Portfolio Ptoday

I’ve been trading a portfolio of about 29% of my assets while waiting for the election to shake out and the future to declare itself. The other 71% is sitting in interest bearing cash accounts.

My allocations

Cash 71%

Bonds 10%

International socks 0.1%

US stocks 4.3%

Alternatives 14.6%

My efficient frontier calc is 4.1% return and 3.4% risk My actual return YTD is 6.5%. My biggest winner is BTC and Etherium, my second biggest is GLD and my third is QQQ. Other significant proportions include commodities and TIPS as a % of their respective categories. My fee structure 0.25%

I’m trading a quantitative 4 quadrant system that has me long sector funds based on rate of change of inflation and economic acceleration/deceleration. I could go long/short but Roth and TIRA won’t allow shorting except by trading long/short ETF pairs like QQQ/PSQ or GLD/DGZ. I’m not day trading but trend trading a proprietary risk range, so when the price of an asset hits the bottom of the range I buy when it hits the top I sell and either go short or wait for the bottom to buy again. This causes intra-period compounding when trading in and out of a range. In other words if I buy $100 worth and sell at $105. When the price hits the bottom of the range $105 gets invested. If it goes then to 111 that gets invested at the next low end of the range etc. The cycles happen when they happen but they do happen several times a year and so compounding happens several times a year. The system has a quantitative directional test which tells you when a trend switches from bullish to bearish in the short medium and long term so if all hell is going to break loose it tells you to get out. If you’re out and miss a tiny bit of upside, who cares. The point is to not get squished by big downside which takes forever for recovery.

It is not set and forget. It requires daily and sometimes intra-day monitoring. If you can go short in your accounts you make money on the way up and then make money on the way down. If not you make money on the way up and go flat before the way down preserving your capital.

I don’t know what real inflation is today. It’s clearly accelerating based on commodity prices but I’ve made about double my nut/mo YTD, with only 30% of my money at risk, in the craziest year in my investing lifetime, with a net asset risk of 3.4%. Good enough for me. As a 68 yo man the land of Lucy In the Sky With Diamonds, I’m happy enough with base hits. I don’t quite know how to analyze tangerine trees and marmalade skies, except I’m clear we are not in Kansas anymore despite what Larry Kudlow or CNBC says.

As things stabilize with this virus and economic disruption over the next 4 years +-, I’ll be plowing more cash into risk assets always buying low and selling high, compounding that investment while avoiding the killer draw down. As investments permit I will diversify some internationally, and across currencies because given the multi trillion money pump in the US, it’s no longer safe to be 100% tied to US or the devaluing US dollar.

Next Jan. my wife and I start SS. She will be 62 and will file for 800/mo and I will file spousal for 400/mo. When I hit 70 our combined SS will jump to 4500/mo inflation adjusted, till she hits 66 and 10 mos, at which point it will be 5500/mo inflation adjusted. I call this the SS dosey-doe, and will maximize SS payout for my wife and I throughout. Since SS is presently tax advantaged and inflation adjusted maximizing the payout is desirable when it comes to portfolio asset mix.

I still continue with Roth conversions. It was a better deal for survivors when conversion ended at 70, but I’ll take advantage of the age 72 law as it exists. We’ll see what the Dem’s are going to do about tax law and debt monetization after Bernie Sanders is sworn in as Treasury secretary. Sturgis is this weekend. 250K people are partying and not a mask in sight. It will be interesting to see the spikes in late August. Wonder if they will make book on this event on BarStool Sports?

6 Replies to “Portfolio Ptoday”

    1. I like the strategy but the long vol exposure is too costly IMHO. I attended a webinar on how to DIY and it’s fairly complicated because you have to keep rolling options chains to reduce the risk, so there is a relative cost to owning the strategy. The return is bimodal and in the short term you can lose but in the long it’s a big win IF vol goes crazy otherwise there is a carry cost which can be mitigated by rolling options. If you do it right the insurance is free to slightly return positive. If it gets so bad I need to buy a 2 and 20 cost structure I probably should buy bullets instead because the country will go to war with itself. The problem is markets don’t operate according to “the rules” anymore. Everything is a narrative and liquidity driven pump and dump run by algo’s. Because of the liquidity we may never see a market “crash” just slowing growth in the face of accelerating inflation. The FED would like to engineer growth but will settle for inflation, which screws you and me but reduces the debt because you pay the debt in cheaper and cheaper dollars. The debt goes down but eggs cost $50 per dozen. Owning gold and BTC is a better choice in that scenario

  1. But Davey Day Trader Portnoy says stonks always go up 🤔 .

    I’m thinking about mostly being in cash and selling cash secured puts expiring end of week on Spy, QQQ, and GLD with strike prices relatively far out of the money like 5-8% lower than market price. That way, I collect the premium (more money than what I can earn in interest) and if I do get assigned, at least I buy low/cheap and could potentially sell higher. Maybe I’ll also hold some of the shares in those stocks and sell covered calls for additional income. We will see.

    What do you think about that strategy? Too risky?

    Also, why own QQQ when you can just own the FAANG and potentially get even higher returns?

    1. It’s hard to short FANG in a Roth unless you trade options. I have traded the SPY/SH pair and was able to make money. Right now there are 30 million new retail accounts and QQQ is the retail darling of choice or at least has been giving it excess momentum, so owning QQQ is a momentum play, not an investment. In the past couple days its been acting funky so I may take it down and go to XLK and XLU. If Biden wins the FANGS will get chopped up by Lizzie Warren so I’ll just stick with the poison I understand. I’ve been thinking about selling some portion my gold and buying gold calls. I’m up like 33% compounded so if I sell half I pocket 16% and then I can buy calls to give me upside exposure maybe a 5% stake of what I sold. If the market goes up I make more money if the market goes down I have 11% profit plus that principal and my max loss is 5%. If I wash out I’ll still have principal plus 11% to reinvest at the low end of the range and ride the elevator back up. Stock volatility has gone down quite a bit VIX is like 22 and VXN is 29.5 and that’s a 7.5% spread. Your strategy should work if vol stays low. When the spread is >6 vol tends to increase so your strategy would be placed in an environment that statistically may see higher vol.

  2. That’s a lot of complexity to maintain, although clearly well thought out as a plan for the aggregation of marginal gains (despite appeals to the contrary, the game is won through base hits, not home runs).

    I completely get the pleasures of engaging intellectually in daily and intra-day monitoring, but in the past you’d mentioned concerns about leaving something facile for your wife to take over once you are gone. Is there a plan laid out for Phil DeMuth to simplify whatever complexity you currently employ once you are out of the picture? I ask because I constantly consider what my wife would do if I got hit by a car on my morning bike ride, and how I’d like things to be easy for her if she had to take the reins.

    Appreciate your laying out the plan for me to learn from,

    CD

    1. Hey my Friend!

      I think we are in a time of tangerine trees and marmalade skies. I still employ Phil and trust Phil completely. He is fluent in my portfolio and what I want to have happen for my wife. If I alz it, Phil will run the money. If I COVID, or meet the widow maker in an elevator, my instruction to my wife is call Phil upon my demise and let him manage the money.

      I managed to create a portfolio capable of sustaining my wife who is younger (and more beautiful) than me for about 40 years on cash only given our lifestyle. I don’t have much need to be leveraged, just enough to cover inflation. I got here because I didn’t RE and because I didn’t live a levered “Doctor” life.

      So my game is not to die “with the most money”. That’s a center mean game that mostly ignores risk. It’s a game that tries to maximize returns. My game is for my wife to not die broke. That’s a tail risk game where you minimize to the most efficient risk and let the return be what the return will be. If times are good I’ll double my money, if times are bad, we’ll still have hamburgers to grill.

      What people were selling as conventional wisdom last year I no longer trust this year. I don’t trust it because the volatility across asset classes is all goofed up. Apple VIX is almost 52. That bodes bad juju Kemo Sahbee.

      My present return is paying my rent and beating inflation to boot with a very low risk to my portfolio as a whole. We still have an election and nobody is dealing with the reality of Covid and nobody is dealing with the reality of the economy. It’s all guys with pony tails and chrome domes named Cramer and Fed Chairmen talking their book 24/7 and winning valuable prizes. And the band played on.

      Ever play Tic Tac Toe? Sometimes the way to win is to play to a draw until the opportunity presents.

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