Portfolio Theory

A truly enduring financial home does not simply have strong backtested walls but also a solid intellectual foundation. These articles get into the detailed origins of the various portfolios, explore the ideas behind modern portfolio theory, and generally delve into the nuts and bolts of how and why intelligent asset allocation really works.

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Catching a Golden Butterfly - One of the most common mental hurdles to overcome when researching asset allocation is the siren call of maximum returns. Nobody likes the feeling of leaving potential money on the table. Combine that with a bit of accurate but out-of-context historical data, misinterpretation of assumptions, and “common knowledge” that glosses over the details, and you naturally see a…
How Safe Withdrawal Rates Work - After publishing a few tools and articles based on safe withdrawal rates, one of the most common questions I’ve seen so far is some iteration if this: Obviously higher returns support higher withdrawal rates. That’s why I invest in 100% stocks! How can a lower-return portfolio possibly support higher withdrawal rates than a higher-return portfolio? I admit…
Investing for All Seasons - I love perusing message boards, and a recent conversation on the All Seasons portfolio mentioned in Tony Robbins’ recent book naturally piqued my interest. It’s based on the highly respected work of Ray Dalio (of Bridgewater All Weather Fund fame), but pared down to a form that a normal non-institutional investor can easily implement themselves. With…
How to Build a Portfolio One Asset at a Time - My single favorite toy as a child really wasn’t a single toy. It was my giant bucket of LEGO accumulated over many years. The beauty of LEGO is that the combinations are absolutely limitless and the things you can build with them are constrained only by your imagination. Well… and access to all the right pieces. You see, when building…
The Theory Behind the Golden Butterfly - Perhaps because of how prominently it features in the Portfolio Finder, I’ve noticed a great deal of questions and conversations about the Golden Butterfly portfolio of late. Rather than scatter my thoughts around the internet, I realized it might be best to provide a centralized synopsis of how and why it works so that everyone can benefit.
Some Portfolios Are More Trustworthy Than Others - Interviewing contractors to work on your home is an interesting exercise in managing expectations. Purchasing a product where you know exactly what you’re getting ahead of time is a lot different than purchasing a service where the end result can never be fully appreciated until the work is complete. Who you choose to do the work thus…
Black Swans And The Larry Portfolio - In the late first century, a Latin poet named Juvenal described something thought to be unlikely as “a rare bird in the lands and very much like a black swan”. At the time, black swans were thought to not exist at all and the idea was preposterous. The clever turn of phrase was both memorable and…
The 7Twelve Portfolio And The Power Of Broad Diversification - I once knew a guy who was really into woodworking. One of the more fascinating things about him was that he not only made his own furniture but also was quite proud of his collection of hand-made woodworking tools. I once asked him why he preferred those tools to mass-produced alternatives. Among several reasons, “They do…
The Ideal Index Portfolio And The Many Paths To Perfection - I went shoe shopping today for the first time in a while, and I forgot just how frustrating it can be. Finding a nice pair of shoes seems like it should be a pretty simple task these days, but the number of options makes it much more difficult than you’d think! It’s kinda surreal to…
Unpack Financial Haystacks With The Updated Portfolio Finder - Asset allocation is a obviously passion of mine, and I’m always excited when I find a new metric to tinker with. These new ideas are not only interesting in their own right, but they also allow me to go back and refine some older tools to make them even better. And it’s hard to think…
Things We Can All Learn From The Yale vs. Buffett Debate - Yale University recently released their 2017 annual report for the Yale Endowment, and while normally this would pass without much notice they appear to have made a few waves by continuing an ongoing feud with Warren Buffett. In his 2016 investor letter, Buffett criticized how university endowments pursue market-beating returns through active management and suggested they might…
Try A Modern Spin On A Classic Idea With The Pinwheel Portfolio - Generating accurate and intuitive charts to help you navigate the professional asset allocation landscape is pretty darned rewarding, and I take a lot of pride in contributing to everyday asset allocation discussions in my own data-driven way. I also spend a lot of time reading those same discussions online, as not only does it help…