Jack Ablin's systematic approach to asset allocation

I like reading popular investment books. They offer many good ideas that make practical sense on how to manage portfolios. These books often cut through the academic work and focus on the practical realities of investing. Nonetheless, not all of this advice makes sense nor is it validated with empirical data, but it more often than not provides wisdom on how to make better decisions. 

Jack Ablin is the CIO of the Harris Private Bank. He wrote a few years ago, Reading Minds and Markets: Minimizing Risk and Maximizing Returns in a Volatile Marketplace. He uses a five point framework which is a good disciplined approach for investment decisions. An investment checklist that makes sense. 

An investor have to consider five factors or themes:

• 1. Momentum - Make sure that you follow the trend. It is a good tailwind when you invest in the same direction as price momentum.
• 2. The economy -The direction or strength of the economy is always an important headwind or tailwind. If the economy is faltering you don't want to invest in stocks, yet when in the depth of a recession the return to risk starts to favor the equity investor.
• 3. Follow liquidity - This is just the old adage that you never fight the Fed or any central bank. If liquid starts to tighten, it is time to get out of stocks.
• 4. Psychology - Markets are always driven by greed or fear so make sure you understand what is current market sentiment.
• 5. Fundamentals and valuation - High valued stocks means the futures that to be exceedingly bright for you to make money. Always try to bias exposure to cheap valuation

The book does not go into deep details on all of these issues, but it does serve as a simple effective checklist for any investor.