Sunday, December 28, 2008
I mentioned our weather in yesterday's video. All of the roads on the mountain get treacherous beyond reasonable expectation when there is snow. I've heard several explanations as to why the roads get so dangerous here (dirt and paved), I don't know if any of them are right or not I just know that the only way to drive safely is to put it four wheel drive low and not exceed 5 mph going down any hill (we don't even try to drive our pick up, just our 4-runner). People get stuck and or have accidents all the time because they are going 10 mph. But again the right vehicle, in the right gear at 4 mph is no problem.
So I don't know why the road gets so dangerous but I do know what the risk factors are (snow and cold weather), heed the warning and act appropriately. Knowing why the roads are dangerous is not as important as just knowing that they are dangerous. The solution is simple, don't go out but if you need to then drive very very slowly in a low gear.
No doubt you can see the where I am going with the repetitive nature of those two paragraphs in applying the idea to managing your portfolio. Any sort of long term moving average indicator warned of trouble long before we got to down a lot. No long term moving average indicator told how bad it would be or what would cause it. If you heeded such an indicator and are down 20 or 25% instead of 40% does it matter what the cause was?
In yesterday's comment thread (thanks for all the comments) there were some attempts to get into some real minutia about various aspect of portfolio management which is fine but hopefully in getting into the small picture no one loses sight of the big picture. The big picture for all of this talk of defensive action is to try to avoid a big chunk of down a lot--simple as that. Why do I prefer this or that? This or that doesn't really matter. If you are one who does not want to ride a bear market all the way down then anything you do that allows you to miss a meaningful chunk is productive and successful.
My logic is that simple; I want to try to not go down a lot when the market goes down a lot. If you believe buy and hold no matter what is superior then you should not try this. If you look at studies on this subject and conclude this is inferior then you should not try this. The goal is so simplistic that it should be easy to sort out whether some sort of defensive action in the context I discuss fits in with the way you think or not.
In the picture, Roscoe is making a snow angel on one of our hikes. As of now the NFL will not be fining him $10,000.