The Sunday Ride - March'21 (BITCOIN)
The Sunday Ride brings a collection of Investment Research and Financial Independence topics for Long Term Investors with the aim of providing you the best reads.
To be enjoyed with your Sunday post-ride coffee.
While rebalancing your portfolio, learn how the markets work and get the highest quality insights from Wall Street and Main Street.
Unlike the rest of Bankeronwheels.com, this series is provided without additional guidance.
As usual, everything is to be used at your own risk.
DASHBOARD - STATE OF PLAY
Year-to-date Market Performance
β - THE LONG GAME
This section is dedicated to what really matters (aka the 90% of your Portfolio) – achieving Financial Independence, Asset Allocation and Long Term Investing Research.
Black swan risks always exists. While some brokers may be safer than others, in some cases the whole system is endangered.
Interactive Brokers’ Chairman Thomas Peterffy says financial markets came “frighteningly close” to collapsing during the Reddit-driven turmoil.
Watch the whole video.
Read more about Broker safety (a Bankeronwheels.com classic)
If you think about changing your portfolio allocation due to apparent mis-representation of certain countries, think again.
While there is nothing wrong in expressing (marginally) your views on a risk/reward spectrum (BoW analysis) we need to account for the hard facts.
MSCI came with an interesting analysis showing how global revenues are shaping companies’ bottom lines.
The Emerging Markets’ companies represent only 12% of the MSCI ACWI Index in terms of market cap, but the economies account for 42% of global revenues.
Once a year, Credit Suisse publishes a comprehensive summary of long term historical returns.
It’s a great perspective on what can be reasonably expected in the long run. While I haven’t covered factor investing yet, also due to limited investment options available to Retail Investors, page 30 onwards gives a summary on how factors performed since the GFC in 2008 – not that it helps predicting the future!
α - PUNT RESPONSIBLY
If you decide to sin, then sin only a little. Active investing should be, at best, a tiny fraction of your portfolio (I tend not to exceed 10% of my portfolio). This section is dedicated to improving your knowledge about capital markets.
While ARKs, Tesla and other Reddit favorites are showing signs of fragility, Bitcoin seems, so far, to be resilient.
How do professional investors approach Bitcoin?
The CFA Insitute, which is the largest global organisation grouping professional Investors (I am a also charterholder), has produced a very comprehensive primer that highlights risks and opportunities in cryptospace.
In their recent paper, Bridgewater Associates echoes wider market narrative that Bitcoin may become another option for potential store of wealth.
But to Nicholas Taleb‘s point (BoW article) the Lindy effect indicates it has still some way to go.
Competition with Gold is here to stay, argues JP Morgan in their well-researched report but Bitcoin is a sideshow to the rise of Central Bank Digital Currencies.
Not long ago, Jamie Dimon called Bitcoin a ‘fraud’ but now this same above research points to potential portfolio diversification benefits.
“Why bother considering an unconventional and high-volatility hedge?” Three reasons:
- Equity and Credit valuations look record-rich for a very young business cycle;
- Conventional hedges like DM Bonds barely serve as insurance when US 10Y rates are near 1%;
- Some as-yet unseen shocks (materially higher inflation, economicallydebilitating cyberattacks or climate catastrophes) could favor an asset that operates outside conventional financial channels.
What drives Bitcoin price? In its research piece, Bank of America dives into the technical aspects and the supply / demand imbalance.
Reported Institutional holdings are still very low at ~5% (mainly Greyscale Bitcoin Trust – see page 4). While awaiting an ETF? The number of applications builds up.
Bitcoin does have tail risks, though. On top of regulation, there is a threat of vulneratiblity in the age of quantum computing, writes Deloitte.
How good was active investing last year?
Well, S&P has updated their scorecards. While last year wasn’t the worst, 57% of US managers still lagged indices.
Active Investing - Orbituary
When you play with fire, you can get burned. This section is a stark reminder of what can happen when engaging in active investing, even as a professional.
We’re only a quarter into 2021, and already had a couple of spectacular failures.
Archegos – There are three ways of making money in finance. Be first, be smarter or cheat. Bill Hwang used to cheat.
He was banned for insider trading in 2012 (per SEC), but came back in 2018 trading Chinese Stocks. On margin.
His firm just collapsed, triggering a fire-sale of $20 bn of assets. Goldman Sachs had Hwang on blacklist after he was charged, but at some point in the past two-and-a-half years, ‘changed its mind’.
It left some of its rivals struggling, including Banks like Nomura and Credit Suisse which shares lost around 15% in one day.
R.I.P. Archegos (you didn’t exactly show the way). The question remains, how many other shops could be doing similar, Reddit-style YOLO trades for their clients, without directly reporting their holdings (hiding behind big banks via Total Return Swaps)?
Melvin Capital – did survive the Gamestop saga, but lost 53% in January, WSJ (paywall) reported. Even if you make 20% in February, the math doesn’t really work if your favour, does it?
This section is dedicated to UK and European Index Investing. It can also touch on other jurisdictions outside the Euro-zone.
As you may know, the ETF industry is concentrated around big US players like BlackRock (iShares ETFs), Vanguard or State Street (SPDR ETFs).
European DWS (xtrackers ETFs) is one of the leaders locally, but there could be a new giant soon.
Reuters reports that Société Générale is selling Lyxor and Amundi may end up being the buyer (otherwise it’s likely that State Street will get bigger in Europe)
This section is dedicated to the FIRE Lifestyle Movement and Cycling Topics (bikepacking, touring and useful reviews)
Financial Independence & Early Retirement
I’m not deliberatly pursuing Early Retirement. Or at least, that’s not my main objective. While Financial Independence is key, I have so far enjoyed mini-retirements.
But Early Retirement, can be fulfilling. You just need to find a purpose and have your partner fully on-board. Health is another unknown.
Here is a story from Livingafi, five years after he retired. Few words of wisdom and a look at the bigger picture, if FIRE is your goal.
The Cycling Corner
Cycling has been on the rise, since the start of the pandemic.
Guardian reports on what can happen when you buy a £5,000 bike from Poland post Brexit.
Supply stuck in the Suez Canal is one thing, but bike parts are missing throughout Europe.
If you plan bikepacking this summer, think about shopping before everyone else does (I probably bought the last Garmin Varia currently available in France).
CPI aside, bike inflation is a reality.
Travelling locally will be priotitised. If you’re in Europe, don’t exclude Morocco. Close, safe and their handling of the pandemic has so far been exceptional.
They didn’t have the Asian pandemic experience, nor the US vaccine technology. But they followed common sense and had great wisdom, unlike a lot of European countries (the weather may have helped a bit).
GCN has a great video about bikepacking in the Atlas Mountain Range. I may stick around until then, so we may end up riding some parts together (if they do open borders).
Here is my Instagram summary of some key considerations.
All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries or suggestions expressed or implied herein, are for informational, entertainment or educational purposes only. The information provided on Bankeronwheels.com is general in nature only and does not constitute personal financial advice.
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Good luck and keep’em* rolling!
(*Wheels & Dividends)