Portfolio Optimization Tool
Know Your Odds
Account For All Market Circumstances
Multi-Year Forecast
Empirical Evidence vs. Opinion
Holistic and Personalized
Tool Origin
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After 25 years of constructing portfolios for Harvard Management ($30B), GMO ($60B), Hall Capital ($30B), Bitterroot (10-year $1B startup), Abbot Downing ($30B) and Aspirant ($12B) I learned that there is a great opportunity to provide a portfolio management system that can systematically construct an unlimited number of portfolios, pre-tax and after-tax, independent of past performance.
Punch Line
Coral Insight specializes in providing an ongoing understanding of how to improve the probability of achieving the investment objective.
Proof of Concept
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The key assumption of the Tool is that the cash flow (pre-tax and after-tax) of any investment and not past performance equals almost always the future return of the asset at duration. The following charts compare the starting yield black line (return forecast) with the subsequent future return blue line. If the lines are on top of each other, it means that the starting yield level is indicative of future returns. Additionally, the red line is the historical return, and it does not relate to the future return blue line. The data is rolling monthly. The fixed income data started on January 30, 1976, and the stocks data started on January 31, 1950.
Highlights
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The Tool plays a critical role in constructing an unlimited number of custom portfolios. A necessity for taxable accounts.
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The Tool enables all decision-makers of the portfolio the ability to understand the odds of achieving the overall objective from each investment decision.
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The Tool helps to avoid those investments that are priced to produce the least amount of return.
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The Tool guides the limited resources of research to those investments with the highest expected returns.
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The Tool helps to understand the benefits and challenges when swapping and asset.
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The Tool helps to explain the reasons for each investment decision with empirical evidence versus an opinion a welcome characteristic for compliance.
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The Tool helps avoid conflicts of interest, given the self-serving importance that managers have when communicating with them. Managers will not suggest that their strategy is likely to perform poorly. We need to know that independently.