Several times I have mentioned Nassim Nicolas Taleb's idea of putting 90% into a mix of t-bills from around the world and then going berserk (my word not his) with the other 10% in terms of risk taken.I find the concept intellectually appealing on some level similar to the idea of living in a foreign country. I'm not going to do either one but it is interesting to contemplate.
So the tweak pertains to the 90% but perhaps this is what Taleb had in mind. Instead of putting the 90% into a mish mash of foreign t-bills limit the t-bills to just surplus countries like Singapore, Norway, Canada, Brazil, China, Kazakhstan, Switzerland, Australia (well, budget anyway) and so on.
Investing in a surplus country guarantees nothing and at times deficit countries perform better and at other times a mix of deficit and surplus countries is best but I think it is safe to say that surplus countries are on surer footing and have much larger margins for error.
The mix could obviously also include US exposure with treasures or TIPS or anything else you think fits the bill. There is a risk of course the the US dollar could go up (not my opinion about what will occur but it could happen) so maybe something along the lines of the PowerShares Dollar Up Fund (UUP) which might provide a little bit of hedge for those so inclined.
The upside to this is that if you can spot important trends you can squeeze a lot out of the 10% and the draw down should be much less in bear markets (only 10% is in equities one way or another) even if the 10% goes to zero.
As I mentioned this is more of a contemplation than anything else but it does get you thinking about things like risk budgets and so forth.On a personal note I decided to give up the investment gig in order to support my wife's coffee art career.
Pictured here is a buffalo in my Sunday morning mocha.
5 comments:
Your career move ought to raise the average quality of both fields.
Norm
When you say 'go crazy with 10%' I get the feeling you're not entirely comfortable with that. Say you went crazy with small alternative energy companies that specialized in Unicorn farts and rainbows, and after 3 years you only had 2% left in equities - do you top back up to 10% and risk losing another 8%, wiping out some of the gains from the t-bills?
I say "go berserk" simply because I find that humorous. But really the implication is doing all the appropriate legwork, using some sort of discipline and not loading up on just one thing.
10% could be a lot of dollars, dollars that the investor did something in order to acquire and so that effort and those dollars must still be respected.
The berserk part could go into a varied mix (a tech stock, a Kazakh index fund if one existed, a fertilizer stock, a bank from Cyprus, a biotech stock and so on) so you don't blow it up in case the Unicorn fart market dissipates (lol).
Would you rebalance after a blowup? never thought about that (as I have no plans to implement this) but I would think you would rebalance in the face of success so I guess you would rebalnce if things blow up...assumes after a blowup the person still thought this was a good approach.
We all have a different definition of "going berserk". Lately my going berserk has been adding to my Siemens [SI] position. My how things change.
For coffee art beyond the buffalo, check this out: it's a "printer" that prints on your latte. Pretty cool!
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