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Narrated by Christopher Cole . So, when I go too far to the left, you bring me back, when I go too far to the right, you bring me back and you’re helping me get home even though I’m a stumbling drunk. He literally meditates on risk, so we’re gonna learn a little bit about his meditations and the result of those meditations which is these widely read, brilliant abstract pieces on investing and the stock market. It became a major part of the ecosystem in VIX to the point where actually it was imposing a self-reflexivity on the futures and the VIX itself. Mr. Kaastrup-Larsen is the founder and host of the world’s leading podcast within the Quant & CTA community, www.toptradersunplugged.com as well as the host of CME Group’s podcast on Managed Futures. As time has evolved, we’ve been applying new strategies that use data science in many ways to have a predictive edge. It will be a lot of fun. So, in that sense, we have to imagine ourselves as fish swimming in water, and real volatility is not necessarily a, the true volatility is a situation not where there is turbulence in, or waves, that’s one form of volatility. These would be things like breakdowns in FX and carry trades. – Let me just go back a little bit to the analogy of the drunk and the explosion in passive investing. You can find out more about Tobias’ podcast here – The Acquirers Podcast. – It sort of begs the question a little bit, what do you see right now at mid- to late February 2019? Taking risks and taking risk premium is not a bad thing. So, systematically applying risk in a non-thoughtful way, you take a good idea and you turn something into something very, very dangerous. Would that be interesting to you? Also, the same thing happens on the other tail. So, I want you to imagine that, imagine that you’re in Michigan, you’re hanging out, it’s August, September, the temperature drops from 90 all the way down to 60 degrees, and then you run around screaming to everyone, oh my goodness, it’s 60 degrees out! The past investing situation is something that’s really interesting topic to talk about as well but we can get into that a little bit later or, I didn’t mean to interrupt your question. Narrated by Christopher Cole.

You had people who, fund managers who had been in business trading futures and options for 25 years who say they couldn’t believe how bad the liquidity got in what was a relatively small move in markets. – and I had written publicly about a lot. Volatility is not fear.

Well, maybe she says no, thank you. But I think, everyone talks about passive investing as market efficiency, and this goes to what you’re talking about with the Russell and also with the market capitalization-weighted, what it actually is is a form of momentum investing. So, what is water in this context? Click here for more information on this video. In the lead-up to their crash in 2015 was a period of extreme right-tail vol. You have, in many instances, some of the ETF providers are almost acting like shadow banks in this role, in this liquidity mismatch. He had never seen this in his entire career. Either way, I think what we are going to see in the next 10 years, particularly if these trends continue, is an amplification in volatility. So, it’s been a fantastic journey. They’re there most of the time, but when there’s a crisis, they step back, and it provides this artificial kind of trust so that there is this liquidity that seems to be there until it’s not. I talked to one individual who was a sector specialist. They’d be things like changes in different cross-asset correlations. What implications could secular inflation bring to dragon portfolio? It really took until about 2012 to begin launching an institutional vehicle. https://www.globalvolatilitysummit.com/speaker/christopher-cole Why is this something that’s on your radar now? – So, the average is a little bit misleading simply because you have those enormous spikes. And the other, the hawk. Are they available somewhere? I am a passive investor. Christopher Cole is one of the foremost thinkers and practitioners in the world of volatility trading. This thesis did not come from me but Mike Green who, it’s his thesis, he came to me to,in many ways, act as a sanity check.

Let’s just go back to what businesses you can actually value, something that has cashflow. I think that was really proven to be false in the 2008 recession when everything went down together. In a market that’s entirely dominated by active investors, there’s less alpha as well. It’s a lot of fun. Christopher R. Cole, CFA, is the Founder & CIO of Artemis Capital Management LP. And if you’re in an institutional portfolio, those look very attractive because they have fantastic three-year Sharpe ratios or four-year Sharpe ratios.

As a fundamental value investor, that excites me a little bit that you would find these incredibly cheap companies and could foment change and create some sort of, create some sort of event that would drive some returns there.

Christopher R. Cole, CFA, is the founder of Artemis Capital Management LP and the CIO of the Artemis Vega Fund LP. Don’t forget to check out our FREE Large Cap 1000 –, “(Ep.1) The Acquirers Podcast: Christopher Cole – Volatility and Crisis Alpha”. You mention Christopher Cole is an author of interesting think pieces/meditations. audio recording. Here’s a great interview with Tobias speaking to Christopher Cole of Artemis Capital Management. – There have been crashes in the past and the nature of a crash is that a lot of liquidity disappears. Registration Never Required but we do recommend it! We try to profit from both of these different regimes. Cole launched Artemis Vega fund with $1m and has now attracted nearly $350m of investors’ cash. I swallow the whole thing in one go. The second part of his thesis initially did not make intuitive sense to me. The Absurdly Simple, Ridiculously Powerful Deep Value Stock Screener, Johnny HopkinsMarch 11, 2019Podcasts5 Comments. The problem was, is that it, in many ways, came to dominate. Active managers across the spectrum have been criticized for underperforming passive index funds. I think this is one of the big risk factors that people are not really thinking very much about, is that you have these ETFs that are backed by a liquid underlying. – You describe yourself as a provider of crisis alpha, which is a tail-risk strategy or akin to tail risk but somewhat differentiated from it. If anyone knows about trading now, that’s quite funny ’cause that market has expanded quite a bit. There’s many historical examples of that.

I’m being sarcastic obviously. All rights reserved. He was an absolute, I can’t say who he is, but he’s a very well-respected hedge fund manager who runs a boutique firm that he does short selling in a specific sector, and he has a fantastic track record. I think the S&P nearly has a Sharpe ratio of five this year. That’s an unusual thing, that’s an unusual event. This is not an end-of-the-world scenario. SCROLL DOWN. You’re like, oh, here’s a dollar, and you get car insurance. Most people’s portfolio requires stability, requires some sort of expectation of mean reversion to make money. Certainly, over the last few years, S&P 500, the strongest one, or the U.S. stock market’s just long-only market cap-weighted some of the strongest performers in the world and any hedging or any global exposure outside of that has led to underperformance of that. They are a large stumbling drunk that’s just going to roll in whatever direction, and the active manager’s become too inconsequential to correct their valuations. – Well, volatility is just simply change. And, of course, everyone in Michigan would look at you like, um, what’s this crazy L.A. guy doing, right? I’m wandering wherever, aimlessly, right, aimlessly in whatever direction. I have to give credit where credit’s due. I think that’s what sometimes people forget. In 1987, everyone blames portfolio insurance. Chris is a very old friend of mine. And that’s okay and I go on. I mean, everything from portfolio insurance to mortgage-backed securities. And during that period, you had regimes of the market would jump up dramatically and then collapse 20% as well and then go up another 50%.

– It’s interesting. – Yeah, it’s a fantastic example. – No, no. In my spare time, I developed a strategy trading the then fledgling market for VIX futures and VIX options. Most people, 98% of what they have in their portfolio is only exposed to long GDP, only exposed to stability. Christopher Cole. I did that work and I came up with that approximate level. We’ll see you soon. In this sense, we look at, I like to use another Los Angeles analogy, you know, the fires in Malibu.

I sometimes wonder whether this is a, and you may be saying that this is, it’s the fact that we’ve now tipped over that key point at 45% of the market becoming passive, because it’s something that, I certainly remember there were articles in the late 1990s, in 1999, talking about, there were companies that didn’t even get picked up by the Russell 2000 so there were, some Russell 2000-ists that is, in the largest 2,000, it’s the smallest 2,000 of the largest 2,000, so the smallest companies are quite small that fall outside that, and they said the market for these companies is gone. That’s amazing. The more the market is dominated by passive investors, when you begin going over a level of 50%, go 55%, 60%, when you start jumping over that level and really the sweet spot’s about 45% passive, so the further you go away from 45%, the less excess alpha is available to the active manager. Any one of these things may be not enough, but when multiple of them are happening at the same time, based in a prediction, in a predictive algorithm, then you can use that to buy insurance effectively ahead of a volatility fire. This is incredible. Now, one of the issues is that people say hyperinflation. His decision to form a fund came after achieving significant proprietary returns during the 2008 financial crash trading volatility futures and … – Most people’s portfolio, I have a different philosophy on the world than most mainstream, than what’s taught in most mainstream finance books. You had many people who lost their entire life savings as a result of it, many brokers embarrassed by it. Well, Green’s theory stated that the more the market becomes passive, the more the market is dominated by passive investors, actually, the less alpha will be available to active managers, but the more unstable the market will become. People get this crazy idea of gold bugs and Germany and Zimbabwe. Erik Townsend and Patrick Ceresna welcome Chris Cole to MacroVoices. Just click on any player below to listen Now!

Mr. Cole’s core focus is systematic, quantitative, and behavioral based trading of volatility and derivatives.

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