Michael Dever’s Jackass Investing: Don’t do it. Profit from it. has surely raised some eyebrows and not just because of the aggressive title. If the title makes you uncomfortable, you will feel more uncomfortable after you read Dever’s bold challenge of 20 common investment myths. Dever took me out of my comfort zone as an investor and challenged many of my own assumptions. I finished the book as a better investor, armed with new insight on how to better create a portfolio with potential for greater return and lower risk.
Dever argues that investors need to understand both the baseline conditions and return drivers for investment and trading strategies. He encourages readers to rethink the baseline condition assumptions behind commonly held investment beliefs. For example, US stocks have been a great investment for over 100 years, but this does not necessarily mean they will continue to be a great investment if baseline conditions change in the United States. Relying on historical repetition is not a sufficient investment thesis if baseline conditions change.
Jackass Investing exposes readers to the potential benefit of investments which have different “return drivers”. These different return drivers act a a source of diversification and trading/investing strategies with different return drivers, not traditional asset classes, can act as true sources of diversification. Dever is clearly not a fan of buy-and-hold investing primarily because it is not a sufficient source of diversification. Rather, Dever lays out in specific detail several actionable investing strategies with different return drivers and low correlations to popular asset classes. The need to diversify strategies and not just asset classes is also an argument I have made frequently on Scott’s Investments.
There is also an actionable portfolio on the official website for Jackass Investing. The portfolio is possible for an individual to implement but given the amount of positions and strategies, a reasonably sized portfolio is necessary to implement all of the strategies. However, it would not be difficult for an individual with a smaller portfolio to construct a custom portfolio using the recommendations in Jackass Investing.
Michael Dever is the founder of Brandywine Asset Management which trades portfolios in the global currency, interest rate, stock index, mets, energy and agricultural cash, futures and options markets. This rightfully gives him insight and bias towards managed futures strategies. Jackass Investing encourages readers to invest in managed futures strategies, either directly with CTAs (Commodity Trading Advisor) or via mutual funds and ETFs that mimic managed futures strategies. Currently the primary drawback is not in managed futures themselves – I believe they provide diversification benefits because of their low correlation to popular asset classes – but that ETF and mutual fund options are limited in the managed future space. However, in the ever-evolving world of ETFs it is no doubt only a matter of time before more options become available.