Every fund manager knows all too well that to get maximum returns, expertise on selection of assets is not enough. The fund manager must consider several factors as well. One of the most important factors that come into play is risk management. However, it is also one of the most overlooked. Not all fund managers do an analysis of their market risks.
Market risk is the sudden and unanticipated financial loss that follows after a market decline resulting from events that are out of the fund manager’s control. The explosive nature of the bond and stock markets can be the upshot of unwanted sudden events and occurrences in all corners of the globe. No matter how trained, specialized or competent an analyst or fund manager is, such events simply cannot be predicted. There are no resources capable of doing so.
Some of the unexpected events that shocked the world and sent tremors throughout the financial and economic community include the devaluation of the Mexican Peso during 1982, the 1987 “Black Monday” stock market failure, the Savings and Loan Crisis in the United States during 1989, and only last 2006, the Hedge Fund Amaranth flopped and the financial loss was approximately $5.85 billion.
Many companies have now developed risk measurement techniques that are efficient but still not perfect. When a devastating event will happen and how big would be the fallout after is still unpredictable. Hence, nobody is immune.
The best thing to do is hire the services of Commodity Trading Advisors (CTA’s). They understand the process more than anyone else. They have the ability to eliminate market risks greatly. Hiring one could be expensive but with what they would be able to do you for, it is worth the money.
Tags: Shares, Stock Market