Diversification: Giving up some home runs, to avoid future strikeouts
We love Carl Richards money doodles on the New York Times ‘Bucks’ blog, and noticed this older post, which is even more timely than ever, the topic of diversification. The angle – diversification isn’t all roses and candy canes. It’s hard to stick to because it involves giving up something (hitting home runs) in order to get something (never striking out).
Asset Class Scoreboard — October
No surprise here… U.S and World stocks remain on top for their performances so far throughout 2013… It’s pleasant to see Managed futures show a positive performance number in October, moving up a position on the scoreboard. {Disclaimer: past performance is not necessarily indicative of future results}. Here’s a look at the rest of the asset classes YTD.
Did he just say that Diversification was broken?
We’ve been starting to see more and more of this lately…. People eschewing diversification for the big returns from being fully invested in the stock market. Columnist John Authers joins the list with an article, stating “Diversification looks bad when it turns out you don’t need it.” That’s a harmless enough statement in and of itself. A lifejacket looks silly when you don’t need it. But Authers calls out the post child of diversification, the Yale Endowment, and we think otherwise.
NYSE Margin Debt: Spooky Scary or just another number?
The financial world is abuzz lately, attempting to decipher what exactly record levels of NYSE margin debt means for the future of the stock market rally. The numbers are a little scary at first glance, but is this a premonition for a surge in the market before a flop, or a repeat of one of the best bull markets in existence?
The picture from Space that shows why Commodities are non-correlated to the Stock Market:
Right about now, you’re sitting there thinking: How on earth does this weather picture of the Wyoming & South Dakota have anything to do with stocks not being correlated to commodities? Well, the storm ended up killing tens of thousands of cattle in South Dakota because they hadn’t grown their winter coats yet. That came out to be 15 to 20% of cattle in South Dakota. But how does this prove stocks are non correlated to the stock market?
Disclaimers
Managed futures, commodity trading, forex trading, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.
The entries on this blog are intended to further subscribers understanding, education, and – at times – enjoyment of the world of alternative investments. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.
The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.
The performance data for various Commodity Trading Advisor (“CTA”) and Commodity Pools are compiled from various sources, including Barclay Hedge, RCM’s own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor’s disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor’s track record.
The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.
The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.
See the full terms of use and risk disclaimer here.
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