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Portfolios & risk
Systematic investing, The Three Risks — why one score cannot hold tolerance, capacity, and behavior — and what happens when a model changes.
18 pieces
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Portfolios & risk
What a risk score does not measure
One number, produced from a questionnaire, standing in for three separate questions. It presents well, and it does not measure the other two.
Portfolios & risk
What systematic actually means
The word gets used to mean disciplined, or quantitative, or unemotional. It means something narrower and more useful than any of those.
Portfolios & risk
What happens when a model changes
The concept is simple. The operational reality is where firms discover what they actually signed up for.
Portfolios & risk
Why not just buy the index
It is the best question a client can ask and most advisors answer it badly, by arguing with the premise instead of conceding it.
Portfolios & risk
The risk that only exists when money is moving
The same set of returns in a different order is harmless in one phase of life and damaging in another. Nothing about the investments changes.
Portfolios & risk
What to say when markets fall
The content of the conversation matters less than when it happens and who initiated it.
Portfolios & risk
What the fee buys
Some of what advisors charge for is obviously valuable. Some of it is harder to defend than the industry likes to admit, and it is worth knowing which is which.
Portfolios & risk
How to talk about fees
The discomfort is almost entirely about timing. Advisors who raise it early find it is not a difficult conversation at all.
Portfolios & risk
The concentrated position nobody wants to sell
It is the largest single risk in many client portfolios, and the obstacles to fixing it are mostly not about tax.
Portfolios & risk
A bad benchmark is worse than none
A mismatched comparison is not a neutral piece of information. It actively misleads, and it usually misleads in whichever direction is currently convenient.
Portfolios & risk
Something in the portfolio is always doing badly
That is not a failure of the portfolio. It is the definition of the portfolio, and it is the reason clients find it so hard to hold.
Portfolios & risk
Rebalancing maintains risk, not returns
It is frequently sold as a free source of return. It is a maintenance operation, and describing it otherwise is a claim nobody can substantiate.
Portfolios & risk
Two people, one portfolio, two risk profiles
The instinct is to average them. That produces a portfolio that suits neither and leaves the actual disagreement undiscussed.
Portfolios & risk
The annual review is the wrong trigger
Circumstances do not change on an anniversary. They change on specific days, and those are the days the profile is out of date.
Portfolios & risk
Conservative means something different to your client
The words on the allocation menu are doing far more work than they can support, and everyone assumes they mean the same thing by them.
Portfolios & risk
The portfolio is rarely the largest risk
Everyone measures the investments. The bigger exposures are usually somewhere the risk questionnaire never looks.
Portfolios & risk
Flows measure plumbing more than conviction
They get reported as though they revealed what investors think. Most of what they reveal is structural.
Portfolios & risk
The proposal is a sales document
It is built to win the relationship. That is a different job from describing what the client is about to live through.
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