DeepState
Multi-Strategy, Quant and Fundamental
- Joined
- 30 March 2014
- Posts
- 1,615
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- 81
Thanks.
Your comment made me wonder why such strategies should necessarily require higher conviction than any other strategy. To me, it's just another source of premium, like the kind of return you might expect for risk bearing in equities (without any particular alpha insight). If there is a return to it, it is fair game to me, with the main consideration thereafter being risk management within the context of a wider portfolio. Liquidity isn't an issue for DM currencies even in the billions of notional exposure. No-one is going to notice anything when I do my two cents of movement.
You'd need a lot of conviction to hold a lot of this at risk, for sure. But, in the 'appropriate' weight, why should it require any more conviction to do this than buy-hold equities? Certainly, my conviction in carry/momentum is somewhat less than for equity risk premium and position sizes reflect it in terms of risk exposure. I have more conviction in this than getting a decent return from duration, for example. To give you some feel for this, a 2std devn move on an annual basis represents +/- 0.5% of total assets at present. Just another tiny piece in the puzzle requiring little maintenance. No killer if we encounter a 6std devn event... Four currency pairs are currently in place, the major positions being updated with stops each couple of days, reviewed every couple of weeks by algo. That's the plan anyway.
Then I moved on....why is it that some positions are more comfortable to hold when things move against you? Perhaps it occurs when you have some sort of conviction around an underlying valuation. You can get this if this concept is used in equities or certain other assets. Carry/Momentum has no such grounding. If things move against you, they just move against you. There is no reason why the concept just became an even greater bargain. Is this why you feel that this kind of position requires higher conviction, or is otherwise less comfortable, when things move against you?
On the upside, the more I lose, the more agile I become....erghhhh.
PS. Any comments I have made about my portfolio size are deliberately vague. Whether I have 6 or 10 figures in assets (with or without decimal points) remains open. In a Greenspan like comment, if you think you know what I have in assets, you have misunderstood what I was saying.