#155: A Gift of Wealth

micksonmatch
September 30, 2024

S2N Spotlight

Very little is needed to make a happy life. – Marcus Aurelius, Meditations, 7.67

My father-in-law turns 80 in a few weeks, so my wife came up with, I think, the most beautiful, thoughtful gift. Yesterday our extended family gathered at Rosebay to honour one of the wealthiest men I know by taking photos of all the family together. It was a rare opportunity, as we have not all been together for 3 years with my son living abroad. Colin is not a rich man in monetary terms, but his wealth is immense. Colin is not a big man, but he is a great man. More about Colorado in a few weeks.

My goal for the morning was to recreate a chart that I saw produced by data platform vendor Koyfin. It went well with a few extra visualisations created that I will share another time.

The chart is pretty self-explanatory, and if you have followed me for a while, you will notice I often don’t bother explaining things, sorry. All the symbols in the chart are performing ahead of their average except for Tesla, which is setting well below its lofty mean. You can see that it also has the highest level of volatility. It has clearly paid off in the past, but investing is all about the future. Nvidia is also a clear standout with its current performance outperforming.

I applied the same analysis to some macro assets. Bitcoin and oil turned the chart into a mess due to the volatility, so I excluded them. I used more data in this analysis over 34 years. Remember, the Japanese yen is upside down. It is currently having a stronger year versus 34 years of consistent weakness.

S2N Observations

I wrote last week about finally getting my code to work with the Commitment of Traders data. I thought I would share 2. I tried to include the Hang Seng but couldn’t find it. I start with the latest COT report on the yen. Large speculators sure changed their minds. It looks like a lot of short contracts were closed out, as you can see by the reduction in open interest. This is the carry trade unwind in action.

I thought I would take a look at the Aussie dollar, as that is where I live and our Treasurer is celebrating another budget surplus. I am not a fan of Labour’s policies and Chalmers spin that would make Shane Warne look average. I present a nothing burger.

I couldn’t resist slipping in one of my addictions.

I came across an interesting article in the WSJ about multi-manager hedge fund Millennium, founded and led by the great Izzy Englander. For those not familiar with Englander, he is a billionaire hedge fund manager that you should learn about as he is a titan of the industry.

I know a few people who have worked for or had Millennium as an investor. Everyone knows Millennium is generous with the amount they invest and reward, and everyone knows don’t lose their money as they will pull it quicker than you can pull your hands away from a hot stove. I never quite knew how sensitive to loss they are.

The article speaks about how Millennium is obsessed with not losing money but has still managed to make more than $56 billion in investor gains after fees. That is a 2.6 Sharpe Ratio over 35 years, simply incredible. I am in awe.

Here it is in a nutshell. If you lose $50 million (5%) out of a $1 billion allocated, they will cut your buying power in half. Lose another $25 million (2.5%), and you are fired; that is a 7.5% max drawdown. I think any aspiring hedge fund managers reading this should keep this risk management principle in mind if you wish to be around for the long haul.