I learned that some folks feel that there’s a perception on the market that GIPS (Global Investment Performance Standards) only applies to institutional managers, which retail do not need to apply. I found this fascinating relatively, bewildering, surprising, and erroneous clearly. In the early-to-mid 1990s, a firm that marketed to institutional clients had an ADVANTAGE by claiming compliance with the standards (the AIMR-PPS back then), but today they’re AVOIDING a DISADVANTAGE by complying. However, in the retail space a supervisor has an ADVANTAGE by complying because most companies catering to the market don’t. But this is not because the criteria don’t apply. If your clients are high online worth individuals, clearly most (if not all) will never have heard about GIPS, which is fine. YOU can instruct them about the criteria.
Warren Buffett has a great historical track record. There’s no need to cut and paste any performance statistics here. But his great prosperity had not been created by timing the marketplace; selling when the marketplace gets expensive and purchasing back when some academically calculated p/e ratio reaches a minimal level.
He overlooked all such prognostications and centered on what he thinks he understands and knows. It’s very simple in idea but just about impossible for most ‘normal’ visitors to follow (greed and dread get in the way). Here’s another example. Anyway, I’ve submitted this desk before. These are the performance figures for Joel Greenblatt’s fund which was primarily long only (aside from some special situations that might have required a brief offering, like stub investments).
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He made 50%/season between your years 1985 and 1994. This is totally astounding. And what’s really important to keep in mind here’s that he didn’t make these returns by purchasing stocks when the p/e ratio of the S&P 500 index was below it and then selling it when it got above y. Nor did he accomplish that by buying stocks when the profit margins of U.S.
How he made these returns is explained in his great book, YOU WILL BE a Stock Market Genius. He evaluated each investment idea on its own merits and put investments on when they made sense. He didn’t turn off and go to cash when he thought the stock market was pricey. Notice his performance in 1986, and 1987 even, the entire year of the crash.
Here’s the offer. Investing is a constant balance between return and risk. 99% of the time, it’s impossible to get higher returns without taking on a greater threat of not actually getting those returns. Anyone who promises usually is either misinformed or endeavoring to mislead you. But there is certainly one way to lower your risk without lowering your expected return (only one!), and it’s called diversification. Diversification is simply the practice of dispersing your cash out over a great deal of different investments instead of simply a few.
And there are a variety of various ways you can certainly do it. One is by investing in different types of things, like stocks and bonds. That’s actually the asset allocation question from above. Nevertheless, you can diversify within those bigger categories also. For example, instead of buying stock in just a few companies, you can invest in the entire stock market. And you can go even more by buying both the US stock market AND international stock markets as well.
You can do the same with your bonds. And the best benefit is that you don’t have to buy all those individual stocks and shares or choose a ton of different shared funds to be varied. It’s possible to invest in the entire US stock market actually, all international stock markets, the entire US bond market, and all international bond marketplaces with just a single finance.