Chook Me!

create portfolios?

Create diversified portfolios of equities (by industry), bonds, GICs, and cash that should withstand the investment fall-out from each of the following random events: (a) A Taliban takeover of Saudi Arabia. (b) The election in Canada of an NDP government. (c) The spread of avian flu from poultry to humans before the development of the proper vaccine. (d) The discovery of a massive and easy-to-obtain supply of crude oil in northern Saskatchewan. (e) An attack on Taiwan by the armies of the People's Republic of China. (f) The discovery of an inexpensive cure for AIDS and the elimination of the virus from the African continent. (g) A continuation of the softwood lumber dispute between Canada and the US. (h) A jump in the Canadian inflation rate from 2 to 12 percent. (i) A major increase in the Bank of Canada's overnight rate (Bank Rate), as a result of this high inflation, to 15 percent. (j) The death in office of the US President

Public Comments

1. Good heavens! What a scenario! I think I'd go a little (or a lot) defensive, and take some opportunity to invest in Northwestern oil, anyway, which I've been recommending for a while. I think I'd be about 70% equities, with a good 40% in US blue chip consumer non-durables, large caps like P&G, Altria, Johnson & Johnson, and stocks that have both a health care exposure and a retail (non-durables) exposure, like Rite Aid and WalGreens. Another 15% for defense and industrials, like Boeing, GE, Halliburton, and/or Kroll. Twenty to thirty percent in investment grade bonds, and the remainder in Treasuries - both of these will do well in crises as a "flight to safety." Of course I'd run a heavy beta/portable alpha/APT analyses series on the whole shmear, along with a loss-weighted VaR/Monte Carlo simulation; figuring in inflation, interest rate, and liquidity stresses. I'd avoid Canadian bonds, perhaps a few Canadian or European equities mirroring the US assets - consumer non-d's, health care, defense, and heavy industry. I'd also do a lot of fundamental (DCF, FCF, comps, EVA/NOPAT) analytics on individual equities, along with duration, convexity, and other types of modelling on the bond exposures. That'd be my portfolio.
2. It is a lot of work. First your have to mention the starting situation and the value in this time of the most important variables. The composition depends in big portion of particulars preference of investors so there is not an optimal portfolio because there is many kinds of investors who thinks most of the time in many periods of time. In the same sense, we can not consider a decision portfolio like optimal, depends of preference of investor. I suppose investor who wants maximaze the money in shortest period of time but with a high avertion to risk; I suppose too like today is the starting point and I suppose the composition of initial portfolio all in cash. a) Buy futures in oil market. b) What is NDP government? c) Buy papers of fishing companies d) looking for more information about Saskatchewan government and its intention with the recent discovery e) Not to buy Chinese papers, probably this country could be victim of a blokade f) Not to buy condom manufacturers companies' papers, not to buy papers of lab company, even the company that discovered the cure because the price could be overvaluated by the moment of purchase g) not to buy papers of companies related. h) not to buy Canadian papers i) not to buy Canadian papers i) to buy medias company papers