I wanted to follow up on yesterday’s video about active versus passive investing. In the video I made the case for a third path, really I’ve been making this point for a long time, of making an attempt to sidestep when markets go down a lot.
Throughout these conferences that I go to there is very little attention paid to things like defensive strategies or managing volatility when it is these things that many people care the most about. A couple of years ago I asked a question to a panel about how they manage volatility and none of the three did anything like that.
We can debate where the line is between art and science where investing is concerned but it is an evolving discipline. The tools at our disposal evolve, the relationships between various markets evolve as do the relationships between the various asset classes. It is likely that we are living through some sort of evolution of the US’ role in the world economic order right now.
In these types of posts there are invariably comments where the reader sees no need for whatever; country selection, defensive action, sector funds whatever. OK I guess, but to the extent you feel differently there are choices that can be made and tools that can be utilized that some folks do use but most do not.
If you somehow pull off Serrapere’s 75-50 in your portfolio (trying to capture 75% of the upside but only 50% of the downside) then you are obviously getting a fantastic risk adjusted result which will become very apparent after a full stock market cycle. The quest for alpha does not have to mean being up 80% in an up 20% world. Much to my shock not enough people get this.
I believe people lose sight of the really big picture which is that hopefully they have enough money set aside when they need it. The amount of money you accumulate for whatever your goal is will come from some combination of savings, growth and avoidance of truly stupid actions. That is the really big macro. A decent risk adjusted result, and what Serrapere targets is better than “decent,” or put another way smoothing out the ride goes along way to removing the most common obstacles to the desired result. You can either be open to the various tools that give a better chance for smoothing out the ride or not but the framing of how we look at passive versus active is, IMO, evolving into an antiquated discussion.
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Update; I "time bomb" publsihed this post yesterday while in town because on our way in at 10am we asked an APS (the local electric co) worker if they had an ETA and they did not but the power was restored about 11:40am while we were in town. There are still wires down all over so I don't know exactly what's what but hopefully it stays.
It really was not that bad being w/o power just a tad inconvenient. One reader made a comment about the weather in Florida but I absolutely love the snow and the thing about northern AZ is that it can snow a lot one day and be 65 the next. The winters are not so unrelenting like they are back east.
A well-crafted commentary.
Passive/active? Matters not. I'll take all of the above and try to wend my way through the thicket of investing.
Beyond that, I find that making money in investing in quite nice (mandatory? at my age) but that not losing money is in its own way even more satisfying and quite useful. Odd perhaps.
Love the headlamps.
BillM
Roger a bit off topic but related. I am somewhat surprised a fine gentlemen like yourself would leave you and your family exposed to the "risk" of a power outage. especially in a winter enviornment. For various price points starting at $500-$3000, you can eliminate the "risk" of power outages with stationary generator options.JMHO of course.
fair point about a generator and we've talked about it but we are somewhat prepared; lantern, many battery operated lights (and batteries) candles, we put our food out on the deck in a storage bin (cold enough to act like a refrigerator) but did have to throw out stuff in the freezer. Our water is in a storage tank, as opposed to a well in the ground, so the gravity was enough to be functional.
Really we had plenty of everything except electricity.
That said we may upgrade our panel this spring to accommodate plugging in a generator and go ahead an shell out but man are they loud, really loud. The quiet was nice, I did a lot of shoveling (great exercise) and generally it was fun for both of us.
How would you get a fire alarm, Roger, via cell? Could you even get out to get to the station?
I have two radios that are obviously battery powered and they can monitor for a long time before running out. I recharged them both when we went to town yesterday (but are now back to relying on our plug in scanner). Had there been a call I would have run to the top of our driveway and driven very slowly to the station. Our pick up truck is parked up top.
"The quest for alpha does not have to mean being up 80% in an up 20% world."
Exactly so and it's junior-high school arithmatic; e.g., in the idealized base scenario, if an investor could avoid any loss then capturing 30% of market gain would be all that was necessary to match total market return over time. Avoiding losses of more than 30%, not unrealistic, means that capturing at least 47% of market gains puts you in the nominal gravy.
WRT power-outages: When I lived in the Rockies we had a small generator housed in an insulated shed up the hill from the house. It was only wired to the kitchen and mechanical circuits (well-pump and a small heater to keep the mechanical room from freezing); not too noisy from the house and, since it ran on propane, minimal pollution/stink. Pretty tolerable all told and, if nothing else, there were times during Elk season when there was a lot in the freezer I would have hated to lose (yeah, the pups would have been happy, but ya gotta draw the line somewhere).
our neighbor has 200 lbs of elk that he kept his generator going full bore to save. "hey, how about peeling off two or three lbs for the Nusbaums?"
Well, I think we should "chip in"
and buy a generator for Roger
and family for the holidays.
I liked the "in the dark video"...
had it been at a different time
I would have thought you were
sending us a message;-)
I don't think the feds will raise
rates for awhile...but then I heard that the bonds will do the work for them....can you explain?
thanks
steep yield curve makes borrowing for any period of time beyond next week more expensive.
Roger,
I do not want to offend anyone, however, if you look at Warren Buffett he has done legendary returns by active investing. I challenge anyone in the passing investment side if they done as well or better. What I use is gorilla investment. I position and anytime I have a good size profit I run and look for the next position. It has kept me out of 2008 because I was scare, so scare that I was 98% into cash. One person in this blog mentioned coppock index. I have done some back testing and it is doing very well. But what I am trying to find is earlier warning to maximize the profits and reduce the risk to almost nill. I am still studying, but some of the stuff looks promising. Price of a stock becomes very important, price of purchase and price of sell and the being in the right stock helps alot. Also, what helps is if the publick has a different view and the purchase and the sell is made at its hight of turning point. RW is correct avoiding loosing money makes all the difference. However, if one trades a stock it pays to be as much informed as possible, sec reports, history and what the public know is very important. However it is lot of work, but if you are good it could be fantastick. Look at the buffett latest investment in china [BYD COMPANY(HKSE: 1211.HK)] Purchaed at 13 ten percent of the company and currently it is at 68. All in one year.
Best,
Jeff from Milan, Italy
I sure hope you did not have to make any trades for clients during the outage.
cell phones and an assistant
Don't know why I didn't notice that funky kerosene lamp before; okay for ambiance I guess but little wonder you were walking around in headlamps. Serious oil lighting is great and not just for power outages: These lamps at http://www.aladdin-us.com/ come in a host of styles and colors, burn so clean you can hardly smell them and are nearly as bright as a Coleman lantern when adjusted but are quiet and require no pumping.
In Colorado I came to prefer their light even when the power was on (needed the high-altitude chimney at 8,000 feet; same for Prescott at 6,000+ I'm sure). They don't come cheap but they'll run forever with care (mine is 40 years old and works as well now as it did when new -- had to blow through a box of mantles and a chimney learning the tricks but haven't had to replace anything in the past decade).
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