There Ain’t No Such Thing as a Free Lunch
August 11, 2025
Our latest piece on Buffer Funds appears in the current issue of the Journal of Portfolio Management. Once again, and with more analysis (and co-authors) than our two previous posts on the topic, we find these products don’t hold up to scrutiny, either empirically or theoretically. Buffer funds by and large have sold investors the promise of comfort, cloaked in complexity, at the cost of risk-adjusted returns. Our paper shows there are simpler, less expensive, and more effective ways to deal with the risk of equity markets.
Asset Allocation
(So) What If You Miss the Market’s N Best Days?
June 5, 2025
This post revisits and refutes a long-standing argument against market timing—that missing just a few of the market’s best days can devastate returns—by demonstrating its logical flaws and statistical irrelevance. Using both historical and out-of-sample data, it shows that the risks and rewards of market timing are more symmetric than commonly portrayed.
Portfolio Risk and Performance
Buffer Madness
May 8, 2025
Last month, we posted a short piece critical of options-based strategies such as “defined outcome funds” and “buffered ETFs”. It showed that the vast majority of them failed to deliver either better returns or less-severe drawdowns than a simple combination of passive equities + cash. Since then, we’ve gotten quite a bit of—let’s call it—feedback. My partner Dan, who wrote the original, now writes the devastating response to his predictable critics. My only criticism is he is too kind.
Perspective
Antti Is (Still) Trying to Understand Return Expectations
April 28, 2025
My partner, Antti Ilmanen, is launching a new series, Understanding Return Expectations. The series focuses on how investors actually form their own beliefs about expected returns (which may, or may not, correspond with what he finds reasonable!).
Alternative Investing
Should Hedge Funds Hedge?: Why Some Alts Should Have a Beta of 1.0
March 28, 2025
While uncorrelated alternatives can be beneficial, they often fail to significantly impact the overall portfolio. Here, I argue that adding beta to these alternatives can enhance capital efficiency and improve long-term returns. Ultimately, there is a need for a balanced approach to investing in alternatives, including a combination of aggressive and equitized strategies.
Portfolio Risk and Performance
Rebuffed: A Closer Look at Options-Based Strategies
March 21, 2025
Options-based strategies, often labeled with words like “Buffered,” “Overlay,” and “Defined Outcome” have amassed a sizeable chunk of investors’ money, lured by the promise of market-like returns with less risk. These strategies use options to capture the upside or downside of an asset’s returns, and managers who employ a mix of options can tailor an asset’s risk/return profile to align with an investor’s goals. But can they actually deliver?
Asset Allocation
2035: An Allocator Looks Back Over the Last 10 Years
January 2, 2025
Well, sitting here in the year 2035 and looking back at our endowment’s returns for the last decade is not a pleasant task. World markets have been subpar and our performance relative to world markets has been simply terrible. Hard times are never pleasant. But they have one upside. We can learn from them.
Alternative Investing
In Praise of High-Volatility Alternatives
September 4, 2024
This note argues that good higher-volatility alternative investments, that are indeed often very hard to stick with, can be important tools in constructing the best overall portfolio. I think if (a big if) investors can stick with them, they are often a more effective tool than their lower-volatility cousins. Basically, I think they are underutilized
Alternative Investing
The Less-Efficient Market Hypothesis
September 3, 2024
I argue that over the past 30+ years markets have become less informationally efficient in the relative pricing of common stocks, particularly over medium horizons
The President’s Trophy Curse
May 20, 2024
Continuing my occasional foray into sports analytics, in this post I look at the President's Trophy curse. This ubiquitous observation can be summed up as “the winner of the President’s Trophy, awarded for the best record in the regular season, usually doesn’t go on to win the Stanley Cup. Thus, winning the trophy is cursed.” The President’s Trophy winner usually doesn’t win The Cup. It’s true, and yet it’s still really dumb.