Holiday Thoughts

It feels like a good day to reflect.

Meb Faber Tweeted out a short snippet from Grantham Mayo and Van Otterloo that included the suggestion to "own as little U.S. equity today as your career risk allows." It seems as though GMO has been bearish far more often than not during this bull market but that in no way means that they, or anyone else who seems to always be bearish (David Rosenberg and John Hussman come to mind) can't articulate the current bear case, there is always a bear case.

I am on record as saying that I think a bear market started in the spring and that belief has swung back and forth between appearing to be right and appearing to be wrong. Where I would differ from the GMO thought is simply to say you can buy funds that will neutralize a decent chunk of whatever decline might be coming. A useful component to long term investment success is holding great companies through the ups and downs of the market. Regardless of when the next real bear market comes, there will be great companies whose stock price drops a lot but will then be dramatically higher than their previous high water marks.

James Clear had a Tweet bookended with real wealth not being about money...real wealth is about freedom. I was lucky enough to figure this out for myself a long time ago and a crucial component to wealth as Clear sees it is living below your means. As I have said it, every other aspect of your life will be easier if you live below your means.

The extra money you save should mean less, or no, sense of desperation in the face of large market declines because you are more likely to be ahead of the pace you need to reach your number. Where desperation is an emotion, if you don't feel it then that is one less thing that could cause you to make a bad decision. Living below your means makes it easier to to absorb any sort of decline in income (more relevant if you're self employed). It will also be easier to pay for some sort of one-off expense (emergency). These are all potential stressors that people confront and if you confront them less often, or with less intensity, then you literally have less stress in your life. Less stress should, repeated for emphasis, make your life easier.

I stumbled across the Belmont Theta Income Institutional (BTIFX). The short story is that the fund sells straddles (combinations of calls and puts) and bets on the time decay of those options ('theta' is a measure of decay). It is more of an absolute return strategy or market neutral, it is not an equity proxy. Despite the word income in the name of the fund, Morningstar shows no dividend (yet?).

The performance so far is interesting but not lights out in the context of market neutral but that doesn't mean it can't be. Something a little ahead of inflation might be a reasonable goal. One nagging concern is the tendency for some options funds that are intended to be low vol to actually blow up. We saw this in dramatic fashion last February with the Vixmageddon event. That's not a prediction for BTIFX, just a cautionary note.

I admit to not knowing as much about Martin Luther King Jr. as I should but I found the following quote that resonates with me. "Life's most persistent and urgent question is 'what are you doing for others?'" I've said this many times before, but if you're not already doing so, look into volunteering your time in some endeavor that you would enjoy doing and that helps other people. The benefits of helping others are endless.

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