The Leverage Space Trading Model: Reconciling Portfolio Management Strategies and Economic Theory

The cornerstone of money management and portfolio optimization techniques has remained the same throughout history: maximize gains and minimize risk. Yet, asserts Ralph Vince, the widely accepted approaches of combining assets into a portfolio and determining their relative quantities are wrongand will cost you. They illuminate nothing, he says, aside from providing the illusion of safety through diversification. Although numerous Nobel Prizes have been awarded based on some of those widely accepted principles, their popular acceptance does not constitute realworld validation. What has been needed is a viable alternative to directly address these realworld dictates.In The Leverage Space Trading Model, Vince offers a groundbreaking contribution to the literature that builds on a lifetime of expert analysis to deliver not only a superior new portfolio model, but takes the entire discipline of portfolio management to a new level.In this book, Vincewho has made many important intellectual contributions to the field for over two decadesdeparts radically from informed orthodoxy to present an entirely new approach to portfolio management. At its core, The Leverage Space Trading Model basically tells how resources should be combined to maximize safety and profitability given the dictates of the real world. But, as the author points out, given the complex and seemingly pathological character of human desires, we are presented with a fascinating puzzle. Research has found that human beings do not primarily want to maximize gainsour psychological makeup is such that we instead tend to possess seemingly more complex desires. If the models dont work, if we are ultimately unable to satisfy our more complex desires, whats the alternative? As Vince shows, the answer is to utilize the Leverage Space Model as a framework to achieve the specific ends a trader or portfolio manager seeks.The authors new allocation paradigm avoids the troubles that come with mean variance modelswhich most models areand quantifies drawdowns to achieve a growthoptimal portfolio within a given drawdown constraint, in a manner that satisfies these seemingly pathological human desires. And for those who dont wish to get involved with the mathematics, Vince has presented the text in a manner of two congruent, simultaneous channels, with math and without.Most simply put, this book will change how you think about money management and portfolio allocations.