An interesting, albeit quick, discussion broke out in the comments of yesterday’s post about buy and hold, versus the DFA version of buy and hold versus doing something that is not buy and hold.

My basic take was you can glean any conclusion you want from the data (and reasonably support that conclusion). I think it boils down what sort of path you want to take to what is likely going to be a similar long term result regardless of the path you choose.

That is just an opinion, it makes some assumptions, feel free to disagree but that is how I view it.

It got me to thinking about an article I recently wrote for TheStreet.com which was about a portfolio concept for people who just throw in the towel on the stock market as a function of realizing they just cannot stomach bear market volatility despite the very cyclical nature of it.

While I think this idea makes things very difficult on several fronts the fact is some folks are better off emotionally not doing too much in the stock market.

The basic idea was a little buy write fund, a little emerging market bonds (as a proxy for foreign equity exposure), a lot in absolute return, a lot in inflation protected bonds and then save like hell.

I would expect a mix like this to lag a lot but I think it would go down a lot less too. And while particulars may or may not be a good combination the big picture strategy makes sense for some folks. In addition to people that cannot stomach volatility it might also be worthwhile for people who are way ahead of where they need to be.

A building block here is that, in the case of the buy write fund, the US stock market is not forever broken. Average returns may be less than what we’re used to but the stock market still works. Assuming that is the case, the market will work higher at some rate and the buy write fund will either lead or lag but be reasonably close. The long term track record of the emerging market bond fund was very strong and long enough to convince me they can keep it up and so on. To be clear I am aware there are gaps galore in the concept.

Assuming you are neither way ahead of where you need to be and can tolerate normal ups and downs it still might make some sense to take a little off the pedal especially if you save a lot. I view this as part of the thought process for managing portfolio volatility which I obviously think at times volatility should be increased and at other times, like now, it should be decreased.

On a different note the Barron’s interview is with Eric Sprott and he has some gloomy things to say about energy prices (he says they are going way up).

The picture is the trail down to Kalaupapa on Molokai.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009