Roll Your Own
Become Your Own Portfolio Analyst

The Search For the Holy Grail

The editor continues his search for the "holy grail" of small investor portfolio analysis -- an inexpensive software application which:

1. Contains long time series for a large number of investible asset classes.
2. Allows backtesting and quadratic optimaiztion of portfolios.
3. Contains a Markowitz mean variance optimizer.

Unfortunately, it hasn't happened yet. Glenn Manuel of Dallas Texas pointed out to me a tantalizing morsel available in the form of the Mutual Fund Expert avaliable from http://www.steelesystems.com. MFE is available in a number of packages ranging from a free demo up to the "Professional Plus" version, which normally costs $599 per year for monthly updates. The folks at Steele Systems suggested that a workable solution for investors wanting to investigate the behavior of various hypothetical index based portfolios would be to purchase a single edition of the Professional Plus version at for $105.

I found the Professional Plus version of MFE to be a quite workable portfolio backtester. Setting up this Windows based platform was a snap, and after a few minutes study of the program manual I was able to easily construct index based hypothetical portfolios, from which 3, 5, 10, 15, and 20 year returns and 3, 5, and 10 year SDs were automatically calculated. Annual and monthly returns could also be generated and graphed back to 1962 for several assets. One could not try out portfolio combinations as rapidly as is possible with a spreadsheet, but hey, writing portfolio spreadsheets is no picnic. MFE is designed primarily as a mutual fund survey, and has the same look and feel as Morningstar Principia, which is an added bonus if you purchase it as a portfolio tool. My only criticisms are 1) that it doesn't contain the Ibbotson database back to its 1962 inception, and 2) that the longest period SD is 10 years. It's not perfect, but is leagues ahead of any other inexpensive portfolio tool.

Morningstar Products Principia does a little better in terms of data, with a vast array of market indexes going back 15 years. Unfortunately, a lot of the data is "buried" in the software. (For the hard core data freaks among you, the monthly data is found in Pricipia\control\openend\mtr.dbf. You will need the static.dbf file to identify the individual funds, and a database program to export the data in usable form.) Principia Plus with Portfolio Analyst has limited backtesting capacity, and is quite expensive.

For those looking for a free Markowitz MVO, Critical Point is a clunky Windows based shareware optimizer which can be downloaded from http://ftp.sunet.se. Once you have arrived at this site, use their search utility to find cripo098.zip.

Lastly, the editor apologizes for the inoperative ftp for the 1926-94 templates. If you really want a copy, email me.

Know of a useful piece of inexpensive or free portfolio software? Let us know!

William J. Bernstein
wbern@mail.coos.or.us

copyright (c) 1996, William J. Bernstein