In an ironic twist, I am experimenting with monetizing a blog called Demonetized. I have added a tip jar to the site. It will either display at the top right of the sidebar or the bottom of the list of posts, depending on the size of your device screen. It is marked with a charming little vector graphic of a piggy bank. Which is meant to represent my piggy bank.
I have a couple reasons for taking this step:
First and foremost, it would be nice to make more money.
Second, even a minimal amount of tips will help defray the (admittedly low) cost of site upkeep.
Third, I am interested in experimenting a bit with “business models” (that is being overly generous here) that might work well for my particular skill set. This blog is not, and never will be, paywalled in any way. But, candidly, I have considered launching something that would lend itself to some kind of subscription model. The tip jar is simple test of whether people think my work might be worth paying for.
With January over I ran the latest leveraged permanent portfolio rebalance check. Still in good shape from 12% volatility limit perspective. Relative performance versus the S&P 500 has diminished since 4Q18 rolled off the lookback period. But it remains quite strong versus a Global 60/40 comp.
Actual realized performance from my implementation:
January is an interesting month because it demonstrates the diversifying power of uncorrelated assets (gold, Treasury futures in NTSX) in the face of macroeconomic event risk. In this case, coronavirus.
Recall that the whole purpose of this approach is to be insulated from unexpected macroeconomic or geopolitical shocks without having to predict anything. So far we’ve had two out-of-backtest opportunities to test this: 1) trade war anxieties in August 2019, and 2) coronavirus. In both instances, the strategy has performed as expected.
Which I suppose raises an interesting question: how would you “break” this strategy?
The strategy breaks if equities, Treasuries and gold become highly correlated in a period of sharply negative performance. It is difficult to imagine what would cause correlations to change in this way. I tend to believe it would be some kind of end of the world scenario such as nuclear war, suspension of private property ownership, or zombie apocalypse. I’m not sure portfolios can or should be built with such extreme scenarios in mind.
But anything is possible.
And that is why we set a volatility threshold for the portfolio. If pairwise correlations between equities, Treasuries and gold go to one, and the world has not ended, we would almost certainly see a sharp spike to overall portfolio volatility. At 12% portfolio volatility, we would effectively begin to be “stopped out” of risk assets, and would have to add cash to bring the portfolio back below the 12% max volatility threshold. In theory, if the world were truly turned upside down, this would give us the opportunity to re-allocate to other asset classes that are “working” in the new regime.