Book Review: Dynamic Asset Allocation

James Picerno writes the popular blog  The Capital Spectator. One of his main topics is asset allocation.  He has a book coming out in February called Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor.

Asset allocation is important.  It determines much of the returns investors will receive.

This book goes into a long discussion of modern portfolio theory, and the author finds MPT to be valuable, but needs to be supplemented by other factors other than the market portfolio.  Market capitalization, individual stock valuation, and overall market cheapness/dearness plays a role in asset allocation.  This rectifies the main complaint of value investors regarding asset allocation, in that relatively lower prices should lead investors to allocate more to an asset class.

There are elements of my own view here, which says that asset allocation should look at sustainable yield levels adjusted for the likelihood of those yields occurring, and the potential for downside risk.

Also, the author spends time on the special situations of asset allocation for the individual or institution — how old you are, or, what industry you are in.  I experienced that at one firm I was at where I managed the profit sharing assets.  We underweighted financials because our firm did well when financials did well.  We did not want employees worrying about their assets if the firm was having a bad year.

I recommend the book, but it is not a popular book.  Average people will not get a lot out of it.  The book requires a moderate knowledge of finance to make it valuable to the reader.

Who would benefit from this book: those who have a strong interest in asset allocation, and like or are willing to tolerate a decent amount of academic discussion of modern portfolio theory.  As academic views go, this is a better one.  That said, many people will find this book a tough slog because they don’t want to deal with the academic arguments.

If you want to buy it, you can get it here: Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor.

Full disclosure: I earn a small commission from Amazon for anyone entering Amazon through my site, and buying anything there.  Your price does not rise from my commission.  Don’t buy anything you don’t want to buy if you want to reward me for my writing.  Only buy what you need if Amazon offers you the best deal.

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