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.
11 comments:
lol. What is it with big dogs and snow? Our lab loves to make snow angels.
I believe you've said before that your goal is to outperform over an entire market cycle. Since a good chunk of that comes from not being down a lot, is it fair to assume that you will be content then if you underperform some when the market is up?
Thanks very much.
i think of it as when the market is up a lot i hope to go along for the ride and capture most of the move.
Roger. If one has a pension, of say $1000 per month, that has no redisual value when he/she dies, how do you value the pension in terms of lump sum value and how does it play into your asset allocation? Thanks
That "no residual value"
that is a financial planning question which is not what I do (I manage portfolios as part of the financial plan).
in terms of the asset allocation issue factoring it in or not depends on the client. if that $1000 is half of the income need for a client with $1 million, that might take us in one direction. if that $1000 is only 20% of the income need for a client with $1 million that would take us in a different direction.
If we count the discussion yesterday on exponential moving averages, that's 3 very useful things I've learned on this blog this year.
I'm not sure I buy the "I've made x-1 transactions in x years" thing yet (I haven't checked in depth) 'cause that would seem to imply a portfolio with a very small number of holdings.
Still, though, learning 3 things in a year is pretty darn useful.
What were the other two?
Roger,
Glad to hear you mentioning the long-term moving average indicator, which I have used for some 20 years. This year, it got us out on 6/23/08 when we moved to 100% cash. The rest is, as they say, history.
Ulli…
There's an interesting article by William Hester on Hussman's site about the "bubble" in low quality stocks bursting. Embedded in the article is a key point--that higher quality stocks, as ranked by S&P, go down less than lower quality stocks in bad markets. One can draw some interesting implications for defensive actions from the article.
Truck and an SUV. You terrible, terrible carbon polluter. Can't you see by the evidence from your own lens that we are absolutely, positively in a global warming crisis?? HUH???
that an the two snow storms we had last May
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