Absolute return strategies aim to generate positive returns irrespective of market direction. A truer more apt definition is that absolute return, or active investment management, seeks at all times to minimize losses. We mentioned this as a core attribute of an absolute return strategy in “Why an Absolute Return Strategy”, but this simple concept is worth further description.
The first goal of investing is to increase wealth or said differently, to increase purchasing power. Warren Buffet is quoted as saying “Rule number 1 of investing is never lose money. Rule number 2 is never forget rule number 1.” The hidden message in these seemingly obvious statements is that building wealth depends much more on preventing large losses than it does on achieving large gains.
Buying (Long) a Call Option: A basic option strategy to be familiar with and learn the advantages and disadvantages of is buying a Call Option (Long Call). Buying a call option is the opposite of buying a put option in that buying a call gives you the right, but not the obligation, to buy the […]
Buying (Long) a Put Option:A basic option strategy to be familiar with and learn the advantages and disadvantages of is Buying a Put Option (Long Put). Buying a Put option is the opposite of buying a call option, in that a Put gives you the right, but not the obligation to sell the underlying futures contract at a specific […]
Contrary-opinion trading is perhaps the best solution to market madness and noise in the markets; it is a “thinking man’s” trading tool. A Contrarian is a person who takes an opposing view, especially one who rejects the majority opinion, as in economic matters. So, in a nutshell, if a CTA / Money Manager is trading […]
As our marketing efforts gradually shift from focusing on individuals to institutions, we have been asked recently, more than once, to provide a theoretical framework for our investment philosophy and trading approach. Although our trading results continue to validate our strategy, we were more than happy to take on this challenge, go back to review the genesis of our ideas from over a decade ago and review why our methodology still stands to reason.
When investors think of risk, they usually associate it with volatility. This probably stems from Nobel Prize winning economist Harry Markowitz’s use of volatility in the 1950s and fellow Nobel Prize winner William Sharpe’s use of volatility in creating his self-named method of risk adjusting returns. The lower the volatility of a given investment theoretically indicates that investment carries less risk. Risk, however, could be viewed from a different angle. The impact of a high volatility investment on a portfolio can be mitigated by the allocation size given to that product. By normalizing for volatility, theoretically, high and low volatility investments can have equal impact on a portfolio’s total return. This leads us to a different way to view risk. Risk is the difference between the anticipated worst loss and the realized worst loss.