I am indebted to reader Wayne Lebouef, an advisor in Florida with Money Concepts, for asking about my “Total Beta” theory, which appeared my “The Investment Edge” column in the July issue of Life Insurance Selling. This is my response to Wayne’s question:
When I wrote the column that referenced beta, I mentioned that I had fooled around with trying to come up with an idea about Total Beta (TB), a concept to encompass a combination of VIX (the volatility index) and beta and apply a combination of the two to an individual investment, fund or portfolio.
I got caught-up with VIX, which changes so constantly that it is difficult to pinpoint a frame of reference. I don’t think I’m the first person to attempt this mixture of beta and other risk quotients. TB could be applied minute-by-minute by frequent traders, along with other fundamental, technical or momentum analysis, to aid in making decisions. My problem is that I’m far from being a frequent trader, and I use metrics as an important part of portfolio building. Since modern portfolio theory is now suspect (using MPT, I came through the March 2000 to March 2003 debacle very well, but it did not have as good an outcome in 2008 and we now know may sometimes apparently go upside-down when black swans occur), I think we all may want to add the word “tactical” to our portfolios.