Session 17—“Risk On, Risk Off”….Dumb Stuff

BillIf there is anything that I see or hear from the media that absolutely pushes my buttons, it is the expression “Risk on, Risk off.” The saying derives from the 1984 movie, “The Karate Kid.”  In the movie a young New Jersey kid (played by Ralph Macchio) with an attitude and accent moves to the West coast where he is bullied and beaten by his new schoolmates.  A local handyman of Okinawan decent (played by Pat Morita), comes to his rescue and then tutors his young friend in the finer points of Karate.  One exercise he uses to impart a certain move involves waxing an old truck, “Wax on, wax off.”

“Risk on, risk off” has been a fairly common prop used by the media, especially the entertainers over at CNBC, to explain or amplify on the minute-to-minute/ day-to-day jiggles in the market.  Last night as the Asian markets rallied, the mobile edition of CNBC posted a headline, “Cyprus Draft Deal Sparks  ‘Risk On Rally’.”

Give me a break!  Nobody but the goofiest, most frenetic traders could think in theses terms: and if this blog resonates with you, you are not a trader and “R on/ R off “ is just another inane descriptor of why the market does what it does.

If a substantive deal is struck on Cyprus, one that removes the uncertainty, some additional skittish investors might be drawn off the sidelines…maybe creating more buyers than sellers, as investors have very little choice with returns in fixed income.  Simply stated since the market decline of 2008, according to Lipper analytics over $400 billion has come out of equity mutual funds.  As of last month (February), since December approximately $55 billion has come back into the space, while people continue to be net buyers of bond funds ($34 billion net in January 2013).  There would still appear to be ample skepticism, as well as fuel left in the tank to propel the market forward (see session 8).

When I hear or see “Risk on” or “Risk off” I see red.  It is inane, a distraction and may evoke a fear response in the average person.  Why?  I believe for many the expression is equated to volatility, which equates to “RISK” and the fear of losing money.  It keeps people frozen at the stick, unable to commit to equities, even though the return metrics look quite attractive relative to the bond market.

So don’t karate chop your performance with a “Risk on, risk off” mentality.  It is just one more way paying attention to the financial media can be hazardous to your financial health.

Your comments and questions are welcomed.

The information presented in represents my own opinions and does not contain recommendations for any particular investment or securities.  I may,  from time to time, mention certain securities for illustrative purpose, names where I personally hold positions.  These are not meant to be construed as recommendations to BUY or SELL.  All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.


One Response

  1. Donna
    Donna March 26, 2013 at 5:22 pm | | Reply

    Very entertaining article. Love your writinig!! Thanks. D.

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