Investment Performance Guy

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Last week I had fashioned a post about holdings-based attribution, where I laid the groundwork for future commentary on evaluation I’ve been doing on this subject, where I go through the results using both holdings and transaction-based methods. Well, it resulted in comments from my colleague and friend Andre Mirabelli, who questioned the fundamental model’s ability to properly measure the attributes that produces the excess return.

While not desperate to debate him on this topic, per se, it does bring up a broader question that is worth consideration. When collection managers, potential customers, and clients look at the numbers on a performance record, they draw various conclusions; and the people who produced the reviews no doubt wish these conclusions are constant using what they wish would be attracted.

However, is everything working as it is intended? Just because a computer has run a specific model Just, which causes quantities to be produced, which then are assembled in a nice format on a bit of paper or some type of computer screen, would it mean that everything is correct? The info issues are years old: the acronym GIGO still lives on (garbage in, garbage out).

One must take strides to ensure that the data is accurate and, of course, appropriate. The real issue which Andre attended to is the model appropriateness. That is a fundamental concern which doesn’t get enough attention. Although I’ve become less and less a fan of Warren Buffet, I will nevertheless estimate him here: “beware of geeks bearing models.” And yes, one must watch out for what models they employ. Do we know how they work? Do we know very well what assumptions they make? What exactly are the total results intended to present?

We recently completed our attribution survey, where we address a variety of issues on this important topic. It offers amazed me how over the entire years, we’ve seen a shift from people using the Brinson-Hood-Beebower model to the Brinson-Fachler model. A season after BF and in fact is preferred by Gary Brinson BHB was released.

  • The higher the dispersion of possible results, the riskier is the investment
  • Debit cards
  • How will real property IB survive in slower overall economy
  • The entity can control access to the advantage
  • If funded by your IRA, you will see no bank or investment company borrowing to pay back

I believe we are worthy of much of the credit for identifying and interacting the massive difference between the models (through our training classes and different articles, not forgetting our books). The past due Damien Laker challenged me on this, writing and submitting articles which he posted on the Internet, that said that there is no difference; but there is a HUGE difference. If you’re not already acquainted with it, I’ll briefly state that it’s the way the allocation effect comes from.

Well, folks for years used the BHB model with complete satisfaction; but did they really know how it worked well? Did they understand that there was an alternative, that they might prefer? But even the work of these models should call into question their appropriateness, given the essential rule that models should align with the investment process. Should a quantitative manager use a Brinson model, that only looks at allocation and selection effects (and, for the more enlightened, the interaction of these effects)? Most likely, no; instead, a multifactor model that talks about the factors they employ in their investment process would make more sense.