Download Voluminous Data Can be Simplified to Inform Business Decisions

Paper:
Approaching
the Dip
John Kuest
7/13/2016
Voluminous Data Can be
Simplified to Inform Business
Decisions
John Kuest
7/13/2016
PMI Talent Triangle
Talents
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•
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•
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Strategic Planning
Problem Solving
Business Model
Risk Management
Gather Data
Analysis (Tools)
Strategic Planning
BI - Business Intelligence
Models – Simpler is better
Problem Statement
• We all want to be more secure with our long
term finances – we want to be able to retire
with less financial worries.
• The investment options faced by individuals
are astronomically large. How do we distill the
myriad of data into pertinent data and then
summarize it into something usable.
• The solution is to condense the data into a
suitable form fit into a model that produces
high performance actionable
recommendations.
Model
Efficient Frontier / Modern Portfolio Theory
• The efficient frontier is the set of optimal
portfolios that offers the highest expected
return for a defined level of risk or the lowest
risk for a given level of expected return. Optimal
portfolios that comprise the efficient frontier
tend to have a high degree of diversification.
Portfolios that lie below and to the right of the
frontier are sub-optimal, because they do not
provide enough return for the level of risk or
have a higher level of risk for the defined rate of
return.
Risk Management
Modern Portfolio Theory - A portfolio of highly diversified
group of stocks a bonds can produce optimal risk adjusted
returns – better returns taking less downside risk.
Two Investments Options
Barclays Aggregate
Bond Fund (AGG)
and S&P 500 (SPY)
3 year Return,
Monthly Data,
ending August
2015
At 25% SPY and
75% AGG same
risk as all AGG
Risk
Standard deviation is a popular basic mathematical concept to measure risk.
Standard deviation measures the average amount by which individual data
points differ from the mean. It is calculated by first subtracting the mean from
each value, and then squaring, summing and averaging the differences to
produce the variance. Standard deviation is the square root of the variance,
bringing it back to the original unit of measure and making it simpler to use and
easier to interpret.
Risk Interpretation
Stock A
Average Return
Standard Deviation
10%
10%
10 - 1.65*10 =
-6.5%
For “Stock A” assuming a normal distribution, 95%
of the time the annual return will be greater than a
NEGATIVE 6.5%. (5% of the time the annual return
is worse than -6.5%)
Screener
Data
Analysis
The Paper
Grey bars are Recessions
Recessions Waves
Search for best bear
market returns– AAII
ETF’s and Mutual
Funds
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30% Maximum in any one
Equity
Monthly Data from May
2006 to May 2011
Efficient Frontier Diagram
Voluminous
Data
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30% Maximum in any one
Equity
Monthly Data from May
2006 to May 2011
Strategic Planning
BI - Business Intelligence
PMI Talent Triangle
Questions?
John Kuest