Accelerate Returns by Controlling Risk

Accelerate Return-to-Risk Ratios with Higher Betas

Modern portfolio theory is based on the premise that volatility is the best definition of risk. However, like many popular assumptions, that may not be entirely true. This article will demonstrate how increased volatility, as measured by Beta, can be harnessed to provide higher returns without a commensurate increase in risk.

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Instead of Modeling Risk, Why Not Control It?

The volatility investors faced within the equity markets in 2008 and 2009 led me to think about the changes I've seen as an equity trader and manager over many years. The basic principles of investing have remained constant throughout history. Successful investing is all about risk and reward; it always has been and always will be.

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What Retail Tells Us About the Economy and Consumers

By Kevin Grewal, Editorial Director at www.SmartStops.net

The month of August was no real shocker to the retail sector. Lower-priced U.S. retailers posted better-than-expected earnings while higher-end stores continues to suffer, indicating that consumers are still wary of spending which will continue to put a damper on the overall health of the U.S. economy.

Overall, retailers reported lower sales, as same-store sales fell an average of 2.9% at the 30 retailers tracked by Thomson Reuters. Although this decline was better than the 3.5% expected by analysts, half of the tracked stores missed analysts' expectations. It appears that consumers are still holding onto their wallets, shopping at discount outfits like the Gap Inc. (GAP) and TJX Co.'s (TJX) TJ Maxx, and only purchasing the essentials.

In fact, wholesale giant, Costco (COST), which is up 32% from a March low of $38.44 to close at $50.65 on Wednesday, reported a decline in same-store sales of 2% and said food and sundries were its best sellers. Additionally, higher-end stores, like the Childrens' Place Retail Store Inc. (PLCE), which was expected to see a boost in sales driven from back-to-school shopping, reported a worse than expected 8% decline in sales and much higher than analysts expections of a decline of 3.3%.

This further supports the notion that consumers are only spending on essentials and trying to perserve their disposable income. As this trend continues, it will be difficult for the economy to show a singnifcant recovery. After all, consumer spending is the bread and butter of the U.S. economy. From an investor's perspective, the SPDR Consumer Staples Select ETF (XLP), which has gained nearly 26% from its March low of $19.41 to close at $24.61 on Wednesday, is a good place to look. Additionally, the SPDR S&P Retail (XRT), which closed at $31.20 on Wednesday, up 71% from its March low of $18.27, is another good way to gain exposure to discounted retailers.

When investing in these equities, one must keep in mind the inherent risks involved. To help mitigate these risks, using an exit strategy is important. According to the latest data from www.SmartStops.net, an upward trend in the mentioned equities could come to an end at the following price levels: COST at $48.47; XLP at $24.21; XRT at $29.92. These price levels change on a daily basis and updated data can be accessed at www.SmartStops.net.