Weekly Paid Newsletter 11/07/2021
We want to share the entire weekly paid newsletter for free with all of you. Asymmetric Portfolio +19.33% YTD.
Contrarian Investment Strategy to Beat Them All
Avis Budget Group is winning big
The FOMC stated. Now what?
This weekend we would like to share with all of you our paid Weekly, [except for the portfolio part].
The purpose of this newsletter has never been to make money, on the contrary, in fact, we wanted to set the minimum rates possible ($5/month; $30/year), and if we have ever considered raising the rates, it has been only so that the people who are still in the boat are fully involved and we can have a much more personal treatment with all of them.
Our first goal when we started was to be able to reach at least one subscriber, and you don't know how happy we are to know that we have achieved it by far.
As long as there was one subscriber, it would be enough to force us to write on a weekly basis and to keep learning on a daily basis.
This space forces us to be up to date and most importantly, it forces us to remain faithful to our investment style and that is precisely what we want to talk to you about today.
Although we are fully convinced that the Contrarian style is one of the most profitable investment styles in the long term, psychologically it is very difficult to follow and even more so in this market situation where it seems that absolutely everything is rising at a pace never seen before. For example, the S&P 500 has risen in 20 sessions (+9.5%), much higher than its historical annual average.
But if you think that by investing in these market conditions, or with an NFT you are going to get rich, you are very wrong. Everything takes time to build and you should always have (very) long-term objectives.
That is precisely our vision, we firmly believe that good long-term profitability is not made by buying Google at the current price, but by doing it:
Buying Amazon in 2001 after its share price fell by 90%.
Buying the S&P500 in 2008 during the downturn.
Buying any technology company after the March 2020 downturn.
You will know if your goal is to make money or follow the crowd.
Great investors know that money is made during Bear Markets and this is how they have done it, some examples would be:
Spitznagel launched his Hedge Fund in 2007 and has since made 70% average annual returns
Warren Buffet sold a lot of OTM PUTs during the 2008 crash (don't try to repeat this at home).
Howard Marks has confessed in some of his MEMO's that he bought during all the months of the 2007 crash, systematically.
Jim Simons made returns of 128.1%, 136.6% and 152.1% in 2000, 2007 and 2008, respectively.
All of them are great examples that having cash when no one else has it is gold.
Avis Budget Group is winning big from the economy's reopening
One of the examples of market asymmetries is the one seen this week with the case of the company Avis ($CAR). A company that when we see its chart since 1995, makes us understand the market situation:
And what has happened to its options?
You can imagine, we are looking for two very OTM extreme events that have never happened before. Does this mean that they cannot happen? Absolutely not, the examples are:
Reaching extreme cases such as:
How can we benefit from this type of event?
Here I would like to propose an exercise to understand the benefits that having a good hedge (or protection) against extreme events can have:
[Disclosure: This is an example, which I know will be highly criticized, if it is done systematically as proposed, it will surely result in a continuous loss of purchasing power].
Asymmetric Portfolio: Portfolio with a 20% hedge (for example) of, for example, any volatility ETF (VIX, VXX, UVXY...). Every 3.5 years, as we see in this tweet, the volatility index does about 150%. Being conservative we could get an x5 from the hedge (the year 5) and in the last year an event of this style occurs (the year 1987, 2000, 2008 or 2020), putting us in a conservative event we assume a +3,000% on that 20%. Recall that Spitznagel made 4,400%, of his entire portfolio, during Covid.
In addition, we will lose 5% every year to pay for this hedge.
S&P 500: we assume the historical average returns of the S&P500, 7%.
Warren Buffett: Buffett's average return, about 20%.
We have a CAGR of 25%. Exposing only 20% of our portfolio.
It is not magic. It is simply knowing how to think about yourself in the long term, everything good in life comes from this type of situation (we will upload an article to Medium next week). If you eat well, you will have better health in the long run; if you do sports, you will look better physically; if you take care of your loved ones, you will have a life full of love...
Let's be brief. The FED decided to reduce injections starting this November.
Honestly, it is an excuse, as they are going to reduce 15B, which within the 8T they have printed, means absolutely nothing. And, as the party continues, the markets, at least in the short term, also continue to rise.
What is surprising is the fact how little faith investors have in the FED, just look at how the market was on day 2, before the FOMC (Option Volume).
One of Powell's messages that most caught our attention was that they would do their best to reach minimum unemployment.
Looking at the newspaper archive, we see that this was the same message and the same actions that were taken in the mid-1960s. And a result, we all know inflation, recession, and, above all, much loss of purchasing power.
If you enjoyed reading this post, do not hesitate to share it with your friends, it would help us a lot to keep growing!
Below, our portfolio in detail...