Category Archives: Risk

World’s Best Investment!

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What if I told you there is a ‘no risk’ investment that will out perform the S&P 500, even assuming the S&P 500 will continue upward at the pace it has over the second half of 2014? Would you buy that investment?

Then consider owning cash, if you are a US resident denominated in USD. Very simply, SPX in USD units has been declining since the middle of the year, with the weekly trend by AROON having gone negative and what looks like a topping pattern forming.

spx.usd

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Markets to Add More Risk Into the Year-End?

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As you can see from a comparison of the following two percentage gained/lost graphs of the 9 Major Sectors (plus the SPX), (the timeframe on the first graph is year-to-date, and on the second is this past week), market participants ventured into the “riskier” sectors to add more risk this week.

The second graph shows that Energy and Materials contributed substantially to the lift in equities this week…look for that trend to either continue, or reverse, if commodity prices begin to plunge again. (more…)

Can a Portfolio Truly Be Well-Diversified?

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Although we often hear (or read) the words “diversified” and “portfolio” together, we should question if it is really true that an investment portfolio can really be well diversified.

To speak about diversification, we first need to speak about “correlation”. When it comes to correlation, our creed can be summed up in a statement once made by Ray Dalio of Bridgewater Associates:

“People think that a thing called correlation exists. That’s wrong. What is really happening is that each market is behaving logically based on its own determinants, and as the nature of those determinants changes, what we call correlation changes”. (Jack D. Schwager, “Hedge Fund Market Wizards, How Winning Traders Win”, Wiley 2012) (more…)

Pushed to the Brink

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October is turning out to be far more “trick” than “treat” for equity bears.

At the midpoint of the month, things looked sensational. Stocks were breaking down left and right, and it seemed that we had finally encountered a sea-change in the market.

Since then, however, stocks have exploded higher with a gusto that I underestimated. I certainly expected a bounce, but nothing of this degree. Much worse, it seems that the cessation of QE (announced yesterday) has done nothing to slow the equity bulls down.

This kind of environment can really mess with one’s head. Let’s take a look at the past couple of days on the ES: (more…)

Dead Soldiers Stay Dead

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“No bastard ever won a war by dying for his country.  He won it by making the other poor dumb bastard die for his country.”  -George S. Patton

Did you hear about that new medical invention that can now bring the dead back to life?!  No?  Oh, that’s because it doesn’t exist.  Just like there is no way to bring the money we lost in a trade back into the account.  Pardon the morbid start to this commentary but it is meant to shock us into paying attention to a very important point:

Small losses are better than large losses.

cut loss

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Counting Cards

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I’ve had quite a few new readers in the last few months and it struck me yesterday from a couple of comments that at least some of these were obviously still hazy on the distinction between technical analysis and fortune telling. It can be an easy mistake to confuse the first with the second, as a good analyst can sometimes make calls that seem almost supernatural. Some of my past calls have been amazingly and rapidly accurate, and some offhand examples I’d pick would be: (more…)