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Where
am I ?
I
originally wrote this section to be read straight |
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I'm a retired actuary,
born in 1936, formerly the CEO of
an employee benefit consulting firm. I am NOT an investment expert, and I am NOT tech savvy. PLEASE don't rely on me for investment advice. YOU probably know more than I do. My role is merely that of a statistician. I keep track of the past performance of the Gilder stocks and pass the results along to you. It's up to you what use you make of it. I'm happily married and the father of five grown sons and a standard poodle named Bianca. Debbie and I have three delectable granddaughters, Ivy, Sydney, and Berkeley, and two handsome grandsons, Charlie and Clayton. (back to top) Why are you doing this?
It's a hobby and a labor of
love. I do it in the hopes
of repaying George Gilder and the rest of the Gilder community for all the pleasure they have given me. It's an honor and a thrill to be part of this great adventure, even in adverse times. (back to top) What got you started? Being an actuary, it's second nature for me to produce reams of statistics to keep track of my investments. When I started investing with Gilder in March of '99, I created the GTI both to track how George was doing and to test the use I was making of his advice.
In January of 2000 I
decided to create a web site to
share my information with other Gilderites. (back to top) How did you find out about George Gilder? In late '98, just as I'd decided that my returns were suffering from not enough tech stocks, a flyer came in the mail from the GTR. I'd heard George speak years before at a Cato conference. It was at the height of America's fear of Japanese business, and we were frantically seeking ways to emulate their success. George said it made him think of a convention of hares, gathered to discuss the tortoise threat: "Maybe we should strap heavy weights on our backs..." Well, I figured, he certainly saw the future in that case, so I'd give the GTR a try. I think it was one of the best decisions I ever made. (back to top)
What's your connection to
the Gilder group?
None whatsoever, except
that I subscribe to the report
and invest in stocks it recommends. This web site is a hobby -- no pay, no advertising, all outgo, no income, except for the pleasure I derive from doing it.
What's your personal investment style?
I think due deference (to Gilder's vision) is more important than due diligence. I don't believe in market timing. I'd rather buy at a bad price than not at all. I'm willing to ride out the downs in order to be sure of being there for the ups. I spread my money widely among the companies on the list. You never know who the next stars will be. I think the Gilder companies have so much long term promise that all we have to do is buy them and hold them. I'm an optimist. back to top) What software and other tools do you use to maintain your indexes and this site? I wish you hadn't asked that -- I'm very backward. My spreadsheet program is Microsoft Works, which is sort of Excel for Dummies. It's what came with my first computer, and it meets my needs, so I've stuck with it. I also blush to disclose that until April of 2002 I entered all stock prices by hand. I hadn't come across any satisfactory way of automating the process. Then a reader wrote suggesting I import the prices from Yahoo, which is where I was getting them already. So now I just import Yahoo files to Works. It's a big help. My final confession is that I use Microsoft Front Page to maintain the site. I've never learned HTML. (back to top)
Enough about you. Let's talk about
me.
How do I get
a list of the companies? You'll find them here. But you really should subscribe to the Report. Click here for links to sample reports and subscriptions. (back to top)
Let's discuss your
methodology. Why an equal-dollar
portfolio?
It makes the most sense to
me. The Gilder report lists
companies it recommends, but nowhere does it say to favor some over others. (But note the exception for "penny stocks" adopted effective May 6,2002.) Of course I have my preferences, as does the report itself. But mine are irrelevant, and the report's are rarely set out clearly in print, are forever changing, and are never quantified. (back to top)
Yes, but most
indexes don't use equal dollar weights.
Why don't you do what they do? The NASDAQ and S&P's market-cap weights tell you how the market as a whole is doing, just as the GNP tells you how the economy as a whole is doing. But neither is relevant to individuals. Who but an index fund invests more in a company just because it has a greater market cap?
The Dow (I think) buys equal numbers of
shares. That
was a convenience in the pre-computer age, but not today. Does it make sense to invest more in a stock with a high price than a low price? Would you invest less in a company the day after a split than the day before? (back to top)
Why do you rebalance
so often (daily until December 1,
2000, weekly thereafter)?
Every index must be rebalanced from time to time -- restored to its specified makeup. In the case of my indexes, that means equal dollar holdings. The more frequent the rebalancing, the less the index wanders from its roots. The ultimate is to rebalance at every update, and since I can, I do. (back to top)
Frequent rebalancing is
impractical for me. Why is it
OK for you?
Perhaps frequent
rebalancing is impractical for the
individual, because of the transaction costs that would be involved. (And yet . . .) But a stock market index need not be a possible portfolio to be useful. All that matters is that it reliably represent the performance of the stocks it follows. The NASDAQ, for example, is not a possible portfolio.
Unlike the
S&P or the NASDAQ 100, there are no index
funds for the NASDAQ.
It has too many component
companies in which to invest, even for a large mutual fund. Yet it is widely accepted as a useful index.
Does your frequent
rebalancing introduce a bias?
I
used to wonder about that.
Under a rebalancing system, at each interval the index "sells" a little of its above-average performers, and "buys" a little of its below-average performers. This is done to restore the index to its specified proportions, which in my case means equal dollar holdings. The reason for this is that because of their performance during the interval, the winners have become over-represented, and the losers under-represented. The index no longer consists of equal dollar holdings. The solution is to sell a bit of the winners and buy a bit of the losers, until we have equal holdings again. Might not this procedure introduce a systematic bias? For example, if it's the case that stocks tend to move up or down in relatively straight lines, then selling your winners and buying your losers is a terrible strategy. You are forever selling the stocks that are rising and buying the stocks that are falling. If, on the other hand, it's the case that stocks bounce up and down like yoyos, then rebalancing is a brilliant strategy. You sell a stock just before it drops, and buy
it back again just before it
recovers.
If one or the other of those scenarios were reliably the case, then daily rebalancing would indeed introduce a systematic bias. It would perhaps make the GTI a
questionable source of
information about Gilder returns.
(Of course, no index is perfect. In 1999 the NASDAQ
was up over
85%, but something like two-thirds of its
stocks were actually
down. To many investors, the
85% return they read about in the papers must have been a cruel joke.) But getting back to the impact of such rebalancing, just what is the case? Do stocks tend to move in straight lines? Or do they yoyo? Or is neither the case? Do
stocks perhaps move all
over the lot, so that both
phenomena occur regularly, maybe even canceling each other out? There is no way that I know of to answer this question on a theoretical basis. So I put the matter to a real-world test. I went back to March of 1999, when I started my
personal
Gilder portfolio, and made a 17-1/2 month,
day-by-day comparison of
the growth of $10,000
invested in both the GTI and my own portfolio.
The results of this test can be found in the chart in the upper right hand column of Is It Accurate?
How
can you compare the GTI to the NASDAQ and
S&P? They're so
different.
Hey, even apples and oranges can be compared.
Apples are red,
less spherical, and mealier inside.
Oranges are orange, and so on. Most of us readily accept it when the press compares the Dow to the NASDAQ and the S&P, even though they are very dissimilar. The NASDAQ and S&P claim to depict the action of their component stocks, and most agree that they do. I make the same claim for my indexes. In fact, because of their narrower focus, I think my indexes do a much better job of depicting their stocks
than the NASDAQ and S&P do of theirs. If there
is a flaw
in the comparison, it's that the NASDAQ and S&P are so
broad-based that their results are too diffuse to be pertinent to us Gilderites.
When you update, you add up each stock's
percentage
change since the last update, and then divide by the number of stocks to get the average change. Isn't that a no-no? It is generally wrong to add percentages, but not in this
case, where we are dealing with
equal dollar holdings.
Imagine the GTI as a portfolio where each holding starts out worth $100, so that the percentage and dollar
changes are the same. Up 3.25% or up $3.25;
down
1.75% or down $1.75; it doesn't matter. Whether you sum the dollars or percentages, the result's the same. Looking at it another way, each percentage has the
same denominator, so it's
OK to add them up.
It would be a sad thing if a Fellow of the Society of Actuaries could not cope with arithmetic as straightforward as that.
What about the
"round trip problem"?
The round trip "problem" is that if a stock goes up 25% and then down 20%, it is back where it started. But if you average plus 25% and minus 20%, you get plus 2.5%, so you are not back where you started. Thus, it is claimed, each of these round trips results in an error, which over time must accumulate and throw
the index seriously out of whack.
However, I never average the example's plus 25% and minus 20%, because they occur on different days. Each day's index stands on its own. There is no round trip problem.
I'd like to believe you
when you say your indexes are
accurate and unflawed, but your arguments are hard to follow. Can you simplify them? I'd
be glad to. Click here to see a graph of how closely
Is there any way I could buy your indexes? There are
at least two possibilities. They are described
What price
do you use when you add a new company
the Gilder list, I
wait until the end of the week to reflect
the change in the GTI, unless it happens so early in the
week that I can
still go back to the end of the preceding
week, which I do when the Gilder Report comes out on a Monday or before the market closes on a Tuesday. |
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