More Reasons To Keep It Simple
There was an interesting article in the WSJ yesterday about a couple of funds run by John Meriwether, yes the LTCM John Meriwether.
He has a fixed income fund that instead of being levered 50 to 1 is levered about 14 to 1 (both numbers according to WSJ). There is also a macro fund that the WSJ says is down 6% through Feb and was down 5.7% in 2007.
So whatever it is that these funds are doing I doubt it is very simple but maybe they think it is simple. Yesterday in the panel I participated in we were all talking about how we each use ETFs. I mentioned that I use mostly stocks but that I use ETFs where ever I think they are the best tool to capture a theme. One of the other panelists said "we like to keep things simple" and then described his use of of ETFs. Simple is in the eye of the beholder. I think he was saying that the approach of blending individual stocks and ETFs was not simple.
Fair comment. I have responded to reader comments in a similar fashion--"that sounds complicated" I might reply. Obviously if you really understand some sort of method you probably think it is simple. So maybe the better idea is to keep it predictable?
I don't mean don't take risks but to generally quantify your risks in some sense. For example anyone overweighting broader dividend ETFs clearly has an overweight position in the financial sector. Generically speaking this doesn't have to be a bad thing. A lot of dividend ETF exposure makes you vulnerable to a down turn in the financial sector. This has mattered over the last year or so and at some point in the future won't be a big deal but now it is.
Knowing, in this example, that the financial sector is a threat, you can mitigate that risk in whatever manner is appropriate which can include selling some, hedging or holding on but mentally preparing for a downturn.
Even this doesn't work though. If you are levered up 14-1 on a fixed income program you know that if the market moves in the wrong direction of your trades there will be a blow up of some sort.
So what is the answer? Maybe the answer goes back to keep it simple. Despite my co-panelists comments I think a diversified equity portfolio that can generally stay close to the market either way is simple and manageable.
He has a fixed income fund that instead of being levered 50 to 1 is levered about 14 to 1 (both numbers according to WSJ). There is also a macro fund that the WSJ says is down 6% through Feb and was down 5.7% in 2007.
So whatever it is that these funds are doing I doubt it is very simple but maybe they think it is simple. Yesterday in the panel I participated in we were all talking about how we each use ETFs. I mentioned that I use mostly stocks but that I use ETFs where ever I think they are the best tool to capture a theme. One of the other panelists said "we like to keep things simple" and then described his use of of ETFs. Simple is in the eye of the beholder. I think he was saying that the approach of blending individual stocks and ETFs was not simple.
Fair comment. I have responded to reader comments in a similar fashion--"that sounds complicated" I might reply. Obviously if you really understand some sort of method you probably think it is simple. So maybe the better idea is to keep it predictable?
I don't mean don't take risks but to generally quantify your risks in some sense. For example anyone overweighting broader dividend ETFs clearly has an overweight position in the financial sector. Generically speaking this doesn't have to be a bad thing. A lot of dividend ETF exposure makes you vulnerable to a down turn in the financial sector. This has mattered over the last year or so and at some point in the future won't be a big deal but now it is.
Knowing, in this example, that the financial sector is a threat, you can mitigate that risk in whatever manner is appropriate which can include selling some, hedging or holding on but mentally preparing for a downturn.
Even this doesn't work though. If you are levered up 14-1 on a fixed income program you know that if the market moves in the wrong direction of your trades there will be a blow up of some sort.
So what is the answer? Maybe the answer goes back to keep it simple. Despite my co-panelists comments I think a diversified equity portfolio that can generally stay close to the market either way is simple and manageable.
It is Simple for you.
For many of your readers a portfolio of ETFs and no stocks make more sense.
Posted by
Anonymous |
7:06 AM
I always assumed investments in etf's were for 2 reasons:
1) can't decide on the exact stock in a sector to buy
2) not comfortable owning an individual stock(s)
I imagine/guess most folks in etf's are those stretching out a bit from their traditional oef investments. I wouldn't think professional investors (those who make a living in the business) would have a LOT of use for etf's.
Go Davidson!
Posted by
Anonymous |
3:37 PM
based on the number of conferences there are and how much mail i get at the office I would say there is a lot of use by professionals.
Posted by
Roger Nusbaum |
3:41 PM