You were doing ok until this on straddles. "In fact it is so good that it produced around 80%+ winning ratio for use, with very low risk (losses rarely exceed 10-15%)." Prove it.
Are you rich then, Kim Klaiman, from compounding 15% every month, I can't imagine a trader making a relatively consistent 15% every month, Kim Klaiman, would bother with trying to sell something or hiring investors. You'll be doing very well on your own in no time. I average 15% every single day, Kim Klaiman, on my paper trading account. I've grown it into an astronomical amount. Simple directional option plays on the SPY/SPX. Good luck, and Mazal tov, and May the Farce be With You, 2018....All the best,...May you All be Super-Traders, I'm always in the mood for Starbucks and Sweet and Sour Beef.
Thank you for your coaching. You are a professional manager managing OPM, have a trading service and making money hand over fist. I am an amateur mom and pop retail trading my own funds (since 2000, full time since 2010). Your view is consistent with all academic and professional logic so arguing with you is David vs Goliath. But here is my difficulty with professional logic: If you do a 20-30 yrs running window analysis, RUT beat SPY more time than not so risk adjusted return among asset classes breaks down when long time frame is factored in . If I have a long time horizon, I can ignore Sharpe and go for riskier instruments with the odds in my favor to get a superior return. Same logic for trading. And you professionals will say but sometime in the future my riskier bets will come back and bite. To which I say yes it is all probabilistic but also path dependent, based on my current path the probability is stacking in my favor. Maybe I am just lucky? I do have another question for you: Does Sharpe or other risk adjusted returns takes into account black swans type events? Regards,
@ironchef You can ask the same question about stocks and bonds. In the long term, stocks beat bonds - so why most experts still recommend to have some bonds in your portfolio (various percentages, depending on your age and risk tolerance)? The answer is the same - mix of stocks and bonds provides better risk adjusted returns than just stocks. And there is also a physiological factor that most people ignore. While most people say they can handle a 40-50% drawdown in their portfolios, in reality most cannot do it. They would sell at the worst possible time. Recent study by DALBAR shows that investors consistently underperform the broad markets by significant margins. For the 30 years ending 12/31/2013 the S&P 500 Index averaged 11.11% a year. A pretty attractive historical return. The average equity fund investor earned a market return of only 3.69%. You can read more here - Why Retail Investors Lose Money In The Stock Market So when you are using a strategy that significantly reduces drawdowns, you also remove the physiological factor from the equation. There is a less chance that you will let emotions dictate your investment decisions. Should You Care About The Sharpe Ratio? explains why sharpe ratio is probably the most important measure of performance. As a side note, I don't manage money. I'm trading my own account and teach people how to trade, but don't manage their money directly.
As Mr. Buffett said in his recent letter to shareholders: Long term, bonds are more risky than equities and long term investors should not hold bonds. Perhaps the problem is you professionals and academics don't know how to measure risk and get it all wrong about risk adjusted returns?
I'm an entrepreneur so I love thinking about things just a little bit differently than the "I've been doing this for 20 years" types I compete against. So take off that narrow experience hat and open your mind for a minute. If a flood comes through and destroys a bunch of cars, guess who is going to be selling a bunch of cars once the insurance claims pay out? On a slightly less direct path, if there's a wheat crop failure and the crop insurance has to pay out, guess what also happens to the price of wheat? The point is that every disaster has someone who benefits monetarily from that disaster. So it's not a zero sum game once you move outside the Excel spreadsheet and into the real world. The real world is messy, you can't just sign a nice clean reinsurance policy with a car manufacturer, but it's not outside the realm of reason that a smart motivated entrepreneur could develop a product that helped lay off the risk from the final reinsurer.
I was in insurance 20 years ago for brief time, hated it so decided to do something else. Because I'm a very little part of this universe, I admit openly there must be things I have no idea about. Hence I said I'm open to hear from you specific examples. If you're not aware of any such solutions then what are we talking about? I'm not sure you understand how insurance works. You can only pool the risks (aka diversify), you can't "lay off" (in hedge sense) risk. It doesn't matter what product someone offers, it can only transfer that risk on someone else. I agree with you that this is not a zero sum game in the real world. But having said that, this is exactly why your further reasoning is flawed. If everything in life was a zero sum game, then there could be (theoretically) a way to hedge some risks. Since property/life gets destroyed permanently, at least parts of it, it is not a zero sum game, and you can not "hedge" that part of risk, only transfer it. As a logical consequence of the above, notice that when (thanks to the mother nature, bad luck, act of God, Murphy law or whatever you want to call it) number of claims raises significantly then ALL insured need to pay higher premiums (then need to "chip in" more to the risk pool) regardless of the fact who was recently affected. The examples you made (i.e. about flooded vehicles), yes you can extract some value from them (and it will be reflected in insurance company balance sheet) but regardless, some amount of materials and workmanship (or life, in the worst case) get's destroyed permanently and that's part of the equation that could never be "hedged" and has to be paid out from the premiums collected from ALL insured. Think about for a minute: you could be paying insurance premiums all your life and never had any claims. What does that mean to you? Do you feel robbed of all that money? Do you think that 100% of your paid premiums are 100% profit to ins company?