Risk or Uncertainty:: which are we confronted with now?

Listen to the “risk management” fraternity and they will tell you that they know what they are doing, blah, blah but I can, emphatically tell you that THEY DO NOT!

Here is what, the late, Hunt Taylor (former Hedge Fund Manager) had to say about the markets prior to his death in 2006:

“Let us start with what we know. First, these markets look nothing like anything I’ve ever encountered before. Their stunning complexity, the staggering number of tradable instruments and their interconnectedness, the light-speed at which information moves, the degree to which the movement of one instrument triggers nonlinear reactions along chains of related derivatives, and the requisite level of mathematics necessary to price them speak to the reality that we are now sailing in uncharted waters….

“I’ve had 30-plus years of learning experiences in markets, all of which tell me that technology and telecommunications will not do away with human greed and ignorance. I think we will drive the car faster and faster until something bad happens. And I think it will come, like a comet, from that part of the night sky where we least expect it. This is something old.

“I think shocks will come, but they will be shallower, shorter. They will be harder to predict, because we are not really managing risk anymore. We are managing uncertainty – too many new variables, plus leverage on a scale we have never encountered (something borrowed). And, when the inevitable occurs, the buying opportunities that result will be won by the technologically enabled swift.”

Ubiquity, Complexity Theory, and Sandpiles, How Change Happens Read more of this post

Forget rating agencies: how YOU can determine if a company is “investment-grade”

In the current economic climate it is probably easier to decide not to invest…who, what can you trust in the midst of such uncertainty? But opportunities do exist for those who can establish where NOT to invest.

In many cases, the decision is made by examining a corporation’s financial and balance statements and, of course, its rating. In theory, an investor can look into any public company’s books. In practice this is close to impossible. The rating process is also not excessively transparent. What can a private  investor do? Are there any mechanisms which would safeguard an investor from making an investment into a company that, on the surface looks good but in reality hides a nasty surprise. The answer is affirmative. Today it is possible to get a quick estimate of a company’s resilience by analysing its financials. Now resilience says nothing of how well the company’s stock is doing, or how likely the company is to pay its obligations. What it does tell you is if the company is able to withstand shocks and extreme events (known as Black Swans).

Since shocks and extreme events are becoming more and more common, this seems to be a good idea. Want to read more? Click here

Want to check out our simple on-line process? Click on the image below.

Risk rating on internet