Michael Covel: News & Info.

From Gibbons Burke comes an oldie, but goodie about money management.

This article and excerpt caught my eye

“The [mutual fund] industry sets targets that are far too high and then says, ‘Gee let us help you hit that target — put your money in stocks,’” he says. “It is true that the probability of making your target will go up, but the probability of having a really bad outcome — like losing your principal — will also go up, and so will the fees charged for management.”

Its never about just putting your money in any asset “long only”. Once you decide on the asset class you need a plan for buying and selling before you ever lay one dollar on the table at risk.

An excerpt I like from this article:

“When I need investing inspiration, I turn to “The Great One” — but I don’t mean Warren Buffett, Peter Lynch, or Benjamin Graham. And I definitely don’t mean Jim Cramer. You’ve probably heard The Great One’s name dozens of times, but you may not know just how wise he is. Nonetheless, he’s said some very smart things. For instance … “You miss 100% of the shots you never take” That’s but one of the many pearls of wisdom The Great One has dropped over the years. And while it might seem obvious, or even trite, it’s a truth we often take for granted. Just think of the person you never asked to the dance, or the job you never applied for, or the novel you never finished … or the stock you never purchased. It happens to all of us. We get nervous, or doubtful, or busy, or … you name it. And that might end up costing us the person of our dreams, or the job we’ve always wanted, or our only shot at fame. But in the case of investing, it will definitely cost us a fortune.”

Opps!

An excerpt from an interview with Paul Tudor Jones II by Joel Ramin:

Q: How would you describe your general investment philosophy?

Paul Tudor Jones: I think I am the single most conservative investor on earth in the sense that I absolutely hate losing money. My grandfather told me at a very early age that you are only worth what you can write a check for tomorrow, so the concept of having my net worth tied up in a stock a la Bill Gates, though God almighty it would be a great problem to have, it would be something that’s just anathema to me and that’s one reason that I’ve always liked the futures market so much, because you can generally get liquid and be in cash in literally the space of a few minutes. So that always appealed to me because I could always be liquid very quickly if I wanted to. I’d say that my investment philosophy is that I don’t take a lot of risk, I look for opportunities with tremendously skewed reward-risk opportunities. Don’t ever let them get into your pocket - that means there’s no reason to leverage substantially. There’s no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities.

In the last few days I conducted on-camera interviews with both Larry Hite and Eric Bolling. Very different in their trading, but philosophically, they both beat home the big point: cut your losses and you have a chance. That reminder never gets old.

A great analysis about the game of governmental regulation over top investors. An excerpt:

“Why stop with hedge funds?” asked Kenneth A. Gruber, a professor of biological sciences at California State Polytechnic University at Pomona, Calif. He said if the SEC wants to be paternalistic it should look to protect investors from other risky investments, such as penny stocks. “Does any sophisticated investor [or the SEC] believe that penny stocks are a safer investment than hedge funds? I submit it is easier to lose one’s shirt on penny stock investments than in hedge funds. Where will it end?”

Ed Seykota gave an insightful explanation on risk management recently on his site:

Risk is a combination of the possibility of a loss and the magnitude of the loss. We register risk in our bodies as a feeling of fear. One way to manage various forms of risk, including prospective risk, initial risk, open risk, and unconscious risk it to make sure your feeling of fear is an ally, fully functioning on your emotional instrument panel. In our medicinal culture, some people attempt to medicate fear, rather than manage risk…In general, people with willingness to experience fear and other feelings are better risk managers than those who have fear in k-nots or fear under the influence of narcotics.

A good quote from Larry Hite:

“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future, when the odds will be running against you. You can also lose a good bet, no matter how sound the underlying proposition, but if you keep placing good bets, over time, the law of averages will be working for you.”

A whitepaper (PDF) titled “Does a Change in Risk Regime Spell Trouble for Hedge Funds?”