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Strategy Diversification and Skill

One of the key lessons from the 2008 financial crisis was the realization that asset allocation was useless in times of extreme market volatility. That the only way to survive a Black Swan event was strategy diversification (e.g. Long/Short stocks) and accepting the fact that volatility is a part of life. You cannot be long only and expect to make money. Bonds and gold do not hedge stocks. That nonsense should be clear by now.

As a trader, I also realized that I didn’t stand a chance against the machines. Algorithms  are better and faster at trading and picking stocks. But having a QUANT portfolio is only part of the equation, which is why I continue to trade and pick stocks in a discretionary account (15 percent of my total assets). Making money also depends on our knowledge and skill and how we utilize technology to process information. But the goal is to keep our ignorance and emotions from bankrupting us.

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