Taking Small Bets and Keeping Out of the Market's Way

Roger Nusbaum submits: A reader left a comment asking what my goal is in trying to construct a portfolio, but he did not specify for clients or personally. The tone of the question was more big picture.

The market goes higher over time - trying not get in the way of that is one big goal. Most of the people that hire us have saved or are saving properly. Proper savings means the portfolio needs to do fewer things. The biggest macro is to give clients the best chance possible of reaching their goals. Big bets that blow up are a sure fire way to screw that up, so I don't make big bets.

One bit of philosophy that has come up before is that I would gladly lag the market by a little every year in exchange for substantially less volatility than the market. This was how the portfolio behaved last year for most clients.

All modesty aside, I think I have a good understanding of how to blend different things together to get a result I want to get. The various things I write about like, gold, Australia, the double short fund and so on are all things that help me do this, even with the miserable timing of buying the double short ETF last summer.

I am not a big risk taker where other people's money is concerned. In a year where the market is up 10%, I can't imagine I would be up 20%.

If the reader meant personally, well we also need to save and invest for our future. I own many of the themes I put in client accounts, but I also have an eye toward less volatility than I have for most clients. Never being emotional is a both a goal and a job requirement (as I see my job). I am pretty good at not being emotional, but I think less volatility and less domestic exposure give me the best chance of remaining unemotional.

I probably do a little more with currencies than what I do for clients, and I tilt a little heavier to things like Macquarie Infrastructure (MIC) in my account than in client accounts; for anyone new, MIC has been a longtime (relative to how long it has been trading) personal and client holding.

The Patriots just could not stop the Colts at all for the last 35 minutes, doh.