Summary of Phil Huber's The Allocator's Edge

By IRB Media

Please note: This is a companion version & not the original book. Book Preview:

#1 The 60/40 portfolio, which is a balanced allocation of stocks and bonds, has been working well for investors for over four decades. It is simple and easy to implement, and it has become a perennial favorite among investors.

#2 The 60/40 portfolio has delivered positive returns in 82 percent of rolling one-year periods, 93 percent of rolling three-year periods, and 99 percent of rolling five-year periods. It has only experienced one calendar-year decline greater than 20 percent, but ten calendar-year gains of over 20 percent.

#3 The 60/40 portfolio has been successful because past performance is not always a predictor of future results. However, the conditions that made the 60/40 portfolio so fruitful in the past—namely high and falling interest rates—are no longer present.

#4 The 60/40 portfolio is a drag on returns, and has been for most of the past decade. The Sharpe ratio for both U. S. stocks and bonds over the last ten years is shown in Figure 1. 3.

• Language: English
• Publisher: IRB Media
• Release date: Jun 14, 2022
• ISBN: 9798822540682

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Insights on Phil Huber's The Allocators Edge

Contents

Insights from Chapter 1

Insights from Chapter 2

Insights from Chapter 3

Insights from Chapter 4

Insights from Chapter 5

Insights from Chapter 6

Insights from Chapter 7

Insights from Chapter 8

Insights from Chapter 9

Insights from Chapter 10

Insights from Chapter 11

Insights from Chapter 12

Insights from Chapter 1

#1

The 60/40 portfolio, which is a balanced allocation of stocks and bonds, has been working well for investors for over four decades. It is simple and easy to implement, and it has become a perennial favorite among investors.

#2

The 60/40 portfolio has delivered positive returns in 82 percent of rolling one-year periods, 93 percent of rolling three-year periods, and 99 percent of rolling five-year periods. It has only experienced one calendar-year decline greater than 20 percent, but ten calendar-year gains of over 20 percent.

#3

The 60/40 portfolio has been successful because past performance is not always a predictor of future results. However, the conditions that made the 60/40 portfolio so fruitful in the past—namely high and falling interest rates—are no longer present.

#4

The 60/40 portfolio is a drag on returns, and has been for most of the past decade. The Sharpe ratio for both U. S. stocks and bonds over the last ten years is shown in Figure 1. 3.

#5

The past 20 years have been a period of extremely high inflation by historical standards in the United States, which has eaten away at the real returns of both stocks and bonds.

#6

The phrase Lost Decade is often associated with the SP 500 during the 2000s. In nominal terms, this ten-year stretch saw negative returns. However, when adjusted for inflation, the story changes.

#7

The experience of the last 40 years is an outlier, not what we should expect going forward. Elevated stock market valuations and low real bond yields are present at the onset of each of these episodes.

#8

When the economy is on shaky ground and equities are falling, investors typically forecast central bank action in the form of interest rate cuts to stimulate activity. Falling rates provide a cushion not just in bond price appreciation, but also by pushing up the present value of stock earnings via a declining discount rate.

#9

In five of the six bear markets studied, the ten-year Note provided a significant cushion against equity losses, with average double-digit gains. But with the Fed no longer able to provide a cushion against economic losses, bonds may no longer be a depression hedge.

#10

The math behind bonds is much simpler than it is for stocks. The possible return scenarios over the life of the bond are straightforward to calculate, and the upside is generally a good approximation of your long-term return.

#11

As interest rates continue to stay low, the future for the 60/40 portfolio looks bleak. With nearly half the portfolio anchored to low yields, there are some extremely wild assumptions that must be made