Risk Management 02 (Aug 15 - Dec 25)

[winston]

How Prepared Are We for the Next Economic Crisis?

By Gary Feuerberg

Negative interest rates are already a fact of life in Sweden, Denmark, Switzerland, Japan and the eurozone.

“We might have avoided something worse that might have happened, like the Great Depression, but none of that policy has been reversed. The Fed’s balance sheet is still bloated. … They haven’t been able to normalize policy since 2008.”

“These crises come every seven to eight years,” Rickard said. “We go back to [Oct.] 1987, the stock market fell 22 percent in one day. Not a year, not a month but one day, 22 percent.

By today’s Dow Jones Index that would be the equivalent of 4000 Dow points. … It’s been seven years almost eight years since the last [crisis]. How long do you think before another one comes? And yet they haven’t normalized policy, so what’s the Fed going to do the next time?”

Source: Epoch Times

http://www.theepochtimes.com/n3/2004816 ... ic-crisis/

[winston]

5 simple ways to prepare for the next ‘Black Swan’

by Kim Iskyan

There are a few basic steps every investor should take regardless of whether they’re market optimists or pessimists:

1. Diversify – Don’t invest in just one type of asset, but own stocks, bonds, gold, real estate and cash. And make sure these assets are not all in the same industry or country.

2. Don’t borrow too much to invest – Investing with borrowed money will make Black Swan losses even worse.

3. Hedge – Understand correlation in your portfolio. Try to have some holdings with prices that usually move in opposite directions.

4. Own quality companies – Focus on businesses, not stocks. Warren Buffett famously says: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

5. Prepare for opportunity – As the saying goes, “Buy when there’s blood in the streets.” Keep some cash on hand so you’ll be ready to invest at cheap prices when everyone else is running away. If you’ve been expecting the unexpected, you’ll be prepared to take advantage.

Source: True Wealth Asia

http://thecrux.com/this-is-why-you-wont ... xt-crisis/

[winston]

Warning: Start Protecting Your Portfolio Now

By John Kosar

Purely from a risk/reward standpoint, the S&P 500’s current position just below formidable overhead resistance at 2,082 to 2,116 is not a good spot for investors to put new money to work.

Moreover, the current extreme in positive momentum and the seasonal tendency for the benchmark index to peak for the year over the next week or so are two more good reasons for investors to consider taking measures to protect their assets against a bearish reversal.

I would view a sustained rise above 18.75 in the VIX this week as indirect evidence that this potential decline is under way.

In addition, a sustained decline below 1.63% in the yield of the 10-year Treasury note this month, and/or a sustained decline below $23.80 in JJC, would be evidence that global deflation fears are heating up again. Both would be negatives for U.S. equity prices.

Source: Profitable Trading

http://www.thetradingreport.com/2016/04 ... folio-now/

[winston]

Four Ways to Protect Your Portfolio From a Crash

By Richard Smith

There is a tremendous amount of uncertainty in the world at the moment. We are in uncharted waters everywhere we look. We're seeing a breakdown of trust across the board.

People don't trust their leaders... countries don't trust each other... banks don't trust their clients... clients don't trust their banks... businesses don't trust their governments and vice versa, etc.

In such a toxic environment of mistrust, it doesn't take much for things to quickly spiral out of control. The same is true for financial markets.

This absence of trust has me worried about the current environment today. We can't keep heading down the road we're on. It's time to be prepared for a sudden and shocking storm... and hope that it never arrives. The good news is, it's not that hard to prepare your portfolio for a possible storm...

No one has been more concerned about the possibility of a coming storm than Stansberry Research founder Porter Stansberry. For the past six months, he has taken every possible opportunity to warn his readers in no uncertain terms that he believes we are on the verge of a massive crisis.

In his Stansberry's Investment Advisory newsletter, he has acted accordingly and has taken action to hedge his portfolio. He has been proactive about reducing the risk in his portfolio. And as you'll see, his portfolio has held up during the market volatility we've seen over the past six months.

His short positions (which rise as the market falls) cushioned his returns during the recent market declines. Let's take a look.

The following chart shows the performance of Porter's portfolio (using an equal-weighted index approach) over the last six months.

In spite of the significant market volatility we've seen, the hedged Stansberry's Investment Advisory portfolio has been surprisingly calm. It dipped just 1.7% below the zero line back in September 2015. From late December to early February, the drawdown from peak to trough was just 4%.

Over the same period, the S&P 500 saw a peak-to-trough swing that was 3.5 times greater than the swing in Porter's portfolio. The maximum loss was nearly five times greater in the S&P 500.

Take a look at the following chart, which shows this incredible difference at work...

It doesn't take a genius to see that Porter's portfolio has produced the better risk-adjusted returns by far. When your risk is lower AND your returns are higher, it's hard to argue.

Porter used several strategies to lower his subscribers' risk without sacrificing their returns...

1. He searched for and recommended stocks that tend to produce high, risk-adjusted returns on an individual basis.

2. He has sold short the stocks that he believes would be the most vulnerable during a broad-market pullback.

3. When he finds a stock that he likes that is in a risky industry, he recommends a "pairs trade," which is when you go long the stock you like and sell short a stock you dislike in the same industry.

4. Finally, he added upside exposure by recommending stocks that are uncorrelated to the rest of his portfolio (like gold stocks).

Regardless if the huge bear market that Porter has been predicting shows up, it's always a good time to take a close look at your own portfolio and see where you might need to make adjustments.


Source: TradeStops

[winston]

The Most Important Question to Ask Yourself Today

By Ben Morris

Almost no one saw it coming…

For lots of folks, including many of the world's best investors, it caused major losses.

But if you followed the simple advice we showed you last year, which I'll reiterate today, you could have avoided their mistakes completely.

Let me start by asking you a few questions…

First, which market sectors will be the best and worst performers over the next 12 months?

Second, what percentage of your stock holdings are allocated to those sectors?

(I suggest writing your answers down. You'll find it useful to refer to them in the future.)

Finally, how would you have answered the same questions one year ago?

Some of the world's best investors likely would have said energy stocks would do the best.

At the end of March 2015, Seth Klarman had 40% of his multibillion-dollar hedge fund's assets allocated to that sector. David Einhorn had around 19% in energy stocks. And Carl Icahn had about 14% of his portfolio in energy.

At the time, the energy sector was down 23% from its June 2014 peak. The benchmark S&P 500 Index was up 6% in that same period. This divergence led lots of individual investors to expect a big rally in energy stocks, too.

But of the 10 different industry groups in the S&P 500, energy has been the worst performer. The sector has dropped 16.6% over the past year. The best-performing group, utilities, wasn't on most peoples' radars. It has climbed more than 14%.

You can see the returns of the 10 industry groups over the past year in the chart below…

Please Enable Images to See this

The S&P 500 is down 1.8% over the past 12 months. Most investors likely haven't even done that well, due to the volatility… But folks who put a lot of money into energy stocks last May, and didn't hold utility stocks, have fared far worse.

A 40% allocation to energy stocks, multiplied by a 16.6% drop in those stocks, comes to a 6.6% decline across an entire portfolio. With a mistake like that, the rest of an investor's portfolio would have to rise 11% just to break even over the past year.

Considering the average return of the other nine sectors was 1.4%, that's unlikely. Take away utilities, and the average return of the remaining eight was slightly negative.

Someone who went heavy in the worst sector, and missed the best sector of the last 12 months, likely saw his portfolio decline by at least 6.7%.

Compared with the S&P 500, that's disappointing.

Now, you likely believe that one sector of the market is going to perform extremely well over the next year… And you may be right.

But last year, Klarman got it dead wrong. His top holding is down 55% over the last year. And he's one of the world's best investors.

So look back at your answers to the first two questions… and ask yourself this final one: What happens if I'm wrong?

Make sure you're comfortable with the answer.


Source: DailyWealth Trader

[winston]

Forget a Financial Plan, You Need a Volatility Plan

Experts have long stressed the importance of having a financial plan, but given the current state of the markets, one expert says investors need a volatility plan.

by Scott Gamm

Use the market swings to their advantage and double down on growth-oriented sectors such as information technology, industrials and consumer discretionary.

Prefers large-cap U.S. stocks, since 60% of S&P 500 companies offer dividends that are higher than the benchmark yield on the 10-year U.S. Treasury.

"We are underweight emerging markets," he says.

"That has a lot to do with volatile commodity prices, uneven growth out of China and a rising U.S. dollar in the face of the Federal Reserve raising interest rates."

Source: The Street

https://www.thestreet.com/story/1357661 ... _ven=YAHOO

[winston]

‘Bumpy ride’ ahead for Asian markets? Knowing these 6 things could save you a lot of pain!

Source: The Edge

http://smr.theedgemarkets.com/article/% ... xpkOn.dpuf

[winston]

4 Simple Charts that Make Me Worry About the Market

Plus, four steps you can take to protect your portfolio.

By John Riley



Source: Cornerstone Investment Services

http://www.kiplinger.com/article/invest ... GW24V0g.99

[winston]

Take these 4 vital steps when disaster strikes…

by Mark Ford

Source: Palm Beach Research Group

http://thecrux.com/take-these-4-vital-s ... r-strikes/

[winston]

It's not too late to Brexit-proof your portfolio

by Bryan Borzykowski

Reduce your exposure to European equities and increase your allocation to gold

Investors pulled $11 billion out of the 10 largest European equity ETFs year to date through June 15.

Use put options against individual stock positions

Buy currency-hedged exchange-traded funds — these funds are held in U.S. dollars — such as the WisdomTree Europe Hedged Equity Fund (HEDJ) or the Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU)

Source: CNBC.com

http://www.cnbc.com/2016/06/21/brexit-p ... yptr=yahoo