An opportunity that occurs only once in six or seven years

Boaz Eilon

Theta 1 Alternative Investments

In 2002, Prof. Daniel Kahneman who won the Nobel Prize for his research with Dr. Amos Tversky (deceased) related to behavioral economics. Among other interesting findings, they have proven that the attitude of investors towards profit and loss is not symmetric. The pain caused to an investor from a loss of ten percent in his portfolio is much higher than the pleasure of gaining a similar rate.

Stock markets suffer from Bipolar disorder. Below is the definition of the phenomenon from Wikipedia: Bipolar disorder is a mental disorder characterized by periods of elevated mood and periods of depression" bipolar disorder (Bipolar Disorder in English), also known as manic depression, is a mental disorder in which the patient suffers from extreme cyclical fluctuations in mood, regardless essential environmental circumstances." Just as if they took the definition out of equity markets.

What is actually happening in the capital market? People buy stocks when all the friends around are telling them how much money they made, how easy it is and what good intuition they have in investment decisions. We can see that the stock market is rising steadily for several years and convincing more and more people to buy. Those are the times that everyone gains, some more and some less, but the most worrying phenomenon is that people tend to forget the risks. When the crash comes, people are patient in the beginning, it is clear that the stocks could go down, but at more significant decrease of 20%, 30% or 50% Discouraged investors are losing their patience and gradually sell at grate lose.

Here are the dates when collapse in TA 25 index occurred:

– 1983 banks stock manipulation

-1987 a decrease of 30% due to unexplained panic on global stock markets. The Dow fell 22% and the stock market in Australia fell 52% in one day

– 1994 the end of the peace process, a decrease of approximately 43% in stock prices

-2002 the burst of the high-tech bubble, a decrease of 50%

-2008 The subprime crisis, a decline of 53%

History shows that every six or seven years, a market crash occurs and most of the people who gained some money in two or three years will lose it and a lot in a short time. Even if the rate of profits and losses is similar, and it is usually not, according to Kahneman and Tversky the pain of the loss is much higher than the benefits of the gain.

The previous peak before the crash was in November 2007, seven years ago and the last low was in November 2008, about six years ago when TA-25 reached a low of 594 points. I guess if the stock market continues to behave according to past cycles we can expect significant decline in the near future.

So what should we do? There is another way!

Do you know it is possible to earn from a fall in the markets? Of course! Some financial instruments like options and futures can generate profit even if there is a decline in price. The use of such tools requires special expertise like making decisions according to a trading plan and risk management that increase the odds of gaining as well as flexibility and the ability of making fast changes that large companies find difficult to make. You can find alternative investments and change the mix of your investment portfolio so that we can avoid losses and adapt better to market conditions. Managed Futures strategy is the most prominent strategy with the greatest potential to generate positive returns during a collapse of the markets together with minimizing risk

Boaz Eilon is the CEO of Theta 1 Alternative Investments

Theta 1 is a private company with a license to manage portfolios according to the low. The written above does not substitute investments advice that takes into consideration the special needs of each individual. Everyone who takes action based on the written above is doing it on his own responsibility. I am a portfolio manager at Theta 1 (License Number 4786). I hereby certify that the views expressed in this analysis, faithfully reflect my personal opinion on the securities reviewed. Boaz EIlon, theta 1 Investment and Securities Co, Ltd.,7 Emek RAfaim, Jerusalem. Tel – 02-6251213