- Sometimes (esp. to fool inexperienced retail investors) the diversification is claimed to be a silver bullet (even in a financial crisis). I show that in crises the diversification effect weakens significantly but still persists (esp. for "defensive" stocks).
- I argue that in a normal (non-turbulent) market the diversification is very helpful in theory but also critically consider its applicability in practice.
- The results that we obtained for the DAX / German stock market should be extrapolated with caution for other markets. You will also see why it is better to watch and know the market (rather than to blindly rely on quantitative analysis and common sense).
Continue reading "The power of diversification and its limits by the example of DAX"
- Robo-advisors promise the risk profiling in a few easy steps, which is unrealistic both from mathematical and behavioral points of view.
- The "optimal" portfolios are usually based on Markowitz-like models, which are inapplicable in practice due to their extreme numerical sensitivity to the market parameters estimation errors.
- Robo-advisors lure investors with low management fees but minimizing fees and maximizing the wealth is not the same. Moreover, the compound costs are not so small in the long term.
- A positive side: Robo-advisers do not (yet) foist toxic financial products upon you.
Continue reading "Stripping down the robo-advisors: sparrow-brains inside"