The case for absolute return investing is rooted in the following:
▪ People’s decisions to buy and sell move stock and bond prices. People might buy or sell in response to external events; however, it is an individual’s decision to buy/sell, and not the actual event, that contributes to the price of a security.
▪ We cannot know what will happen in the future; we cannot know the decisions other people are going to make.
As such, risk as the possibility that other people will make decisions that lead to outcomes different from what we desire, i.e., markets and/or individual securities will move against our positions.
Tools exist to hedge against such movements. Absolute return investing uses those tools. Properly used, those hedging tools can remove the market from the equation and lead to consistent, positive returns regardless of market movements.
Once hedged, investors are free to make decisions whenever they see value or opportunity. Hedging releases us from the fear — the risk – of being highly dependent on others’ actions and decisions. It frees us to act in the moment, to creatively access and choose from among the vast number of solutions that are available for any situation.
Source: Investment CPR, Investing for Consistent Positive Returns