Global Macro Trading Journal

[Daal]

This is a report from 6 years ago, as is evident from the URL.

Looks like more recent data doesn't change the conclusion much

Venture Capital seems quite oversaturated (in the US, that is) and it simply is returning capital to investors, after fees.
However, my advantages are:

-I pay no fees
-My 'fund' (that is the capital that I will invest) is significantly lower than the avg VC fund. And some studies show that the fund size is negatively correlated to performance (higher AUM means lower IRRs)
-I'm not in the US
-I don't have to invest to show investors that I'm doing something with their money, I can be very selective and patient.
-I will also be doing 'liquid VC' on the side. That is, invest in small and medium cap listed stocks that I believe can turn into multibaggers

So overall, I expect there is a risk premium for me to capture. I don't know if my performance will be bad/ok/good/great/excellent but it seems a good game to be involved in because I will be getting paid for my attempt (risk premium). Its like trying to become an actor or youtuber, except getting paid to do so. Odds are that you wont make it, but if you do, the payoff is gigantic

 

[Daal]

Its like trying to become an actor or youtuber, except getting paid to do so. Odds are that you wont make it, but if you do, the payoff is gigantic

This might actually be a little book idea for someone to write that I would love to buy.
To list all of these real life little 'options' that someone might try out for free or even get paid to do it. Trying out acting is quite time consuming and it can take years or a decade to find out if it will work out or not, so it would be a terrible option to go after. But anyone can start and run a youtube channel on their spare time, or perhaps do a podcast. Similarly with angel investing, especially for people that already have background in investing/finance. Or to try to become a long only investment picker, yeah, you probably won't beat the markets in a big way but you are getting paid to try (risk premium), so why not?. I heard that becoming an Amazon FBA vendor is also another cool little cheap business idea. Writing a book is another one but that can be time consuming as well and I speak from experience(although I did manage to only write on Sundays). Becoming a daytrader is another, in this case for me, it worked out, but it did require a lot of time investment and its not particularlly fulfilling so I'm looking to pivot into other things.
There might be dozens of those ideas, some of them I might never even heard of

If someone goes through their whole life trying out these little cheap/free/get paid to do options, at some point they will strike gold

 

[Daal]

If I become more active in investing in private equities and public risky stocks ("liquid VC") then the question is, would those investments be able to beat the stock indexes? Its well known thats its very hard to do, but I suspect some of that is the result of managers caving in to the need to `show` something to investors that they are doing something

If you index hug, you will be called, well, an `index hugger` and people might pull their money out (no manager wants to write "we are 90% invested in SPY"). So they feel the need to go out and get quite active (and sometimes they get active, because they want to hit a big score and walk away with fat fees before it all blows up, that is, they got no ethics).

My plan will be different, I believe in index hugging and ocassionally, taking 5% or 10% positions in things that I was really selective about, that I researched a ton.

So, on day 1, lets say I want to have 50% of my networth in equities. I would go ahead and put all 50% in say, SPY (or BRKB as a substitute), VWO (EM etf). And then 1-2 times a year, if I find something I really like, something that I researched a lot and that I dont believe I`m suffering from advserve selection in (which a lot of VC firms in SF suffer from, since the best startups try to get funding from the best funds, as a result the avg VC only sees the rejected deals) then I will take out 5% of 50% (so 2.5%) and put in the equity. All the rest will remain index hugged
Managing equities in this way, I believe, would get one fired in a lot of places but I believe it makes a lot of sense. You miminize underperformance a great deal, and selectivity can perhaps be a way to generate alpha, since you only get involved when there is something clearly being mispriced (perhaps due to human nature reasons).

If those picks, turn out to underpeform the market, then lessons should be learned, and more selectivity is likely needed. If one keeps doing that, it wont guarantee they will beat the market, but I believe it will help specially vs the people that are not doing that because they have to show something to superiors/investors. And whatever underperformance that occurs will be miminized vs alternatives

 

[Daal]

Risk parity concern a little overblown? The return of the Dalio portfolio doesn`t look all that bad so far this year

That said, I wouldnt hang onto TLT and IEF in designing a portfolio for this year and next. I rather own short-term treasuries

 

[truetype]

I wouldn't hang onto TLT and IEF in designing a portfolio for this year and next. I rather own short-term treasuries

Then to maintain the "parity" part of risk parity, you'd have to heavily lever them.

 

[Daal]

Then to maintain the "parity" part of risk parity, you'd have to heavily lever them.

You are right, these guys lever up (I dont). But both AQR and Bridgewater (IIRC), change that leverage based on different assesments. If they decided to lever down, the relavent market would be bonds, which is extremely liquid. Why so many people expect problems in the stock market as a result? I understand the discounting and rates issue, but bond liquidity is so large, these guys are like nothing there, i doubt they would have much of an impact in interest rates

 

[Daal]

Perhaps this is why the stock market jumped today (more so than the wage inflation figure missing expectations)
"More than 800,000 Americans joined the labor force for the month, according to the report, many bypassing unemployment and jumping straight into jobs. It was the largest one-month increase in the labor pool since 1983, outside months that included one-time Census hiring."

If there are a lot of people outside the labor force, that will now join and try to get a job, that means there is more slack in the labor market. Employment would be able to grow more without triggering wage inflation, at least for a while.

The way to see how much slack is through things like the employment to population ratio

Its too much to think it could go back to 2007 or 1999 highs, but it does suggest that there is probably a good amount of new people that can be employed. This should help contain wage inflation

 

[DB_sezwhat]

Perhaps this is why the stock market jumped today (more so than the wage inflation figure missing expectations)
"More than 800,000 Americans joined the labor force for the month, according to the report, many bypassing unemployment and jumping straight into jobs. It was the largest one-month increase in the labor pool since 1983, outside months that included one-time Census hiring."

If there are a lot of people outside the labor force, that will now join and try to get a job, that means there is more slack in the labor market. Employment would be able to grow more without triggering wage inflation, at least for a while.

The way to see how much slack is through things like the employment to population ratio

View attachment 183567

Its too much to think it could go back to 2007 or 1999 highs, but it does suggest that there is probably a good amount of new people that can be employed. This should help contain wage inflation

This is great analysis imo. So many "shadow" unemployed that can come back into the workforce will limit wage inflation and propel the next leg up.

 

[Daal]

This is great analysis imo. So many "shadow" unemployed that can come back into the workforce will limit wage inflation and propel the next leg up.

“It seems increasingly plausible that the economy is still well short of full employment,” said Andrew Levin, a Dartmouth College economics professor and former Fed adviser

 

[Daal]

Here is an interesting rule of thumb from Jason Calacanis that can be applied to angel investing, icos, VC and other forms of bets

"99 percent of people who write an idea on the back of napkin never do it. 95 percent of people who write a business plan never execute on it. 90 percent of people who build a prototype never build an MVP. 80 percent of people who build an MVP never do a beta test. 80 percent of people who do a beta test never incorporate. 95 percent of people who run a successful beta never raise money."

This is why it seems so crucial to filter out investments hard at the early stages. Too many people will swear on their mother's life that they will proceed to the next stage, but never actually do it. Persistence and resilience on the founder are key traits that Calacanis looks for