NO DooDahs

Choosing Your Portfolio Risk Tolerance

Nice elaboration on two of the seven risks I wrote about last week:
www.billakanodoodahs.c.../

Personally I believe that your "risk class 2," what I described as "Risk is Not Achieving My Benchmark," is the primary risk that we need to be concerned with when assembling a portfolio or designing an active strategy.

Of the regular contributors to SA, your work is probably THE most helpful to the sophisticated retail trader. Thanks.

The Humble Arithmetic of Portfolio Management

@ The Bear:

When diversified into a variety of asset classes, such as bonds, commodities, foreign developed, emerging markets, and possibly even frontier markets (all but this last one can do with ETFs), the whole idea of "timing THE market" becomes moot.

There still exists the possibility of trying to time EACH market, or overlay a timing component on one or several of the individual classes, such as timing the SPY portion of the portfolio. Taking that as an example case ...

There are two methods of avoiding the timing trap. They both involve admitting that the timing trap is emotional and the result of the "timer" lacking a scientific method.

First is to NOT time the market. This is the easiest to do conceptually but harder to do emotionally, especially if one is a frequent reader of Seeking Alpha, and is besieged daily by a miasma of contradictory information designed to encourage your "activity."

Second, harder to do conceptually but very emotionally satisfying (at least to me), is to confine your timing activity to simple, slow-moving mechanical ideas that have been thoroughly backtested over decades of data. Using single-moving average and moving-average cross ideas involving "slow trading" and moving from the S&P 500 to cash, and back, it's literally child's play to find risk-adjusted returns that beat the market and absolute returns that are very close to market. If one adds other information (volatility, money flow, etc.), one can improve on that timing somewhat.

What Is Diversification Worth?

Diversification is about allocating to different STRATEGIES, so long as said strategies have relatively low correlation to each other, and have positive expectancies.

"Buy and hold this asset class" is a STRATEGY.

One can get a diversification benefit by allocating money to different strategies in the same asset or asset class, i.e. short and long-term market timing techniques, Piotroski value and CANSLIM, etc.

What Will Trigger the Next Global Economic Crisis?

Well, it's nice to know that the clock is ticking, and that the only propping up our market is denial. Once all the traders and investors that are buying stock (and taking companies private) suddenly have this epiphany, the whole lousy house of cards will collapse.

Hey, check your calendar while you're updating your clock. Is it Kondratieff Winter?