risk--- now a bad word??

[marketsurfer]

this was inspired by the conversation on the niederhoffer thread:


since when has RISK become a bad word for traders/speculators? i can see the "nanny/big brother be safe" cultural meme has infected all segments of the population, even the supposed entrepreneur/risk taking class--whom i thought made up the majority of participants on elite.

what seems to missing in this discussion is that risk is required to make outsized returns. yes, a manager can plod along making average/above average returns for years and years with what is considered a good sharpe. however, if you want this--buy a mutual fund--its safer.

most people invest with hedge funds to achieve outsized returns and accept the risks involved. remember, we are dealing with high net worth individuals/institutions who allocate their substantial capital across a spectrum of managers/risk profiles--- these investors understand that without risk there can be no great reward. there is no free lunch.

surfer

 

[2cents]

absolutely correct... however i wld bet VN must be going thru quite a bit of mental pain after this 28% DD in may... it's not that he can't make it back, but unless i am mistaken it's hard to justify to oneself that all of it was necessary / unavoidable... even if it was... and in VN's situation it's even tougher because of the baggage... but hey, true, one bad DD once upon a time is not the end of the world, what matters is how he gets himself out of it, let's wait & see

 

[ElectricSavant]

I have a question.


Which is better?


25% per year with a 12% DD


or...


50% per year with a 24% DD


Could one also ask....Could you use higher leverage or shorter targets with one or the other? Does the charactaristics of the system merely require a professional trader to evaluate and make sense of it all? No two systems are the same. So thus is there a correct way to view risk?

 

[MrsSavant]

I would like to make the green as long as I do not get a margin call!

Wifey

 

[ElectricSavant]

yeah right....I will ask you this same question when your are at 50:1 and lost your cornering ability in the arb and it gets away from you....THEN you have lost control and the word HOPE becomes very meaningful and very miserable days to follow ahead, indeed...


LEARN TO TAKE YOUR LOSSES

 

[scalper21]

Quote from 2cents:

absolutely correct... however i wld bet VN must be going thru quite a bit of mental pain after this 28% DD in may...

He has a Doc from University of Chicago. I do not.
He has millions. I do not.
He has a big vocabulary. I do not.
He still is a gun slinger!!! I am not!!!

Remember what strategy destroyed his account in 1997. He sold naked puts on S&P 500 futures. What position made money in the last three years, but got crushed in May? Naked put sellers!!!

 

[TSGannGalt]

Quote from marketsurfer:

this was inspired by the conversation on the niederhoffer thread:


since when has RISK become a bad word for traders/speculators? i can see the "nanny/big brother be safe" cultural meme has infected all segments of the population, even the supposed entrepreneur/risk taking class--whom i thought made up the majority of participants on elite.

what seems to missing in this discussion is that risk is required to make outsized returns. yes, a manager can plod along making average/above average returns for years and years with what is considered a good sharpe. however, if you want this--buy a mutual fund--its safer.

most people invest with hedge funds to achieve outsized returns and accept the risks involved. remember, we are dealing with high net worth individuals/institutions who allocate their substantial capital across a spectrum of managers/risk profiles--- these investors understand that without risk there can be no great reward. there is no free lunch.

surfer

Simple. Not many people can't control risk, so mind as well not deal with it.

I wouldn't touch a nuclear reactor. I don't know how to operate it.

Dumb thread with dumb replies.

 

[marketsurfer]

Quote from Reckoner:

Risk is all relative. What would any of us do faced with a 1987 style crash in which there are no bids? Stop losses don't even get filled in that kind of situation.

The safest way to trade is totally unleveraged with money you can well afford to lose. But you don't get rich that way.

The big question in all of this is how close to the wind can one afford to sail? Everyone has there own idea about this, but lower risk means lower profits.

Anyone want to talk about profits? Seems that there's not much interest in profits round here.
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<i> surfers response</i>

excellent post.

the retail trading community has been trained not to embrace risk but rather avoid it to preserve their capital while enriching the market infrastructure at the same time. allow me to explain-- frequent trading which results from tight fixed stops increases the brokers bottom line, not the traders while giving the illusion of preservation of capital. its a slow grind down for many who follow the supposed wisdom in trading books/courses--no they will not blow up, but niether will they make enough to make it worth the effort. managing risk does not mean cutting your losses at all times, but rather managing the inevitable losses based on your market analysis. taking risk is the only way to succeed in the trading game. if you avoid losses at all costs, why not just get a job??

surfer

 

[Thunderdog]

I think that risk is something to be managed and minimized, rather than glamorized and aggrandized. But, hey, whatever turns your crank.

I think that the people who glorify those who have taken incredible risks to succeed are falling prey to the so-called survivorship bias. The traders I most admire are the ones who have achieved high returns relative to risk rather than merely the highest returns. They may not be the richest guys in the trading world, but they are the most stable. They're more likely to be there tomorrow. And that's what I want -- to be there tomorrow. I'll leave the roller coaster rides to the adrenaline junkies. That's just a personal choice. I think the best traders are risk averse. Those who look for risk probably find more than they bargained for.

 

[horribilicus]

Quote from marketsurfer:

Risk is all relative. What would any of us do faced with a 1987 style crash in which there are no bids? Stop losses don't even get filled in that kind of situation.

The safest way to trade is totally unleveraged with money you can well afford to lose. But you don't get rich that way.

What baloney. To quote a recent poll, what moronic baloney. The safest way to trade (from the standpoint of minimizing 1987 style crash risk) is to buy options or option spreads. Just make sure you are "long the wings" as Charles M. Cottle says and your risk will be strictly limited. Guaranteed limited risk. The S&P could gap down to ZERO and you wouldn't be hurt badly. You could invite Victor Niederhoffer to (verb) your (noun) as blood flowed in the streets.