Pete Seeger via Ecclesiastes
Financial assets contain risk because they offer reward...otherwise there would be no way to determine who gets to own an asset and who doesn't. This reward has revealed itself over the last century of U.S. investing, but we don't invest with an 80 year timeframe, do we? We think it's critical to separate the periods when risk assets are being embraced, from those in which they are not.
We've heard all the arguments about missing the best days if you don't buy and hold, but Mebane Faber has put this argument to rest with this study from his book. He shows that both the largest up days AND largest down days occur in market downtrends, an outcome he attributes to volatility clustering. The point is, financial assets such as stocks, real estate, and commodities offer an opportunity to beat inflation and increase prosperity...but we don't need to blindly expose ourselves to the risk every month of every year until we need the money.
We believe there are times to seek prosperity, and times to preserve what we have. By applying our own studies to each asset class, we determine which ones are healthy enough for inclusion. We then put an extra layer of protection on our selections by using long-term options on ETFs to own these assets, giving us a predetermined amount of worst-case downside. In doing so, we give clients ownership in the healthiest assets around the globe while reducing worries of a market crash.
