I feel a bit guilty about my lack of posting, but I still lurk and thank posts occasionally. I have found a group of Swedish traders which I discuss things with on a daily basis so my need to vent about markets is taken care of elsewhere.
I thought I might quickly summarize what I've learned this year for myself and for anyone interested, and shift the purpose of this journal to be more about ideas and less about markets and day to day trading activity.
Takeaway 1: Risk is not measured in standard deviation, but in liquidity.
I was heavily invested in some high yield debt during the March sell-off and it went no-bid for more than a week so I could not sell. This was bad for two reasons, I couldn't rotate out of it into equities, which I was actively doing with my IG and other bonds, and the drawdown on these assets were substantial and much larger than I could imagine, about -12-14%. These funds had traded with Sharpe ratios of 3-4 and a standard deviation of 1,5%-2,5% prior to this event.
Takeaway 2: You can only trade your beliefs.
I have basically traded every asset class (except options) on most time-frames and tried a lot of indicators and strategies, different risk management procedures etc. What I have found is that you can make money trading anything and using any strategy, but if you do not believe in your process 100% you will self sabotage. I have been told this numerous times and in different forms (fit strategy with personality). I would recommend listening to Van Tharp discuss these things in his youtube videos, and if you crave more read Trading beyond the Matrix. For example one of my beliefs was that my trading/investing was no value add to society and naturally this leads to a bunch of conflicts when trying to make money in the markets.
This year I also realized why artemiso 's post about people mistaking alpha for risk premium really stuck with me, it was a belief that I had which I was acting contrary to in all of my trading and risk taking. Trying to keep myself brief so lets just say that these two things coming together made me look at ways of making money in the markets from a different perspective, "what do I believe I should do today to make money, and what type of signals should I be looking for to confirm that I should act on my beliefs?". This led to a work in progress but basically a momentum/trend following asset allocation strategy (1-3 months) A re-balancing/mean reversion strategy (quarterly) and a short term L/S futures trading strategy (ES, OMX, GC, ZN, weekly).
Takeaway 3: Keep strategies simple and follow them, but also trust your gut.
I had way to little equity exposure in my family business account because of fear, turns out that was a good thing at the beginning of the year but mid march my gut and brain was also screaming at me "this is not the end of the world, equities down -35% globally is probably a good place to start buying". Well I did start buying but I was not nearly aggressive enough, I went from probably a 18% equity exposure to 25% by mid April. The reason in hindsight was that my process of only looking at charts to determine what to do was not enough, there was no indication that the selling would ever really stop, but I was fighting the fear by just buying small amounts. Anyway, I have a goal of an average equity exposure in this account of about 52%, and I'm ending the year with a 45% exposure, I did a lot of buying in the Oct-Nov drop.
All in all my result this year is passable given the risk I was taking when compared with mutual funds with similar strategies, I am looking forward to continue learning and implementing the lessons from this year.
Have a great 2021 friends!
Return 2020: +3,36%
Sharpe ratio 1,04
12 month standard deviation 3,41%
Max DD -7,51%
2021-01-01_13-10-41