Taylor Pearson and Jason Buck from Mutiny Funds and managers of The Cockroach Portfolio had a short podcast about sequences of returns that is worth listening to. Toward the end, Taylor had a fascinating comment that what they are trying to do is "reduce the impact of luck" and Jason reiterated the point to say "reduce the opportunity that bad luck can hurt us."
I have conflicting thoughts about the point. In terms of how I live my life, I am all in on manifesting, being positive, expecting things to work out and so on. I'm sure I project that onto client portfolios. At the same time reducing the impact of bad luck is one reason to have holdings that help offset normal equity market volatility and otherwise hedge.
If someone can build a portfolio robust enough to have at least a couple of things that go up in a terrible year like 2022, I could see a sort of mental accounting where someone thought they were lucky in a periods that was broadly unlucky. I don't minimize the benefits of being lucky but when someone understands how correlations work and how to implement some of the portfolio into low and negatively correlated assets, they are creating their own good luck...maybe? It's an interesting thought exercise.
Luck can trickle into portfolio results in a bunch of different ways. 2024 is really a very weird year so far for the equity market. The market cap weighted S&P 500 is up a lot but the equal weighted S&P 500 is only up about 4%, just 1/3 of MCW's gain. I saw a Tweet somewhere that said something like 2/3 of this years gain for the S&P 500 has come from just three stocks. You probably have seen many headlines about Apple, Microsoft and Nvidia each comprising about 6% each of the index. This sort of concentration is a negative risk factor. I have no idea when or if there will ever be a consequence for this risk but it is present.
The weirdness in the market internals I'm sure has created quite a few anomalies out there including one for client and personal holding AGFiQ US Market Neutral Anti-Beta Fund (BTAL). The fund goes long low volatility names and short high volatility names with the intended effect of having a negative correlation to the broad market.
Looking at the chart for this year, day to day and week to week it has been negatively correlated. I'd describe the chart as opposite paths to the same result. For a little context of how anomalous this is, in 2023 BTAL was down 15%. In other years where MCW has done very well, BTAL was down most of the time, there was one year it was flat in a strong year for equities.
In the context of being lucky, the first six months of the year is just one of those things for the fund. It is benefitting from some pretty insane dispersion for how few stocks are doing very well. Michael Batnick Tweet out that only 17% of the S&P 500 constituents were outperforming the index. The narrowness of the rally appears to be helping BTAL, it appears to be a lucky stroke for the fund. While being overly vulnerable to needing a lot of luck for things to work out is not a great place to be in, the cliche about it being better to be lucky than good rings true.
And to close out, Van Eck filed for a "spot" Solana ETF. Other than having heard of it, I don't know much about it. I tried to learn a little about it and all I found was a bunch of jargon that could probably be ascribed to many cryptos without much differentiation. I will continue to try to learn about it but the chart comparing it to Bitcoin is really something.
How volatile does something have to be to make Bitcoin look like a horizontal line?
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