There are so many competing philosophies in the world of investing that most people learn to tune out any conversations on the topic.
This turns out to be a pretty good instinct. After all, people consistently brag about their winning bets without disclosing their losers. They also tend to obsess over whatever’s happened in the markets most recently, assuming things will be that way forever.
But the one thing that we all ought to be able to agree on is this: The point of any long-term portfolio for the vast majority of investors is to earn whatever return you need to meet your goals while taking the least amount of risk.
I recalled this first principle of investing when I heard about something called the Larry Portfolio earlier this year.
Apologies for posting the whole thing here. But the Times limits the number of "free" pages you can access. For those who subscribe or who haven't used up their free pages for the month there are a lot of interesting links in the original article.
[Mod CraigR: Thanks for posting the article, but please adhere to forum copyright policy and only post relevant excerpts and not entire articles.]
Last edited by Ad Orientem on Sat Dec 24, 2011 5:32 pm, edited 1 time in total.
Trumpism is not a philosophy or a movement. It's a cult.
There has been a trend the last several years towards "minimize fat tail portfolios" that attempt to reduce exposure to extreme market risks. I am glad to see this trend as most stock portfolios I see are far too risky IMO and not likely to have good long term results due to human emotion.
Larry's portfolio in an interesting twist to the idea that focuses something like 70% of the portfolio in very safe ST Treasury bonds and TIPS and the remaining 30% or so in a small cap value fund or emerging market index fund which are very volatile stock assets.
The performance has been good with low drawdowns and good real returns, but it will have very big tracking error during boom stock markets (much like the Permanent Portfolio may). I also wonder what would happen if we had a very serious period of extended deflation.
I'd like to think that the Permanent Portfolio was perhaps the first portfolio designed with minimizing fat tail risk exposures. I think it's an important concept that has been ignored for far too long. Only recently have people like Benoit Mandelbrot in Misbehavior of Markets and Nassim Taleb of Black Swan made this concept mainstream. Both of those books explain why fat tail events dominate the investing world and why it is a good idea to have a way to deal with them.
Last edited by craigr on Sat Dec 24, 2011 5:48 pm, edited 1 time in total.
Please remember that a vast majority of investors do NOT invest in gold. It is also not available as of yet in most retirement plans. I would be very surprised if even 5% of the population owns gold bullion or gold ETF's as part of their portfolios.
Reub wrote:
Please remember that a vast majority of investors do NOT invest in gold. It is also not available as of yet in most retirement plans. I would be very surprised if even 5% of the population owns gold bullion or gold ETF's as part of their portfolios.
I'm not going to swear by this but I seem to recall reading somewhere that around 1% of investors own gold in their portfolio. I am open to correction if someone has more accurate information.
Trumpism is not a philosophy or a movement. It's a cult.
Reub wrote:
Please remember that a vast majority of investors do NOT invest in gold. It is also not available as of yet in most retirement plans. I would be very surprised if even 5% of the population owns gold bullion or gold ETF's as part of their portfolios.
I'm not going to swear by this but I seem to recall reading somewhere that around 1% of investors own gold in their portfolio. I am open to correction if someone has more accurate information.
Just think what would happen to the price of gold if that number went to 2% or even 3%.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
