Lone Wolf AsymmetricFinding Alpha with State-of-the-Art Risk Management

Let's face it, the Great Recession has changed the financial landscape materially and we all must learn to adapt. The rules and regulations enacted have created a variety of consequences with some being unintended. Significant capital burdens, fines and restrictions have made several major players rethink how and where they will participate in the marketplace. Some participants have deemed the rules and regulations so excessive that they have gone private and now only manage their own funds, others jettisoned their proprietary trading desks while a few retired from asset management altogether. Their decisions will have a profound impact on the industry as it creates a spectrum of problems - everything from illiquidity to a talent drain. Replacing them will be new managers who will need to be much more nimble, thoughtful, creative and innovative going forward. Lone Wolf Asymmetric believes its time has come to lead this change.

Let me set the stage, I have been trading and managing risk for over thirty-five plus years. During those years, I have come to question just about every modern finance and Wall Street theory. Subsequently, I have revised my thinking on how to manage risk and investments. Some financial topics such as Modern Portfolio Theory, perceptions of risk, correlations, efficient & rationale markets, distributions of prices, volatility, leverage and derivative use all have changed during my career. Subsequently, it is my desire to take those years of experience and adaptations to financial theory and show the world that there is a better way to manage money and risk. This then is the genesis for the creation of Lone Wolf Asymmetric.

We are an absolute return manager and are in business to grow capital at an above rate of return through asymmetric strategies. The asymmetric process starts when investment signals are generated from our back-tested trading systems. We then filter those signals out to find ones that are sympathetic to the current macro-economic environment. In essence we try and stay with the trend. However, we do use a similar philosophy that we learned from our association with Commodities Corporation. We can deviate from the trend but it will cost us in a variety of risk management ways - time, leverage, rate at which capital is employed, etc. The asymmetric strategies are then expressed through the use of optimized option strategies, leverage, market timing and rigorous risk management explained later in this paper. It's through our use of options that we are able to have strong hands and weather whatever storms that may occur in the bond, currency, commodity and equity markets. While others may refrain from certain markets, it's our ability to design strategies that conform to whatever environment that exists at the current time that sets us apart from other managers. The unique characteristics of options allow us to feel safe and confident even in extremely volatile markets. And this is why we are initially looking to raise $30-$90 million.

Despite whatever chaos that comes our way, it's the use of options in our investment process that allows us to keep risk low, allows for higher leverage and limits our losses while staying liquid.

We believe that this is the perfect time to launch ourselves. With liquidity drying up due to regulatory rules and cut backs in prop trading desks we envision more swings and volatility. Therefore, in a low yield environment with no real steady trends; it's strategies like our short-term and intermediate ones that can work well. The creation of asymmetric return strategies is perfect for investors looking for diversified equity-like returns but with limited downside risks. The benefit of our asymmetrical strategy is that we can trade less, leverage more and still keep risk contained to acceptable levels while getting above average returns for investors.

It's has been more than sixty years since Harry Markowitz, Eugene Fama and others developed what is thought of as the core of modern financial theory. Back then, Markowitz and fellow contemporaries were searching for a logical way to think about what were often chaotic financial markets. Hindering their efforts was their limited computational ability to back-test their ideas and assumptions on high frequency data and their distributions. For individuals at that time it was virtually impossible to get main-frame computer time due to the cost. Consequently, the personal computer hadn't been built yet. Likewise, certain derivatives such as equity option markets (1973) hadn't been established so Markowitz couldn't model their effects on portfolios. Since that time, some of the original financial theories have come under scrutiny in light of experiences and actual observations. The various financial calamities (the 1987 Black Monday stock melt-down, 1994 Mexico / Tequila crisis, 1997 Asian financial crisis, 1998 Russian financial crisis, the US Dot-com bubble, the sub-prime housing bubble, the Great Recession and the Greek government debt crisis to name a few) have led many investors to reexamine some of the key assumptions that lie at the heart of modern financial theory.

In the 1950s and 60s, MPT tried to provide a concise, logical way to think about financial markets, Since that time one empirical study after another has cast doubts on its ability to explain real world markets. Yet, many professionals and academics have decided to hold on to it anyway. Just a few years ago some professionals and academics came up with an alternative theory - behavioral finance. In an ideal world, a model lives or dies based on the empirical evidence. But in the case of MPT, many still choose to reject the real world rather than to discard the model in light of the overwhelming evidence against it. In these cases, the professional manager's decision is as emotionally driven as those of the typical error prone amateur investor!Markowitzs critics argue that financial returns do not follow a normal distribution and that correlations between asset classes are not fixed but can vary depending upon events. Further evidence shows investors are not rational and markets may not be efficient.

Modern portfolio theory and behavioral finance represent different schools of thought that attempt to explain investor behavior. Perhaps the easiest way to think about their arguments and positions is to think of modern portfolio theory as how the financial markets would work in an ideal world and behavioral finance as how financial markets work in the real world. Having a solid understanding of both theory and reality can help us make better investment decisions. Bottom Line - We Deal in the Real WorldWhile, it is important to study the various theories and review the empirical studies that lend credibility to them, in reality markets are full of inefficiencies. One reason for the inefficiencies is that every investor has a unique investment style and way of evaluating an investment. Some investors may use technical analysis while others will rely on a variety of fundamentals, while still others may resort to using a dartboard. Many other factors influence the price of investments, ranging from the emotional, to rumors, to the calculation of supply and demand imbalances. Clearly, not all market participants are sophisticated, informed and act only on available information. But understanding what to expect - and how other market participants may act - will help us make better investment decisions for our portfolios as well as prepare us for the markets reaction when others make their decisions.Knowing that markets will fall for unexpected reasons or rise suddenly in response to unusual activity can prepare us to ride out or take advantage of the volatility, thus eliminating decisions that we'll later regret. Understanding that stock prices can move with the herd pushing investor buying behavior past rational levels can stop us from buying overpriced tech stocks. Similarly, it can help us avoid dumping holdings into an oversold market when investors rush for the exits. We plan our actions and possible reactions prior to "pulling" the investment trigger. Our motto is "if you can imagine it, it can happen."Our experience and education can be put to work on behalf of your portfolio in a logical way, while still keeping alert for the illogical factors that influence not only investors' actions, but market prices as well. By paying attention, learning the theories, understanding the realities and applying the lessons we've learned, we can make the most of the knowledge that surrounds both traditional financial theory and behavioral finance.

The Next Step in the Evolution of Portfolio Management I have been trading and managing risk for more than thirty-five years. During those years, I have continued to question all of those modern finance and Wall Street tenets. Subsequently, I have revised a lot of my thinking on how to manage risk and investments. It is my desire to take those years of experience and adaptations to financial theory and show the world that "there is a better way to manage money and risk."

I believe a paradigm shift is occurring to the investment industry. The industry is being re-shaped by fear, politics and regulations such as Dodd-Frank, the Volcker Rules, Basel III, etc. which will have profound and unintended consequences on risk-taking, leverage, liquidity, volatility and possibly where you trade. In the not too distant future, we will see further taper tantrums, flash crashes and bankruptcies. As this shift occurs, street-smart individuals will realize that their investment processes are no longer working and possibly dysfunctional. Certain men and women who are more adaptable will see that the old rules no longer apply to the game and will then devise new processes to take advantage of the environment. As we see it, money management will embrace risk management to form the new paradigm or as we like to say it, "Asymmetric portfolio management - finding alpha with state-of-the-art risk management."

The essence of investment management is the management of risks, not the management of returns. - Benjamin Graham legendary investor

Lone Wolf Asymmetric Lone Wolf Asymmetric is an absolute return manager and is in business to grow capital at an above rate of return through the use of options, leverage, market timing and prudent risk controls. It's through the use of options that we are able to have strong hands to weather whatever market storms that may occur. While others may refrain from certain markets, it's our ability to design strategies that tap into the unique characteristics of options that allows us to feel safe and confident even in extremely volatile markets. Despite whatever chaotic environments that are thrown our way it's the use of options in our investment management process that allows us the unique ability to keep risk low, allows for higher leverage, limits our losses while staying liquid.

As researchers rethink theoretical models of the investment world, we anticipate that a key trend in portfolio management will be a focus on asymmetric returnsinvestment strategies that maximize upside potential while capping downside risks. The key to such strategiesand to achieving sustainable positive returns over timeis a dynamic risk-management process that limits the probability of large portfolio losses.

Business DescriptionThe idea for Lone Wolf Asymmetric came about from my thirty-five plus years of trading and managing risk in bonds, commodities, currencies and equities in the cash, futures and derivative markets. Fortunately, in my early formative years I learned from the best at Commodities Corporation (Mike Marcus, Bruce Kovner, Morry Markovitz, Grenville Craig, Craig Witt, Glen Olink, etc) which set the foundation for my future. They taught me how to look at markets and to test everything before implementing new trading ideas. They taught me that trading contains a good deal of psychology therefore my personal trading style must be in agreement with my own personality or it wouldn't work. They also taught me to have balance in my life.

I then improved on those lessons over the years as my career progressed and as I added more tools to my arsenal. Basically the system was designed because most of the institutions that I worked at had limited risk appetites and limited trade flows in which to take advantage. The system helped me to understand the market's psychological impediments as well as the global macro events that drove markets. In this way I was able to generate my own proprietary trading ideas while still staying within the risk parameters set by the institutions.

The system is a conservative one that is built to trade from both the long and short sides. It's a low risk trading strategy that creates steady gains but from time to time it has some large returns. The system likes to hold on to its gains and can handle a variety of economic cycles. It holds up much better than a buy and hold strategy. If you're risk averse like I am, then it's the perfect system. It allows you to (1) sometimes take large positions while allowing you to (2) sleep at night knowing that you have strong hands and can weather all storms. It (3) can allow you to hold in there during temporary market disruptions (market flashes) while others are forced out.

"Alpha is an Option" from Alexander Ineichen's book Asymmetric Returns The heart of Lone Wolf Asymmetric is its ability to use options in its investment management process. But it is not a structured product in which you buy a zero coupon bond and invest the rest in options. It is a lot more sophisticated than that. The use of options allows us to limit our risk to a known predetermined level while maintaining an appropriate amount of leverage. This is an important advantage in today's environment whereby regulatory bodies are forcing a de-risking of participants. Their exit from the marketplace has the unintended consequence of reducing liquidity which could make future investment endeavors even more challenging for some managers. Option usage allows us to create favorable asymmetric (uneven gain to loss) returns that are able to be expressed in a variety of options strategies. The optimized option strategies are generated from a proven trading system.

Lone Wolf Asymmetric has developed several technical signals that form the basis of our trading system. The system signals have been back tested over a forty year span in a variety of markets and over a variety of economic environments. The system generates signals that include a number of trade signal parameters (i.e. number of winners / losers, average holding time, average profit /loss, max profit /loss etc).

The second part of the Lone Wolf Asymmetric process starts when we plug in all the current option inputs into the appropriate pricing models. The models then generate the current prices and Greeks for all of our option strategies (outrights, spreads, in-the-money, at-the-money and out-of-the money options and various ratio combinations). This sets the baseline for the option costs from which comparisons and optimization will be based.

We then do a "modified what if" scenario. This is done by plugging in those particular individual trade signal parameters such as "the average holding time for a winner" and "the average profit" and re-calculating the option strategies results. In this way we are able to ascertain the option strategy which best optimizes the trade signal's parameters given the current market environment and pricing.

Optimization maximizes expected results by matching that trade signal parameters with the appropriate option strategy given the current market environment. However, in the event that we are wrong - wrong direction, taking too much time, volatility dropping more than forecast - we are able to make adjustments to either eliminate or reduce our risks with follow-up tactics or strategies. The risk management of our option portfolios is crucial to the overall success of the program.

Our investment and risk management philosophy is simple. We believe we have a trading edge. Therefore, in a game where you have an edge you are supposed to play steady, limit losses and play for the long-term so as to maximize the results of that edge. Basically we grind it out, it's not glamorous. Thus, we are happy to take small losses so that we can continue playing the game. However, we never want to take large catastrophic losses and get removed from the game. When you take large losses it's too hard to make it back. And you're then sometimes limited in what you can do and what markets you can trade. In addition, large losses can have an adverse psychological impact. Thus we are in business to manage two types of capital - monetary and mental capital. A drain of our monetary and mental capital is something that we strive to avoid. We are big believers in having a strong mental discipline when managing money.

"Compounding is the eighth wonder of the world" Albert Einstein.

Dynamic Risk Management: Winning by Not LosingWhile the strategies that we have outlined all offer compelling return profiles, they are not without risk, nor are they likely to be effective in all market conditions or macroeconomic environments. A sound, active risk-management process is an essential component of any trading strategy, as large losses can have a catastrophic effect on the long-term returns of investment portfolios. Although a great investor may have a long stretch of winning years in a row, a handful of large losses could wipe out all these gains if there were no strategy to protect profits and limit losses. After all, a loss of 50% in a portfolio requires a subsequent gain of 100% just to break even again. Furthermore, as the recent financial crisis illustrates, the downside risk of the market is much greater than what one would expect from theory. At the heart of modern portfolio theory is a bell-shaped curve that shows a symmetrical normal distribution of portfolio returns around a mean. However, in reality, the tails of the distribution are much fatter than whattheory predicts. The daily distribution of stock returns on the S&P 500 Index, for example, has been shown to more closely fit a T-distribution with relatively fat tails.

Table shows various Percentage Losses, Actual Losses and Values after Losses in first three columns. Columns four and five show the subsequent Percentage Gains and the Time (in years) needed to recover from loss levels while growing at historic 8% rate. Table shows the effect of keeping losses to a minimum.

A dynamic risk-management strategy to limit the impact of extreme events is therefore a key component of portfolio management. As sports fans are aware, it is often a good defense that wins championships. Ideally, it is desirable to obtain an early warning signal before a crisis takes place. Therefore, we are always reading reports and checking our technical indicators for inconsistencies and possible reversals. However, tail events tend to be triggered by unpredictable factors, and market crashes all follow different paths. The beauty of using options is that they can automatically self-correct (delta changes) when hit by a sudden Black Swan event. Furthermore, once a crisis occurs and investors are rushing for the exits, it is too late to buy insurance, as the cost of protection becomes prohibitive. The cost of insuring an investment-grade bond portfolio spiked sharply from late 2007, well before the Lehman shock. But for some of us that recognized what was going on we were able to sidestep that land mine.

It is our firm belief that a strong risk management approach to loss control will win out in the long run even if we don't produce the highest returns in a particular year. The ability to not lose large sums but instead to keep what we have while using our edge to build upon our winners helps us to compound growth faster than other managers over time. Eventually the way the asymmetric process works is that we'll eventually get some very large winners that will put us as the top of the rankings very much like when we managed money for Commodities Corporation in their Trader Evaluation Program (TEP) coming in second to Paul Tudor Jones with a 300% return.

Table below shows the significance of keeping losses contained while letting the power of compounding work for you. The table highlights the importance of cutting losses early. It further points out that "undervalued" can stay "undervalued" for a long time.

Lone Wolf Asymmetric provides several investment programs that can hopefully fit a variety of client objectives and risk appetites. As researchers rethink theoretical models of the investment world, we anticipate that a key trend in portfolio management will be a focus on asymmetric returnsinvestment strategies that maximize upside potential while capping downside risks. The key to such strategiesand to achieving sustainable positive returns over timeis a dynamic risk-management process that limits the probability of large portfolio losses.

In one of the most recent examples, the 2008 global financial crisisthe markets saw a spike in volatility across a multitude of asset classes. Thus, investors were reminded that they needed more than just an investment process for the upside. They needed a strategy to also protect their capital from downside risk, if they wanted to succeed in the long run. The market crashand the subsequent sovereign-debt crisis in Greece and other peripheral European nationshas led many investors to reexamine some of the key assumptions that lie at the heart of modern portfolio theory: the notion that markets are efficient and always liquid; the belief that diversification among asset classes can provide shelter in a crisis; and even the idea that there is such a thing as a risk free asset.

Altering the Return ProfileFor the traditional long-only investor, alphaor the return earned in excess of the overall marketis elusive. Generating alpha is a classic zero-sum game; one investors gain is another investors loss. And thats even before taking fees and transaction costs into account. In order to consistently beat the market as a long-only investor, it is necessary to have an edge over the competition in fundamental or quantitative research. But in a digital age when investors have instant access to information maintaining such an edge is no simple task. For most typical assets, the payout profile of an investment is linear; for example, an investor buying a stock at $75 stands an equal chance of making a large gain as a large loss. The investor would lose 100% of his investment if the price falls to zero, or double his money if the price rises to $150. But what if it were possible to bend the line of this return profile, so that the investor could preserve most of the upside potential when the market rises, but limit his downside risk when the market falls? One way to do thisand improve upon the typical zero-sum outcomewould be to buy a call option on the underlying asset. A call, gives the buyer the right to buy an asset at a predetermined strike price, and allows the purchaser the right to maintain most of any upside gains. However, if he market moves to the downside, the call buyer's maximum loss is restricted to the size of the premium paid for the option.

Chart below shows a purchased call option. The payoff is asymmetrical in that the loss is limited to the premium paid. However, once above the strike price the upside is unlimited less the premium paid. Keeping losses contained while letting the power of compounding work for you is the way to build long-term assets.

Many investments have similar option-like characteristics and nonlinear return profiles. In the fixed-income markets, this important property is known as convexity. Positive convexity is a highly sought-after property, since a strategy with positive convexity has an asymmetric payoff profile; the upside potential is greater than the downside risk.

The search for positive convexity is at the heart of generating asymmetric return profiles. Such return profiles have traditionally been difficult to attain for the long-only, buy-and-hold investor. But for those open to a multi-asset, global opportunity set consisting of using derivatives, a variety of effective strategies is available. Many of these strategies can be expensive; the challenge is how to introduce convexity into investment portfolios at reasonable cost.

While Asymmetric and Behavioral Portfolio Management reject the basic tenets of Modern Portfolio Theory (MPT), the careful and rigorous statistical analysis of historical data remains.

The traditional long-only investor looks at the investment universe and sees distinct opportunities within different asset classes such as stocks, bonds and currencies, or sees opportunities from shifting among them. Investors in each of these asset classes typically focus on different fundamentals. Equity investors are generally most concerned with the ability of the firm to grow its earnings over time; corporate debt investors are more interested in the strength of the firms balance sheet and its capacity to repay its debts; and currency investors look carefully at macroeconomic indicators such as interest-rate differentials and inflation.

But, as recent events illustrate, volatility is a common link between asset classes, and the returns on these different asset classes can be highly correlated in times of crisis. There are several reasons for this. For one, the prices of most assets are influenced by macroeconomic factors such as interest rates and GDP growth. Changes in market liquidity can also affect multiple asset classes at once, particularly in crises. Whether exploiting the value premium in equities or the interest-rate differentialor carrybetween currencies, the returns from most active strategies suffer when volatility spikes.

From a theoretical point of view, the options market also provides a link between different asset classes. For example, Nobel Prize winner Robert Merton showed in the 1970s that the equity and corporate credit markets are intimately connected: Holders of risky corporate bonds can be thought of as owners of risk-free bonds who have issued put optionswhich give their owners the right to sell at a predetermined strike priceto the holders of the firms equity. Similarly, equity holders can be thought of as holders of a call option on the value of the firm, with a strike price equal to the face value of the firms debt.

In fact, as a more general result, options theory (assuming a European-style option) shows that a long position in any physical asset can be replicated with a long call option, a short put option and a cash position. Without delving into the mathematics behind these results, they have important implications: Since volatility is highly correlated across asset classes, in some cases investors can replicate an asset by assembling puts and calls from different underlying assets. Viewing the world through this options lens opens up a wide range of investment opportunities to profit from pricing anomalies across markets.

Improving the OddsThe typical investment outcome is a zero-sum game closely resembling a coin toss: tails I win, heads I lose. A far more attractive proposition is the positive sum game in which the actions of one group of investorsfor example, a pension fund forced to sell its bonds after they are downgradedcan benefit another group of investors that is unconstrained enough to take advantage of the opportunity. Even more attractive are asymmetric opportunitieswhich are often event-driven and require a catalyst to capture valuethat offer the prospect of outsize gains in the case of success, with limited risk to the downside. A variety of anomalies and market inefficiencies lies behind these opportunities.

For example, different investors have different utility functions or preferences. In some markets, certain players can be relied upon to consistently take one side of a trade; for example, US multinational companies with substantial operations in Europe will likely want to hedge their euro exposure to mitigate the risk that currency swings will reduce the value of their earnings in dollar terms; such players may be happy to pay a premium for options that protect them from such adverse movements.

Because investors are highly risk-averse, they are often willing to pay hefty premiums for the portfolio insurance afforded by put options. For this reason, in many markets put options are more expensive to buy than call options. Similarly, since investors are generally more concerned with protecting themselves against near-term events, short-dated options are often overpriced relative to longer-dated options. All these anomalies can potentially be exploited by investors with different utility preferences who are willing to take the other side of the trade. For example, an investor concerned about a downturn in the economic cycle could buy insurance by loading up on low-priced, long-dated options before the cycle turns.

For investors who have the skills and experience to identify the kinds of anomalies above, it is often possible to construct investments with attractive, asymmetric return profiles that maintain significant upside potential while limiting downside risk. Unlike typical long-only strategies, many of these strategies are not directional bets, and their success is typically not dependent on getting it right on the fundamentals. In addition to strong return potential, such strategies also tend to have low, or even negative, correlations to broad market indices. While some of these strategies can also be utilized to generate convexity in typical long-only portfolios, unconstrained investors who can access a full, multi-asset, global opportunity set and who are open to the use of derivatives are best placed to exploitthe inefficiencies and anomalies that we have examined

From time to time, economic turmoil or widespread deleveraging can lead to significant volatility in the foreign exchange markets. With some $5 trillion traded daily, the foreign exchange markets are highly liquid compared with other asset classes. Since currencies are traded in pairs, they are also simple to short. Furthermore, due to high liquidity in the currency options markets, derivatives strategies can be employed to mitigate risk and potentially enhance returns.

Take the example of a currency that is facing fundamental issues, perhaps due to a banking crisis that has raised expectations for interest-rate cuts. In this case, an investor could potentially generate attractive returns by shorting the foreign currency. However, in periods of high volatility, this strategy is risky, as a sudden reversal in the currencys downtrend could generate large losses.

Charts below show Monte Carlo simulations. The first 19 weeks of each chart have identical paths but after that their paths change dramatically. This reflects the theory of many possible outcomes but only one that we finally realize after looking in retrospect. This also shows that we need to be flexible thinkers and adept as markets change.

Nearly halfway through this presentation and now I get to interject a couple of stories related to time and investing. The first deals with current events. Presently, it's 2015 the equity markets are dealing with a variety of issues, China is slowing down, commodities are falling, oil is falling, the dollar is gyrating all over the place, bonds are trading within a range and the Fed is still trying to decide whether it wants to raise rates. I see on Bloomberg TV a professional equity manager telling me that he can't predict what's going to happen in the next couple of months but he can reassure me that in two to three years I'll be happy that I invested today. My interpretation is that you're crazy! Did you understand what you just said to us all? First, you have no clue as to what's going on right now. Secondly, you have no clue as to what is even a safe haven. Thirdly, how do you know things are going to get any better if you don't understand what's going on presently? Basically you're relying on hope. And for anyone trading the markets for any length of time they will tell you "Hope" is not a good plan. Basically, this gentleman wanted us to catch a falling knife without any clue as to what we were getting into (risk/reward potential). How irresponsible is that? Just because something is cheap doesn't make it a value play and an automatic good investment. Sometimes prices fall for a valid and sustainable reason. In other cases, it may take years for a company to turn itself around if at all. Currently, in the news are the firms VW, Glencore and Valeant. The fundamentals are fuzzy at best and still a lot needs to clear up before a rationale decision can be made on their prospects. We'll have to wait and see. The second story relates to a debate that I had with one of my bosses years ago. If you have a background in technical analysis you'll understand this debate. It has to do with a formation called a rounded bottom. Normally these are seen in raw metals markets where supply is heavy and weighs on demand for a period of time. In some of these markets it can literally takes years for unproductive mines to shutdown before demand pick-ups and overtakes the supply again. But when it does occur, it usually is a rocket launch move to the upside. So the debate raged around the idea of "yes" you can easily pick the bottom of this formation but does that really help you any if the move doesn't occur until three years from now? Aren't you just tying up capital that could have been used more productively in other investments? And can't you come back later at a more appropriate time to catch the move?Chart from Alexander Ineichen's book Asymmetric Returns (p14). Chart shows that volatility matters. It makes no difference when you suffer a catastrophic 50% loss - either at the beginning or at the end - the results are terrible so design strategies that eliminate the possibility. Stay consistent and keep losses small.

"Time" Is A Precious Asset That Needs to Be Managed As WellIt's my belief that a lot of professional asset managers and individual investors don't understand the importance of time let alone its role in the investment process. Let me explain the significance of time and how it relates to not only our investments but to us as humans. Last year my brother died of cancer. He lived an extra eighteen months from the time he was diagnosed with stage four pancreatic cancer to the day he passed away. He was originally given six months to live but that was extended because he entered an experimental cancer treatment program. I remember as the one treatment was shrinking his tumors he was hopeful. But a little time later the tumors weren't shrinking anymore. The doctors told him that program had done as much as it could. They then asked him if he would be willing to try another program and if willing would he read over the new agreement documents and sign them. He said, "I don't need to read them, I'll sign".

Those two programs gave him hope and added an extra year to his life. Everyone was grateful. The doctors learned a lot from his treatment and some of the methods that they used on him are being used nationally today. We - the family were extremely appreciative because we got to spend extra time with him in his role as son, brother, father and husband. We were all grateful to spend extra time with him to see his courage and his optimism despite the long odds. During those last eighteen months I never saw him have a down day. In those precious eighteen months he did everything he could imagine. Despite the sick days from the chemo treatments and the intense pain especially near the end he never complained. He did as much as could - he went to his one son's wedding in the Bahamas, he saw the birth of his first grand-child and he beat me in a round of golf. He also wanted a Mercedes-Benz and he got that as well. He drove it only once with a friend to lunch who was also suffering from cancer. So the point that I am try to get to is that "Time" is precious let's not squander it. "Time" is something that we never have enough of and lost "Time" can never be found again. So squaring the circle, let me relate this back to investing. So when it comes to your money and your investments don't squander the little time that you may have. Yes, you may think you have a lot of time to work with but then again as we saw above depending on what happens to your investments (significant losses) you may not. Instead try and make the most of all the time that you are given. Remember someone like my brother, who wasn't going squander what little time he had but instead was going to be as productive as he could be with the little time he had left.

ConclusionWe need to have an investment philosophy in which our money should be as productive as possible in the time that we have it and exposed to limited downside fluctuations. Because we don't know exactly how much time we'll have to build our nest eggs and exactly when our money and investments will be needed. The vast majority of us can't be like Warren Buffett. We just don't have endless streams of cash for investments that never get disrupted and are allowed to compound endlessly. Instead most of us have real lives with real factors (births, deaths, sickness, marriages, divorces, educational bills, home purchases, job losses, etc) that impact our investments. Therefore, your money should be as productive as it can be while you have it. Accordingly, it should be able to pickup right were you left off when you return to investing. If you're sitting waiting several months to several years for an undervalued move to occur that's lost time that you can never recover. Instead your money could have been working on some other more time favorable opportunities. Investors should be trying to get out of life and their investments as much as they can everyday. Remember you can always find another investment opportunity but you can never find more time.

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Sheet3

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Sheet3

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