A little over a year ago I wrote about investing like a turtle, inspired by a blog called Money Turtle. Rightly or wrongly (not sure which) I said I thought of investing like a turtle as kind of a conservative dividend centric approach (but I may have that wrong).Either way, thinking about this from the tortoise and the hare point of view a reader recently left a comment on the blog about adapting to a new, for him, style of managing his portfolio.
Bear markets (or maybe just prolonged corrections) tend to induce soul searching in this regard. If you are searching your soul about how to structure your portfolio so you don't get hurt again fair enough but the sorting out of a bear market is not the time to implement permanent turtle-like changes.
Bears end and often the bounce looks like 2003 (the S&P 500 was up about 26% that year). If you have absorbed the full brunt of this decline you should probably consider sticking around for the bounce that will probably come. I am not saying take no defensive action but a permanent sale of equities here is selling pretty low.
Some may want to cut back on straight equity exposure in favor of lower octane like long short, currency, buy write, put write (if it ever comes), managed futures, merger arbitrage, emerging market bonds and so on.
The lower octane aspect is appealing on some level to just about everyone with the obvious trade off of lagging the next time the market is up 26% in a year. Now is the time to learn about these parts of the investing world and how to access them. Later will be the time time to implement, if this is what you feel you need to do.
While I am all for some exposure to this sort of thing, going 100%, although easier and safer to do than in the past, is probably not the right thing for too many people, the title of the post notwithstanding.
I will say that going more than 3-4% into absolute return might be a reasonable idea as I do think it is a valid asset class and there are enough disparate strategies (like the ones mentioned above) that you don't have to make too big of a bet due to a lack of choice.
Asset allocation is evolving, for the better I think, and moderate allocations to new things, once properly studied is ok.
14 comments:
I think we are turning Japanese
Hope the lava isn't too close to your new place....
Question about your dog in the orange box from a week back, what kind of puppy is that or it a mutt? My wife loves it.
cheers
dnf
a few people think the japan comparison is right. i think japan was/is more complex in this regard and so some parallels might be right but i doubt it would be that bad, yikes.
That dog's name is Trixie. We adopted her from the pound via the rescue that my wife volunteers for
we believe she is terrior with maybe a little schnauzer.
"I am not saying take no defensive action but a permanent sale of equities here is selling pretty low."
That's a pretty sweeping statement that can only be verified in hindsight. People that sold after a 20% drop during the last bear market were spared a much larger subsequent drop.
I think the adjustments need to be made based on individual time frame and portfolio goals. Somebody that does not need the money and intends their portfolio to outlive them may do nothing.
Somebody like me, bullish on capitalism but bearish on the US economy, may switch out of US equities into equivalent Canadian and Australian equities. You get similar free-market exposure but gain the advantage of strong currencies and account surpluses and stay invested at the same time.
Somebody believing in Jim Roger's prophecies may switch to Singapore, China and the like.
Even if all you want is to add diversification. Malaysia and Israel are behaving extremely well in this global downturn. Even if this turns out to be the bottom, they will probably outperform during the next move up.
Disclosure, i own the Canada, Australia, Israel, Singapore and Malaysia ETFs.
The problem with using turtles as an anology is that the turtles are a specific group of investors. I don't know a whole lot abut their strategy, as they are in a way big time insiders -- and at the same time started as outsiders. AFAIK they are highly technical day traders, trained at the feet of Dennis and Eckardt.
Did you catch the article today on the Leatherback they tracked from Indonesia to Oregon? I'm glad I'm not a turtle.
Anyone else aware of the University of Reuters/Michigan consumer sentiment survey that was released today?
"The U.S. economy has entered a recession that will be more painful and drawn out than the usual downturn, the director of the Reuters/University of Michigan consumer sentiment survey said on Friday"
"This is no ordinary recession," he said. "The after effects will last much longer than the typical downturn."
http://tinyurl.com/2k92y9
http://tinyurl.com/37csz7
But of course the Fed still wants to lower rates some more. (It's an election year you see). Less pain now, much more pain later. I'm glad Bernanke isn't my doctor.
JackS my first reaction is to reference Holy Grail and say that is no ordinary rabbit.
i have no idea if this survey draws the correct conclusion but thinking about how to mitigate this now before the worst of it comes makes sense.
some commodities, currency and absolute return ideas might make sense.
If anyone has disagreed with Roger it has been me.
I think the next few years are not going to be to good.
That said I purchased some more of my favorite fund today. I am roughly 50% invested. I will give you more exact answers when i return from my trip.
Yes there are many problems, but if we have mor I would not be surprised if the fed cuts as much as necessary (0.5 to 1.5%)
So we may not fall as far as I thought on this cycle. Roger and I still do not agree on the next 5 to 10 years which do no not look good with all this debt to work off.
All that said I think there is risk to the upside growing in the markets even if housing and the economy continue down. The thing that is difficult to predict is when major problems will hit the fan.
While i disagree with roger I think he is giving reasonable to good advice even if he does not yet recognize the magnitude of the debt problem we face.
Of course I am not afraid to sell everything if things turn more south in the future.
SEG
Roger,
BTW when I say you are reasonable to good that is a rather high complement. I am up for the year and you should see how much I criticize my self.
SEG
lol
One item I would suggest that anyone put on their shopping list is revisiting and thinking very hard about what an appropriate long-term strategic allocation to hard assets/commodities might be.
I continue to believe most people are way too underexposed/underweight this asset class. In my past comments, I've advocated that 10-20% in a broad commodity index fund isn't unreasonable, and I hold 20% myself. The academic research supports a higher allocation then 2%.
CRB just hit a 52-week high today, and the fund I own PIMCO Commodity Real Return Fund (PCRDX) hit a 52-week high and is up more then 10% YTD.
I wouldn't be aggressively buying here as commodities are overbought, but the next pullback could be a time to make adjustments.
Re: taking advantage of the current bargains, I read somewhere that technilogical equities are usually the first ones out of the box after a bear market. Is that a reliable way to act?
Re: "we believe she (Trixie) is terrior with maybe a little schnauzer", I hope there is not too much of the Schnauzer in your dog's mix. We have a little black terrier of the Schnauzer family and it's a great little dog, full of fun, vigor and a very affectionate little animal. But let me tell you one thing: a very noisy animal whose loud and strident bark is not to everyone's liking - particularly in our residential neighbouthood on an early and quiet Sunday morning.
Willy
thanks Willy, fortunately we don't have too many neighbors in earshot, very rural setting.
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