This week’s newsletter is up, and this time we’re reminded that important lessons can be gleaned not just from those that do well â€“ but also those who failed. After all, as the original America’s sweetheart Mary Pickford once said, “What we call failure is not the falling down, but the staying down.” Then there’s an old saying about return OF your capital than return ON your capital, so in the dangerous quest to mince quotable wisdom, the investing goal becomes ensuring that a failure â€“ like a “blow-up” â€“ doesn’t knock you down for good, and avoiding their occurrence in the future. Sounds easy enough, right?
The problem is that these words are more easily spliced than acted upon. You’re simply left with too many questions â€“ how does a “blow up” happen? How often? Dighton Capital famously “blew up” last year on an ill-fated Swiss Franc countertrend trade, and before that some option sellers went belly up in the first whiffs of increased volatility in 2007 and then full blown volatility spike in 2008. But as public and damning as these were, they were just a blip on the managed futures radar, and not indicative of the asset class as a whole (indeed some would argue that those didn’t really offer managed futures exposure, with option sellers having a short volatility profile, but that’s a debate for another day).
But this raised the question â€“ is there a pattern to blow-ups we can learn so that we can better avoid them, or even avoid some percentage of them in the future? We decided to go grave digging in our database of CTA results to find out. What did we find? You’ll have to click through to find out.
Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The entries on this blog are intended to further subscribers understanding, education, and â€“ at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts.
The mention of asset class performance is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.) , and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices: such as survivorship and self reporting biases, and instant history.
Managed Futures Disclaimer:
Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.