Showing posts from June, 2020

Where do we go from here?

I am bearish. But bears seldom make big money its the optimists who do. I am not very well versed in macro economics. I also 'feel' economists are not well versed too. Having made that point I am unsure what the equity markets world over are doing. Why does it continue to rise when everyone on the street or elsewhere knows that corporate profits are dropping and could drop to record lows, companies have begun to file for bankruptcy and joblessness is increasing. But why is the stock market rising? Is it only liquidity which moves the market? I don't know. US FED has pumped in a whopping $3 trillion for Covid related stimulus. To put that into context that is greater than the GDP of India. The S&P 500 has reverted as if it was a minor correction.The Indian indices are charging ahead. But the FED chairman has to say the following "We will make our way back from this, but it will take time and work ... The path ahead is likely to be challenging." Mr

System Trading - Part 4a: What is risk

Of all the facets of System Trading Risk Management is the most critical aspect. This makes or breaks the overall system results. In this part I just want to share my definition of risk in investment. What is risk? In classical theory volatility is taken as a yardstick for measuring risk. But let's take a step back and try to define it. When do we say an investment is risky? If we know we might not get our principal back. Should that be the baseline? Maybe not because if I had kept that money in a government bond I would have got 6% annualized. So now my minimum base line is that the money I put in an investment should give me my principal back with 100% probability and  an interest earning of 6% on the principal with 100% probability  Can it give lower returns? No! I want this total return, as a GOI bondholder I am assured of this 6% unless the country defaults. Ok what is the probability of India defaulting? It is certainly not zero. So my overall functi