Global Macro Trading Journal
- Thread starter Daal
- Start date
How are you coming up with Risk scores. At first glance, I don't think REITs risk score is 60% of stocks. During 2008-2009 REITs lost more than stocks.
Just a gut feeling based on my backtests, experience and data. In my case, I'm long Brazilian REITs. By law they are not allowed to lever up like US REITs. They also pay tax free dividends. I tend to think of them more as higher risk fixed income rather than stocks. In the US, they might deserve higher risk scores though
One of the REITs that I'm long (the biggest in the country) has a balance sheet like this:
$630M in assets
$58M in liabilities
$580M in equity
$49.5M of those liabilities are obligations due real estate acquisitions.
Its great that they dont let the REITs go nuts on debt in Brazil. The US could use a little more equity financing and less debt!
$630M in assets
$58M in liabilities
$580M in equity
$49.5M of those liabilities are obligations due real estate acquisitions.
Its great that they dont let the REITs go nuts on debt in Brazil. The US could use a little more equity financing and less debt!
https://seekingalpha.com/article/42...lson-important-question-investor-needs-answer
Whitney Tilson's interview with Seeking Alpha
"Since I closed my funds last September and received cash (along with all of my investors) a few weeks later, I’ve primarily been focused on building my new business, Kase Learning, so have kept my investing very part time and incredibly simple: of the money I allocated to stocks, I invested 1/3 in Berkshire Hathaway, 1/3 in Howard Hughes, and 1/3 split evenly among Amazon, Alphabet and Facebook."
"An eight-year attempt to manage money with a partner didn’t work and the market became more challenging, but the single biggest reason I’d cite is that I became too smart for my own good. My success led me to think that I could add value by, for example, trying to time the market, trading, using options, going out on margin, and short selling. All of these activities cost me dearly."
"There are so many that we created a full-day seminar focused solely on short selling at Kase Learning. One simple piece of advice for most investors is: don’t do it! It’s just too hard, too risky and too time consuming. This was the advice Charlie Munger gave me very early in my career and one of my great regrets is that I was too dumb to listen to him."
Tilson seems like a great example of getting 'played' by the investment cycle. Back in 2010, just after the crisis, he was loaded in shorts and had a bearish outlook. Now late in the cycle he put 1/3 of his money in late stage companies he wouldn't have chased in his funds. Of course, he is trying to keep up with the S&P500, which is 25% tech.
So he wanted a lot of hedges when it was time to be more aggressive and now he doesn't want a hedge but late stage stocks and a Munger/Buffett type 'buy and hold' mentality.
I noticed the same thing in Tony Robbins when he came out in 2010 warning people about pulling cash out of equities on youtube and then in 2017 he publishes a book titled "Unshakable" talking about how people should buy and hold stock ETFs.
I'm not immune to this, far from it, that's why I want to have a risk rule and risk limits. If you let 'analysis' do the work, you will find excellent 'reasons' to be bullish at the top and awesome 'reasons' to be bearish during bear markets.
So, its a 9 year bull market and US markets have crushed everything. I'm still long but I dont want to go "Tilson". My max risk exposure will be 50% and 4-1 risk assets to hedge assets. If warning signs of a recession appear, I will quickly drop that to 2-1 and 20-30% limit. If conviction arises that a recession will take place. I'm selling all my stocks and going 10-20% short
Whitney Tilson's interview with Seeking Alpha
"Since I closed my funds last September and received cash (along with all of my investors) a few weeks later, I’ve primarily been focused on building my new business, Kase Learning, so have kept my investing very part time and incredibly simple: of the money I allocated to stocks, I invested 1/3 in Berkshire Hathaway, 1/3 in Howard Hughes, and 1/3 split evenly among Amazon, Alphabet and Facebook."
"An eight-year attempt to manage money with a partner didn’t work and the market became more challenging, but the single biggest reason I’d cite is that I became too smart for my own good. My success led me to think that I could add value by, for example, trying to time the market, trading, using options, going out on margin, and short selling. All of these activities cost me dearly."
"There are so many that we created a full-day seminar focused solely on short selling at Kase Learning. One simple piece of advice for most investors is: don’t do it! It’s just too hard, too risky and too time consuming. This was the advice Charlie Munger gave me very early in my career and one of my great regrets is that I was too dumb to listen to him."
Tilson seems like a great example of getting 'played' by the investment cycle. Back in 2010, just after the crisis, he was loaded in shorts and had a bearish outlook. Now late in the cycle he put 1/3 of his money in late stage companies he wouldn't have chased in his funds. Of course, he is trying to keep up with the S&P500, which is 25% tech.
So he wanted a lot of hedges when it was time to be more aggressive and now he doesn't want a hedge but late stage stocks and a Munger/Buffett type 'buy and hold' mentality.
I noticed the same thing in Tony Robbins when he came out in 2010 warning people about pulling cash out of equities on youtube and then in 2017 he publishes a book titled "Unshakable" talking about how people should buy and hold stock ETFs.
I'm not immune to this, far from it, that's why I want to have a risk rule and risk limits. If you let 'analysis' do the work, you will find excellent 'reasons' to be bullish at the top and awesome 'reasons' to be bearish during bear markets.
So, its a 9 year bull market and US markets have crushed everything. I'm still long but I dont want to go "Tilson". My max risk exposure will be 50% and 4-1 risk assets to hedge assets. If warning signs of a recession appear, I will quickly drop that to 2-1 and 20-30% limit. If conviction arises that a recession will take place. I'm selling all my stocks and going 10-20% short
I notice that your BRL balance is only 28.70%, but your USD balance is 62.60%. I assume that most of your day-to-day living expenses are in BRL?
Do you have any thoughts/policy on if/how/when you hedge your USD exposure?
Obviously the USD has done very well against the BRL in recent weeks, but what if it suddenly dropped to 3.50 or 3.00?
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Good question. I have been thinking about that recently. My usual balance is 50% Safe Haven Currencies (Which in recent years I have been using USD, but it could be any of the other ones) 40% BRL and 10% Gold.
I do have a fair amount of costs in USD, like software fees, travel expenses, real-time data, research, electronics, health coaching, other imports. A lot of my costs are in infact in BRL. However I do find dangerous to mentally 'convert' my assets into BRL and tell myself 'this month I made X BRL, my BRL networth went up by %'.
I dont consider my networth to be denominated in BRL, but rather in a basket of currencies (in the balance above). IMO if someone from a risky country mentally thinks their networth is denominated in their domestic currency, they will be induced to be invested in domestic assets (to avoid potential FX losses) and then one day they get wiped out by a hyperinflating government. But if they thought in terms of, say, 50% domestic 50% CHF, they would be a lot more protected and yet still keep volatility to a resonable level.
For that reason, I try to own as much BRL and USD or other currencies that I think its prudent and I dont consider their fluctuations to be gains or losses.
Its similar to what the IMF does with the Special Drawing Rights. That said, I'm a bit underweight BRL as a result of the decline of EWZ and day and swing trading gains (while I rolled over the same amount of BRL contracts). I'm considering increasing my BRL, but I'm trying to time it because of the Brazilian election. Its a very confusing picture right now, so I'm not sure if I need to do it now or later
Its interesting, because for an EM citizen, it seems to be a nobrainer to load up in USD assets (or another safe haven). The scenario where he gets hurt (the EM currency keeps going up and up), is not so bad. Usually the EM economy will be doing great, jobs will be everywhere, incomes will be rising (so maybe the person gets a raise or their business does better), crime will be down (so death or theft tail risks decline), people are happier. So its a "good loss". But if shit hits the fan and the EM currency collapses, then the EM citizen will have a pile of assets that kept their value (or maybe even appreciated) to buy cheap real-estate, stocks, or to pay for expenses. The assets will work as much needed insurance. No wonder the Chinese go crazy buying US and Canadian real estate, it makes perfect sense!
In my case, since I dont have a job or business in Brazil (As I'm a full time trader), I try to own risky things in Brazil. Things that are sensitive to Brazil doing well. That way, if the country does great, I benefit. If Brazil goes to shit, I have USD assets and USD income. So I would probably do pretty well too
In my case, since I dont have a job or business in Brazil (As I'm a full time trader), I try to own risky things in Brazil. Things that are sensitive to Brazil doing well. That way, if the country does great, I benefit. If Brazil goes to shit, I have USD assets and USD income. So I would probably do pretty well too
What are the risks of a significant market drop without a recession?
S&P500 corrections outside of a recession
There has been 8 corrections that I could deem 'significant', that is greater than 15%. Anything less than 15% I would consider noise and just a typical stock market fluctuation (they are risky, after all. IMO if someone cant handle that, they probably shouldn't own any stocks). Anything over 15% and it starts to make sense to prepare for it, to try to avoid it, hedge before it, etc etc. So 8 out of 92 years. That suggests the probability is around 8.6% (8/92), roughly once every 12 years. At least, historically speaking.
So the odds seem low. The name is the game to avoid volatility and significant losses seems to be to time the recession rather than to be afraid of random crashes
S&P500 corrections outside of a recession
There has been 8 corrections that I could deem 'significant', that is greater than 15%. Anything less than 15% I would consider noise and just a typical stock market fluctuation (they are risky, after all. IMO if someone cant handle that, they probably shouldn't own any stocks). Anything over 15% and it starts to make sense to prepare for it, to try to avoid it, hedge before it, etc etc. So 8 out of 92 years. That suggests the probability is around 8.6% (8/92), roughly once every 12 years. At least, historically speaking.
So the odds seem low. The name is the game to avoid volatility and significant losses seems to be to time the recession rather than to be afraid of random crashes
In my opinion, this is little bit of data mining.
First of all, recessions are declared only after it has already set in, some times it is declared after the economy has come out of recession. In investing, one can not have mulligan. So you need to test returns based on your favorite recession prediction method.
You are also using dataset of one of the best performing country over last 100 years. There are other markets which has lost more than 20% without going thru' recession. In some cases, like Russia and China markets have gone to zero.
First of all, recessions are declared only after it has already set in, some times it is declared after the economy has come out of recession. In investing, one can not have mulligan. So you need to test returns based on your favorite recession prediction method.
You are also using dataset of one of the best performing country over last 100 years. There are other markets which has lost more than 20% without going thru' recession. In some cases, like Russia and China markets have gone to zero.