We often discover 'things that appeal to us' by experimentation. Our favourite foods, drinks, clothes, cosmetics, friends and partners are often located and confirmed through repeated personal experiments - show me the candidate; show me the evidence; let me select. In economics, this process is often referred to as 'revealed preference'.
IRISKAWARE follows a method of revealed preference to help you locate an investment framework for your portfolio that is acceptable to you - and based ONLY its risk of extreme loss.
The method presents you with a grid of 90 feasible investment strategies to choose from. By hovering the cursor over a grid square or clicking on a grid square, you will see the estimated RISK estimate for the underlying strategy - with NO other information.
For any risk strategy that you click in the tableau, you need to contemplate and consider the following information:
|In any month, there is a 5% chance the value of this portfolio could decrease by
MVaR% - and if this occurs, the expected loss for this portfolio will be MES%.”
Where MVaR% is an estimate of the ‘tail risk’ 5% cut-off point AND MES% is the expected loss associated with this strategy (including MVaR).
A simple decision context: here is a feasible investment strategy; these are its risk characteristics; do you like what you see? Using this approach, we avoid distracting concepts such as: ‘risk tolerance’; ‘risk attitude’; ‘risk appetite’; and ‘risk profile’ to get to an answer for the key question – “In any month, which portfolios are least likely to deliver me a loss that I am NOT willing to bear?”
IRISKAWARE helps you identify those investment frameworks that ‘let you sleep at night’ – based ONLY on your reaction to measured portfolio risks. The process continues until you locate 3 strategic frameworks with acceptable risk properties – at which point a ‘centroid’ is added.
The risk space defined by this framework explicitly defines an area of target risk that you are willing to bear in the portfolio implementation stage in IRISKONLINE.
A .PDF report is available (for a small fee) and may be shared freely with your friends and professionals.
Then, you may UPLOAD 1 or more of your preferred strategies into IRISKONLINE where they can be further modelled using investable securities on the ASX in accordance with the strategy.