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“We’re transitioning [away] from a low-volatility regime…”
So says Mohamed A. El-Erian. He was CEO and co-chief investment officer at investment management firm Pimco with “Bond King” Bill Gross.
The two had about $2 trillion in assets under management.
In an interview with Yahoo Finance, El-Erian explained what happens as central banks lose their ability to calm rattled markets:
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First, prices start to move a lot more; second, you start getting contagion—you have one asset class contaminate another; and third, you get unpredictable correlations between asset classes. Investors have to be much more nimble. On the one hand, they have massive opportunities to pick up good names at low prices, but when the markets rebound occasionally, as they will do, this is an opportunity to trade up in quality [too]. |
El-Erian addresses the two main PBRG investment pillars we drive home over and over…
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First, we “pound the table” on radical risk-management practices—the most important being intelligent asset allocation.
You must “compartmentalize” your wealth if you want to protect and grow it. That means you must split it up over a diverse mixture of assets: stocks, bonds, real estate, precious metals, cash, options, and more.
Some assets may take a hit, but that means others will rise to compensate. This keeps you from ever suffering a catastrophic loss to your overall wealth.
Second, once your downside is secure, you can start using market volatility for upside gain. This is the “nimbleness” El-Erian discusses.
When volatility surges—and the herd panics—incredible assets go “on sale.” Learn to take advantage of these circumstances… And load up on quality assets when they trade for “fire sale” prices.
To learn our all-time favorite “nimble” technique for earning instant market-volatility cash, read our next item…