Risk Management
Risk is commonly defined as the likelihood of permanent loss of invested capital. It is not a measure of volatility. Modern Portfolio Theory has popularized the notion that risk can be measured in terms of price fluctuations - by that standard, a commodity that suffers a price decline to a historically low level would be considered "highly risky". We view such logic as inherently flawed. Rather, whenever a commodity trades close to its extreme historical price, we see that as an investment opportunity rather than a risk. The risk, in our view, is that a commodity position, once taken, might remain "offside" for some time. Based on historical precedent, we believe that every position we initiate will ultimately be profitable as prices revert to their equilibrium levels.
