Zen And The Art Of Risk Management

Quantifying downside risk allows us to have a plan in place to reduce or hedge risk when technical indicators and other signals alert us to potential changes.

When the market is more reasonably priced, we can be more relaxed, and our finger will not be tightly wound around the trigger. Today, however, valuations provide little cushion to be wrong.


Stocks are extremely expensive. Regardless of whether you agree with our earnings model or not, drawdown risk is higher today than at almost any other time. The Goldman Sachs table below uses multiple valuation metrics and comes to the same conclusion.

Zen, Zen and the Art of Risk Management

In a recent article Bloomberg states: “The so-called Buffett Indicator. Tobin’s Q. The S&P 500’s forward P/E. These and others show the market at stretched levels, sometimes extremely so. Yet many market-watchers argue they can be ignored because this time really is different. The rationale? Everything from Federal Reserve largesse to vaccines promising a quick recovery.”

If hope that this time is different is your risk management plan carry on. For the rest of us, we advise having a strategy with actionable signals.

Find your inner investor Zen!

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