Optimizing Your Portfolio

Published on
December 12th, 2018
24 minutes

Optimizing Your Portfolio

The Expert View ·
Featuring Adam Butler

Published on: December 12th, 2018 • Duration: 24 minutes

Adam Butler, CIO of ReSolve Asset Management, returns to Real Vision to explain how portfolio optimization impacts long-term returns. He highlights key aspects of asset allocation and drills down on some of Wall Street's favorite models and theories. Filmed on October 18, 2018 in New York. To find out more, feel free to read ReSolve's article series: https://investresolve.com/blog/portfolio-optimization-machine/ https://investresolve.com/blog/portfolio-optimization-simple-optimal-methods/ https://investresolve.com/blog/portfolio-optimization-case-study-managed-futures/


  • YS
    Yi S.
    30 January 2019 @ 12:18
    Good snippets of portfolio optimisation theory. But what’s the practical insights that we can takeaway after this? Find it hard to follow through
  • dm
    douglas m.
    5 January 2019 @ 07:56
    I loved this interview!
  • RP
    Ryan P.
    13 December 2018 @ 03:21
    Would love if RV posted the funds that ran these strategies and their returns over time ... but I guess I can get that myself. This is what I do for a living (portfolio construction at a quant firm) and at the end of the day this sounds nice but clients pay you to take stock specific risk as an active equity manager. Min variance investing works in a more defensive strategy or risk parity portfolios where leverage can be applied to reach returns as desired. The burden lies in monitoring the correlations as they tighten or breakdown where you have to unwind leverage when liquidity isn’t there. But that being said there is not perfect strategy and a lot of what he had to say I agree with and look forward to reading those articles. Thanks for posting.
    • MP
      Matthew P.
      17 December 2018 @ 05:25
      Agree. In much less fancy words he's describing the benefits of beta return strategy and investing in etfs...Was looking through comments to see if anyone would point that out because I didn't want to be the bad guy...As you mention, correlation shifts would lead to drastic underperformance in these "optimized portfolio's"
  • JS
    John S.
    12 December 2018 @ 10:21
    Assumes volatility is the appropriate measure of risk. But is it?
    • EF
      Erik F.
      12 December 2018 @ 22:19
      It is not. Risk is the probability of a permanent loss of capital.
    • hj
      henrik j.
      13 December 2018 @ 08:42
      you have both the Volatility tax, and like Erik is saying Permanent loss of capital. Volatility however do make you lose money as the compound effect is less effective the more volatility it is. You Also have the human side in that people tend to become worse investors the more Volatility it is. You also have to factor in the utility function of good sleep :)
    • TH
      Tomi H.
      16 December 2018 @ 16:28
      It definitely not a perfect measure of risk. Not at all. But I think it is the only measure we can use and theres pros and cons with it. On average, volatility is correlated with risk, not in every single case but in a large group of assets. The higher the volatility you have, higher the odds on average for losing money, unless you can time the market better than anyone else. Only few can. You can always leverage your portfolio to raise your expected return and it is much easier to manage leverage in a well diversified and optimized portfolio with low volatility vs. actively "manage risk" or "timing" in a not-so-diversified high volatility portfolio, let alone leveraging the latter.
  • AB
    AJ B.
    14 December 2018 @ 19:52
    A lot of gobbly goop here. Reminds me of a Long Term Capital guy. Thinks markets are math.
    • TH
      Tomi H.
      16 December 2018 @ 16:16
      Markets are math. LTCM just had wrong assumptions behind their math.
  • AH
    Andreas H.
    15 December 2018 @ 17:39
    he is right, AUM collecters do not meet you best interest...
  • MM
    Mike M.
    15 December 2018 @ 13:43
    Must be a college professor, hopefully he does not become a Fed. Res. Governor.
  • AE
    Aleksey E.
    15 December 2018 @ 07:49
    I have been following his work for a while and its great to have more evidence-based people who can back up their claims at least with numbers rather than most of the made up pie-in-the-sky statements these days. Next up please get the folks from Alpha Architects !
  • DC
    Daniel C.
    14 December 2018 @ 14:25
    Sounds like this man is a fan of Ray Dalio and the all weather portfolio strategy. Nice! I’d love it if RV got Ray Dalio or Bob Prince in for a chat.
  • CB
    Cliff B.
    14 December 2018 @ 12:25
    Too technical for Moi
  • RA
    Robert A.
    13 December 2018 @ 22:35
    Excellent Video. That said, a little difficult for the “Everyman” to implement. I think that was the cornerstone of Harry Browne’s seminal work almost 50 years ago when he introduced the “Permanent Portfolio” consisting of 25% each of T Bills, 30 year T Bonds, Gold and Stocks rebalanced annually. From a purely behavioral economic point of view I think he felt that the simplest diversification that could be reasonably rebalanced and held in place over a omg period of time might well represent the parietal optimal “Everyman” Portfolio.
  • JS
    James S.
    13 December 2018 @ 11:49
    Might you also bring on Mebane Faber to discuss his Global Allocation methodology?
  • PI
    Private I.
    13 December 2018 @ 00:47
    Interesting, and having Mike Green, or someone similar, engaging with Adam to explore, expand, and further develop the ideas would have been useful.
    • RP
      Ryan P.
      13 December 2018 @ 03:22
      We all love Mike Green. I was thinking the same.
  • DS
    David S.
    12 December 2018 @ 21:21
    I love the good old days too when I thought I might outsmart the market. Those days are long gone. 100% of any portfolio is always at risk. With 80% of the disclosed market volume being Algo trading, where is price discovery? With tweets, talking heads, tariff wars and technological disruptions any efficiency in the market is psychological. I buy a few disruptive companies and hope the market does not blow up before I sell. This is more fun than Vegas. Is portfolio hedging a line item or collected separately - including gains? Over time it would be interesting to know if the portfolio hedging income/expense in a variety of portfolios worked. I think that hedging may be better risk management than trying to over-think portfolio construction. DLS
    • JO
      JOHN O.
      12 December 2018 @ 22:18
      Dave, dude. What you describe is speculating, not investing. This is a good, back-to-basics discussion of understanding risks and managing them. Over the long term, algos don't suck much return out of the market and its the long term that investors should be concerned about. I know you know that as I've read several of your more logical posts. Cheers!
    • DS
      David S.
      13 December 2018 @ 00:36
      John O. - Cheers to you too. You are completely correct. It is focused speculation. The discussion in this video is rational. I have very little faith currently, however, that a rational approach will work in a market that is psychologically efficient. I agree that Algo trading may be less important on a short-term basis, but over time its psychological effect on investor’s measurement of risk is cumulative along with tweets, etc. After venting, the real reason for the post was to see if portfolio managers follow hedging expense/recoveries separately to see the overall cost to the portfolio. I was very impressed with Mr. Haworth’s video on Protecting Against Portfolio Disaster in January 2018. He was buying long duration volatility when it was cheap expecting it to pay off when markets collapsed. He said a small investor can use cash as the hedge if he/she did not feel comfortable in the hedging market. So, I have mostly cash and speculate to have fun until I feel better about the long term. I would never invest other people’s money this way. Happy New Year! DLS
  • KS
    Karen S.
    12 December 2018 @ 13:40