Mac Murray

When Failure Is Not an Option: The Stewardship of Your Financial Future

"We have  a "zero fail" mission."  Colonel Mark Tillman, head of the Presidential Airlift Group
“We have a “zero fail” mission.” Colonel Mark Tillman, head of the Presidential Airlift Group

In Pursuit of Zero Fail

When it comes to certain tasks, the consequences of failure are so negative and far reaching they are almost too terrible to contemplate.

One such task is safely airlifting the President of the United States on Air Force One.  Other “no fail” occupations would be the operation of nuclear power plants or the deployment of ballistic nuclear submarines.

For those involved in such work and for those whom they serve, failure is not an option.

NUCLEAR PLANTBOOMER

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Speaking as an individual investor, I can think of a thousand reasons why I also consider the faithful management of my monetary investments a “zero fail” mission.  Insofar as the financial future of my loved ones is on the line, including the goal of providing resources sufficient to educate my children and leave an inheritance for even their children, failure is not an option.

Chinese Blue Marble 4 Dots

Fiduciary Duty

Speaking for brokers, financial advisers, and investment managers, when it comes to our fiduciary role–being entrusted with the holy task of the faithful stewardship of investors’ hard-earned money–failure is also not an option.

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Chinese Blue Marble Half Slice

“A fiduciary mindset is simply a mindset that says my clients come before I do.  Service to others before service to self.”

–John Bogle

Chinese Blue Marble Half Slice

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The Yin & Yang of Fiduciary Duty and Risk Management

Virtually all of the systems engineered for use in “zero fail” environments give primacy to risk management.  Money management at its core is defined by having a robust method of managing risk.

This requires a system designed to operate without failure under a variety of conditions.

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“Unprecedented Events”

Black Swan AIf there’s one thing that has humbled many a quant and risk manager in recent years, it’s the sobering reality that no amount of mathematical modeling can anticipate an infinite number of unexpected events.  We’re referring here to the extraordinary–otherwise known as “outliers”, “exogenous price shocks”, “Black Swan” events, and the like.

Black Swan BNevertheless, financial markets are unique in that whatever happens is limited to only 2 possible expressions of price movement–up or down.  Because of this, it is possible to prepare a defensive response in anticipation of  catastrophic downward movement, irrespective of the cause.

This contingency has already been integrated into our risk management protocol.

Chinese Blue Marble Half Slice

“We have made our business managing risk.”

–John W. Henry

Chinese Blue Marble Half Slice

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In my role as a fiduciary, my obligation to act in the best interest of investors is expressed in 4 key ways:

  1. Total Responsibility:  I am personally responsible for the faithful safekeeping and management of my clients’ investment in accordance with our investment agreement.  I personally establish and maintain all risk management parameters.  And I personally oversee all buy and sell orders.  This is not to say we won’t encounter challenges, slippage,  or adverse market conditions.  Nevertheless, I do not farm out, outsource, or delegate any responsibility for my clients’ investments.  The buck stops with me.
  2. Rules-Governed Trading:  We deploy a complete trading system, which in our case is a trading plan based on the most time-tested trading methods of the 20th century adapted for use in the Philippine Stock Market.
  3. Mechanical Trading System:  Systematic execution of our Rules Governed Trading plan.  This removes emotion and impulsive decision-making from the trading process.  The result is lessened risk associated with the weakest link of any trading system–the trader.
  4. Fixed Downside Risk:  Our proprietary risk management method derived from the single most important aspect of trading–position sizing.

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Back to

Our Investment Approach:  Riding Giants at Very Low Risk.  Chapter I  Big Wave Comin

Chapter II The Take Off:  Dropping In Without Wiping Out

E. M. Murray--Managed Accounts featuring Fixed Downside Risk
E. M. Murray.  Customized Stock Portfolios.  Professional Management.  Fixed Downside Risk
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