Risk Mitigation Volatile Markets

A fascinating discussion with Mark Spitznagel on how dangerous current market levels are. He believes that we are in a super debt-fueled bubble and that there is no way to time a market crash or tactically trade it, adopting such a strategy is very risky in his view!

We are in a super debt-fueled bubble and that there is no way to time a market crash or tactically trade it, adopting such a strategy is very risky in his view!

Spitznagel’s Universa Fund’s strategy, like that of 36 South, Capstone and other Black Swan hedge funds, is to hedge against “tail risk” such as collapsing markets. They buy deeply out-of-the-money put options and hope to profit when there are severe market declines.

In a bull market, they benefit from rising prices but the return is diminished by the cost of the unexercised options.

However, it is also a good idea to remember the old market saying that markets can stay irrational longer than we can stay solvent!

It is a good idea to remember the old market saying that markets can stay irrational longer than we can stay solvent!