The All-Weather Portfolio

Paul FennerPortfolio Management

One of the preeminent financial bloggers that I follow is Barry Ritholtz at The Big Picture.  One of the big topics circling around the wealth management industry these days is the new book out by motivational speaker Tony Robbins.  In his book, Robbins interviews some of the greatest investors in the world and comes up with what he calls an “all-weather portfolio”  The portfolio is attracting quite the criticism including some from Ritholtz who I agree with. Ritholtz goes on to say in his Bloomberg column here that the book “recommends a portfolio that is, to be blunt, bad.”

The biggest issue that I have with Robbins’ portfolio is that it calls for an asset allocation of 55% to bonds.  The bond market has been in a complete bull market for years and people trying to copy this portfolio may be setting themselves up for a major fall by buying at the top. I don’t even recommend a bond portfolio of that size for people who are retired and need a dedicated income stream from their portfolio.  There are alternatives to bonds that can reduce your risk but at the same time provide an acceptable risk-adjusted return.

Another major trap with the all-weather portfolio is the 7.5% allocation to gold.  Gold is often presented as an inflation hedge and she be a part of every portfolio.  Here again I whole-heartedly disagree because gold is just a storage of money, it does nothing.  There is no dividend, coupon, or cash flow that you would be owe by a company.  Research shows that gold’s major run up in price occurred back in the 70’s when President Nixon took the US off of the Gold Standard.  The only way to make money with gold is the speculation that it will appreciate in value.

One Up On Wall Street

One of the first investment books I can remember reading as a young investor in my teens was One Up On Wall Street by legendary investor Peter Lynch.  This article on StockTwits 20 Insights from Peter Lynch, provides many of the highlights that Lynch has to offer in his book.  Below are a few of his insights;

  • Career risk is more highly regarded than market risk – In fact, between the chance of making an unusually large profit on an unknown company and the assurance of losing only a small amount on an established company, the normal mutual-fund manager, pension-fund manager, or corporate-portfolio manager would jump at the latter. Success is one thing, but it’s more important not to look bad if you fail. There’s an unwritten rule on Wall Street: “You’ll never lose your job losing your client’s money in IBM.”
  • The biggest winners are usually a pleasant surprise – The point is, there’s no arbitrary limit to how high a stock can go, and if the story is still good, the earnings continue to improve, and the fundamentals haven’t changed, “can’t go much higher” is a terrible reason to snub a stock. Shame on all those experts who advise clients to sell automatically after they double their money. You’ll never get a ten-bagger doing that.  Frankly, I’ve never been able to predict which stocks will go up tenfold, or which will go up fivefold. I try to stick with them as long as the story’s intact, hoping to be pleasantly surprised. The success of a company isn’t the surprise, but what the shares bring often is.

I’m not a big fan of Twitter (although I have an account) because it simply takes to much time for me to manage.  But just because I am not active on it doesn’t mean that some of the world’s brightest minds in finance, politics, and news aren’t.  Business Insider put together a list of The 106 Finance People You Have To Follow On Twitter.  There are a few on this list, namely Barry Ritholtz who I follow through his work at Bloomberg and his own site The Big Picture.  Might be a good look for some holiday down time.