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Tweaking the Global T-Bill Theory

by: Roger Nusbaum August 18, 2008 | about stocks: SHY / TIP / TLH / TLO / UUP    

Roger Nusbaum

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Several times I have mentioned Nassim Nicolas Taleb's idea of putting 90% into a mix of t-bills from around the world and then going berserk (my word not his) with the other 10% in terms of risk taken.

I find the concept intellectually appealing on some level, similar to the idea of living in a foreign country. I'm not going to do either one, but it is interesting to contemplate.

So the tweak pertains to the 90% -  but perhaps this is what Taleb had in mind. Instead of putting the 90% into a mishmash of foreign t-bills, limit the t-bills to just surplus countries like Singapore, Norway, Canada, Brazil, China, Kazakhstan, Switzerland, Australia (well, budget surplus anyway) and so on.

Investing in a surplus country guarantees nothing, and at times deficit countries perform better. At other times a mix of deficit and surplus countries is best. But I think it is safe to say that surplus countries are on surer footing and have much larger margins for error.

The mix could obviously also include US exposure with treasuries or TIPS or anything else you think fits the bill. There is a risk of course the the US dollar could go up (not my opinion about what will occur but it could happen) so maybe something along the lines of the PowerShares Dollar Up Fund (UUP) which might provide a little bit of hedge for those so inclined.

The upside to this is that if you can spot important trends you can squeeze a lot out of the 10% and the draw down should be much less in bear markets (only 10% is in equities one way or another) even if the 10% goes to zero.

As I mentioned this is more of a contemplation than anything else but it does get you thinking about things like risk budgets and so forth.

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This article has 1 comment:

  •  
    Aug 25 08:07 PM
    This is actually an interesting idea...before I got into stock-picking, I actually had about 50% of my portfolio in the Oppenheimer International Bond Fund (OIBAX). It has a 12.14% annual return and a 6.90% yield as of July 31st 2008....and yes, it IS a bond fund.
    Reply
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