Comments on: Uncompensated Risk is for Suckers http://www.obliviousinvestor.com/uncompensated-risk-is-for-suckers/ Investing Blog: The Oblivious Investor Thu, 29 Jul 2010 15:54:20 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Rick Francis http://www.obliviousinvestor.com/uncompensated-risk-is-for-suckers/comment-page-1/#comment-1428 Rick Francis Mon, 11 May 2009 17:21:28 +0000 http://www.obliviousinvestor.com/?p=4073#comment-1428 Mike, You may want to have a follow up topic on diversification across asset classes. Mark, While diversification can't protect against all loses- but it is still doing what it claimed to do. To greatly simplify- diversification among asset classes can reduce risk by protecting against one market- like stocks falling. This strategy works because different asset classes don't TEND to move together. However, you can't diversify away the risk that all markets will go down at the same time which is what has just happened! Still diversification among stocks and bonds would have greatly reduced the % losses - for some evidence look at the following graph of some representative bond and stock EFT funds: VTI and BND over the last two years. http://finance.yahoo.com/q/bc?t=2y&s=VTI&l=on&z=m&q=l&c=BND From a visual analysis of the data they don't look highly correlated to me :-). -Rick Francis Mike,

You may want to have a follow up topic on diversification across asset classes.

Mark,
While diversification can’t protect against all loses- but it is still doing what it claimed to do.

To greatly simplify- diversification among asset classes can reduce risk by protecting against one market- like stocks falling. This strategy works because different asset classes don’t TEND to move together. However, you can’t diversify away the risk that all markets will go down at the same time which is what has just happened! Still diversification among stocks and bonds would have greatly reduced the % losses – for some evidence look at the following graph of some representative bond and stock EFT funds: VTI and BND over the last two years.
http://finance.yahoo.com/q/bc?t=2y&s=VTI&l=on&z=m&q=l&c=BND

From a visual analysis of the data they don’t look highly correlated to me :-) .

-Rick Francis

]]> By: Monevator http://www.obliviousinvestor.com/uncompensated-risk-is-for-suckers/comment-page-1/#comment-1419 Monevator Sat, 09 May 2009 09:51:07 +0000 http://www.obliviousinvestor.com/?p=4073#comment-1419 2008 showed big benefits of diversifying if you had some of your money in government bonds. Perhaps Mark is referring to the way other assets like property, commodity, commercial bonds and overseas equities all fell in sync though. 2008 showed big benefits of diversifying if you had some of your money in government bonds. Perhaps Mark is referring to the way other assets like property, commodity, commercial bonds and overseas equities all fell in sync though.

]]> By: Mike http://www.obliviousinvestor.com/uncompensated-risk-is-for-suckers/comment-page-1/#comment-1411 Mike Thu, 07 May 2009 18:34:10 +0000 http://www.obliviousinvestor.com/?p=4073#comment-1411 Mark, how exactly did 2008 show that diversification isn't good enough? Mark, how exactly did 2008 show that diversification isn’t good enough?

]]> By: Mark Wolfinger http://www.obliviousinvestor.com/uncompensated-risk-is-for-suckers/comment-page-1/#comment-1410 Mark Wolfinger Thu, 07 May 2009 14:33:52 +0000 http://www.obliviousinvestor.com/?p=4073#comment-1410 As 2008 clearly demonstrated, diversification, by itself, it simply not good enough. Owning index funds is better than mutual funds or picking a few stocks by yourself, but index funds also got pounded last year. I don't understand why the everyone - including the Oblivious Investor, doesn't recognize the added value of hedging (reduce the risk of owning) a stock market portfolio. The way to do that is to adopt simple, conservative option strategies. As 2008 clearly demonstrated, diversification, by itself, it simply not good enough. Owning index funds is better than mutual funds or picking a few stocks by yourself, but index funds also got pounded last year.

I don’t understand why the everyone – including the Oblivious Investor, doesn’t recognize the added value of hedging (reduce the risk of owning) a stock market portfolio.

The way to do that is to adopt simple, conservative option strategies.

]]> By: Baker @ ManVsDebt http://www.obliviousinvestor.com/uncompensated-risk-is-for-suckers/comment-page-1/#comment-1409 Baker @ ManVsDebt Thu, 07 May 2009 13:29:16 +0000 http://www.obliviousinvestor.com/?p=4073#comment-1409 I'm not currently in the market, but I really enjoyed this article. Uncompensated risk is something that I try to avoid in all area of my life. I think it is something that has gotten a lot of people in trouble over the last couple of years. Great read! I’m not currently in the market, but I really enjoyed this article. Uncompensated risk is something that I try to avoid in all area of my life. I think it is something that has gotten a lot of people in trouble over the last couple of years. Great read!

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