Dealing with risk — diversified asset allocation

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Diversified asset allocation, the belief system that most investment advisors preach—has the “right”  mix of stocks, bonds, real estate, commodities spread out over the entire world.   This investor age dependent mix is rebalanced, typically quarterly, by reducing your investment in areas that have performed well and increasing your stake in areas that are now underweighted—presumably waiting their turn to perform.

I don’t think this is a bad strategy, but it does make the assumption that the future will be like the past (e.g., equities average around 10% growth per year over multi-decade periods, and that some assets classes like bonds and commodities tend to counterbalance trends in equities.

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Dealing with risk

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UPDATE — Redirected to Black Swans   I’ve been thinking about various strategies for dealing with limiting losses.   Many investment strategies exhibit moderate upside potential, with large exposure to downside risk.  For example, on average the broad equity markets have shown annualized gains in the range of 10% over the long term, but these gains are often punctuated with large downside risks (market panics) that are …

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Playing the weeklies…

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Created a covered call position today with SPY at 106.89 and 107 SPY calls expiring this Friday–the 23rd.   The calls sold (to open) at 1.18, giving a 1.2% best case profit for the week if SPY closes Friday above 107.   Fidelity supports trading these weekly options, but apparently Schwab does not.

A near miss on the 15th

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On July 15th the closing price of SPY was only $1.12 away from the July 15th, 2004 closing value of SPY.   The last crossover between the two price histories was in late May, but it wouldn’t take much of a rally to put 2010 on top again.

The summer of 2010 grinds on

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The last 3 days have provided a respite, but in general the market has not been kind to the bulls this summer. As in 2004, the 2010 bottom trendline has not proved to be a impermeable barrier–with a SPY close of 102.2 last Friday providing a convincing accent.   Six years ago the market reversed its negative summer slide starting in August–are we three weeks early this …

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