Game On!

Guess the Boggleheads and pension funds are going to have their mettle tested today.


Volatility as a concept is widely misunderstood. Volatility is not fear. Volatility is not the VIX index. Volatility is not a statistic or a standard deviation, or any other number derived by abstract formula.

Volatility is no different in markets than it is to life.

Regardless of how it is measured volatility reflects the difference between the world as we imagine it to be and the world that actually exists

We will only prosper if we relentlessly search for nothing but the truth, otherwise the truth will find us through volatility”

As we watch our fortunes evaporate today here are a couple audio’s to listen to.


This is the Artemis 100 year portfolio

Doesn’t look a thing like a Bogglehead portfolio.

volatility reflects the difference between the world as we imagine it to be and the world that actually exists

Yesterday the Italian military, armed and mobilized to surround an area around Milan closing it off. The Virus is now endemic in Italy. Yesterday the boarders between Iran and Afghanistan, Pakistan, Turkey, Armenia, Azerbaijan, and others are closed due to Virus.

What world are you living in?

8 Replies to “Game On!”

  1. The section of the podcast where he discusses back tests which only go back to the mid 1980’s is exactly why I only use back tests which have data back to 1970. If the proposed tactical asset allocation method does not include performance from the 1970’s,
    to me it is useless.

    1. Hi Eric

      I also lived through the 70’s, and the 60’s in terms of recession. The 60’s were the basing period leading to the 70’s when run away inflation and price controls kicked in. In 1978 Carter signed a bill which divorced S&L interest from being directly tied to prime. The rate went from prime +2 to whatever the market would bear and interest shot up to 19% and it still remains there for most CC. In those days 19% at the S&L paid you 12% on your passbook account, now it’s 1.2% or .12% or 0.012%. If that isn’t inflation I don’t know what is. I haven’t been quite as aggressive in changing my AA as he recommends in the Dragon portfolio but I’m very much closer to that portfolio than most of what I see published.

      I’ve been thinking about investing lately from the perspective of the 3 body problem. The 3 body problem is a problem in classical physics of 3 bodies orbiting each other in space where all of the parameters are known mass, speed, orbit, gravity etc. It turns out there is no closed end general solution to the orbit of 3 bodies, only a few specific solutions to a few specific conditions, and/or just beating the hell out of the calculations with a super computer to derive various probable solutions.

      What this means is we live at best in a Bayesian reality not a deterministic reality. We live in a reality of probabilities which are scaled in terms of chaos and all of our making sense of reality is really just narrative. Our making sense is just a story which probably has little or nothing to do with the truth. And our making sense is open to suggestion and lies above and beyond the mere inaccuracy of prediction. For example markets are not markets when the FED introduces moral hazard or the WHO fails to call a pandemic a pandemic until a virus with an R0 of 7 has an extra 3 weeks to multiply world wide. The narrative is “they are the government and they are here to save us” when in fact by their false narrative they are spreading a delusion and are the object of our destruction.

      We have enough computing power now that our narratives have become irrelevant. The machines out run our actionable decisions by miles, and the outcomes are indeterminate. A tiny starting error grows into a monstrous solution which bears no relationship to the truth. This is why starting after 1980 is pretty worthless. This is why using any historical perspective is worthless. Histories are interesting to humans. Probabilities are interesting to machines and machines are running the show.

  2. Great summary of our situation. I think I will use it when friends ask me why making a decent safe return is so difficult. Markets have been manipulated to the point of being unrecognizable.

    I have been thinking of what I would tell my 20 something nephew if asked how he should invest. He doesn’t seem to be interested in investing so would not be willing to put in much effort. I think I would lean toward The Golden Butterfly re-balanced annually. Most buy and hold models today are too heavily weighted toward equities.

    1. The golden butterfly is pretty good. The thing is with that kind of portfolio is you can’t screw around with the allocation much once you set it. You pretty much just set the composite risk and let the allocation and market conditions give you the return Were it me I’d add a little BTC like 1 to 2% since BTC is not correlated with anything else.

  3. Good suggestion, especially as young as he is. How are you currently buying your Bitcoin ? Is there now an exchange product like an ETF ?

    1. they are open to the government so there is no felonious thing you can do on the exchange like buy guns or drugs without a trace but that’s why I use them since they are transparent the government is likely to leave them alone. The governments main concern is capital gains so if you pay cap gains BTC is like owning property

  4. If you could go back in time would you invest using one of the permanent portfolios such as GB or Ray Dalios all weather fund? They perform well over time but the allocations are so out of main stream I have a hard time committing. The data at portfolio can be convincing that they really can survive and flourish in the long term.

    1. To be honest yes I would but you would need iron balls and a clear understanding of and belief in Bayesian probability theory to keep on track. At 22 no way would I have believed in that system. I’ve lost 1M twice in my life and while making money is a gas, it takes A LOT longer to make 1M than to loose 1M. That means if you loose 1M in a year and it takes 10 years to get back to zero that’s 11 years out of your life where you went nowhere. If you loose say 50% you have to make 100% to get back to zero. The problem is the noise that concentrated portfolios produce. Yesterday S&P dropped 3.35%. My risk adjusted portfolio dropped 1.3% so effectively I beat the market by over 2% in one day. I actively trade one of my Roth accounts and it was up 0.6% on a day when the S&P was down 3.35%. The dynamic correlation between S&P and my Roth is actually slightly negative but the correlation shifts all the time depending on economic rate of change conditions, so that Roth may be long long one quarter and flat the next. Unfortunately I can’t short the Roth or I’d be playing spreads so I can play only half spreads “long vs cash”. FIDO doesn’t charge for ETF and stock trades so I just trade for free and can scale in and out of positions with no fees or tax consequence. You can only do that if you have access to a screen all day long. My point is there are many ways to make money depending on the environment you are trading in and if you tie yourself to stocks and stocks crash, you crash PERIOD All you have to do is look at the chart of the Nikkei 225 since 1980 to convince yourself what goes down doesn’t always come back up. That is your bet with conventional concentrated portfolios, the market goes up no matter what. In fact they go up till they don’t. Failure happens slowly then all at once.

      For someone who has to work for a living I would go to the monte carlo calc portfolio visualizer and run some projections first as accumulation and then as decumulation. If your life is 70 years post college and half of that is accumulation and half decumlation then run those 2 simulations for given asset allocations and see which ones are projected to survive the best in bad conditions say the 10% worst future. Then if a 25% or 50% worst future happens you have money to burn.

      In specific analysis I’ve done GB works well if you rebalance, but if you screw around with the allocation trying to market time by concentrating assets like stocks, the efficiency drops way off.

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