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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host
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To: Gary D who wrote (12366)2/24/2001 3:01:39 PM
From: Mr. BSL  Read Replies (1) of 42834
 
Gary Re:
1) 50% upside; 1/3 probability
2) No change; 1/3 probability
3) 25% Downside; 1/3 probability

Even though the chances are 2:1 in favor of no losses, would you still be 100% invested even with a 1/3 risk of loosing 25%? Would it be foolish for someone to whom a 25% loss is unacceptable to be 50% in cash, and still hoping the market goes up 50% for a 25% net upside to the portfolio?

There are many good approaches to risk management. Certainly someone with an unacceptable risk level should allot his assets accordingly.

My point is that Bob has described his model as binary many times. When callers have used some version of the logic that you present above, Bob has blown them away with his "why would you want to be invested during a bear market / they even get the piano player" arguments. It is in that context that I refer to 60/40 as foolishness. Bob had a good record while he remained fully invested during the bull market. He had a poor record when asset allocating prior to becoming and staying fully invested. To put Bob in the best light, you could say that his great model kept him fully invested during the entire bull run because its binary soulless nature kept him in the market even when things were looking scary. All during 1999 we heard of the options going into a bear market - cash, hedge and ride it out. Never once did he mention 60/40, 50/50 or any other ratio.

Perhaps foolishness is not the best term. I am open to a better term that describes someone who has or thinks he has the right tool and does not use it as designed when the time comes.

May you be on the right side of MOABO when it comes/came.
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