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Trend Following RadioEp. 605: Interview with Mark Kritzman Interview

Mark Kritzman
Mark Kritzman

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Mark Kritzman is a Senior Lecturer in Finance at the MIT Sloan School of Management, founding Partner and Chief Executive Officer of Windham Capital Management and serves as a senior partner of State Street Associates. Mark has written six books, his latest titled “A Practitioners Guide to Asset Allocation”.

Mark began his career on Wall Street in 1974 and was immediately drawn toward systematic trading. At a time when there were not many quantitative traders, he was affectionately titled a “token quant” within his company.

Over the years Mark has been an advisor to many funds. While working with various companies it became clear fund managers were mixing how they invest with how they would choose asset classes. He decided to break down the most basic and logical ways of organizing the investment process. What are some components of an asset class: stable composition, be investable, internally homogeneous, externally heterogeneous, raise the utility of a portfolio, and you should be able to access it in a cost effective way. From there, depending on a persons risk, different combinations of asset classes would make up a portfolio.

Being in the game as long as Mark has, he has been able to witness the enduring and turbulent nature of markets. He saw one silver lining come out of the 2008 financial crisis – it provided a context where investors could go back to the basics of trading, and in particular, recalibrate how they manage risk. Mark finishes the podcast talking fixed weight portfolios, Peter Bernstein on scaling portfolio risk, dynamic asset allocation and explaining Samuelson’s Dictum.

In this episode of Trend Following Radio:

  • Definition of an asset class
  • Actively managed portfolios
  • Passively managed portfolios
  • Time diversification
  • Portfolio diversification
  • The fallacy of large numbers
  • Leverage
  • Value at risk
  • Risk management
  • Fear and greed
  • Risk and reward
  • Exposure to risk

“Time does not diversify risk.” – Mark Kritzman

“If we just step back, start with the basics and move on from there, that introduces comfort to the investment process.” – Mark Kritzman

Mentions & Resources:

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The Truth: A Two-Edged Sword

The truth is, almost everything about superior investing is a two-edged sword:

-If you invest, you will lose money if the market declines.
-If you don’t invest, you will miss out on gains if the market rises.

-Market timing will add value if it can be done right.
-Buy-and-hold will produce better results if timing can’t be done right.

-Aggressiveness will help when the market rises but hurt when it falls.
-Defensiveness will help when the market falls but hurt when it rises.

-If you concentrate your portfolio, your mistakes will kill you.
-If you diversify, the payoff from your successes will be diminished.

-If you employ leverage, your successes will be magnified.
-If you employ leverage, your mistakes will be magnified.

HT Howard Marks.

More on stretching the truth.

Lever Carefully and Wait for Stops

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