SafeMoneyMetrics™for use with specific alternative investments such as certain
hedge funds and managed derivatives.The investments are normally found in the
portfolios of institutional and wealthy private individuals. SafeMoneyMetrics™
is a consistent direct measurement of capital at risk relative to realized
return and account volatility. The system evolved from hedging and it redefines
procedures currently used to select and evaluate managed derivatives. Jacobson
believes that traditional risk analysis applied to traditional investments, when
used with clear intentions is probably useful. However the clear intentions are rare and they dissipated into a fine mist when the applications were shifted to managed derivatives and hedge funds. Contrary to popular belief those same strategies now actually increase risk of loss!
Marlee-Jo Jacobson founder of Sanctity Capital Management and SafeMoneyMetrics™
is second generation in the futures industry and has over three decades of
experience in the hedge business, as a floor trader and evaluating public
trading advisors. In that time she has noticed astonishing variances in how risk
is traditionally defined and quantified relative to "bottom line truth."
"There are fundamental paradigms of reality currently perceived as "truth" used to determine investment value that may actually cause unwanted losses.
SafeMoneyMetrics™ offers a few solutions that can prevent uninvited misfortune.
We are talking about major issues on a colossal scale, a very serious matter
that needs attention! Consider a few facts and remember that every-on and off
line presentation has the exact inherent problems."
Â·Past rate of return is the foremost element for evaluating investments. A
decision to invest evolves from a statistical and analytical process that
includes past rate of return data.
Â·How past rate of return is calculated has no relevance to the Capital at Risk
used to produce the rate of return. This fundamental error is only one more
CAUSE of poor decisions.For example: Rate of return (ROR) is calculated using
realized and unrealized profit and losses, interest income minus costs and
includes the account size required by the advisor. The capital base, or account
size used to calculate ROR is called "beginning equity." Although advisors vary, many only use anywhere between 3% and 10% of the required account size for trading.Also unrealized profits have no value to a client until they are
realized and interest income is NOT a trading return earned from capital at
Â·Past rate of return data also has no relevance to current reality and
potential future results. We cannot rely on past rates of return to tell us the
capital at risk or potential returns we face in the future. Nor does past rate
of return give us insight into the stamina or mental acumen of our traders! The
full moon has more value and influence! For Example: Past rate of return on a
derivative investment is nothing more than a financial scorecard that measures
human skill successfully applied within a specific situation. The situation that
allowed success partially includes market condition, perceived "trade-setup"
within the market condition relative to an ability to perceive and act
effectively at that specific moment. That particular situation with all detail
is forever gone and will never repeat itself.
Â·Remember ROR on managed derivatives can only be created by exceptional trading
talent applied to a specific market condition nothing more or less. Evaluating
human talent clearly requires different considerations than evaluating stock or
Â·No one owns, nor will they ever own a portfolio of individual commodity
futures as they would own a portfolio of individual stocks and bonds. There is
no relevance to the comparison. Therefore any commodity indexes, especially
indexes of managed derivative investments, used as Benchmarks and applied to
evaluating managed derivatives should be selectively considered.
Â·Contrary to emerging “beliefs” managed derivatives are NOT hedge and DO
require strict risk management supervision.
Â·The infamous Standard Deviation, also calculated using past rate of return
only measures volatility of past return. Volatility is easily manipulated by
account size and is dramatically influenced by unrealized trading returns. Both
account size and unrealized returns have no relationship to capital at risk
relative to realized returns.Also larger accounts usually have less volatility, which is a function of account size NOT trading talent.
Jacobson asks: "How do larger accounts equate with evaluating trading talent?
Who decided that big is good? Sanctity focuses on analysis of variables that are directly meaningful and consistent in current reality. Since we only measure and analyze real risk relative to real return our analysis produces cleaner data and a more accurate look at forces that effect investment returns. Reflect for a moment; returns are only a scorecard we prefer to focus on cause.
Daniel B Stark as a co-founder of SafeMoneyMetrics™ is founder of DB Stark & CO,
one of the industry's oldest data base, consulting and research services in
managed futures. With over two decades of experience in futures, Daniel has
spent the past 13 years researching the derivative investment industry compiling and publishing performance on traders. "Based on all the evidence I’ve seen from Sanctity, I think it’s time to logically consider why alternative investments are used, how they are selected and evaluated and marketed. We may be unknowingly misleading ourselves and possibly the audience we serve."
Kevin Dowd also as a co-founder of SafeMoneyMetrics™ is Professor of Financial
Risk Management at Nottingham, School of Business in England and Author of
"Beyond Value at Risk"’ published by John Wiley. Professor Dowd integrates
proprietary mathematical decision rules into SafeMoneyMetric™ Ratio Analysis at
the trading, correlation, allocation, reallocation, portfolio evaluation and
monitoring stages of asset management. Kevin is also co-founder of
SafePensionMetrics™, a risk management strategy designed to clearly disclose,
quantify and evaluate risks associated with Defined Contribution Pension Plans.
To quote Jacobson "It appears that statistical analysis calculated with
ambiguous information applied to situations that never repeat is imbalanced
human interference we need to eliminate rather than rely on. It is the objective of Sanctity to bring a new paradigm for risk management that uses higher standards. Our work can prevent substantial losses for a generation of financial professionals and investors." Sanctity is located in New York City. The team offers risk management consulting integrating SafeMoneyMetrics™ into any derivative system and business development services. SafeMoneyMetrics™ has value that also extends to trading advisors. Multiple applications are adaptable to most situations involving managed derivatives or direct trading.
People can access graphic representation, service profile and download an
application guide called Standards for Advisor Evaluation from the bottom of the SafeMoneyMetrics™ web page.