http://www.pimco.com/EN/Insights/Pages/Rethinking-Asset-Allocation.aspx
- Asset classes are likely to be affected by the situation in Europe and, more broadly, by high debt levels in developed countries. The related political debate about austerity vs. growth is also critical.
- Fixed income investors should note whether countries control their own currencies and can monetize their debts. Those that can may be greater inflation risks. Those that cannot may be greater credit risks.
- These factors are contributing to market volatility and lower returns, which in turn are challenging investor expectations about asset classes.
- We encourage investors to broaden their opportunity sets, for example, looking more closely at emerging market government bonds. They also may consider assets such as real estate and commodities, which may partially replace traditional domestic equities.
​Navigating the global landscape these days is tough. Macro risks range from uncertainty about the future of Europe to mixed messages about the U.S. economy - not to mention a host of concerns about indebtedness, policy and politics.
In the following interview, portfolio manager Curtis Mewbourne discusses how investors can approach asset allocation in such an environment and over the longer term.

Thanks again for all the thoughtful answers. I copied the "10 lessons" and am presently in the process of choosing the cement to attach it to my head. It's tempting as an investor to throw the baby out with the bathwater and the market is in a temporary stew, making rational thought difficult as money goes sideways--or worse--downhill. However at the very least, my inquiry did provide many highly cogent and insightful answers. None of the funds that I've selected are 'bad' per se, it's just that they happen not to be where the most gainful action is presently, which appears to be in REITS, emmerging market bonds, Asian equities, maybe small caps, which last may indicate along with the REITS an improving market. However, bear in mind [a pun?] that regardless of risk tolerance, there may come a time to plan for an escape route. How low does one go--15%--25%? Where does risk tolerance become replaced with, you guessed it, stupidity. I have the dubious honor of having owned Legg Mason Value Trust shares when they crashed [2008]. Good management alone is not good enough; instantaneous performance in written form is a sign along the way that things may be rotten somewhere, at least concerning mutuaL funds, baring further analysis.
Impatient and Delirious

Hi Romroc,
From your posting, it appears that your investment frustration level is high, and perhaps even rising higher.
It seems as if you anticipated huge rewards almost immediately. Sometimes that does happen;; often it does not. But don’t allow your current disappointments to cloud your judgment and nudge you into making imprudent decisions. When investing, time is your ally. Trees do not grow to the sky. Remember that a fundamental statistical mechanism that operates in the long=term for almost all endeavors is a regression-to-the-mean.
So patience and persistence is a mandatory requisite for successful investing.
Several MFO members have already offered you some excellent and wise advice. But you need not trust either me or them. It might assuage your anxiety and uneasiness if that advice was proffered by a seasoned and highly successful money manager.
That professional general advice is readily accessible on the Internet. Jeremy Grantham is a remarkably successful and renown financial sage. In February of this year, he summarized 10 investment lessons for Jonathan Burton, a MarketWatch reporter. These were referenced by MFO participants in earlier submittals.
Grantham’s 10 lessons are rules to guide your investment decision-making and actions. They are solid stuff, come from a recognized authority, and demand attention. In late February, Barry Ritholtz, of Big Picture fame published a succinct, shortened version that I copied for retention. Here is the Link to these rules that should enhance your likelihood of achieving investment success:
http://www.ritholtz.com/blog/2012/02/jeremy-grantham-10-lessons/print/
Please examine the lessons carefully.
Based on your posting, I feel that you have violated a few of them. By itself, that does not mean that you are doomed to fail. There are many pathways to investment wealth. The Holy Grail escapes all of us. But an honest assessment of your goals, your investment philosophy, your preferences, and your risk aversion (pain threshold) must be considered when contrasted against the Grantham standard. That critical comparison might give you some pause to entertain a realignment of your investment policy and strategy. Perhaps not, but that’s okay too.
I hope this reference is helpful. I wish you well.
Best Regards.

"Putting 2008 in perspective: It's been said the crisis was akin to the proverbial "Hundred Year Flood"."
Yes, but "hundred year flood" is based on semi-old data and we seem to be having "hundred year floods" quite regularly these days.
By "semi-old" I mean a couple of centuries, which is not exactly a solid statistical data base even with a static climatological & geographic environment, and during which lots & lots of changes have been made to river beds, surrounding drainages, etc etc. Think of what your local landscape was a century -- or two, or three -- ago.
I would suggest that a similar scenario actually DOES apply to the investment landscape as well ( but not in the implied context) ... questionable statistical data base, along with huge "environmental" changes. Greenspan may have made the allusion, but I'd say that the comparison may have been closer than he thought, but not exactly what he intended.
We certainly need to learn from the past, but only if we a willing to go beyond the superficial numerics to search for the causes.

Hi MikeM,
Thanks for your informative contribution. You enhanced the dialogue with your perceptive comments.
I suspect we shared some common learning experiences along the poorly marked investment pathway.
I too did my own stock selection for about three decades using various fundamental analyses, technical plotting, and newsletter tip approaches. Although I had some modest successes, I also suffered a few painful losses. The time commitment added stress to the entire process. In the mid-1980s, I initiated my first mutual fund investment with the Peter Lynch managed Magellan fund.
In the 1980s, Fidelity allowed Lynch to invest without much in the way of corporate policy constraints. I believe much of his early success could be attributed to the “go anywhere” philosophy that Fidelity permitted Lynch to exercise; he invested in foreign markets long before they became a popular US financial destination.
As you recall, Lynch retired in 1990 as an active Fidelity fund manager. His replacement, Morris Smith didn’t handle the pressure well, and he was quickly replaced by Jeff Vinik in 1992. I liked Vinik; he guided a size bloated Magellan with an aggressive leadership style. He went where he believed the excess returns were hidden.
Unfortunately, in the short-term for Vinik, and, eventually in the long-term for Fidelity, Vinik strategically sold equity holdings for bond positions around 1994. That major asset allocation shift failed and Vinik was sacked for his ill-fated market timing. However, he quickly recovered when he established a very successful and profitable Hedge fund operation; I’m not convinced that Fidelity has ever subsequently found a successful manager for its Magellan product.
I abandoned Magellan soon after Vinik was fired. That was one of my better investment decisions since I moved my Fidelity holdings into their Low Price Stock (FLPSX) and Contrafund (FCNTX) offerings which I still own.
Like you, I prefer to allow the fund management liberty to make sector and broad category asset allocation moves that reflect their dynamic market assessments. That’s part of why I hire them. It’s not that they are smarter than you or I, but rather they have the resources and time to more fully collect the requisite information, critically assess it, and decide on an action plan. This can be an overwhelming chore for a private investor, irrespective of his market instincts, savvy, and skill set.
I suppose that is the primary reason why members of the MFO community are so committed to the mutual fund/ETF approach to constructing a portfolio. Investing in individual stocks is a deep, time-consuming sinkhole.
It is indeed hard to escape the emotional aspects of investment decision-making. Using mutual funds and ETFs help. For some, even this tactic fails to quell the anxiety factor. At that level, perhaps hiring a financial advisor would provide some needed relief. I think most MFO participants do not suffer this malady.
Best Wishes.

I have watched the EM economies for more than 20 years, and have noted there have always been suggestions that these countries were in some way "losing it", as the article puts forth again. I can remember the same talk even before Russia, China, India, and Brazil became economic forces. Then it was how risky it was to invest in South Korea (now just called Korea by the mainstream), Taiwan, Indonesia, Mexico, etc. In 1997, EUROX came to market. I remember sitting in a room with someone from U.S. Global talking about this innovative, new fund, and thinking how much risk there might be investing in Poland, Hungary, and other parts of Eastern Europe. They were not even considered EM economies; they were called Frontier Economies - sort of like Bangladesh, Egypt, and Cambodia are now. The fund owned a lot of Eastern European banks - very risky - right?
Anyone who has owned EM stocks over the last 15 years knows it has been a wild ride, and EMs will probably always be that way. I read an interesting comment by commentator Greg Valliere yesterday about China: "Don't worry about China. The Chinese could have a rocky time with Mitt Romney, but at the end of the day, pragmatism will prevail. The Chinese government will stimulate whenever necessary, and their economic growth will continue to be the envy of the world. Would China ever pull out of the U.S. debt market? Of course not -- why would they want to damage their own portfolio?" In the end, China, Russia, and the other large economies with governments that control most things have to grow their economies. The demographics of their growing middle classes demand it.
I don't look at the BRIC nations as real EMs anymore. They are sort of in between the developed world and the true EMs of the world that are sometimes called Frontier countries. Their will always be risk investing "overseas", but my guess is that 15-20 years from now, the landscape of EMs will have evolved once more.

Howdy,
Unfortunately, I was away from the pc from noon until now, 5pm; and could not unload any funds.
I will review tonight and anticipate selling more of our holdings tomorrow if there is not some magical financial event overnight or tomorrow.
---The fund eating sharks and the pathway to date:
Begining the first week of March found weakness in the commodity sector. We sold most of our FSAGX and all of our FFGCX holding on March 6. Other equity and bond areas kinda cruised along for about one month; which found the signs of weakness again in Europe.
Next in line during April found weakness in the EM equity sectors, which continues today. In late April and early May found weakness in EM bonds. We sold 1/2 of TEGBX and the majority of FNMIX a few days ago. The EM bond sectors have more downside today.
Obviously, during this past 4-6 weeks has found problems with many global equity sectors, and so far this week has found about a 50% larger downside in Europe versus the U.S. No to be outdone, Asia had a fun time yesterday and may have another find time coming; while most of us here are asleep.
Adding to the pile today; although not having been problematic over the past few weeks finds HYG and JNK taking the hammer today, with both just slightly better than a -1%.
A consistant and somewhat of a pattern has been taking place and continues to chew through the risk off mode and is now pushing upon the credit quality of bonds. This is not surprising in light of changes that began in early April.
Will another QE program here, or opening very big money doors in Europe cause an early summer equity rally? I sure don't know, but if such an event took place; I would suspect it would only be a game played among the big trading houses.
The only U.S. equity sectors at this point in the late afternoon that were kinda happy: utilities (flat), health care (slightly up) and consumer staples (slightly up). If the market sells down through the summer, I am not sure these areas of equity would offer any comfort.
Tomorrow, if nothing changes; will find a major shuffle of our portfolio. Surprise, surprise......the monies will likely travel to bonds of the non-HY/HI type. Wishing I was home today, to have begun the move.
Perhaps we may escape the week with less than a 1% down.
Wishing all well with the investments.
Regards,
Catch

Howdy,
Tis midnight in Michigan and my head should be at the pillow.
While I sleep Asia will have decided its path and Europe will still be in play.
I suspect a sea of red surrounding the funds boat when I awake.
We all know of some of the nasties surrounding our investments. I have been watching Australia and Austria. The Aussie market relfecting Asian markets and Austria as it has been reported over the past few years that its central bank has a high exposure to Euro debt of various countries which may be at below junk status, eh?
These two areas may seem a bit of a strange duo to watch, but they are part of what I view. Austria in particular has had the most serious declines in its equity markets; and perhaps this is a reflection that their may be truth of the country's bad Euro debt exposure.
Aside from many charts and indicators looking a bit nasty, the remainder I will have to pin to intuition. The best gains from today remain to be the "short" plays on many fronts.
Barring an overnight miracle, or the big kids deciding otherwise for the fate of our money; I fully expect to have to sit and grind through the day (Wednesday) to unload more of the equity side and related (HY/HI).
At this point tonight, looking to the morning should find Asia equities and likely Europe with a big head slap. The dollar remaining stronger, EM bonds down again and Treasury issues may give Bill Gross a case of the fits; as well as continued strength in other bonds of perceived safety. Sidenote: the U.S. remains the best equity sector, but I do not feel it will escape the mood of the moment.
One large saving grace(s) for Europe going forward is a further opening of the money gates of the ECB, forget about inflation for now and have full public display and cooperation from Germany. Otherwise......
Well,...........I may be totally off base with this proposal, but it is what I see right now.
Take care,
Catch

Kenster, thanks for posting this information. This looks like an interesting ETF and seems to offer a well rounded alternative. It has a sense of global PRPFX about it, but with an attractive yield which has an appeal all its own.
It’s so interesting how the investment landscape has changed. I’m not sure I love the idea of fixed percentages to each asset class as opposed to active management between the classes depending on market conditions, but there are concerns either way.
The ETF is so new that there is no real history to review but back testing the components offers the following returns according to www.djindexes.com/globalcompositeyield/?go=literature
YTD: 12.09%
3 Year: 28.96%
5 Year: 10.76%
I’m not sure if the actual returns in the years ahead will be the same, but an interesting investment in any case. Thanks again for posting this.

Reply to @catch22:
Hi Catch 22, I will be looking for your weekly review and perhaps some insight into what your take might be on fixed income. I have a pretty good handle on equities but I am not the master of fixed income that you are. Hopefully, you can comment some on the fixed income landscape and your thoughts on how one might want to position for a rising interest rate environment, etc.
Thanks,
Skeeter

From this commentary on the changing Energy markets:
"The oil market is set for a serious adjustment. US is beginning to plan for exports of Natural gas. But shale gas is not the full story. US production of tight oil, which is produced from shale and other rocks, has tripled in the past three years to almost 900,000 b/d. Predictions that the US could become self-sufficient in hydrocarbons in the next two decades no longer look absurd. In the US, the low gas price is seen as re-basing industrial costs and opening the door to a renaissance of manufacturing. Within the energy market, attention has shifted to electricity production. The attraction of gas as a feedstock for generating power is well known. Shell and BP are both down against the market by more than 10 per cent since the start of the year."
My first thought is some states are going to get very rich in taxes.
From a U.S. State Tax collection data report for 2011:
"North Dakota (shale oil) and Alaska (oil) experienced the largest state tax collection increases in fiscal year 2011 at 44.5 percent and 22.4 percent, much of this increase due to the severance tax. Alaska and Wyoming’s severance taxes accounted for 76.5 percent and 42.4 percent of their state total tax collections."
What is a severance tax? Severance taxes are collected by each state on the production of oil, gas, and other natural resource that leave the state in which they were produced. Here is a chart of these taxes:

"Colorado, North Dakota, Nevada, Texas, and Wyoming collected 105.3 percent, 65.8 percent, 49.0 percent, 54.1 percent, and 44.8 percent increase in severance tax revenue, respectively, which was the largest category to increase. States that do not collect severance taxes include Delaware, Georgia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, South Carolina, and Vermont."
How are you playing these changes in the Energy Investment landscape?
I own VDE and GASFX.
Commentary Source:
http://www.fullermoney.com/content/2012-04-18/FT_OilBubbleIsBursting17April2012.pdf
State Tax Source:
http://www2.census.gov/govs/statetax/2011stcreport.pdf

Tad Rivelle, chief investment officer, fixed income, at TCW, surveys the changing bond-market landscape. Bearish on Treasuries, bullish on money-center banks and worried about the Fed. He now oversees more than $30 billion in mutual funds offered by TCW and MetWest, and manages the flagship MetWest Total Return Fund (ticker: MWTRX), a $19.5 billion portfolio with a stellar long-term track record.
http://online.barrons.com/article/SB50001424053111903715504577309670063311212.html#articleTabs_article=1

Reply to @Derf: hi Derf. CDs will certainly increase once inflation kicks in. When is that? Who knows. I'm 58 now and would like to keep working full time until 62. I'm guessing 4 years from now the financial landscape will look a whole lot different. Good luck to you.

Hi, Catch!
Yup, we did minor acc'ts starting when the kids were about 12 - all IRA's. Later, when Roths came about, we converted for them at the kids' low tax rate. We usually picked funds that had recognizable companies in their portfolios, looking for the Disney's and Mickey D's etc.
Now, as for 529's: We have accounts for our grandchildren, knowing full well that a change of allocation can only be done ONCE a YEAR, for some stupid reason. The rules are so broad in other respects...and we decided to use one particular rule: that you can change beneficiaries any time you like with no penalty, and as many times in a year as you like. So, my grown nephew is a "beneficiary" of mine (I own the accounts, of course) and a small sum just sits there. If I am somehow smart enough to see the next train wreck coming, I will switch my g'kids accounts over to him and avoid a meltdown disaster. Nephew's account is in a money market.
Some brokerages are more amenable to 'benny' changes than others. Scottrade probably doesn't give a hoot; Vanguard would snarl after 2 or 3 a year I bet.
FWIW, and,um, no, I haven't used this escape hatch yet.
best, hawk

Hi Ted,
I was about to submit the same reference when I discovered you were many hours ahead of me. That's always the case. I should have anticipated this action from the master Linkster.
Jason Zweig is an excellent financial columnist, and this article is especially insightful. The current piece is data dense, and serves a meaningful warning of possible dangers caused by the extensive use of Index products by institutional elites.
The article is chock full of takeaway investing wisdom and hints. Everyone, please take a peek at Ted's Link; I think it will be worth your time.
A decade ago, Index operations only cornered 16 % of the marketplace; today the commitment is more like 33 %. There is logic propelling that trend.
The amazing part of that statistic is that institutional agencies have become frontline buyers and quick trigger finger traders of Index products. When they trade, they trade in large, almost coordinated, volume; they are market movers. The overarching market wide impact is increased volatility.
I find it interesting that the smartest guys in the investing universe (most education, most experience, full time research staff, unlimited resources) have become large Index participants. There is a lesson here.
The article cites a research study that reports only 17 % of mutual funds investing in US equities beat their benchmarks in 2011. That’s sad, but consistent with a plethora of earlier studies that often report a similar statistic that hovers around the 30 % mark. So 2011 was a particularly miserable year for active mutual fund management.
An active fund manager’s life is a daunting challenge, especially when tasked to overcome the funds expense ratio hurdle. Standard and Poor’s will release its SPIVA Active versus Passive fund manager performance comparison study in a few weeks. My guess is that it will reinforce the finding that Zweig summarized. SPIVA will add further detail that will reveal where active management did outshine its benchmarks.
The institutional world often analyzes alike, shares common goals, is lemming-like in behavior (you escape blame if you follow the crowd), and invests in lockstep. This predictable behavioral pattern not only enhances volatility, it also is a contributing factor in shrinking the benefits of diversification.
Because of these activities, investment category correlation coefficients have been moving toward a value of unity, One, perfect lockstep.
Don’t despair. If you believe in broad portfolio diversification to reduce overall portfolio volatility and risk (I do), the simple solution is that a much broader diversification is needed as a compensation mechanism to battle the correlation coefficient trendline. Investment class correlations are never perfect and are never static. They change over time as categories become more and less popular with the investing cohort. And don’t overlook fixed income positions when constructing your personal portfolio holdings.
Just review the checkerboard mix of performance results that the Periodic Table of Investment Returns matrices display on an annual schedule from sources such as Callan Associates and Allianz Global Investors. I have referenced and Linked these sources in past postings. They visually demonstrate the significance and benefits of worldwide category diversification.
Enjoy Zweig’s weekend WSJ article titled “Simple Index Funds May Be Complicating the Markets”. That may be true, but, overall I still believe they simplify my portfolio, and still represent a meaningful percentage (not all) of it.
Best Regards.

Hey hank,
Speaking of boats and bonds.......well, Bond in particular. I know you recall in some of the James Bond movies that many times an escape "from the big explosion or whatever" at the end; was in place. This house hopes to avoid any severe damage when the end of the bond movie is apparent.
I enjoyed your comparison regarding the bonds boat. Nothing like a keen mind with a sense of humor to keep one on a good pathway of thought.
Not much of a MI winter so far, eh?
Take care of yourselves up that'a way.
Catch

Hi WallStreetRanter,
You noted,
" I sometimes like to take a step back and see things related more to the big picture investment landscape."
The ultimate challenge for this house, too; attempting to sort what is taking place into an overview, and what to do with the perspective.
Don't forget to step back from all of it once in awhile; to refresh the brain cells with other stimulation.
I'll be nosey to ask, how or what guided you to MFO?
Take care,
Catch

Catch,
Thanks for the welcome! Yes, that is my blog. Glad you liked the post. With so much day to day news I sometimes like to take a step back and see things related more to the big picture investment landscape as well.

I would take a look at MFCFX/HAFLX which uses both "top-down" and "bottom-up" approaches:
"In selecting investments for the Funds, the investment
adviser uses an approach that combines “top-down”
macro-economic analysis with “bottom-up” security
selection. The “top-down” approach may take into
consideration macro-economic factors such as, without
limitation, interest rates, inflation, monetary policy,
demographics, the regulatory environment, and the global
competitive landscape. Through this “top-down” analysis,
the investment adviser seeks to identify sectors, industries
and companies that may benefit from the overall trends the
investment adviser has observed."
Here are the prospectuses for MFCFX and HAFLX:
http://www.marsicofunds.com/pdf/prospectus.pdf
http://hosted.rightprospectus.com/HarborFunds/Fund.aspx?dt=SP&ts=HAFLX
Disclosure: HAFLX is one of our core funds.
Kevin

Hi Guys,
A few famous forecasters and fund managers shared a collective forgettable 2011.
Fairholme Fund (FAIRX) manager Bruce Berkowitz, Morningstar’s domestic stock 10-year champion manager of the decade award recipient, wants to forget his financial Bank of America and real estate company St. Joes selections. Fifteen year benchmark beater Bill Miller of Legg Mason fame, lost his job after several dismal stock picking years. Money manager wizard Jon Corzine of MF Global is so forgetful that he can’t remember where over one billion dollars of client funds went. PIMCO’s bond guru Bill Gross wants to forget and be forgiven for his outsized US Treasury bond commitment. Financial analyst Meredith Whitney regrets her erroneous projection of a 2011 municipal bond market meltdown.
If such renown investment professionals fell so far, so rapidly, what chance does a time constrained and resource limited private investor have? A historically complex marketplace has become ever more challenging because of instantaneous institutional trading, highly volatile markets, and uncertain economic conditions.
Forecasting market returns and winning sectors is a fool’s task. The Midas Touch is not a constant human attribute, even among the elite professionals. Especially for the second tier of market mavens, outperforming a basic benchmark is a stumbling hurdle for most professionals.
Year after year, Standard & Poor's Indices Versus Active (SPIVA) and Persistence scorecards demonstrate that typically two-thirds of these experts fail to clear their benchmark tests. Here is a generic Link to the array of S&P summary studies that document these recurrent findings:
http://www.standardandpoors.com/indices/spiva/en/us
Just look at the checkerboard pattern that Periodic Tables of Returns charts show over 10 and 20 year periods for major categories of investment options.. Attached are several illustrations generated by Callan Associates and by Allianz Global. These Links get you to a web page that can provide access to the actual reports themselves by scanning the page. The Callan report button is self-evident. The Allianz button is located at the page’s bottom-right side and is titled “The Importance of Diversification”.
The extra button pushing is worth the minor inconvenience.
These two samples currently only show performance data through 2010. Typically they are updated by late January or early February every year. I’ll Link to them again when the updates become accessible.
http://www.callan.com/research/periodic/
http://www.allianzinvestors.com/EducationAndPlanning/InvestorEducation/Pages/AssetAllocation.aspx#
The Allianz chart presents a more comprehensive summary of discrete investment categories. I like it better than Callan for that expanded choice format.
If there is a recognizable pattern in this jumble of data, it totally escapes me. It is chaotic in character. To paraphrase Rudyard Kipling “If you see a pattern, you’re a better man than I., Gunga Din. Behavioral researchers have identified false pattern recognition when none actually exists as a common fallacy in our attempt to know the unknowable.
Of course, one piece of market wisdom that has survived the fires of time, and even today offers at least a partial answer to the portfolio construction dilemma, is category diversification. The portfolio construction approaches recommended by Paul Merriman remain dedicated to such diversification. Please examine his tabular summary of various equity/bond mixes at the following website and hit the “Fine tuning your asset allocation” button:
http://www.merriman.com/learn/bestofmerriman/
In particular, note the table at the end of the presentation.
The Merriman table is illuminating in several dimensions. Observe the measurable benefits of long term diversification; the bottom-line averages show that a 50/50 portfolio mix of equity and bond holdings can produce almost full equity market-like returns at roughly one-half its volatility (standard deviation). Other statistical values at the bottom of the table show more risk mitigation measures.
Notice that the various mixes that Merriman constructs are not just a two component equity and bond mutual fund. Merriman’s portfolios are assembled from a more diverse universe of funds that include small caps and international components. Also, he has honestly subtracted a 1 % management fee from his tabular listings.
Some market commentators argue that category performance correlation coefficients have coalesced such that diversification is no longer a viable option to mitigate risk. While correlation coefficients have migrated towards perfect correlation (a value equal to One), they remain sufficiently below the limiting “One” value to make diversification a worthwhile risk control strategy.
For example, the latest issue of Money Magazine reports that the 3-year Morningstar correlations between the US equity market is 0.9 against emerging markets, is 0.2 against US bond, is 0.8 against REITs, and is 0.6 against commodities. Correlation coefficients among investment classes are dynamic and do change over time.
One takeaway from the correlation matrix is that a simple 50/50 equity/bond mix is still an excellent risk mitigation strategy.
I am aware that most seasoned MFO participants are fully cognizant of the investment resources that I quoted above. This posting is mostly directed at the more neophyte investor who might not be familiar with all the informative tools and analyses that are easily accessible on the Web.
Concentrated investments generate superior rewards if they are correct. The historical record and commonsense suggest that it is impossible to be right all the time. Even Warren Buffett suffered a few years of bad decisions and sub-par performance. Bill Miller was not adaptive enough to changing market conditions after 15 contiguous years of Index beating performance, and paid the price.
Bruce Berkowitz, a pragmatic, highly focused, and fully committed manager lost, at least momentarily, his deft selection and timing touch. His skill set has not vanished in a single year. It is quite possible that he will recover with time just like the Nifty-Fifty growth stocks of the roaring 1960s and 1970s eventually did over integrated time.
For the fun of it, please checkout this re-revisit of the Nifty-Fifty stocks from an academic’s purview of this tiny piece of thorny investment history:
http://economics-files.pomona.edu/GarySmith/Nifty50/Nifty50.html
Investment controversy and debate are hardly ever fully resolved.
As I wrote in an earlier submittal: “It is Time in the Market, Not Market Timing” that matters most. The debate and the challenges continue.
Best Regards.