Constant proprtion portfolio insurance (CPPI) - WTF?

[BaseballRedhawks]

So i work with many institutional clients that rebalance…… I’ve never heard of CPPI.
M (portfolio value - floor value) = M (Cushion)
Huh? Can someone please explain?
Thanks!

 

[S2000magician]

I would imagine that your institutional clients generally rebalance to a constant mix strategy (more or less). A constant mix strategy is appropriate for investors whose relative risk tolerance is constant; i.e., their overall risk tolerance is proportional to the size of their portfolio.
A CPPI strategy is appropriate for investors whose relative risk tolerance increases with increasing wealth; i.e., their overall risk tolerance increases faster than the size of their portfolio.
I suspect that 99-44/100 of investors think that rebalancing only means a constant mix strategy. (I’ve posted about CPPI a few times in threads on www.bogleheads.org with absolutely no luck: I haven’t found an investor (or advisor) there who thinks that rebalancing can possibly be anything other than constant mix. Alas.) So your experience is far from unique: it’s the norm.

 

[BaseballRedhawks]

Got it. Thanks Bill. Going to reread it again a few times. Just gets me fired up…. “Trending markets, non-trending markets, etc”
No one knows where markets are going…….., so CPPI to me just seems like a buy high and sell low policy.