Alright guys, Ive been working on this for a while and a post on here by a guy describing his portfolio here was the final kick in the ass for me to put this together. I started writing this to summarize what Im doing for my friends who are beginners, and also for me to make some sense of it for myself
Hopefully parts of it are useful to you, and also ideally you guys can point out errors or have a suggestion or two. I'm posting this here as opposed to investing
(blech) because they're just gonna tell me to buy an index fund.
This first section is a preamble describing the Canadian tax situation and why Im doing things the way that I am. Feel free to skip it if you dont care about that. Also, there might be mistake regarding what the laws are here so dont take my word for it and verify it for yourself please.
So here in Canada we have two types of registered accounts (theres actually more but whatver). There is the TFSA "Tax Free Savings Account", and RRSP "Registered Retirement Savings Account"
For the sake of simplicity, from the time you turn 18 you are allowed to deposit 5k (it changes year to year based on inflation etc)in each of them. That "room" accumulates retroactively, so if you haventdone anything and are starting today and you are 30 you have around 60k you can put in each of them. The prevailing wisdom is that you should max out the TFSA first and you'll see why in a minute.
TFSA is post tax deposits, with no capital gains or other taxes applied to selling your securities, dividends or anything else. You can withdraw your gains at any time, and the amount that you withdraw is added to the "room" you have for the next year. So lets say I maxed out my TFSA contributions and I take out 20k today, on January of next year I can put back in 20k plus the 5 or whatever they allow for that year. You can see how powerful this is. Theres a few limitations on what is eligable to be held in the TFSA such as bitcoin/bitcoin ETFs, overseas stocks that arent listed on NYSE, TSX, london and a few others. You can Buy to Open and Sell to Close call and put options as well as write Covered Calls.
The RRSP is pre-tax deposits and is a tax deferred scheme. You deposit to lower your income tax burden (and hopefully drop below a bracket) but once you retire you will be taxed on anything you pull out. Withdrawing early has huge penalties and isnt recommended. You are however allowed to borrow against it for a down payment as a first time home buyer. The strategy with these is that a youngperson entering the workforce is likely to be in a fairly low tax bracket and (hopefully) earns more money as they get older and more skilled so the RRSP has more value the greater your pre-taxincome is. You can also do this Self Directed. Its not relevant to this strategy but I included it for the sake of context.
Non registered accounts ( or any other situation, such as selling commercial real estate etc) is subject to a capital gains tax. In so far as I understand it, you add all your gains and losses up at the end of the year. If its a positive number, you cut that number IN HALF and add it to your regular pre-tax income. So if I made 60k from the dayjob and 20k on my margin account that adds up to 70k that I get taxed on. if its a loss, you carry that forward into the next year. Theres no distinction between long term and short term. Also physical PMs are treated differently and I'll fill that part in later once I have the details down.
The reason why all that babble is important is that my broker Questrade, which isnt as good as IB (the only real other option up here as far as Im aware) has one amazing feature that no other broker has: "Margin Power"
If you have a TFSA and a Margin account with them, you can link them together and have your securities in the TFSA collateralise your Margin account. Essentially, when it comes to the Maintenance Excess of the Margin Account QT doesnt care if its in the TFSA *or* the Margin!
You can see how powerful this is.
So as you can tell by the title, a lot of this is heavily inspired by Chris Cole's paper "The Allegory of the Hawk and the Serpent". You can read it here: https://www.artemiscm.com/welcome#research
Between it, his interviews and my mediocre options skills at the time my mind was blown. Unfortunately I didnt know how to do the Long Volatility part until after the crash in March but I've since then had nothing but time to scour the internet and learn as much as I could.
The way I interpret this isnt necessarily "what you should have right now", but what abstracted model they were able to backtest that gave them the best performance over the 90 years. Also, a lot of my portfolio I already had before I started trying to build this.
As such my allocations dont match the proportions he gave. Not saying my allocations are better, just showing where they are at this time.
I'm going to describe how I do Long Volatility at the end rather than the beginning since the way *I* do it wont make sense until you see the rest of the portflio.
Physical PMs 22%
I'm not sure wether he intended this to be straight up physical gold or include miners and royalty streaming companies so I will just keep this as physical.
I consider Silver to be a non-expiring call option on gold, so that can live here too. I am actually *very* overweight silver and my strategy is to convert a large portion of it to gold (mostly my bars) to gold as the ratio tightens up.
If youre into crypto, you can arguably say that has a place in this section.
If an ETF makes sense for part of your portfolio, I suggest the Sprott ones such as PHYS. Sprott is an honest business and they actually have the metal they say they have. If you have enough, you can redeem your shares from the Royal Canadian Mint. The only downside is that they dont have an options chain, so you cant sell covered calls etc. Simple enough I suppose.
One thing to bear in mind, there is a double edged sword with this class of assets. They're out of the system, theyre nobody's business but your own and theres no counter party. That unfortunately means that you cant lever against it for margin or sell covered calls etc. You can still buy puts though (more on that later)
Commodity Trend (CTA) 10% https://youtu.be/tac8sWPZW0w
Patrick Ceresna gave a good presentation on what this strategy is. Until I watched this video I just thought it meant "buy commodities". A real CTA does this with futures also so aside from the way he showed, there are two other ETFs that are worth looking at.
COM - This is an explicit trend following ETF that follows a LONG/FLAT strategy instead of LONG/SHORT on a pile of commodity futures. So if they get a "sell" signal for oil or soybeans they sell what they have and go to cash.
COMT- Holds an assortment of different month futures in different commodities, as well as a *lot* of various related shares in producers. Its almost a one stop shop commodities portfolio. Pays a respectable dividend in December
If you want to break the "rules" of CTA, and include equities theres a few others that are also worth looking at
KOL- This is a coal ETF. The problems with it are that a lot of the holdings dont have much to do with coal. One of them is a tractor company. A lot of the companies are Chinese so theres a bit of a red flag.
Obviously Thermal Coal, the kind used for heating and powerplants isnt in vogue and wont be moving forward...but coking coal is used for steel manufacturing and that ain't going anywhere. The dividend is huge, pays out in December. A very very small position might be worth the risk.
Uranium- I'm in URA because thats the only way for me to get exposure to Kazatoprom (#1 producer), which is 20% of the holdings. The other 20% is Cameco (#2 producer)and then its random stuff.
Other than that I have shares in Denison which seems like its a good business with some interesting projects underway. I'm still studying the uranium space so I dont really have much to say about it of any value.
RSX- Russia large caps. If you dont want to pick between the myriad of undervalued, high dividend paying commodity companies that Russia has then just grab this. It only pays in December but it has a liquid options chain so you can do Covered Calls in the meantime if you want.
NTR- Nutrien, canadian company that was formed when two others merged. They are now the worlds largest potash producer. Pretty good dividend. They have some financial difficulties and the stocks been in a downtrend forever. I feel its a good candidate to watch or sell some puts on.
I'm trying to come up with a way to play agriculture since this new phase we're going to be entering is likely to cause huge food shortages.
EURN and NAT- I got in fairly early on the Tanker hype before it was even hype as a way to short oil but I got greedy and lost a lot of my gains. I pared down my position and I'm staying for the dividend.
If you get an oil sell signal, this might be a way to play that still.
Fixed Income/Bonds 10%
Now, I am not a bond expert but unless youre doing some wacky spreads with futures or whatever... I dont see much reason to buy government debt any more. If you are, youre basically betting that they take rates negative. Raoul Pal of Real Vision is pretty firm in his conviction that this will happen. I know better than to argue with him but I dont see risk/reward as being of much value.
HOWEVER, I found two interesting ETFs that seem to bring something to this portfolio
IVOL- This is run by Nancy Davis, and is comprised of TIPS bonds which are nominally inflation protected (doubt its real inflation but whatever) overlayed with some OTC options that are designed to pay off big if the Fed loses control of the long end of the yield curve, which is what might happen during a real inflation situation. Pays out a decent yield monthly
TAIL- This is a simpler portfolio of 10yr treasuries with ladder of puts on the SPX. Pays quarterly.
Equities 58% (shared with options/volatility below)
This is where it gets interesting, obviously most of this is in mining shares but before I get to those I found some interesting stuff that I'm intending to build up as I pare down my miners when the time comes to start doing that.
VIRT- I cant remember where I saw this, but people were talking about this as a volatility play. Its not perfect, but look at the chart compared to SPY. Its a HFT/market making operation, the wackier things get the more pennies they can scalp. A 4% dividend isnt shabby either.
FUND- This is an interesting closed end fund run by Whitney George, one of the principals at Sprott. He took it with him when he joined the company. Ive read his reports and interviews and I really like his approach to value and investing. He's kind of like if Warren Buffett was a gold bug. Theres 120 holdings in there, mostly small caps and very diverse...chicken factories, ball bearings all kinds of boring ass shit that nobody knows exists. Whats crucial is that most of it "needs to exist". Between him, his family and other people at Sprott they control 40% or so of the shares, so they definitely have skin in the game. Generous dividend.
ZIG- This is a "deep value" strategy fund, run by Tobias Carlisle. He has a fairly simple valuation formula called the Acquirer's Multiple that when he backtested it, is supposed to perform very well. He did an interview with Chris Cole on real Vision where he discusses how Value and Deep Value havent done well recently, but over the last 100 years have proven to be very viable strategies. If we feel that theres a new cycle brewing, then this strategy may work again moving forward.
I want to pause and point out something here, Chris Cole, Nassim Taleb and the guys at Mutiny Fund spend a lot of effort explaining that building a portfolio is a lot like putting together a good basketall team. They need to work together, and pick up each others slack
A lot of the ETFs I'm listing here are in many ways portfolios in and of themselves and are *actively managed*. I specifically chose them because they follow a methodology that I respect but I can't do myself because I dont have the skill, temperament or access to.
The next one is a hidden gem and ties into this. I'm not sure how much more upside there is in this one but man was I surprised.
SII- Sprott Inc. I *never* see people listing this stock in their PMs portfolios. A newsletter I'm subscribed to described this stock as the safest way to play junior miners. Their industry presence, intellectual capital and connections means that they get *the best* private placement deals in the best opportunities. I cant compete with a staff like theirs and I'm not going to try. I bought this at 2.50, and I liked the dividend. Since then they did a reverse split to get on the NYSE and like the day after the stock soared.
When it comes to mining ETFS I like GOAU and SILJ the best. None of their major holdings are dead weight companies that are only there because of market cap. I dont want Barrick in my portfolio etc.
SGDJ is a neat version of GDXJ.
Aside from that my individual miners/royalty companies are (no particular order)
RIO- Rio2 on the tsx, not rio tinto
KL Options/Volatility: varies
So this is where we get to the part about options, Volatility and how I do it. I started out in the options space with The Wheel strategy and the Tastytrade approach of selling premium. The spreads and puts I sell, are on shares listed above, in fact some of those I dont hold anymore.
Theres tons of stuff on this in thetagang
so I wont go into a whole bunch (and you shouldnt be learning the mechanics from me anyway) but theres one thing I want to go over before it gets wild.
If I sell a Cash Secured Put, from a risk management perspective its identical to just buying 100 shares of the underlying security. You are equally "Short Vol" as well, it just that with options
its a little more explicit with the Greeks and everything. But if I use my margin that I was talking about earlier, then I can still collect the premium and the interest doesnt kick in unless Im actually assigned the shares.
But if I sell too many puts on KL or AG, and something happens where the miners get cut down (and lets be real, they all move together) my margin goes down and then I get assigned and kaboom...my account gets blown up
So what I need to do, is balance out the huge Short Vol situation in my portfolio, be net Long Vol and directly hedge my positions. Since the overwhelming majority of my equities are all tied to bullion this is actually a very easy thing to do.
Backspreads https://youtu.be/pvX5_rkm5x0 https://youtu.be/-jTvWOGVsK8 https://youtu.be/muYjjm934iY
So I set this up so the vast majority of my margin is tied up in these 1-2 or even 1-3 ratio put spreads that *I actually put on for a small credit*, and roll them every once in a while. I run them on SLV, and GDX.
I keep enough room on my margin so I can withstand a 10% drawdown before it sets off the long end of the spreads and then I can ride it out until it turns around and we keep the PM bull market going.
Theres another cool spread I've been using, which is a modified Jade Lizard; if already hold shares, I'll sell a put, sell a covered call, and use some of the premium to buy a longer dated call. Ive been running this on AG mostly.
I have a few more spreads I can show you but Im tired now so it'll have to wait for later.
As I said multiple times, I do intend to trim these miners later but now isnt the time for that IMO. I'm also monitoring this almost full time since I have an injury and have nothing better to do until I heal :p
[It is behind the pay wall : https://www.businessinsider.com/why-coronavirus-stock-market-crash-historic-not-finished-raoul-pal-2020-4
So copy / paste :
"The whole world's f---ed."
- Raoul Pal, the former hedge fund manager who founded Real Vision, thinks the fallout from the coronavirus will have immense, far-reaching impacts on the global economy.
- The duration and severity of the pandemic is something that Pal thinks hasn't yet been accounted for properly.
- Pal thinks a further 20% decline in stocks is on the horizon.
- For context, in October, Pal called the Federal Reserve cutting rates to zero and the US having negative rates. In late February, Pal said to buy bonds and that the impacts from the coronavirus would be "meaningful and real."
- Click here for more BI Prime stories.
That's what Raoul Pal
, the former hedge-fund manager who founded Real Vision
, said on the "Lindzanity
" podcast when he initially learned the coronavirus
was uncontrolled and spreading rapidly.
"The moment the spread hit Iran ... and then Italy — that all happened over the span of three or four days — I was like: 'time to panic before everybody else,'" he said. "It's human behavior function. If the Chinese closed every single border and every city, everybody's going to do it."
To bring you up to speed, Pal retired at 36 after quitting jobs at Goldman Sachs and GLG Partners. He lives comfortably on a 140-person island in the Cayman Islands and spends his days writing market research
, which comes with a hefty price tag of $40,000 per year.
"I said: 'Listen, this is the biggest economic event of all of our lifetimes — and it's coming'" he added. "And that was, in retrospect, the greatest call I've ever had."
But this isn't the first time Pal's nailed a prescient call. Back in October
, he said the Federal Reserve
needed to cut interest rates to zero and warned of negative interest rates in the US
, both of which have materialized.
What's more, as the market was topping out in late February
, Pal expressed his affinity for owning bonds — a trade that would've immensely rewarded investors who took his advice. He also warned that the implications from the coronavirus would be "meaningful and real."
That was before things really started to fall apart.
Today, Pal thinks the coronavirus will cause "the largest insolvency event in all history." And given his track record as of late, that's not reassuring.
"I think the balance of probabilities are that this is a much longer event — in terms of economic impacts — than anybody is pricing in," he said. "I think it's a huge societal change that's coming from all of this."
To Pal, the duration of the fallout stemming from the coronavirus is the key factor here — one that he thinks investors aren't paying enough attention to. In his mind, those who are a projecting sharp V-shaped recovery in the third and forth quarter are incorrect in their assumptions.
"Isolation is going to be a real event for a significant period of time," he said. "You've got a world that's going to be much more closed, and that's leading to complications in supply chains."
He added: "It makes people become more local."
Pal's prognostication echos that of billionaire "bond king" Jeffrey Gundlach
. In a DoubleLine webcast
earlier this week, Gundlach said "we're going to be getting much more, less-connected to globalization" and "we're going to be bringing manufacturing back and thinking about things in very different ways."
But the changes that Pal and Gundlach highlight don't happen overnight, which is why Pal thinks the fallout could worsen. Every day that the pandemic drags on is one less day without production and consumption. Then that, in turn, heightens bankruptcy risk.
With all of that under consideration, here's how Pal is positioning his portfolio to weather a deeper equity rout. Ideally, he'd like to get to the allocation below.
- 25% Bitcoin
- 25% gold
- 25% cash
- 25% trading opportunities
"So I'm now in the point of thinking we've got another 20% downside or so to come before we get the 3-, 4-month bounce of hope," he said. "For the average guy, this is a very, very, very difficult world we're going to go into — and I can't sugarcoat it because there is no nice answer."
Raoul Pal Delivers Ominous Stock Market Warning, Says Bitcoin Offers Rare Chance to Beat Wall Street. by Daily Hodl Staff. October 19, 2020. in Bitcoin ADVERTISEMENT. Raoul Pal, co-founder and CEO of Real Vision Group, says Wall Street may be heading toward a brutal breakdown. The former Goldman Sachs hedge fund manager says investors should pay ... Raoul Pal Global Macro Investor Founder & CEO & Real Vision Group Founder & CEO discusses the phases of a recession, the bond market, the dollar, where markets stand, and cryptocu Raoul Pal, the CEO of Real Vision Group, and a wall street veteran believes that Bitcoin could hit $1 million by 2025, according to his model. His prediction was backed by regression on a log chart since Bitcoin’s inception, allowing him to analyze the Bitcoin price projection based on its past performance. He tweeted: In a recent interview with Daniela Cambone, former hedge fund manager Raoul Pal said that bitcoin could reach $1 million in the next five years. Raoul Pal, co-founder and CEO of Real Vision Group, says Wall Street may be heading toward a brutal breakdown. The former Goldman Sachs hedge fund manager says investors should pay attention to a key chart that suggests the recent stock market rally may come to an abrupt and painful ending. “I kind of think that […]
Plus, we review a vital piece of Raoul Pal's manifesto "The Unfolding" which lays out the timeline of the market collapse (and he's been right about everything so far!) Plus The Fold card and SCAM ... In this clip, Peter and Raoul analyze what’s going on in the markets for gold and bitcoin. Peter analyzes the recent short positions of commercial players as... Is there any way to make sense of bitcoin’s incredible rally? Raoul Pal asks Paul Brodsky, Chris Burniske, Nick Colas, Peter Brandt and Thomas Lee to lay out... Raoul Pal is CEO and co-founder of Real Vision, a platform fundamentally disrupting macroeconomics and financial media. In this wide-ranging conversation, he... Raoul Pal is a leading macroeconomist who has worked for Goldman Sachs, managed hedge funds and advised to some of the largest funds in the world. He now runs Real Vision, a digital content ...