Thursday, June 21, 2007

Diversification Part III

Now, one thing that somewhat concerns me about my stated asset allocation is that it is long only. Now, I'm not paid to hedge for a living, like Veryan Allen is, so I'm not really sure how to address this deficiency. Could I add some index puts, or even puts on specific shares? I have really tried to avoid going to the company level just because I don't have the time to do the analysis that I'd like. Reader feedback would be most appreciated. I've looked at some of the ETFs and funds which have a shorting component to their mandate, but not in depth. Besides, shorting seems to require a completely different mindset from long only investing, and I do have concerns about the typical fund managers' ability to implement both successfully.

In the future, I think there is room to slice the portfolio up even more. I like the approach (at least conceptually) of having a core portfolio made up of index funds or ETFs, then overlaying the core with specific stocks, funds, options positions, or other tools to add alpha. "Core and explore", portable alpha, whatever you want to call it.

On the other hand, maybe my asset allocation is too segmented and should be scaled back.

Maybe my current asset allocation can serve as the "core" in a "core and explore" approach. I don't want to layer on too much complexity, although I think I can keep up with it right now. However, I keep finding interesting ideas to potentially add to the portfolio.

Anyway, I'd love to hear any good ideas from my readers on any of the above points. I'll have to move covered call writing to my next post. Until then...

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