How to invest $900K in 2018

dozu888 said:
you'd think markets are efficient... but...

intra-market it's wrong all the time, that's why we have opportunities to buy at lower than the 'efficient' price.

not to mention, inter-market mis-pricing happens all the time... and currently there is still a very big mispricing between bonds and stocks, with the reason I have already stated. after experiencing the 2008, maybe also the 2000 crash, investors are scared... especially retail sentiment is still bearish... financial advisors/planners are still recommending the 60/40 mix based on age lol.. and just look at the example I gave, in summer 2016 junk was yielding 5%, 10-year treasury was 2%+... and AAPL was forward yielding 10%..

if markets were completely traded by machines, then I'd say we'll be very close to efficient... but humans, lol... humans are so stupid.
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Certainly markets aren't 100 percent efficient, if they were I wouldn't be a trader! However a ton of pretty rigorous statistical analysis has been done on the subject of risk adjusted returns across asset classes and the gross inefficiencies are only really there at extreme inflection points like crashes and then only for short time periods. Obviously smart well meaning people like you and I could discuss the intricacies of this for days and there probably really isn't a "right" answer. You may very well be right and stocks are currently providing risk adjusted returns higher than bonds at the moment. To my previous comment, selling OTM put options may also be legitimately producing risk adjusted returns higher than bonds (research says they routinely do on S&P500). My point is just that you can't compare "forward yield" to a treasury yield as if they're apples to apples the same thing, and even if there is a risk adjusted return disparity it still might not be appropriate to take advantage of it given the risk appetite of the OP. The St. Petersburg paradox is interesting reading on this subject if you're not already familiar with it.
 
Sig said:
For a risk neutral party that is certainly true. Just like it's true that buying a deep OTM call on a random liquid stock is the same as buying a bond if you're considering risk adjusted returns....the volatility of the call (massive drawback) is canceled by the potentially high return (massive positive). Markets are pretty efficient when it comes to risk adjusted return, so you can really make this argument about almost any asset vs any other. However it doesn't make the assets equivalent when it comes to parties who are more risk averse than risk neutral, which would presumably include the OP with their $900K nest egg.
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If I am risk neutral, in your view, should I go for high vol OTM calls or low vol Treasury Bills?
 
ironchef said:
If I am risk neutral, in your view, should I go for high vol OTM calls or low vol Treasury Bills?
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The most compelling data I've seen says selling OTM S&P 500 puts which are pervasively overpriced on a risk adjusted basis, although technically anything with a volatility smile is displaying something of this issue?
However if the high volatility OTM calls have the same risk adjusted return as T-bills and you're risk neutral than by definition you'd be indifferent between the two right?
 
ironchef said:
For most of us here we like to believe that "something we know very well" is the market and trading?o_O
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if most of us here live on what they earn trading then i would agree with you, but it seems to me that most here do not trade for a living

OP in fact clearly stated that he is not market professional, so he probably earns his living in some other industry (in which i think he should be able to find proper investment opportunities)
 
the problem is most people (including, i suspect, the OP) confuse investing (which is speculating on value, based on working method and experience) with "parking" money (which is just putting it in some investment instrument, hoping for the best)
 
Sig said:
The most compelling data I've seen says selling OTM S&P 500 puts which are pervasively overpriced on a risk adjusted basis, although technically anything with a volatility smile is displaying something of this issue?
However if the high volatility OTM calls have the same risk adjusted return as T-bills and you're risk neutral than by definition you'd be indifferent between the two right?
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Thanks. Make sense.

On second thought, somehow I think I would go for OTM calls, if I am risk neutral, and irrational.
 
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