Q3 and YTD Update

Peak is up about 44% YTD gross. We ended 2021 at the exact same number. We still have 25 days and I expect it to probably hit 47-50% to end the year. The year did start off pretty challenging but by May and onwards, the management was stressless and relatively straight forward. We were and are relatively indifferent to the swings of the market, and there were many, especially October. It was a lot of fun to watch the CPI releases and the whacky 5% moves in each direction and not really care. It’s interesting to note that direction doesn’t really matter in terms of how the portfolios perform. It is because of the setup of the systems and how these things mature together over time. The older trades mature and hedge off newer trades and we have diversification within the trades themselves including the tail positive exposure.

Our main concern or risk is when we move from a period of low volatility to a sudden shift to high volatility. Once in the regime, the trades are matured and setup in a way where direction of the market is not so important. Of course, we have to manage things and adjust risk but most of the time we don’t even know what market direction we prefer 🙂 If it screams up, we get the benefit of the vol crush but end up pretty stunted in potential return if it keeps going up, it taps out with a modest return if you will, but it’s easy and its a good modest return. if it screams down, we enjoy the activation of our convexity. If it grinds up, we’re walking it up with adjustments and trade initiations and benefiting from the volatility decline. If it grinds down, we’re enjoying the movement into our higher premium sections of the risk profile. All in all, relatively indifferent. It’s how it was designed. I don’t want to be beholden to market direction and I don’t want correlation to the broader market, especially now.

We’re now going into the end of the 3rd year of the funds existence and we’ve managed to produce similar returns to our backtests. Our “out of sample” match our “in sample” and despite 2021 being a very bullish year and a completely different environment than 2022, the years returns nearly match exactly. 44% and as of today 44%.

As usual, the focus is always on the reduction of risk through diversification, it is the series of returns that is most important to us. It is the multiplicative result of a series of results that matters the most, not the single edge or expected value of any trade. If you have a strategy that does 30% a year arithmetically but has a 50% draw down in year 5, it’ll do worse than a low variance portfolio that does 10% a year with no major drawdown multiplicatively. Our research continues to be on adding a trade type that compliments our systematic approach and that helps reduce the variance within the time series.

Lake Tahoe trip in the Cirrus

We decided to get out for a date night and took the Cirrus up to Lake Tahoe. From Van Nuys it was only about a 1.5 hour trip. We departed Van Nuys and did a pit stop in Camarillo for some fuel (both for the plane and ourselves). Camarillo has one of the best airport restaurants ever. In aviation, the best restaurants are at the airport. It’s a way to get people to fly for that $100 hamburger (the $100 is in relation to the gas it costs to fly there :)). It makes it fun to get out in the plane and try new restaurants. I’ve been intermittently fasting (one meal a day) for a bit but decided today was a day we could break the fast, after all, it was vacation date night/day. Lost like 15 pounds in 6 weeks doing it.

The flight to Camarillo is only about 8 min so it’s pretty quick up and down. We take-off, get handed off to Van Nuys departure and within a few minutes are talking to Camarillo tower arranging the landing sequence. The departure from Van Nuys can be pretty annoying sometimes, they’ll prioritize jets as they burn a lot on the ground. I was holding short and ready to go when the tower moved me to a corner so 3 jets could depart. They put baby in the corner. I totally could have taken off quickly and in time, so it was odd they did that. It caused delays and took us about 30 min from start to get airborne. Conversely, from Camarillo it takes about 5min. I’d love to get a hangar in Camarillo but it’s booked up for like 5 years. The only thing available is a shared one, I might consider it but I don’t know.

I’ve got a deposit down for the Vision jet and I have been on the list for 2 years but they’re telling me its going to be another 2 years..I’ll have to find hangar space that fits that thing. Everything from now until then is training and gathering experience for that.

Here’s a shot departing Camarillo

Flight was uneventful, we arrived and landed r/w 36 (which was an interesting approach given the mountain right in front of us). I had to kinda keep left then dive down for a controlled approach pretty quickly.

Once on the ground, we ordered an UBER to the hotel which was a short 15 min ride. Easy. The #Cirrus life I guess.

We just got some beers, hung out in the hotel and then got dinner. We ended with a bottle of champagne in the hotel room and that was that.

The next day was pretty cool, we had a massive tail wind and we got to see (from a distance) some sort of rocket launch. We left at 11 and were back around 12:15. Hard to get used that.

From sun to snow

I ended up getting my IFR (instrument rating) in Canada and am working on the conversion in the US/FAA. I hope to have it all done by this week. In the next post, I flew from KVNY (LA) to CYYZ (Toronto) and back. Which was very interesting, and a great experience.