Flav

Risk Management and Concentrated Positions

You can check last weekend's Barron's interview with Merril Lynch's top investment executive for more insights on the subject

Risk Management and Concentrated Positions

Geoff, once again, thanks. Maybe if you run it again now, the numbers will be much worse. Your articles are great, and you're very polite with readers' questions.
The reason i asked the first question was beacuse the main strategists of investment banks (what were investment banks) always make projections of posible market trajectories of no more than 2 years, and they say they use computational models, that's why i asked if a program like QPP could be useful for the short term, though you said to me in other question i asked you before that QPP makes long term projections

Risk Management and Concentrated Positions

Geoff, another question:
What's the tail risk for homebuilders like CTX or KBH?
Does it point to a brisk stock price change like it was for financials?

Risk Management and Concentrated Positions

Again, a great article. It is as explicative as useful.
Have a question, suppose you're just a trader, i mean, you're time horizon lasts no more than a month; does this kind of modelling is helpful for that kind of investment profile?
If you run a long-short fund, how does the model change in that circumstances? And in an only-short one?

Thanks Geoff, keep up with these great articles

The Nature of Risk

My last post brought to my mind me some questions to Geoff Considine:

What kind of information did you use to build the graph "Projected Probability of Default vs. Annualized Volatility for Stocks", credit ratings, historic quotes (to compute the Std deviation)?

When you use the QPP to build a model portfolio, do you use some data of fundamentals for a given company?

Does technical analysis play any role at the moment of building a portfolio or making an investment decision (in your investment scheme)?

This question fits better your other articles, but as you have demonstrated before, a diversified asset class portfolio is better (more return with less risk) than one concentrated in one asset class (stock for example); but is there the posibility of an all stock portfolio that, maybe with more risk, it still locates on the efficient frontier (more return with more risk, but still on the frontier) ?

Thanks in advance

The Nature of Risk

Quote by PrudentMan,
CFA: "To use statistics to try and understand risk is lazy. Considering that human nature is impossible to explain, what makes anyone think a computer can make sense of what they are going to do"
I believe you're not understanding the message of this article. Using the Montecarlo simulation, you had that there was an increase in the probability of default when you had a larger standard deviation. So there's the link between statistics (hence, volatility) and risk. As Considine remarks, there was a considerable probability of a large price move in Bear Sterns stock based on past information. It's not that it will surely happen, but there's a high probability. As you're a financial adviser, i believe that, if you recommend a client to invest in a distressed company with the characteristics described above, just beacuse it went down in price and you think will get back to normal, ignoring the great volatility on the stock, maybe you should work on other area, like casino gambling or sports bets. That's akin to that kind of reasoning.
Another quote from this guy: "Good old fundamentals combined with technical analysis, intellect, skill and guts will trump any statistician"
Who in the hell ever told you that fundamental and technichal analysis are substitutes of statistical research? They complement each other. Of course, if you are a strong believer of the efficient market theory, then fundamental and technical analysis are useless, but otherwise, all three instruments are useful