Risks

There are many risks involved in any investment. Following Beat The Dow investment strategy is no exception.

Specific investment risk

Beat The Dow strategy aims at decreasing the (risk / expected return)  ratio of an investment in the Dow Jones Industrial index (djia). It is important to understand that Beat The Dow strategy uses leverage in order to beat the Dow Jones Average.

Beat The Dow model can have three positions:

  • leverage 1: in this case Beat The Dow matches the Dow Jones Industrial index performance
  • leverage 2: Beat The Dow matches twice the Dow Jones Industrial index performance
  • leverage -1: Beat The Dow matches the opposite of the Dow Jones Industrial index performance

When the leverage is 2, Beat The Dow strategy asks that the position be $2 in the Dow Jone Industrial Average for every dollar in the account. When the leverage is -1, the strategy asks that the position be short $1 for every dollar in the account.

Periods with a leverage of 2 are riskier since the investment bears twice the market risk: a drop in the market of 10% will translate in a drop of about 20% for Beat The Dow strategy. A 50% drop in the Dow Jones Industrial would wipe out most value. The periods during which the leverage is 2 can last a couple weeks or months. A longer period increases the risk.

When the leverage is 1 or -1, the risk is comparable to the Dow Jones Industrial index risk.

When the leverage is -1, a gain in the Dow Jones Industrial index will expose Beat The Dow strategy to a loss of the same magnitude as the index gain.

Obviously it is a part of Beat The Dow strategy success to try to assess when the leverage can be increased or should be decreased. There is no warranty that Beat The Dow will work and beat the DJIA.

Because of these risks, Beat The Dow strategy may severely underperform the DJIA for a period of time and/or lead to a loss.

Please note that the maximum leverage is 2. Beat The Dow risk is less than a permanent leverage of 2.  Therefore risk stays at an acceptable level for most investors. As a comparison, many investors in the Options or Futures Market use leverage of 10, 100 or more, though usually for a short period of time.

Risk is also decreased because Beat The Dow model is based on buying/selling the Dow Jones Industrial index, which has less volatility than a single stock, or an option on a single stock (which is the riskiest choice).

With Beat The Dow level of risk there is no chance an account would be wiped out in a day under regular market conditions.

Implementation risk

In theory exposure is adjusted daily in order to respect a leverage of -1, 1 or 2 depending on the model position. This is not practical in the real world: for instance a single CBOT E-mini Dow ($5) futures gives an exposure of 5 times the Dow Jones Industrial index value.

Therefore the exposure can only be adjusted incrementally, one DJIA future (or any other investment vehicle) at a time, while the underlying cash position varies continuously. For this reason, the investor will have the choice between over exposing or under exposing his positions versus Beat The Dow model. Over exposing will increase risk.

Technological risk

Beat The Dow model changes position based on information it obtains from market data providers.

Should the data become unavailable or false, especially the DJIA, Beat the Dow will not be able to adjust position or may make erroneous changes of position.

Beat The Dow own information system may also experience technical failure. The Internet may not work. In these cases Beat The Dow website may not be updated or become unavailable, and e-mails may not be sent.

Webpages in another language than the English language were automatically generated. This may result in erroneous information being displayed in foreign non English languages. Please refer to the English pages in case of doubt.

Beat The Dow does not warrant that any data provided is accurate. Data is provided on a best effort basis. You must check the accuracy of any data obtained from this website before making any investment decision. ANY PRODUCT OR SERVICE OBTAINED OR ACCESSED THROUGH THE SITE, IS PROVIDED “AS IS” AT USER’S OWN RISK AND WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED. NO LIABILITY FOR ANY ERROR OR OMISSION IS ACCEPTED. OUR LIABILITY SHALL BE LIMITED TO THE TOTAL AMOUNT YOU PAID US.

General investment risks

The value of an investment following Beat The Dow strategy will vary from day to day depending on many factors. Stock values, and therefore the DJIA, fluctuate in response to the activities of individual companies, as well as general market, economic and political conditions/events. Following Best The Dow strategy may lead to a gain or loss.

Any investment is subject to friction costs such as interest rates and transaction costs. These costs have a small negative impact on performance. They have not been included in the data provided in this Website.

Technical failure or general failure, such as market crash, lack of liquidity of the stock market or of the futures market or failure of a broker may expose to severe loss.

The trading of stocks, futures, commodities, index futures or any other securities has potential rewards, and it also has potential risks involved. Trading may not be suitable for all users of this Website. Anyone wishing to invest should seek his or her own independent financial or professional advice.

More information

The Financial Industry Regulatory Authority (FINRA) is the largest independent regulator for all securities firms doing business in the United States. FINRA’s mission is to protect America’s investors by making sure the securities industry operates fairly and honestly.

More information on risks are available on FINRA’s website at  http://www.finra.org/Investors/.

 

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