Tag: portfolio management

Einstein’s rating agency: easy and clear for everyone

Recently we revied the performance of Einstein, a German trader who managed (without a leverage) to make almost 2000% in less than three years. LetYourMoneyGrow.com translates his investment grades in layman's terms:

  1. Tenbagger - the stock will grow ten times within 3 years.
  2. Doubler - the stock will grow twice with a year
  3. Outperformer - the stock will be better than peer group by factor 2
  4. Money - one may but not necessarily need to buy the stock
  5. No-hoper - one will neither lose nor earn money with this stock
  6. Pinocchio - the board does not get along with the truth
  7. Brief - one may but not necessarily need to sell the stock short
  8. Short - one can earn money if sells this stock short
  9. Snot - avoid buying this stock, do sell it short!
  10. Snot to the power of 10 - target zero, total loss, blacklist and megashort!

The Maximum Drawdown succinctly explained in 3 minutes

The maximum drawdown (MDD) is likely the most important measure of risk in practice. We explain how to calculate it and why you should keep it under control.  Remember, if the MMD reaches -50% the portfolio have to grow +100% in order just to compensate the previous loss!


  Continue reading "The Maximum Drawdown succinctly explained in 3 minutes"

The power of diversification and its limits by the example of DAX

Summary

  • Sometimes (esp. to fool inexperienced retail investors) the diversification is claimed to be a silver bullet (even in a financial crisis).  I show that in crises the diversification effect weakens significantly but still persists (esp. for "defensive" stocks).
  • I argue that in a normal (non-turbulent) market the diversification is very helpful in theory but also critically consider its applicability in practice.
  • The results that we obtained for the DAX / German stock market should be extrapolated with caution for other markets. You will also see why it is better to watch and know the market (rather than to blindly rely on quantitative analysis and common sense).

Continue reading "The power of diversification and its limits by the example of DAX"