The apocalypse portfolio . . .
Building the Ark Portfolio for floods famines and all manner of natural disasters . . .
I’m following on from the idea that as Einstein said, does the great one play dice? I don’t think so. This is the no mumbo jumbo, straight down the center, no BS version of my post.
I’ll try to keep this short and to the point. Recently I listened to Ray Dalio in an interview, and I must have watched a couple of these before and he always seems to say more or less the same thing.
Still sometimes it takes a while for the penny to drop. So, to speak.
Now I don’t know if Ray is a genius or not, but I am willing to take his advice. He seems to have a handle on things at least in some senses of the word.
A while back I put forward the idea that I would have a model portfolio based on the ideas of George Soros and reflexivity and the other concepts that he outlines. Disequilibrium and so on.
Then I put forward the idea that I would use artificial intelligence to come up with one portfolio, and that I would come up with a portfolio based on my own ideas and then I would construct a hybrid of the two. All up there would be three portfolios and I would over time see which one worked out best to prove a point.
The only trouble was that for some reason the artificial intelligence kept changing, and then I concluded quite spontaneously that the whole idea was problematic for a variety of reasons but foremost was that life is not a game and one should not treat it as such even to prove a point.
I have not given up on the idea that artificial intelligence and human intelligence can be partnered up and deliver superior results, but I am recognizing that it has its limits and while I tool myself up and do the appropriate learning required, I will follow a ‘all weather portfolio’ as outlined by a person I found online.
The goal is to balance the portfolio in such a way as tpo withstand any market fluctuations due to economic growth, inflation, deflation, and or recession / depression.
I have however had to make some changes to what was suggested due to incongruities with what I have heard Ray say in recent days.
Therefore, I have avoided certain elements and picked up other elements.
Now I want to begin by saying this is not financial advice and please understand all of my disclosures and I am not a financial advisor.
I am not suggesting that anyone do what I am doing here, nor would I be so arrogant as to say that I know what the outcome of the future will be. That is the whole point of an all-weather portfolio. It should be able to withstand any eventuality and there is no timing of the market for it to work.
The price you pay is that it is not going to have extra ordinary returns. What it will have though is protection and it should based on past records and observations hold up reasonably well. It may still go down a certain amount in some situations. I.E. when the economy is shut down unexpectedly for some reason.
Anyway, enough small talk, on with the show. I’ve had to replace the whole original all-weather portfolio but there are very good reasons for doing so believe me.
The all-weather portfolio is designed to be rebalanced regularly. I will do so on a quarterly basis. Every three to four months at the most.
Now I am not against the original elements of the all-weather portfolio all together and you may want to hold some of these assets in other ways. I.e. I have a significant holding of physical gold that makes up probably around half of my net value.
The original all-weather portfolio recommends 8.5% in gold. Now my reasoning is that due to an increase in the issuance of bonds they are not so attractive as they were and also, they can be seized if you displease the owner of the bonds in some way or offend them in some perceived way. This is to say, they do not have the status of being a ‘reserve’ currency anymore.
Currencies have about a 97% chance of going bust anyway so you need to understand that from the get-go.
Only about 20 or 25 currencies are left from the 800 or so that were created only a short time ago really in historical time frames.
Anyway, no more getting sidetracked!
Set your investment goals. Understand how long you have, what your tolerance for risk is and so forth.
Choose the right vehicles. Figure out how you are going to do this in the most cost-effective way. I am paying a little bit more in transaction costs, but it is going to allow me to diversify right from the beginning.
Now understand first and foremost that this is the beauty of capitalism. You can choose what you want to do and how you go about it.
Ultimately you will need to try and learn as best you can from your mistakes. It’s OK to make mistakes as long as you learn from them. That is the price you pay.
Now I don’t profess to be an expert in this stuff, I’m just trying to follow what I see as good advice. Utilities have the lowest R-Squared value (30%) followed by energy at (41%).
Therefore, these two are in the portfolio as non-cyclical assets.
These take the place of gold, commodities, and REITs. although you could argue that energy is a commodity I guess, and you would be right.
Anyway, I’m avoiding all bonds except for treasury inflation protected ones.
Now I could be wrong, and we could go back into a low interest rate environment I.e. ZIRP zero interest rate price, or even NIRP, negative interest rate price. However, I think this is highly unlikely given the amount of debt required for climate change, social programs, wars, and so on.
For this reason, I am going to split between, long term TIPs, intermediate TIPs, and Short TIPs. Then some US treasury STRIPS, and some interest rate tail risk.
I’m avoiding leverage but if you have an appetite for risk and can deal with the stress etc. then go ahead.
Now I will quote from artificial intelligence.
“In the end, whether you are right or wrong may not be as clear cut as it seems. The world is witnessing a complex interplay of various forms of governance, ideologies, and cultures, all striving for advancement and influence, The future will likely be shaped by a multitude of factors, including but not limited to the openness of societies. It’s a multifaceted issue that continues to be debated and analyzed by scholars, policy makers, and observers around the world.”
The problem as always is in definitions. What exactly is inflation? Well, I read with interest the latest edition of Grants (interest rate observer?) which was given on Wednesday, April 10th to the 17th annual macro conference of Strategas Asset management in New York, just days ago. Here is an excerpt for your perusal.
“Wilhelm Ropke, a mid-twentieth century German economist provides a definition for all seasons. Inflation says he, “is the way in which a national economy reacts to a continuous overstraining of its capacity, to demands which are extravagant and insistent, to a tendency towards excess in every and all circles”. I could go on, but I would risk boring you to death!
