Risk management, portfolio strategy, etf investing
Risk management, portfolio strategy, ETF investing
Contributor since: 2010
Why one should have an objective analytical risk-based watchdog on one's side. Would have know back on 1st elevated Risk Alert on 3/25/15 at $43.51 to hedge or sell.
Why its always important to have protection on! Savings of over $13 a share by keeping your eye always on risk.
Nice call. Pays to have Protection on.. Always! :))
Even if CMG investors had not taken action on the 3rd alert, given we're now at the 5th alert and an additional $10 PER SHARE lost, with Savings of over $23 per share, it is time to make active risk management a must for your portfolio.
One can hedge or exit at signs of increased risk. Sidestepping downturns in AAPL over the past 3 years, shows an increasing of earnings per day in the market from $7.51 to $21.00. And only holding AAPl for 55% of the time.
Over a 3 year period, by sidestepping AAPL's periods of downturns, your earnings per day in the market could have been $22.00 vs. $7.51 based off a $10,000 investment and only actually in AAPL (if exiting vs. hedging) of 55% of the time.
And rather then "guess" when a correction might occur, the use of an intelligent risk alerting or stop system allows you to just stay protected at all times.
Thank you so much for reminding everyone again that it pays to stay protected! Stay aware of increasing risk is made easy with services offered today.
That's why its important the investors stay protected as regardless of if you make a bad entry point, you can live to play another day. Can't do that unless you first properly position size upon your entry and have some kind of exit strategy to alert you when risk is elevated.
Imagine if true transparency in real-time were made the requirement of the market.
SmartStops Risk analysis triggered its 4th in series of recent downtrend for Gold.
Sell or hedge at the first sign of Elevated Risk.
Glad to hear it. It has been a great run. It may be time to take some profits and be prepared for the next good opportunity. I currently like Dryships (DRYS), Cree (CREE) and LuLu Lemon (LULU) for beaten down stocks that I think have a bright future. For Cree and LuLu Lemon, both are participating in markets that are growing extremely fast and both can expand further overseas. DryShips is a play on a turn around in shipping and continued success in their drill ship company.
Best of luck.
Always stay protected and "risk aware" for when the tide has turned against you. As $89 ago it did on CMG.
If you are concerned about trading programs seeing "stops", its easily avoided by using contingent orders etc. All orders are housed on the broker's side (as actually are stop limit orders..). They aren't sitting out there in the market.
But you don't have to use stops. Just make sure you've got some kind of Risk Alert trigger. And some kind of game plan for when it hits (you could hedge with options for example). But use an alert that has some intelligence to it, vs. just a "dumb" trailing stop. One that knows how to give room when its trending well to the upside and starts to tighten up when the downturn unfolds.
As to taxes, and GoLakers questions/points, well, let's just say - would you have wanted to capture $89 per share in profits on CMG recently? Or just let it labor there, "hoping" it will recover and not going to know even when that might be. People will say - well see I held on through 2008 downturn and lo and behold, things recovered. Well, let's thank the Fed for that first of all. And then, let's ask ourselves, how long did that take? What was the opportunity cost to holding on? Would it have been better to have been sitting in cash in late 2007 when the warnings signs were flashing?
Of course no one can predict the future. No once can call a perfect top (well..only in hindsight). But you can put probabilities on your side. That is proven and just read some of Andrew Lo's publications to educate yourself further. You don't even have to time it all that well.
great series Larry. Thxs!
then what would your definition of an EMH be? That more participants create great efficiency? What is "efficient" anyway? Is it efficient that perhaps without anyone's knowledge the market gets propped up by financial engineering that the fed is doing? Just another proposed speculation. And I assume done under the economic theory that a greater flow of funds creates a more bountiful boat that floats well for the majority. Why it is that someone like Andrew Lo , guru from MIT, shows the inefficiency and then goes off to run a hedge fund? Do people with the computing power and intellect then get the upper hand?
There are "Trillions" of dollars in the mutual fund industry which built itself upon modern portfolio tenets of diversification and allocation. Yet modern studies will show you that Buy & Hold is an outdated philosophy. And yet the funds managers have many limitations in their action. And 401ks are locked into that industry at the moment too. And the investors and companies helping to fund that are also restricted. How is that made efficient for the masses who are the ones that have poured their hard-earned monies into this?
Don't forget - part of a runup can be those short's stops triggering fueling the momentum upwards. Unfortunately , there's no transparency in the market that I know of that divulges that detail. If one wants to establish their "bullish" position, they must take into account risk right up front via a position sizing calculator. That's the first step. Then, just stay aware of the changes in the risk profile and take protective actions (hedging, exiting) when the market is telling you that risk has increased to a point of probable decline. When studies have shown that market leaders fall 72% from their highs, its prudent to do so.
You can find all split history on symbols here :
This is why it is so important to stay aware of ever-changing risk in your investments given the various moves made within the industry. PCLN has ensured a $141.55 per share loss with this most recent downturn. The first trigger to an elevated risk state occurred on 3/14/14 at $1279. Now on the 5th trigger. Just make sure you are keeping profits protected or worse, if you've entered at the wrong time, cut your losses.
Be confident in being long if you want on FB or LNKD , just keep protection on!
The cash flow CX generates when the economy is growing will cover its debt.
The historically low rates on capital today also benefits businesses that are capital intensive and carry debt.
So far so good. As long as the global economy keeps improving, CX should be fine.
The US may soon end the embargo with Cuba, who's entire infrastructure need upgrading. This tool will help CX.
Good article. And since no one can truly predict when the party is going to end. The best thing to do is to stay aware of detections of the elevated risk before say a 10% correction has already occurred. Takes ongoing diligent analysis to do it right.
glad to see this perspective being conveyed. The markets will get overoptimistic and correct and the question always becomes which is more prudent, to exit, to hedge, to sit and ride out the downturn? Active risk management in today's 21st century market in our opinion is a must. It was interesting to hear Obama's line in his 2008 state of the union address that "the market is a great place for the creation of wealth. But unless under a watchful eye, it can spin out of control." Well, who really believes the government can implement policies, regulations that create such a watchful eye? And thus, having more watchdogs that others can take into consideration for their benefit is good. Thanks.
Interesting that in your profile you mention: Where my research typically diverges from convention is - incorporating a volatility based perspective to the fundamental analysis, enhancing the risk control in investing
We too are very focused on risk control. May we ask you to elaborate then on that element of this analysis on that point? Thanks.
rather than trying to guess when a downturn may come, just keep yourself aware of risk state changes such that when weakness is truly beginning to unfold, you will recognize it. Easier said then done as developing that expertise can take years of real market experience.
given the way news gets conveyed in this day and age and its potential subsequent affects, can't imagine why anyone would be without constant protection.
as to the initial author's comment of ... " And we worry that investors are getting ahead of themselves", that's why we feel its important to have a un-biased analytical approach to keeping your position protected.
Indeed on the analysts front. We've examined the stock movements that are occurring before the analysts come out saw with say a revision in their forecast or a change to a hold or sell, wondering if the chinese wall the industry has tried to create truly does exist. Its pretty suspect. Needs to be more transparency.
fun article and discussion. Indeed, no one can be 100% acccurate in what they will "predict". Always wise to have at least some methods of constant risk analysis. You can at least put probabilities of future decline/correction on your side.
just remember to keep protection on when you are long. Regardless of your beliefs in fundamentals,momentum or whatever it is - you aren't going to control how the market will behave. With protection, you could have exited on 1/14/14 at $86.36.
We completely agree that emotions should not drive the decision making process. And with the utmost respect , greatly appreciate your focus on this topic and the advice being given.
However stepping aside during periods of elevated risk, can translate to the scenario that you then have the opportunity to move that now available cash into more attractive risk/reward propositions. Just think if you had exited or hedge in late 2007 as an example.
The mutual fund industry loves to propagate the message that market timing is bad. However there are studies to prove that when you miss the worst days of the market , your return can be a thousand times better. Missing the best days - does not have nearly the impact. There are a number of studies done in academia and elsewhere that show this outcome.
One should also look at the opportunity cost of holding on through a downturn. As depending upon the equity, it can take years to recover to its previous high.
Thanks for reminding investors about recent history as it seems that too many still behave with blinders on. Its only a matter of time before a correction ensues and so its mandatory that people stay aware of ever-changing risk!