Jan 2 2021 Trade Portfolio Updates

Didn’t get as much as I wanted done because …Holidays and distractions… enough said 🙂 Despite that, I’ve hit the ground running and I am working on creating some meta portfolio management which I mentioned in my last post. The idea is to really take advantage of diversification across strategies that aren’t correlated to create a combined time series that provides increased geometric returns by way of lower drawdowns and better compounding. What Mark Spitznagel coined as a volatility tax. We reduce that and pay less “tax”. If you have a lower return each month but you have less draw down, you compound it better than a higher more volatile strategy and so on. To me, it’s all you can do, diversify (smartly) and not just for the sake of diversification but true meaningful diversification. I wouldn’t ever just put all my eggs in one single strategy in one single week with a planned capital the size of my portfolio. There’s just too much reliance on how those specific strikes and BSH will react. Plus, it’s sorta fun having previous entries mature and act as mid bear hedges, harvesting and knowing that a single entry with bad timing is only 1/10th (well really 1/30th) the portfolio is a nice thing. It takes time to build up sure but it’s like 2.5 months. Who cares.

There’s a series of OTM (out of the money) type strategies (3 of them that I use) combined with a bearish toned ATM (at the money) trade to pick up the middle bear (non crashy moves ie Aug 2019, Oct 2018, Dec 2018, Jan 2016). Each of the OTM income portion is diversified in mostly its strikes but also the type of BSH it uses to pick up during a crash. A 488 will react differently then a 484+BSH then a HS3EZ (not saying I use those well, maybe idiosyncratic versions of one or more of those) both in it’s income production and income engine as well as its black swan hedge that it utilises. There’s some diversification, it’s not perfect but we work to reduce that imperfection by time diversification across 10 week campaigns (1/10th at a time) along with 3 additional BSH/Vol hedge type campaigns. The 3 BSH vol hedge type campaigns are factory based (ie they build up over time) and they are meant as a triple redundancy insurance towards the 4 other income strategies. But in reality, they should produce lotto like returns in a crash. One of the BSH/Vol type hedges actually generates income and helps compensate the costs of the other two. We then have as much redundancy as we possibly can both in the income strategies by way of time, strike/skew diversification, and BSH diversification built within the income strategy plus we have 3 additional BSH like stand-alone factory type strategies that should provide full assurance during a a crash and most likely a lotto return. Not sure you can do much more than that.

It’s systematic and the fact that you’ve got 10 different things to manage reduce human factors at a cost of management complexity which is my job anyways.

Speaking of which, I feel lucky to have found something that I wake up looking forward to and what will likely occupy the rest of my working life. I doubt in my life that I’ll ever pursue entrepreneurial projects again. I went through my 20s and 30s setting up some successful businesses w/ my wife and two other partners that I still manage (mostly as a board member). I give over-arching direction and make sure things are running in line with the plans set forth but there’s no day-to-day which set me free. We started the business in 2004 and I finally got out of the day-to-day around 2017. I just never liked dealing with humans and human issues in the workplace. It gets complex quickly and is often irrational and I feel just out of control when dealing with human resources. I know that’s super odd to say but maybe I can expand on it. I started a software company and I am not a software developer. Maybe that helps 🙂 I have to rely on my team to correctly advise me while making business decisions and dealing with customers demands while having an expertise that was relevant but outside the central operation of the business. Make decisions, go back to team, they tell you impossible, you know it is possible but can’t be quite sure because your experts are advising you and you fight and they end up getting it done /// rinse repeat. I always wanted my “money making” life to be me and a screen and that’s it. Very few outside “human” variables, very little reliance on anything but myself, my decision and the game environment we call the market. When something went wrong, it was something that was on me. Something that I could perhaps think my way out of. Not something where I had to rely on someone else. That was my goal and though it took like 5 years to really work that out (trading is hard…mostly because you have to meet parts of yourself that you might be unfamiliar with…and protecting yourself from yourself takes practice and time..and really just a system and recognition).

In my opinion, the attributes (besides the obvious skills) necessary for successfully trading is self reflection/humility, ability to take risks and tenacity. If you lack one of those, it ain’t going to happen. The risk taking portion has to be smart, unemotional and well thought out..with outs and with a system. One thing I’ve learned in life and I’ve seen it time and time again is that you can’t talk many people out of taking risks when they’ve become emotional about it. I can list like 10 situations which made me cringe and are very poignant lessons, some are horrible. It’s a specific type of person too. If someone decides that they are going to gamble, take a business risk, buy a stock, or whatever it is that has a possibility of changing their life trajectory, I found that it’s often very hard to talk someone out of that risk even if you give them good reasons. .Once they make an emotional decision, that’s it. But, if someone is humble and self reflective you can often advise them against and they back off and reflect. If you do take that risk, you need outs and you need to become tenacious (that’s where tenacity comes in). I took loads of risks in my 20s that I should never have, and now I have a process that protects me from making emotional decisions…I did have that tenacity though and the risks weren’t emotional though they were probably way to high a risk of ruin. Unfortunately, for success, you often really need the ability to take risk, you just can’t do it with emotional baggage. When I took those risks, I’d be like fuck ok…I’m in it now, then I’d create outs and I would literally not stop (sacrifice sleep (80 hr weeks) to make these risks work out. Stupid but tenacity got me out of jams and I learned that we often take risks for excitement, for that dopamine rush and to be very mindful of that. This is why you often can’t talk someone out of an emotional risk, they have already decided they need this rush this thing that can change their life (or destroy it) because they need to feel. When you do take a big risk, make sure you have control, several “outs” and be ready to commit your entire being to making sure you don’t fail. Tenacity, Risk-taking and Humility are the key ingredients. Look at the logo on my plane tail. Badger (Tenacious little fucks).

On to personal stuff, I got up in the air twice so far since being back (quarantine affected that). What a wild experience though, we flew to Muskoka (took 24 min from Brampton), then over to Toronto to do a fly over of the city. We asked the tower to do a direct fly over of YYZ (the busiest airspace in Canada) and was approved. This is a once in a lifetime thing to do…it was EERIE cool. Not a single flight (landing or take-off) and completely empty. Here’s some pics. I’d write a whole lot more on the blog re what it’s like to do a PPL in a Cirrus SR22 if anyone had interest. I just don’t want to bore.

Back in the plane. No better place!

Downtown core (CN Tower and Sky Dome) Direct fly over

YYZ EMPTY! Busiest airspace in Canada. Pandemic effects..

My Baby. 3-4-5 Papa Kilo.

Update – Nov 25 2020

Been a long time since I posted which seems typical of my behaviour with this blog. A lots been happening, I just left Cayman enroute to Canada where we’re moving into our newly built house (will post about that separately, it’s pretty damn cool too!) but we made a month long pit-stop in KTYS (Knoxville) to pick up a tool that would help me with one part of this blog, traveling. I bought a plane.

Ashley and I both had nearly completed our PPL back in 2008 but had to leave urgently right (like literally a week) before our Check-out ride to Cayman. We had intended on coming back within a month to get it done but we just never did and then we had kids…andddd that was that. We hadn’t picked it up again until now because it was just impossible in Cayman. Anyway, we ended up purchasing an SR22T Cirrus which is one of the safest prop planes out there, it has its own parachute system (entire plane) and the automation is astounding. It’s fully autopilot and has synthetic vision, live traffic, weather on board etc.

Cirrus has been amazing to deal with, literally one of the best companies I’ve ever dealt with. They came (for free) to pick us up in the Vision Jet because we were sorta stranded in Cayman due to it being Covid free and being locked down to the rest of the world. My rep finagled it by calling it a demo. The normal protocol is that they’ll come pick you up in an SR22 (one person) and bring you to Knoxville to take delivery. In this case, they picked us all up and in the SF50 Vision G2 Jet.

That was a blast. Maybe or maybe not – am I trying to build up experience and hours to get into one of those lol. A bit of a dream.

The other thing, Cirrus just started a PPL program and we’re the first students to partake. We’re here in Knoxville for a month training every day in our plane which is pretty cool. We’re less than a week away from Solo. In our off time, we’ve been mostly hiking and enjoying the outdoors since in Cayman, we were quite limited to just the beach.

We started off flying the club plane (because our delivery was Nov 18th). I have some slight PTSD from the training. So the call sign 8-6 Mike Juliette brings me some pits in my stomach. The instructor was extremely tough on us.

During training one day, we landed and saw our plane had made it to KTYS (Knoxville) for prepping before delivery. Got a snapshot before they put it away.

Here’s some delivery day photos. What a day. It really was like 10 years in the making. The original plans we had in our 20s was to become pilots and live that freedom. Just life and kids got in the way. Now with the kids in distance/home school there was no better time to dedicate a month to training and eventually instrument rating in the winter to finally be able to cross country. The thing is damn fast and has a great range. 1000nm (~2000 km) and boots at 187-200 kts. It can go to 25k feet too and is equipped with oxygen and FIKI systems.

Here’s our first Cross country (Ash flew there and I flew back)

As for trades,

I pretty much de-risked into the elections and was mostly ATM trades. I’ve added 10-20% sizing in the last week or two but am looking towards eventually setting up a 488 campaign now that we’re out of high vol. I did put on some Feb ATM SPX trades and I am playing with similar BWB setups in TSLA (given the recent momentum move up and iv spiking again). So I’ll be looking for opportunities in 488 and BSH factory build up as well as dabbling in ATM. That’s about it.

I am >30% for the year and happy that I’ll probably hit 40% for 2020 and move on to a more stabilised systematic approach in 2021.