John Netto – The Global Macro Edge

John Netto – The Global Macro Edge

Check it out: John Netto – The Global Macro Edge

The Global Macro Edge: Maximizing Return Per Unit-of-Risk

With a proven personal track record of trading experience, John Netto, “The Protean Trader,” has found great success and personal satisfaction in working the market. Now, in The Global Macro Edge, he pulls back the curtain to reveal the tools and techniques he’s used (and created) to identify and solve the largest problems facing investors, traders, and financial advisors today—at a level of transparency rarely seen in books on investing.

The Global Macro Edge includes chapters from a talented team of market practitioners as it details how to maximize return per unit-of-risk. And, in the process, it shatters some of the longest held investment myths:

• More risk equals more return
• Money always find its most efficient home
• Emotions are your enemy
• Diversification is the only strategy you need
• Today’s markets offer fewer opportunities
• Compensation should be based on returns

The Global Macro Edge provides a universal framework that allows you, the reader, to take both a top-down and bottom-up approach to Next Generation Investing that is driven by one overarching goal: maximizing return per unit-of-risk.

About John Netto

John Netto is a cross-asset class trader and the creator of the Netto Number, the Risk Factor Compensation System, and the Protean Strategy, for which he was named by Collective2.com as Strategy Developer of the Month. Mr. Netto has conducted numerous live trading webinars where viewers watch his P&L, positions, and orders in real time for total transparency of his methods.

Excerpt

Up early on a sunny Sunday morning in L.A., I was bent on getting a fast start to the workshop hosted by one of the greatest media minds in the world, Joel Roberts. Outside our conference room at the Intercontinental Hotel in Century City were Landon Donovan and the rest of the US Men’s soccer team. Just a year earlier at the 2010 World Cup Finals, the United States was nearing the end of an exhausting scoreless match against Algeria. Then in the final minutes of the game, when prospects seemed grim, Donovan scored and the US won 1–0. Unbelievably, now they were standing right in front of me, headed for the Rose Bowl to play Mexico in the Gold Cup.

Maneuvering through the men adorned in red, white, and blue got me thinking. It invoked questions about the impact each of us has on matters greater than our individual selves. And I asked myself, “What can I do to make an impact, make a difference, do something bigger than myself?”

Having spent nearly nine years in the Marine Corps, with almost half of that stationed in Japan, this was not a new thought or challenge to me. However, since transitioning from the austere structure of military life to an ephemeral disposition as a professional futures trader, I realize that there is still more I can do to help people.

As the soccer team faded from view, my BlackBerry buzzed and brought me back into the conference room. It was a message from John Wiley and Sons wanting to publish my second book sharing new strategies on how to invest in the markets. A range of emotions overcame me. I was thrilled with the opportunity to push the literary envelope again, but also a little overwhelmed because I understood just how much work goes into producing a book that is both informative and enjoyable to read.

Still caught up in the moment, I shared the exciting news with everyone. Not to pass up a learning opportunity for myself or the rest of the attendees, Joel promptly inquired, “Congratulations. Now tell me… What myths do you bust and what problems does your book solve, Mr. Netto?”

My silent response and blank facial expression was a harbinger of the arduous work to come over the following five years.

The Biggest Myths on Wall Street: Why They Exist and the Problems They Cause

Like many people, I instinctively go straight to the solution when I attempt to show value in a process, service, or product. However, I have learned instead to dig into, examine, internalize, and articulate the problem. This strategy makes arriving at the right solution a far more feasible objective. Therefore, when I embarked upon the mission of becoming a more successful investor, I recalibrated my perspective regarding the problems I was attempting to solve.

The Global Macro Edge will explain, through a compendium of contributions by talented market practitioners, that the challenges facing investors, traders, and financial advisors are the byproduct of a half-dozen myths. Together we will examine what these myths are, why they exist, and the problems they cause. These myths are:

1. More risk equals more return.
2. Money always finds its most efficient home.
3. Emotions are your biggest enemy.
4. Diversification is the only strategy you need.
5. Today’s markets offer fewer opportunities.
6. Compensation should be based on returns.

These are the six largest areas of misunderstanding in the market—misunderstandings that can prevent investors from creating wealth for themselves. By understanding how to prevent, manage, and solve the challenges these misconceptions create, you are putting yourself in an incredible position for success.

Myth #1 More risk equals more return

More risk does not always equal more return; sometimes it just equals more risk. The Global Macro Edge will show that you do not have to risk more to make more; you have to risk smarter to make more.

Unwittingly, some investors may not be compensated fairly for the risk they are exposing to their portfolios. The process of understanding where the breakdown occurs happens at two key points. The first can happen during the process of constructing a portfolio and putting in place a risk budget. The second may occur after you have created your risk budget and the investment strategies you have chosen are not congruent with the market environment.

As The Global Macro Edge will explain, one of the biggest risks to your position, strategy, or portfolio is a byproduct of what regime, or environment, the market is in currently. Strategies in one type of regime may do exceptionally well in one type of regime while they would struggle in another. Many investors lack the expertise to effectively evaluate what the current market regime is and which strategies will perform the best. Failure to identify which regime is in place and which strategies are appropriate for that regime can lead to not being properly compensated for the risk you are taking.

For example, in 2014, US economic data significantly outperformed their European and Asian brethren. In the past, an uptick in US data could be associated with a rise in treasury yields and a strengthening US dollar. However, due largely to a powerful combination of unprecedented central bank influence in Europe and Japan, as well as global deflation fears, there was a huge demand for investment-grade government credit. This demand sent yields of European and Japanese debt to record lows.

So while US economic data surged in the second half of 2014, US Treasury yields finished 2014 near lows. The regime of disinflation and central bank influence materially affected the risk profile of a person positioned for a rise in US Treasury yields.

While US Treasuries were frustrating short sellers, US dollar bulls were richly rewarded under this same regime of strengthening US economic data. The dynamics helping to drive the rally in global Treasuries were also putting downward pressure on both the Japanese yen and euro against the US dollar. Therefore, while US Treasuries finished 2014 with yields at lows (reflective of a more somber US economic environment), the US dollar was in full rally mode.