Michael Covel's Trend Following Ep. 1136: Nigol Koulajian Interview with Michael Covel on Trend Following Radio
8 snips
Dec 12, 2022 AI Snips
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Episode notes
Hidden Short Put Risk In Hedge Funds
- Hedge funds often behave like a hidden short put on the S&P, earning fees while masking tail risk.
- Their low apparent volatility hides large correlation and drawdown when markets drop, paying investors for tail risk.
Prioritize Long-Term Alignment Over Relative Returns
- Evaluate managers by long-term alignment, not temporary Sharpe or relative performance.
- Avoid intermediaries whose incentives favor steady-looking returns and fee capture over client long-term outcomes.
Sharpe Ratio Predicts Tail Multiples, Not Safety
- Volatility (standard deviation) is a poor measure of true market risk and tail events.
- High Sharpe ratios often predict larger tail drawdowns as a multiple of volatility.