This is a blog I have been formulating in the deep dark recesses of the WheelieBrain for quite some time now, and finally it has pushed itself to my frontal lobes and is starting to emerge through my arthritic fingertips; and with a staccato accompaniment of the tapping of my keyboard. I remember reading in various places over time the idea that you could improve your overall Returns by reducing the Volatility of your Portfolio, and I wanted to look into this and see how true or not this was.
Now this plays very much to my obsessions with Hedging because my fixation on that is with the aim of reducing big Drawdowns on my Portfolio, which is very much in line with the goal of lowering overall Volatility. On top of this, there are a few things we can do to lower Volatility and I will be exploring those later in the blog.
As per the heading, back on Friday 5th June 2020 I went a bit nuts and was lying in bed at some crazy time like 5am in the morning, and my head was utterly buzzing with thoughts about my Approach (my System), how I was Executing it, and how I needed to Optimize what I was doing. I have taken the original Tweets and shoved them into this Blog and they are in italic text. I have then added underneath in many places some further comments to try to make it clearer to Readers. I hope you like it.
This Blog has come into being after a long string of Tweets I sent out recently which were essentially about my Approach and how I intend to go forwards with ensuring that I can exploit how I do things to maximum effect but with minimal Risk and Effort.
I have actually captured the Tweets and put them into another Blog Draft and hopefully that will come out soon as well. I have added some other thoughts to those Tweets so it should make a decent read and in combination with a recent Blog about my Approach, Readers should have lots of detail on how I have evolved my methods and they can mull over any aspects they wish to copy etc. I will include a link to that Approach Blog at the bottom of this one.
One of the concepts that I mentioned in the string of Tweets was that I see 3 key parts to my Approach which I have classified as System, Execution and Optimisation.
I have no doubt that regular Readers (please no Wheelie, I can’t take anymore purile and unimaginative All-Bran references), will be well aware of my borderline imbecilic obsession with Hedging my Portfolio and you must be exasperated beyond belief to see that I am writing about this well-treaded subject yet again. Anyway, it is what it is, and after the recent heavy sell-off in the Markets (which after all is exactly why I have been mucking about with Hedging for so many years, in anticipation and preparation for such an event) I feel it would be worthwhile to just get down in blog format some thoughts and observations etc. that have arisen after this episode and the Global tragedy of the Coronavirus.
Overall I am quite pleased with the Hedging I did although of course in an Ideal World I could have done it better. I guess my main area of weakness was in not Hedging in larger size (more on this in due course) and I would say another failure was in not getting a big enough Short on early enough. Other than that, and some moments of panic when I shorted more and really was lucky to get away with it, I am overall fairly happy.
This is without doubt one of those Blogs that I really should have written ages ago, but I guess it has not even occurred to me before to do it because it is about something that is so mundane and everyday for me, that I didn’t even figure that actually it might be quite useful for Readers.
For many years now I have been utterly obsessed by Hedging my Portfolio of Stocks and Long Spreadbet Positions by using Short Spreadbets on Major Indexes such as the FTSE100 and the S&P500. I think the simple truth is that I have always had a fascination with Technical Analysis (the posh name for ‘Charting’) and part and parcel of that is Short-term Trading which is very much an approach which will not work without a good understanding of some basic Technical Signals/Principles. Thankfully this experience and practice with Shorting has really helped me a lot in the current Market difficulties.
I have been meaning to get on with writing this Blog for quite some time now but for various reasons (mostly good old-fashioned procrastination and farting about), I have been putting it off but at last I have to bite the bullet and get it done.
My interest here is to look at the Charting (Technical Analysis) factors which surrounded the eventual Bottom when the Markets floored out in 2009 before that monster Rally of 11 years or whatever it was. Of course we will struggle to find Signals and Indicators that point to precisely where the Bottom is (I may use the term ‘Proper Bottom’ for this because I am sure we will have lots of little Bottoms on the way to actually reaching the final one), but I think many Readers will be surprised by what I dig up here and the implication is that we can use some pretty basic Technical Indicators and Tools to help us ascertain the Proper Bottom.
I’m fairly certain I have written a similar Blog to this many years ago and I think it might have been titled with the use of the word ‘Roadmap’ or something; but I can’t be too motivated to dig it out and I don’t think it will hurt one little bit to scribble out something new which might have some additional thoughts in it and certainly is in tune with the current zeitgeist.
However, I have been enthused to write this because the recent plunge in the Markets and the behaviours and activity I have witnessed on Twitter etc. have highlighted to me that so many People do not have any kind of Strategy and even less do they have a Flexible Plan that is able to adapt fairly quickly to changing circumstances. There doesn’t seem to be a lot of thinking ahead yet it is vital that you do this. The most obvious manifestation of this is that a large number of People are clearly ‘Uber Bulls’ and they in essence remain pretty much 100% Invested whatever the Markets do. This has proven to be a very profitable and wise approach for the last 12 years of a rampant Bull Market, but the idea that this will always be the case is in essence very naïve and dangerous.
If you haven’t read Part 1 yet it is probably a good idea to do so and you can find it here:
When that Part finished I was going through the reasons why I am thinking that a proper full-on Bubble has become more likely, and here are a load more:
Technical ‘Breakouts’ on Major Indexes
If you keep up with my Weekly ‘Stocks & Markets’ Blogs which usually come out late on a Sunday Night, then you will probably have seen me mentioning the strength in the Indexes and how many have either recently ‘Broken-out’ to new All Time Highs (the US Markets) or they are very near such Break-outs and I expect to see them soon (German DAX, CAC40, FTSE100) and such Price Action is extremely Bullish and supportive of the start of a Bubble if that is how things are going to play out. It is pretty remarkable that after 11 years of the Longest Bull Market ever, we still have such strength and demand for Stocks.
Clearly this is Part 2 of these particular Blogs and you can find Part 1 here if you have not already endured it or you need a refresher:
What can we do to control ‘Panic’?
However much experience we have and however much we prepare and work to reduce the negative impacts, to an extent I think feelings of Panic are pretty much inevitable although perhaps with time we Panic less and it is more a feeling of mild anxiety than a full-on Panic Attack. Anyway, bearing this in mind, it is really about what can we do to lower the dangerous occurrences of such feelings and to reduce their severity when they do strike? I suspect the ‘solutions’ come in 3 categories: Forward Planning, Careful Portfolio Management and Psychological Techniques.
As always, if you have not endured Part 1 yet, you really should read it first or none of this will make any sense (I am not guaranteeing that it will make much more sense even if you do read Part 1 but at least you might have a fighting chance) and you can find Part 1 here:
In Part 1 I outlined why “You can’t time the Markets” comes about, but what are its flaws?
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