What a beautiful man. He was an inspiration and one of the great champions for small investors. His voice and influence will be missed, but not forgotten.
Hi Nick, IMO, the value in applying duration to other instruments is that it can put their expected stability into the proper perspective. For instance, in the paper I calculate the "duration" of equities at approximately 18 years. That is a reasonable time period for which one might expect equities to be stable. That's one of the essential principles of vague concepts like "stocks for the long run" or "buy and hold" - we know equities are stable over very long periods, but what this does is try to apply an actual time horizon to that concept so that we can construct portfolios where we specifically segment the various assets out over time horizons that match our liabilities across time. The real value in this form of a "bucketing" strategy is that it improves certainty of specific buckets being there when you need them to be there. For instance, during the Great Depression you would have had specific short duration buckets that offset all the uncertainty of the stock market crash. That allows you to remain fully invested in the equity slice because you know that's a multi-decade instrument. Hope that clarifies. Thanks for reading.
Hi Denise, Yes, as the paper notes, you can apply this in as complex a manner as you wish depending on your required ALM needs. For instance, the paper specifically notes that you could use as few as 3 ETFs to accomplish this. Doesn't get much easier than that! Thanks for reading.
I thought Adam did a nice job explaining that we used the term in the same manner that Bernstein did over 20 years ago: "There are lots of other definitions of duration, some dizzyingly complex, but "point of indifference" is the simplest and most intuitive." I am sorry if that wasn't clear.
HI Park, Thanks for reading. I agree that "duration" as an interest rate sensitivity indicator cannot be cleanly applied to stocks (or other instruments). But that is not how we're using the concept of "duration" in the paper. We are using "duration" in the scope of an investor's sensitivity to likelihood of losses across time. In doing so we are creating a bond-like time horizon for the assets that give an investor the proper perspective over which they should judge certain instruments. This creates a "point of indifference" that is very similar to the way a bond is sensitive to interest rates and principal losses. All in all I agree that any such concept ends up with hypotheticals and a fair amount of guesswork, but from a behavioral perspective I believe there is great value in assigning a general time horizon to assets that do not have clarity on time horizons. I hope that helps!
Comments
What a beautiful man. He was an inspiration and one of the great champions for small investors. His voice and influence will be missed, but not forgotten.
Post: Farewell Friends
Link to comment from September 22, 2025
Hi Nick, IMO, the value in applying duration to other instruments is that it can put their expected stability into the proper perspective. For instance, in the paper I calculate the "duration" of equities at approximately 18 years. That is a reasonable time period for which one might expect equities to be stable. That's one of the essential principles of vague concepts like "stocks for the long run" or "buy and hold" - we know equities are stable over very long periods, but what this does is try to apply an actual time horizon to that concept so that we can construct portfolios where we specifically segment the various assets out over time horizons that match our liabilities across time. The real value in this form of a "bucketing" strategy is that it improves certainty of specific buckets being there when you need them to be there. For instance, during the Great Depression you would have had specific short duration buckets that offset all the uncertainty of the stock market crash. That allows you to remain fully invested in the equity slice because you know that's a multi-decade instrument. Hope that clarifies. Thanks for reading.
Post: Money When Needed
Link to comment from September 21, 2022
Hi Denise, Yes, as the paper notes, you can apply this in as complex a manner as you wish depending on your required ALM needs. For instance, the paper specifically notes that you could use as few as 3 ETFs to accomplish this. Doesn't get much easier than that! Thanks for reading.
Post: Money When Needed
Link to comment from September 21, 2022
I thought Adam did a nice job explaining that we used the term in the same manner that Bernstein did over 20 years ago: "There are lots of other definitions of duration, some dizzyingly complex, but "point of indifference" is the simplest and most intuitive." I am sorry if that wasn't clear.
Post: Money When Needed
Link to comment from September 20, 2022
HI Park, Thanks for reading. I agree that "duration" as an interest rate sensitivity indicator cannot be cleanly applied to stocks (or other instruments). But that is not how we're using the concept of "duration" in the paper. We are using "duration" in the scope of an investor's sensitivity to likelihood of losses across time. In doing so we are creating a bond-like time horizon for the assets that give an investor the proper perspective over which they should judge certain instruments. This creates a "point of indifference" that is very similar to the way a bond is sensitive to interest rates and principal losses. All in all I agree that any such concept ends up with hypotheticals and a fair amount of guesswork, but from a behavioral perspective I believe there is great value in assigning a general time horizon to assets that do not have clarity on time horizons. I hope that helps!
Post: Money When Needed
Link to comment from September 19, 2022