Portfolios: navigating safe passage

Posted by on Feb 24, 2017 in ArbMaker News! | No Comments

“There is nothing new except what has been forgotten.”

Marie-Antoinette is not generally considered a great font of portfolio management knowledge. But this quote attributed to her is relevant.

It reminds that there are no mysteries to managing a portfolio which have not already been grappled with and (for the most part) cracked. The usual issue is one of discipline and recall of the rules.

This is a link to an essay written in 2012 by Zeke Ashton of Centaur Capital (see page 21). It’s a cogent and tightly written piece that breaks down the challenge of running a portfolio into 5 elements that must be addressed by the manager:

  1. Leverage
  2. Concentration
  3. Correlation
  4. Illiquidity
  5. Capital flight

It is a useful handbook when building up holdings of long/short pairs. For example, the section on correlation of positions is especially pertinent since related pairs frequently trigger at a similar time. Excessive holdings of what are effectively the same bets is not a great idea.

But all the points are key and must not be forgotten. That’s why it is saved in our library archive. Hopefully it is of use to you!

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