Category: Strategy

  • Hedging an equity portfolio: Volatility

    | | Strategy

    We opined in our last article that “Traditional Hedges Suck” that most traditional hedges had significant weaknesses and did not have many characteristics of a great hedge.  Volatility (long positions in VIX futures), while not perfect, has a number of these favorable characteristics for hedging an equity portfolio. The characteristics of a great equity hedge are three-fold: Makes more money in down markets that it loses in up markets; therefore, the hedge improves the risk adjusted returns of the portfolio. If the risk adjusted return is improved, the investor can either have less risk on the same investment size OR … Read more Hedging an equity portfolio: Volatility
  • Why Traditional Hedges Suck!

    | | Strategy

    An article by Scot Billington, Covenant Capital Management Unfortunately, most traditional hedges suck. Buy and hold investing has been wildly successful since 1982; however, its adherents have had to endure two 50% drawdowns; a 25% down day; and a 14-year period of zero return.  Long term wealth is significantly impacted by drawdowns of more than 25%, because the necessary recovery rally follows an exponential curve. Let’s take a look at what’s needed for recovery:  A 30% decline requires a 43% rally to get back to even.  A 40% decline requires 67%; down 50% requires +100; and down 60% requires a … Read more Why Traditional Hedges Suck!
  • Why does momentum investing work?

    | | Strategy

    Conventional wisdom says that once any stock-picking strategy nears “sure thing” status it should be doomed. If everyone knows the secret to vast riches, how could the strategy possibly work anymore? But there is a successful strategy that has been followed — and widely discussed — for decades, yet somehow persists as a relatively reliable money-maker: “momentum” investing, which is betting that the stock market’s recent winners will remain winners in the near term and, likewise, that the recent losers will remain losers. The strategy also is known as “relative strength” investing. Read Momentum Investing: It Works, But Why? on … Read more Why does momentum investing work?
  • What does it mean for an investment strategy to be “robust”?

    | | Strategy, Technical Analysis

    In the business of managing money, there is a key word that often comes up but is easily misunderstood: robustness. What does it mean for an investment strategy to be “robust”? What does a robust strategy look like? Is it something that most investors find palatable? Look at the following returns for two different managers, Mr. low vol and Miss robust … Read more What does it mean for an investment strategy to be “robust”?
  • Risk-on- What happened to fears of 2018?

    | | Futures Trading, Strategy

    The equity reversal was tough on many trend-followers. This reversal spilled-over to US bonds during the month. Good buy trend signals now in both equities and bonds. Dollar strength reversed on Fed pause remarks. Metals and energy both moved higher during the month even with global growth threats. Commodities asset class is not a trend rich environment at this time. … Read more Risk-on- What happened to fears of 2018?