November 7, 2017

Risk in investments is always there

The markets are trending higher and making new all time highs. Investors are cheering the bull market in stocks and seeming to forget the downside risks. Doug Kass writes on the dangers of the crowded trades,

"Risk is an ever-present condition that cannot be eliminated, though it can be shifted through time and redistributed in form. 
In today's market many believe that they have achieved protection over risk, but they actually are becoming its servant. And when investors and quant strategies such as risk parity and volatility trending are all increasingly on the same side of the volatility boat, the odds favor that the boat likely will tip over. 
Black Monday -- Oct. 19, 1987 -- came out of nowhere. The Indices were in a bull market and many saw no reason for a decline. At that time, the markets lost more than 20% of its value as volatility advanced to an all-time high of 150 based on the VXO index, which preceded the VIX index. It was caused by a broad adoption of portfolio insurance and represented the first modern-era crash that was driven by machine feedback loops. It won't be the last."

via realclearmarkets