Mastering the Art of Asset Allocation

Gain new insights into why asset allocation works and learn advanced investing strategiesYou know that asset allocation requires much more than cookie-cutter analysis. You want precise, detailed techniques for analyzing and applying asset allocation principles. The high-level, applications-orientedMastering the Art of Asset Allocationexamines the inner working of numerous asset allocation strategies and covers everything from ways to determine the portfolio value of various asset classes to insights into changing patterns of investment returns and standard deviations in different time periods and market environments.

David M. Darst is a chief investment officer at Morgan Stanley Dean Witter. Previously a vice president and chief financial officer at Goldman, Sachs, and Company, Darst is a highly sought-after speaker on asset management and other investment strategies.

FOREWORD

viii

PREFACE

ix

SECTION 1 ASSET ALLOCATION INSIGHTS

CHAPTER 1 Essentials of Asset Allocation Mastery

3

(16)

Overview

3

(1)

Meanings and Elements of Mastery

4

(2)

Foundations of Mastery

6

(2)

Advantages and Drawbacks of Mastery

8

(1)

Investing Perspectives on Alternative Investments

9

(4)

Investing in an Environment Subject to Crises and Global Asset Market Dislocations

13

(6)

CHAPTER 2 Asset Allocation and Investment Lessons from University Endowments

19

(40)

Overview

19

(1)

Special Features of College and University Endowments

20

(4)

Applications of Successful Endowments' Experiences to Other Investors

24

(5)

Important Distinctions between Endowments and Other Investors

29

(3)

Similarities in Approach by Harvard and Yale University Endowments

32

(2)

Harvard University

34

(12)

Yale University

46

(13)

SECTION 2 UNDERPINNINGS OF ASSET ALLOCATION

CHAPTER 3 Applications and Implications of Compound Interest

59

(50)

Overview

59

(1)

Selected Insights into Compound Interest

60

(9)

Returns in the Form of Income versus Capital Gains

69

(4)

Periodic Contributions and Periodic Withdrawals

73

(4)

Spending versus Reinvesting Income Flows

77

(10)

Coupon Reinvestment in Fixed-Income Securities

87

(6)

Dividend Reinvestment in Equities

93

(4)

Multiyear Rates of Return

97

(12)

SECTION 3 ASSET CLASS ATTRIBUTES

CHAPTER 4 Multiyear Investment Performance of Selected Asset Classes

109

(24)

Overview

109

(1)

Investment Performance Parameters

110

(1)

Multiyear Investment Performance Data

111

(15)

Caveats in Multiyear Investment Performance Analysis

126

(1)

Observations on Asset Classes' Investment Performance

127

(6)

CHAPTER 5 Understanding and Using Correlations

133

(26)

Overview

133

(1)

Definitions of Correlation

134

(1)

Development of the Correlation Measure

135

(2)

R-Squared Measure, or Coefficient of Determination

137

(1)

Caveats to Correlations

138

(4)

Correlation and Causation

142

(2)

Absolute and Relative Values of Correlation

144

(1)

Selected Types of Correlation Coefficients

144

(2)

The Effects of Correlations on Portfolio Investment Performance

146

(2)

Correlations as a Determinant of Portfolio Investment Performance

148

(2)

Correlations Dynamics in Multiasset Portfolios

150

(1)

Serial Correlations

150

(4)

How Correlations Work in Mean-Variance Optimization Models

154

(5)

CHAPTER 6 Correlations of Returns between Asset Classes

159

(152)

Overview

159

(1)

Summary of 10-Year Overlapping Correlations

160

(1)

Historical Perspective on 10-Year Overlapping Correlations between Equity Asset Classes

161

(2)

Summary of Historical Perspective on 10-Year Overlapping Correlations between Fixed-Income Asset Classes

163

(4)

Summary of Historical Perspective on 10-Year Overlapping Correlations between Alternative Investments Asset Classes

167

(3)

Rolling 10-Year Correlations of Annual Returns

170

(70)

Overview—Three-Year Nonoverlapping Correlations

240

(1)

Summary of Historical Perspective on Correlations between Asset Classes—Equity

240

(2)

Summary of Historical Perspective on Correlations between Asset Classes—Fixed-Income Securities

242

(3)

Summary of Historical Perspective on Correlations between Asset Classes—Alternative Investments

245

(2)

Nonoverlapping Three-Year Correlations of Monthly Returns

247

(64)

SECTION 4 FINANCIAL MARKETS ANALYSIS AND INVESTMENT INSIGHTS

CHAPTER 7 Recognizing Cyclical and Secular Turning Points

311

(78)

Overview

311

(1)

Turning Points in an Asset Allocation Context

312

(3)

Cyclical Analysis versus Secular Analysis

315

(2)

Excesses That Potentially Indicate Turning Points

317

(7)

Fundamental Excesses That Potentially Indicate Turning Points

324

(24)

Valuation Forces

348

(28)

Psychological, Technical, and Liquidity Forces

376

(7)

Asset Bubble Phenomena

383

(6)

SECTION 5 IMPLEMENTATION TACTICS AND STRATEGIES

CHAPTER 8 Structural Considerations in Asset Allocation

389

(22)

Overview

389

(1)

Structural Considerations

390

(3)

Financial Planning

393

(3)

Personal Trusts

396

(1)

Life Insurance and Annuities

397

(8)

Tax Management

405

(2)

Liability Management

407

(4)

SECTION 6 INFORMATION SOURCES

CHAPTER 9 Information Management

411

(26)

Overview

411

(1)

Classifying Information Sources

412

(5)

Strategies and Tactics for Information Management

417

(3)

Information-Management Caveats

420

(4)

Internet-Based Information Sources

424

(9)

Optimizing Internet-Based Information Sources

433

(4)

CHAPTER 10 Sources of Information

437

(74)

Media-Based Information Sources

437

(10)

Conferences, Seminars, and Workshops

447

(1)

Corporations and Individual Investor Organizations

448

(3)

Educational Institutions and Research Institutes

451

(1)

Governmental and Regulatory Bodies

452

(1)

Nonprint Mass Media

452

(3)

Periodicals, Newspapers, and Newsletters

455

(28)

Subject-Based Information Sources

483

(28)

INDEX

511

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Mastering the Art of Asset Allocation Comprehensive Approaches to Managing Risk and Optimizing Returns

Summary

Author Biography

Table of Contents

Supplemental Materials

FREE SHIPPING

Rent More, Save More! Use code: BBRENTAL

5% off 1 book, 7% off 2 books, 10% off 3+ books

Mastering the Art of Asset Allocation Comprehensive Approaches to Managing Risk and Optimizing Returns

Summary

Author Biography

Table of Contents

Supplemental Materials

Digital License