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1)
Relative to what I know about stocks and bonds how do you make money? It's
volatility and change that investors usually fear that allow profits
to be taken from markets. Without promises or guarantees our strategies
work best in dynamically changing markets. Futures and Options on Futures
trading benefits from falling prices by short selling, rising prices
by going long (buying) and price differentials between contract months
or related commodities by using spreads. (Buying one contract and selling
another in hopes that price changes between markets go in our favor.)
If prices appear too volatile positions may be hedged with options.
If you own stocks or bonds under unfavorable or emotionally unsettling
market conditions, you can partially offset some of your investment
risk with a professionally managed futures/options account. By using
15% or less of your total portfolio you are allowing yourself an opportunity
to use leverage and comfort offered by professional management to offset
potential losses from stocks or bonds. For
example: Hypothetically speaking assume you have a total portfolio of
$300,000. including your retirement fund earning 10% annually. (The
ten year historical average for stock funds is 10% annually according
to Morningstar). Take 10% or $30,000. and allocate that
to professional management. Assume all the money is lost and
the portfolio is left with $270,000. still earning 10% annually. Without
incurring any more risk, the portfolio earns back the capital in less
than 18 months. Assuming your worst fears have been dealt with, let's
move to the upward potential of Professional Management. Assume
$30,000 allocated to a managed/ futures and options investment averages
20% annually for the next decade. When profits are NOT distributed,
cumulated it becomes $222,895, a 64.29% average annual return. Your
$270,000 investment base, cumulated for 10 years at 10% becomes $764,632.
Total investment value is now $987,527.
After 10 years, a 10% allocation to futures now represents 22.57%
of total portfolio value, with futures contributing a return on original
investment of over of 642% over the decade. That's the gift in leverage!
All examples are used for educational
purposes. We do not claim or guarantee that returns cited have or can
be attained.
2)
How do managed futures/option investments allow risk to be managed? Use
$45,000 as a hypothetical example. Remember that every account size
has different parameters.
Only $4500 to $11,250 (10% to 25%) of capital is used as original
margin, the balance is excess. 1% to 3% of capital risked on each trade
is built into our strategy.
Medium and long-term strategies are tested and built whereas
at least 53% of trades should be successful during testing. This is
not a guarantee that the same percentage will be successful during trading.
We are of the perception that shorter- term strategies should have a
much higher percentage of profitable trades with lower risk/reward ratio.
Awareness to changing market conditions before excessive losses occur
differentiates good money management from mediocrity. Diversifying through
time values, strategies, markets traded and how they correlate with
each other all have to be considered.
Having proper floor facilities for order execution and trade
allocation saves money on slippage and errors.
We have touched the tip of an iceberg concerning possible methods
of risk control.
Reading investment profiles and disclosure documents bring more
detail to your attention.
Investment strategies are only as good as the consciousness of
the mind designing them and discipline of the personality implementing
them. Nothing else matters! Tradition
discloses risk leaving you with an impression that markets are dangerous
with no method of managing risk. Fire is also dangerous when not used
with successful risk management procedures. Most intelligent professionals
easily manage risk on a daily basis. Our job is to show you what intelligent
is, and how to seek it out!
3)
Why do draw-downs appear larger in some accounts? Draw
down and account volatility is traditionally measured as a percentage
of total account value. For example if a $15,000 account has a draw
down of $5000 that's 33.3%. The 33.3% is considered high risk when using
draw down as a measure of risk. Yet $5000 of $30,000 is only a 15% draw-down, well within industry
norm for a conservative investment. Contrary to traditional interpretation
of statistical analysis, we only interpret and relate the function of
draw down to CTA's using accounts of similar sizes. Most independent
research companies do not consider comparative account sizes when using
draw down analysis as a measure of risk.
Within that context, information you receive will be inaccurate.
Traditional money managers require larger account sizes relative to
the amount of capital actually used for trading. WHY? Larger account
sizes always have low draw-downs, volatility and higher management fees,
without the effort of increasing basic trading talent. Statistically
speaking this reduces perceived level of risk. Draw-downs always appear
larger with smaller account sizes and notional funding.
Draw-downs and account volatility should be seen relative to
potential returns and actual capital at risk.
4) What is notional funding? With
your knowledge and consent, the account is traded as $100,000 while
funded with $50,000. Unless you are offered a limited risk investment,
you are responsible for the entire $100,000 commitment.
We perceive that when using notional funding you thoroughly understand
added risk and volatility associated with the account.
Opening a $25,000 notional funded account gives you four times
the leverage that a $100,000 account would have. Understanding the leverage,
costs and volatility of notional funding before the account is opened
will create long-term stability within the relationship. Like all new
relationships, we believe it takes about a year into the marriage to
get comfortable with each other. 5)
What is your perception of good judgement in deciding how long to keep
my account open when it’s not making money? Pre
opening account parameters are a necessary function of risk control.
Understanding past performance relative to current market conditions,
the investment strategies and your self is more than helpful. Long-term
trend followers may take one to three years to see daylight. We have
seen traders break even or lose money over a years time, then dramatically
increase account value simply because a trend has started in markets
they happen to trade. (As long as the trader has the humility to recognize
it as a trend and not skill, you're in good shape). Short-term strategies
require less time. Again look at frequency of trading and percent of
profitable trades. If someone
claims they can successfully day trade, you should see account profitability
rather quickly within a month or two. Some day trading strategies only
trade once a week, they may need two or three months.
Always ask for an investment profile, or account guidelines before
you commit your capital. In addition to past performance, profiles can
help quantify future account activity.
If trading deviates too much from the profile, without your consent
we would seriously consider closing the account.
6)
Our perception of why is risk is healthy! Life
without some degree of risk becomes stale and we become fearful beyond
what is considered healthy fear that protects us.
Boundaries for living become a function of fear causing a contraction
of life, rather than calculated risk, which expands the boundaries of
life with strength, courage and love.
We're not suggesting reckless abandon with your capital or your
self, what we are suggesting is the simple ability to transform your
perception of risk, from one of fear and loss to a perception of opportunity
for gaining strength, courage and growth.
Remember fear contracts and lowers energy, where strength and
love expand energy. Living in a conscious state of expansion is healing
to the body and spirit because life is lived through us and simply flows.
Take time to walk in nature, do you ever see a tree fearing the risk
of natures elements, or a flower fearing to become more of itself. Nothing
is trying to live it's just living. Life expands by itself when
we get out of the way. Calculated risk is parallel to a caterpillar
becoming a butterfly. If it doesn't become the butterfly it dies, people
are no different. When we listen to the silence within, nature knows
when its time to move on. 7)
How can I determine if costs to my account are fair? Rather
than comparing securities to managed futures/ option investments or
managed accounts to limited partnerships, we believe each industry and
industry sector has its own merits. Each should be assessed independently
of one another. A few alternative ideas to contemplate are: Accurate cost evaluation
must be done using a relative thinking process.
For example it is impossible to assess whether $35.00 is too
high or low without considering other factors. One
must also consider number of trades, profit to loss ratio and percentage
of profitable trades. For
example, in crude oil each point is worth $10.00.
If cost is $35.00 and the strategy encompasses 25 point potentials
or $250.00; your cost represents 14% of each trade. If 50 point potentials
are used, cost comes down to 7%. Now consider the percentage of profitable
trades with the profit to loss ratio. If profitable trades are only
45% with a profit to loss ratio on each trade of 3.1 you may still have
a good strategy. Considering
these factors, you can NOW look at total account value, number of trades
annually as a percentage of account equity. Just looking at commission
as a percentage of account equity is meaningless unless it relates to
the total strategy. One industry trader used to earn over 100% annually
for his client. His costs were 30% commission to equity ratio. He had
high turnover, and low commission. Traditional traders say his costs
were high. We believe his clients were lucky to have his services. Our
opinion is that if costs are 30% or under of gross profit potential
you may have a decent strategy to work with. If they get much higher,
consider looking at the accuracy of data presented and your motives
for considering the investment. Costs
used in the educational paragraphs above are hypothetical in nature.
They are not related to costs associated with investment in Sanctity
Capital Management. For accurate cost evaluation of your investment,
please speak with your representative or any principal of Sanctity Capital
Management. 8)
How can I determine how much capital to commit to an account? Good
question, start with the least amount possible for what you expect to
accomplish and say "prove it." For example, a retirement portfolio
has $750,000 and a regular stock and bond portfolio is $350,000 for
a total of $1,100,000. 10% of the total is $110,000. We use a proprietary
Value at Risk strategy to determine capital allocation. Or "wing
it" and begin with as little as 50% of your 10% if possible. If
after one year the investment performed according to pre determined
standards, maybe consider adding capital if it increases earning potential.
Another alternative is notional funding with different accounts. Every
time the advisor took an incentive fee, take your profits above the
original capital contribution until all your original capital was returned.
(100% return on equity). Thereafter consider leaving 75% for reinvestment
and remove 25% from the account annually. Use any split you are comfortable
with, maybe 50% / 50%. We believe long-term success includes rewarding
yourself annually. Of
utmost importance be comfortable with the people first then look at
numbers. Rather than seeking to compare maybe consider correlating two
investments. If only one account is possible, we suggest a longer-term
consistent perspective with complete attention to risk. Find out what
risk was taken to achieve the rewards, rather than looking at just rewards.
You need comfort and trust to live through periods of draw down
inherent within professional management. Deal open and honestly with
the risk, talk about it, feel it, live it. Use your imagination to visualize
at least five or seven months of loss annually. Trust us, training yourself
to live through discomfort only creates heaven on earth, because imagination
is much more vivid than reality and you're thoroughly prepared. Looking
at only returns is usually time wasted because you are denying the reality
of a process integral to the investment. If two different investments
have the same numbers, even if one has slightly higher costs, go with
the people you are most comfortable.
10) Why did you include investment profiles? We
believe profiles offer you additional preparation for the realities
of professional management. At times, profiles will be based on individual
trade data, other times based on capital management procedures built
into a trading strategy. When based on strategies built into a trading
program, profiles will be labeled as hypothetical with a hypothetical
disclaimer. We believe an inherent focus of past performance and a composite
track record presented within a disclosure document leaves imbalances
regarding future performance of your account. Profiles are supplemental
information offered to fill the void. They quantify a process your account
lives through so potential rewards can be achieved. You can get comfortable
with how your account works, no matter when it opens. We offer profiles
for every investment as guidelines. Your expectations should be aligned
with realities of the investment. Past performance has its place, however
it doesn't offer tomorrow's reality. Proper risk analysis also includes
SafeMoneyMetrics ™
individual trade analysis, current market conditions, and time "windows."
Time windows show monthly returns during various time frames ranging
from 1 to 36 months, rather than annual.
Annual returns may be 50%, however June to June could be losses.
Deception by omission is possible using annual returns, as it
relates to your account performance. Time windows and investment profiles
reduce a potential problem of omission. Our relationships endure from
a foundation of truth, to the best of our ability. We perceive bringing
weakness to the surface is more important than talking about past returns.
Staying with the investment under adverse circumstances is a process
that increases the potential success of any good professionally managed
strategy. 11)
I'm over 65 are your services good for me? If
you're in reasonably good health, look at the worst possible outcome
of your decision.
If the potential loss does not affect your life style nor anyone
you are financially responsible for, we cheerfully invite you into our
very special world of professional management. We believe our philosophy,
learning process and experience is invigorating. It has been our experience
that when your new perceptions of reality and risk are applied to other
areas of life, little surprises and improvements are endless. Our client
communications bring investment strategies and a philosophy of living
from fear to strength that brings pleasure and endures throughout your
lifetime. 12)
Why is comfort so important before I invest? How
many times have you caught yourself emotionally acting on something
you perceived to be true, yet time revealed that the perceived truth
was only illusion. Actions taken on false or incomplete information
caused unnecessary grief or loss to whomever was the recipient of your
decision. This process if left unresolved can cause unnecessary losses
to your managed account. Sometimes
we act or react to beliefs based on fear or hearsay that have no connection
to current reality of a situation.
Sometimes we react or make decisions based on someone else's
experience of a situation when their experience was caused by their
beliefs and actions. I have relationships where there is a 180% degree
difference in the experiences we have with the same person. Their perceptions
of situations or beliefs of people dramatically differ from mine, causing
different experiences for each of us. To
repeat, beliefs cause perception. Comfortable beliefs and perceptions about futures and the people of Sanctity Capital Management can only cause positive experience. Our intentions are to create long term working relationships. Unanswered questions or conflicting beliefs will manifest as unnecessary losses to your account. Conflicts and issues can be easily resolved by following uncomfortable feelings into the beliefs or causes of them. Asking yourself questions related to your feelings usually uncovers the belief causing the uncomfortable feeling. With work, there is no perception or belief that cannot be altered. With insight and reflection, you have the power to dramatically and permanently alter your reality. Nine out of ten times you'll find that its not the investment that bothers you, but your perception and fears of what could happen as causing negative reactions. As negative or fear based issues resolve them selves, your awareness level will rise along with your energy. Freedom from fear and conflict automatically increases energy and the quality of your decisions. If you feel good about where you are headed rather than tense, you've successfully completed the task of internal conflict resolution. |