The magic of a portfolio composed of uncorrelated asset classes is that you can have a higher overall return than the average of the separate asset classes. That is, adding an uncorrelated asset that has a lower return, could raise your portfolio return.
I know this is the theory, and the party line, but I have lost faith in this truism.
I suspect it is true during long periods of "normal" markets. But from what I've seen, when the fertilizer hits the air-conditioning, EVERYTHING is correlated, and it all goes down. Except inverse funds, and it makes no sense to hold them and go long at the same time unless you like paying fees.
At least this certainly seems to be the case with all equity classes, whether domestic, foreign, small, large, resource etc. Bonds maybe don't behave quite so radically.
I know it is total heresy, but I'm going to come right out and say it. I put my faith in market timing.
Before everybody howls and tells me how I have to be right twice, I will say that it is not my intent to beat the market. I can not underperform the market over the long term, and NOT suffer nearly the drawdowns.
I can still hold "uncorrelated" investments, but I don't have to sit like a duck on a pond while I'm sluiced and gutted.
I started out as a DMT in the 1980s, and it served me well. Everytime I've abandoned it, it's usually been a mistake. The propaganda against it is generally produced by the fund companies (fancy that), flawed at that. "If you miss the thirty best days" etc. They never point out that you will likely miss the 30 worst days as well since bear markets have the highest volatility.
Personally, I consider timing a form of asset allocation. One of the few advantages a small investor has over the big boys is nimbleness--the ability to totally cash out a position without creating a burp in the market. I've been more sucessfull when I've used this ability than when I didn't. The trick is to use a mechanical system and not second-guess yourself.
There.....I'm out of the closet. Bring on the flames.
