* Use measured investing techniques (such as dollar cost-averaging) when taking on added exposure to fundamentally disrupted market segments that are subject to high mark-to-market risks: The change in the volatility paradigm adds to the travails of asset classes that already have been destabilized by fundamental demand and supply shocks -- such as oil and emerging markets. The resulting carnage offers selective opportunities that are likely to prove very remunerative over the longer-term. But the scaling of such investments must be done in a way that enables the holdings to be maintained through harrowing mark-to-market moves.
* For now, think of cash as part of the strategic (and not just tactical) allocation in a diversified portfolio: With asset class correlations becoming less predictable and dependable, the traditional (bond-equity- commodity) portfolio diversification no longer offers investors the same measure of risk mitigation. This is accentuated by high starting valuations for both bonds and equities. As a result, investors would be well advised to hold a higher-than-normal cash balance -- not only to give them the tactical opportunity to pick up bargains, but also for strategic risk management.
* Continue to look for opportunities that have not been directly affected by central bank liquidity injections: These are hard to find, but can be especially remunerative. Startups and certain maturing segments in new tech appear particularly attractive, as do transformational tech-driven sectors in the more robust emerging economies.
* Remember that obvious divergences in country fundamentals don't always translate to commensurate financial market out-performance: Although the economic outlook for the U.S. remains brighter than for most other countries, the financial market out-performance may not be as strong in general terms. Valuations have moved quite a bit. Traditional indices for both equity and corporate bond exposures are far from fully insulated from developments in the rest of the world. One important qualification: U.S. companies still tend to have quite a bit of cash on their balance sheets. That should be a significant differentiating factor for those wishing to go long U.S. corporate risk (bonds and equities) as compared to similar assets in the rest of the world.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.