Thanks @srinir for the mention; I'm flattered. My core trading system is based on futures. I try to diversify as much as possible, given the limited account size and associated risk appetite. As the account grows, so do the number of involved instruments. The ETF system is there to "do something useful" with the cash value of the account. It generates a bit more return, but this is small compared to the results achieved with the futures.
@rvince99 I found your post/chart that provides an example of employing hedges that limit DD to ~13%. Can I ask what that a hedge like that costs you annualized and what the construct looks like? Is it comprised of vanilla options available to retail or other derivatives available only via OTC?
I use swaps to do it, quite constructed animals.. one could construct it from listed vehicles in many any cases though. Depending on the market conditions, it costs me about 3-10% year
Without giving away anything proprietary, any guidance on where to look to put something similar (and cost effective) together using retail means?
The question was posed not as an academic exercise. I'm far from being one. Interestingly, very little discussion about real-estate and other businesses as an asset class. I got into trading because I wanted to diversify from my real estate and business holdings. I put a third of my net worth into the market. However in the last year, due to the fortune of the raging bull market, this third has become 2/3rd of my net worth and hence become very volatile for my comfort level, even with several option based insurance hedging. Personally, I'm seeing a big need to rebalance and diversify now. For the sake of the audience who may be following this thread. Real Estate in certain geographies and demographics truly decorrelate themselves from the market. - Mid-Income Apartment Building (we have 1 holding) - Residential rentals (this is my primary RE holdings, catering to a niche) - Commercial Long-term leases (had one, wasnt fond of management costs) - Niche Real-Estate (storage/assisted living) (this may be next venture after liquidation) - Asset based business (car dealerships, equipment leasing) (ongoing venture) - Non-asset based business (consulting using human capital) - Asset-based notes (mortgage notes) - Real-Estate based business (Car dealership, franchise) There ya go. Most of these would decorrelate themselves from the stock market and correlate moderately with the local regional economy. The '87 crash happened when the economy was still healthy. Most of the items mentioned above have varying levels of liquidity and "leverag'bility". Nothing as liquid as clicking and selling on your TWS platform. On the note of an Asset based business; I have one jeweler friend who sells/trades used Rolexes. He maintains an inventory of 1M, takes very little space, low umbrella insurance and has a net return of 25 to 30%. This does well in both up markets and down markets. Upmarkets, people have money to buy rolexes. Down markets, Rolex gold carries more value than gold itself.
My post is for feedback, not a criticism. I appreciate all the coaching and educations you are providing. However, you are a professional asset manager, or a very high net worth individual, with diversified holdings in residential, commercial, asset based, mortgage notes, 70 different options trading strategies, etc. To people like me, small retail traders with meager means all this talks of multiple assets multiple strategies are not too relevant to my daily struggles. As a small mom and pop retail trader, my number one focus is to find a simple system to consistently squeeze out small profits, day in day out, whether it is day trade or swing trade, currency, futures, options, commodities... Diversification and looking for uncorrelated assets to trade is too far removed from what I need. Your other threads are more helpful but I found your strategies too complex for me to understand. I do appreciate those posts and hopefully one day I will be able to understand and use them for profitable trades. Cheers.
I'm not really a professional. I posed a question on diversification to get feedback fron the group. My first real trade was in April-14th of 2016, where I sold a 2 day straddle on SPY and made $50. Regarding real estate, I had drinks last week with a 22 year old, who rents out couple of apartments in uptown Dallas on airbnb. He doesn't own the asset just subleases them on airbnb. This is low cost entry into real estate
I would take it out to more extremes. To me, this would be non-correlated: 1) a passive s&p 500 fund 2) a money market fund 3) an options trading account 4) a car wash 5) a rental duplex 6) sell stuff at a flea market on saturdays 7) be a vendor on amazon 8) work a regular job for wages 9) do some sort of side job unrelated to your main day job 10) gold 11) fine art 12) classic cars 13) a home you live in 14) buy/refurbish/resell houses These seem more non-correlated than endless flavors of stocks, bonds, etc. For example, if the price of gold drops, that won't likely affect your renter paying their rent. Nor will it likely mean you lose your day job. We get used to diversification as owning lots of stocks, mixing bonds with stocks, etc. But the super rich have other dynamics like "buy a major league baseball team" or "buy the docking rights at a popular marina". To paraphrase-quote Chris Rock... "rich people own the color blue".