At Martingale Risk we have a precise Code of Conduct in the way we approach our clients. We always make sure they fully understand the risks of the investments they undertake and they are ready to eventually cope with the worst case scenario. We also prevent them from taking non-rewarded risks.
Rule 1 – We like to be optimistic about our investment outcomes but what happens if the worst scenario happens? We always make sure our clients bear only those type of risks they fully understand. We do that by calculating the portfolio return under the worst case scenario, by informing our clients and by checking if they are eventually prepared to cope with that.
Rule 2 – We want our clients to be rewarded for the risk they bear. There are many forms of risk and, fortunately, not all of them are useful to bear. For example, if you hold just one single stock, you are exposed to the idiosyncratic specific risk for that stock. However, if you create a portfolio of different stocks, you will reduce the uncertainty of your investment still maintaining the same level of expected return of the single stock.