Monday, January 05, 2009
Reflection on 2008
When I look back to my investment in 2008, I learn some lessons.
First of all, even I had reduced much of my investment before Oct 2007, I still got an overall 35% lost in portfolio value off the top.
Indeed, most of the lost was a result from my buying on Feb, Jun and Sep.
Lessons:
1. The market correlations and related critical exponents are good tools to indentify a crash. That saved me from the Oct 07 crash. The mathematical models for complexity worth to explore further.
2. Put options cannot protect my investment on market crash. The change in volatility greatly affected the result. I had used this method when my portfolio was small. But, this turned out to be very inefficient to scale up. I think, direct short HSI may be more effecient on hedging.
3. Portfolio theory and diversification is not practical. It assumes existance of some un-correlated markets. And, that's not valid. That's not a good idea that holding a "diversified" portfolio will be safe at different market situation. When there is no safe place, the only correct move is to sell everything.
4. The buy time was choosen badly. The analysis and report from banks and investment advisors cannot be trusted without verifing the details. It's poor that few so called "economists" can think. In the future, research and analysis channels need to be improved.
5. Gold price got less impact on the crisis. This is correct. But, holding minning funds was a bad idea. The correlation between minning fund and gold price broke in the crash. This error accounted for about 1/3 of my lost.
First of all, even I had reduced much of my investment before Oct 2007, I still got an overall 35% lost in portfolio value off the top.
Indeed, most of the lost was a result from my buying on Feb, Jun and Sep.
Lessons:
1. The market correlations and related critical exponents are good tools to indentify a crash. That saved me from the Oct 07 crash. The mathematical models for complexity worth to explore further.
2. Put options cannot protect my investment on market crash. The change in volatility greatly affected the result. I had used this method when my portfolio was small. But, this turned out to be very inefficient to scale up. I think, direct short HSI may be more effecient on hedging.
3. Portfolio theory and diversification is not practical. It assumes existance of some un-correlated markets. And, that's not valid. That's not a good idea that holding a "diversified" portfolio will be safe at different market situation. When there is no safe place, the only correct move is to sell everything.
4. The buy time was choosen badly. The analysis and report from banks and investment advisors cannot be trusted without verifing the details. It's poor that few so called "economists" can think. In the future, research and analysis channels need to be improved.
5. Gold price got less impact on the crisis. This is correct. But, holding minning funds was a bad idea. The correlation between minning fund and gold price broke in the crash. This error accounted for about 1/3 of my lost.
# posted by Lobo @ 4:59 AM 
