Alternate Investing/Trading Styles

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white belt
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Re: Alternate Investing/Trading Styles

Post by white belt »

@Lucky C

Another possibility for your specific "special sauce" could be opportunities available only to accredited investors (private placements, hedge funds, etc). From what I've gathered based on your post history, your net worth and/or income are high enough to qualify for such opportunities. Of course this still requires you to do your due diligence, but it offers opportunities not available to retail investors. This is another level up on the sophistication scale.

boomly
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Re: Alternate Investing/Trading Styles

Post by boomly »

Some investors look at the quality of decision-making inside a company.
Makes sense, as it's the actual (and only?) reason why companies do well.

JCD
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Re: Alternate Investing/Trading Styles

Post by JCD »

I've been reading "You Can Be a Stock Market Genius" by Joel Greenblatt, a somewhat older book, but it goes into an idea or set of ideas that are some mix of "value" investing but more about flow investing, a topic I didn't cover in the "not" list. He writes of the idea that you can invest in spin offs, looking for two particular effects. The first is that the spin off is a decent investment in its own right. This includes a hint that the company that did the spin off is shareholder focused and therefore more people may buy the company after the spin off has occurred as well. He also suggested the spin off might get bought up by portfolio managers who were waiting for the spin off to happen so they didn't have to sell the spun off company (spinco for short). I'm not sure "portfolio managers" are as big a part of the market today, so I'm doubtful of this half of the story. This part of the story has a value flavor to it, so you might conclude nothing useful here but let me get to the useful flow aspect.

The second part is that people who own the stock when the spin off occurs get the other element of the stock. That other element is then sold by many of the shareholders as something they don't want, thus pushing the price down temporarily. Furthermore, the shareholders of the parent organization may not be allowed to hold the spinco, think mutual funds where the parent is mid cap and the spinco is small or even micro cap. As such, the spin off is likely to have a beaten down price due to flows, the assumption is the spinco's value would eventually be recognized. He discusses this at length, with multiple detailed stories. While in his day it would have been more active managers being the forced sellers, it seems like indexes would have similar forced selling events.

I have no experience in doing this, so if others have done this sort of work, I'd love to hear about the results.

Edit: Added a nice summary link.

white belt
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Re: Alternate Investing/Trading Styles

Post by white belt »

JCD wrote:
Sun Sep 12, 2021 5:26 pm
I have no experience in doing this, so if others have done this sort of work, I'd love to hear about the results.
I don't have any experience making trades based on spinoffs, but I know it is one of the indicators that KEDM tracks, so presumably there are traders out there using it to inform some of their trading decisions. KEDM has a free trial if you want to check out the newsletter, but monthly membership costs $$$.

Dave
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Re: Alternate Investing/Trading Styles

Post by Dave »

@JCD

I read that book in 2017, it’s a classic. The subject matter is the various special situations he discusses, but the meta lesson is to scour under-followed, obscure securities as they are more likely to be less efficiently priced and therefore there are more bargains to be found there.

A common thought among value investors is that the area of spin-offs is not as attractive as it used to be when Greenblatt was running his fund. This is because more people became aware of the idea of looking at spin-offs (and the other special situations), and therefore prices became more efficient. It’s reasonable to expect these favored hunting spots to dry up as they get more attention, so it’s always good to be looking out to the future for the next undervalued area, thus my comment in the prior paragraph about the meta lesson.

In addition to being more closely followed, the other problem is that in recent years companies seem to be loading up the spin-co, often a business in decline, with excess leverage and sending it off with a high chance of failure. These are referred to as “garbage barges”.

The result of these two things leads to more eyes looking at lower quality spins.

Still, it’s very possible to track the majority of these, and there are websites that track completed and upcoming spin-offs. Here is one, but you can search for others: https://www.stockspinoffs.com/

Additionally, some blogs like Clark Street Value focus on the sorts of things Greenblatt discusses. I am subscribed to that one and enjoy reading up on the things he writes about.

Even if the area is more followed and generally lower quality than it used to be, you only need a few good ideas to make the effort worthwhile, so I personally find it worthwhile.

WFJ
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Re: Alternate Investing/Trading Styles

Post by WFJ »

Lucky C wrote:
Mon May 31, 2021 6:49 am
Generally thinking about these sorts of alternative strategies, the success stories largely consist of people going "all in" on their custom/novel strategy and sticking to it for a long period of time (the Dumb Money guy starts his presentation by saying he's been working on it for 20 years), and the success stories are often spread due to the extremely rare 20%+ CAGR achievements over several years or decades. The conclusions I draw from this are:

A wildly successful alternative trading strategy would be your own design, so any "public" strategy or idea briefly discussed on a forum would be insufficient and probably require hundreds or thousands of hours of work on your part to make it start to work. It would need to be a full time job for you that you would have to stick with for decades. I imagine if you half-assed an "alternative data" based strategy you would not be likely to beat the market unless you time it right (starting near the time the S&P 500 enters a bear market perhaps).

I imagine a probability distribution of various investors' ROIs with the "left" tail of lower than "the market" returns being a lot fatter than the right tail. If you are just doing something "different" than following a typical market portfolio, you're probably going to land somewhere in the fat sub-par end of returns. If you're not being biased (thinking you're way smarter than the herd) it's hard to have reason to believe that your strategy will work with superior returns over the long term. It could take years to gain confidence that a success is due to more than just luck, or if a failure is just bad luck. It would be very hard to stick with an alternative investing strategy, unless it starts out very successfully, in which case it may be luck and you may not realize you would be better off abandoning it after the initial lucky successes. A hard psychological game.

It seems that doing something wildly different doesn't make sense for FIRE success. It doesn't make sense to pursue a rare chance of 20%+ returns with a large chance of failure if your lifestyle only needs a more certain 3-4%+ to be successful. Trying to be a Market Wizard is for someone who wants to work at it all the time and would be happy starting over and adapting after failing. A lot of the Market Wizards types have blown up before, or even after, being wildly successful. Even the legendary Jesse Livermore that every old school trader seems to revere was wiped out several times and killed himself after his final bust.

Anyway I guess what I'm getting at is it seems unlikely to me that you could take a more moderate approach to a weird/unique investing strategy, for example keeping 75% of your portfolio in a traditional portfolio and 25% doing something much different, and hoping to spend only a few hours per month maintaining it. You either have your own strategy that you're passionate about and work like a full time job, which you would want to put most of your money in, or you don't have a robust enough strategy and it is likely to underperform doing something "normal".

However in this rare time where a lot of expected returns of major asset classes are somewhere around 0% real for the coming years, it may make sense to do something different even if the alternative strategy normally does not pay off. For example, a small % allocated to tail risk hedging to balance risk of a big crash hurting your normal equity positions. The other benefit of doing something different as a small part of your portfolio is of course the "free lunch" of diversification by rebalancing uncorrelated strategies every year or so. Maybe strategy diversification makes sense even if the returns of the alternative strategy are likely to lag the market over the long term.
Above all true.

Another recent factor making these "alternative strategies" less successful for shorter durations is the simplifying of datasets and power of canned programs. In general, what took 20 data analysts one year to produce, took 5 similar professional 5 years ago, takes one person with marginal intelligence and the knowledge how to use Bloomberg's Quantamental Analysis canned tools a few hours to set up and update daily.

I haven't used this as I haven't had access to a Bloomberg in a few years, but now every strategy, every rebalancing schedule, every duration can be tested against every benchmark and every source of performance measure can be identified in a few minutes. Strategies based on the output can be set up and let to run on their own with some capital and agreements. One still has to be aware that spurious significance will be the result of using 30,000 variables and hundreds of benchmarks, frequencies and durations, but the hidden gems are now found instantly with a phone call and access to a Bloomberg.
https://www.bloomberg.com/professional/ ... d-process/

white belt
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Re: Alternate Investing/Trading Styles

Post by white belt »

WFJ wrote:
Mon Nov 22, 2021 3:56 pm
Another recent factor making these "alternative strategies" less successful for shorter durations is the simplifying of datasets and power of canned programs. In general, what took 20 data analysts one year to produce, took 5 similar professional 5 years ago, takes one person with marginal intelligence and the knowledge how to use Bloomberg's Quantamental Analysis canned tools a few hours to set up and update daily.
Right. This is why I assume using a simple data-driven/quant strategy is not sufficient to generate alpha these days unless you have superior data, AI, etc (unlikely if you are retail investor). Fortunately, there are many strategies that aren't so easy to model because they involve qualitative analysis, conditions that don't show up in models, and so on. I'm not saying the latter strategies will work, just that the alternative investor is probably better off staying away from a strategy that is easily recognized/replicated by someone clicking around on a Bloomberg terminal.

JCD
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Re: Alternate Investing/Trading Styles

Post by JCD »

@white belt 

Yes, I have heard of KEDM before, I've read some of Kuppy's early work, the problem with Kuppy is it is more like an index of choices rather than an analysis. Special Sit. etfs like MNA have performed badly in the last 10+ years. It seems clear it needs active management to run well.  As someone who had not spent any time whatsoever on the topic I didn't do anything with the data beyond reading the one book I've now read on the subject.  Still, I feel like I haven't had much to gain from Kuppy's work beyond the "unlocking period" analysis given my limited experience.  The unlocking period was vaguely useful, but I still didn't play much in that world nor have I paid for the service.

@Dave

Thank you, that is the sort of insight I was looking for.

@WFJ

I do appreciate your insights and active criticism of most strategies we discuss. I'm curious, given your insights into the automation of these systems, do you believe capitalism, as in human capitalists allocating capital into areas worthy of capital, is valid today?  This might be a tad off topic to this discussion, but I get the impression you believe with enough compute humans need not apply to markets and you might as well index.  Or is it that you just think a quantitative analysis is not enough?  Therefore, do you think that most alternative strategies should be qualitative strategies?  If so, do you have any you recommend looking at?

WFJ
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Re: Alternate Investing/Trading Styles

Post by WFJ »

@WFJ

I do appreciate your insights and active criticism of most strategies we discuss. I'm curious, given your insights into the automation of these systems, do you believe capitalism, as in human capitalists allocating capital into areas worthy of capital, is valid today?  This might be a tad off topic to this discussion, but I get the impression you believe with enough compute humans need not apply to markets and you might as well index.  Or is it that you just think a quantitative analysis is not enough?  Therefore, do you think that most alternative strategies should be qualitative strategies?  If so, do you have any you recommend looking at?
[/quote]

The best way to frame this is the value of humans in this model is not finding the inefficiencies/alpha/quant strategies, but identifying the spurious regression results and waiting for the random relationship to wane. The technological advances in the last few years have been astounding in the quant world, allowing any marginally intelligent person to execute almost any quant strategy (which has blown up several times). Bill Hwang, Cathy Wood are examples of this.

The most valuable human input into capital markets is that of an activist investor who routinely beat the markets but require much monger time horizons and also fail miserably from time to time. Carl Icahn (maybe Warren Buffet in the 60's-70's) would be good examples of effective activist investors, but it is usually impossible for an individual investor to access this investment portfolio (accredited investor and long lockup periods and activist must trust that the investor will be a good client). Activist buys shares, takes board seats, hires competent CEO, long time period activities, which take years and usually massive fights from incumbent incompetent entrenched management. Lockup periods might exceed 5 years and no chance to access the capital for as long as 20 years or the investor won't be allowed to reinvest in activist fund. I see this as a BOOMING area with all the garbage ESG investing polluting the markets.

Based on my experience, there isn't a quant strategy that can last longer than it takes for someone to recognize and copy a strategy. Strategies that can't be copied are Madoff and Assocaites and similar Ponzi schemes. Being married to corrupt government official and basing your trades on the announcement of government contracts is also a way to achieve abnormal risk adjusted returns (The Pelosi Portfolio).

loutfard
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Re: Alternate Investing/Trading Styles

Post by loutfard »

Related to this, is there a name for those opportunities that are only available or feasible to small-scale retail investors?

First example I can think of from the top of my head applies to individual Belgian investing in individual bonds.

There are quite a few zero coupon bonds issued at or above par, but quoted below par because of the yield increases. No withholding tax because no coupons. No capital gains tax on the 100% on the end date. Compare to the normal taxation of bonds. Individual investors are taxed on these with 30% Belgian withholding tax, plus either 15% of foreign withholding tax and often a lot of costly paperwork, or whatever the higher source withholding rate is. German bunds or stable eurozone company bonds with high tax free yields.

thef0x
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Re: Alternate Investing/Trading Styles

Post by thef0x »

I've been moved enough by the book Lifecycle Investing that I've approached obtaining debt/leverage/margin exposure as a goal early on in my investing "career," specifically during the years of my highest income earning years.

The idea is simple: more money in your starting pool = way more money in the ending pool. How? Obtain leverage. What if it goes to zero? You will still be ahead so long as you continue the strategy (this is hard). How much do I implement this? Not a ton -- I mostly think of it as "higher risk, earlier".

In the past during ZIRP, I've held 20% leverage against my equities for 1.6%, buying USDC with a 8% yield.

Given interest rates are so high, I now use a cleverly constructed leveraged ETF by WisdomTree: $NTSX.

This gives me $0.90 of the SP500 and $0.60 of ~7 year bond futures for every $1 I invest. It's important to note: this is a way to risk/return-up earlier in my investing "tranches" and not portfolio construction advice. I just like NTSX because I am obtained 1.5x US leverage and the leverage is affordable b/c bond futures get much better tax treatment vs stocks (20bps cost).

I hold all US equities (and now some bond futures) still b/c I'm trying to weight to a US-will-still-be-a-powerhouse geopolitical thesis which I also feel is "risk on".

I'm thinking of risk management across the lifecycle of my principle investment allocation, not as balancing a large pie with new money.

Even so, I don't buy individual stocks.. mostly..

Tranche one was VTI and chill, using leverage for easy-to-find yield when I can find it or just to compound risk.

Tranche two is long NTSX and chill. I've allocated 10% to $AVUV for tranche two as well (I frontloaded this as my first 10% b/c I think it's higher risk than NTSX).

Tranche three will get into ex-US (maybe factor tilt to value).

Tranche four will mostly aim to hedge black swan risk / downside protect so I'll be on the lookout for strategies there, most likely some sort of managed futures fund, boring old treasuries, maybe corp bonds, maybe some gold (gross lol gold doesn't create value so I'm very hesitant).

My goal in all of this is to obtain more risk now because I can take the drawdowns. And I'm taking that risk in a pretty dang modest way, as cheaply as possible while filling the relevant tranches, bucket by bucket.

Net-net, I'm not trying to beat the market or pick stocks at all, I'm just obtaining more risk amplitude for this first stint in principle allocation and then trying hard to decrease risk amplitude at the end.

And pay for some vacations off some simple margin yield spread when it's easy ;)

jacob
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Re: Alternate Investing/Trading Styles

Post by jacob »

thef0x wrote:
Fri Feb 09, 2024 5:10 pm
I've been moved enough by the book Lifecycle Investing that I've approached obtaining debt/leverage/margin exposure as a goal early on in my investing "career," specifically during the years of my highest income earning years.

The idea is simple: more money in your starting pool = way more money in the ending pool. How? Obtain leverage. What if it goes to zero? You will still be ahead so long as you continue the strategy (this is hard). How much do I implement this? Not a ton -- I mostly think of it as "higher risk, earlier".
It's worth clarifying the idea of "risk-reward" because it's often oversimplified and as such may easily lead to scary conclusions like "if risk equals reward then take as much risk as possible for the highest possible reward!" :shock:

A useful way to look at it is that every investment has a distribution of outcomes. A Gaussian bell curve will suffice to make my point. Higher risk means a wider bell curve of outcomes. This in and of itself says nothing about rewards. The connection to higher rewards comes about because Mr Market is risk-averse. As such, investments that have greater risks will be priced lower to compensate for the higher chance of loss. This lower market price in turn is what creates the higher expected return. And thus we get the "risk/reward-ratio".

The danger lies in seeing the risk-reward ratio as a single line in a graph while ignoring that the distribution of outcomes increases the more risk on takes up, possibly including total loss. For example, (made up numbers for illustration only)

low risk: range of returns is 4% to 6% with an expectation of 5%
medium risk: range is 0% to 14% with an expectation of 7%
high risk: range is -10% to 30% with an expectation of 10%
very high risk: range is -60% to 100% with an expectation of 20%

Using leverage, one decreases the price paid (because borrowed money is used) and therefore boosts the expected return (on money down) subtracting the interest paid on the loan. In addition it expands the outcome space. For example, half money down on an outcome space of -50% to +70% turns that range into -100% to +140%.

I highly suspect that lifecycle investing falls in the same category as lifecycle consumption smoothing. There's an implicit presumption that the person's income is going to be substantially higher later in life. This may or may not be true. But if it is, the idea is that using borrowed money in the beginning can make for a higher lifetime consumption since the interest is paid back later with the higher salary. This, however, is going to leave the person poorer for the interest. It's the same when borrowing to invest early on. It looks like a good idea when only considering the expected outcome, but if the full outcome space is considered, leverage doesn't offer any free lunch. This is quite evident to someone who is unlucky and starts their investment career with losing the money they saved. Not only do they have to resave it. They also lost the time it took to recover.

thef0x
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Re: Alternate Investing/Trading Styles

Post by thef0x »

@Jacob - all great points and thank you for teaching me about consumption smoothing, helpful.

As you note, the premium paid to play in this strategy is indeed the dramatically greater delta on every side of market performance AND the interest paid later on (possibly never if asset growth > debt repayment).

The authors do not suggest holding leverage for the whole of one's career in investing because risk appetite should change (their thesis) based on one's "moment in time" of the allocation of principle.

The authors note this strategy, to work, actually requires you to do it all over again if you lever up and go broke. I doubt most would be able to stomach that psychologically.

..

Jacob, in another comment (from the best-of forum thread) you wrote about managing a 70k health expense (bus hits you) that I think is a relevant critique here. Most of us think we should save up for the what-if before it happens instead of handling the could-be when it does happen. This margin of safety difference can be massive in terms of extra years of unhappy work (expressed as time or added income 'required' to invest).

I think a similar critique can be drawn with life cycle investing: why save up more than needed to build an asset cushion that can eat a -70% punch in the face when you could just skew risk-adverse, start with a smaller drawdown and upside, but know you won't need any margin of safety because your risk profile is far narrower in its extremes (you firmly believe you cannot suffer a -70% punch in the face).

(I have a separate, values based answer, which is that I want to maximize charitable giving over my lifetime and I'll do so at the personal cost of working more if this doesn't work, but that is not relevant to the math).

A counter point would be: we don't know what the cost of getting hit by a bus will cost in the future, actually, and we don't know how tough that recovery will be (endless what-ifs). We can guess, but we don't know. Likewise, we're basing our risk analysis on historical data and history does not equal causality (thanks, Hume).

So not to throw the baby out with the bathwater, but no one knows what is the least risky risk profile for one's goals because no one knows the future. So we guess, approximate, and hopefully overlay a risk profile that matches our life situations and appetites/temperaments appropriately.

This "hungry boy" leverage strategy makes sense for me because frankly I don't think making money is hard (almost everyone does it most days of the week!).

Others (Ray Dalio comes to mind) have suggested that expected returns will be lower and lower for the US over the next 100 years given insane PE ratios compared to ex-US companies of similar quality, developing economies, a multi-polar world, etc, which is why they lever up on "all weather" allocations to achieve a similar risk adjusted expected return. I find this compelling, I'm just doing it "across time".

Bad illustration:

Image

One way to discuss the topic is to think about possible scenarios:

Once you've past your life expectancy meets safe withdrawal years number, let's call it 70 years of expected retirement + 20% margin of error, how do you think about risk of your next dollar *after* that period?

70 * a Jacob * 1.20 = $588,000

Let's say you just received your next dollar, $588,001 -- and you really reeeally really don't need it. Do you think about the risk allocation of that next dollar differently than dollar $000,001?

For me, if I'm very very far beyond my reasonable life expectancy and expenses number, it all feels like play money to me at that point, so why not go as risk-on as possible with that excess cash? There is literally nothing to lose that matters (counterpoint: heirs, charitable giving).

This same general intuition is what drives me to front-weight those purchases in time via leverage (almost like if Benjamin Button was a time adjusted risk curve) because I know I'm going to have more than enough because of skills I've developed -- the best insurance -- not investing decisions.

I'd rather have that $588,001st dollar today, so I borrow it now, believing I'll get to at least that $588k in income one way or another. Getting there might be potentially a little bit slower if my leverage is a bust but also potentially a lot faster if it works out. I'm willing to take the risk that I'll eat the 70k-getting-hit-by-a-bus because the upside is much much more than 70k.

I'm curious how you think about the above scenario because, based on your SWR, you appear to be in this exact situation.

Thanks for your response, your critiques (esp the time cost, which some should be unwilling to stomach) are well received.

jacob
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Re: Alternate Investing/Trading Styles

Post by jacob »

Another reason for using leverage may be a kind of "risk-smoothing" in the same sense as consumption smoothing. This requires treating "potential lifetime earnings" as a monetizeable resource; a non-fungible asset that can be tapped for money.

For most people, that resource is very large. It is higher in those who are young, salaried, and professional. E.g. 100k/year over 35 years is 3.5M. For others, it's near zero or negative: viewtopic.php?t=13054

For most people, their liquid assets tend to be small. Very few inherit anything close to 3.5M at a young age. As such when comparing financial assets to the earnings resource, the latter appears so much larger that the financial concerns are almost negligible. Basically, going to work pays 10,000x better than investing for the average near-zero-asset person. It takes quite a while to flip this dynamic, but it's entirely possible for a great many people if they will to choose.

You'll know if this applies to you if your monthly savings contribution from your job >> average monthly return on invested capital in which case your NW looks like a straight line up regardless of what the market does. (Check out some of the journals to see this effect.)

Calculate the inflection point where market returns begin to matter as much as regular savings as

annual income * savings rate > savings * 0.06
(going with a historical 6% EPS growth rate)

If we rearrange that a bit, writing

savings = years of savings * (1-savings rate) * annual income
so

annual income * savings rate > years of savings * (1-savings rate) * annual income * 0.06

and eliminate some terms, so

savings rate / (1 - savings rate)/0.06 > years of savings

we see that this happens at 16.66 years of savings for a savings rate of 50%. This is the point where people actually begin to notice market performance on their NW compared to how much they're saving.

If someone puts even more into savings, say 80%, the salary contribution will still dominate until one has .8/.2/0.06 = 66.66 years of savings.

I suspect this is why investment performance seems immaterial to those who are still earning and saving [hard] when they look at their NW graphs. Ironically, normal people who tend to save little will find their returns dominating their contributions much sooner and thus begin to question whether further savings efforts are even worthwhile. See some WL2-3 personal finance blogs for posts that try to convince people to continue saving despite market fluctuations [to the downside].

(WLOG, if your investment metric is [dividend] income based instead of NW based [total return], you can just use your dividend yield instead of the 0.06. And if you're in a booming ZIRP economy, you can use 10%+.)

Overall, I think one's perspective on this is very much determined by where one stands. Here's what it looks like from the other side when assets > potential lifetime earnings, or alternatively, passive income > potential earned income.

I currently have 168 years of savings. A lot of this is due to not spending much, but even by normal consumer standards, this throws off quite a bit of money. At 6%, it corresponds to $70,000/year which is more than the median wage. In terms of actual dividends, we're talking 31k which is still 4x+ my spend.

Lets compare to my remaining lifetime earning potential. I'm 48 and it's been 9 years since I last worked a job. In principle, I'm still sharp/fit/healthy enough to "compete" for money at market rates, albeit w/o the benefit of [my] education which at this point is thoroughly deprecated. However, the thing is also that I don't really want to and I don't want to risk having to if I can avoid it. If someone throws money at me, I'll take it, but I'm metaphorically not very keen on moving closer in order to catch it. Therefore a lot of my investment strategy is focused on "preserving income" rather than growing NW.

One thing I've learned over the past 20+ years is how fast money-earning can go from hero to zero. I've gone from "I love my work so much I'd do it for free" to "I'd rather remove my eyeball with a spoon before continuing another year" within a space of 2 years. I've also gone from "This is great. I can't believe people are willing to pay me to do this!" to "This is great. I can't believe nobody wants to pay anyone for doing this?!" in terms of what I prefer to spend my time on. The market-economy really is a very limited space for human expression. Draw a 2x2 Venn diagram for added hilarity.

Thing is, I think that leverage, which offers no free lunch, is a way to change the value-surface under the presumption that people both can and will (want to) work at something that gets paid. In my experience that presumption does not hold for at least one person.

This is for sure a way to stay engaged with the income-side of the economy and some forumites have a strategy of not saving too much specifically to avoid getting tempted away from keeping their skill-set sharp enough to engage with that [earning] side of the economy. OTOH, there's more to the world than spending a lifetime working for or with the economy, so other forumites prefer to engage with asset-side of the economy prioritizing optionality and safety rather than getting richer.

After all if your marginal dollar doesn't matter in the first place, why risk it to grow it into two marginal dollars that still don't matter? Why not make it safer?(*)

(*) On a tangential note, this is the military equivalent of deciding between quality and quantity of troops.

All that to say is that leverage is "financial engineering TANSTAAFL" but useful to make tactical adjustments if you know your risk/income/asset/... surface both in terms of where it is and where it will be.

Personally, I've found my surface changing unexpectedly over my lifetime. I don't know if that has been due to fortune ($$$), maturity, temperament, ... but I do know that changing the course of a supertanker portfolio is $@#$@#%^ so "lifetime" insights are really valuable.

Henry
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Re: Alternate Investing/Trading Styles

Post by Henry »

jacob wrote:
Mon Feb 12, 2024 3:35 pm
I currently have 168 years of savings.
I guess the party ends in 2193.

7Wannabe5
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Re: Alternate Investing/Trading Styles

Post by 7Wannabe5 »

jacob wrote:This requires treating "potential lifetime earnings" as a monetizeable resource; a non-fungible asset that can be tapped for money.
The Social Security Administration is predicting that my remaining potential lifetime earnings before taking early withdrawal at age 62 in 3 years at less than $30,000 total. Thus, creating a concept only to be comprehended at a level somewhat beyond Formal Operational (in the realm where the imaginary numbers frolic with transcendent sexuality), which I will designate with a dashed line on the right-ward side of most-modern graph and refer to as the Slump of the Slackard.

xmj
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Re: Alternate Investing/Trading Styles

Post by xmj »

jacob wrote:
Mon Feb 12, 2024 3:35 pm
we see that this happens at 16.66 years of savings for a savings rate of 50%. This is the point where people actually begin to notice market performance on their NW compared to how much they're saving.

If someone puts even more into savings, say 80%, the salary contribution will still dominate until one has .8/.2/0.06 = 66.66 years of savings.
Amusingly, the amount of time to generate these N years of savings is the same: ~12.5 years in both cases.

Use 1/<years of savings> as withdrawal rate and plug both savings rates / withdrawal rates combinations into networthify.com to see how long it takes to achieve them.

thef0x
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Joined: Mon Jan 29, 2024 2:46 am
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Re: Alternate Investing/Trading Styles

Post by thef0x »

jacob wrote:
Mon Feb 12, 2024 3:35 pm
Personally, I've found my surface changing unexpectedly over my lifetime. I don't know if that has been due to fortune ($$$), maturity, temperament, ... but I do know that changing the course of a supertanker portfolio is $@#$@#%^ so "lifetime" insights are really valuable.
Helpful perspective/analogy for me.

To your point, it's not a very robust strategy to pick something today that must be followed forever. I'm assuming a lot about my future self, yet I haven't even met the guy.

I've thought of leverage x portfolio construction as building the highest skyscraper while also using the most modern earthquake dampening system I can implement.

Perhaps I should be looking for a place that doesn't have earthquakes.

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