Michael Cembalest on the consequences of “Coast is Clear” investing

A reader asked, “Does [Ray Dalio] mean investors should concentrate on “making profits instead of predictions”? Is he saying its very conceited to believe that plain Folks can tell the FUTURE?”

What he means, I think, is this: If you have tomorrow’s newspaper, by all means, bet it all on the winner, since you can see the future with 100% precision. If you are like everyone else and cannot predict the future, then the best approach is to spread your bets among a number of horses in a methodical way. Diversification is the key, and he uses the risk parity principle to allocate assets in an all-weather strategy.

By the time you are sure, it’s too late

Good decisions are rarely the comfortable ones. Most investors resort to market timing because they are not aware that math solved the allocation problem a long time ago. They end up going all in, then all out, but let’s get real, how many times will they be that lucky?
Here, my favorite analyst demonstrates the consequences of “Coast is Clear” investing. Enjoy!
[pdf width=”100%” height=”900px”]https://s3.amazonaws.com/wc-pdf/EOTM.20120918_1_1.pdf[/pdf]