As one of several people I know who moved from a supposedly sophisticated slice-and-dice portfolio of supposedly non-correlated asset classes that all tanked in unison in the '07-'08 meltdown to the PP I thought this article in Saturday's NY Times was quite interesting:
http://www.nytimes.com/2011/12/31/busin ... .html?_r=1
Interesting NYT article on asset correlations
Moderator: Global Moderator
-
Ad Orientem
- Executive Member
- Posts: 3483
- Joined: Sun Aug 14, 2011 2:47 pm
- Location: Florida USA
- Contact:
Re: Interesting NYT article on asset correlations
The levels of volatility we are seeing in financial markets today is more than a little unnerving. Sharp upticks in volatility are one of the classic warning signs that things are not going well and it may be time to fasten the seat-belt.
Trumpism is not a philosophy or a movement. It's a cult.
Re: Interesting NYT article on asset correlations
Thanks for the link, Kevin.
One of the reasons I really like the Permanent Portfolio is that the major asset classes represent very distinct pieces of the market and economic outlook. Someone looking to buy lots of Long Term Bonds is probably not looking to buy stocks. Someone looking to buy stocks is probably not that interested in gold. Etc. As a result, I have always felt the chances that the major asset classes of stocks, bonds, and gold in the portfolio maintaining any kind of strong correlation long-term (or even worse during a crisis) was a lot less than other approaches.
The idea of taking stocks and splitting them up into tiny segments and getting diversification always struck me as odd. If the stock market stumbles, investors are likely to dump all stocks (regardless of the sectors) en masse. It is the rare bird that stops to consider the possibility that some kind of economic news is going to be bad for his growth stocks so therefore he should hold onto his small cap value stocks, etc.
I discussed this in terms of "major" and "minor" asset classes here:
https://web.archive.org/web/20160324133 ... -approach/
One of the reasons I really like the Permanent Portfolio is that the major asset classes represent very distinct pieces of the market and economic outlook. Someone looking to buy lots of Long Term Bonds is probably not looking to buy stocks. Someone looking to buy stocks is probably not that interested in gold. Etc. As a result, I have always felt the chances that the major asset classes of stocks, bonds, and gold in the portfolio maintaining any kind of strong correlation long-term (or even worse during a crisis) was a lot less than other approaches.
The idea of taking stocks and splitting them up into tiny segments and getting diversification always struck me as odd. If the stock market stumbles, investors are likely to dump all stocks (regardless of the sectors) en masse. It is the rare bird that stops to consider the possibility that some kind of economic news is going to be bad for his growth stocks so therefore he should hold onto his small cap value stocks, etc.
I discussed this in terms of "major" and "minor" asset classes here:
https://web.archive.org/web/20160324133 ... -approach/
Re: Interesting NYT article on asset correlations
Really liked that article on your blog Craig.
Until a year ago I never paid much attention to asset correlation. My financial planning textbook Investments, and Introduction, Mayo, a 750 page book never mentions asset correlations. It did devote huge space to esoteric stuff like convertible bonds and preferred stocks. Other investing textbooks I've read mention asset correlations but only to show why owning utilities, large caps, small caps, a generic bond fund, and possibly foreign stocks provided some degree of "diversification." This is similliar to the Jim Cramer definition of "diversification."
I'm stunned nobody else besides you (and of course HB) talks about such a simple commonsense concept.
Until a year ago I never paid much attention to asset correlation. My financial planning textbook Investments, and Introduction, Mayo, a 750 page book never mentions asset correlations. It did devote huge space to esoteric stuff like convertible bonds and preferred stocks. Other investing textbooks I've read mention asset correlations but only to show why owning utilities, large caps, small caps, a generic bond fund, and possibly foreign stocks provided some degree of "diversification." This is similliar to the Jim Cramer definition of "diversification."
I'm stunned nobody else besides you (and of course HB) talks about such a simple commonsense concept.
Re: Interesting NYT article on asset correlations
That's a timely re-post Craig of an article that every adherent of fancy slice-and-dice portfolios should read. Just underlines the huge debt I owe to you and to Harry Browne. Everyone else is out there looking at what's happened in the past (often for asset classes without enough years of trading history to be meaningful!) while you and HB are saying "what's the worst that could happen and how do I protect what I've earned?"