All blog content is for information purposes. Any reference to indivisual stocks, indexes, or other securities as well as all graphs and tables are not recommendation but only referenced for illustration purposes.

Audacity Rallies

The Audacity Strategy gained +13.7% for the week while the S&P 500 was higher by +0.4%. This brings Audacity back into positive territory for the year while the S&P 500 remains lower by -8.0%.

Built-in Risk Controls

It was an extremely volatile week for both Audacity and the S&P 500 as investors reacted to news regarding the coronavirus. Audacity has multiple built-in risk controls including one that reduces the total exposure, and therefore reduces risk, when volatility increases as it has.

Exposure is the amount of stocks in the portfolio relative to the amount of investor’s capital. The goal is for Audacity to have $8 of stocks for each $1 invested or exposure of 8 to 1. This is done through borrowing. Note that the stocks in the Audacity Strategy are always a combination of long and short positions.

Audacity Exposure

As volatility increases, moving above its long-term average, Audacity will automatically reduce its exposure, again, reducing risk. This occurred many times during in the research on the strategy back to 1963. Most recently, exposure was reduced in September of last year, to a ratio of $6.40 to $1, when there as a stretch of heightened volatility. This again happened on Friday reducing the exposure to a ratio of $4.80 to $1. This will reduce, but certainly not eliminate, some of the volatility in Audacity.

What Next?

There’s no way to know what comes next. The obvious answer is more volatility and I suppose this is likely. Volatility though can disappear as fast as it came upon us in late January.

Regardless of where the market goes next, the performance of our Audacity Strategy will continue to have its good and bad days sometimes doing better than the market and sometimes worse. As more time passes, and as research shows in last week's blog, odds will remain in our favor that Audacity will continue to deliver better than market performance.

Contact Mark A. Patton :