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Let's Talk Duration.

Posted on January 26, 2018

Let's Talk Duration.

Posted on January 26, 2018

Let’s talk duration.
First, as a portfolio manager you need to make 1 out of 3 trades profitable to grow a portfolio on a reasonable basis. If SellerySignals stops you out +/-3% after a downturn, we need a +12% trade 1 out of 3 times to grow at 6% using worst case metrics; -3, -3, +12 = +6%.  Never knowing which trade nets you the +12%, EVERY trade should have that as a minimum target. Question is, how many times do bond portfolios have a 12% upside potential? If you have a bond portfolio with a duration of 10, a 1% move in interest rates will move that bond portfolio 10%. That also means the 1% move has to happen at that point on the yield curve. Only two things impact rate movement, policy and market. Policy at the short end and market on the rest of the yield curve. But back to the problem; if you need a 12% profit target, (excluding coupons for sake of argument) how often should we even be looking to the bond market?  PARTICULARLY NOW?  I mean, looking at the Western world right now where do we think rates are going to DROP 1%?  What would this mean to economic expectations?  I get the risk-off safe-haven aspect but that’s a tough bet. I would, therefore, question why we should be in bonds at all. I can’t tell you what securities to be in but I can tell you that you should expect to make money on only 1 out of 3 trades and therefore the profitable one needs to make you 10, 12, 15%. I must fundamentally question whether the Western bond markets have that much profit potential right now versus equities.

Remember, you must have a written system, with your expectations quantified and your process adhered to unfailingly. 

Call or email for a time to talk if you’d like to. 

May your trades be profitable, sincerely,

The Sellerys

SellerySignals is a math based technical analysis oriented research website that offers ‘quant’ based buy/sell signals for over 50,000 securities typed into the algorithm.  Start your free trial now at SellerySignals.com