February 19, 2007: Is the best defense an offense? Portfolio ruminations

Maybe I'm just a fine arts person in an engineering world regarding investments. Lately, it seems that the average portfolio is parsed, numbered, sequenced and detailed to death by THOSE THAT KNOW MORE THAN US, claiming by their actions that the more convoluted and confusing a portfolio dissertation becomes, the better it will perform sometime in the future.

I have reservations about the overly complex.

#1. First off the tee, no one can predict the future. No one.

#2. We all should know by now that the best-laid investment plans usually go wrong - because of #1.

#3. Investment signals, signs, charts and other pseudo-science asset management tools (many back-tested several years) have no guarantee of working the next time. I once asked an investment guru why a specific plan worked. Her response was, "It always has". Voila.

#4. By the time we know a bear or bull market is definitely upon us, it has already had a good start.

#5. Many professionals call a bull or bear market incorrectly. Louis Rukeyser was fond of saying, "He has predicted nine of the last two recessions."

On and on we go.

I maintain that the best defense is a good offense for any manageable investment season (nuclear war and the plague don't count - no one cares at that point). Having a Permanent Portfolio of common stocks both domestic and international, bonds, hard assets and real estate in reasonable proportion that is adjusted quarterly for balance and a Speculative Portfolio for the other 25% or so of your near term powerful investment commitments gives one safety and the zest of both worlds. Playing offense with the Speculative Portfolio also means you can play offense with your Permanent Portfolio as well - through periodic rebalancing via buying low and selling high.

The Speculative Portfolio can be both "shaken and stirred". Here is where you can satiate your desires in the exotic by investing in BRIC, ROW (rest of the world excluding BRIC), low quality bonds and especially, at this juncture, a strong look at the ProShares' short ETFs. I like QID best for it's powerful short strategy (200% of the index stated) and liquidity. Unlike some exotic ETF's, this one is very heavily traded and is not going to go away. One thing for sure, it appears to have an equal and likely greater impact then the gazillion complex bear strategies competing for your attention. If indeed, a bear market is forthcoming. www.proshares.com

I believe that you do not have to go into more than four or five reasonably chosen ETFs, perhaps a commodity or three, with a few additional stocks and junk bonds to secure a nice Speculative Portfolio.Your Permanent Portfolio, while more expansive, should not keep you up at night worrying about the next day's market - or the next complex strategy concocted by the guru community to turn you inside out in utter confusion and a lost sense of purpose.

There has never been a better time to intelligently invest then the present. Information at our disposal would have sent Benjamin Graham drooling with envy to his personal computer instead of to the then state of the art operator-assisted phone and ticker machine. Use these resources, keep your investments reasonably simple and enjoy your life away from $$$$$$.