Global Macro Trading Journal

[Daal]

Did a quick monte on excel to check out the system comparrison idea

Series 1 is 2-1 system is a 0.66% win rate system that pays +1% 33% of the time, +2% 33% of the time and loses -1% 33% of the time
The other system is the same system, except is loses -0.20% per period but 2% of the time it gets a bonus return of anywhere between +1% to +40% (to simulate a multibagger in the portfolio)

Series 2 is more convex
Of course, you got to have positive expectation in that option (or equity, or whatever is being purchased) but even this might understate results given that in real life, sometimes even bigger returns happen (AMZN was a 600x from its IPO) and the return has no real limit

 

[Daal]

Funny thing about AMZN is that if you pick all the Henry Blodget stocks that he was pushing in the late 90's, I'm sure most of them went to $0, yet, if you put in AMZN in the sample (his most famous call), its very possible (heck, its very likely) that overall an investor would have done wonderfully had he invested in all of them
Shorts, contrarians and NY/MBA types think that hype means that there is positive expectation in going against it (or that buyers have a negative edge in buying) but that is FAR from clear, its a very difficult situation to have much confidence in who has the edge

 

[Daal]

Decided to check my exposures to see if I want to make any changes one way or the other

I was actually running a bit of less risk that I thought. Under method 2 (where I separate low risk equity like OAK/NYRT/BR REITs from the others) I'm long 52% stocks (and there are dozens of companies behind BRKB, PSH and EWZ, so highly diversified), if I remove non-US exposures, I'm only long 28%
I think I will just trimm a bit of BRKB to prepare for Trump's volatility but that's it

 

[Daal]

As far as Asset Allocation goes, its interesting that I have less stock exposure than Jeremy Grantham/Montier. Last time I read their stuff they were long 70%, mostly in EMs and I think some Europe too. The rest was in cash. One has to be VERY careful reading around these 'bears' that sounds one way but invest another. Grantham has that pseudo science 'estimate' of stock returns, yet invests in a way that someone that is very bullish would. Another one is Gundlach, sometimes he sounds one way but you look at the duration of his fund, it does not match his talk
Talk is cheap, I want to see what they are doing with their money. Its like Taleb says, ask what a doctor would do in your shoes, not what his recommendation is

 

[Daal]

http://awealthofcommonsense.com/2017/07/stock-market-yields-are-higher-than-you-think/

Some of the buybacks are unsustainable as they are being done with borrowed money. But even backing that out, US companies are offering a shareholder yield (div+buybacks) of 4-4.5%, plus long-term growth of that. A total expected return of 5-6% from current levels. This math only becomes troubling when certain harmful commentators start to try to predict the direction of PE ratios (and usually they predict lower PEs and put a negative number in the calculation)
They have been wrong about the direction of valuation for decades, furthermore, they are afraid of a risk that is a good thing (lower valuations are an opportunity not something to be afraid of)

 

[Daal]

https://twitter.com/x/status/883392227673743360

I believe there is something to these rules of thumb

 

[Daal]

My EWZ moving average stop is closing to being triggered but even if it does, I will try to stick around with the full position for a little longer (perhaps use the $33 level as a short-term stop). There is a mini coup going on in Brazil, the house president is trying to take down President Temer according to some reports. If he suceeds, markets are likely to soar as political capital will be reset and the economic team will not change. There will be a better chance that reforms will be passed. There is a criminal indictment against Temer set to be voted by congress and if approved, will lead to a trial in Supreme Court, and the coup would involve getting congress to accept the indictment.Temer has turned into Dilma and Maia (the house president) is the new Temer

 

[Overnight]

...
I was actually running a bit of less risk that I thought. Under method 2 (where I separate low risk equity like OAK/NYRT/BR REITs from the others) I'm long 52% stocks (and there are dozens of companies behind BRKB, PSH and EWZ, so highly diversified), if I remove non-US exposures, I'm only long 28%
I think I will just trimm a bit of BRKB to prepare for Trump's volatility but that's it

Good lord, you seem over-exposed. A few bad events at the same time and you're cooked. Is it wise?

 

[Daal]

Good lord, you seem over-exposed. A few bad events at the same time and you're cooked. Is it wise?

Most people learn 'risk management' from hedge fund folks doing interviews (market wizards, etc), those guys have risk of ruin at ~-20%. I don't, its all about how much tolerance for drawdowns you have. If the S&P drops 30%, I will probably drop 15-20% but then 8 times out of 10, it will rebound from there and I will be fine. I'm comfortable with these numbers

 

[Daal]

But even some hedge fund folks do it similarly, the concentrated stock funds run capital with 10-20 stock positions. So 10% to 5% per stock. EWZ is like 50 companies, BRK is around 120 (between private stakes and public stocks), PSH is about 10. But even if you were to consider then as 1 stock, im not that far off their figures. If anything, I'm quite conservative compared to them due the presence of "drawdown anchors" like cash, bonds, gold, puts and other hedges. Although, it would be nice if I also had an additional hedge in the form of a small good short stock position in a bad company