The Art of Asset Allocation: Principles and Investment Strategies for Any Market, Second Edition

by Darst, David

• ISBN13: 9780071592949
• ISBN10: 0071592946
• Edition: 2nd
• Format: Hardcover
• Copyright: 2008-05-28
• Publisher: McGraw Hill

Summary

The fully revised classic on employing asset allocation techniques to grow real wealthA global leader and preeminent expert in asset allocation, David Darst delivers his masterwork on the topic. In a fully updated and expanded second edition ofThe Art of Asset Allocation, Morgan Stanley's Chief Investment Strategist covers the historic market events, instruments, asset classes, and economic forces that investors need to be aware of as they create asset-building portfolios. He then explains how to use modern asset allocation concepts and tools to augment returns and control risks in a wide range of financial market environments. This completely revised edition shows how to achieve asset balance with the author's proven methods, decades of expertise, relevant charts, practical tools, and astute analyses.Known as the king of asset allocation, Darst brings his expertise to bear to provide complete asset class descriptions, identifying historical risk, return, and correlation characteristics for all major asset classes. Using actual data, he explains the differences between tactical and strategic asset allocation, outlines clear rebalancing guidelines, and includes an annotated guide to both traditional and Internet-based information sources.Praise for the first edition:"You want to be a better investor, a better client, or a better advisor? DEVOUR THIS BOOK NOW!"-James J. Cramer"David Darst is the expert on Asset Allocation. He has chosen to share his decades of practical experience in The Art of Asset Allocation, to the benefit of professional and individual investors alike."-Seth A. Klarman

Author Biography

David M. Darst is a Managing Director and the Chief Investment Strategist for Morgan Stanley's Global Wealth Management division, as well as a CFA charterholder and a member of the New York Society of Security Analysts. A highly sought-after international speaker, Darst is the author of Mastering the Art of Asset Allocation, The Complete Bond Book, and The Handbook of the Bond and Money Markets.

Table of Contents

Foreword	p. ix
Preface	p. xi
Understanding Asset Allocation
Essentials of Asset Allocation	p. 3
Overview	p. 3
Meanings of Asset Allocation	p. 4
Foundations of Asset Allocation	p. 7
The Risks and Rewards of Asset Allocation	p. 10
Principal-Protection Assets and Principal-Growth Assets	p. 16
The Effects of Inflation on Purchasing Power	p. 17
The Asset-Allocation Process	p. 21
Overview	p. 21
Matching Asset Classes with Wealth Levels and Income Needs	p. 22
Types of Asset Allocation	p. 24
Intersections of Asset Allocation with Other Disciplines	p. 33
The Mechanics of Asset Allocation
Asset-Allocation Tools and Concepts	p. 41
Overview	p. 41
Modern Portfolio Theory/Efficient Market Theory	p. 42
Asset and Portfolio Returns	p. 45
Asset and Portfolio Risk	p. 58
Risk and Return	p. 72
Assets' Returns and Correlations Caveats	p. 84
Asset-Allocation Optimization Models	p. 86
Asset-Allocation Optimization Software	p. 93
Asset-Allocation Rebalancing	p. 95
Overview	p. 95
Rebalancing Principles	p. 96
Advantages and Disadvantages of Rebalancing	p. 97
Origins and Implications of Asset-Allocation Overweighting	p. 100
Scope of Rebalancing	p. 106
Special Considerations Involving Concentrated Positions	p. 108
Rebalancing Methods	p. 115
Asset-Allocation Drift-No Rebalancing	p. 125
Rebalancing Sensitivity Analysis	p. 127
Critical Success Factors in Rebalancing	p. 144
Underpinnings of Asset Allocation
Individual Investor Behavior	p. 151
Overview	p. 151
Factors Affecting Individual Investors' Asset-Allocation Decisions	p. 152
The Evolution of Individual Investors' Asset-Allocation Activity	p. 153
Primary Determinants of Individual Investors' Asset Allocation	p. 157
Strategic and Tactical Principles	p. 162
Individual Investor Behavioral Characteristics	p. 171
Financial Lessons from Market History	p. 178
Insights from Behavioral Finance	p. 182
Asset Class Characteristics
Distinguishing Qualities of Asset Classes	p. 201
Overview	p. 201
Asset Supercategories	p. 202
Evaluating Asset Classes	p. 204
Participants within Asset Classes	p. 206
Asset Classes and Subasset Classes	p. 209
Asset Class Descriptions	p. 211
Asset Class Weightings and Uses	p. 248
Analyzing Assets' Rates of Return	p. 255
Overview	p. 255
Organization of Returns Data	p. 256
Assets' Annual Rates of Return by Groups of Years	p. 257
Assets' Annual Rates of Return by Individual Years	p. 262
Assets' Annual Rates of Return by Economic Environment	p. 281
Rotating Returns Leadership Among Asset Classes	p. 291
Equities Industry Sectors by Individual Years	p. 295
Leading Companies by Equity Market Capitalization	p. 298
Leading U.S. Companies' Rates of Return by Individual Years	p. 302
Financial Markets Analysis and Investment Insights
Constructing an Analytical Framework	p. 309
Overview	p. 309
Societal Analysis	p. 310
Market-Cycle Analysis	p. 312
Scenario Analysis	p. 314
Investor Satisfaction Analysis	p. 317
Strategy Implementation Analysis	p. 321
Comparative Financial Analysis	p. 324
Financial Market Climate Analysis	p. 330
Phases and Cycles in Asset Allocation	p. 334
Tactics and Strategies
Asset-Allocation Matrices and Worksheets	p. 339
Overview	p. 339
Worksheets in the Asset-Allocation Process	p. 340
Asset-Allocation Worksheets in Context	p. 344
Drawbacks of Asset-Allocation Worksheets	p. 346
Asset-Allocation Guidelines	p. 347
Investors' Asset-Allocation Cycles	p. 352
Sequencing of Market Outcomes	p. 354
Asset-Allocation Matrices	p. 358
Investor Profile Worksheet	p. 359
Investment Outlook Worksheet	p. 361
Investment Universe Worksheet	p. 368
Risk Mitigation Matrices	p. 374
Index	p. 387
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