Three Equity Investing Styles that did OK in 2020

April 22, 2020

Recently, I wrote a post endorsing the simple Bogleheads approach: invest in passive index ETFs. Everything else is just mumbo-jumbo, window-dressing and people not understanding the (mostly) efficient market nature of the stock market. In other words…

Simple (indexing) beats complicated active investing

Well, after unloading on some of the fancy complicated investing styles, I just like to point out the select few of them that indeed performed relatively well in 2020. At least better than the index. So, for the record, I’d also like to write about three examples where…

Complicated beats simple index investing

And most importantly, I’m not pulling some “Monday Morning Quarterback” nonsense telling you that if you could have sold your airline stocks in February and replaced them with stocks for video conferencing makers you could have done really well. Well, duh, very few people other than U.S. Senators had that kind of inside information back in February! Rather, I want to write about some of the deviations from simple indexing that were mentioned here on the blog in my posts and/or in the comments. Before the crisis!

Let’s take a look:

Continue reading “Three Equity Investing Styles that did OK in 2020”

Feeling scared already? It’s not even a Bear Market as of March 4! (But it became one a week later!)

Update (3/13/2020)

Well, it is a Bear Market as of this week! We dipped well below the -20% line on March 12 due to the awful 10% meltdown that day. But we also recovered very nicely on Friday the 13th, of all days!!! I’m putting together some notes about my thoughts. To be published on Wednesday, March 18. Stay tuned! Good luck everybody! Stay invested! 🙂

Scared Already Chart01a
We dipped below the -20% line. And recovered again on Friday the 13th (of all days!)

Original Post (3/4/2020)

Volatility is back! Did it feel a little bit like a bear market last week? Actually, that wasn’t even a bear market, only a correction so far. Hence the title picture with the Koala “Bear,” which is not a bear at all but a marsupial. But it still felt like a mini-bear-market, didn’t it?

So, I thought it’s a good time to write a response to some of the questions I’ve been getting over the last few days:

  • How bad is this event compared to other corrections? How long will this last?
  • Should I sell my stocks now?
  • Is this a good buying opportunity?
  • How did some of the “exotic” investment styles fare during this volatile time (Yield Shield, Merriman’s Small-Cap Value)?
  • What does this all mean for my retirement plans?
  • Did your leveraged option writing strategy blow up already?

So many questions! Let’s shed some light on them…

Continue reading “Feeling scared already? It’s not even a Bear Market as of March 4! (But it became one a week later!)”

Another Option Strategy Failure: Why it’s “Nickels in Front of a Steamroller” and not “Benjamins in Front of a Baby Stroller!”

My little blog here may be mostly known for the Safe Withdrawal Rate Series. But I’m surprised how many people share my other passion: options trading. Both here on the blog and at FinCon last weekend lots of fans of the blog asked me when I’m going to write something about derivatives again. Wait no more! I have been thinking about this one for a while; it’s another cautionary tale about markets going haywire and unsuspecting and unsophisticated investors are caught in between. And then they realize the “safe” and “conservative” strategy marketed by their financial adviser can blow up in their face!

The Wall Street Journal came out with a pretty detailed article (subscribers only) a few weeks ago, but the story has been around for a while. See, for example, on WealthManagement.com or SeekingAlpha.com. And this time it’s not some obscure small shop in Florida that got into trouble. No, it’s one of the big fish: UBS!  Their so-called “Yield Enhancement Strategy (YES),” marketed as a conservative and low-risk strategy to risk-averse investors with mostly bonds in their portfolio, racked up heavy losses late last year. Well, at least people weren’t completely wiped out like the poor sobs in the OptionSellers mess. But a purported 20% loss (about $1b) is still a hard pill to swallow for investors that were told that this is completely safe. Sure, if you were 100% invested in the S&P500 last year and lost 20%, then yeah at least you knew what you’re getting into. But for the average mom-and-pop muni bond investor, a 20% loss is pretty epic. And not in a good way!

UBS-YES-Headlines-WMUBS-YES-Headlines-WSJ

UBS-YES-Headlines-SeekingAlpha
Headlines from around the web. Source: Wealth Management, Wall Street Journal, Seeking Alpha

Of course, looking at the low-yield environment right now – in some places we even have a negative-yield environment – I don’t blame investors for shopping around for higher yields. But be aware of the charlatans. If they tell you that higher yields come with no side effects run away! There is always a catch with a higher yield! Even if it’s your trusted personal wealth advisor at a shop as famous as UBS!!! This yield enhancement strategy involved a risky options trading strategy. With 5x leverage! And most of the investors didn’t even know what they were getting into unless they had read the pages with the fine print! So, let’s do a post-mortem for this strategy. What were they doing and how and why did this go so horribly wrong?

Continue reading “Another Option Strategy Failure: Why it’s “Nickels in Front of a Steamroller” and not “Benjamins in Front of a Baby Stroller!””

Passive income through option writing: Part 3

Back in 2016, I wrote a few posts on trading derivatives, especially options, to generate (mostly) passive income:

I’m still running that same strategy but it definitely evolved quite a bit over time. This might be a good time to write a quick update on what I’m doing and what I’ve changed since then. And for everyone who’s wondering what’s the use of this: I’m planning a future post on how selling options may help with Sequence Risk, so this is all very, very relevant even for folks in the FIRE crowd!

So, let’s take a look…

Continue reading “Passive income through option writing: Part 3”

The OptionSellers.com debacle: How to blow up your portfolio in five easy steps

Right around the time when I wrote my options selling update a few weeks ago was when everyone in the option seller circles talked about the blowup of OptionSellers.com. Option Sellers, LLC was a Tampa, Florida based Registered Investment Adviser and CTA (Commodity Trading Adviser). They managed money for 290 clients. Considering the minimum investment was $250,000 and most investors likely had more money with them, I’d surmise that they were managing around $150m. On November 15, 2018, they informed their investors that not only was all their money lost but that clients would likely owe more money. Wow, let that sink in: they had a loss of more than 100% and clients are left with debts they have to cover now! Bad news for the clients who invested all their money with OptionSellers!

A failure of a small obscure adviser probably would have stayed under the radar but the co-founder published a tearful apology video, confessing that all customer accounts were wiped out “by a rogue wave.” The movie was since taken down – probably the lawyers didn’t like the idea of this kind of mea culpa so much – but it’s still available on YouTube. The story went viral (or at least as viral as something as obscure as options trading can go) and was then picked up even by the national news media, including the Wall Street Journal, CNBC and many others.

CordierVideoScreenshot2
Should have prayed before blowing up $150m! James Cordier in his apology video, via Youtube.

Quite intriguingly, their strategy imploded over the span of just a few trading days. And just to be sure, this wasn’t fraud a la Bernie Madoff but investors actually lost their money “fair and square” if there is such a thing. Is this something all option sellers should worry about? Yes, if you are as reckless as Option Sellers. If you had bothered to check what these clowns were doing it was clear that this debacle was all but unavoidable. Let’s take a look at what they did and the five obvious mistakes that lead to the meltdown…

Continue reading “The OptionSellers.com debacle: How to blow up your portfolio in five easy steps”

Trading like an Escape Artist: How I made money in October trading S&P Futures Options with 2x leverage

October was a scary month for stocks: the worst monthly S&P 500 return in seven years! And November is off to a volatile start as well! We haven’t even seen a real correction yet but apparently, the drop was bad enough for me to got inquiries from friends and former colleagues asking how I’m doing with our portfolio and if (and when?) I’m going to come back to the office again! Sorry, not anytime soon! As I detailed in the post two weeks ago, we are not too concerned about one month of bad returns early in retirement.

Some friends and readers of this blog were specifically concerned that my options trading strategy might have been hit badly by the wild swings. After all, I’m doing this with a little bit more than 2x leverage and with the market down about 7% does that mean we lost more than 14%? Of course not! To all the rubbernecks out there who suspect we had a bad car wreck in our portfolio last month, I’m happy to report that we actually made a small profit with this strategy in October! And continued to do so in November! How awesome is that!? Well, there were a few close calls but I was able to escape any major damage. It took some Houdini Skills (or luck???), hence the title image of escape artist Harry Houdini (Picture Credit: Lomography).

Let’s take a look at the details…

Continue reading “Trading like an Escape Artist: How I made money in October trading S&P Futures Options with 2x leverage”

So what, we retired at the peak of the bull market? Here are seven reasons why we’re not yet worried…

Wow, did you see the big stock market move in October? The worst monthly S&P 500 performance since 2011! When you’re still working and contributing to your retirement savings it’s easy to lean back and relax: you can buy equities at discount prices and you buy more shares for the same amount of savings when prices are down, a.k.a. dollar-cost-averaging. Now that we’re retired things are different. Sequence Risk creates the opposite effect of dollar-cost-averaging: you deplete your money faster while the portfolio is down. I have been writing about this theme for almost two years now and now it looks like I might become my very own poster child of Sequence Risk.

The 2018 calendar year gains were almost wiped out in October. Ouch!

So, are we worried having retired at (or close to) the peak of the market? Well, take a look at the title image: an ERN family selfie while vacationing in Angkor Wat (Siem Reap, Cambodia) in October. It doesn’t look like we’re too concerned about the stock market! And here are a few reasons why…

Continue reading “So what, we retired at the peak of the bull market? Here are seven reasons why we’re not yet worried…”

Our Net Worth as of 3/31/2018

I wish the first quarter had ended on January 26 when the S&P500 peak reached the all-time high of 2,872! But in the end, the first quarter of 2018 was really nothing to write home about. And the second quarter is off to a volatile start as well! But I started with this series exactly a year ago and I might as well keep going! Besides, looking at the visitor stats, these posts are some of the most popular! I don’t blame you for being nosy because net worth updates are some of my favorites to read on other blogs, too! 🙂 Soooo, where do we stand as of 3/31/2018? Let’s take a look at the cold hard numbers…

Continue reading “Our Net Worth as of 3/31/2018”

My podcast appearance on Millionaires Unveiled

Late last year, I chatted with Jace Mattinson and Clark Sheffield at Millionaires Unveiled. It’s a fairly new podcast but they’ve already lined up an impressive list of guests including Dr. Dahle, aka White Coat Investor and Mindy and Carl from 1500 Days. I also particularly appreciate the diversity of different investment styles. Not everybody becomes a millionaire by investing in VTSAX! We can also learn from real estate investors and business owners! But first, of course, please listen to Episode 15 with yours truly, which was released today…

—> Click here for the podcast on iTunes <—

—> Click here for the podcast on Stitcher <—

And please also subscribe, review and “like” them on iTunes and Stitcher!  Continue reading “My podcast appearance on Millionaires Unveiled”

Our Net Worth as of 12/31/2017

Happy New Year! Another quarter-end, I can’t believe how fast time flies! And we all know what that means, right? Net Worth updates across the Financial Independence blogosphere! For us, this is a special NW update because it’s the last one before we both give notice at work in two months! And the last NW update before our apartment goes on the market! In other words, this better looks good, otherwise, we might get cold feet, also known as One More Year Syndrome. Soooo, where do we stand financially? Here are the numbers…

Continue reading “Our Net Worth as of 12/31/2017”