Mark McHugh

A Practical Demonstration of the Value of Portfolio Theory

Phil,

I just read your other article, and I feel like I owe you an apology for my wisecrack. First of all, I do believe in diversification. I thought you were one of the "re-balance 'til your broke" types. You touched on the tax consequences and costs and I think that's a key point. Most times, you are better off letting your winners ride until you at least get the long-term gains tax break. Furthermore, devices like trailing stop orders can help in making those decisions for you. The bee in my bonnet about diversification just for the sake of diversification is that it ignores trends and changing market conditions. In other words, it lacks conviction. I'm not a very good chess player, but I know enough not to make a move "just to see what will happen." Your other artcle, "Rebalancing can be hazardous...", speaks much louder to me.

A Practical Demonstration of the Value of Portfolio Theory

Or you could have just bought the gold ETF and made 17%. That's the difference figuring out which way the wind is blowing can make.