Rehn Capital Management LLC

5916 Beaconpark Street, Lithia, FL 33547 | +1 813 300 2388 | contact@rehncm.com
The Power of Diversified Investing through
a “Risk Smart” Approach

THIS IS A RESEARCH-BASED PRESENTATION FOR DISCUSSION ONLY, NOT A SOLICITATION TO BUY OR SELL ACTUAL
COMMODITIES OR SECURITIES.

PLEASE SEE IMPORTANT INFORMATION ON PAGES 2 AND 3 PRIOR TO REVIEWING
Important information
THIS PRESENTATION IS INTENDED FOR SOPHISTICATED AND QUALIFIED INVESTORS
ONLY.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

THE TRADING TECHNIQUES AND INVESTMENTS DISCUSSED HEREIN MAY CARRY A
HIGH DEGREE OF RISK AND MAY INLCUDE LEVERAGE AND ARE THEREFORE NOT
SUITABLE FOR ALL INVESTORS.

THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD
THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN
LIGHT OF YOUR FINANCIAL CONDITION.

THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY
TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE
CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.

2
Important information
THE CONTENTS OF THIS PRESENTATION ARE THE AUTHOR’S VIEWS AND BELIEFS, NOT
STATEMENTS OF FACT.

THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.

ALL MODELS, DATA AND GRAPHS USED ARE:
• ONLY TO EXPRESS THE OPINION OF THE AUTHOR
• BASED ON HISTORICAL MARKETS WHICH MAY OR MAY NOT OCCUR AGAIN IN THE
FUTURE IN ANY SIMILAR WAY
• ONLY EXAMPLES, NOT EXHAUSTIVE OF ALL POSSIBLE HISTORICAL MARKET
OUTCOMES
3
6 year charts of broad investments (2006-2011)
A broad commodity indexed ETF investment A long duration US government bond index ETF investment
A US stock index ETF investment A Commodity Trading Advisor
4
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING AND SECURITIES INVESTINGS
INVOLVES SUBSTANTIAL RISK OF LOSS.
…and 6 years of trading “Masters” (2006-2011)
Some good, some mediocre. We hope we pick the right one.
3 actual large CTA trading strategies with AUMs of $545 million, $396 million and $7.316 billion, respectively.
5
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
What if there was a better way?
THIS IS A HISTORICAL, HYPOTHETICAL EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
A hypothetical “Risk Smart” portfolio created as an example only.
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
A different way of looking at markets
Risk smart investing
7
Equity
60%
Bond
40%
Example of a traditional portfolio of
60% Equity, 40% US Government Bond
Traditional Equity & Bond portfolio
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
8
60/40 Equity/Bonds: Viewed by volatility
Is this diversified?
60% S&P 500 tracker, 30% 1-3 year bond tracker, 10% long bond tracker. Risk measurement is standard deviation of monthly returns annualized 2006-2011.

Equity
79%
Bonds
21%
Example of risk weights of a hypothetical 60% Equity,
40% US Government Bond portfolio measured by volatility
9
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
60/40 Equity/Bonds: Viewed by volatility
60% S&P 500 tracker, 30% 1-3 year bond tracker, 10% long bond tracker.
Risk measurement is standard deviation of monthly returns annualized.
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US S&P 500 Tracker US Gov Bond Tracker
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EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
60/40 Equity/Bonds performance (2006-2011)
Jan ‘06- Dec ’11 Equity US Gov Bonds
Notional 60% 40%
Risk Weight 79% 21%
Total Return 22.04%
CAGR 3.38%
Standard deviation (Ann.) 10.3%
Quick Sharpe* 0.33
Max DD -30.9%
Worst Month -9.40%
Rebalancing Quarterly
*CAGR divided by Std Dev
Portfolio is 60% S&P 500 tracker, 30% year note, 10% 10 year note
11
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
A different idea: Weighting by risk
Equity Risk
50%
Bond Risk
50%
12
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
Volatility neutral: decrease equity, increase bonds
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US S&P 500 Tracker US Gov Bond Tracker
13
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Total notional weights were 225% 1-3 year US bond ETF, 25% long bond ETF, 34.1% S&P 500 ETF
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
A volatility neutral equity/bond portfolio
Jan ‘06- Dec ’11 Equity US Gov Bonds
Notional 12% 88%
Risk Weights 50% 50%
Total Return 73.8%
CAGR 9.5%
Standard deviation (Ann.) 6.3%
Quick Sharpe* 1.5
Max DD -9.0%
Worst Month -5.7%
Rebalance Quarterly
Hypothetical example for illustration purposes only.
*CAGR divided by Std Dev. Total notional weights were 225% 1-3 year US bond ETF, 25% long bond ETF, 34.1% S&P 500 ETF.

14
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
The “problem” with bonds
Jan ’06-Dec ‘11 Bond Only Portfolio (no leverage)
Total Return 26.57%
CAGR 3.95%
Standard Deviation 2.52%
Quick Sharpe* 1.57
Worst Month -1.69%
*CAGR divided by Std Dev
Portfolio is 90% 1-3 year US bond tracker, 10% long bond tracker
Even during some of the best bond years recently….
I believe this is why most investors prefer to hold equities:
the returns have traditionally been higher, even though risk-adjusted returns
may or may not be.
15
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
EXAMPLE FOR ILLUSTRATION PURPOSES ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
A historical analysis of risk parity (1926 to 2010)
Source: Financial Analyst Journal, V68, #1, “Leverage Aversion and Risk Parity”, Asness, Frazzini, Pedersen.
THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
Note on construction: “The risk parity portfolio targets an equal risk allocation across the available instruments and is constructed as follows: At the
end of each calendar month, we set the portfolio weight in each asset class equal to the inverse of its volatility, estimated by using three-year monthly
excess returns up to month t – 1, and these weights are multiplied by a constant to match the ex post realized volatility of the value-weighted
benchmark.”
16
Lessons from the markets
Risk smart investing
17
My beliefs and opinions
Volatility and risk are truths of investing.
18
Year Summary
1637 Tulip mania
1720 South Sea Co.
1772 East India Co.
1857 Railroads
1907 Banks, SF earthquake
1929 Global stock crash, great depression
1987 DJIA crash, portfolio insurance fault
2000 Tech crash, GDP productivity boom
2008 Housing, credit boom, global bank bust, Iceland
default, Great depression (2)?
Year Summary
1974-75 Stocks, OPEC
1979-82 US banks, USD, global bank loans, OPEC (2)
1990 Nikkei crash, great deflation in Japan begins
1992 Sweden banking crisis, housing bubble
1994-95 Mexican banks, currency
1997 Asian currency crisis
1998 LTCM, Russia default
Often remembered, cited crashes Recent, less known…sometimes forgotten
1. Risk of loss of capital is a truth of investing.

We can either accept this or pretend its not true.

My view: Accept it and attempt to benefit by actively
seeking out and investing in risky assets…

…but only when combined in a risk smart way.
My beliefs and opinions
19
My beliefs and lessons from the markets
2. Financial forecasts are generally not accurate within specific time periods.
Also, predictions of crashes or crises do not benefit investors.
Dow 36,000
Crude $200
Natural Gas to
$7
Maybe they will happen…’a broken clock is right twice a day’
S&P 500 down
to 400
20
My beliefs and lessons from the markets
3. Returns of different asset classes over periods of time are usually different,
but sometimes can be quite similar.
US Gov Long Bond ETF
($TLT)
DJ UBS Commodity
Index ($DJP)
2007 9.9% 31.6%
2008 31.1% -31.8%
2009 -22.3% 12.6%
2010 9.0% 11.9%
2011 34.0% -2.6%
Annual total returns of 2 broad market trackers
Lesson: Real risk diversification can be difficult to achieve
EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
21
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
My beliefs and lessons from the markets
4. We all have behavioral biases and human operating faults that can negatively
impact our investment returns.
Lesson: Understand your faults and take a systematic investment approach to
help mitigate falling prey to our own biases.


Many investors try to “figure out” or guess what a return on some asset will
be at a point in the future, but I believe we can use these lessons to invest
better.
22
One part of the picture: Correlation
Risk smart investing
23
Correlation (1)
A returned -5.9%, B +6.2%, what is the correlation?
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ValueA
ValueB
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AUTHOR GENERAGED STRING OF NUMBERS FOR DISCUSSION ONLY, NOT BASED ON ANY REAL WORLD COMMODITY OF SECURITY
Correlation (2)
Both return 12.6% over same period, what is the correlation?
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ValueA
ValueB
25
AUTHOR GENERAGED STRING OF NUMBERS FOR DISCUSSION ONLY, NOT BASED ON ANY REAL WORLD COMMODITY OF SECURITY
What correlation?
Correlation Graph 1 Correlation Graph 2
time/data series correlation -0.96 0.96
return series correlation 1 -1
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ValueA ValueB
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Be suspicious (or better yet run away holding your ears) when
you hear people talk loosely about correlation!
26
AUTHOR GENERAGED STRING OF NUMBERS FOR DISCUSSION ONLY, NOT BASED ON ANY REAL WORLD COMMODITY OF SECURITY
My view of correlation
correlation - a coefficient which measures the tendency for two assets to
under-perform or over-perform their average returns by the same number of
standard deviations concurrently.
return series correlation – the correlation between two series of
percentage returns. Using the above, this is the tendency for two
assets to concurrently perform above or below their respective
average percentage return over that period.
time series correlation – the correlation between two data series
(e.g. the actual values of two indices). Using the above, this is the
tendency for two assets to concurrently move higher or lower than
their respective average time series figure over that period.
THESE DEFINITIONS AND DESCRIPTIONS REPRESENT MY VIEW AND ARE BASED ON MULTIPLE RESOURCES AND
EXPERIENCE. THESE ARE NOT MEANT TO REPRESENT QUANTITATIVE OR EXACT DEFINITIONS. 27
Correlation misconceptions
“Its good to have investments with zero correlation to each other.”
“Having assets with negative correlation is bad because those assets
generating negative returns are cancelling out the good investments
making money…..therefore the total returns are lower, or worse
negative.”

THESE REPRESENT MY VIEWS AND OPINION ONLY ARD ARE BASED ON MY EXPERIENCE.
28
The way I try to use correlation
Invest (long) in assets or strategies with increasing price and correlations of:
1. The most negative return series (-1) possible;
2. Most positive time series (+1) possible.

#1 is a portfolio volatility reducer. Path important.
#2 is positive returns. Path not important.
Key takeaways
29
THESE REPRESENT MY VIEWS AND OPINIONS ONLY.
Absolute returns with no volatility
The return of a portfolio holding 50% of each of the 2 Correlation (2) assets:


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A+B
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time/data series correlation 0.96
return series correlation -1
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Does not exist in the real world
Correlations: Not at all set in stone
31
Understand characteristics of markets, look at as much history as possible
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1-Dec-06 1-Dec-07 1-Dec-08 1-Dec-09 1-Dec-10 1-Dec-11
12-month rolling return series correlation, Stocks and Commodities
S&P 500 ETF & Commodity ETF
In the real world there are no free lunches
Returns are not predictable within specific time periods….But I believe:

• Over very long time periods broad asset classes and some strategies produce
positive returns. They have positive risk premiums.

• Assets and strategies generally have long term positive time series
correlations to each other.

• These are candidates for positive time series correlations.

• Next, by aiming for low or negative return series correlation assets and
strategies, even when some investments are performing poorly, even over
long periods of time, there may be positive total performance. Anything less
than a +1 return series correlation should be a benefit to a portfolio. The
closer to -1 the better.
On a previous slide I said I believe that…
32
THESE REPRESENT MY VIEWS AND OPINIONS ONLY.
Side note: Uncorrelated fun for investors
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A "developed" equity market A "frontier" equity market
There’s negative correlation ‘in the them thar hills’….its just the wrong one
EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
33
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Correlation benefit example using CTAs
Risk smart investing
34
Within class diversification: CTA example
4 CTA Strategies – 31 December 2005 to 31 December 2011
Trend follower
(1)
Trend follower
(2)
Option Trader Option Seller
Total return 133.4% 26.9% 71.5% 12.0%
CAGR 15.2% 4.1% 9.4% 1.9%
Standard Dev 33.0% 29.4% 11.7% 28.6%
Quick Sharpe* 0.46 0.14 0.81 0.07
Max Loss (DD) -36.4% -46.5% -17.3% -51.4%
Worst Month -22.6% -15.5% -11.9% -51.4%
*CAGR divided by Std Dev
Is it riskier not to add risky CTAs to a CTA portfolio?
EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
35
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Within class diversification: CTA example
4 CTAs – 31 December 2005 to 31 December 2011
Return series correlations
TF1 TF2 OT OS
TF1 1 0.25 -0.13 -0.24
TF2 0.25 1 0.12 -0.17
OT -0.13 0.12 1 -0.08
OS -0.24 -0.17 -0.08 1
There is a benefit to holding them together because of low or negative
return series correlations
EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
RETURN SERIES CORRELATIONS ARE THE CORRELATION BETWEEN MONTHLY PERCENTAGE RETURN FIGURES OVER THE PERIOD.
36
Within class diversification: CTA example
Hypothetically combining the 4 CTAs – 31 December 2005 to 31 December 2011

Portfolio
1
Total return 85.1%
CAGR 10.7%
Standard Dev 12.2%
Quick Sharpe* 0.87
Max Loss (DD) -10.8%
Worst Month -7.4%
1. Investing in each by a risk factored risk weight. Actual notional percentage investments used were TF(1) 21.9%, TF(2)
21.9%, OT 37.5%, OS 18.8%. Quarterly rebalancing to original weights. *CAGR divided by Std Dev
The power of CTA diversification when low/negative return series correlation
HYPOTHETICAL EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
37
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Using a risk smart approach to build portfolios
Risk smart investing
38
Risk groups: because we can’t predict returns
Equities Bonds
CTAs Commodities
? Other Alts
Focus on Risk

Risk Groups:
Assets grouped by
common return drivers
and having low correlation
return series to other risk
groups under normal and
stressful conditions.

Objective:
Achieve a risk smart
exposure to all.
39
Risk smart hypothetical example
The following slides contain a hypothetical example of a risk smart approach,
generated for discussion purposes only.

This is based on combining real world assets, including commodities and securities,
however it was created only recently, after the fact of each assets’ returns were
known.

Please see the important information at the end of this presentation discussing the
significant limitations inherent in hypothetical results.
40
Hypothetical risk smart portfolio: Asset class risk weightings
HYPOTEHTICAL EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
Some considerations for weights:
• Extreme loss/volatility scenarios
• Correlations across groups
• Volatility stability
• Correlation stability
• Skewness, kurtosis
• Leverage tolerance
• Unique factors:
• Liquidity
• Asset / strategy sustainability
• Single manager risk
• Counterparty risk
CTA Risk
31%
Commodity
Risk
10%
Equity Risk
34%
Bond Risk
25%
Hypothetical example of risk weights
Actual notional weights used were CTAs(3 total) 52%, Equities (3 markets) 55%, Bonds (2 markets) 298% and Commodities (1 index) 15%.
Quarterly rebalancing to original weights. The entire portfolio can be achieved through futures contracts. Approximate margin to equity
would be 16%-20% currently for the entire portfolio
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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Rolling volatility for the hypothetical example
This is a measure of the “heat” of each weighted asset class to the portfolio each month, looking back 6 months and annualizing it. Due to low or
negative return series correlations between asset classes, total volatility at the portfolio level is reduced by this cancelling out effect.

HYPOTHETICAL EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
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6 month rolling “look back” volatility to the hypothetical portfolio
Equities Bonds Commodities CTAs
42
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Hypothetical risk smart portfolio: Return & risk table
A hypothetical risk smart portfolio example
31 December 2005 to 31 December 2011

Portfolio
1
Total return 97.8%
CAGR 11.9%
Standard Deviation 9.0%
Quick Sharpe* 1.32
Max Loss during period (DD) -12.7%
Worst month during period -8.1%
1 Proprietary risk factored weights for each asset class: CTAs(3 total) 52%, Equities (3 markets) 55%, Bonds (2 markets) 298%
and Commodities (1 index) 15%. The entire portfolio can be achieved through futures contracts. Approximate margin to
equity would be 16%-20% currently for the entire portfolio. *CAGR divided by Std Dev.
HYPOTHETICAL EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
43
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Return chart of the hypothetical portfolio example (2006-2011)
HISTORICAL HYPOTHETICAL EXAMPLE ONLY. THIS IS NOT A RECOMMENDATION TO BUY OR SELL COMMODITIES OR SECURITIES.
100
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Hypothetical “Risk Smart” portfolio example only
44
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
Why does this work? The positive reasons
1. Applies investment capital to investments in a more efficient way than
most participants are doing.

2. Requires work to seek out and find truly diversifying, highly liquid assets
and strategies, avoid pitfalls/shortcuts.

Allocates some capital to less well know liquid investment strategies. Follows the rule:
“Additional investments do not add portfolio risk, but add diversification”

3. Utilizes tried and tested portfolio management techniques, but applied
to the modern investing world.


45
THESE REPRESENT MY VIEWS AND OPINIONS ONLY.
Why does this work? The negative reasons
1. Investors are afraid to use leverage and apply capital as necessary to
achieve these types of returns (“Leverage Aversion”
1
). This type of
investing is not an easy road.

2. Behavioral biases (1): investors drawn into “hot”, positive recently
performing assets (bull markets). Emotionally difficult to take money
from stocks (e.g. in 1999) and put it in bonds or commodities.

3. Behavioral biases (2): investors cannot stick to the strict investment
allocations and required rebalancing for many years – get bored and
throw in the towel after a string of losses.

4. Investors not aware or do not have access to true diversifying
investments, only see stocks in the media.
1 Financial Analyst Journal, V68, #1, “Leverage Aversion and Risk Parity”, Asness, Frazzini, Pedersen.
46
THESE REPRESENT MY VIEWS AND OPINIONS ONLY.
A non-exhaustive look at some of the specific risks
1. Correlations and/or volatility changes dramatically, beyond model
expectations.
– Key input for success is volatility or loss expectations. My approach does not forecast,
but sets a worst case scenario based on historical data.
2. A strategy, manager or market collapses completely (Armageddon
scenario).
3. Counterparty risks (MF Global situation).


47
THESE REPRESENT MY VIEWS AND OPINIONS ONLY.
Additional important information
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. THIS INVESTMENT UTILIZES LEVERAGE AND RISKS WHICH ARE NOT
SUITABLE FOR ALL INVESTORS. HYPOTHETICAL RETURN RESULTS WERE USED IN THE CREATION OF THIS DOCUMENT.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO
REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN
FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS
SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF
HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN
COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR
TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY
AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE
IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF
HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
THE MEMBER HAS HAD LITTLE OR NO EXPERIENCE ALLOCATING ASSETS AMONG PARTICULAR TRADING ADVISORS. BECAUSE THERE ARE
LITTLE OR NO ACTUAL ALLOCATIONS TO COMPARE TO THE PERFORMANCE RESULTS FROM THE HYPOTHETICAL ALLOCATION, CUSTOMERS
SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE RESULTS.

48

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