1. Asset Allocation
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2. History
Till early 1960 the term Asset Allocation did not
exist.
The Traditional view -
 Diversify - Avoid putting all eggs in one basket
 Let every man divide his money in three parts,
and invest a third each in land, business &
balance let him keep in reserve.(Talmud)
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3. What, assets?
Assets Vehicles
 Equity
 Debt
 Real Estate
 Gold/commodity
 Equity Mutual Funds/Private
Equity/PMS/ Large
/Mid/Small/International
 Debt Funds/Fd’s /NSc/ KVP /PF/
PPF/Bonds etc
 Direct -
House/office/shop(Leveraged)/
PMS/ Reit
 Physical/ETF/Options
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4. Why Asset Allocation
 Correlation (MPT)
 Goal management
 Concern & Control
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5. The MPT – a portfolio mgmt technique
The four components
 Investors inherently avoid risk, then they are with
reward
 Securities markets are efficient
 Focus on portfolio as a whole and not on
individual securities
 Every risk level has a corresponding optimal
combination of asset classes that maximizes
returns
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6. The Black Swan
 Fragility - Catastrophic
 Counter balance complexity with simplicity – equity
bubbles proved to be mild, debt bubbles vicious
 Incentive bonus to manage a nuclear plant/ financial
risks
 Teaching people to navigate in uncertain times –
times when bankers take risks more than
entrepreneurs
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7. Types & Risks
 Strategic
 Tactical (Pu Shen –
PE)
 Functional( Bert –
Talmud, farmer)
 Nick (the bigger risk)
 Inflation
 Volatility
 Deflation
 Behavior
 Institutional approach
to Individuals
 Risk per se – Whisky
& wada pav
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8. Dimensions
 Returns – the fighter plane
 Time Horizons
 The market timing – existence of inefficiencies,
understanding business cycles etc
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9. Timing the market
15.00%
15.50%
16.00%
16.50%
17.00%
17.50%
18.00%
Returns From Jan 1980 - Aug 2010
17.60%
16.19%
16.91%
Yly Investments @ lowest Sensex value every Year
Yly Investments @ Highest Sensex value every Year2
SIP On 1st day of every month
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10. Determinants of portfolio performance
Asset
allocation 91%
Security
Selection 5%
Market timings
2% Others 2% Asset
allocation
Security
Selection
Market timings
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11. Points to ponder
 Managing the self & the individual client against
the market forces
 Understanding of risk per se
 Individual challenges – Within control -
 Relationships
 Health - habits
 Redundancy
 Behavior
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12. Thank You
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