https://www.zerohedge.com/news/2018-09-22/how-fund-betting-end-world-outperformed-sp500 "According to a letter sent to investors earlier this year and seen by the WSJ, a strategy consisting of just a 3.3% position in Universa with the rest invested passively in the S&P 500, had tripled the money, generating a compound annual return of 12.3% in the 10 years through February, better than investing in just the S&P 500 itself. It also was superior to portfolios three-quarters invested in stocks with a one-quarter weighting in more-traditional hedges such as Treasurys, gold or a basket of hedge funds." I believe Spitz is full of shit, I posted this last year and would love to see where I'm wrong as I'm highly interested in his strategy "I believe Spitznagel is being a little misleading here. He finds that lower volatility improves geometric returns but he is not measuring actual dollars earned (which is more of a function of arithmetic returns). Its possible to have improved CAGRs without a single extra dollar earned. This paper explains it well in the context of risk reduction from diversification http://www.hec.ca/finance/Fichier/Chambers2014.pdf This portfolio has the same expected return (arithmetic mean) but varying geometric means (CAGRs) depending how much volatility it has: SDs drop and Geometric returns improve as you add diversification, but yet, the investor won't make a single extra cent from this. This is not to say that he will be making a mistake by diversifying but to talk about improved CAGRs while you are making less money "What at first appears to gratuitously lower the arithmetic return of the portfolio (and drag on the portfolio as a line item in 9 out of 10 years) turns out to be a CAGR boon." seems ridiculous. What I think he is trying to get at is that there is an improvement in risk adjusted returns, which is likely to be true. But that improvement should not be measured by the CAGR, this gives a FALSE impression that returns will improve, which they likely won't. It should be measured by metrics like the Sortino, MAR or Calmar ratios. But given the Spitz is in the hedge/fee business, its just more appealing to him to give that false impression of return boosting from options buying". To be clear, I'm not hating on the guy. I just think he is selling a false image. He should say 'options buying will improve risk adjusted returns even though it will be a dollar drag (cost) in the portfolio'. But instead he boasts about CAGRs of some phatom portfolio that doesnt exist because it makes people feel like they will beat the market, in some sort of free lunch, which wont happen
Ten year returns look great right now because he gets 90percent of Lehman related volatility. How will 10year returns look next year?
I would like to see his ACTUAL returns, not CAGR. For instance, if someone had his monthly return figures for the last 10 years, I would love to see them. I believe he is bringing out the CAGR of a phantom portfolio so much in order to hide the fact that his options buying breaks even or loses money (in terms of actual dollars earned, the arithimetic return). This is not to say that is a bad idea, by all means tail hedge and do all that ergodic shit from taleb but if someone thinking of implementing that strategy after reading that article, they will think they will make money from it and beat the market as a result. Which is not true at all
The simple fact that his fund has managed to survive 10 years running a "crisis alpha" strategy in a bull market indicates they're doing something right. Taleb's own fund closed within 5 years.
If you read the article carefully, then you'll see he's only invested 3.3% of total funds in Universa(the tail risk hedge). The rest in index fund. That's actually not a bad idea for institutional investors.
Spitz is the real deal, I know one investor who has been with him for years. He's still running BSPP, which is the same strat Taleb used at Empirica. Taleb shut down to write Black Swan and to be free, not because of poor performance or lack of investors. Universa is Empirica with a retired Taleb. Same work, same employees, even same investors. CAGR is BS; Mark and Nassim have trashed it extensively. What matters is ergodicity. If a strat's time average and ensemble average are equal, then returns become meaningful. If anything is misrepresentative of this article and others like it, it's that Taleb and Spitznagel just buy options. They sell plenty of options too. They are just always net long. It's not a phantom strategy, if you've studied their work and done the math it is more than attainable. What sets them apart, as Aaron Brown said, is their convexity and allocation. No one so far has been able to offer the same degree of protection at the price they're able to create it.
Here is what I would like to know. How much of that 3% Universa + 97% SPY hypotethical performance comes from the idea of rebalancing gains from options during big market panics into SPY itself? Because this is exactly the sort of thing that people like Spitz and Taleb would not do (except on hypothetical phantom portfolios) because their tendencies to be perma bears. Clients also dont have a tendency to do that as well (most people buy on the way up and sell ont he way down). That's why I call this a phantom portfolio
If you read the disclaimer of that report, Universa says that the simulated hypotethical has annual rebalancing. So everytime they have a big year in the options strategy, In January they would roll any excess allocation above the 3.33% into SPX. Obviously they had a HUGE year in 2008, as per the rebalancing strategy they would take the excess profits and reallocate into SPX in Jan of 2009. Obviously this would be a heck of an investment looking 10 years out but does anyone seriously believe that Spitz or Taleb are the kind of people that would be buying stocks in Jan of 2009? Taleb in December of 2008 said "Massive Deflation Nightmare, Roubini Too Bullish" on Charlie Rose. These hypothetical returns are a fantasy
Spitznagel was the biggest bull in the commodities boom. Taleb bought stocks all throughout QE. The "permabear" label is extremely ignorant.