August 22, 2019

SAT/ACT Tutoring in Exchange for Multi-Factor Strategy

Update: I've added a link to Adaptive Asset Allocation.

Open Offer

I'll provide $10,000 of free SAT/ACT tutoring to the first East Bay financial adviser who offers as an investible option a strategy that has historically done better than the multi-factor one described in AQR's recent paper Buffett's Alpha (supporting documentation required).

Buffett's Alpha
Buffett's Alpha

To be clear, I think such strategies exist, but they're not normally offered to retail investors like us. I'd like to know whom I can direct people to who will do a good job.

Since most managers don't have a history going back to 1976, funds with a transparent investing methodology that can be backtested back to 1976 or earlier would suffice. Funds with semi-transparent strategies, such as AQR's funds, may qualify if their Portfolio Visualizer factor loadings are large and consistent with the funds' stated goals. A reasonable case can be made for a fund if its factor loadings are greater than Berkshire Hathaway's.

There are publicly traded ETFs and mutual funds that qualify. The adviser would need to provide evidence, such as a Web link, that those funds are offered to clients on a regular basis.

Here's another strategy that's historically worked and is relatively simple: Adaptive Asset Allocation. After trading costs and fees, it has a Sharpe ratio of 0.82, higher than Warren Buffett's 0.79. The historical annualized return has been 7.7% percent with 9.4% volatility (a smoother ride than the stock market itself), is positive in 84% of all years, and handled the 2000 and 2008 recessions very well.

Meb Faber tests a similar strategy back to 1973 in his mini-paper A Quantitative Approach to Tactical Asset Allocation. AQR has also done an extensive out-of-sample test of a related concept, trend following, in the paper Trends Everywhere and finds that it works in "normal" assets classes (U.S. and international stocks) as well as alternatives like VIX futures and long/short factors.

Needless to say, if you implement something like this for your clients, you qualify.

Adaptive Asset Allocation
The offer is transferable to the relative of your choice. I have perfect scores, so it's not a run-of-the-mill offer. Please contact me if you're interested. Thanks!

(This page has been active since June 11, 2019. I've sent it to every financial adviser who has contacted me as well as those who have advertised their services on NextDoor. So far, no one has attempted to claim the prize. It's still available!)

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