I am not an investor*. I am a trader. But if I were an investor, I thoroughly agree with the main point of this poster's thesis, protecting ones portfolio from market risk with shorting.
MG
Z-alpha Trading System
Today, 10:03 AM
Our 100% focus is on mitigating market risk drawdown, mainly because the upside mostly takes care of itself if the portfolio constituents are quality.
There is market risk and portfolio risk, and they are entirely different. The biggest disrupter in any investment portfolio comes from the "market" exposure risk, without doubt, if one assumes the portfolio constituents are quality.
We've also removed the portfolio risk factor from the equation. By our metrics, portfolio diversification shuffling has little benefit in controlling the specific market risk.
We've done intensive studies in-house over many complete market cycles and have found that diversification, in effect, decreased portfolio performance by a few standards in our investment process.
Importantly, we have nothing against portfolio diversification - it's simply not how we manage market volatility. With machine-driven transactions accounting for approximately 90% of the daily volume of the S&P 500®, this reality has caused the term structure order flow to be negative/neutral for about 47% of the 252 trading days each year.
We have the 53% upside days in the bag with the no-work required portfolio constituents, and for this, the 47% downside days are our primary focus and the battleground where we compete.
Massive alpha resides in that 47%. The most easily identifiable patterns occur within this 47%, without any exceptions. It is crucial to prioritize capital preservation protocols in every investment process. By tapping into a portion of that 47%, your Compound Annual Growth Rate (CAGR) can experience a substantial boost from a mathematical standpoint. Unfortunately, regulatory restrictions prevent us from elaborating further on this matter.
By effectively managing market exposure risk during extreme situations and acknowledging that negative beta can be an acceptable level of risk, you will experience a peaceful sleep akin to that of a contented infant.
Best of trades.
*Unless I become a bagholder from trading, lol.
