18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
23,329 Blog Posts

Control Your Beta

As a manager of your own money, it’s supremely important to assess the amount of risk you’re assuming with your holdings. For some of the more seasoned investors, we know just by glancing at the ticker symbols if XYZ is volatile or not. But for most, the unwashed masses, having a portfolio filled with all of the trending stocks is risk free, up until the inflection point of when those securities fall out of favor and collapse.

A little pro tip for you morons out there.

Affix a “beta” metric to your portfolios to see how insane you are and what level of drawdowns you’ll be subjected to during the next leg lower.

Inside Stocklabs, I create lists and indices to assess risk and keep on top of the tape, without having to dig too deep. These points of reference provide me with information that I use intuitively to base near term investment decisions off from. For example, this morning I had mentioned the High Beta Index was off by 3.6%. That single data point kept me long and provided me with the impetus to buy more. Because of it, I am 100% long and with this little rally going I’ve managed to reverse an earlier loss of 70bps to +25bps.

Look at the chasm between the high and low beta today. While it might be temping to dip buy into the high beta for the glory, the fact of the matter is — money is flowing into much larger and secure areas of the market. Even so, my portfolio now has a beta of 1.26. Into the close on Friday it was around 1.9x, something I was very eager to correct at the open of trade today.

The number one rule in trading is “never blow up” or take the proceeds of a divorce settlement and risk prison time with a YOLO option trade, short dated. Alas, I cannot force you mules to drink the water, in spite of the obvious fact that I have provided you all a reservoir of healthy clean water to consume.

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