- Investment Strategy and Policy: General
- Investment Strategy and Policy: Pension Funds (with general implications)
- Investment Strategy and Policy: Defined Contribution Plans and Individual Investors (Including Spending, Savings, and Risk Papers)
- Using Active Managers
- Total Return, Total Risk Optimization
1. Investment Strategy and Policy: General
“Single and Dual Duration and Convexity Formulae; A Reference for Perpetuities, Annuities, Coupon Bonds, and Zero Coupon Bonds, and for Both Growing and Nominal Cash Flows,” In this reference note, intended for easy reference use by finance generalists, we derive the formulae for a) the prices and dual and single durations and convexities for b) growing and nominal instruments, including c) coupon bonds, zero coupon bonds, annuities, and perpetuities, across d) the seven most useful and relevant combinations of coupon, discounting, and other cash flow details (forms)—all in a relatively compact form of presentation. These forms include 7 variations of continuous or discrete coupons, payment timing [i.e., payments made at the end of the period (most common) or payments made at the beginning of the period (annuity due)], growth beginning right away during the first period, or growth only beginning during the second period (the conventional form for most growing perpetuities and annuities), and continuous or discrete compounding.
“There Was Nothing I Could Do--All the Correlations Had Suddenly Gone to One!,” with Laurence B. Siegel, working paper. September 2015. This short article explores the validity of complaints that "correlations had all gone to one," showing how the statistics of correlation make that a common experience regardless of whether or not there is any underlying common factor. The white paper is here: READ The supporting spreadsheet is here: OPEN SPREADSHEET. Later published as invited editorial, The Journal of Portfolio Management Vol. 42 No. 2, Winter 2016, READ.
“An Asset–Liability Version of the Capital Asset Pricing Model with a Multi-Period Two-Fund Theorem,” with Duane Whitney, Journal of Portfolio Management Vol. 35 No. 4, Summer 2009. This article extends the concept of surplus optimization, explains the behavior of the efficient frontier in the presence of a liability, and goes on to develop a full equilibrium version of the CAPM for a world where investors have plans to spend their money – a liability – and this, of course, is our world. At the end of the day, the efficient frontier reduces to a version of the familiar Tobin/Sharpe two-fund theorem, but in this case the risk-free asset is the liability-matching asset, and the risky asset is all assets other than those in the collective liability-matching asset portfolio.
“Five Principles to Hold Onto (Even When Your Boss Says the Opposite!),” with Laurence B. Siegel and Mathew H. Scanlan, The Journal of Portfolio Management Vol. 35 No. 2, Winter 2009, Young practitioners with fresh MBAs and CFAs are often told to “forget all that nonsense.” This article tells them what they must hold on to.
“The Myth of the Absolute Return Investor,” with Laurence B. Siegel, Financial Analysts Journal, March/April 2006, Read Investment Insights version; republished from “The Myth of the Absolute Return Investor: Sheep in Wolves’ Clothing,” Investment Insights, Barclays Global Investors, San Francisco, March 2005; excerpted in The Lord Abbet Review Vol 2 No. 1, pp. 17-21, Autumn 2007. A testy article mortally challenging street wisdom as it describes hedge funds.
“The Myth of the Absolute Return Investor,” Hedge Fund Management, Charlottesville, VA: CFA Institute: 2006 (conference proceedings, from February 2006).
“Broad-Capitalization Indices of the US Equity Market,” with Eric T. Clothier and Andrew R. Olma, Investment Insights, Barclays Global Investors, San Francisco, August 1999.
"Introduction to International Equities," with Laurence B. Siegel and Roger G. Ibbotson, Quantitative Global Investing, Brian R. Bruce, ed., Chicago: Probus, 1990.
“Is Small-cap Investing Worth It? Two Decades of Research on Small-cap Stocks,” with Laurence B. Siegel and Eric Clothier, Investment Insights, Barclays Global Investors, San Francisco, December 1998. An authoritative and exhaustive summary of all the serious research that has been conducted exploring the small stock risk premium.
“Futures vs. Physicals: Implementing an International Portfolio for the US Investor,” with Firouzeh Attwood, Journal of Investing, Fall 1999. (Republished from Investment Insights, Barclays Global Investors, San Francisco, March 1998.)
"Historical Returns on Investment Instruments," with Roger G. Ibbotson and Laurence B. Siegel, Handbook of Modern Finance, Dennis Logue, ed., New York: Warren, Gorham & Lamont, 1989 (also included in Encyclopedia of Investments, Jack Friedman, ed., New York: Warren, Gorham & Lamont, 1989.)
2. Investment Strategy and Policy: Pension Funds (but with general implications for all investors)
"Pension Finance: Putting the Risks and Costs of Defined Benefit Plans Back Under Your Control," (with Foreword by Robert C. Merton). Hoboken, New Jersey: John Wiley & Sons, Inc., Fall 2011. Published under the auspices of the The Research Foundation of the CFA Institute. Publisher's page for the book. (Published electronically in a much earlier and less complete form by the Society of Actuaries in April 2009.)
“Between Scylla and Charybdis: Improving the Cost Effectiveness of Public Pension Retirement Plans,” in Olivia S. Mitchell and Gary Anderson, eds., The Future of Public Employee Retirement Systems, Oxford: Oxford University Press 2009. A careful comparison of DB and DC plans, with a call to action for taking the steps necessary to make them more successful than they are today. This article is similar to “Don’t Kill the Golden Goose in its import, but is written from a different perspective.
“Managing Pension Funding Risks Using Modern Portfolio Theory,” in Innovations in Investment Management: Cutting Edge Research from the Exclusive JOIM Conference Series, H. Gifford Fong, ed., New York: Bloomberg (2008), Google Books page . A thorough exploration of the practical aspects of developing pension investment policy under Waring’s two 2004 Journal of Portfolio Management articles.
“Don’t Kill the Golden Goose! Saving Pension Plans,” with Laurence B. Siegel, Financial Analysts Journal Vol. 63 No. 1, January/February 2007, Read in FAJ ; republished in Investment Insights, Vol. 10 No. 1, Barclays Global Investors, San Francisco, February 2007. A careful comparison of DB and DC plans, with a call to action for taking the steps necessary to make them more successful than they are today. Investment Insights version
“Controlling Pension Funding Risk,” Asset Allocation: Alpha and Beta Investment Strategies, Charlottesville, VA: CFA Institute: 2006 (conference proceeding.) An exploration of the practical realities involved in implementing Waring’s two 2004 Journal of Portfolio Management articles on pension asset allocation.
“TIPS, the Dual Duration, and the Pension Plan,” with Laurence B. Siegel, Financial Analysts Journal, September/October, 2004, Read in FAJ . Winner, Graham and Dodd Scroll, for best article 2004. A simplified, no-equity version of Liability-Relative Investing I, a 2004 Journal of Portfolio Management article. Excellent for insight into the nature of the liability-matching asset portfolio.
“Bolstering Pensions with Mark-to-Market,” Pensions & Investments, October 4, 2004 (op-ed).
"Liability-Relative Investing II: Surplus Optimization with Beta, Alpha, and an Economic View of the Liability,” Journal of Portfolio Management, Fall 2004, Read in JPM ; updated and republished in Investment Insights, Barclays Global Investors, San Francisco, January 2005. One of two key articles published in sequence, detailing the use of surplus optimization in developing investment policy and strategy. Investment Insights version
“Liability-Relative Investing: Be Dual-Duration Matched and on the Surplus Efficient Frontier,” Journal of Portfolio Management, Summer 2004, Read in JPM . Winner, Peter Bernstein-Frank Fabozzi/Jacobs Levy award for best article 2004; updated and republished as “Liability-Relative Investing I,” Investment Insights, Barclays Global Investors, San Francisco, January 2005. One of two key articles published in sequence, detailing the use of surplus optimization in developing investment policy and strategy. Read Investment Insights version
“Liability-Relative Strategic Asset Allocation Policies,” The New World Of Pension Fund Management: Finding Solutions To The Pension Funding Crisis, Charlottesville, VA: CFA Institute: 2004, pp. 43-64. Conference proceedings; keynote speech, March 2004.
3. Investment Strategy and Policy: Defined Contribution Plans and Individual Investors; also Spending Rules
“An Asset–Liability Version of the Capital Asset Pricing Model with a Multi-Period Two-Fund Theorem,” with Duane Whitney, Journal of Portfolio Management Vol. 35 No. 4, Summer 2009. This article extends the concept of surplus optimization, explains the behavior of the efficient frontier in the presence of a liability, and goes on to develop a full equilibrium version of the CAPM for a world where investors have plans to spend their money – a liability – and this, of course, is our world. At the end of the day, the efficient frontier reduces to a version of the familiar Tobin/Sharpe two-fund theorem, but in this case the risk-free asset is the liability-matching asset, and the risky asset is all assets other than those in the collective liability-matching asset portfolio.
“Five Principles to Hold Onto (Even When Your Boss Says the Opposite!),” with Laurence B. Siegel and Mathew H. Scanlan, The Journal of Portfolio Management Vol. 35 No. 2, Winter 2009, Young practitioners with fresh MBAs and CFAs are often told to “forget all that nonsense.” This article tells them what they must hold on to.
“The Myth of the Absolute Return Investor,” with Laurence B. Siegel, Financial Analysts Journal, March/April 2006, Read Investment Insights version; republished from “The Myth of the Absolute Return Investor: Sheep in Wolves’ Clothing,” Investment Insights, Barclays Global Investors, San Francisco, March 2005; excerpted in The Lord Abbet Review Vol 2 No. 1, pp. 17-21, Autumn 2007. A testy article mortally challenging street wisdom as it describes hedge funds.
“The Myth of the Absolute Return Investor,” Hedge Fund Management, Charlottesville, VA: CFA Institute: 2006 (conference proceedings, from February 2006).
“Broad-Capitalization Indices of the US Equity Market,” with Eric T. Clothier and Andrew R. Olma, Investment Insights, Barclays Global Investors, San Francisco, August 1999.
"Introduction to International Equities," with Laurence B. Siegel and Roger G. Ibbotson, Quantitative Global Investing, Brian R. Bruce, ed., Chicago: Probus, 1990.
“Is Small-cap Investing Worth It? Two Decades of Research on Small-cap Stocks,” with Laurence B. Siegel and Eric Clothier, Investment Insights, Barclays Global Investors, San Francisco, December 1998. An authoritative and exhaustive summary of all the serious research that has been conducted exploring the small stock risk premium.
“Futures vs. Physicals: Implementing an International Portfolio for the US Investor,” with Firouzeh Attwood, Journal of Investing, Fall 1999. (Republished from Investment Insights, Barclays Global Investors, San Francisco, March 1998.)
"Historical Returns on Investment Instruments," with Roger G. Ibbotson and Laurence B. Siegel, Handbook of Modern Finance, Dennis Logue, ed., New York: Warren, Gorham & Lamont, 1989 (also included in Encyclopedia of Investments, Jack Friedman, ed., New York: Warren, Gorham & Lamont, 1989.)
2. Investment Strategy and Policy: Pension Funds (but with general implications for all investors)
"Pension Finance: Putting the Risks and Costs of Defined Benefit Plans Back Under Your Control," (with Foreword by Robert C. Merton). Hoboken, New Jersey: John Wiley & Sons, Inc., Fall 2011. Published under the auspices of the The Research Foundation of the CFA Institute. Publisher's page for the book. (Published electronically in a much earlier and less complete form by the Society of Actuaries in April 2009.)
“Between Scylla and Charybdis: Improving the Cost Effectiveness of Public Pension Retirement Plans,” in Olivia S. Mitchell and Gary Anderson, eds., The Future of Public Employee Retirement Systems, Oxford: Oxford University Press 2009. A careful comparison of DB and DC plans, with a call to action for taking the steps necessary to make them more successful than they are today. This article is similar to “Don’t Kill the Golden Goose in its import, but is written from a different perspective.
“Managing Pension Funding Risks Using Modern Portfolio Theory,” in Innovations in Investment Management: Cutting Edge Research from the Exclusive JOIM Conference Series, H. Gifford Fong, ed., New York: Bloomberg (2008), Google Books page . A thorough exploration of the practical aspects of developing pension investment policy under Waring’s two 2004 Journal of Portfolio Management articles.
“Don’t Kill the Golden Goose! Saving Pension Plans,” with Laurence B. Siegel, Financial Analysts Journal Vol. 63 No. 1, January/February 2007, Read in FAJ ; republished in Investment Insights, Vol. 10 No. 1, Barclays Global Investors, San Francisco, February 2007. A careful comparison of DB and DC plans, with a call to action for taking the steps necessary to make them more successful than they are today. Investment Insights version
“Controlling Pension Funding Risk,” Asset Allocation: Alpha and Beta Investment Strategies, Charlottesville, VA: CFA Institute: 2006 (conference proceeding.) An exploration of the practical realities involved in implementing Waring’s two 2004 Journal of Portfolio Management articles on pension asset allocation.
“TIPS, the Dual Duration, and the Pension Plan,” with Laurence B. Siegel, Financial Analysts Journal, September/October, 2004, Read in FAJ . Winner, Graham and Dodd Scroll, for best article 2004. A simplified, no-equity version of Liability-Relative Investing I, a 2004 Journal of Portfolio Management article. Excellent for insight into the nature of the liability-matching asset portfolio.
“Bolstering Pensions with Mark-to-Market,” Pensions & Investments, October 4, 2004 (op-ed).
"Liability-Relative Investing II: Surplus Optimization with Beta, Alpha, and an Economic View of the Liability,” Journal of Portfolio Management, Fall 2004, Read in JPM ; updated and republished in Investment Insights, Barclays Global Investors, San Francisco, January 2005. One of two key articles published in sequence, detailing the use of surplus optimization in developing investment policy and strategy. Investment Insights version
“Liability-Relative Investing: Be Dual-Duration Matched and on the Surplus Efficient Frontier,” Journal of Portfolio Management, Summer 2004, Read in JPM . Winner, Peter Bernstein-Frank Fabozzi/Jacobs Levy award for best article 2004; updated and republished as “Liability-Relative Investing I,” Investment Insights, Barclays Global Investors, San Francisco, January 2005. One of two key articles published in sequence, detailing the use of surplus optimization in developing investment policy and strategy. Read Investment Insights version
“Liability-Relative Strategic Asset Allocation Policies,” The New World Of Pension Fund Management: Finding Solutions To The Pension Funding Crisis, Charlottesville, VA: CFA Institute: 2004, pp. 43-64. Conference proceedings; keynote speech, March 2004.
3. Investment Strategy and Policy: Defined Contribution Plans and Individual Investors; also Spending Rules
Where’s Tobin? Protecting Intergenerational Equity for Endowments: A New Benchmarking Approach. With
"What Investment Risk Means to You, Illustrated: Strategic Asset Allocation, the Budget Constraint, and the Volatility of Spending During Retirement" With Laurence B. Siegel. The Journal of Retirement, Vol. 6 No. 2, Fall 2018. Read earlier comment draft here. The authors' experience suggests that few investment professionals articulate risk well to their investors. This research uniquely and graphically reveals the nature of strategic asset allocation (SAA) investment risk not only for single-period investors, but also for multi-period investors such as those whose savings are held for retirement consumption purposes. Informed by Monte Carlo simulations, they evaluate and picture the nature of that multi-period consumption risk with both efficient spending rules and inefficient spending rules. Risk in a multi-period context means that expected spending may increase with greater SAA risk, but realized spending may instead be worse. Winner, Outstanding Article award for the JOR in 2018, https://www.pm-research.com/node/153963. Nominated for PMA best article of 2018 "Peter Bernstein Award", representing the JOR, among the single best article from each of the ten PMA finance journals. https://www.pm-research.com/collection/peter-l-bernstein-award-outstanding-articles-2018 "The Only Savings Rate Article You'll Ever Need--Using Just a Handheld Financial Calculator!” With Laurence B. Siegel. AJO working paper version, November 2016. Read AJO version (sans appendix). Final version to be published in the Journal of Investing, Spring 2017. Read Working Paper Appendix here. Download Exhibit Spreadsheet here. (It opens on a webpage, but can then be downloaded.) How much do savers need to save in order to meet their retirement income goals? While a great deal of effort has been expended in search of answers to this question, it turns out that a very simple and practical answer is almost in plain sight. It is under a small rock, the rock being the ordinary and familiar time-value-of-money annuity payment calculations that we used to good advantage in our prior article, “The Only Spending Rule Article You Will Ever Need,” published by the Financial Analysts Journal in January 2015.
By turning this spending rule around and looking at asset accumulation instead of decumulation, we form a saving rule that, if followed, will get our saver very close to her asset accumulation target by the time of retirement. Like our spending rule and like the returns of the market, this savings rule is dynamic, adapting to actual market returns and changes in portfolio values so that it works with any investment policy the saver desires. The key idea is that we recalculate a new savings amount each year, an amortizing payment into one’s savings nest egg, based on a set of simple inputs.
“Wake Up and Smell the Coffee: DC Plans Need To Be Greatly Improved,” with Laurence B. Siegel and Bill Chinery, Defined Contribution Monitor Vol. 4 No. 1, February 2008. An abbreviated version of the full 2007 Journal of Investing paper.
“Wake Up and Smell the Coffee: DC Plans Aren’t Working. Here’s How to Fix them,” with Luarence B. Siegel, The Journal of Investing Vol. 16 No. 4, Winter 2007; republished from Investment Insights Vol. 9 No. 6, Barclays Global Investors, San Francisco, June 2006. The last in a series of articles by the authors showing how to make DC plans much more effective as retirement investment vehicles than they have been to date. READ
“Mind the Gap! Why DC Plans Under-perform DB Plans, and How to Fix Them,” with Laurence B. Siegel and Tim Kohn, Investment Insights, Barclays Global Investors, San Francisco, January 2004 (updated edition; original edition in same publication April 2000). Financial engineering and communications principles in support of bringing sophisticated investment strategy to individuals in DC plans through well-engineered pre-mixed strategic asset allocation funds (“lifestyle” funds). This is the most recent of a long series of articles I have written on this topic. READ
“Its 11:00 p.m. Do You Know Where Your Employees’ Assets Are?” with Lee D. Harbert and Laurence B. Siegel, Investment Insights, Barclays Global Investors, San Francisco, October 2001. More on applying institutional quality investment strategies for the benefit of individual investors. READ
"401(k) Investment Strategy and Asset Allocation: Déjà Vu All Over Again," The Journal of Investing, Summer 1994. An article discussing lifestyle funds and investment strategy for individual investors.
"A Strategic Plan for Selecting Plan Investment Options," with Michael V. Assaf, Profit Sharing, December 1992. The first of a long series of articles that I have written on the topic of lifestyle fund investing and individual investor strategy, a now ubiquitous fund category that I invented in 1999. READ
"GICs: The Large Print Giveth and the Small Print Taketh Away," Investing magazine, Summer 1991; updated and reprinted, The Journal of Investing, Summer 1992. Runner up award for best article in The Journal of Investing, 1992. Attacking GICs as a risky investment choice for individuals, written “before GIC-bashing became cool.” READ
4. Active Management
"Active Management Reading List," A reading list for those aspiring to understand the very real and very important differences between alpha and beta, between active and passive, between systematic and idiosyncratic, etc.,--as one can't win the game of active management other than by chance if one doesn't understand the rules of the game.Download the list
"Notes expanding on Grinold and Kahn's Appendix to Chapter 4, Active Management (2nd Ed., 2000)". A short white paper aiming to make the famous and very important appendix on the nature of alpha, beta, and active beta comprehensible to active managers and those who hire them. Read white paper
“Increasing Your Odds: Practical Insights from Forecasting Fund Manager Performance,” with Sunder Ramkumar, Investment & Wealth Monitor Vol. 24 No. 1, Greenwood Village, CO: IMCA, January/February 2009. Practical advice for portfolio managers choosing fund managers for their clients.
“Forecasting Fund Manager Alphas: The Impossible Just Takes Longer,” with Sunder R. Ramkumar, Financial Analysts Journal Vol. 64 No. 2, March/April 2008, Read in FAJ ; republished in Investment Insights, Vol. 11 No. 3, Barclays Global Investors, San Francisco, June 2008. This piece show what you need to know in order to forecast fund manager alphas, and how to combine this knowledge mathematically into a fair estimate of expected alpha usable in optimization processes. Investment Insights version
“Debunking Some Myths of Active Management,” with Laurence B. Siegel, Journal of Investing, Summer 2005. Street wisdom advocates many insights about active managers that are not only not true, but harmful to those who listen to them. This article debunks those myths. Excerpted (essentially part II) from “Understanding Active Management,” in Investment Insights, Barclays Global Investors, San Francisco, March 2003; translated and republished again in Japanese under this same title in 2005. Investment Insights (full) version
“The Future of Active Management,” Points of Inflection: New Directions for Portfolio Management, Charlottesville, VA: CFA Institute: 200, pp. 63-75. Conference proceedings reporting my February 2004 comments on the Peter Bernstein policy portfolio debate, addressing it in liability-relative investment strategy terms.
“The Dimensions of Active Management,” with Laurence. B. Siegel, Journal of Portfolio Management Spring 2003, Read in JPM ; excerpted from (essentially part I) “Understanding Active Management,” in Investment Insights, Barclays Global Investors, San Francisco, March 2003; translated and republished again in Japanese under this same title in 2005. Investment Insights (full) version
"The Dimensions of Active Management," Improving the Investment Process through Risk Management, Charlottesville, VA: CFA Institute: 2003, pp. 22-31 (conference proceedings).
“Should Investments Be Made on a Benchmark Relative Basis?” The Journal of Investing, Winter 2003.
“A Debate on Picking Benchmarks,” with Prof. Susan Belden, Journal of Investing, Winter 2001.
“Optimizing Manager Structure and Budgeting Manager Risk,” with Duane Whitney, John Pirone, and Chip Castille, Journal of Portfolio Management, Spring 2000, Read in JPM. Winner, Peter Bernstein-Frank Fabozzi/Jacobs Levy award for best article. Translated and republished, Japan Financial Analysts Journal, 2003. (An update of “A Framework for Optimal Manager Structure,” with Chip Castille, Investment Insights, Barclays Global Investors, San Francisco, June 1998.) Generally credited as the lead article on the topic of active risk budgeting.
5. Miscellany
“Total Return Utility Functions Suitable for Optimization: Alpha, Beta, Market Timing, and the Liability, All In One,” Unpublished working paper: May 2007. Read white paper
"Notes on Closed Form Multi-Period Wealth and Cumulative Return Distributions, aka “Tulips and Trumpets”, and on Simulated Wealth With Cash Flows," Unpublished notes on simulation processes, November 2021. Read Trumpets and Tulips
