billb

Gold's Flight to $2000: The Short-Term Outlook

The broken clock is right twice a day.

An All-Weather Portfolio Using Multiple Asset Classes

It definitely looks like a nicer equity curve. It does indeed outperform the S&P, however, I'd love to know how much that return dwindles when transaction costs are factored in. Trading all of those stocks and ETFs would chew up your returns.

In Search of Low (or Negative) Correlation Between Asset Returns

Great and timely article. I've been giving this some study time over the last few months. It's taken me probably longer than it should've to come to the conclusion that your statement "Which brings us back to the basics of investing, that those seeking higher returns will have to bear higher risks" is just plain true. There are no shortcuts in the market since someone else is always on the other side of the trade.

Something I'm studying next is going a little bit against conventional theory with regard to minimizing volatility and maximizing return. The basis of the idea is to find very volatile asset classes such as emerging markets, commodities and small/micro cap stocks. All of these will be ETFs to eliminate the fear of total loss. Based on my preliminary studies, while many of these asset classes over the last few years have been performing well (with positive correlation), some clearly outperform others in various timeframes. The increased volatility helps to better identify rebalancing points.

For example, the beginning of 2006 was a bit rough for small cap stocks and the U.S. indices in general. Meanwhile, commodities were still charging ahead. The deviation reverted to mean as commodities flattened and stocks began running up around June. The deviation between these two asset classes was fairly clear and a rebalance would've worked wonderfully. I've found a few of these deviations over time in other asset classes. So here we have no big crash, but a great opportunity to rebalance. Choosing higher volatility is a way to hopefully get a larger deviation (prompting a rebalance) and better returns over time (ex: a portfolio of small caps will generally outperform the blue chips over time).

With regard to when all assets crash, I've come to accept that this is just inevitable and really represents a buying opportunity across all asset classes. All asset classes bombed with the exception of bonds. If one was 50/50 (bonds, stocks, let's say), you would've dramatically underperformed and 50% of your portfolio would've still taken a hit. I don't see the benefit of being in "less risky" asset classes.

I don't think this idea is going to help anyone's ulcer or someone who can't accept a big hit in the short term, but may be a better way to help the "buy low/sell high" side of the efficient portfolio theory.

Thank you for the article.