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

by Darst, David

• ISBN13: 9780071463348
• ISBN10: 0071463348
• Edition: 1st
• Format: Hardcover
• Copyright: 2006-10-12
• Publisher: McGraw Hill

Summary

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.

Author Biography

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.

Table of Contents

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