K
KoolDizz
Guest
I've come across this thread the other day and got very impressed of how things can go your way in just a matter of days. Yeah, I am still recovering my losses but things are looking up and am certain to make bank. I even started my own blog on how to make money in stocks.
As you have probably noticed, stocks are a wee bit more volatile these days. We’ve reached levels of volatility similar to what we experienced during the financial crisis in 2008, and before that, the Great Depression. It’s pretty intense.
I can tell you one thing: If you can handle this, you can handle anything. I would characterize any move over 2% in the stock market SPX, 2.16% as large. Ten percent is, well, the largest since the crash of 1987.
In a plain-vanilla sense, you are probably wondering how to mitigate the volatility in your portfolio, which is freaking out. You could step into your time machine, go back a few months and buy some bonds. Except, even bonds TMUBMUSD10Y, 0.700% are not helping now.
All kinds of wacky stuff is happening in the bond market, and bonds aren’t really providing any diversification benefits anymore, as risk-parity strategies unwind.
Gold GC00, -0.59% is supposed to provide some diversification benefits, but isn’t, because of liquidation. Commodities, no help. Real estate, no help.
The stark reality: In a crisis, correlation goes to one, and everything moves in lockstep. And that is the problem with 95% of portfolios out there.
Correlation is the risk that nobody sees. Correlation is the risk that nobody saw in 2008, which was precisely the cause of collateralized debt obligations (CDOs) and such blowing up. Correlation is always lurking. It’s the relationship between currencies and bonds and stocks and banks and people that you don’t see until it’s too late.
Correlation causes weird stuff to happen. I heard about a high-yield muni bond fund that sank 16% in a day. No way in a million universes should that happen. Correlation. Someone is losing money over there, so he has to sell a winner over here. That is happening times a thousand in the markets right now.
Stocks, bonds, currencies, gold, everything is moving like a marching band — but in ways that you would not expect. You have no idea where the weaknesses are until it’s too late.
As you have probably noticed, stocks are a wee bit more volatile these days. We’ve reached levels of volatility similar to what we experienced during the financial crisis in 2008, and before that, the Great Depression. It’s pretty intense.
I can tell you one thing: If you can handle this, you can handle anything. I would characterize any move over 2% in the stock market SPX, 2.16% as large. Ten percent is, well, the largest since the crash of 1987.
In a plain-vanilla sense, you are probably wondering how to mitigate the volatility in your portfolio, which is freaking out. You could step into your time machine, go back a few months and buy some bonds. Except, even bonds TMUBMUSD10Y, 0.700% are not helping now.
All kinds of wacky stuff is happening in the bond market, and bonds aren’t really providing any diversification benefits anymore, as risk-parity strategies unwind.
Gold GC00, -0.59% is supposed to provide some diversification benefits, but isn’t, because of liquidation. Commodities, no help. Real estate, no help.
The stark reality: In a crisis, correlation goes to one, and everything moves in lockstep. And that is the problem with 95% of portfolios out there.
Correlation is the risk that nobody sees. Correlation is the risk that nobody saw in 2008, which was precisely the cause of collateralized debt obligations (CDOs) and such blowing up. Correlation is always lurking. It’s the relationship between currencies and bonds and stocks and banks and people that you don’t see until it’s too late.
Correlation causes weird stuff to happen. I heard about a high-yield muni bond fund that sank 16% in a day. No way in a million universes should that happen. Correlation. Someone is losing money over there, so he has to sell a winner over here. That is happening times a thousand in the markets right now.
Stocks, bonds, currencies, gold, everything is moving like a marching band — but in ways that you would not expect. You have no idea where the weaknesses are until it’s too late.
