding" clients by virtue of being more educated. We usually do sharpe ratio values with them during their review. We are confident so far, but remember we have only been using the software for three years and many of the ETFs we use aren't very old either.

I don't intend to mislead the noobs and I don't think they can be to any serious extent. Even if they become convinced that I (or someone else) "have all the answers" they are never going to not run into the necessary disclaimers at some point in the process. If they somehow managed to track me down, the first thing they would hear would be "you know there is no guarantee of future performance..." I don't end every verbal sentence with a disclaimer either when talking with clients, but before we make any meaningful progress the disclaimers are well understood.

Long story short its caveat emptor, and "you get what you pay for." If you like you can attach a disclaimer for me everytime I post. I'll say "thanks" now in advance.

FYI, by definition fraud cannot be "unconscious". The very basis for fraud is intent. Careful tossin' that word around.

"kastnna" wrote

You don't even need the disclaimer. You need only state that this is what history has shown.

The very basis for _illegal fraud_ is xyz, "intent" can be nebulous, it depends on the state, and so forth. My meaning was meant more casually.

You're welcome in advance, because I think there is no doubt that one's sales pitch is enhanced by speaking as though past performance represents the future. It's so easily corrected, grammatically, and it's so important, that I personally find no excuse for not using the right language.

'specially when you're talking about, what, three years of ETF data? People have to make a living, and I do support diversification, but this newsgroup is about a lot more than people selling their products.

Even if an ETF has only been around for three years, it may have an underlying index with a much longer history and an underlying asset class with an even longer history. Most ETFs have tracked their indices pretty closely -- this has been studied. I am sure the software uses index and asset class data for its historical studies. As usual you don't know what you are talking about.

If kastnna is trying to sell his products on this newsgroup, he is not trying very hard. I don't know what his real name is, and there is nothing in his signature mentioning his company (there would be nothing wrong with mentioning this). Instead of trying to censor others, censor yourself!

Sure; that's entirely reasonable. My suggestion was that Bernstein, despite some hyperbolic criticism of MVO tools in his book, supports this same kind of approach -- his website, after all, is named "efficient frontier", and stuff on it seems to me to imply that his consultancy operations work analogously to what you describe above.

wrote

I agree.

Re selling stuff: It's about generating buzz (and IMO not a few urban legends within that buzz) as much as plugging one's specific service.

Don't underestimate how much this kind of nonsense -- accusing a professional poster of fraud in connection with securities -- shuts down contributions to this newsgroup. At least, contributions from those of us who actually have access to tools like portfolio optimization software.

I wouldn't dream of talking about what I use, or how I use it, lest my comments not meet Elle's capricious standards for disclosure, non-solicitation, and heck grammar. One phone call to a regulator by a loose-cannon MIFP reader and I'm potentially looking at a one-week non-routine audit. Why would I bother?

Kastnna, I'm sure plenty of people appreciate your posts...but from someone else in the biz...consider yourself warned.

-Tad

See above. That's not what I said.

"Tad Borek" wrote

For the record, IMO Usenet posts hold virtually no water in a court of law as far as "fraud," inter alia, is concerned. The reason being that this is part of the free marketplace of ideas. Like all of Usenet, this is a casual forum where people are not under a legal obligation for perfection in writing. I would not dream of reporting, using legal avenues, anyone here. Such a complaint would make a laughingstock of the complainer. I am surprised you do not know this.

I am sorry you have such a problem with dissent in a forum like this. It is in fact vital to the success of commerce and industry.

I fully support diversity in one's portfolio. I think the aforementioned portfolio optimization tools (for fee or not) are far more likely to do good than bad. My objection remains that their output should not be presented as being definitely superior in the future.

Hmmm, now an expert on securities law. Let describe the reality so you understand our point of view.

Any written communication, including usenet and bulletin board postings, can be considered "advertising" under state and federal securities law. This isn't my opinion -- an auditor told me this. There are very specific guidelines regarding advertising, and as you might imagine, "fraud" is a very dirty word in that context.

You may think this isn't the case, or think it's a bad law, but it's the way it is. This is why we see no registered representatives (stockbrokers) posting on MIFP, their broker-dealers generally forbid it. Us independents can decide for ourselves, and believe me, the compliance attorneys say "don't take the risk!"

The question isn't whether posting here could cause problems, or whether one reader could cause problems for us -- it's why any of us would even bother, once there's a risk.

-Tad

"Tad Borek" wrote

Nothing stated in this thread constitutes fraudulent advertising. I am sorry you object to my pointing out an inaccuracy in a statement on portfolio optimization. Doing so goes towards educating the public on financial forecasting, just as pointing out that the many mutual fund managers who ostensibly "beat the market" in fact according to studies mostly do not in the future.

The inaccuracy which I pointed out was acknowledged by its poster. He went on to elaborate that his actual literature on his software is more precise. No harm, no foul, on Usenet nor anywhere else. I do enjoy your posts. They're very revealing. :-)

"Elle" wrote in news:juNEh.4345 $ snipped-for-privacy@newsread4.news.pas.earthlink.net:

Sadly, Tad is right on. Your posts are ill-informed on the reality of investmenting and now securites regulation.

"John Gunn" wrote

Do you think fraudulent advertising did take place here? Because otherwise, your comments are a non sequitur to my own.

Both of you need to take your objections up with the poster who acknowledged his original comments were inaccurate, re appearing to predict the future. Your determination to ignore this point and try to chill the marketplace of ideas is striking.

Investors) members can download a program called "Portfolio Optimization", described as follows:

"Portfolio Optimization uses modern portfolio theory to identify efficient combinations of stocks and mutual funds with the minimum level of risk for a specified annual expected portfolio return. It includes a built-in database with annual returns for the past 10 years for all stocks in AAII's Stock Investor Pro and all of the mutual funds in AAII's Quarterly Mutual Fund update. It also plots a graph of the efficient frontier."

I just played with the software for a few minutes and have some reservations.

(1) It is a DOS program, which is ok with me, but it crashes when one specifies a date rate of 2000-2007, since it has data only up to 2006. That's not how to write a program. (2) It handles a maximum of 32 securities or mutual funds. (3) It uses only yearly data.

I am thinking about using portfolio optimization of mutual funds and ETFs for my own investments. The first hurdle is getting accurate (adjusted for splits and distributions) daily return data. One can get daily data for stocks and funds from Yahoo Finance using the Python programming language using a script at

FWIW I enjoy your obvious deep knowledge, insight and analysis.

I've sent you a personal email on this topic (from darkness39 (at) yahoo (dot) com). You might find it illuminating.

Thanks Tad.

The MIFP charter speaks to this subject. I quote from charter item #8:

"8. Well-tempered disagreements and constructive criticism to participants of this newsgroup are acceptable in the context of adding new information to the discussion. Harassment, personal insults, attacks and profanity towards group participants will not be tolerated whatsoever."

According to the online dictionary, "harass" implies systematic persecution by besieging with repeated annoyances, threats or demands.

IMO a key word here is "repeated".

If anyone feels that they have experienced such treatment on this newsgroup, please bring it to the attention of the Moderators at their private email addresses. For more, see the weekly post, "Posting to misc.invest.financial-plan".

-------------- As usual, please do not respond to this post. Comments on newsgroup policy should be sent to the Moderators at their private email address.

Thank you.

-HW "Skip" Weldon Columbia, SC