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Re: Risk Reduction
Old 11-09-2004, 09:41 PM   #21
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Re: Risk Reduction

Risk aversion is perfectly sane, especially for a retiree.

The three enemies of retirement are:

1) volatility
2) inflation
3) and in our case, long-term economic and demographic trends that may render "buy and hold" to the dust bins of conventional, but wrong, wisdom
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Re: Risk Reduction
Old 11-10-2004, 03:04 AM   #22
 
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Re: Risk Reduction

I only worry about NO. 2.

John Galt
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Re: Risk Reduction
Old 11-10-2004, 04:56 AM   #23
 
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Re: Risk Reduction

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3) and in our case, long-term economic and demographic trends that may render "buy and hold" to the dust bins of conventional, but wrong, wisdom

*Logged
Maybe, Maybe not - and that is the nature of risk! - And in investing you have to have some risk to have a reward.
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Re: Risk Reduction
Old 11-10-2004, 06:18 AM   #24
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Re: Risk Reduction

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And in investing you have to have some risk to have a reward.
Exactly. *I'm not religious, but I am familiar with the parable of the talons. *Lets just say God wasnt very forgiving with the person that buried his talon and took no risk. *

Who and where i am today is nothing but a collection of calculated, educated risks and decisions I made along the way. *The day I quit taking calculated, educated risks, is the day I partially died. Someone less forgiving might amend that to say, no its the day you DID die.
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Re: Risk Reduction
Old 11-10-2004, 06:19 AM   #25
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Re: Risk Reduction

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Maybe, Maybe not - and that is the nature of risk! - And in investing you have to have some risk to have a reward.
Cutthroat: Your point should be non-debatable, but I am sure someone will find fault with it.
That takes care of stealing the thread (off topic)

Check out the following non-commercial, nature web-sight. (The best I've ever seen, complete with relaxing music).
Just Google Cals Gallery Plus. and will take you direct to the site.
Under "Mountains", we live about 30 miles from 11th. slide. (Lassen in background, Reflection Lake in foreground).
Be sure to check out Gallery 6, for a great aircraft side show.
The originator of the site is an Ex-Marine, so you know it's a well done project
Regards, Jarhead


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Re: Risk Reduction
Old 11-10-2004, 10:16 AM   #26
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Re: Risk Reduction

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I'm not religious, but I am familiar with the parable of the talons. *Lets just say God wasnt very forgiving with the person that buried his talon and took no risk. *
With respect but with amusement, too --I always thought it was talents.

I'm not religious either, but I don't remember any bird-part references from Catholic school regarding that parable, if I'm thinking of the same one you are.
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Re: Risk Reduction
Old 11-10-2004, 10:34 AM   #27
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Re: Risk Reduction

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With respect but with amusement, too --I always thought it was talents.
Maybe it was, its been years since i went to sunday school. * I thought it was talon, defined as some form of money that doesnt exist anymore. *Regardless, same essential concept in either case.

And yes, i'm familiar with the talons some predatory birds have. *You might also be aware as well that some words have 2 or more definitions that sometimes have no relation to each other?
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Re: Risk Reduction
Old 11-10-2004, 10:46 AM   #28
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Re: Risk Reduction

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...Regardless, same essential concept in either case.

And yes, i'm familiar with the talons some predatory birds have. *You might also be aware as well that some words have 2 or more definitions that sometimes have no relation to each other?
Of course, the same concept applies of not just burying good things but making them grow or multiply. And I do agree that they were some form of ancient coinage.

Sorry, I didn't mean to be cheeky. I just had a mental picture of someone burying bird talons and found it funny. My BF is a birdwatcher/naturalist and he brings home all kinds of things bird-related: nests, skulls, owl pellets, etc., so the thought of someone burying bird talons was particularly amusing to me.

Back to lurking for me... Please carry on with the good discussion.
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Re: Risk Reduction
Old 11-10-2004, 10:49 AM   #29
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Re: Risk Reduction

It's talents. Interesting that Merriam Webster lists the parable definition first and the usual definition later:

(From www.m-w.com):

Etymology: Middle English, from Old English talente, from Latin talenta, plural of talentum unit of weight or money, from Greek talanton pan of a scale, weight; akin to Greek tlEnai to bear; in senses 2-5, from the parable of the talents in Matthew 25:14-30 -- more at TOLERATE
1 a : any of several ancient units of weight b : a unit of value equal to the value of a talent of gold or silver
2 archaic : a characteristic feature, aptitude, or disposition of a person or animal
3 : the natural endowments of a person

If anyone really cares, the word talon comes from a different (Latin) root meaning "ankle".

malakito
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Re: Risk Reduction
Old 11-10-2004, 10:51 AM   #30
 
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Re: Risk Reduction

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Cutthroat: *Your point should be non-debatable, but I am sure someone will find fault with it.
That takes care of stealing the thread (off topic)

Check out the following non-commercial, nature web-sight. *(The best I've ever seen, complete with relaxing music).
Just Google Cals Gallery Plus. and will take you direct to the site.
Under "Mountains", we live about 30 miles from 11th. slide. *(Lassen in background, Reflection Lake in foreground).
Be sure to check out Gallery 6, for a great aircraft side show.
The originator of the site is an Ex-Marine, so you know it's a well done project
Regards, Jarhead

Jarhead,

I did check out the website and recognize a lot of those Mountain ranges. Very Nice!

If you live close to Lassen, I think I may have fished in your area a few years ago. It was near the Pit River in a small lake. My first California Fish was this 27 inch rainbow that took a size 18 midge. It was in Mid March and snowing. I had the lake all to myself. Being from Minnesota, I thought it was quite warm! - The lake was free of Ice!


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Re: Risk Reduction
Old 11-10-2004, 10:54 AM   #31
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Re: Risk Reduction

Alrighty, no harm no foul then.

both sound strange to me, i guess cause i'm just not familiar with "talents" being money. I only know of the kind you're born with or can be taught.
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Re: Risk Reduction
Old 11-10-2004, 12:10 PM   #32
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Re: Risk Reduction

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Re brewer's suggestion of options, they are just insurance in disguise. *There's a reason they call what you pay for an option a "premium". *It's a negative-sum game and, just like other insurance, useful only if you cannot stand the risk. *Worse, if you really can't stand the risk, it's always cheaper to shed it by selling, a la RockMiner, than by paying the optioneers' vig.
nfs,

This is a conventional idea that is usually but not always correct. For example, in Brewer's case of holding cash equivalent securities and buying calls you are not insuring anything in the usual sense of laying off risk of loss. What you re doing is guaranteeing your base, and spending the premium to get upside exposure. Whether this is good idea or not depends only on what time premium you pay, relative to volatility going forward.

So as usual, you are making decisions under uncertainty. For my money, given today's VIX relative to historical volatility, index options are likely to be a good buy, as long as you don't overextend. I am following my advice here, so far with mostly negative results. However, I can keep it up a long time at the level I am doing. I expect to be rewarded when volatility is more typical.

Mikey
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Re: Risk Reduction
Old 11-10-2004, 12:18 PM   #33
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Re: Risk Reduction

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3) and in our case, long-term economic and demographic trends that may render "buy and hold" to the dust bins of conventional, but wrong, wisdom
One big problem in my mind with the common approach that people take to this is the idea of just holding the S&P500/Wilshire 5000 and some bonds and then figure that they are "diversified". The more "daring" might slice the US market into Large, Mid, and Small cap with a dash of REITs thrown in.

That may have worked over the last 100 years but those years are ones in which the US finally appeared on the world scene rising out of being another 3rd world nation. It replaced the then world power, Great Britain, and beat out other potential candidates for that slot. Will it continue to grow as it has? Will it maintain that top spot or will it be replaced as every other country has? Are we about to enter a period when we switch over from one fuel source to another? Will we successfully make the transition? Is the US about to enter (already has entered) a period of fundamentalist theocratic rule?

Lots of unknowns and a better diversification provides a better chance of making it through with little to no cost over all.
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Re: Risk Reduction
Old 11-10-2004, 02:42 PM   #34
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Re: Risk Reduction

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This is a conventional idea that is usually but not always correct. For example, in Brewer's case of holding cash equivalent securities and buying calls you are not insuring anything in the usual sense of laying off risk of loss. What you re doing is guaranteeing your base, and spending the premium to get upside exposure. Whether this is good idea or not depends only on what time premium you pay, relative to volatility going forward.
When you study option theory, one of the first things you learn is a theorem about put-call parity. It says essentially this: A call plus cash is identical to a long position plus a put.

If you saw an investor with a long position who was buying a put, you would say he was buying insurance. Put-call parity says cash plus a call is exactly the same thing. You can try to call it something else, like protecting a base and paying for some upside, but it's equivalent to being an insured long.

I know that this is terribly conventional. You don't need to believe me. I leave you with this warning, though. Once upon a time, I built systems in Chicago to make markets in options. Those systems were built to make money, they made money while I was there, and I am sure that they make money now. Options are a zero sum game and Joe Retail is trading against such systems. Joe Retail doesn't stand a chance.
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Re: Risk Reduction
Old 11-10-2004, 02:46 PM   #35
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Re: Risk Reduction

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Will it continue to grow as it has? Will it maintain that top spot or will it be replaced as every other country has?
It's that freaking negativist treachery from an alien again.

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Lots of unknowns and a better diversification provides a better chance of making it through with little to no cost over all.
"Und I'm learning Chinese", says Wernher von Braun. -- Tom Lehrer, 1965
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Re: Risk Reduction
Old 11-10-2004, 02:57 PM   #36
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Re: Risk Reduction

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When you study option theory, one of the first things you learn is a theorem about put-call parity. *It says essentially this: A call plus cash is identical to a long position plus a put.
I agree 100% with this. I just think calling it insurance obscures rather than clarifies. Also, the strikes have to be very carefully chosen to present real parity. But I know how to draw option diagrams, and you are in general correct. (As you know. )

Insurance is only a bad deal if it costs more than it should for what you get. To get back to VIX, it has always been mean reverting. To imagine that a low VIX is accurately foretelling low volatility IMO is to attribute too much predictive power to options markets.

As to the other point about you and your confreres who designed money making options machines, I believe that this would often work.

But it depends on your models. And your models depend on your assumed distributions. As LTC found out to their considerable embarrassment, having Nobel Prize Winners isn't the same thing as having sense.

Mikey
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Re: Risk Reduction
Old 11-10-2004, 03:27 PM   #37
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Re: Risk Reduction

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It's that freaking negativist treachery from an alien again.
Realism and an understanding of history rather than belief in "divine right of kings" or "manifest destiny" or other such bunk.
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Re: Risk Reduction
Old 11-10-2004, 03:47 PM   #38
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Re: Risk Reduction

Angus Maddison collects data and writes obsure tomes for Europeans on that sort of thing. Never read him directly - but Bernstein has referred to his work in the past.
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Re: Risk Reduction
Old 11-11-2004, 06:15 AM   #39
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Re: Risk Reduction

On options:

- Yes, options are a good deal more complex than my post indicated, but either of the suggestions that I presented to rockminer would offer him exposure to equities with a limited downside. FWIW, I mostly use options to hedge or increase my exposure to individual stocks. I am generally willing to pay up in these cases because I am making a short term valuation call and don't want to risk a lot of my capital. If volatility rises, I will be making fewer of these bets because they will become prohibitively expensive.

On diversification:

- Not too long ago I did some re-assessing and decided that I am insufficiently diversified. I have upped my allocation to foreign equities (and will be adding more over time), sold off some small caps, and will be adding a small commodities allocation and moderate foreign bond allocation.
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