Cumulatively the Premium Newsletter has covered 18 trade ideas, all executed in our account. Some data:
- 78% of these pairs have won
- At the individual component level 69% have won
- Average trade duration is 6.4 days for all positions and 6.8 days for closed trades
- Average trade profit is 4.3% (CFDs) and 1.9% (equity margin) for all positions and 5.3% / 2.3% for closed trades
The September highlights are covered in our latest newsletter below (also visible here). If you have not tried the Premium Newsletter it please consider doing so based on the hard data – the first month is on us!
Another poor week for markets. Our latest free newsletter has the gory results (and a suggestion) – to check it out just click here. It also contains details of the great content coming in the Monday 19 September Premium Newsletter. With a no-risk free trial going Premium means there’s a strong chance of strengthening your trading performance.
Directional trading is great…until it isn’t.
Last week was a case in point. Every sector bar Energy was in the red. And even Energy barely squeaked a gain.
Take a look at our latest free newsletter to see how we managed (you might want to subscribe via that link too).
Then receive real time trade ideas like this via our Premium Newsletter:
That was an actual alert sent to subscribers on 6 July 2016. And it closed profitably on 13 July.
Try the Premium Newsletter risk-free now – it is comfortably in profit year to date.
Here’s an extract from a recent issue of our Premium Newsletter service. The letter focuses is on generating actionable trade ideas. But it goes way beyond that to present methodological information and trading context.
Our next issue is released tomorrow at 10h30 GMT. We offer a free trial – try it out!
Keeping in similar vein to a number of the previous entries about the mysteries of defining, selecting and tracking hedge fund strategies here is a 2015 paper by Swiss wealth manager Pictet titled “Hedge fund indices: how representative are they?”
Amongst its gems covering the biases of the indices is this great graphic explaining the source of ‘self-selection’ bias:
Core message: less than one percent of funds report to all the tracking databases. One study puts the impact on the performance figures of this at 1.9% per annum. More worryingly, the cumulative impact of all biases may be as high as 10.7% annually.
Over time that adds up to a lot of dispersion between index providers…
An earlier entry pointed out how many sub-strategies there are under the title ‘long/short’. Take one step back and consider this table from the 2016 Preqin Global Hedge Fund Report (click for a larger, legible version):
The table continues for an entire second page but this half makes the point: that’s a lot of headline strategies (before any talk of sub-strategies).
For those who like steady returns with as few shocks as possible ranking this list on the 5 year net return/volatility ratio produces a clear winner in the equity class: RV Equity Market Neutral (our yellow highlight). It is not the best on that ratio overall: two credit-based approaches formerly best known for cameos in The Big Short pipped it.
The top 10 strategies on the return/volatility ratio look like this:
For clients running our software it is a useful reference point when designing strategy approaches.
So consider value as an investment category. Words to the effect that “the market always recognises the economic fundamentals of sound enterprises in due course” are part of the strap lines of value managers: intrinsic value against market prices; 60 cents for a dollar; and so on.
In overvalued and irrationally exuberant markets this approach frequently provides poor returns relative to benchmarks as market participants suspend good sense. Still, after the fallout of such episodes the value manager’s reputation as a paragon of sober logic is burnished.
And thus the proposition that the oft mad market will come round and fully price the fundamentals of a value enterprise remains seductive. So much so that the possibility of the fundamentals coming round to align with prices is frequently overlooked.
Time does not heal all mispricings. Much can go wrong as it elapses – and as the architecture of financial markets evolves.
Last month, for example, Francis Chou was reported by Bloomberg as returning his 2015 advisory fee in an act of solidarity with his investors who lost 22% in his Opportunity Fund. Mr. Chou had a poor 2015 but, historically, is a strong value manager – as he points out in the article by referring to his great long-term record. Still, 22% is quite a drawdown to overcome in reasonable time without taking excessive risks.
An outlier? Some readers may be thinking “Warren Buffet” just about now. Below is a chart of Berkshire Hathaway’s performance versus the S&P 500 on a rolling 5 year basis.
Source: Berkshire Hathaway annual letter, 2015
Even the King of Value has found the job tougher and tougher since the turn of the century.
Long/short – what could go wrong? Hedged positions, protection etc etc etc.
And yet there are headlines like this one:
One of the problematic aspects of such a headline is that “long/short” is a hard category to define – and there is no consensus around the term. Which leaves plenty of room for whatever angle one wishes to shock and amaze with.
A cursory examination will show that Long/Short is a broad church – and one with some disciples who regularly trek over to the neighbouring tabernacle of Relative Value to worship.
Thus probably it is worth defining precisely what sub-class of strategy is being analyzed before daubing all with the same brush.