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Trading quickies

April 14th, 2009 at 08:33 am

This entry is going to focus mostly on trading and investing, so please feel free to ignore if you are not interested.

But, if you're still here, I'm going to try to make it as brief and interesting to you, the reader, as possible.

* So, I think everybody is familiar with the Sharpe Ratio, but what if you're only interested in the downside volatility? The gains can be anything for all I care, it's the downside risk that I care about, right? Well, I just learned that there is a modified version called the Sortino Ratio, which calculates for that.

* By the way, ever heard of the Amaranth Gamble? The link will tell you more, but basically, it's one of those hedge funds that didn't use futures to hedge against risk. Rather, it used the same futures to leverage massive bets with little regard for risk.

In other words, no matter how good someone is, no matter how "sophisticated" the trading strategy or the instrument may be, trading with little regard for risk is ultimately a recipe for disaster. It's an important lesson all traders and even investors should take to heart.

* Finally, I don't know how seriously you want to take this, but I thought this is, by far, the most amusing stock pick I've ever seen. Text equivalent articles are available, but the stock picker in the video is what makes it so funny. Check it out!

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