Thursday, July 16, 2009

Absolute Return Unicorn


I was reading Wall Street Journal, July 6, 2009, when I ran into an article about safe investing technique called "Absolute Return Unicorn." In it, the article explained a system that automatically adjust the ratio between stocks and bonds, depending on the market. It also said that the system is extremely complicated and a panel worked on it daily.

This interests me, since I already lined up such a system a while back. The question is, what's so complicated about it? Looks to me it's such a simple system. Then the article further mentioned that the return is guaranteed to be between 8-12%. So, that's why. I can only work it to 3-5% guaranteed. I guess that's the difference between Wall Street professionals such as them, and amateurs such as me.

It was a very interesting reading, until the end when the fund went all bonds, mainly due to stock market crashing, and a provision says that when that happens, the bonds will be held to maturity, which means no more stock buying. I believe they end up liquidating the accounts and started a new one. I don't blame them, though. The system worked as designed. It didn't lose any money, which is the whole point. You trade tremendous profit for security. In a down market, such as the one we're in right now, that's the best policy. Who wouldn't want that?

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