29-11-2014, 11:19 AM
http://trendfollowing.com/whitepaper/JM_...sk_611.pdf
A Value Investor’s Perspective on Tail Risk Protection:
An Ode to the Joy of Cash
James Montier
///////////////
Conclusions
Tail risk protection appears to be one of many investment fads du jour. All too often those seeking tail risk protection
appear to be motivated by the fear of missing out (not fear at all, but greed). However, the surge of tail risk products
may well not be the hoped-for panacea. Indeed, they may even contain the seeds of their own destruction (something
we often encounter in finance – witness portfolio insurance, etc). If the price of tail risk insurance is driven up too
high, it simply won’t benefit its purchasers.
When considering tail risk protection, investors must start by defining the tail risk they are seeking to protect
themselves against. This sounds obvious, but often seems to get scant attention in the tail risk discussion. Once you
have identified the risk, you can start to think about how you would like to protect yourself against that risk. In many
situations, cash is a severely under appreciated tail risk hedge. The hardest element of tail risk protection is likely to
be timing. It is clear that a permanent allocation is likely to do more harm than good in many situations.
When it comes to timing tail risk protection, a long-term value-based approach and an emphasis on absolute standards
of value, coupled with a broad mandate (a wide opportunity set, or, investment flexibility, if you prefer) seems to offer
the best hope.
Disclaimer: The views expressed herein are those of James Montier and are subject to change at any time based on market and other conditions. This is not an
offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
Copyright © 2011 by GMO LLC. All rights reserved.
Mr.
NB:-
Very "cheem" for me. Anyone like to say it as simple as possible? For people like me (Bo Tak Chet one).
Shalom.
A Value Investor’s Perspective on Tail Risk Protection:
An Ode to the Joy of Cash
James Montier
///////////////
Conclusions
Tail risk protection appears to be one of many investment fads du jour. All too often those seeking tail risk protection
appear to be motivated by the fear of missing out (not fear at all, but greed). However, the surge of tail risk products
may well not be the hoped-for panacea. Indeed, they may even contain the seeds of their own destruction (something
we often encounter in finance – witness portfolio insurance, etc). If the price of tail risk insurance is driven up too
high, it simply won’t benefit its purchasers.
When considering tail risk protection, investors must start by defining the tail risk they are seeking to protect
themselves against. This sounds obvious, but often seems to get scant attention in the tail risk discussion. Once you
have identified the risk, you can start to think about how you would like to protect yourself against that risk. In many
situations, cash is a severely under appreciated tail risk hedge. The hardest element of tail risk protection is likely to
be timing. It is clear that a permanent allocation is likely to do more harm than good in many situations.
When it comes to timing tail risk protection, a long-term value-based approach and an emphasis on absolute standards
of value, coupled with a broad mandate (a wide opportunity set, or, investment flexibility, if you prefer) seems to offer
the best hope.
Disclaimer: The views expressed herein are those of James Montier and are subject to change at any time based on market and other conditions. This is not an
offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
Copyright © 2011 by GMO LLC. All rights reserved.
Mr.
NB:-
Very "cheem" for me. Anyone like to say it as simple as possible? For people like me (Bo Tak Chet one).
Shalom.