William Kinlaw - A Practitioner’s Guide to Asset Allocation

1. Chapter 02
2. Chapter 03
3. Chapter 04
4. Chapter 05
5. Chapter 06
6. Chapter 08
7. Chapter 09
8. Chapter 10
9. Chapter 11
10. Chapter 12
11. Chapter 13
12. Chapter 14
13. Chapter 15
14. Chapter 16

1. Chapter 02
2. Chapter 03
3. Chapter 04
4. Chapter 06
5. Chapter 08
6. Chapter 09
7. Chapter 10
8. Chapter 11
9. Chapter 12
10. Chapter 13
11. Chapter 14
12. Chapter 15
13. Chapter 16
14. Chapter 18

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WILLIAM KINLAW
MARK P. KRITZMAN
DAVID TURKINGTON

Copyright 2017 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data is Available:

ISBN 9781119397809 (Hardcover)
ISBN 9781119402428 (ePDF)
ISBN 9781119402459 (ePub)

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A Practitioner's Guide to Asset Allocation, by William Kinlaw, Mark Kritzman, and David Turkington, speaks to the forgotten man of our field: he or she who interacts with the client and delivers professional investment advice. They are the foot soldiers of our field. Our field has an abundance of articles by academics trying to persuade other academics as to how practitioners should advise clients; articles written by academics for quantitative practitioners, who are actually academics, usually employed by large institutional investors, either as window dressing, or to build systems to replace nonquantitative academics; textbooks trying to educate students as to how they too can write academic articlesenough of them to achieve tenureon how practitioners should practice; and, now and then, books written by academics for practitioners on what every academic knows and I'll try to explain to you. But there are remarkably few wellwritten books or articles, by learned scholars, for practitionerswithoutcalculus, on controversial topics of practical importance, on which the scholar has published strong views.

The Kinlaw, Kritzman, and Turkington Guide fills this void. Specifically, among its 16 chapters for practitioners (plus an Addendum with chapters on statistical concepts and a glossary of terms) is a discussion of why it is not true that the Markowitz optimization procedure maximizes rather than minimizes risk for given return, and why the investment practitioner's clients would not be better served by the practitioner recommending an equal weighted portfolio rather than going through the demanding MPT process.

This Guide should be of interest to practitioners; scholars who seek to develop or evaluate techniques that can be of practical value in practitioners' hands; academics who would like to create, explore, or evaluate, empirically or theoretically, relationships that can guide the development of such techniques; investors (especially institutional investors) who must evaluate alternative current or potential advisors; and broadly read nonfinance readers who enjoy a good intellectual fight.

Harry Markowitz
Nobel Prize Recipient, 1990, Economic Sciences
President, Harry Markowitz Company

Since the formalization of asset allocation in 1952 with the publication of Portfolio Selection by Harry Markowitz, academics and practitioners alike have made great strides to enhance the application of this groundbreaking theory. However, as in many circumstances of scientific development, progress has been uneven. It has been punctuated with instances of misleading research, which has contributed to the stubborn persistence of certain fallacies about asset allocation. Our goal in writing this book is twofold: to describe several important innovations that address key challenges to asset allocation and to dispel certain fallacies about asset allocation.

We divide the book into four sections. covers the fundamentals of asset allocation, including a discussion of the attributes that qualify a group of securities as an asset class, as well as a detailed description of the conventional application of meanvariance analysis to asset allocation. In describing the conventional approach to asset allocation, we include an illustrative example that serves as a base case, which we use to demonstrate the impact of the innovations we describe in subsequent chapters.