I wrote up a continuation of the diversification post I shared last week, since many people seemed to like that one.
The previous idea was basically: diversification is not about owning more stocks. It is about owning different risks.
This one is a bit more practical.
I looked at 5 alternative strategies that can behave differently from normal stock picking:
- Trend following * Carry * Merger arbitrage * Cat bonds * Macro relative value
The point is not that these are automatically good investments. Some are hard to access, expensive, leveraged, or whatever.
But I think they are useful to study because each one is paid for something different and is “fundamentally different” in many ways.
- Trend following is paid when trends persist. * Carry is paid for holding risk nobody wants. * Merger arbitrage is paid for deal completion risk. * Cat bonds are paid for insurance catastrophe risk. * Macro relative value is paid when relationships between assets normalize.
I think it is quite interesting to see something fresh and different from the usual “buy & hold” strategy or the typical stock/bond portfolio.
wrote it up here if anyone’s interested: https://www.jeravalue.com/en/blog/return-engines
i’m also curious to see how people here think about these strategies, and what good ones I might be missing.