Gravity believes that market timing has a place in the portfolio construction process and that market timing is often misunderstood and misused. Attempting to apply timing to the overall portfolio on an all-in basis is quite dangerous and largely unproven as a successful strategy over longer periods of time. This is the typical approach demonized…
This is the first part of a video series …this one focused on diversification measurement, which I patented with Josh Ladd a couple years ago. it is the first thing i look after modeling a portfolio. Diversification = Dimensions….this video explains how and why.
This chart tells us that the portfolio being analyzed has a variance 60% captured in only one dimension. Minimizing the percentage of the portfolio captured in the first dimension is a routine output of our investment process and greatly reduces the susceptibility of the portfolio to system risk. We see good portfolio (made of ETF’s Mutual Funds, Asset Allocations Policies) will shed their first dimension in the 10-15% range
the more you have effectively sourced diversification into the portfolio the less redzone you will see. A large redzone is an example of a portfolio that could look good in a mean-variance analysis but have poor True Diversification properties
This is from my second patent where we measure diversification as a dimension using the Karhunen – Loeve Dimension (KLD). It is essential part of our portfolio evaluation