MORE THAN A good broker or high-speed quotes, more than a hot stock pick or an inside tip, the biggest and most influential asset a trader has is a clearly defined strategy. That is, a simple, no-nonsense way of focusing on what counts most in the markets: allocating assets and structuring a portfolio.
Market strategy, like a Hollywood pitch, can be boiled down to a few simple sentences: “Heavy into Internet stocks with some newer positions in big drugs, all with tight stops;” or, “Buying munis while holding cash and a few focused hard-asset plays.” The strategy itself, however, is less relevant than having one in the first place.
Much to the chagrin of the well-educated economist or Armani-clad analyst, a strategy will often employ seemingly incompatible ideas that, in theory, shouldn’t work together. For example, at various times over the past few years, bonds have risen with gold, stocks and floating-rate funds. These are combinations that on the surface don’t seem to make much sense. (more…)