Friday, Apr 17th 2020
Bet big when the odds are in your favor. Here's one way to estimate them.
In a note to clients yesterday, we advised investors to be patient in deploying capital following the stock market's recent run-up.
While many Wall Street strategists have come out recently with very bullish outlooks for the year, we see a more neutral upside/downside "skew" to U.S. stocks today. We believe that investors can afford to be selective in deploying capital over the coming weeks/months (i.e. light offense).
"Skew" refers to the balance between the potential positive and negative event paths at a given point in time. More simply, it's the ratio of upside vs. downside.
This is a useful framework in investing because it can help you bet big only when the odds are in your favor (vs. when the market is just giving you a coin toss).
See a stock with 60% upside and 20% downside? That's a 3:1 skew (quite good; stock could be a buy). Another with 10% upside and 20% downside? That's a 1:2 skew (quite poor; maybe the stock is a short?).
Now, you cannot just go online to find the upside vs. downside for the S&P 500 or a given stock. Investors have to do their own homework to estimate them. This is what our Research team does for you. And today, we estimate the short-term skew for the S&P to be quite balanced (1:1).
So in the short term, the odds are roughly even. Short-term even odds coupled with long-term excellent odds warrant light offense. Light offense means spreading out your buys and keeping some dry powder if/when the market reprices the downside risks more appropriately.
Learn with titan
Become the smartest investor you've ever been through straightforward, easy-to-read investment articles.
Refer to Titan's Program Brochure for more information. Certain investments are not suitable for all investors. Before investing, consider your investment objectives and Titan’s fees. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested. The introducing Broker Dealer is Titan Global Technologies LLC, a registered broker-dealer and member FINRA/SIPC. Brokerage services are provided to Titan Clients by Apex Clearing, an SEC registered broker-dealer and member FINRA/SIPC. For more information, see our disclosures. Contact: 508 LaGuardia Place NY, NY 10012. Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice. Check the background of these firms on FINRA's BrokerCheck.
© Copyright 2022 Titan Global Capital Management, Inc. All Rights Reserved.