Dacris MarketRisk FAQ
What is MarketRisk and Risk-Centric Investing?
MarketRisk is a Windows software application that can be used for risk-centric investing. Risk-centric investing is an investing technique that focuses on keeping risk constant and limited throughout your investing journey.
"MarketRisk is my map for navigating the markets. I can see which assets are overvalued / undervalued, and instantly determine how much I should invest."
- Dan Tohatan
Risk is defined as the maximum one-year potential decline in your portfolio's value, throughout your portfolio's history. Risk often occurs due to overvaluation, i.e. when an asset price is way above its historical average. Risk is reduced when an asset is undervalued, i.e. its price is way below its historical average. In a way, risk-centric investing is similar to value investing, in that it seeks to maximize investment into undervalued assets.
Depending on how quickly you grow your risk tolerance, you can use MarketRisk for growth investing, blend, or income investing. For example, if your risk tolerance only grows by the inflation rate, you are doing income investing. In income investing, most of your portfolio's gains are realized immediately and turned into income. If your risk tolerance grows by a large amount, say 8% in real terms per year, you are doing growth investing. In growth investing, most of your portfolio's gains are reinvested and grown over time, not realized immediately. There are advantages and disadvantages to every investing technique. The beauty of risk-centric investing is that you know how much you are risking, so in theory your money is safer over time.
What are the advantages of using MarketRisk?
- You know your risk (in $)
- You can limit your risk to a specific amount
- By investing in low-risk assets more, you get higher returns with less volatility
- By investing in the low-fee ETFs recommended by MarketRisk, you avoid losing up to 40% of your investment to high fees
- You stick to a discipline that is automated and back-tested over at least 50 years
- You avoid the high-risk assets out there, like crypto, which can result in 100% loss
Ask yourself, "How much would I pay for an additional potential 110% return (or more) over 15 years on my investments, and the ability to limit my risk?" 10% of your portfolio? $5000? How about just $135? A little more than an investing book.
What are the assets it supports?
MarketRisk supports 9 investable assets presently:
bonds (US, CA), Dow, S&P 500, S&P/TSX Composite, gold, silver, platinum, and palladium.
What does it recommend?
MarketRisk calculates the valuation risk in each asset in your portfolio, and recommends a position size for the asset in US $.
What is the best performance it can achieve?
A return of 2347X from 1970 to 2020, or an annualized rate of return of 16.79%.
Combination: Dow, gold, palladium.
Note: Past performance is no guarantee of future results.
How does that compare to equal-weight allocation?
For the same combination (Dow, gold, palladium), annual return is 65% greater, with 30% less risk, by using MarketRisk's allocation algorithm versus equal-weight $ allocation.
What results can I expect?
Although we do not guarantee any particular result, we are confident that by applying the algorithm we developed, you will get an up to 5% higher annual return on your portfolio with 3 or more assets versus an equal weight allocation, averaged over a period of 15+ years.
In addition to that, we claim that your downside over 1 year will always (99% of years) be limited to what the program calculates as "amount risked", which is limited to your own maximum risk tolerance.
"There is no panacea in investing. There is only discipline. And if you are disciplined, the best you can hope for is slightly more than the average market return - 10%. Even the best investors out there do not get more than 15-20% over the long term. You can spend all your waking hours analyzing the market and still not have much of an edge. I created MarketRisk for peace of mind in investing, as a result of 2 years of research. It is not for everyone, but its thesis is central to value investing: risk must always be considered first, and be limited."
- Dan Tohatan
How does it work?
First, we must calculate risk for each asset. This is calculated by looking at the ratio of price to money supply, in relation to the average ratio of price to money supply since 1929. The risk is then proportional to the ratio between current price / money supply and average price / money supply. Risk is defined as the maximum 1-year loss relative to an expected rate of return of 15.5%. If we can lose 4% in a year, the risk is 19.5%. Because this is a maximum, it is intended not to occur, within at least 100 years.
Next, we must calculate position sizes recommended for asset allocation for the portfolio. For this, we allocate more to the lower risk positions and less to the higher risk positions. The end result is that the total risk must be conserved. That is, the total risk of all positions must be equal to your own risk tolerance. This way, we preserve the primary premise: total portfolio risk is limited to your maximum risk tolerance.
MarketRisk has many layers of built-in discipline, from multiple margins of safety of at least 20%, to allowing only 10-15% at a time to be bought per year (for dollar cost averaging), to allowing only up to 20% of a position to be sold in a given year. Take advantage of these smart algorithms to build some discipline into your investing strategy.
What influenced the thinking behind MarketRisk?
The idea came to me as I studied investing and how we make investment decisions. Without knowing about Seth Klarman, I came up with the hypothesis that risk should be considered first in investing, without even looking at returns. This turned out to be right after rigorous back-testing. But the idea coincided with a book review video I saw of "Margin of Safety" by Seth Klarman. Until then, no one had explained to me what process great investors use to achieve the results they do. When I learned about Seth Klarman's risk-first approach, it all made sense for me. We should always allocate according to risk. Valuation primarily determines risk. So that is when I realized that M2 money supply could be used as a guideline for average valuation of large-cap long-history securities. In my analysis of market prices going back to 1929, I detected a pattern - that prices tended to vary over the long term in line with money supply growth.
Can I use MarketRisk to make trading decisions?
MarketRisk is not a trading app. It helps you make long-term investment decisions. Portfolio adjustment happens once per year with MarketRisk. It is not intended to be used for short-term trading. If you are trading, there are other tools out there that you can use.
How can I use MarketRisk for financial planning?
Run MarketRisk once a year, at the start of the year, to figure out your annual asset allocation for your portfolio. You can use MarketRisk's HTML report to make decisions about what to buy, which ETFs, and how much. While MarketRisk is not intended to fully replace your financial advisor, its portfolio manager can provide unique insights and research, including backtesting for its automated investing strategy. MarketRisk does not provide tax advice, however, so you would still need an advisor to get a plan that fits your needs. However, MarketRisk can provide higher average returns over long periods of time, thanks to its risk-centric algorithm.
How do I order?
Order Online for $135 CAD today. Our closest competitor will charge you over $4000 a month.
Now available for Linux
If you are running Debian / Ubuntu / Pop!_OS, you can get a version of MarketRisk that works natively on your system. Just send us an email after ordering and we will email you the build and support you in installing it. We are looking forward to providing support for Linux users going forward!