In a recent AQR post (Perhaps the Most Important Essay I Will Ever Co-Author), Cliff Asness rolls out a fun analysis of the mathematics of pulling a goalie in hockey (the math supports an earlier pull than is typical) and takes a slap-shot at applying the insight to investing. I am friendly to AQR (investor in several funds) and to hockey (hey, I'm from Minnesota) but I am not as sanguine as Cliff on the applicability of "goalie-pulling" to individual retirees and I think the frisson of coming up with what is otherwise a pretty good sports-to-finance metaphor has blinded him to a couple things (If I am reading it right). While there is probably some case for institutions with long time frames to "pull goalies" (i.e., don't disdain the return potential of higher vol strategies or "you can't eat low volatility" or something like that) the problem for me is that for certain retirees in mid retirement: 1) a plausible remaining retirement planning horizon can sometimes be really short (say you are 68 and plan to annuitize at some optimal age such as 76 or 80) so recovery time can be too short as well, and 2) his metaphor looks like it leans pretty hard on expected value so for an individual retiree he hasn't solved the one-whack-at-a-cat problem. For the individuals that average to the expected value the journey can be one of misery if they are the one stuck with the non EV result. On the other hand for low levels of wealth and short time horizons, high vol can, in fact, act like the only lotto ticket available and pulling the goalie might be an obligation rather than a choice which probably makes his point. The rich, of course, can pull goalies all day long because they have giant margins for error...but we don't care about that side of the equation. For those in the middle conservative game strategies still seem worthy. But then I have not really digested the paper so maybe there is more to it that I credit here.
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