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Oct13
The Transfer Coefficient and 130/30 Portfolios

According to Clarke, de Silva and Thorley in their article,  “Portfolio Constraints and the Fundamental Law of Active Management,” Financial Analysts Journal Vol.58, No.5 September/October 2002, pages 48-66, the constraints placed on portfolio managers affects the amount of the theoretical information ratio the manager can deliver to the client.  In other words, the more limits you place on me the less of my expertise can I turn into returns for you.

The biggest limit is the long only constraint.  This says I can buy a stock and I can sell a stock that I own, but I can't sell short.  Having this single constraint means the manager can only deliver 60% of the information ratio possible. 

The article set off a fire storm in the industry.  It suggested that you didn't need to be able to short the entire value of the portfolio to get most of the information ratio.  They looked at a 120/20% portfolio.

 

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Oct12
Canadian Income Trusts
Yesterday Bell Canada announced it was changing its corporate structure into an income trust and doing away with its holding company.  Why would they do that? In Canada, the Income Trust structure provides for a tax advantage.  If a company... Continue Reading
Oct11
Free Online Trading
Bank of America announced today that it would offer up to 30 free online stock trades for clients that have more than $25,000 in accounts at the bank.  This is big news for several reasons. Bank of America has about... Continue Reading
Oct10
Illegal Short Selling - A Follow-up
I mentioned in my series on illegal short selling that it would be helpful to have a government official who could supply information or launch endless investigations.  I found this article in the October 3, 2006 The Wall Street Journal... Continue Reading
Oct 9
Program Trading For The Individual Investor
A few years ago program trading made frequent headlines.  It would whipsaw the market by piling on buys in an up market and piling on sells in a down market.  Eventually, the stock exchanges put limit restrictions on program trading... Continue Reading
Oct 7
Halloween Indicator
First an apology.  I had an out-patient procedure yesterday.  They gave me some drugs, a sedative and another.  I actually sat down to write an article and forgot to do it.  I think I played Spider Solitaire instead.  Anyway, for... Continue Reading
Oct 5
Dow Jones Industrial Average (INDU) Record Close - Meaningless or Meaningful
The Dow set another record today for the third day in a row.  It closed today at 11866.69 up 16.08 points.  Does it mean anything to investors? First a quick review.  INDU is an index of 30 industrial companies.  These... Continue Reading
Oct 4
Alternative Investments - Business Week Oct 2 2006
"Business Week" magazine has a good article in the October 2, 2006 issue on p.93 on Alternative Investments.  It is titled, "Before You Leave the Beaten Path..." and is by Aaron Pressman.  Mr Pressman gives you the typical pitch you... Continue Reading
Oct 3
Bonds And Diversification
Paul Volker took over the Fed in 1979.  He decided that he would no longer target interest rates and that he would break the hold of stagflation that had gripped the US economy for a few years.  Some of you... Continue Reading
Oct 2
Retirement - When Oh When Oh When?
There is a whole section on retirement in The Wall Street Journal today 2 October 2006.  There is an essay on page R12 titled, "Day of Reckoning - How one man found the answer to the Big Question: Is it... Continue Reading

« September 2006 | Main | March 2007 »

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