Posts Tagged ‘diversification’

Asset Allocation

Asset Allocation

asset allocationCourtesy of Rick Bookstaber

I appeared last Friday on a the PBS program WealthTrack, where the topic was asset allocation, in particular, as host Consuelo Mack put it, how to build an all weather portfolio. I was the skeptic of the group. I don’t think there is some magic asset allocation that protects you from the buffetings of financial storms without it also trimming your sails during fair weather. Here is an encapsulation of my views from the program.

Asset allocation and risk appetite
One of the participants, asset allocation guru David Darst of Morgan Stanley, proposed various portfolios to protect against a 100-year flood, 30 to 70-year flood, a 25-year flood, etc. Those portfolios boiled down to putting less in risky assets and more in bonds; the more severe the flood you anticipate, the less risk you take. Of course, that will do the trick. If by asset allocation you mean determining where to set your risk tolerance dial, we’re all on board.

Asset allocation is like clapping with one hand
But the discussion of risk tolerance highlights that we can only go so far with asset allocation if we only look at assets. What matters is assets versus liabilities, because the liabilities determine our risk tolerance and, related to that, our demand for liquidity. It is impossible to formulate an ideal asset allocation strategy without knowing the liability stream those assets are intended to meet. There is no one-size-fits-all for asset allocation. This reminds me of an FAJ article I did back in the 1980s with pension actuary Jeremy Gold entitled “In Search of the Liability Asset”.

Diversification works well, except when it really matters
We all know the argument from Finance 101: If you hold 16 uncorrelated assets, your risk will drop by a factor of four. Well good luck with that.

During a crisis, when diversification really matters, correlations aren’t near zero (as if they ever are). All that people care about is risk and liquidity. All assets that are highly risky drop, all assets that are less liquid drop. No one cares about the subtlety of earnings streams. It is like high energy physics. When the heat gets turned up high enough, matter is just matter, the distinctions between the elements is blurred away.

This is not to say


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Is George Soros Long or Wrong on the Global Rebound?

Is George Soros Long or Wrong on the Global Rebound?

George SorosCourtesy of Keith Fitz-Gerald
Investment Director, Money Morning

Billionaire investor George Soros thinks the worst of the global financial crisis is behind us.

In a June 20 interview with Polish television, the Hungarian-born Soros acknowledged that this has been the most serious crisis he’s seen in his lifetime, but said, "Definitely, the worst is behind us."

For those that like to interpret "Soros-speak," that’s as powerful a sign as any that one of the world’s most successful investors is "going long."

But is he wrong?

On one hand, the World Bank is busy roiling the markets with recently updated figures that project a 2.9% decline in global economic activity this year. Then there are the signs that the "green shoots" (how I’ve come to detest that term) may be more like weeds. Debt is devastating the developed world and the once-mighty G-7 looks more like a G-1 every day.

On the other hand, I wouldn’t bet against him. When it comes to financial influence and acumen, Soros is about as powerful and prescient as they come. He’s made billions over the years speculating on things that others simply couldn’t see or, more often, didn’t want to believe. He’s as iconic as he is legendary for making big bets on market timing even if, by his own admission, he’s not always right.

For the millions of investors who are tempted to interpret Soros’s comments as bullish, that admission forces me to urge caution. In fact, my advice to proceed with caution extends to any comments that might be made by such other investment legends as Warren Buffett, or even Soros’ former investment partner, noted author and commentator Jim Rogers.

I preach caution for three reasons:

  • Despite the fact that each of these men is fabulously successful, the typical retail investor has no idea how much money they’re betting on the upside, or what percentage of their wealth is involved in any publicized position.
  • It’s not clear what – if any – protective stops are being used so you don’t know whether the positions they’ve taken represent core portfolio holdings or speculative trades.
  • These revelations – disclosures – are usually made after the fact, which means that investors who may want to tag along for


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Phil's Favorites

Technology start-ups that fail fast succeed faster

 

Technology start-ups that fail fast succeed faster

It took Thomas Edison countless failures before he succeeded in developing a marketable lightbulb. Shutterstock

Courtesy of Grant Alexander Wilson, University of Saskatchewan

Failure rates of new technology-based companies are shockingly high. It is estimated that 75 per cent of technology start-ups do not generate profits. Other data suggests upwards of 90 per cent of new technology enterprises completely fail.

However, some fa...



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Zero Hedge

The "Trade War" Is Over, Trump Just Doesn't Realize It Yet!

Courtesy of ZeroHedge View original post here.

Authored by Lance Roberts via RealInvestmentAdvice.com,

On Tuesday, the markets bid higher following a statement from the U.S. Trade Representative’s office that tariffs will commence on September 1st, but that some products will be delayed until December 15th. To wit:

“…some tariffs will take effect on Sept. 1 as planned, ‘certain products are bei...



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Kimble Charting Solutions

Transports 10-Year Bullish Trend Being Tested! Rally Time or Breakdown?

Courtesy of Chris Kimble

Is the DJ Transportation Index presenting a rare buying opportunity? The broad market most likely hopes so!

Transports have spent the majority of the past decade creating a series of higher lows. This pattern has created rising channel (1), which started back in 2009.

Transports have created a bearish divergence to the S&P 500 over the past 20-months, as they have created lower highs, while the S&P has done the exact opposite.

The softness in Transports has the testing its May lows and the 10-year rising channel to start out the week at (2). While testing...



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Insider Scoop

UBS: Monster Beverages Continues To Face 'Fundamental Controversy'

Courtesy of Benzinga

Monster Beverage Corp (NASDAQ: MNST) continues to face a "fundamental controversy" related to its growth profile, especially for the Reign brand which fell short of expectations in the second quarter, according to UBS.

The Analyst

UBS analyst Sean King maintains a Sell rating on Monster Beverage's stock with a $52 pr...



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The Technical Traders

Negative Yields Tell A Story Of Shifting Economic Leadership

Courtesy of Technical Traders

Negative yields are becoming common for many of the world’s most mature economies.  The process of extending negative yields within these economies suggests that safety is more important than returns and that central banks realize that growth and increases in GDP are more important than positive returns on capital.  In the current economic environment, this suggests that global capital investors are seeking out alternative solutions to adequately develop longer-term opportunities and to develop native growth prospects that don’t currently exist.

Our research team has been researching this phenomenon and how it relates to the continued “capital shift&rdq...



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Lee's Free Thinking

Long Term Stock Market Chart Perspective

Courtesy of Lee Adler

After a big day like yesterday, I like to get a little long term stock market chart perspective. (Yes, this stilted verbiage is for search engine optimization ).

We do that with a monthly bar chart, which I update when relevant in Lee Adler’s Technical Trader. That’s in addition to the regular daily bar/cycle charts covering the past year, and a weekly cycle chart covering the past 4 years.

I wrote on July 14, in reference to the price and indicator patterns on the weekly chart:

The market has overshot a 3-4 year cycle projection in terms of both price and time. There are no long term projections. A 4 year cycle high is ideally due now. A 4 ye...



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Chart School

Bitcoin 2019 fractal with Gold 2013

Courtesy of Read the Ticker

Funny how price action patterns repeat, double tops, head and shoulders. These are simply market fractals of supply and demand.

More from RTT Tv

Ref: US Crypto Holders Only Have a Few Days to Reply to the IRS 6173 Letter

Today's news from the US IRS has been blamed for the recent price slump, yet the bitcoin fractal like the gold fractal suggest the market players have set bitcoin up for a slump to $9000 USD long before the IRS news hit the wire.

Get the impression some market players missed out on the b...

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Digital Currencies

New Zealand Becomes 1st Country To Legalize Payment Of Salaries In Crypto

Courtesy of ZeroHedge View original post here.

Bitcoin and other cryptocurrencies have been on a persistent upswing this year, but they're still pretty volatile. But during a time when even some of the most developed economies in the word are watching their currencies bounce around like the Argentine peso (just take a look at a six-month chart for GBPUSD), New Zealand has decided to take the plunge and become the first country to legalize payment in bitcoin, the FT reports.

The ruling by New Zealand’s tax authority allows salaries and wages to b...



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Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

Reminder: We're is available to chat with Members, comments are found below each post.

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Promotions

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In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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