For your daily dose of why a relative strength approach to managing money is so essential, Matthew Lynn’s Risk is the New Black in World Turned Upside Down is a must read.
What is risky and what is safe? That has always been a crucial question for anyone working in the financial markets. Bankers provide their clients with an asset mix, tailored to suit the aging widow or the young entrepreneur.
But what if everything you know about risk was suddenly turned upside down? In the last two years, all the stuff we thought was really safe and dull turned out to be dangerous. And the things we thought were risky ended up being quite reliable.
In reality, investors need to reverse everything they thought they knew about risk.
In the context of a relative strength model there is no such thing as “safe” or “risky;” there is only relatively strong and relatively weak. As a result, relative strength models are free to adapt to whatever the new “safe” is or whatever the new “risky” is. One thing we can be sure of is that such designations will change. With a relative strength strategy, your portfolio can reflect those changes and can remain focused on keeping the portfolio fresh with relatively strong securities and therefore improve your chances of earning superior investment returns over time.
