Portfolio for next US recession/dollar devaluation

[trfie]

What are considerations for a portfolio and options if there was going to be a US stock market correction that also involved the US dollar? eg, post about the high CAPE here: viewtopic.php?f=3&t=9401

Possible options:
emerging market stocks
gold
international real estate

A portfolio could be 1/3 of each of the above.

Of the permanent portfolio options, cash would be off due to my question of if the dollar was related to the decline, and do not believe in US bonds because interest rates are going to rise over the next few years and if there is a dollar devaluation it would also negatively impact US-issued bonds.

Crypto may have a collapse in price because current levels may be pushed up due to speculation.

Other possibilities/thoughts?

[ThisDinosaur]

I pick several different asset classes that are unlikely to collapse at the same time. Ray Dalio said if no one on his staff could find a potential flaw with a particular investment, they didn't invest in it. The asset you love the most is the one you should hedge.

[trfie]

It is not clear that there are several different asset classes that are unlikely to collapse at the same time. Gold and US bonds are the only 2 that I see, and US bonds might not work out if there is a debt crisis. That leaves just gold?

All international equity and real estate markets are correlated. I expect crypto also to fall in the next global recession. Even emerging market stocks are correlated to other assets, and correlations increase in declines.

[jacob]

I suspect Dalio is roaming far wider that us mere retailers. It's a very different game when you're big.

Most of my stuff (which indicates being recession/downturn resistant) have been acquired through a screen set of lower that average debt/equity (for the sector), ROE>15%, 4-5 star rating, and yield>3% + some discretionary decisions (since that screen does turn up traps). Since the market is so overvalued, it doesn't come up with a lot of options these days --- I started building it back in 2014ish and finished it last year. [It's taxable, so quick moves/changes is like an elephant in a china shop wrt tax consequences. I optimize for tax-efficiency, not market-efficiency.]

[trfie]

What is 4-5 star rating? Do you trust analyst ratings?

[ThisDinosaur]

If you can't think of any way your strategy could lose, you are vulnerable to your own ignorance. That's why I don't sit in all cash , pretending to be smarter than the hoardes of people buying overpriced stocks.

When reading about previous market declines, the narrative usually portrays investors as a mass of euphoric, ignorant, greedy fools. Well, I don't know many people right now who are euphoric about their investments (outside of crypto enthusiasts). The investors I know are very aware of high valuations and the decadal market cycle. Maybe the historians are just oversimplifying. Maybe it's always like this.

Either way, this is being called the most hated rally in history. It's hard for me to imagine that sitting out and waiting is the smart move. I think too much cash is as big a mistake as too much stock.

[jacob]

@trfie - Morningstar(*). Not as much as a significant number of people who go strictly by analyst ratings. The key to making alpha is in finding a strategy that other people will pursue (and bid up) AFTER you do it. Star ratings are quite ubiquitously used in that way. Of course, if you go only by star ratings, you're probably going to be the person AFTER me

(*) Doesn't really matter which as long as it's widely used.

[bryan]

When reading about previous market declines, the narrative usually portrays investors as a mass of euphoric, ignorant, greedy fools. Well, I don't know many people right now who are euphoric about their investments (outside of crypto enthusiasts). The investors I know are very aware of high valuations and the decadal market cycle. Maybe the historians are just oversimplifying. Maybe it's always like this.

Tangent: I've heard people recently talking about how Trump is excellent at speaking to crowds, rallies, the masses etc. Made me think of how my history books described Hitler similarly. Thought to myself "Huh, I wonder if Hitler was actually more of an incompetent clown than I was lead to believe?" (Which is interesting since indeed some folks thought Hitler was a bit of a clown.. it's just that that isn't in the textbooks.)

I think de facto oversimplifying (loss of information) is definitely a source of blindspots.

[TheFIminator]

If you have existing rental real estate, a recession/correction will affect the value of the property. There could also be higher vacancy if unemployment rises which could affect the rental income. However, if you are not highly leveraged, you should be able to ride the storm relatively unscathed. So generally, from a passive income/cashflow perspective, real estate investments usually hold through tough times. Investors who are affected the most are usually the ones who bought at the peak of the market, with high leverage (also called speculators in some camps). So I would think a good % of the portfolio in cashflow realestate would be the better bet in a recession/correction