Each Sunday I compose a list containing the most thought-provoking and interesting content I’ve consumed during the past week. Primarily as a way to keep inventory of material that influenced me and my way of thinking.
Papers/Notes
Decennial Letter (2018) by Universa.
”So much of what passes for risk mitigation strategies simply is not that; rather, they result in what Peter Lynch referred to as ‘diworsification.’ They may moderately lower portfolio risk, but more importantly they also lower its CAGR. When done right, and as we have seen first-hand and delivered these past ten years, effective risk mitigation does more than just lower risk. It transforms the entire portfolio, adding unique value that no other type of investment can. It is the tail that wags the dog.”
”As I have previously written and demonstrated to you elsewhere, even if we hypothetically adjusted Universa’s standalone arithmetic mean annual return to exactly zero over the past ten years (by, say, hypothetically lowering our annual return in 2008 accordingly), the CAGR of that combined hypothetical Universa tail hedge and SPX risk-mitigated portfolio still would have outperformed the SPX alone by more than 0.6%—and that would still be greater than any of the other alternative strategies (all with positive standalone arithmetic mean annual returns). (For the Universa allocation, this would equate to a similar-size allocation to a ten-year annuity yielding about 24% per year.) The extreme crash convexity of our return profile is far more important than our arithmetic mean return in adding risk mitigation value to your portfolio.”
”Bernoulli’s call to map returns through the logarithmic function was a normative one, not a descriptive one. We experience the markets’ returns in arithmetic space; a return over any given time interval is arithmetic, by definition. If we had only one bet to make in our life, maximizing this arithmetic return might be appropriate. But from a long-term investment standpoint, when we have many multiplicative bets to make, or many bets whose results compound over time, we need to map present arithmetic returns into future geometric returns in order to maximize our end point wealth. To do so, we need to experience the markets’ returns through the lens of the logarithmic function. We need to be Bernoullian logarithmic risk-takers.”
Q4 2021 Investor Letter by Praetorian Capital.
Writings/Essays
France Is Living In Zemmour’s World by Francois Valentin.
”The greatest threat to Zemmour might not come from his ideological opponents at all. The French establishment seems increasingly capable of updating its ideological lines in order to preserve itself in the face of the conflicts that are fracturing French society—and to steal the wind out of the far-right’s sails.”
”. . . perhaps the clearest sign of France’s Zemmourization can be found in Zemmour’s foremost political opponent: President Macron himself. Macron ran as a center-left candidate in 2017. He stirred controversy with comments that there is no such thing as ‘French culture’ and that Angela Merkel had saved ‘Europe’s collective dignity‘ in 2015 by welcoming over one million migrants to Germany. . . . In the fall of 2021, as Zemmour’s rise in polls was underway, Macron decided to slash visas granted to people from the Maghreb, in order to pressure their governments into taking back nationals who live illegally in France. The move, a long-time demand of both Zemmour and Le Pen, was now being carried out by a centrist president.”
”While Zemmourian ideas seem politically potent, it remains to be seen if they will lead to profound institutional change, with many among the French elite firmly committed to the centrist and neoliberal elements of Macron’s original platform. The real challenge to this shift would likely come from the judiciary and from parts of civil society.”
Shooting Oil In a Barrel by Doomberg.
”The US is still the largest producer of oil and gas in the world, making its energy policy – and the desire of foreign powers to influence it – no less important than it was then. Longtime readers of Doomberg will know we have been critical of America’s energy strategy and have spilled much ink describing the predictable consequences of its obvious blunders. By closing existing nuclear power plants, opposing the development of reliable fossil fuels at virtually every opportunity, attacking existing energy infrastructure choke points, and constraining capital for future development, the behavior seems virtually indistinguishable from what we would be doing if an adversarial foreign power were in charge of our affairs.”
How the French Bohemian Elite Celebrated Predatory Behaviour by Lily Dunn.
“Fire Insurance – Revisited” by Harley Bassman.
Optimal Portfolios For Two Assets & Does Tail Hedging Help a Portfolio? by Matt Hollerbach.
Podcasts/Conversations
Moshe Koppel on Norms, Tradition, and Resilient Societies, EconTalk.
Protecting the Portfolio Not with Long Vol, But with Long Gamma with Convexitas, The Derivative.
Volatility Series: Why We All Need Volatility with Hari Krishnan & Cem Karsan, Top Traders Unplugged.
Long vol, short prediction models 