Adjusting for risk

During a client call yesterday, I was trying to give an example of what I thought was a ‘marginal trade’ and Fortescue Metals (FMG.AX) came to mind.

Coupled with my quick view of the iron ore supply and demand landscape, an iron ore price trading at the upper end of its historical range and a technical analysis snapshot, my opinion was that FMG either trades up or down $4, from its current price of $16.30.

Albeit a 25% return is enticing, an even money bet of perhaps losing 25% renders it a ‘marginal trade’.

To some extent, this can also be example where the investor needs to quantify or understand how much risk they are taking, compared to the return they are seeking.

Incidentally, in June 2020 I published an article (see link below) titled, “Iron Ore – As Good As It Gets”

https://www.linkedin.com/pulse/good-gets-iron-ore-rob-zdravevski/?trackingId=htg9tCIITS68I6Chxl80Zg%3D%3D

#riskadjusted

#fmg

October 28, 2020
by Rob Zdravevski
rob@karriasset.com.au

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: