Owning Things That Don't Do Much Sometimes Makes Sense

As you know, there have been all sorts assets exhibiting heightened volatility of late. While that has been going on there have been a few things doing close to nothing which, in a down-10%-in-five-weeks world, is not a bad thing.

I think owning things that don't do much makes sense in the context of a diversified portfolio. But it is important to have the correct expectations for this sort of hold.

One example of this might be in the currency ETFs. I have personally owned the British Pound (FXB) for a while. I bought it with a $195 handle and most of the time since I bought it has traded in the $196s or 197s--spending just a little time at $194 and all of a sudden it is at $200 now.

A $5 range for a $195 product over several months is not a big range obviously. A hold like this is a cash proxy, and so most of the time the recent action is what should be expected.

Every so often they will have a big move. FXB was at $211 once and I expect it will move $10-$12 again at some point, but those are far and few between.

If you hold anything with these characteristics, you are probably glad you have it now. However the next time we have a huge bull run you may become impatient, which would be a mistake. A diversified portfolio should maintain some exposure to both steady eddies and hot potatoes,. The balance probably needs to change over market cycles, but still some exposure to both is what makes the portfolio diversified (among many other characteristics).

Comments

[phdinsuntanning]

YOU CAN GET FASTER ACTION WITH FXY, YEN FOLLOW THE LEMMINGS RACE FOR SAFETY, AND THEY ARE RUNNING NOW TO 100 AGAIN ! LOTS OF FUN WITH JAPANESE HYPER NERVOUS PLAYERS,
CARRY TRADE OIL/YEN HAS BEEN GOOD, THATS WHY YEN IS IN 3 DIGITS, BUT WITH NEGATIVE INTEREST RATES IN ELECTION MONTHS PREPARE TO SEE LEMMINGS AGAIN ...

[sunrises]

Hello Roger:

The current news brought details giving a possible good rise. How do you see carry trades eur/yen:

Eur/yen? It's positioning well on the uptrend... Possible Target: 168.700.





If so, then all the well wishes.

[Walt17]

Roger, you said you were "holding" FXB. "owning things that don't do much" doesn't make sence to me. If you are trading it to make a small profit on the ups and downs, fine. But as a proxy for cash, I don't see the point. Why not use a cash vehicle that will pay interest.

BTW, sorry to disagree with you. I usually like your posts.
Walt

[Roger Nusbaum]

Walt, the rydex currency products to do pay, monthly, based on the prevailing rate in that country less the fee.

[xander]

fxa pays over 6 percent [aussie currency ] and has been slowly moving up from about 90 t0 about 96,

[blink0404]

Hey Roger Nusbaum fans,

Here's a link to an Roger Nusbuam interview with Chip Hanlon on greenfaucet.
www.greenfaucet.com/no...

They discuss the market and why Nusbaum thinks there could more downside for stocks to come.

[jayz]

This is the guy who called bottom at 13200..need I say more??

[jayz]

I'm sorry, it's 12200..