“Ben and Phil have done it again.” – Robert Arnott
“Solid work.” – Jim Rogers
“Engaging and instructive.” – Andrew Lo



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Low correlation is what puts the disco in diversification.

Commentators are always grousing about how the Liquidity Panic of 2008 showed the failure of diversification. This is precisely wrong. 2008 showcased the failure to diversify enough.

The 60/40 portfolio looks like it is standing on two legs, when in reality it’s only standing on one: stocks.

Almost everything in your life is closely linked to the stock market. Your job — and your spouse’s job — for starters. When the economy is doing well, you are getting raises, promotions, the world is your oyster. Once a recession arrives, though, it’s time for layoffs and cutbacks. Work becomes like death row — who will get the ax next? When there is a recession, you cannot waltz across the street to your competitor. They are laying people off, too. Even if you hang on by your fingernails, it is going to be stressful, and the stress will ricochet throughout your life and your family’s life. Meanwhile, your working spouse will be going through the same grinder. Life may look a different on one paycheck or half a paycheck, and it definitely will look a lot different on no paycheck.

We can control strategy but the outcome is in the hand of the gods. You can spend all your money on lottery tickets, but even if you win the Super Powerball lottery that doesn’t mean it was a smart strategy or that you are a genius — it simply means you were lucky. Luck, however, is a terrible strategy. Over time, we hope that having a good strategy will converge with a fortunate outcome, but cruelly there are no guarantees.

The basic story on collectibles is this: collect for love, not for money.

It is not easy to convert money into beauty and then back into money again.

If you are a king or a pirate, you should have a chest full of gold. In other cases, the need is less compelling.

Our friend Jim Rogers recommends, “If you cannot spell commodities, I wouldn’t suggest buying commodities.”

Here is the secret to how equity REITs work: landlords collect rents from tenants and distribute them to shareholders. The sustainability of this business model is what makes being a landlord the second oldest profession.

Hedge funds exploit small market anomalies, the sea shells left on the beach by the ocean of efficient markets.

Hedge funds are lightly regulated the same way that Playboy centerfolds are lightly dressed.

Reality has sharp teeth. Risk means that you can lose money. That’s why it’s called “risk” and not an ice cream sundae.

Here is the relentless Hegelian dialectic of investing history: the lawn mower of progress chews up alpha and spits out beta. What first looks like magic turns out to be nothing more than returns that are available by following some specifiable investment methodology. If you don’t know the trick, it’s alpha. Once you know the trick, it’s beta.

Being right and early is simply another way of saying that you were wrong.

Betting constantly against the market has been a tough way to make money in the United States for the past 200 years.

When it comes to night driving, we are admonished to not drive beyond our headlights. This is a good rule when it comes to alternatives as well. Do not invest deeper than your understanding. Do not invest in them a lot if you only understand them a little.

These new alternatives are few in number and difficult to recognize because they are in the soup with thousands of other investment products vying for our attention. They won’t make anybody’s year-end list of ten hot stocks that are set to pop. However, if they work in the field the way they do on the whiteboard, these better-engineered products will gradually become the core of most smart investors’ portfolios, exactly as index funds have replaced active stock picking (and with the financial services industry dragging its feet the whole way). If they work as intended, the next stage of investing will belong to Clark Kent and not to Superman.