If the Pizza bitcoin guy had followed a similar plan, he would not have been worth $175 Million dollars (long 100% all the way up) but he might have been worth $10-$20M with limited risk, which is still pretty nice. If someone is too smart for their own good, tries to time things too much, sells it all and hopes to buy back down, etc, that can be a disaster in the making. That's how one becomes the pizza guy and watches the whole thing rip and your out because you sold it $30 and dont want to buy back at $500 or something
Global Macro Trading Journal
- Thread starter Daal
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The Nikkei went from 1000 in the 60's to 36000 in 89
I'm sure for the guys observing in the early 80's, the whole thing looked ridiculous and there was no way to go higher. They just lacked imagination, there was a way and it happened. I don't want to lack imagination when it comes to BTC, the Pizza guy lacked imagination and paid the price. I want to combine imagination (a great asset in convexity markets) with risk control, and that's what I'm trying to do
I'm sure for the guys observing in the early 80's, the whole thing looked ridiculous and there was no way to go higher. They just lacked imagination, there was a way and it happened. I don't want to lack imagination when it comes to BTC, the Pizza guy lacked imagination and paid the price. I want to combine imagination (a great asset in convexity markets) with risk control, and that's what I'm trying to do
My working hypothesis is that the Bitcoin "bubble" is different from other bubbles because its true fundamental long-term fair value could be quite a bit higher from current prices
So, it goes from boom bust cycles but the highs are higher and the lows are lower. With higher and higher market capitalization, adoption and usage every cycle. I dont know where that Fundamental long-term fair value lies, whether its at $50K, $500K or back to $500 but there is a lot of assymetry for longs and I know for a fact that bitcoin can never go bellow $0 so its an easy decision to be long. But its a RISKIER decision to try to time the tops, because you could just miss out on a continuous rise to the fundamental value if your timing is off (a not so rare occurance). This is why I will have timing indicators but I also want to 'idiot proof' my system so I dont make a large mistake
So, it goes from boom bust cycles but the highs are higher and the lows are lower. With higher and higher market capitalization, adoption and usage every cycle. I dont know where that Fundamental long-term fair value lies, whether its at $50K, $500K or back to $500 but there is a lot of assymetry for longs and I know for a fact that bitcoin can never go bellow $0 so its an easy decision to be long. But its a RISKIER decision to try to time the tops, because you could just miss out on a continuous rise to the fundamental value if your timing is off (a not so rare occurance). This is why I will have timing indicators but I also want to 'idiot proof' my system so I dont make a large mistake
What gives me confidence that the long-term fair value is above, and not bellow, current prices is the fact that btc is so resilient. If it was worthless, it would have died after the retail driven $20K peak. It had everything to die and never make a return. Hype, euphoria, parabolic moves and then a crash and people losing hope. But it came back, it came back because there are fundamental value to it, and the bidders came in to snap it up. The selling at low prices stopped and meanwhile the buyers continued to show up. I have followed hundreds of pump and dumps over the years, they dont survive for 12 years with more usage, liquidity, adoption every cycle. They usually die after the first crash, BTC had like half a dozen. The market is speaking and it is saying the fair value is higher
no -- you would do that for your "overall"/"real life" portfolio. E.g. you might own a home, have a 401k invested in stocks, and have cash in a cd.
For any portfolio, however, you want to minimize covariance to reduce risk via diversification. In a "moonshot" portfolio you may want to couple BTC with other high-risk/long-shot assets.
Hypothetically you put together a mandate tying this portfolio to investing in opportunities in crypto, digital payments, and systems architecture (that supports these endeavors). So you might hold some bitcoin, Ethereum, paypal, net, nvda, and such, in this portfolio.
I agree completely. I did a lot of work in backtesting portfolios in 2017, I wrote the main findings in this journal. The main lesson is that in order to maximize risk adjusted returns, the Taleb "barbell" portfolio is ideal. And that portfolios like the Dalio's all Season's (30% stocks, 55% bonds 15% gold) mimics that barbell. So these days what I do is to own "stable" assets with more of my capital and reserve 10-40% in riskier bets. The more exponential their potential (what I and Taleb call convexity) the more I'm inclined to own. Besides BTC and Galaxy Digital, I own FNMA preferred stock which can pay off large if things go according to plan, and some small stock positions with potential like ABCP (litigation), ARCT (mrna company cheaply priced vs MRNA), I also own a private stake in a start-up in Brazil (the Angel's list of Brazil). But lately I have been quite low on high conviction convexity ideas, other than BTC. I have to figure out an way to better generate ideas. I wish I participated in a lot of the vaccine stock rallies this year. Biotech is something I need to become better at understanding
Hopefully ARCT works out so to give me a good start, I own a tiny position but I feel like this sector has a lot of opportunites if I get more comfortable with
I also screwed up big time on MKTX a while back, I used to own it from $195 but took profits at $230 or something. Now it trades at $534. I understood it but second guessed myself during the market gyrations. I need to find ideas with a lot of potential but also ideas where I wont get shaken out of. I'm going tiny in some of these names because of that, they cant shake me out of a tiny position
I would second @longandshort suggestion that you look into other crypto assets. I have ETH and am accumulating others. Some of the Defi tokens ran >10000% this year.
Would be interested in hearing your thesis on ARCT. I have it on my list, as far as I understand MRNA is the clear winner in that space with recent news being the proof.
Would be interested in hearing your thesis on ARCT. I have it on my list, as far as I understand MRNA is the clear winner in that space with recent news being the proof.
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the underlying philosophy of Dalio's all season portfolio is creating a portfolio of uncorrelated assets, and weighing by risk (using something like a eigenvector portfolio or factor based using pce). that concept can be applied to anything, though risk-weighing is challenging due to dynamic relationships (correlations are not always stable). convexity, when most people in the financial community use the term, is a second order reference to the sensitivity of the underlying asset to interest rates. another term is gamma.
the challenge with having high gamma/high convexity portfolios is that it is a proxy for risk. e.g. you are just taking on more risk (risk of losing capital/drawdowns). it does not mean you are more efficient in getting the right exposure to return. managing the gamma in your portfolio should be done via hedging. a good example of this is for every $10k of BTC you buy $500 worth of puts. hedging out this risk reduces your risk of drawdowns, which is what really matters to investors (and you).
going back to building a portfolio around moonshots, the idea again is not to double-dip in the same return factor. for example, among digital coins, seek the least correlated BTC that also has a positive skew. if none exist, reduce your btc exposure to the something where 5 sequential losses won't bankrupt you, where the rest of the exposure is cash or some other non-correlated asset. note: you do not want negatively correlated assets (like a put) unless you are trying to hedge gamma/convexity.
I was reading about the Coinbase custody service. It looks pretty neat. They have all kinds of security features (like keeping the BTC offline and making it hard to get it out of there) PLUS its insured by the Loyds of London and some other firms. Its is as good as a storage system as it gets
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