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FAQ: Why does Triumph performance rank so highly
on a long-term basis and seldom appear in the high ranks on the short-term
performance by Nelson’s and others.
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ANS: While Triumph Fund may periodically
rank well in the short-term, it is in the Longer-Term time frames (20
quarter and 40 quarter periods), where we truly excel. This is because
of our focus on consistent return and relatively low volatility. Thus,
historically the Fund’s traders generate very few large losses.
When you don’t have to overcome large draw down periods, the overall
rate of return, even though not necessarily spectacular in the short-term,
generates significant long-term gains.
Triumph’s ability to attain consistent
returns is primarily a result of strict risk control, discipline and diversity
in its asset allocation. We have learned several lessons from our losing
periods and have designed the Fund with risk control as our primary operational
criteria.
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FAQ: What caused the two large draw downs? |
ANS: Since the concept was
developed in 1986, there have been two large draw down situations. The
first was in 1992 with a maximum loss of 14% and the recovery period was
4 months. This was caused by over concentration of positions in too few
markets. The Fund has been far more diversified ever since.
The second large loss occurred in April 2000
with a maximum loss of 26%. The loss was the result of fraud by the officials
of an exchange. Management met unwarranted margin calls. Management has
adjusted operational procedures so that no margin calls are ever met.
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| FAQ: Why is it that
no single manager or strategy remain at the top of the near-term performance
list. This also seems to be true for multi-strategy programs. |
.ANS: Only be one program can be at the top at
any time and seldom is the same one at the top for very long. As one trader,
strategy or fund trades a market well, the hot money follows and or allocates
to that trader, strategy or fund. Trading becomes less efficient as the
assets under management grow. Thus, the rise and fall occurs of new blood,
methods and markets.
It should be noted that
the markets are in a constant state of flux. As time passes, different
markets are in vogue due to changes in the balance of supply-demand, media
focus, or the economy. This is when Triumph’s strategies are usually
most effective. Nevertheless, we never concentrate the Fund’s assets
in just a few markets. Diversity is the primary reason for our consistency
and consistency is the primary reason for our long-term performance.
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| FAQ: If Triumph is such a profitable concept, why
aren’t there more assets under management? |
ANS: First, in April 2000, the Fund held what
we believed to be a relatively small position in an index options. The
Fund suffered an enormous loss because the exchange on which those options
were traded actually generated fraudulent settlement prices, requiring
false margin calls. The Fund could not meet the margin calls and was subsequently
sold out of its position. The exchange was subsequently fined and the
Chairman was both fined and barred from the industry for life. Mr. Moore
litigated on behalf of the Fund’s investors for over 5 years. That
litigation required a great deal of time and attention and Mr. Moore did
not focus on increasing the assets but rather winning the case.
In addition, management seeks to carefully
control the Fund’s asset growth because It is easier to generate
higher percentage gains on lesser amounts of money. As markets heat up,
gains may be generated and as they grow, it becomes more difficult to
maintain higher percentage returns. It is management’s goal to maintain
asset growth and return growth in a manner that makes this an attractive
investment for our members.
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| FAQ: Your program is consistent but it’s 46%
net return in 1999 did not compare with many of the high-tech funds. Will
your strategies that under-performed during good times outperform their
peer groups in the bad times? |
ANS: Not necessarily. We are not competing with
other funds as if it were a race. We are trying to maximize the efficient
use of our investors’ capital. While the above question has a “provable”
mathematical basis of “smoothed return syndrome,” the logic
is empirically incorrect and historically unfounded.
The vast majority of the period from 1920 to the present has consisted
of “bull” market moves. Therefore there is less likelihood
that the uptrend “under-performer” will necessarily contribute
meaningful positive return over an adequately long period and thus will
actually have an overall deleterious effect on the portfolio. In 1999,
we chose not to take the corresponding higher risk that would have been
required to generate the higher returns. In fact, management intentionally
avoided the “dot-coms” because there was no logical basis
for their price as it related to their earnings. Triumph has an inherent
goal to buy at value levels that make economic sense. This is the only
way to truly justify a position that is stagnant or underperforming. At
least we can demonstrate that we were seeking value.
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| FAQ: How do you “read” the market environment
you are in? |
ANS: We really do not do that because no one really
knows when a flat, upward or downward period will occur or cease, or for
what duration it will be maintained. There certainly are indicators and
there seem to always be exceptions to those indicators. Really sound strategies
generally perform in most market environments. We look for those and we
particularly look for those that appear to perform when others do not.
We are naturally attracted to those strategies. In addition, sometimes
an “under-performer” just needs augmentation or a “pairing”
with another trader or strategy to provide “enhancement” of
the process. Often the combination generates a considerably greater potential
for profit.
Obviously we would like all of our strategies to
be profitable during all market cycles. While this is unlikely, we have
generally been able to either identify strategies that do relatively well
in the good times and clearly outperform most others in the tough times.
It is also our job to help our traders to make corrections to improve
their performance and use our capital more efficiently.
It is noteworthy that our traders generally
have a significant investment in the account which they manage for the
Fund so they too are most interested in any help we can provide.
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| FAQ: What if they do not perform during a down period? |
| ANS: No trader wins all of the time. If a trader
loses during a specific market period, we are guilty of inefficient use
of capital when we allocate assets that do not generate consistent profits.
It is our job to help if we can. Otherwise we strongly suggest a “sabbatical.”
We are partners with these traders so we want them to succeed. |
| FAQ: Do you always require a strategy to add “alpha”
and reduce “beta.” |
ANS: If any strategy does not add alpha and reduce
beta, it is not a candidate strategy for Triumph. Even if its “alpha”
is significant, if its “beta” is excessive, it is likely the
Fund’s allocation would be minimal when compared to other investments.
After all, we would be taking disproportionate risk on both our capital
and our reputation as a consistent performer.
Our always look for BALANCE, a concept in which we strongly believe. |
| FAQ: What is your guiding strategy or concept? |
| ANS: Positive Return notwithstanding, clearly, preservation
of capital is our primary focus and vitally important. Ergo, logical asset
allocation stressing diversity, combined with superior risk control, consistently
applied and strict discipline are vitally important for capital preservation
and ultimately for long-term capital appreciation. |
| FAQ: Where are you most cautious? |
ANS: It is our belief that vigilance is so important.
In addition, there are so many areas where risk is lurking. The human
being is also subject to so much stress and distress. Control is vital,
risk must be contained and caution must be exercised for arrogance and
hubris.
We are always concerned that our analysis may be flawed or at least that
we overlooked some key element of a strategy.
- There is usually always some element of “return bias”
which we believe is very difficult to eliminate.
- There is always a belief on the part of the author of a strategy that
there is little or no “risk bias” when actually it is very
common.
- It is important to try to “minimize directional variation return.”
This can be accomplished by balancing long and short volatility, tactics,
markets and strategies.
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| FAQ: Are all of your traders’ strategies “systematic”
or are some discretionary? |
ANS: Strategy diversity is mandatory. When tempered
with good judgment, thorough qualitative and quantitative analysis and
patience it can just be a beautiful way to invest. One just needs to be
vigilant for errors in logic or design.
We classify all trading into Volatility and Minimal Volatility. Minimal
Volatility is relatively easy to control provided there is adequate diversity,
the available tools such as derivatives and liquidity. It is basic but
Short Volatility is often highly profitable but it can be exceedingly
dangerous. It is so common for traders to be lulled into non-vigilance
when in fact that is so typically when volatility explodes. Then they
are subject to significant losses during some exogenous event. Such situations
are so typically coupled with an explosion in volatility which can be
absolutely disastrous.
Long Volatility trading is much safer, but provides far less consistent
return.
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