riskmgr

Hedge Fund Index Group Proves It's Good to Follow the Smart Money

if your "clone index" has strategy weights and more importantly, risk levels disproportionate to that of the hfr index, we're just comparing apples to oranges here and there's not much to discuss..

Why We Can't Trust Market Signals

I just wanted to say, outstanding comment Alex. I forwarded it on to my group at work.

An Investor's Guide to Corporate Bonds

jimmy - you lost me at the caps lock.

brad - nice article, no need to stoop to jimmy46's level! thanks

Putting the Stock Rally in Context

amazing article, great thought organization Naufal! and i can almost forgive the 10 degree hat tilt hehehe

Diversification: It Really Doesn't Matter

The thing is, you don't really have to "call it as you see it". You can think it as you see it, but the call itself is not necessary. Without the tools needed to analyze stocks, forecast and interpret macroeconomic data, and continually monitor a stock investment, it is simply better to take a passive index approach and take the market return. The problem is, folks who are capable of doing that area already doing that. Short the index, long the single name. But single name stock ownership isn't for everyone, and it would be a disservice to suggest to novice investors that index fund investment is a poor idea by simply mining data in one of the worst economic periods in United States history. Returning to Lao's words - someone who has truly navigated the depths of the Great Recession to the tune of a 15% total return since 2004 doesn't need to say a single word. Investors would be knocking down the door in order to obtain that sort of sage advice! Mere mortals like me have been losing money.

Diversification: It Really Doesn't Matter

Toucalit, reading your article reminds me of a salient line from Tao Te Ching "Those who know don't talk. Those who talk don't know." Please, finish your undergrad work and read a couple investopedia entries, these types of lines of thinking are more suited towards an audience of high school students rather than seeking alpha readers.

Risk Management, Or Risk Manipulation

Every time some idiot steps up to the plate to talk about the shortcomings of VaR, which are considerable, they consistenly neglect to mention sensitivity analysis as a necessary component of overall risk management. Sensitivity analysis can revalue securities based upon shifts in the market, with out without using a covariance matrix. A simple parallel shift of equities / commodities to -20% would give you a pretty good idea of how your book would perform during an outlier event that Taleb is so obsessed with running his mouth about. At outlier events, correlations turn to 1, and a simple parallel shift is very effective at predicting the magnitude of losses given extreme market movements. But oh, let's not talk about that, let's talk about how VaR sucks. If you aren't a sophisticated enough investor to understand the full range of tools available to risk managers or if you are a simpleton who expects to look at one number and be able to discern a complicated aggregate risk picture, you and everyone else using this novice approach will lose all their money to more sophisticated investors in Darwinian fashion. So yeah, go ahead and throw out your risk models, and you can hand me your wallet while you're at it.