Comments on Rick Bookstaber: Common Sense Crisis Risk Management

Knowing what to do before/during/after a crisis is...

2010-06-15T10:08:04.775-04:00

Knowing what to do before/during/after a crisis is nothing new - most can figure that out. What is immensely more difficult is figuring out when to take such actions.

It is the most challenging piece of the puzzle, and the one only very few have been successful at (and of those few, is it luck or skill?).

I'm guessing you know these things, Rick, I'm just surprised you wrote this as if you don't.

The fifth bullet is not necessarily correct. The ...

2010-06-11T00:46:02.639-04:00

The fifth bullet is not necessarily correct. The jan 2008 selloff (maybe not a "crisis") was liquidity driven - the more liquid assets fell more than less liquid simply because they *could* be sold.

"What protects you in a crisis is also what l...

2010-06-10T11:14:48.670-04:00

"What protects you in a crisis is also what leaves money on the table pre-crisis. The best trades and market positions in the pre-crisis regime are the ones that cause the greatest losses in the crisis".

Optimal portfolios for the circumstances you describe include long positions in Treasuries, VIX and PUT, with the ratios constrained by the Kelly criterion.

As Chuck Prince said: "As long as the music i...

2010-06-10T09:06:02.407-04:00

As Chuck Prince said: "As long as the music is playing, you’ve got to get up and dance". So if the market can’t control this “peer-pressure” dynamics alone, it must then be the job of the regulator, no?

the last part was most interesting -- rick, would ...

2010-06-09T12:16:44.470-04:00

the last part was most interesting -- rick, would you be willing to elaborate on your 3-stage regime-switching framework??

thanks