CAPTURE!: ACHIEVE RETURNS, NOT BEAT-THE-MARKET (percent of ...

GAINS

(this is the required % of gains in up months needed to match stock market returns)

100%

CAPTURE!: "ACHIEVE RETURNS", NOT "BEAT-THE-MARKET"

(percent of gains needed to meet market returns: 50 years 1969-2018)

90%

80%

84%

70%

69%

60%

50%

55%

40% 30%

20% 26%

40%

10%

0%

0%

20%

40%

60%

80%

LOSSES

(if the portfolio experiences this % of losses in down months in the stock market)

Copyright 2006-2019, Crestmont Research ()

100%

100%

The stock market is much more volatile than most investors realize. Two volatility gremlins--the disproportionate impact of losses and the friction loss from the dispersion of returns--significantly reduce the compounding of returns. Many absolute return-oriented investment strategies recognize this dynamic and seek to enhance investors' compounded returns by providing a more risk-managed and consistent return profile. "Capture" is one way to measure and illustrate the effectiveness and benefit of this approach. Whereas the 'relative return' investor (tracking stock market indexes) will generally experience 100% of the downside and 100% of the upside to achieve market returns, the 'absolute return' investor only needs a fraction of the upside when downside losses are limited. The graph above illustrates just how little of the upside is needed to match stock market returns over time and it demonstrates the way that many absolute return strategies exceed stock market returns without having to "beat-the-market" each year...

Copyright 2006-2019, Crestmont Research ()

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