Can Ill-Fated Losses in Managed Futures Really Be Prevented?
How to define superior managed futures investments and prevent ill-fated losses. Developed by prominent industry professionals, SafeMoneyMetrics allows the unsurpassed potential of managed futures to be optimized.
(PRWEB) June 9, 2004
SafeMoneyMetrics™ (SMM), a risk and asset management strategy claims to prevent ill-fated losses inherent in many managed futures investments. But is the claim true? SMM™ was developed for managed futures and option investments, normally found in the portfolios of institutions, wealthy private individuals, and hedge funds. SafeMoneyMetrics™ is a consistent direct measurement of actual capital at risk relative to, leverage used, volatility, realized return and cost. SMM always analyzes the promises of past performance relative to current market conditions. Nothing else matters!
The system evolved from hedging and redefines procedures currently used to select, integrate and evaluate managed futures and other high leveraged investments. Jacobson believes that traditional investment analysis, when applied with clear intentions is quite useful. However, clear intentions are rare and they dissipated into a fine mist when the applications were shifted to managed futures and hedge funds. Contrary to popular belief those same strategies can actually increase risk of loss!
Marlee-Jo Jacobson founder of Sanctity Capital Management, SafeMoneyMetrics™ and Always SafeMoney is second generation in the futures industry. She has over three decades of experience that include, designing hedge strategies, managing capital, floor trading and evaluating public trading advisors. During that time she has noticed astonishing variances in how risk is traditionally defined and quantified relative to “bottom line truth.” “There are fundamental paradigms of reality currently ‘believed’ as ‘truth’ used to determine investment value that may actually cause unwanted losses. SafeMoneyMetrics™ offers a few solutions that can prevent uninvited misfortune. We are talking about major issues on a colossal scale, a very serious matter that needs attention! We can build reality on belief, however truth will reveal itself, causing losses in the reality built on inaccurate beliefs. If we build reality aligned with Universal laws (eternal truth), we manage risk at a causal level. Losses cease to exist, when we eliminate their cause.
Consider a few facts and remember that every on and off line presentation has the exact inherent problems.
· Past rate of return is the foremost element for evaluating investments. A decision to invest evolves from a statistical and analytical process that includes past rate of return data.
· How past rate of return is calculated has no relevance to the Capital at Risk used to produce the rate of return. This fundamental error is only one more CAUSE of poor decisions. For example: Rate of return (ROR) is calculated using realized and unrealized profit and losses, interest income minus costs and the “nominal account size”. The nominal account size is defined as “the account size agreed to by the client that establishes the level of trading in that program.” With all due respect, how do performance calculations based on a nominal account size facilitate prudent evaluation of trading talent? Although advisors vary, many only use anywhere between 3% and 10% of the advisors required account size for trading. Also unrealized profits have no value to a client until they are realized and interest income is NOT a trading return earned from capital at risk.
· Past rate of return data also has no relevance to current reality and potential future results. We cannot rely on past rates of return to inform us of capital at risk and future returns. Nor does past rate of return offer insight into the stamina or mental acumen of our traders! The full moon has more value and influence! For Example: Past rate of return on a managed account is nothing more than a financial scorecard that measures human skill successfully applied within a specific situation. The situation that allowed success partially includes market condition, perceived "trade-setup" within the market condition relative to an ability to perceive and act effectively at that specific moment. That particular situation with all detail is forever gone and will never repeat itself.
· Exceptional trading talent applied to a specific time and market condition, nothing more or less, creates the rate of return for managed futures. Evaluating human talent clearly requires different considerations than evaluating stock or bond returns.
· No one owns, nor will they ever own a portfolio of individual commodity futures as they would own a portfolio of individual stocks and bonds. There is no relevance to the comparison. Therefore commodity indexes, especially indexes of managed futures investments, used as Benchmarks, when applied to evaluating any managed futures investment should be selectively considered.
· Contrary to emerging “beliefs” managed futures are NOT a hedge and DO require strict risk management supervision.
· The infamous Standard Deviation, also calculated using past rate of return only measures volatility of past return. Volatility is easily manipulated by account size and is dramatically influenced by unrealized trading returns. Both account size and unrealized returns have no relationship to capital at risk relative to realized returns. Also larger accounts usually have less volatility, which is a function of account size NOT trading talent.
Jacobson asks: “How do larger accounts equate with evaluating trading talent? Who decided that big is good? We focus on the analysis of variables that are directly meaningful and consistent in current reality. Since we only measure and analyze real risk relative to real return the analysis produces cleaner data and a more accurate look at forces that effect investment returns. Reflect for a moment; returns are only the scorecard we prefer to focus on cause.
Daniel B Stark founder of DB Stark & CO is one of the industry's oldest database, consulting and research services in managed futures. With over two decades of experience in futures, Daniel has spent the past 20 years researching the managed futures investment industry compiling and publishing performance on traders. “Based on all the evidence I’ve seen from Sanctity/SafeMoneyMetrics, I think its time to logically consider why alternative investments are used, how they are selected, evaluated and marketed. We may be unknowingly misleading ourselves and possibly the audience we serve.”
To quote Jacobson “It appears that statistical analysis calculated with ambiguous information applied to situations that never repeat is imbalanced human interference we need to eliminate rather than rely on. We intend to infiltrate the marketplace with a new paradigm for risk management that uses higher standards. Our work can prevent substantial losses for a generation of financial professionals and investors.” Sanctity/SafeMoneyMetrics is located in New York City.
The team offers risk and investment management, advisor analysis, research and educational articles integrating SafeMoneyMetrics™. They build limited risk investments for private investors and hedge funds. They build profit centers for national and international institutions and financial service professionals.
People can download Advisor Analysis descriptions and a Client Risk Management Model at http://www. safemoneymetrics. com/analysis/analysis. htm (http://www. safemoneymetrics. com/analysis/analysis. htm). A free guide called Standards for Advisor Evaluation written by Jacobson, Stark, and Professor Kevin Dowd, author of Beyond Value at Risk is also available at each web site.
Always SafeMoney http://www. alwaysafemoneymetrics. com/freemini. htm (http://www. alwaysafemoneymetrics. com/freemini. htm) offers Mini Managed Futures Courses for Investors, Advisors and for Business Development. The Always SafeMoney Affiliate Program was created to disseminate SafeMoneyMetrics™ to the marketplace. Service and revenue tables are available at the site. There are no registration requirements.
