- What does the portfolio of a gambler look like? And how does it differ from a true investor?
- How to identify and mitigate a gambling risk and what causes it specifically?
- Effective tools and strategies to help clients navigate these unprecedented market dynamics.
New Age Alpha’s Koski On Managing Risk Like An Actuary
Julian Koski, co-founder and CIO, New Age Alpha, discusses mitigating risk caused by human behavior by avoiding companies that are priced with vague and ambiguous information.
Diverging from traditional asset management ideas, and instead drawing from the philosophy of insurance, New Age Alpha has reimagined asset management to avoid risk that’s driven by human behavior. Koski’s philosophy is to “manage risk like an actuary, not like a portfolio manager.” He uses this mindset to emphasize the importance of eliminating loss, and avoiding the “loser” stocks, instead of picking the next “winning” stock.
When building a portfolio, most investors want to choose the “winning” stocks to invest in, which involves some aspect of predicting the future. Koski notes that investing with this mindset can lead to undesirable outcomes. “The more you forecast an unknown future, the more you’re increasing the odds you’re going to be wrong and invest in a loser,” Koski says.
Rather than attempting to predict an unknown future, New Age Alpha’s technology is built around avoiding losers. Koski defines a “loser” as a company that’s overpriced, an outcome that occurs because of human behavior.
In order to measure and avoid loss, New Age Alpha uses Human Factor probability, which looks for where there’s a lot of vague and ambiguous information being priced into stocks. The companies that have this ambiguity, routinely underperform stocks that don’t have ambiguous information priced into them. “The more vague and ambiguous information they price into a stock, the more they’re increasing the likelihood that the company won’t deliver the growth,” says Koski. So, New Age Alpha’s investment philosophy focuses on eliminating loss by avoiding companies with vague information.
New Age Alpha aims to build a family of ETFs designed to mitigate risk from human behavior. New Age Alpha’s ETF AVDR US LargeCap Leading ETF (AVDR) removes 450 of the stocks with the highest Human Factor score from the S&P 500 universe to create a 50 stock portfolio designed to generate an additional amount of alpha. These 50 stocks have the same standard deviation as the underlying S&P 500, and they provide better upside capture and lower downside capture. New Age Alpha’s other ETF, AVDR US LargeCap ESG ETF (AVDG), seeks to increase alpha by avoiding low-rated ESG companies and highly-priced stocks that are likely to fall short of predicted growth.
To learn more, register and watch New Age Alpha’s webcast: Investing, Gambling, & Gamification – New Market Dynamics Demand New Portfolio Risk Metrics.
This in-depth presentation covers: