5 Points on Risk Spectrum a Pendulum

1.When the world is extremely bearish and you can buy most things indiscriminately for a sizable gain. At these times, your friends call you a lunatic / maniac and are one of the few buyers out there (November 2008 is the prime example)

2.When the world is bearish, there are more buyers, and risk assets will still produce a better than commiserate return for the risk underwritten

3.When markets are fairly valued and the bulls and bears are equally on the side of the fence. At this point, investors are taking return for the exact amount of risk

4.When markets and the world are bullish, assets are becoming fully valued, and really the best strategy to employ here are event driven ones like merger arbitrage or liquidations (LBHI) that remove market risk from the equation. Here you start to see short squeezes

5.When markets are fully valued, everyone is a buyers (except for you hopefully), and you are playing with fire by buying any risk asset


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: