In Retirement Planning: From Z to A, from the Fall 2020 issue of The Journal of Retirement, author Javier Estrada (of IESE Business School in Barcelona) challenges the way in which many investors approach retirement planning. Younger people tend to focus on the level of assets they want to have at retirement. Only much later, when nearing retirement, do they think about how much they will need to withdraw from savings each year during retirement. Estrada says this approach does things in the wrong order and that retirement planning works best when you start at the end. Investors should first figure out how much they will need to withdraw from savings each year during retirement, how much they want to leave to their heirs, and the mix of investments with which they will feel comfortable during retirement. Once they have that information, they can calculate the total dollar amount they will need to have in their portfolio on their retirement date. With that knowledge, they can calculate how much to save each year while they are working and how to invest to reach their retirement goal. TOPICS: Long-term/retirement investing, portfolio management, retirement, wealth management
{"title":"Practical Applications of Retirement Planning: From Z to A","authors":"Javier Estrada","doi":"10.3905/pa.9.2.440","DOIUrl":"https://doi.org/10.3905/pa.9.2.440","url":null,"abstract":"In Retirement Planning: From Z to A, from the Fall 2020 issue of The Journal of Retirement, author Javier Estrada (of IESE Business School in Barcelona) challenges the way in which many investors approach retirement planning. Younger people tend to focus on the level of assets they want to have at retirement. Only much later, when nearing retirement, do they think about how much they will need to withdraw from savings each year during retirement. Estrada says this approach does things in the wrong order and that retirement planning works best when you start at the end. Investors should first figure out how much they will need to withdraw from savings each year during retirement, how much they want to leave to their heirs, and the mix of investments with which they will feel comfortable during retirement. Once they have that information, they can calculate the total dollar amount they will need to have in their portfolio on their retirement date. With that knowledge, they can calculate how much to save each year while they are working and how to invest to reach their retirement goal. TOPICS: Long-term/retirement investing, portfolio management, retirement, wealth management","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116362160","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In An Inconvenient Fact: Private Equity Returns and the Billionaire Factory, from the December 2020 issue of The Journal of Investing, author Ludovic Phalippou (of the Saïd Business School at the University of Oxford) challenges the perception that private equity (PE) provides institutional investors with higher returns that justify its higher fees. PE is not available to the general public—and since PE investments are not continuously traded, there are no publicly available measures of PE rates of return. Therefore, PE firms use internal rate of return (IRR) as their primary advertised performance measure. However, a more appropriate measure of PE performance is based on a net present value (NPV) calculation, such as the public market equivalent (PME). Using this performance measure, Phalippou shows that US PE has produced about the same net-of-fees returns as the most common US stock indexes since 2006. Meanwhile, a small number of PE managers have become billionaires by receiving incentive fees based on absolute performance, not performance relative to any benchmark. The author questions who really benefits from PE investing, explains why pension funds and universities continue to embrace it, and offers suggestions to make PE investing more sustainable. TOPICS: Private equity, statistical methods, performance measurement
{"title":"Practical Applications of An Inconvenient Fact: Private Equity Returns and the Billionaire Factory","authors":"Ludovic Phalippou","doi":"10.3905/PA.9.1.430","DOIUrl":"https://doi.org/10.3905/PA.9.1.430","url":null,"abstract":"In An Inconvenient Fact: Private Equity Returns and the Billionaire Factory, from the December 2020 issue of The Journal of Investing, author Ludovic Phalippou (of the Saïd Business School at the University of Oxford) challenges the perception that private equity (PE) provides institutional investors with higher returns that justify its higher fees. PE is not available to the general public—and since PE investments are not continuously traded, there are no publicly available measures of PE rates of return. Therefore, PE firms use internal rate of return (IRR) as their primary advertised performance measure. However, a more appropriate measure of PE performance is based on a net present value (NPV) calculation, such as the public market equivalent (PME). Using this performance measure, Phalippou shows that US PE has produced about the same net-of-fees returns as the most common US stock indexes since 2006. Meanwhile, a small number of PE managers have become billionaires by receiving incentive fees based on absolute performance, not performance relative to any benchmark. The author questions who really benefits from PE investing, explains why pension funds and universities continue to embrace it, and offers suggestions to make PE investing more sustainable. TOPICS: Private equity, statistical methods, performance measurement","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131439665","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A Better Approach to Systematic Outperformance? 58 Years of Endowment Performance, published in the Summer 2020 issue of The Journal of Investing, shows that the average endowment has failed to outperform the traditional passive 60/40 benchmark for the past six decades. Indeed, the average endowment also has failed to reach its annual spending needs and long-term investment goals during the same period. Surely, suggests author Dennis Hammond of Veriti Management, there must be a better way. In what he calls the “triumph of hope over experience” among endowments and their consultants, agency issues, overconfidence, and complacency have kept endowments doing the same thing and expecting better results, Hammond says. But by creating a unique dataset of endowment returns over the longest period ever examined, he was able to measure how well endowments have performed relative to their prime directive over time. His findings provide empirical evidence for trustees and CIOs who may want to rethink their approach to endowment performance. TOPICS: Foundations & endowments, wealth management
一个更好的方法来获得系统性的优异表现?《投资杂志》(the Journal of Investing) 2020年夏季刊发表的58年捐赠基金业绩报告显示，在过去60年里，平均捐赠基金的表现未能超过传统的被动60/40基准。事实上，同期平均捐赠额也未能达到其年度支出需求和长期投资目标。Veriti Management的作者丹尼斯•哈蒙德(Dennis Hammond)认为，肯定有更好的办法。哈蒙德说，在他所说的捐赠基金及其顾问之间的“希望战胜经验”中，机构问题、过度自信和自满使捐赠基金一直在做同样的事情，并期望取得更好的结果。但是，通过创建一个独特的数据集，记录了迄今为止所研究的最长时期内的捐赠回报，他能够衡量捐赠在一段时间内相对于其主要指示的表现。他的研究结果为受托人和首席信息官提供了经验证据，他们可能想要重新考虑他们的捐赠绩效方法。主题:基金会与捐赠基金、财富管理
{"title":"Practical Applications of A Better Approach to Systematic Outperformance? 58 Years of Endowment Performance","authors":"Dennis R. Hammond","doi":"10.3905/PA.8.2.419","DOIUrl":"https://doi.org/10.3905/PA.8.2.419","url":null,"abstract":"A Better Approach to Systematic Outperformance? 58 Years of Endowment Performance, published in the Summer 2020 issue of The Journal of Investing, shows that the average endowment has failed to outperform the traditional passive 60/40 benchmark for the past six decades. Indeed, the average endowment also has failed to reach its annual spending needs and long-term investment goals during the same period. Surely, suggests author Dennis Hammond of Veriti Management, there must be a better way. In what he calls the “triumph of hope over experience” among endowments and their consultants, agency issues, overconfidence, and complacency have kept endowments doing the same thing and expecting better results, Hammond says. But by creating a unique dataset of endowment returns over the longest period ever examined, he was able to measure how well endowments have performed relative to their prime directive over time. His findings provide empirical evidence for trustees and CIOs who may want to rethink their approach to endowment performance. TOPICS: Foundations & endowments, wealth management","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116308222","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A Better Approach to Systematic Outperformance? 58 Years of Endowment Performance, published in the Summer 2020 issue of The Journal of Investing, shows that the average endowment has failed to outperform the traditional passive 60/40 benchmark for the past six decades. Indeed, the average endowment also has failed to reach its annual spending needs and long-term investment goals during the same period. Surely, suggests author Dennis Hammond of Veriti Management, there must be a better way. In what he calls the “triumph of hope over experience” among endowments and their consultants, agency issues, overconfidence, and complacency have kept endowments doing the same thing and expecting better results, Hammond says. But by creating a unique dataset of endowment returns over the longest period ever examined, he was able to measure how well endowments have performed relative to their prime directive over time. His findings provide empirical evidence for trustees and CIOs who may want to rethink their approach to endowment performance. TOPICS: Foundations & endowments, wealth management
一个更好的方法来获得系统性的优异表现?《投资杂志》(the Journal of Investing) 2020年夏季刊发表的58年捐赠基金业绩报告显示，在过去60年里，平均捐赠基金的表现未能超过传统的被动60/40基准。事实上，同期平均捐赠额也未能达到其年度支出需求和长期投资目标。Veriti Management的作者丹尼斯•哈蒙德(Dennis Hammond)认为，肯定有更好的办法。哈蒙德说，在他所说的捐赠基金及其顾问之间的“希望战胜经验”中，机构问题、过度自信和自满使捐赠基金一直在做同样的事情，并期望取得更好的结果。但是，通过创建一个独特的数据集，记录了迄今为止所研究的最长时期内的捐赠回报，他能够衡量捐赠在一段时间内相对于其主要指示的表现。他的研究结果为受托人和首席信息官提供了经验证据，他们可能想要重新考虑他们的捐赠绩效方法。主题:基金会与捐赠基金、财富管理
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In Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors, from the August 2020 issue of The Journal of Wealth Management, authors R. Renu Isidore (Loyola College), P. Christie (Xavier School of Management), and C. Joe Arun (Loyola College) examine two factors that influence successful investors in India: their biases and their decision-making tools. The authors measured nine behavioral biases and five decision-making tools and used an analysis of variance test to determine which biases and decision-making tools characterize investors who earn high returns from equity investments. The authors offer their findings as a framework to help equity investors earn good returns and be successful in the market. TOPICS: Wealth management, equity portfolio management, emerging markets
《行为偏见和决策工具对二级股权投资者业绩的影响》发表于2020年8月的《财富管理杂志》，作者R. Renu Isidore(洛约拉学院)、P. Christie(泽维尔管理学院)和C. Joe Arun(洛约拉学院)研究了影响印度成功投资者的两个因素:偏见和决策工具。作者测量了九种行为偏差和五种决策工具，并使用方差分析检验来确定哪些偏差和决策工具是投资者从股票投资中获得高回报的特征。作者将他们的发现作为一个框架，帮助股票投资者获得良好的回报，并在市场上取得成功。主题:财富管理、股票投资组合管理、新兴市场
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In Influence of Behavioral Biases and Decision-Making Tools on the Performance of Secondary Equity Investors, from the August 2020 issue of The Journal of Wealth Management, authors R. Renu Isidore (Loyola College), P. Christie (Xavier School of Management), and C. Joe Arun (Loyola College) examine two factors that influence successful investors in India: their biases and their decision-making tools. The authors measured nine behavioral biases and five decision-making tools and used an analysis of variance test to determine which biases and decision-making tools characterize investors who earn high returns from equity investments. The authors offer their findings as a framework to help equity investors earn good returns and be successful in the market. TOPICS: Wealth management, equity portfolio management, emerging markets
《行为偏见和决策工具对二级股权投资者业绩的影响》发表于2020年8月的《财富管理杂志》，作者R. Renu Isidore(洛约拉学院)、P. Christie(泽维尔管理学院)和C. Joe Arun(洛约拉学院)研究了影响印度成功投资者的两个因素:偏见和决策工具。作者测量了九种行为偏差和五种决策工具，并使用方差分析检验来确定哪些偏差和决策工具是投资者从股票投资中获得高回报的特征。作者将他们的发现作为一个框架，帮助股票投资者获得良好的回报，并在市场上取得成功。主题:财富管理、股票投资组合管理、新兴市场
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A. Clare, S. Glover, James Seaton, Peter N. Smith, Stephen H. Thomas
In Measuring Sequence of Returns Risk from the Summer 2020 issue of The Journal of Retirement, authors Andrew Clare (of Cass Business School), Simon Glover (of ITI Group), James Seaton (of Solent Systematic Investment Strategies), Peter Smith (of the University of York), and Stephen Thomas(of Cass Business School) demonstrate that the timing–not just the amount–of investment returns can be vitally important to investors’ retirement income prospects. Major losses right around one’s retirement date are much more damaging than those that happen long before or after retirement. Popular investment vehicles like target-date funds (TDFs) have not protected against sequence risk, so investors need a different strategy. The authors find that a simple stock/bond asset allocation combined with a trend-following strategy for the stock portion (switching assets between stocks and government bonds, based on current market trends) greatly reduces sequence risk and minimizes the chances that retirees will run out of money or need to withdraw less from savings each year. The authors also offer ways to measure how well different investment strategies protect against sequence risk. TOPICS: Volatility measures, downside-only measures, performance measurement
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A. Clare, S. Glover, James Seaton, Peter N. Smith, Stephen H. Thomas
In Measuring Sequence of Returns Risk from the Summer 2020 issue of The Journal of Retirement, authors Andrew Clare (of Cass Business School), Simon Glover (of ITI Group), James Seaton (of Solent Systematic Investment Strategies), Peter Smith (of the University of York), and Stephen Thomas(of Cass Business School) demonstrate that the timing–not just the amount–of investment returns can be vitally important to investors’ retirement income prospects. Major losses right around one’s retirement date are much more damaging than those that happen long before or after retirement. Popular investment vehicles like target-date funds (TDFs) have not protected against sequence risk, so investors need a different strategy. The authors find that a simple stock/bond asset allocation combined with a trend-following strategy for the stock portion (switching assets between stocks and government bonds, based on current market trends) greatly reduces sequence risk and minimizes the chances that retirees will run out of money or need to withdraw less from savings each year. The authors also offer ways to measure how well different investment strategies protect against sequence risk. TOPICS: Volatility measures, downside-only measures, performance measurement
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In The Underpricing of Sin Stocks in the June 2020 edition of The Journal of Investing, Robert Killins and Hongxia Wang of Coastal Carolina University and Thanh Ngo of East Carolina University discuss “sin stocks,” and in particular, the relative performance of their initial public offerings (IPOs) compared to other IPOs. The authors characterize “sin firms” as those engaged in controversial businesses like alcohol, tobacco, and gaming. Even though the securities of these firms often offer favorable returns, they also often are shunned by investors, and particularly by institutions proscribed by societal norms. The negative reputations of sin firms may contribute to the underpricing of their stocks and their IPOs. The authors find that sin-stock IPOs are underpriced to a greater degree than other IPOs, after controlling for various issuance and company characteristics. Because of this underpricing and the negative reputations of the firms, sin stocks can offer unique return characteristics. Investors willing to ignore the opprobrium may benefit from a reputational risk premium. The authors suggest that managers and individuals take a closer look at these potentially underpriced IPOs and securities as alternative investments. TOPICS: Portfolio theory, portfolio construction
{"title":"Practical Applications of The Underpricing of Sin Stocks","authors":"Robert N. Killins, T. Ngo, Hongxia Wang","doi":"10.3905/pa.8.4.416","DOIUrl":"https://doi.org/10.3905/pa.8.4.416","url":null,"abstract":"In The Underpricing of Sin Stocks in the June 2020 edition of The Journal of Investing, Robert Killins and Hongxia Wang of Coastal Carolina University and Thanh Ngo of East Carolina University discuss “sin stocks,” and in particular, the relative performance of their initial public offerings (IPOs) compared to other IPOs. The authors characterize “sin firms” as those engaged in controversial businesses like alcohol, tobacco, and gaming. Even though the securities of these firms often offer favorable returns, they also often are shunned by investors, and particularly by institutions proscribed by societal norms. The negative reputations of sin firms may contribute to the underpricing of their stocks and their IPOs. The authors find that sin-stock IPOs are underpriced to a greater degree than other IPOs, after controlling for various issuance and company characteristics. Because of this underpricing and the negative reputations of the firms, sin stocks can offer unique return characteristics. Investors willing to ignore the opprobrium may benefit from a reputational risk premium. The authors suggest that managers and individuals take a closer look at these potentially underpriced IPOs and securities as alternative investments. TOPICS: Portfolio theory, portfolio construction","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115306674","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In The Underpricing of Sin Stocks in the June 2020 edition of The Journal of Investing, Robert Killins and Hongxia Wang of Coastal Carolina University and Thanh Ngo of East Carolina University discuss “sin stocks,” and in particular, the relative performance of their initial public offerings (IPOs) compared to other IPOs. The authors characterize “sin firms” as those engaged in controversial businesses like alcohol, tobacco, and gaming. Even though the securities of these firms often offer favorable returns, they also often are shunned by investors, and particularly by institutions proscribed by societal norms. The negative reputations of sin firms may contribute to the underpricing of their stocks and their IPOs. The authors find that sin-stock IPOs are underpriced to a greater degree than other IPOs, after controlling for various issuance and company characteristics. Because of this underpricing and the negative reputations of the firms, sin stocks can offer unique return characteristics. Investors willing to ignore the opprobrium may benefit from a reputational risk premium. The authors suggest that managers and individuals take a closer look at these potentially underpriced IPOs and securities as alternative investments. TOPICS: Portfolio theory, portfolio construction
{"title":"Practical Applications of The Underpricing of Sin Stocks","authors":"Robert N. Killins, T. Ngo, Hongxia Wang","doi":"10.3905/PA.8.2.416","DOIUrl":"https://doi.org/10.3905/PA.8.2.416","url":null,"abstract":"In The Underpricing of Sin Stocks in the June 2020 edition of The Journal of Investing, Robert Killins and Hongxia Wang of Coastal Carolina University and Thanh Ngo of East Carolina University discuss “sin stocks,” and in particular, the relative performance of their initial public offerings (IPOs) compared to other IPOs. The authors characterize “sin firms” as those engaged in controversial businesses like alcohol, tobacco, and gaming. Even though the securities of these firms often offer favorable returns, they also often are shunned by investors, and particularly by institutions proscribed by societal norms. The negative reputations of sin firms may contribute to the underpricing of their stocks and their IPOs. The authors find that sin-stock IPOs are underpriced to a greater degree than other IPOs, after controlling for various issuance and company characteristics. Because of this underpricing and the negative reputations of the firms, sin stocks can offer unique return characteristics. Investors willing to ignore the opprobrium may benefit from a reputational risk premium. The authors suggest that managers and individuals take a closer look at these potentially underpriced IPOs and securities as alternative investments. TOPICS: Portfolio theory, portfolio construction","PeriodicalId":179835,"journal":{"name":"Practical Application","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129195897","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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