Using US portfolio to hedge against SG portfolio was a mistake. Because they are not perfectly correlated, both in their direction and magnitude.
Over the last couple of months, US stocks have been on the run up like crazy and I have lost about USD500+ on VXX which bet against the rise of index. It was opened with the intention of hedging against a general market downturn (which happened around this time last year) but didn't happen - given the trade war fatigue (though no confirmed deal signed), no shocking world news and relatively stable economic condition in the US (relatively low unemployment and low interest rate). So people have been parking their cash in stocks and the stock market has been on a steady climb.
I entered too late a position in Mastercard Inc so only have peanut gains so far (a good buy point was at $270). Lesson learnt is to wait for uncertainty in the market and certainty in price action before trying to "hedge". We can never catch the bottom-most nor the top-most price but worse is the middle - trying to bet in which direction it will go.
Biggest gainers are OCBC, Capitaland Mall Trust and ST Eng.
Crypto seems to be in the limelight again. Here's what I understand - blockchain is a form of technology, it enables the existence of cryptocurrency. What made me skeptical about doing crypto investment is mainly counter-party risk. The whatever so-called high return platforms for crypto are offering the so-called derivative products and I am not sure how they are being regulated or what they are being backed up by.
If we reverse the coin and deem crypto as the "real money" of tomorrow, then what would be the truly secure way to procure and store them without counter-party risks? Until there's a widespread utility for these by-products of the great technology and there are some means to determine each of their worth, I think trading in them is highly speculative and I will steer clear for now. Amidst all that price volatility, I am not sure what's driving their demand and supply. From what I see, crypto's "spot value" is just pegged to the currencies that the particular crypto is being traded in (is USD the standard?), not pegged to gold, assets, nor businesses. Maybe someone with better knowledge could enlighten? An advantage of cryptocurrency is, like gold, it cannot be easily minted nor manipulated by monetary policies. How it correlates to the various real currencies will require further observations.
Video TED talk: How the block chain is changing money and business ***
1. "Because they are not perfectly correlated, both in their direction and magnitude."
I suspect you are missing the point when it comes to hedging or correlation. I'll leave you to figure it out on your own so as not to spoil your learning.
2. Eh... Trading volatility is not meant for Buy-and-Hold:
The "good news" is -USD$500 is a small price to figure it out by crash got sound.
And yes, I've traded volatility before. Made quite a bit, then lost quite a bit too! LOL!
Now I steer clear of them as I've discovered plain vanilla futures suit me better.
Its good to explore all sorts of different vehicles. If not how to know which ones fit your feet better?
3. One hedge fund manager said it best when he said he believes cryptos are a SCAM. But he has no problem speculating in them just as long he is confident he can find other idiots fools to sell to ;)
Its the same with stocks, properties, or any other speculative assets isn't it?
We have an edge if we know more about the vehicle than the next fool.
Remember, we don't have to outrun the bear, we just have to outrun the idiot standing next to us ;)
1. Actually I was using VXX as a short term hedge to my SG portfolio as I have emptied out my US portfolio then. Hedging needs to use instrument that are not correlated or are inversely correlated. However this inversely correlated instrument moved too furiously such that my SG portfolio's rise can't keep up with the magnitude of fall.
What's your veteran take on hedging?
2. What do you find attractive in futures? Just curious.
3. All derivatives are speculative.
If nobody wants stocks, the stock market would not exist. If nobody wants crypto, crypto market would not exist. So you are right, we always hope we are not the idiots buying and when we sell, we are selling to idiots. Lol
My point is more of concern to the counter-party risk of crypto trading because there's no so-called CDP, it is not a dealing on an exchange, spread can varies quite a bit depending on where you look... It's like the market marker's field. I have heard about hardware wallets, maybe that is a different story. Like buying gold etf is same same but different from buying physical gold.
1. I've learnt through crash got sound that the volatility ETFs/ETNs are not suitable for hedging purposes (to me).
Its more for retail speculators looking to hit the jackpot while most of the time, most just lose money... (Just look at the 5 years chart of VXX)
That's how I found out the VXX is used by professional traders holding at best for a few hours. Pros don't hold it overnight. (Your short term is the long term for pros)
If we want to hedge using volatility, it maybe better to trade the VIX options directly instead. Its like your Gold ETF and physical gold example ;)
By the way, when it comes to hedging, I don't think there'such a thing as "perfect" correlation or "perfect" inverse correlation...
Hedging does not mean we will not lose money. Its for us to try and mitigate our losses.
2. You may want to read up on futures 101. Futures are created precisely for the purpose of hedging ;)
You hold a portfolio of SG stocks, you hedge it with the Simsci. Simple and clean. Althought not "perfect", its close enough for hedging purpose.
3. If you worry about counter-party risks, then you should not trade OTC (over-the-counter) instruments - like spot forex or CFDs.
Yes, there's a push by the regulators for more trading vehicles to be exchange traded.
I do prefer to trade forex futures for the greater transparency. But its more a personal preference than anything.
Can make money, who cares whether its OTC or exchange traded?
I read somewhere that futures have a centralized pricing, whereas OTC instruments do not. Futures also typically have lower costs. However, not many bloggers talked bout trading futures. It's even more elusive than crypto.
Young explore and experiment. How else to know which poisons would suit you best?
Its just like school. Primary and lower secondary we study as many subjects as possible. Then we start to specialise according to what subjects we like as we move up the academic ladder.
Wait.
Bad example.
There are those who choose subjects they think they can make the most money in the future... Not based on their interests or what suits them best.
Just like how most bei kambings approach investing and trading.
My SAYE account has just hit its 25th month anniversary which is also the "month of maturity". Anticipating to get the 3.5% bonus interest for all these months of saving, I was shocked to see only $17+ cash gift credited as opposed to a few hundred dollars. I was about to send a message to query the bank what caused this interest plummet versus what I got in the 13th month when I came across a debit transaction in my account history (GASP!). To my oblivion and horror, I have accidentally selected my SAYE account to transfer $50 to a joint account to foot some bill in one of the months last year. Here's the terms and conditions for those who are not familiar with the SAYE account of POSB. "To receive the additional 3.5% p.a. Cash Gift Interest, ensure that you do not make any withdrawal from your POSB SAYE account." "If a withdrawal is made in the month, this will result in the previously accumulated additional 3.5% p.a. interest to be forfeited." Damn.
It's been almost 2 months since my mum's passing. I have not had the mood to blog as there's simply too much for me to settle - both tangible and intangible stuff. For the first month, there's like a void in my life that I couldn't get used to because I was so used to the daily routine of taking care of her. It felt like a boulder lifted off my shoulder, as I was near breaking point; but this boulder was not gone, instead it shifted to my heart. The passing was sudden but not unexpected. My mum's condition deteriorated rapidly after her last fall, which led to hospitalization, and every hospitalization made her more frail. On the last discharge she could barely sit up in bed. My mum did not leave behind a will because she did not see a need to at that time when she still had a clear state of mind. Without a will, I would need to apply for the Grant of Letters of Administration (instead of a Grant of Probate ) in order to administer her Estates. (Note: If ther
Different levels of our life and career Level 1 - Aimless You have no earthly idea what you're doing or where you're going. You have no direction. Level 2 - Stuck You can envision yourself doing better but can't seem to get out of a rut. You might work hard but experience very little progress. Level 3 - Coasting You are going through the motions. Your life is on cruise control. You do what you have to do to survive. Level 4 - Developing You are steadily growing. You've had incremental improvements over the past few years, and your relationships and career have excelled. Level 5 - Thriving You are operating in your sweet spot. You don't have to do anything. You get to do everything. Level 6 - Mastery You are doing so well that you're in a place to help others do the same. from "Leveling up" by Ryan Leak I came across the above while browsing IG and it made me reflect on how success in life and career is defined. Which level am I at now? In my early 30s
Being the sai kan g Ops Manager, my new add-on duty currently is to hire for a HR generalist position for the company I am working at (before I get a new add-on duty of the human resource manager too). Here are some interesting takeaways from the interviews I have conducted - 1) Those who don't know how to give 'model answers' for the standard questions asked, I know they have little or no experience in interviewing and recruiting people, as well as being interviewed. "What do you know about our company xxx?" *stumped* "Thank you, exit is over there." 2) "What makes you leave your current position?" Ah, I have to watch out for complainers. Those who talk a lot of 'bad' stuff about their current work. You know? I know. Most standard answer - "I want a change of environment / industry." (The nicer way of saying I don't like my current workplace.) Ok... so what kind of environment are you looking for? Wha
Some time back last year, I briefly penned a post Time or Money? at a point when I was gloomiest about work. Today incidentally, I caught something interesting in the book 4-hour Workweek : "People don’t want to be millionaires—they want to experience what they believe only millions can buy. Ski chalets, butlers, and exotic travel often enter the picture. Perhaps rubbing cocoa butter on your belly in a hammock while you listen to waves rhythmically lapping against the deck of your thatchedroof bungalow? Sounds nice. $1,000,000 in the bank isn’t the fantasy. The fantasy is the lifestyle of complete freedom it supposedly allows. The question is then, How can one achieve the millionaire lifestyle of complete freedom without first having $1,000,000?" This set me thinking.
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Rainbow girl,
ReplyDelete1. "Because they are not perfectly correlated, both in their direction and magnitude."
I suspect you are missing the point when it comes to hedging or correlation. I'll leave you to figure it out on your own so as not to spoil your learning.
2. Eh... Trading volatility is not meant for Buy-and-Hold:
https://www.benzinga.com/general/education/18/02/11151739/one-of-the-creators-of-the-vxx-explains-the-problem-with-many-volat
The "good news" is -USD$500 is a small price to figure it out by crash got sound.
And yes, I've traded volatility before. Made quite a bit, then lost quite a bit too! LOL!
Now I steer clear of them as I've discovered plain vanilla futures suit me better.
Its good to explore all sorts of different vehicles. If not how to know which ones fit your feet better?
3. One hedge fund manager said it best when he said he believes cryptos are a SCAM. But he has no problem speculating in them just as long he is confident he can find other idiots fools to sell to ;)
Its the same with stocks, properties, or any other speculative assets isn't it?
We have an edge if we know more about the vehicle than the next fool.
Remember, we don't have to outrun the bear, we just have to outrun the idiot standing next to us ;)
Hi SMOL,
ReplyDelete1. Actually I was using VXX as a short term hedge to my SG portfolio as I have emptied out my US portfolio then. Hedging needs to use instrument that are not correlated or are inversely correlated. However this inversely correlated instrument moved too furiously such that my SG portfolio's rise can't keep up with the magnitude of fall.
What's your veteran take on hedging?
2. What do you find attractive in futures? Just curious.
3. All derivatives are speculative.
If nobody wants stocks, the stock market would not exist. If nobody wants crypto, crypto market would not exist. So you are right, we always hope we are not the idiots buying and when we sell, we are selling to idiots. Lol
My point is more of concern to the counter-party risk of crypto trading because there's no so-called CDP, it is not a dealing on an exchange, spread can varies quite a bit depending on where you look... It's like the market marker's field. I have heard about hardware wallets, maybe that is a different story. Like buying gold etf is same same but different from buying physical gold.
Rainbow girl,
Delete1. I've learnt through crash got sound that the volatility ETFs/ETNs are not suitable for hedging purposes (to me).
Its more for retail speculators looking to hit the jackpot while most of the time, most just lose money... (Just look at the 5 years chart of VXX)
That's how I found out the VXX is used by professional traders holding at best for a few hours. Pros don't hold it overnight. (Your short term is the long term for pros)
If we want to hedge using volatility, it maybe better to trade the VIX options directly instead. Its like your Gold ETF and physical gold example ;)
By the way, when it comes to hedging, I don't think there'such a thing as "perfect" correlation or "perfect" inverse correlation...
Hedging does not mean we will not lose money. Its for us to try and mitigate our losses.
2. You may want to read up on futures 101. Futures are created precisely for the purpose of hedging ;)
You hold a portfolio of SG stocks, you hedge it with the Simsci. Simple and clean. Althought not "perfect", its close enough for hedging purpose.
3. If you worry about counter-party risks, then you should not trade OTC (over-the-counter) instruments - like spot forex or CFDs.
Yes, there's a push by the regulators for more trading vehicles to be exchange traded.
I do prefer to trade forex futures for the greater transparency. But its more a personal preference than anything.
Can make money, who cares whether its OTC or exchange traded?
Hi SMOL,
DeleteThank you for your insights.
I read somewhere that futures have a centralized pricing, whereas OTC instruments do not. Futures also typically have lower costs. However, not many bloggers talked bout trading futures. It's even more elusive than crypto.
Did some reading https://www.investopedia.com/ask/answers/031015/how-risky-are-futures.asp
DeleteRainbow girl,
DeleteYoung explore and experiment. How else to know which poisons would suit you best?
Its just like school. Primary and lower secondary we study as many subjects as possible. Then we start to specialise according to what subjects we like as we move up the academic ladder.
Wait.
Bad example.
There are those who choose subjects they think they can make the most money in the future... Not based on their interests or what suits them best.
Just like how most bei kambings approach investing and trading.
Cryptos can make money?
OK, I follow you!
If you can do it, so can I!
Even though I've no clue what I'm doing :)