Wall Street discovered a new way to tell you you're about to lose money. They call it "risk-adjusted upside." Sounds like something a financial advisor says right before he recommends you buy his cousin's SPAC.
The premise here is that recent volatility created opportunities. Volatility doesn't create opportunities. Volatility separates idiots from their money faster than usual. That's not an opportunity. That's just efficiency.
Risk-adjusted upside means the stock might go up a little if seventeen different things go right and the Fed doesn't sneeze. Regular upside means the stock might go up. See the difference? One of them requires a f*cking actuarial table.
Best part about this headline is the phrase "willing to look past near-term choppiness." That's Wall Street for "willing to hold bags while we exit our positions." Near-term choppiness is what your portfolio experiences right before it becomes long-term poverty.
Some analyst ran a Sharpe ratio calculation on a dozen stocks, saw a number above 0.5, and declared victory. The Sharpe ratio measures return per unit of risk. Know what else measures that? Your brokerage statement. It's called looking at whether you made or lost money.
These stocks offer attractive opportunities the same way a casino offers attractive opportunities. Sure, the math says you could win. The math also says you won't. But please, calculate your risk-adjusted upside on blackjack and let me know how Monaco treats you.
Retail traders will see this headline and think they found the smart money's secret list. They'll buy these "best risk-adjusted" stocks at the top, watch them drop 30%, then get another headline in six months about "overlooked value plays" featuring the exact same tickers.
Risk-adjusted upside is what you tell yourself when the regular upside already left without you.
Photo by Patrick Weissenberger on Unsplash
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