Tag Archive | risk strategy

Accelerate Return-to-Risk Ratios with Higher Betas

By Chuck LeBeau,  Director of Analytics, SmartStops.net    (originally published in April 2009)

Modern portfolio theory is based on the premise that volatility is the best definition of risk. However, like many popular assumptions, that may not be entirely true. The equity markets of 2008 and 2009 took a rollercoaster ride and were overshadowed with unprecedented volatility which forced many to re-evaluate the industry and assess the changes that have come forth over the past years.

Although the basic fundamentals and principles of investing have remained the same, and successful investors continue to be the ones who can balance the risk and reward trade-off, it is now apparent that investors can’t control the reward side and that controlling the risk side is the key to preserving equity. In fact, a survey conducted by Charles Schwab indicated that 45% of investors would choose an advisor who provides products which protect them against market risks over one that doesn’t.  This article will demonstrate how increased volatility, as measured by Beta, can be harnessed to provide higher returns without a commensurate increase in risk   Read More…

Black Swan , Taleb – reminding everyone – have a risk strategy from the start!

Remember – you can’t “predict”, which is why its important to maintain constant protection.  SmartStops is producing intelligent self-adjusting baseline numbers that are derived from careful analysis of the individual equity’s behavior.  And they further optimized based on macro conditions.  Thus providing you the capability to take a pro-active or re-active approach to managing your risk. 

 from an interview with the infamous  Nassim Taleb of Black Swan -http://knowledge.wharton.upenn.edu/article.cfm?articleid=2755

Taleb: That’s true. But I’ve been trying to emphasize the true message of the black swan, which is that there are some environments in which rare events are simply not predictable.

Most people think that they can predict the black swan, that with quantitative sophistication they can get answers. They don’t get the idea that because we can’t predict black swans, then we need to restructure institutions and rethink strategies to be more robust in the face of uncertainty.

Low Tide Lowers All Ships

By Raghu Gullapalli,  contributing writer

As earnings season draws to a close, the market has been consolidating before its next move. With the overall bearish sentiments in the markets around the world and the uncertain economic situation here and in Europe, the U.S markets could be soon to follow.
Uncertainty in the market in the wake of QE2 sees large financial institutions and sophisticated investors repositioning and minimizing risk. The smart money having reduced their holdings in long futures contracts by 13% over the last week.  And the increase in margin requirements have driven many speculators out of the commodity markets, forcing commodities and possibly the market downward.
The S&P has been holding above its trendline but with weakness in the world markets, it may break support at 1330 and even may break 1300, confirming a full correction is underway and may head to 1250.
But then again my current bias may prove incorrect, as later in the week the May 2nd highs of 1370 could be broken and the S&P marches back to 1450.
In either case, its important to stay protected . You can do that with SmartStops.
The only sectors, which have shown any leadership or life, have been the utilities  (XLU) and healthcare (XLV). Precious metals bounced but then quickly fizzled lending credence to my belief that Silver (SLV) may go down as far as $25 in keeping with its historical 1:60 price ratio with Gold.
A relatively slow week may be alleviated by the retail sector.   The retail sector (XRT) has several major players reporting earnings this week.  J.C. Penney (JCP), Urban Outfitters (URBN), Gap (GPS), Abercrombie (ANF) and Game Stop (GME) being the most prominent.   After reports last week of Macy’s (M) strong first quarter, beating per share estimates by 12 cents and raising guidance for the rest of the year, the retail sector may be the catalyst and leadership the market needs to break out of its doldrums. 
As I conclude this article J.C. Penney’s (JCP) have announced earnings and stated a 7% increase in profits in Q1 and has raised its outlook.  Smartstops.net has the short term stop at  $36.49 and the long-term stop at $35.82

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