forward looking asset allocation

I’d really recommend taking a look at the advice from http://etf.seekingalpha.com/article/24588

1) The evidence for efficient markets is dubious

2) Simply generating a higher return than the S&P500 over some historical period is not evidence of asset management skill

3) Any investor should be able to beat the S&P500 on an absolute and risk-adjusted basis by combining low-correlation assets

4) You can manage a portfolio better if you have reasonable projections of risk and return for its components

5) Stock picking will work better if asset choices are made in the context of the broader portfolio

The above notes are excellent advice for top-down portfolio construction, and it is worthwhile to take advantage of the small amount of proven fundamental theory that does exist on this topic.

I think the most useful tidbit I got from the above article is the focus on “forward looking”. Portfolio allocation as an exercise is useful, but it’s important to think about what will happen in the future, and past returns data is only used to approximate what is expected in the future.

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