October 12, 2009
A hedge is an investment that earns a place in the portfolio, ideally on its own intrinsic merits, but also because it may help to offset the risks inherent in other portfolio investments: a hedge should zig when another investment zags. Drystone doesn’t pursue hedging for the sole purpose of dampening volatility, but an investment that provides its own strong returns and makes your total portfolio more robust by serving as a hedge is welcome indeed.
July 15, 2009
The best sell discipline is the simplest: when the story changes, sell. Your sell discipline should be the mirror image of your buy discipline. When the original reasons for buying aren’t there anymore, don’t just dream up new reasons for holding on. Reassess and sell if necessary.
April 20, 2009
Portfolio owners and managers cannot just ignore [macroeconomic variables]. In the past six years, macro forces have noticeably trumped [microeconomic company-by-company] analysis – first with the rise of commodities plus a collapsing U.S. $ and then with an entire global economy getting clocked. Remaining a micro-only investor in such environments can yield the same result as fishing in a hurricane. So Drystone’s goal of durable Total Portfolio Management requires the blend of macro-driven Diversified Investments with micro- and macro-driven Concentrated Investments you see in your portfolio.
Remember that portfolios are not a consequence-free zone and there is no free lunch. Each time you address one risk, you may leave yourself more exposed to a different risk. You can have a portfolio with low volatility, i.e., low swings in value, but that portfolio may suffer more ravages from inflation. You can load up on inflation hedges in a portfolio, but then find those assets crumble during recessions. Accept the imperfect, whack-a-mole nature of addressing multiple risks, do your best to identify the risks most pertinent to each portfolio in its Statement of Investment Objectives, and construct the investment mix accordingly and with the necessary future course corrections.