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34 The Art of Risk Management (for Investors) with Luc Van Hof of Capital Hedge – 2of2

“I don’t want to trade much more money – I want to show that a mostly automated system can make money over the years in a pretty regularly recurring fashion.” – Luc Van Hof (Tweet)

In the second part of our interview with hedge fund founder Luc Van Hof, we dive into the philosophy and creation behind his trading models. We also discuss why he is a risk averse person, what hobbies help him stay focused at work, and what investors and fund managers can do to grow their business and trade smarter.

Welcome to Part 2 of our conversation with Luc Van Hof.

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In This Episode, You’ll Learn:

  • How to avoid model decay and how to avoid the risk when the model may stop working in the future.
  • How to diversify your types of models – dynamic filtering that takes place. Automatic de-leveraging when a certain market goes down.

    “So you focus on effective diversification which means – you have to diversify across markets, across trading approaches, and across time.” – Luc Van Hof (Tweet)

  • How Luc chooses his models and why he does:
    • Short term trend following
    • Short term mean reversion
  • What concepts for his models repeat themselves over and over again, pattern recognition.
  • About volatility risk premium strategies.

    “The risk premium strategy is the most important source of our return drivers.” – Luc Van Hof (Tweet)

  • How he tests his models that have so many moving parts in short timeframes.

    “We spend a lot of time making sure the data we use for our research is of good quality.” – Luc Van Hof (Tweet)

  • His views on position sizing.

    “Position sizing has become by far the most important component.” – Luc Van Hof (Tweet)

  • What investors should look at in terms of risk management
  • Maximum Exposure for a trade – determines the maximum risk that a trade can generate for the total of the portfolio.
  • How Luc deals with drawdowns.
  • Why he is a risk averse person.
  • Why he is still researching other trading ideas when he thinks he’s found a way that mitigates risk effectively.
  • How he gets his ideas from math puzzles, reading about geometry and logic.
  • Why investors should look at the predictability of returns and how to convince investors what and how you are going to trade is something that is going to work.
  • Why discipline is the main characteristic that people need to be a successful fund manager.

    “Build a program and offer that program, so that every single one of your clients has the exact same thing.” – Luc Van Hof (Tweet)

  • The books that he recommends for managers starting out wanting to be successful.
  • How his hobbies such as nature, reading, and music help to keep him balanced in a busy financial world.

Resources & Links Mentioned in this Episode:

This episode was sponsored by Swiss Financial Services:

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“If we can make something that is not going to suffer too dramatically in a down market, and is going to underperform in an up market, the client is going to like it.” – Luc Van Hof (Tweet)