What follows is a discussion on portfolio theory. Pretend you are you. You have a job, and you have a portfolio. The economy is expanding, you are doing well at your job, the company is doing well, you’re getting paid and promoted, and everything is great. Also, the stock market is going up, and you’re making money there, too. Everything is awesome.
Spot on with the notion that if someone is older and saved a few million, the idea is to do just ok in bull markets but even better in bears. My thoughts on portfolio construction now revolve around mostly crisis/safe haven assets including managed futures, gold, cash (tbills), and 100% equity in one’s personal residence. If you put the last 20% in risk assets like stocks, that’s plenty of juice to get you high single digit returns, maybe 10% before taxes or inflation. This is a lot like the Awesome Portfolio, but I strongly prefer a trend following strategy to bonds. Jared, have you researched using a 20% allocation to a CTA trend following strategy instead of bonds? What are your thoughts?
Spot on here, for a long time i advocated that people should be short the stock of their company, or at least own puts on the sector as if the sh*t hits the fan, and you are fired, hopefully that will help manage the situtation
All good stuff...but what you omitted is a person's age. If you're young and can ride out volatility, then indexing makes sense as per John Bogle's writings. In retirement, the safety of capital is key and I would agree being all in stocks will lead to heartache.
That's a really good point but also easier said than done! Challenge for most is managing emotions. Believe he writes in No Worries that if you're someone that can detach emotionally and ride out the volatile swings then yeah, surf it and stay in index funds, but most can't.
Right, it’s simple (leave it alone for 40 years and keep DCA), but not easy (suddenly feel am an expert to mess with it when actually don’t know a thing!).
Wow. If I'd been at Lehman's I'd be a changed man, too. Buffett bets on the US market going up and right, with a little internal leverage to goose the returns. You are like the Bizarro anti-Buffett looking to make money not off the normal up and right, but off the downs. This is arguably a tougher game (as you note about shorting), but you say you've move to alternatives -- essentially playing outside the box of the US market, on a bigger and wider playing field. Those markets don't seem to have the same up/right history and character as does the US market but if they are uncorrelated or negatively correlated, they could work.
Kolticoff promotes a type of lifetime consumption smoothing, and your life hedge approach echoes his consumption smoothing without forgoing all risks and the related possible returns.
I enjoyed the read, and the ideas you've presented here. Thanks!
It's worth noting that Buffet is sitting on about $135 billion right now, according to what I read. Sounds like he's ready to do some bottom-fishing if/when things turn down.
Lots of wisdom here. This might be your best essay yet.
Spot on with the notion that if someone is older and saved a few million, the idea is to do just ok in bull markets but even better in bears. My thoughts on portfolio construction now revolve around mostly crisis/safe haven assets including managed futures, gold, cash (tbills), and 100% equity in one’s personal residence. If you put the last 20% in risk assets like stocks, that’s plenty of juice to get you high single digit returns, maybe 10% before taxes or inflation. This is a lot like the Awesome Portfolio, but I strongly prefer a trend following strategy to bonds. Jared, have you researched using a 20% allocation to a CTA trend following strategy instead of bonds? What are your thoughts?
Spot on here, for a long time i advocated that people should be short the stock of their company, or at least own puts on the sector as if the sh*t hits the fan, and you are fired, hopefully that will help manage the situtation
Banger
All good stuff...but what you omitted is a person's age. If you're young and can ride out volatility, then indexing makes sense as per John Bogle's writings. In retirement, the safety of capital is key and I would agree being all in stocks will lead to heartache.
That's a lot of action for same return as SPX. Most people won't have the expertise or time to learn. Just sleep during the volatility?
That's a really good point but also easier said than done! Challenge for most is managing emotions. Believe he writes in No Worries that if you're someone that can detach emotionally and ride out the volatile swings then yeah, surf it and stay in index funds, but most can't.
Right, it’s simple (leave it alone for 40 years and keep DCA), but not easy (suddenly feel am an expert to mess with it when actually don’t know a thing!).
Wow. If I'd been at Lehman's I'd be a changed man, too. Buffett bets on the US market going up and right, with a little internal leverage to goose the returns. You are like the Bizarro anti-Buffett looking to make money not off the normal up and right, but off the downs. This is arguably a tougher game (as you note about shorting), but you say you've move to alternatives -- essentially playing outside the box of the US market, on a bigger and wider playing field. Those markets don't seem to have the same up/right history and character as does the US market but if they are uncorrelated or negatively correlated, they could work.
Kolticoff promotes a type of lifetime consumption smoothing, and your life hedge approach echoes his consumption smoothing without forgoing all risks and the related possible returns.
I enjoyed the read, and the ideas you've presented here. Thanks!
It's worth noting that Buffet is sitting on about $135 billion right now, according to what I read. Sounds like he's ready to do some bottom-fishing if/when things turn down.
Buffett makes money buying in down periods so this is less different than it looks. In every crisis he makes a killing.