What I've been listening to, watching, and reading over the past month. This month: second-guessing, maybe ditching commodities, the three types of stackers, a trio of OGs on managed futures, and two big shots face the critics.
Lately on Risk Parity Radio…
Frank’s been recording a bit less than usual lately, but the most recent episode 303 had some intriguing sections:
- There is a section about the taxation of gold funds at the top, and I learned something new here, that GLDM and GLD (both of which I hold) are taxed as collectibles. Listen for more, or else check out this article that Frank sends along.
- Thought-provoking email from Jeff, which you may want to listen to in its entirety. In a nutshell, Jeff has current investments at Empower and wants to move over to an RP portfolio on his own, and seeks some advice about how and when to switch over. Great questions in here, mostly centered around the worry about switching over in one fell swoop, in stages, or something else, and then there is some sage advice. My addition: whatever you do, you’ll probably notice it and kick yourself if it goes wrong; you’ll probably not even notice if what you do turns out that you did the right thing.
- Interesting comment from Frank at the 25’30” mark. In discussing Jeff’s proposed portfolio, Frank suggests maybe not even having long-only commodities (PDBC) and just going with managed futures instead (DBMF, KMLM, something else). This caught my ear because it's been one of my big questions for 2023. Do we even need long-only commodities at all, if we can go long-short and capture trend with managed futures. For a long-time holder of commodities and someone for whom commodities (even small amounts) are a key component of a risk parity portfolio, this is no insignificant move. It’s on my radar and may be the subject of a longer article somewhere down the road.
The Risk-Parity Adjacent
2) Slow Brew Finance interview with Corey Hoffstein
Fantastic interview. If you aren’t following SBF and his content, you should, and while interviews aren’t his main thing, this one was really well done and had lots for the RP-minded investor. I especially liked the discussion around 19’13” about the three types of stackers:
- The Alpha Stacker - A growth-oriented investor who is looking to stack more alpha-generating assets on top of what they have.
- Diversifying Stacker - investors concerned with risk management, maybe closer to or at retirement, who use stacking to gain diversification beyond a 60/40, for example.
- All Weather Stacker - easily the wisest, most handsome, and most noble of the three, these investors start with more of a blank slate and then go for as much diversification as possible. Jose follows up with “Does that start looking something like Risk Parity?” Yep.
I think you all can guess which of the three I consider myself!
Great explanation of Crittenden's investment philosophy that may not call itself Risk parity, but really has a lot of overlap with RP. Crittenden is CIO of Standpoint, which runs BLNDX/REMIX, a very well-regarded "all weather" multi-asset fund.
Pretty high-level discussion here about managed futures featuring Andrew Beer (of DBMF) and Adam Butler (of ReSolve). Must admit - this podcast stretched past my knowledge base quite a bit, but slowly and surely, I’m getting it (I think). I liked the format: Corey Hoffstein is uber-knowledgeable himself, and then he does a great job highlighting the 10% difference between two guests who probably are 90% on the same page. Fascinating stuff for those who really want to get into the weeds.
The Dave Ramsey Pile-On
If you’re on Twitter, it probably felt like half of the posts were people piling on Dave Ramsey for his rant against the 4% rule. If you’re reading this, I hardly need to point out just how problematic Ramsey's "thoughts" were.
I think the real lesson from the whole kerfuffle is that the task of educating the public about investing, personal finance, withdrawal strategies, and the like is a never-ending one. Lies, misinformation, and blowhards can make it halfway around the world before the truth can get its boots on, and this was yet another example of the need to make concepts simple and transparent in order to meet the public where they are at. A great video by Ben Felix exemplifies what proper push-back on bad ideas can look like. I also echo Ramit Sethi’s advice that we need to respond to bad advice like Ramsey’s by “meeting people where they are at.”
… And also a Ray Dalio Pile On?
Been asked a few times if I’m a fan of Ray Dalio, and especially his book, Principles. It’s always been a tricky question to answer: in some ways, I like Dalio’s approach to investing, but I’ve always been kind of uneasy about all the other parts of the Dalio experience. Dalio is so connected to RP that I basically felt obligated to review his book, but if you read my post, you can see I didn’t engage with the latter two-thirds of the book:
Truth be told, I found all the stuff about his beliefs and leadership strategies to be pretty tedious and skipped over them in my review just to keep the focus on Risk Parity. I have always hated his use of sweeping historical narratives (they would get him laughed out of every history department in the country), and also because they primarily show that if you’re a billionaire, you can get anything you want published. That doesn’t mean I need to read it or venerate it.
Following the publication of The Fund: Ray Dalio, Bridgewater Associates, and the Unraveling of a Wall Street Legend, some of Dalio’s… let’s call them… eccentricities are coming to light, and yeah, they confirm my suspicions. When he sticks with broad approaches to portfolio construction, then consider me a fan. For everything else, I’m calling malarkey.
I thought this anecdote, where Dalio ensured that the company survey about believability would always have him at the top, was pretty funny. There’s way more in the book that I can’t wait to read, and if you want a sneak peek, here is an interview with author Rob Copeland if you’re interested.
Randomness: Shout out to reader Trending Value who hit me up when he came to Tokyo for some sightseeing. Great meeting you, and a standing offer is now issued: if any other RPC readers find themselves in this part of the world, let me know and I'll buy you a beer!