One Size Doesn’t Fit All: Assessing Suitability in the Context of Uncertainty


This installment in our volatility series will aim to provide a framework that helps to quantify an investor’s ability and willingness to take risk based on constraints and the importance of reaching wealth targets. Additionally, I will finally add varying returns into the analysis to illustrate the impact of the risk and return trade-off. Through simple examples and simulations, I will show that understanding an investor’s total financial picture and applying a probabilistic framework for risk management can help achieve desired outcomes in the face of uncertainty.

Can Access to Financial Markets Be Democratized?

Robinhood Financial and their quest to democratize access to financial markets ran into another speed bump this week, with Robinhood agreeing to pay a $1.25M fine to FINRA as a result of failing to insure the order flow they sold to third parties for execution without considering such factors as “price improvement” and best execution….

Are There Ever Good Behavioural Biases?

Behavioural biases and the effect of human psychology on rational decision making is a topic often discussed in investment management. Both retail and institutional investors are impacted by their psychological wiring, but most of the time the discussion centers around how investors can mitigate the impact of negative behavioural biases on their investment decision making….

Guarding Against Recency Bias

In last week’s issue, we touched upon “recency bias” and how this cognitive phenomenon can provoke irrational trading behaviour in investors. Because of recency bias, investors can be susceptible to what is known as “headline risk,” putting more weight on new information regardless of whether it is valuable or effectively just noise. Enterprising Investor recently…

Do Zero-Cost Trades Actually Benefit Investors?

– SPECIAL EDITION -Last week in Sagacious, we commented on the recent move by Charles Schwab and TD Ameritrade to cut trading commissions to zero on stocks listed in North America. Our initial thoughts and comments were on the potential for negative externalities, regarding how market structure may be impacted by brokers selling order flow….

Indexed Products Aren’t All Passive

This week Morningstar Inc. released a report which estimated that as of August, in the United States, assets invested in indexed products (either mutual funds or exchange-traded funds) have now eclipsed that of assets being managed by traditional active stock pickers. In last week’s issue, we looked at debunking the myth that passive investing is…