Monday, February 19, 2018

There's Always a Way to Beat the Market

Recent example of market beating: investors boosting their returns with bets that stock prices would keep calm and carry on. Exchange traded products linked to VIX, a volatility index, emerged to make betting on low volatility easier.

Then volatility exploded with a vengeance. Some bettors lost big. Two ETPs quiuckly folded.

It's just another chapter in the same old story, according to this comment from The 10 Point for February 16:
Jan Rogers Kniffen wrote: “In the early 1980s the strategy of holding a ‘diversified’ portfolio of junk bonds worked well, until the market for junk crashed, people lost fortunes and some went to jail. Then, every pension fund manager (including me) got pitched on ‘portfolio insurance.’ It worked well until the crash of ‘87 when everything cascaded down and funds lost fortunes. Then there was the ‘craze’ for investing in a ‘diversified’ portfolio of mortgage-backed securities. That worked well until the crash of the housing market. Low-vol strategies are the same, they will work well until the market changes—whoops, the market changed.”
The next market beater? Who knows?  But remember the wisdom of Sir John Templeton: "The four most dangerous words in investing are: 'this time it's different.'"

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