SI64: The difference between Warehousing vs Recognising Risk

This week, we discuss the differences between recognising risk and ‘warehousing’ risk, why Fundamental Investors could benefit from implementing Trend Following rules, Diversification as the most important component of risk management, what Traders can learn from Weightlifters, and the delicate balancing act between simple, simplicity, & complexity. Questions we answer this week include: Is Systematic Investing a form of betting? How do you define a Trend? Should you scale into positions?

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Episode TimeStamps:

00:00 – Intro

01:11 – Origins of Black Friday

02:43 – Weekly review of performance

11:45 – Top tweets

40:52 – Questions 1/2: Michael; Can the number of trades a system signals, give insight as to how well optimized the system is? Is there a guideline for the number of trades a system should be signalling, for each chosen timeframe (such as Daily/Weekly)?

45:34 – Question 3: Richard; Comment- ‘No deterioration in the overall compound growth-rate of long-term Diversified Systematic Funds, post-2000.’

46:53 – Questions 4/5: Bing; Why don’t we risk more per trade? Is trader psychology the main reason for the importance placed on position sizing?

53:21 – Question 6: Jacob; Can you give examples of strategies that ‘warehouse’ risk?

56:41 – Question 7: Nathan; How do we define the parameters of a Trend?

01:01:37 – Question 8: Chad; Do you scale into a position, or go straight to the chosen max risk of equity per security?

01:05:51 – Questions 9/10: Chris; What should I do with surplus cash once my system reaches its maximum number of positions allowed to be traded simultaneously? Has the average margin requirements for Bitcoin changed?

01:11:00 – Benchmark performance update

01:24:44 – Final thoughts; Is it becoming harder to be a discretionary macro trader?

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