Ranking the Experts

Wait a second - Bodie has 'always' advocated this. His strategy (as you say, the use of very out of the money calls) will produce mediocre results year on year, decent results in an explosive year, and avoid down years. He wasn't prescient, just a chicken little who was finally right.

At least Nicholas Nassim Taleb included puts in his strategy, and wrote in his book "The Black Swan" that we underestimate the frequency of such disasters.

Jim Cramer, whose TV persona differs from his level headed book advice, was one of the first to call the financial meltdown.

Ben Graham is long dead, no fair including him, sounds too much like 'WWJD'.

Joe

Point taken. Maybe I should instead recognize Business Week for calling him out in early 2008, per a Will Trice post back then. See

snip for brevity; all is noted.

Did he tell people to stop buying stocks? Did he himself get out of the market? If he is not putting his money/reputation fully where his mouth is, then I hesitate to credit him. Remember the guy told people in September that Wachocia was great; buy it; and the stock came crashing down in the following weeks. If he says one thing int his book and another on the air, how are people to tell what he really thinks?

What would Jesus do? Pardon? Admittedly Graham is messianic to me but maybe Shiller is catching up. ;-)

How come his strategy cannot count here? For one, he recognized the risk of financials. Plus I think anyone who recognizes the value of keeping high grade bonds and/or CDs in one's portfolio either (1) in greater proportion as one ages or (2) with consideration for stock dividend yields deserves credit. Siegel, Orman and Ramsey lose points because they either express contempt for bonds or do not point out their merit.

I should have included Clark Howard in the list. He advocates diversification and puts emphasis on having high grade bonds. He seems to have held about 40% of his portfolio in muni bonds apparently through this past year. The rest of his holdings are a diverse portfolio of stocks. Put him in the top five.

Too many good points to address, so I'll choose this note to agree on. By diversifying properly, my 80+ yr old whom I advise was down under

I'm not an expert on call options, but with 5% in these call options how much of a killing would you make if the market went up, say, 10 per cent? What is the leverage here?

Options are not so simple, or at least a detailed answer to your question would take quite a bit of space and time. A brief reply:

The Dec '11 SPY calls with a strike of 120 (this is the S&P ETF, 3 years out, 30% out of the money) has a premium of $9.65.

If one has $100,000, and purchases $5000 worth of these options, you could buy 5 contracts, and would see any gain beyond the 30% rise. (Of course, the first $9.65 of gain is needed to break even on the purchase) The 5 contacts are options on 500 shares of SPY, and you are not quite

But, from what I understand of Bodie's strategy, he'd allocate 5% per year, so you'd make such a purchase each year, and once you are 3 years into the plan, you would be about 150% leveraged.

The 'killings' are to be made on swings that are far wider than a few STD deviation from the norm. The Dec 09 150 calls are now only 24 cents ask. If the S&P goes up to 1600 by then, your $24 would be worth $1000.

Joe