On each of the last two weekends before we went to New Zealand I participated in very similar medical calls. Both were helmet-less head injuries, one a woman fell off a dirt bike or ATV (she did not remember what she was riding) and the other was a woman that fell off a galloping horse.
I have said before I have no medical training but I can lift and haul which comes in handy and I don't get queasy.
I think there might be an analogy with portfolio management, at least the way practice it. This is a recurring theme for the site but I don't think it matters what type of helmet you use as long as you have something in place.
Exposure to gold, timber, defense stocks, inverse index funds or something else that serves the same general purpose of offering some sort of zig to the stock market's zag.
The other part of an investment helmet is some sort of exit strategy. The lack of one did in countless portfolios managed by sell side firms. During the ten minutes I spent at Morgan Stanley there was no attention given to this concept. The idea with brokerages and banks is to get the assets in the door get them placed and then go after new assets.
Even the managed asset programs don't really allow for exit strategies. When a salesman puts client money with a money manager the manager has to assume the asset allocation decision has been made. The manager invests the money into his discipline; growth or value, small cap, all cap, whatever. While there must be exceptions to this somewhere this is how it is.
If you want to hire someone to manage your money I would ask the person what causes them to take some sort of defensive action and what is the action that is taken. This is obviously my opinion but I think the answer to this question should be very simple.
A while back I met with an investment manager who does everything 180 degrees differently than I do. He believes that the market can not be timed any way shape or form and that people need to accept that there will be years where you are down 25%.
You can decide for yourself but there is now way I would watch my account go down that much without even trying to avoid some of something like minus 25% and I would not let that happen to my clients either, at least not without trying.
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4 comments:
I think your views are not only valid but rapidly gaining wider acceptance - i.e. Chas Schwab -(finally)- dropped its short-term (180 day) redemption fees for inverse index funds, citing the protective use of these funds.
Not too hard to see which way the wind is blowing, - its in the direction of controlling risk. But there are always Luddites in every endeavor.
There are several studies showing the total return of an investment depends not only on the average return but also on the volatility(up and down movements). THe higher the volatility, the less total(cumulative) return. One way to demonstrate this is "it takes 100% gain to made up a 50% loss" On a realtive moderate scale, it takes 25% gain to make up a 20% loss. Thus, getting rid smaller losers before they become big losers are a best kep secret in money management.
I too, would try to avoid the loss. However...with all the safety valves we instill in our portfolios, and the last comment ( to which I agree ) ....one has to wonder if it is a time to be fully invested???? ( cringing as I write ). I think I read somewhere sometime ago that an 80/20 mix where the 80 was percentage stocks...gave one MOST of the upside of the market, but you were saved from the minis 25% days. Something to think about...
As for helmets, I prefer to feel the wind blowing through my hair. No fear!
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