Saturday, June 2, 2012

Wall Street Journal Weekend Reading

Same Returns, Less Risk

How Much Gold Do Investors Need, Zero

Is Now The Time to Buy Junk Bonds

The first article is about risk parity.  I believe that risk parity is the future of asset allocation so I am happy that the WSJ is addressing it but for it to be optimal it must be combined with tactical asset allocation.  A buy and hold approach is better with risk parity than it is with Modern Portfolio Theory but it is still flawed.  However, having a number of tactical models and weighting them by risk parity is the optimal way to build a portfolio.

The other two articles are the typical is now the time to buy X stuff.  Gold was up yesterday so should you buy it?  Junk bonds were hot early in the year now they are not so should you buy them.  The answer is simple, buy what is in an uptrend and sell what is in a downtrend.  Could this be the bottom for Gold?  Maybe.  Could the bottom be much further away?  Maybe.  It is much safer to stay in harmony with market trends than it is to try to pick market bottoms.

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