2009 Year in Review: A year defined by Risk
- New year. New job title. Middle management hell. j/k In this market, I'll never complain =)
Things are good (for another 12 months). Hopefully it stays that way. Speaking of titles, take them with a grain of salt. A guy can have a fancy title with good pedigree, and have absolutely no idea what they are talking about...which I suppose can apply to this author.
2009 was an interesting year. Maybe it's a combination of taking on more responsibilities and delegating the more tedious stuff to junior staff, but I spent more time looking at the "big picture" (from macro to the players) in 2009.
For the most part, I can attribute an assets behavior to a combination of 1) Growth, 2) Returns, and 3) Risk. For a lack of a better term, I'll call them "value factors". I'm pretty comfortable with growth and returns, but you can't take your career to the next level without fully understanding risk. From the macro to the players you are trading with, understanding risk separates the good analysts from the great portfolio managers. A few have already shared this sentiment in the hedge fund forum and I'm in the early innings of truly appreciating it.
In any given year or trend, one "value factor" tends to dominate the others. Growth dominated the tech bubble. Returns (without any consideration for risk) fueled the sub-prime bubble. 2009 can be characterized as the year "risk" dominated the market. Parts of the market ripped because at some point people decided the world wasn't going to end. Funds with money (some newfound money from gov't stimulus programs) on the sideline decided to put their chips back on the table and reflate security prices. Stocks that were obliterated in 2008 for leverage risk, ripped again when market participants decided the leverage risk wasn't so bad (leverage works both ways lol) and had to put money to work. Overall, the market run in 2009 seem to have little to do with growth and returns, and more to do with a re-pricing of risk.
2009 saw the tide of liquidity come back in. Many see the tide going back out in 2010. It should be an interesting year.
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