Post 1000 & Risk Management

This is post number 1000 for this URL. My first blog address disappeared (short version) when all of that content, about 4900 posts, was moved over to a site hosted by AdvisorShares when I had my side gig there a while back. I wrote at The Maven for a bit but that sort of sputtered and however many hundred articles I wrote for thestreet.com are all still up.

First up, Corey Hoffstein posted this picture with the caption "as predictable as the daybreak." I think he was referring to a good fund having a long struggle and then doing well again. 

BLNDX is of course a client and personal holding. Yep, it struggled for a while. Any valid strategy will have periods where it languishes. Speaking of AdvisorShares, when I worked there, the CEO was fond of saying that when a manager struggles for an extended period, you should double down. I don't know about doubling down but certainly throwing in the towel runs the risk of being a bad decision. Probably.

The caveat might be a stock picking fund that is always trying to beat the market. The Fairholme Fund (FAIRX) might be a good example here. 

The manager, Bruce Berkowitz, a smartest guy in the room type but this has been a very difficult hold. If you play around with the time periods though yourself, you'll see there have been different runs where it has been closer or even ahead of the index but I'm not sure how you settle in and buy this one. BLNDX is systematic though. The equity sleeve uses index funds and the managed futures sleeve, like I said is systematic and if you've ever seen fund manager Eric Crittenden interviewed, he never second guesses it. 

Here's an interesting idea. 50% BLNDX and 50% gold.

Ok, that's interesting. If you simulate it though by replacing BLNDX which only goes back six years, with a mix of ACWI and AQMIX, you get a much longer backtest that is very unimpressive. Managed futures and gold had rough run for much of the 2010's. Managed futures is great. Gold is great. But don't get carried away.

And in a related article, Bloomberg said At Long Last Being Underweight Tech Is A Winning Strategy. I don't think this is the right thought process here for what has been kind of a sneaky rolling over for big tech. Not so sneaky? I don't know actually but either way, as we've said countless times, history has not been kind to sectors that grow to be larger than 30% of the index. Where most of the revamped communications sector came out of tech, you could argue that instead of tech being 34%, it's closer to 40%.

The risk from a huge sector weighting either resonates with you or it doesn't and this pullback is either the start of something or it isn't, I don't know but I do know that I don't want to chase this sort of thing. I've been underweight tech for a while. Said differently, excesses, like 35-40% in one sector, are prone to real pain. 

I think the most important part of risk management is recognizing it before the consequences hit. That much in tech is an obvious risk factor. Maybe it will never matter, I don't know but it is obvious and one that matters to me. There is no reason you need to be overexposed to the risks that matter to you. 

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