Measured Risk Portfolio

Core Portfolio

and Measured Risk Management

We are not dismissing the benefits of diversification. But it can only do so much. How well did your diversified portfolio hold up in 2000-2002 or 2008? If you feel like there must be a better way, consider Measured Risk Portfolio.

One interesting observation about MPT is the data from Determinants of Portfolio Performance (1986, Brinson, Hood & Beebower) showing that more than 90% of return was achieved by exposure to a given asset class, and very little return was attributed to timing or individual stock selection within the sector.

Let that sink in for a minute.

Very little return is attributed to stock selection and timing. But isn’t that what most investors are paying their manager for?

Unfortunately, yes. We have come to the conclusion that successful timing and stock selection is, most likely, a random event. Sometimes you may win, other times you lose. Rather than play this game, we construct portfolios that are predominantly short duration fixed income and cash, and then we add the key ingredient: equity options. This unusual mix provides a very appealing risk/reward ratio. A small portion of the portfolio has the potential to suffer a 100% loss but can also deliver double and even triple digit returns in a very short time period. When combined with a less volatile fixed income strategy the overall portfolio provides uncapped gain potential tied to the S&P 500 Index with a substantially reduced risk profile.