2021 Returns Thread

[ERICOPOLY]

2 hours ago, rayfinkle said:

 

Hey Eric- hoping to clarify what you mean here. Can you let me know  if this is what you mean?

 

30% notional exposure in ATM calls....

- ...gives you the same exposure as if you'd invested in the underlying with 30% of total dollars, but puts less $ at risk

- ...Therefore ppl may be more likely to actually make a concentrated bet

- ...the downside is that you are time-bound and will have to roll the calls (increasing your basis) to keep the trade alive past expiry

 

30% writing puts...

- ...Funds the premium for the above calls

- ...Is equivalent to "limit orders" on a diversified basket of names at the strike

-... to clarify, are you contemplating these as ITM / ATM / OTM? 

 

When combined...

- ... buying the calls, funded by puts, means you have 30% of the portfolio "reserved" in case the puts are exercised. In this sense the trade is leveraged to the upside but not to the downside

- ...you get "free" upside in the sense that if you were going to buy the positions that you wrote puts on anyway, you now get similar exposure to those names PLUS a rider on the call options

- ...you lose on the puts in two possible ways: 1) is if the underlying puts (assuming they are OTM) are never struck, so you never get the long exposure, and then those stocks go up. you'd therefore lose the upside, 2) if the puts are exercised and the stocks go down. (1) leaves you worse off than just getting a position in the underlying; (2) is equivalent to owning the underlying

- ...the calls main drawback is the duration. If you have to roll them to keep your exposure you suffer some frictional costs in maintaining the exposure. Over time this could erode returns

 

Did I get this right?

 

 

You talked about things like leverage and free upside.  Look, I'm not saying anything like that.

 

I'm just saying:

1). you are taking ONLY the downside of the diversified basket of 100 names (none of the upside)

2). you are taking ONLY the upside of the concentrated name (none of the downside).

 

Derivatives were created for swapping risk.  I'm not saying anything unusual or surprising.

Edited January 11, 2022 by ERICOPOLY

[ERICOPOLY]

It's just swapping out the risk of the concentrated position for the risk of the well diversified basket in exchange.

AT THE SAME TIME AS

 

Swapping out the upside of the diversified basket for the upside of the concentrated basket in exchange.

[aceskc]

Below are my results agg separately managed accounts of partners...very satisfactory on an absolute basis...only a couple of ppts of outperformance on a relative basis (SPY at 18% annualized over the same period). 

 

 

Year		Partnership Results
CY 2016 (8 mths)		15%
CY 2017		12%
CY 2018		27%
CY 2019		24%
CY 2020		8%
CY 2021		27%
Cumulative		177%
CAGR		20%

[rayfinkle]

7 hours ago, ERICOPOLY said:

 

You talked about things like leverage and free upside.  Look, I'm not saying anything like that.

 

I'm just saying:

1). you are taking ONLY the downside of the diversified basket of 100 names (none of the upside)

2). you are taking ONLY the upside of the concentrated name (none of the downside).

 

Derivatives were created for swapping risk.  I'm not saying anything unusual or surprising.

Thanks. That’s more clear to me. 

[Paarslaars]

On 1/9/2022 at 7:18 PM, backtothebeach said:

 

Congrats on the strategy change from 2019. The Christmas crash in 2018 must have been a wake up call (it was for me).

 

Yes a much needed wake up call.  Honestly I still consider my situation to be rather fortunate.

I started investing right after buying a house, so the majority of my wealth was in real estate which has only gone up since. Therefor my portfolio was small early on, my biggest loss in a year was about 3 months of salary. Not fun but better I learn from it now than make these mistakes when my portfolio is much bigger.

Edited January 13, 2022 by Paarslaars

[coc]

On 1/3/2022 at 3:19 PM, Dynamic said:

Pre-tax market-price return CY 2021: +79.61% in USD, +81.44% in GBP.

Annualised returns since 31 Dec 2015: +27.41% in USD, +29.91% in GBP (10.05% annualised outperformance vs SP500TR, 22.98% annualised outperf vs FTSE100TRI)

 

Intrinsic Value return CY 2021: +34.16% in USD, +39.57% in GBP.

Annualised IV increase since 31 Dec 2015: 24.48% in USD, 27.41% in GBP using consistent methodology.

 

My actual more nuanced IV estimate at present is higher than my old methodology which seemed OK before, in which case IV increase looks like:

New method IV return CY 2021: +53.77% in USD, +59.98% in GBP.

Annualised new method IV increase since 31 Dec 2015: +27.55% in USD, +29.99% in GBP - close to the annualised market-value returns over those 6 years.

 

I suspect the S&P500 outperformance will lower to single digits soon.

 

My spouse and I gave up our jobs towards the end of this year, and will soon be taking money out of our portfolio each year. We actually did cease our usual investment rate (about 50% of combined income after tax) and then withdrew a little cash from the portfolio to pay for some pretty extensive home remodelling. We also moved some of our profits into tax-sheltered accounts to the maximum extent possible after realising some gains. We are on track to have our largest ever tax bill to pay in Jan 2023 thanks to capital gains realised this summer, less refunds from pay-as-you-earn from quitting our jobs in the middle of the year.

 

While I do now calculate IRR, I model annual rate of return as the mean average of these two calculations:

(Year End Valuation / Previous Year End Valuation) - 1

(Year End Valuation / (Previous Year End Valuation + Cash Added During Year)) - 1

then display this as a percentage.

For the first time the second figure is higher the the first as Cash Added was negative.

 

As anticipated in last year's thread, our portfolio was positioned well going into 2021 after actually losing market value slightly and I took some gains by 5th April (UK tax year end) to use tax-free Capital Gains and got a modest tax rebate. Realised some very large gains in the summer which will incur between 10 and 20% effective capital gains tax rate payable Jan 2023.

 

If I recall you've been very concentrated in the past - what did your portfolio look like in rough overall % of AUM last year if I may ask? Thanks.