Wednesday, May 12, 2010


Ok, now we are told that computerized trading is responsible for the almost 1,200 point drop last Thursday. Hmmm, well, it's a better story than the Greek riots but I'm still not too happy with it. I suppose the interplay between computerized trading in the various trading firms could have done something like that. Now do we call it a Black Swan event? And, could we have another event where the computers suddenly take the market UP 1,000 points? Certainly, the new rules that are being talked about that will restrain this type of trading are needed. Imagine if you had Stop Loss orders of maybe 15% on your entire portfolio you would have been stopped right out of the market. Amazing!

Last week I read something that I found almost equally amazing: that a portfolio of 80% bonds and 20% equities gave an Average Annual Nominal Return (AANR) that was 92% of that of a 100% equity portfolio. The AANR for the equity portfolio was 11.0%; that of the mostly bond portfolio was 10.2%. This was over the 60 years 12/31/49 to 12/21/09. Here is the link to the article (a pdf file) on the T. Rowe Price website. So; it sounds to me like I should be rebalancing to a more bond oriented stance. Right now may not be the time since coupon rates have to go up from here but at some point I'm definitely going for more bonds. I've been avoiding being too heavy in bonds because I expect to be retired for another 30 years and don't have much in the way of pension expectations. If bonds can perform like this though what's wrong with that picture?

I was trying to find the origin of the quote: Figures don't lie but liar's figure. I couldn't find it. I always thought it was Will Rogers but Bartlett's and a couple of web sites don't even mention it. I'm always skeptical of statistics like I just quoted so you can bet I won't go 80% bonds!

At any rate, have a good one.

"Don't try to buy at the bottom and sell at the top. It can't be done except by liars." Bernard Baruch


Croft said...

My union pension fund ($3 billion plus) moved heavily into bonds recently and we all got a 1.5% raise. Maybe I should have followed but then I would have missed the latest jump in the market.

I figure I have recovered all my losses from the 911 days and am where I was the day before it happened. Now I think I want to stay in to make up for the gains I should have gotten since then...

I wonder where you can find a bond that pays 10.2%...

Dan said...

The quote is due to Mark Twain. In financial circles, it is most often cited back to the attribution by Yates in
Department of the Interior and related agencies appropriations for 1984: hearings before a subcommittee of the Committee on Appropriations, House of Representatives, Ninety-eighth Congress, first session, Parts 9-10, 1983, U.S. G.P.O., 1983.

Hows that for useless arcana?