Buy and Hold Is Dead: How to Make Money and Control Risk in Any Market

Chapter 8. A Proactive Aversion

Before I continue, I need to make a distinction. Reflexivity theory, defined by George Soros, has a negative slant. However, I look at it in a slightly different light. I embrace the reflexive nature of human being instead, and I have incorporated that into my proactive models. We use it to our benefit. Therefore, from time to time, I will reference reflexivity as a positive attribute, and rightfully so. Our reflexive nature allows us to react to changes in advance. I will prove that this is not a contradiction in terms as well. Until then, back to our steady forward progress.

With contemporary Darwinism revealed, my job transitions and my focus shifts to protecting my clients from circular pitfalls. We can do that in one of two ways. Either we can try to pinpoint periods of weakness in advance and hope we are right, or we can adopt a proactive strategy and never look back. The former is a strategy often used by professional money managers. They try to pinpoint ebbs and flows in the economy, and they skew the diversification models that they use accordingly. Exposure still exists, of course, but they make every effort to stay ahead of the curve by trying to identify these cycles in advance. This creates two difficult scenarios. First, if they are wrong, the shift in balance that has taken place will need to be parsed. Their portfolios usually control billions of dollars, and therefore the losses are usually meaningful. Missed opportunity is the best-case ...