Business

The Best Measure Of Volatility Is Can I sleep At Night?

The following is a Q&A session with Al Emid, the author of What You Need to Know about ISIS: Terror, Religion, War and the Caliphate, discussing volatility products, price of precious metals and his experience in MENA.

volatility products
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Can you tell us about your background?

I have worked in the communication of ideas and concept in all media for over 50 years. For the 35 years this has tended to have a heavy focus on financial topics.

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Q1 hedge fund letters, conference, scoops etc

What drew you to investing and specifically volatility

The investment world has changed dramatically in recent decades. Earlier,it might have involved certificates thrown in a desk draw, etc.But with the explosion in mutual funds in the 1980’s and the explosion of a whole raft of new insurance products, starting at more ore less the same time, all of that changed.

I wrote the book on volatility because I believe that it’s the ’new normal’ at least for the short-and-medium terms. In terms of the actual choice of topic, I chose volatility because many financial books focus on other topics, such as making more money in the stock market, etc., (which is a different book and a different conversation.) Also, I believe that after the crash of 2008-2009, we have all become much more sensitized to the need to handle our finances efficiently – and also more sensitized to the problems in doing so.

We have had spectacular blow ups of (some would argue dangerous) products like inverse volatility, leveraged vol ETNs and investors still come back to them – Why?

It would be difficult to answer this without speaking to some of the folks who have bought them. The short answer might be that there is a lot of misunderstanding. I daresay that if yo asked the next ten people who walked by your office to define these products, you would get a lot of confusing answers.

Any specific volatility products you would caution against?

I would recommend against ‘fad’ stocks. I have said publicly that I would avoid Tesla and pot stocks.

I would not necessarily recommend against the FAANG stocks (Facebook, Amazon, Apple, Netflikx and Google-Alphabet) but would recommend against having too high a weighting the portfolio. The future of Facebook is not clear. Netflix is going to face serious competition from Disney. Apple’s success in China, remains to be seen,etc.

I would also recommend that – while it appears to be more cost-effective to be fully invested – at this time, it is better to have a large holding in cash or near cash. That will prevent the necessity of selling something that has dropped at an inopportune time because you have an urgent need for cash.

How does that tie into behavioral finance?

Volatility makes it that much more important that we all understand the concepts of behavioral finance.

How is precious metals vol different than equities vol or is it?

I do not believe that the prices of precious metals will swing up and down nearly as much as some equities.

What do you think volatility is telling us about the markets right now and for the remainder of 2019?

All of the causes of the downward spiral last Fall are still with us: the trade dispute, the debate over interest rates, the confusion over the FAANGs and even the Brexit mess.

What do you think is the best measure of vol?

Can I sleep at night?

You have experience in MENA - how is vol there different than markets like the USA or is it?

I haven’t measured it formally but I owld think that markets in the USA are much more susceptible to global events.

There used to be an assumption that MENA markets are mostly about oil, is that so and if not what has changed?

To an extent this is still true but it varies from locale to locale.

Thoughts on Aramco IPO?

At this moment in time, I would be nervous of it.

Alleged Iranian threats to GCC oil shipping

I have done a lot of work on the Middle East over the years and have been there as a correspondent on a trips several years ago. I do not believe that there will be a full shooting war between the US/Saudi Arabia on the one hand and Iran on the other hand. I am well aware that others view the question differently. I see current developmens as more ‘saber-rattling’ than a real desire for war.