Introduction

What is this?

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TODO

My favorite personal finance blogs:

• A Wealth of Common Sense
• Lyn Alden
• The Measure of a Plan

Compound growth

TODO: Figure

The Compound Annual Growth Rate (CAGR), using the sampling frequency of \(\ell=252\) trading days per year, is

\[ r_\mathrm{CAGR}(t) = \left( \frac{a(t)}{a(t_{0})} \right)^{\ell/(t - t_{0})} - 1 \]

The portfolio problem

What mix of assets should I hold to preserve and accrue value over time?

TODO

Active vs passive investing

• Trading vs investing
• Dollar Cost Averaging (DCA)
• Brinson, G.P., Hood, L.R., & Beebower, G.L. (1986). Determinants of portfolio performance. ¹
• Brinson, G. P., Singer, B.D., & Beebower, G.L. (1991). Determinants of portfolio performance II: An update. ²
• Hood, R.L. (2005). Determinants of portfolio performance: 20 years later. ³

¹ Brinson, Hood, & Beebower (1986).

² Brinson, Singer, & Beebower (1991).

³ Hood (2005).

Figure 1.1: How often was the S&P 500 higher over various holding periods since 1950 (source: awealthofcommonsense.com).

Figure 1.2: Annualized returns of holding the S&P500 (source: awealthofcommonsense.com).

Why isn’t technical analysis discussed here?

TODO:

• “Technical analysis” is mostly bullshit
• Aronson (2007)

Aronson, D. (2007). Evidence-Based Technical Analysis. Wiley.

Brinson, G. P., Hood, L. R., & Beebower, G. L. (1986). Determinants of portfolio performance. Financial Analysts Journal, 42, 39–44.

Brinson, G. P., Singer, B. D., & Beebower, G. L. (1991). Determinants of portfolio performance II: An update. Financial Analysts Journal, 47, 40–48.

Hood, R. L. (2005). Determinants of portfolio performance: 20 years later. Financial Analysts Journal, 61, 6–8.