Jul

6

I noticed that advisers recommend rebalancing for several reasons:

1. It keeps target allocations in place.
2. What’s hot today may be cold tomorrow, and the reverse.
3. Accomplishes the goal of buying low and selling high by adding to underperforming assets and trimming outperforming assets.
4. Rebalancing can increase the consistency of returns and reduce the possibility of disappointing returns.

I wonder if this is propaganda to get the public to trade more than is necessary? If rebalancing is better than buy and hold for the reasons stated above, is it still better when taxes and transaction costs are factored in? Finally, if one did want to implement a rebalancing strategy, how would one determine the appropriate timeframe or trigger?

Jul

5

I was recently approached by a salesman who showed me a variable life insurance policy. Despite the high costs and limited investment options, it seems the tax advantages make up for it being that it’s like a Roth IRA without the limitations.

I know several people who have become wealthy as long-term investors in stocks, and know many similar stories that have been written about people I don't know. I wonder why you don't hear anecdotal stories about people becoming wealthy by investing in equities via life insurance?

Oct

19

In times like this isn’t it only prudent to consider taking some profits, or at least getting off margin so that one can have ample buying power for when there is a downturn (as in May), and we can remind ourselves of the drift while the world around talks of doom.

Victor Niederhoffer responds:

Such an idea would be right most of the time, but I think it would have a negative expectation. For example, it would miss most of the 1950s and 1990s while waiting for the pullback.

Dr. Rudolf Hauser replies:

There is a very important consideration in deciding how much one should pull back to a less leveraged, less invested position, namely what one has to take out each year to meet regular living costs. If one does not have another source of income than trading, the percentage of one’s net worth that one has to spend for such living purposes increases as net worth declines. That means your net worth will not recover its loss when the market recovers to it prior high. That might not be a significant problem is your required drawdown at the prior peak was less than 1% and/or much of the drawdown is for discretionary spending you can easily cut back on, but could be a major problem if it is a much higher figure such as 10% and most of that is for necessities. Another advantage of cutting back in times of what one believes is temporarily too high is that one is less likely to make stupid mistakes because of panic if one feels one is not in over his or her head. I agree with Vic that going short is a risky position as you are betting against the long-term trend.

GM Nigel Davies adds:

One thing I’ve noticed about good attacking players is that they constantly strive for the initiative they are often happy to make light material sacrifices (for example a pawn, or rook for bishop and pawn). Bit they will tend not throw in the kitchen sink too early, instead holding back reserves. And often they will take time to pick up a pawn or two in the midst of their onslaught.

This contrasts with weaker players, or those less skilled in the attack, for whom nothing less than checkmate is good enough. They appear to be very insecure being material down without a clear means of forcing a win. But by setting their goal so high they reject many good moves along the way and often fall flat on their faces.

So one thing to look for when you are preparing to play someone is how comfortable they are in the attack and with material imbalance. Against players not adept at this it’s often good to snatch material and watch them ruin their positions in their attempts to punish you.

Sep

28

A popular talking point on CNBC is currently the rotation out of smallcaps into largecaps or how largecaps will now outperform smallcaps, but is it fruitful to think in such terms? Certainly smallcaps are more risky because of trading liquidity and various business risks such as lack of diversification and huge leverage, but if a company can grow in excess of 15% a year should the long term not outweigh the short? It seems the media has found a new talking point which is causing panics in various smallcap issues. I wonder if the old men are taking the canes out and buying merchandise on the cheap, or have the goods indeed spoiled?

Sep

21

Do you think the people who were trying to reach the top of Everest were not full of doubts? For a hundred years, people tried and lost their lives. Not even their dead bodies came back. But still, more people tried…risking…knowing that they may never come back. Why? Because it was worth it. Because in the very risk something is born inside you: the center. It is born only in the risk. That's the beauty of risk, the gift of risk. — Paraphrased from Osho (1931-1990), Indian Professor of Philosophy, Spiritual master.

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