Morning Coffee

A couple of items this morning.

I received two books in the mail from Wiley written by the InvestmentU folks; one about China and the other about Uranium. I was surprised they sent anything to me after the review of another Wiley book a few months ago.

Each book is about 40 pages. The first couple of pages in each book appear to be the same as do the last few with maybe the middle 30 being unique.

These seem to be more like reports than books but somehow they are priced at $29.95 on the back. I think you could knock these out standing in the business section at Barnes & Noble in a few minutes.

Each book has four picks. I'm not sure if it is OK to say what the picks are but all four of the uranium stocks are very obvious to anyone who has spent at least five minutes researching the theme and three of the four China picks are quite obvious too.

I think the info about the themes and the stocks is good but I'm not sure if its $30 good and there was very little you haven't found elsewhere.

One reader left a question about how to blend lowly or negatively correlated assets expressing concern that the portfolio ends up not moving at all.

Based on the tone of the question I think the reader might be starting from the bottom up and I think that viewing this from the top down is easier.

Assuming the portfolio in question has more than five holdings in fact let's say there are at least 20 holdings. If you have 20 holdings constructed in such a way the portfolio is similar to the market in terms of volatility and correlation you know that you will track the market fairly closely. That is the mix will track the market. If you then introduce a 5% weight a mining stock then the overall mix will drift away from the market only slightly; depending on the stock maybe not at all.

If instead of a mining stock you add 5% in gold and 10% in a double short the mix then starts to act noticeably different than the market, maybe even dramatically different. Maybe this mix only goes up 5% when the market goes up 10% but maybe the numbers are the same to the down side too.

In this example you may still have some growthy stocks that go up a lot but the mix is unlikely to look the market. The bigger context is the proactive decision to have a portfolio that does not behave like the market for some period of time.

A little bit of gold serves as a counter strategy but a lot of it serves to change the make up of the portfolio. If you are going to implement this you need to know the difference.

One other comment asked for my take on the G7 noting that not much appears to have been said about the yen. I guess I am a little surprised it wouldn't have come up (I have not yet read or heard any commentary about it). Realistically if a big stink had been made it probably would have only accounted for a small move to start. Maybe the tone in the market will shift to when will someone say something about the yen, today, next week, when? I suppose that sort of anxiety could evolve into something really market moving.

My guess would be that if the yen ever goes the other way again it will start for no reason at all and will catch a lot of people off guard which of course is how most corrections start.