Tag Archive | portfolio management

 Per Doug Kass: We’re Heading for a Bear Market So Plan Accordingly

SmartStops comment:   Interesting perspective posted on by Doug Kass (TheStreet.coM)  as to signals he’s watching.    

           SmartStops Mantra:     ALWAYS STAY PROTECTED !

From the article:     Since early August I have highlighted numerous technical divergences (in the weakness of the Russell Index (IWM) , new highs, the cumulative advance/decline lines, etc.), the schmeissing of the high-yield market (often seen as a precursor to stock vulnerability) coupled with growing evidence of weakening global economic growth (posing a threat to consensus corporate profit forecasts) and other factors (including valuation, sentiment and geopolitics) suggesting that a downward trend and (potential) bear market might be in the early state of developing.

History also shows that rising volatility in foreign exchange markets may be consistent with bear markets. (A good analysis by Nautilus Research can be found here.)

Economic weakness in Europe has been a worrisome factor that I have steadily highlighted.

Read entire article at:

http://www.thestreet.com/story/12904902/1/kass-on-the-market-i-am-throwing-down-the-bear-market-gauntlet.html?kval=dontmiss

 

Blackstone’s James Says Debt, Equity Markets Overvalued

“We’re between the bottom of the seventh and the top of the eighth,” Marks said in a Bloomberg Television interview last week. “It’s time for the seventh-inning stretch. You have to have plenty of defense on the field today.”

SmartStops Comment:  Defense is the best Offense!

View complete article at: http://www.bloomberg.com/news/2014-09-09/blackstone-s-james-says-debt-equity-markets-overvalued.html?cmpid=yhoo

Position Sizing: Key to Maximizing Returns

In a time when market volatility and equity preservation is of utmost importance, determining the correct number of shares to buy, or “position sizing”, is key to maximizing returns and minimizing risk.

The common investor generally doesn’t spend much time thinking about how many shares to buy or how significant of a position to take.  Instead, most investors use a common methodology of trading the same number of shares each time, which usually translates to a specific dollar amount.  Other, more sophisticated investors, opt to allocate a certain percentage of their portfolio value to a specific position. Following this train of thought, a new position in a portfolio of $100,000 would transcribe either a $10,000, or 10%, investment or a usual position of 50 shares.

Although these methods may work for some, using the volatility of a specific portfolio is likely to be the most effective decision tool.  Measuring a portfolio’s overall volatility enables an investor to decide on what percentage of that portfolio he is willing to risk losing on the new position.  This methodology is better explained through the following example. Read More…

A New Risk Indicator To Sidestep Market Downturns: Is It Better Than VIX?

By Chris Georgopoulos, originally published on 11/14/11

Without question the most popular model to predict market crashes is the VIX, commonly referred to as the “Fear Gauge,” a market index that measures the implied volatility of the S&P 500 index options. Its concept is quite simple, when the uncertainty and fear among investors rises, they commonly run to the S&P 500 options to either hedge or speculate. The increased interest in the options usually leads to higher premiums and as the premiums increase so does the VIX. However, predicting the future isn’t 100% accurate, most of the time it’s not even close. Every forecasting model has its flaws and the VIX is not an exception. There are many problems skeptics have found with the VIX such as; its population study is limited to only the 500 stocks of the S&P 500 and” {the} model is similar to that of plain-vanilla measures, such as simple past volatility” (Wikipedia). A blog post on sensibleinvestments.com summarized the VIX as “simply an indicator of actual volatility in the market but one that is very sensitive to changes in actual volatility particularly if it is on the downside.” Is there a better way?

An elementary statistics theory states that the larger the population size, the greater the likelihood that the sample will be represented. If markets are graded by the performance of popular indexes such as the S&P 500, why limit a forecasting model’s population to only 500 stocks? The economy has become global; interactions from every corner of the world’s businesses affect every other business. If there is a model that forecasts market direction, should it limit itself to just the largest companies? As for only using a month or two of short term option premiums to garner a prediction, as the VIX does, it seems to limit itself to only a single variable. Instead of short term options premiums and limited samples what if we could measure real-time individual stock trend alerts on thousands of domestic and foreign stocks and ETFs? Or simply what if we analyzed the micro components (every stock) to develop a macro forecast of the market based off trends and risk?

By studying the history of risk alerts from SmartStops.net, an intelligent risk management service, two proven alternatives to the VIX were found. SmartStops.net has developed their own proprietary risk model that monitors the trends and risks to over 4,000 of the most popular stocks and ETFs. If the risks grow on any individual investment SmartStops.net alert their subscribers with both long and short term exit triggers. However not only do these alerts help individual and institutional investors manage specific investment risk, the reviews of the alerts themselves have predictive capabilities. By back-testing every alert that SmartStops.net has issued from their inception versus the S&P 500 performance, there is proof of this and the results speak for themselves.


There have only been 7 days for which the amount of Long-Term Exit Triggers (stop alerts) as a percentage of every stock and ETF covered by SmartStops.net has been over 20%. The subsequent market action of the S&P 500 has averaged a negative return for the time periods of 1 week, 1 month, 3 months, 6 months and a year. The 6 month average return is over -7% and when examined from the absolute lows of the S&P 500, the returns average over -19%. If you remove the knee-jerk market reactions caused by “Flash Crash” on 5-6-2010, the returns are even lower.
Another metric offered by SmartStops.net is their SRBI(tm) (SmartStops Risk Barometer Index); this index measures the current percentage of stocks and ETFs that are in “Above Normal Risk” state (ANR) divided by the 100 day average above normal risk percent. By definition, a stock that is listed ANR experienced a risk alert as its last SmartStop alert identifying a downtrend. Conversely, a stock that is listed in a “Normal Risk State” experienced a reentry alert as its last SmartStop alert indicating trading strength and an upward trend. Back-testing historical SRBI data since inception shows that the repercussions to the market when the percentage of downtrends increases to over 40% of all stocks and ETFs covered are profound. Below you will see that there have been only five occasions where this has happened. In each case the S&P returns for the following year were all negative.

Is this a better way?

Before a concrete conclusion can be determined, the predictive capabilities of the VIX must also be analyzed. Read More…

Forget Buy & Hold – Here are 3 Easy Steps to Actively Manage Your Investment Risk

BY BRENT W. COLLINS

An important debate is still unfolding amongst investors and advisors – Is Buy & Hold dead? Does it really still make sense to buy a stock or ETF and ignore statistically significant signs that risk could seriously threaten your returns? While some say “Don’t do anything, just stand there!!” others, like SmartStops.net, argue that technical indicators are an effective way to continually monitor your equity investments be ready to respond to risk. The trick is how to most easily and effectively monitor a broad portfolio and quickly respond to the most relevant statistical trends.

Buying and then holding (ignoring all market trends, often until your personal situation dictates the need to sell) is an investment strategy that worked when the economy was stable and consistent growth was the norm, but that was then… Now, we investors face a range of threatening factors, such as: historically low interest yields, unemployment, housing sector troubles, slowing growth in foreign markets, governmental gridlock, and the list goes on.

US stocks are now less than 10% away from its historic closing high achieved in October, 2007. The CBOE’s Volatility index (VIX), a.k.a. the fear index, is over 15, which is up 3% over the last 5 days, but down 35% from exactly a year ago. SmartStops’ Risk Barometer Index (SRBI), which tracks statistical market and sector risk based on triggered exit signals, is at .91 for the S&P 500, recently moving below its 100 day moving average. The financials SRBI at .70 is one of the few sectors that has also moved below its 100 day moving average.

Let’s not yet forget the unpleasantness experienced only last year, where the S&P 500 finished the year only a point away from where it started, with its highest point up 8% and lowest level down 12%. Going back further than last year, shows much greater volatility that erased profits from unprepared investors and advisors.

The bottom line: if you have stock or ETF investments, don’t ignore them. Economists are sending a consistent message that the economy and equity markets face a tough uphill battle with increased volatility. If you want to earn and protect profits, keep a vigilant eye on your stocks and ETFs. Make sure you are always prepared to respond when abnormal volatility is present and a downtrend can be detected.

Here are 3 easy steps you can take with SmartStops.net to maintain continuous risk perspective on your portfolio and be ready to take action if needed:

1) Register your portfolio with SmartStops.net to be continuously monitored.
SmartStops.net continually monitors member portfolios, sends alerts or places sell orders through partner brokers when a position displays significant risk of further decline. SmartStops exit triggers are calculated each market day using sophisticated analytics that dynamically adjust based on technical market factors, historic trends and optimal exit methodology.

2) React to statistically significant risk probabilities with automated alerts.
Once you get a SmartStops RiskAlert, your next step is to take a look at related market news and data. Consider alternative steps you might take such as: selling all or part of a position, hedging with options, buying more (sometimes the market overreacts!), or talking to your advisor.

3) If you are ready to sell, use SmartStops BrokerLink to automatically and immediately lock in profits.
SmartStops.net has partnerships around the world that integrate the intelligently adjusting exit triggers into leading broker platforms so continuous and effective sell triggers can be easily maintained. The latest broker to introduce this risk control service integrated with a trade platform is TradeKing.

So, stop reliance on Buy & Hold! If you don’t make the effort to manage your investments when volatility starts to increase and momentum goes negative, you are making the choice to participate in a downtrend that can be avoided. Why participate in major downtrends when you can take action and improve your profit or minimize loss? Services like SmartStops.net provide an easy, effective way to manage your own investment risk.

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ETFs And Allocations To Protect Portfolios In The Current Financial Storm

excerpt from article at Seeking Alpha: 

 This is a followup to a previous postings suggesting how investors can take refuge in the oncoming financial storm. If you’ve not done so already, be sure to read my previous post Say It Ain’t So for a description of our dismal macroeconomic picture.

The purpose of this article today is to explore any safe havens for your investments to shelter them from this worldwide slump. What are we protecting against? Problem is, we don’t yet know. And we won’t until the elections play out next year, and events in Europe unfold.

The market may not wait for the politicians. Technical indicators suggest a very large correction in the market can be expected, and fundamental macroeconoomic trends unfortunately offer no consolation.

How severe will the downturn be?

In my view, that will depend in part on what fiscal and monetary policies we pursue, and how international political relations progress. There my crystal ball is a little cloudy.

Scenario one sees a continuation of monetary easing, as pursued by both the Bush and Obama administrations, and largely aped by European governments to a lesser degree.

In this scenario, the policy response will be pure Keynes, with large bouts of government spending to build out our country’s infrastructure and hopefully create jobs. The Fed will assist with gobs of money dished out to offset rapidly deleveraging private expenditures and to support our wobbling real estate market.

for rest of article, click here

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