Buy and Hold... Leaves You Broke & Old

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This article goes into detail on multiple factors effecting investment returns, inflation, interest rate effects, other economic measures, and probability distributions; if you want to skip the article and hear the take-away, here it is:

Buy and hold investing won't cut it for the average person; simply, it will not return enough.

After accounting for inflation, we can only say, with a 95% degree of statistical confidence, that the stock market will achieve a real rate of return of 4.27% on average.

The average Canadian will drain their retirement account by age 71.5 at those returns.

We need to invest smarter and look at asset classes outside of stocks. We leverage data, correlation, and achieve near risk-free returns through dynamic derivatives hedging. Our strategies use pure systematic trading backed by dozens of statistically significant indicators back-tested a minimum of 5 years, with some all the way back to 1871 for S&P 500 strategies. If its not provable with data or integrated into a formula, we just don't care.

How We Set Ourselves Apart from the Trading Gurus

The Strategy

We always rotate in and out of the most advantageous asset class matched to the current market environment. Buy and hold is fools gold.
We fully utilize financial derivatives, call and put options, countless option spreads, exchange traded products (ETP's) that hold and roll futures contracts, and rotational strategies optimized for minimum cross-correlation which significantly reduces the risks of investing and exponentially boost the returns. We use derivative to control risk not increase it.
We optimize portfolios based on a rate of return compared to an average portfolio drawdown metric, commonly called the Ulcer Performance Index; naturally, this allows us to push the efficient frontier of investments to a higher rate of return with less risk compared to a Sharpe Ratio optimized classic Modern Portfolio Theory approach. Traditionally, portfolios are optimized by minimizing standard deviation; I don't consider my portfolio increasing as risk. We consider risk a move downward.
We don't charge fees until we beat the market.
- The standard investment fund fee structure is a 2% fixed fee on assets and a 20% performance fee.
- Say you invest in a S&P 500 index, $10,000.00, for a 10% annual return:
  - After one year you have $11,000.00.
  - You paid $0 in fees.
- Say you invest in an average hedge fund, $10,000.00, for the average hedge fund return of 2.75% (as of June 2021).
  - After one year you have $10,275.00.
  - You paid $303.98 in fees.
  - Fees represented 58.97% of gross returns.
- Say you invest with Quantitative Financial Advisory, $10,000.00, for a 30% annual return (Scroll to the bottom of this page if you are hesitant to believe that return as possible).
  - After one year you have $12,621.60
  - You paid $775.87 in fees.
  - Fees represented 25.86% of gross returns.
- Our fee structure is 100% transparent and in your best interest. If we don't beat the market, we don't get paid. See the fee structure table of hypothetical returns below:

Buy and Hold - The S&P 500 Stock Market Index

The S&P 500, a collection of the 500 largest US listed companies, is commonly quoted as the benchmark for the stock market. The S&P 500 data set stretches back to 1871, but it's current form was introduced in 1957 as an extension of a series of indices introduced in 1923 . Given this extensive data set stretching back hundreds of years, we can calculate a multitude of statistics to help estimate the expected future returns. If your plan is buy and hold, the only way you'll go broke is if the United States as an entire economy goes bankrupt. Only when there are no longer 500 publicly traded companies in the USA that meet S&P's criteria will your investment be zero. Relatively speaking, your investment is safe, it just may not perform to the level you need.

I often hear that an average stock market return of 10% is to be expected, and google seems to support this.

However, when you move the start date to the official 1957 launch of the index the return the average annual return drops down to just 6.60%. Let's view a sample of inflation adjusted annual growth rates to Dec 31, 2020:

1871 ~ 7.06%

1926 ~ 7.24%

1957 ~ 6.60%

2000 ~ 4.40%

I don't like the looks of that trend... Source: http://www.moneychimp.com/features/market_cagr.htm

Lets examine this a bit closer. After all, this is what makes or breaks your retirement fund, your children's college funds, and that savings account for whatever you were dreaming to buy. With all the confusion over when the S&P 500 originated, 1957, 1923, 1871; I have opted to use data from 1/1/1900 to 8/31/2021 (the last full month as of writing). After all, we care about the average rate of return for the stock market, not the brand name.

The Stock Market's History

Median Annual Return of... YIKES... Just 8.2%

The first take away I get from the data is that over 30% of the time the stock market returns negative growth. The 30th percentile annual return is -2%. The 50th percentile is just 8.2%, hardly the 10-11% that's normally tossed around. Half of the time your return will be less than 8.2% the other half above. The range in between the 10th and 90th percentile is -17% to 30%; at least it's skewed towards a positive return, hardly easy to predict though. Another key point to note is the distance between the minimum return and the 10th percentile compared against the maximum return to the 90th percentile. With a massive outlier of 142% its no wonder average annual returns are overstated. That 142% outlier would be artificially pulling up the average.

Well, can we trust this? Is it statistically significant? Remember the data is from 1/1/1900 to 8/31/2021 nearly 120 years of annual returns. That's over 35,000 data points, as we calculate a new annual return daily. When we perform a statistical test of significance, a T-test, to determine whether the returns are on average greater than, say, 8%, we can certainly say no. The math doesn't lie. See the range of T-statistics and corresponding confidence levels of stock market returns being above a threshold return below:

So what can we say about the S&P 500? Essentially, what does the stock market return? Well, if we think a 95% confidence level is appropriate, we cant say that the S&P 500 returns, on average, over 7.94% annually. That is, we can say the average annual return of the stock market is no greater than 7.94% per year. This statistical test is correct 95% of the time, essentially, there is approximately a 5% chance we are wrong.

So what? Is ~8% annually good? Is it enough?

Do We Even Get 8% Annually?

Wait, what about inflation... is it 2%?

Ah inflation, that pesky stat we shove in the back corner as politicians print money, after all, who doesn't like free stuff? It is free... isn't it? Well, I guess we need to define free;

"Without cost or payment" is what a quick google search returns.

Let's put some data to this question. Below is annual inflation/consumer price index (CPI) data for the USA From 1913 to July 2021:

"Without cost or payment"

Imagine it's 1913, consider wanting to leave an inheritance for your great grandchildren. You save a fair sum of money, $1,000.00! Equivalent to $27,724.00 in 2021 dollars. Due to the recent bank runs, you have a fear of banks. You put the money under your mattress. 108 years later your $1,000.00 has the buying power of $34.20. Your dollar has lost 96.58% of its buying power.

There's a few take-aways here:

1) Do not save your money in cash. It will slowly lose its value.

2) Inflation has made buying $1,000.00 of 1913 product cost $27,724.00! Clearly we need to incorporate this into our financial planning.

3) Inflation is a product of an increasing supply of money. See below:

So, when the government prints money to hand out the next thing they bought votes with is it free? Technically, you are getting goods/services for free at the present. You don't outlay any cash now for whatever it is the government is handing out for "free", right? Inflation is a general increase in prices and fall in the purchasing value of money. inflation is just another tax albeit a well hidden one. Inflation, in large part, is caused by adding more money to the circulation, and the speed or velocity at which it is spent. The amount of money is mainly effected by government deficits. After all, who else can print money?

When an individual, or government, or anyone/anything spends more than they take in they need to borrow the difference. This money comes from private investors buying government debt or the countries central bank printing more money (simply adding zeros to their bank account). This, even just a number on a screen, increases the amount of money in existence. If you have a hard time visualizing how this increases inflation, imagine you're at the following market:

This is a hypothetical world set in a single room with you selling a gadgets for $100. Your supplier is selling gadget ingredients across the room for $98 and a multitude of your customers are shopping and your competitors are eagerly selling gadgets. At 8:00am the market opens there is $10,000.00 in the room. Every hour some of your customers and competitors receive 3% more money for their products/services than they began with. Someone in the room has the exclusive right to print this money and does so at their discretion. This will carry on for the foreseeable future. Every hour the total amount of money in the room increases. Not for you though. You can't print money.

Now imagine this market is a closed system, much like our earth is essentially a closed system, no matter how vast we have a fixed amount of resources. Remember, this entire hypothetical world consists of this one room. You realize that if the amount of money in the room is steadily growing, everyone else has more money to offer higher prices to your supplier. That will probably entice your supplier to give up your gadget ingredients to this higher paying customer. You realize that no matter how large the resource, with a fixed quantity of gadget ingredients and a growing money supply the price will have to rise. There will be more dollars chasing the same number of goods. If you wait around for too long, this price increase might get higher than the $100 you're selling the gadgets for. If the price of gadget ingredients rises higher than your selling price your business will be ruined, you wont have the money to buy more stock. So you plan for this and raise your price to $103. You know that there is 3% more money in the room, therefore, the market can afford to pay the higher price. You are able to sell your stock and buy more.

Another hour has passed, there's 3% more money in the room again. You raise your prices to $106.09. The market closes after 12 hours. By the end of the day you've raised your prices to $142.58. Your suppliers prices are now slightly lower than your selling price.

I hope this was a clear illustration of why price levels rise and inflation rates increase when more money is created.

Now consider another vender who kept far more stock of gadgets than our original salesperson. This vender was a responsible saver and always made sure to save enough money to have far far more than a full days inventory. At the end of the day this vender is thrilled. All the stock has been sold. For some reason all of the competitors were raising prices; it was a record day for sales, everyone was so happy to see that this vender hadn't raised prices that they bought all the gadgets.

At the end of the day this vender goes to the wholesaler to place an order for gadget ingredients. The price of gadget ingredients rose 3% an hour and is now unaffordable to the vender that didn't have the foresight to raise prices. The responsible act of saving money came back to bite hard. The purchasing power of those dollars has been eroded away.

Inflation is simply a government tax on savings accounts. The only way to beat inflation and grow your purchasing power is to invest in assets that beat the rate of inflation. If it is businesses that are raising prices, due to government deficits, then why not own a piece of these businesses? After all, that's where the money is going. Buying stocks would be a good first step to fighting inflation.

The take away

Clearly an increase in the money supply and changes in supply and demand play an integral role in market pricing. If there are more buyers than sellers, prices generally rise. If there are more sellers than buyers, prices generally fall. When there are multiple buyers and sellers it's anybody's guess. When someone has the ability to print money the same number of goods/services are being demanded by more dollars and prices rise.

Our current inflationary environment has been characterized at "transitory"... it's tough to say if we should buy that. We've just come out of a recession where governments multiplied the amount of money in the system by many times. They spent more than they had and invented the difference. They took that purchasing power from your money. Perhaps this was justified though. The US unemployment rate jumped from 3.5% to 14.8% in two months. GDP dropped from 21.7 Trillion to 19.5 Trillion. That's twelve zeros. Now, considering all the lockdowns there would clearly be a pent up demand; more buyers than sellers, especially considering how supply chains were crippled. Capital isn't as mobile as economists like to believe. Meeting an increased demand with a new factory is rather difficult and time consuming. Given all this, I do believe inflation rates will remain elevated for quite some time into this recovery. However, it's uncertain how long we will see these elevated approximately 5% inflation rates, there are other variables at play, they are described below.

Clearly the inflation rate, or erosion in purchasing power, is heavily related to the growth of the money supply. That doesn't tell the whole story though; clearly that big spike in M2 money supply (due to heavy government spending during the COVID-19 scare) should have exponentially spiked inflation... but it didn't, why?

There's a multitude of other variables; the velocity of exchange, the number of transactions that occur, the money multiplier, the savings rate, interest rates. I could go on, and on, and on; and I did, if you're interested check it out here:

I'll jump to the point:

With interest rates at or near all time lows, can lowering the cost of borrowing really incentivize more borrowing, spending, and investment? If most of your disposable income is already going to the necessities, whether that's from being un or under-employed over the pandemic, will dropping from a 2% cost of borrowing to a 1% rate really make you want to go buy that new gadget? Dropping from 7% to 1% I can entertain but reducing something that's already near zero to something closer to zero doesn't entice me.

With interest rates being so low for so long I believe that most people are near their limit when it comes to adding more debt. According to the IMF, Canadian household debt is current over 100% of GDP, I have a hard time seeing how we can sustain much more (https://www.imf.org/external/datamapper/HH_LS@GDD/SWE). It seems that central banks have backed themselves into a corner; debt has been so cheap for so long that their most effective tool, moving interest rates, may become ineffective. The only way to reload their weapon is to raise interest rates so that they can lower them in the next economic contraction. An increase in the cost of borrowing for an unbelievably indebted world would be catastrophic.

What this means for bonds, thought to be a safety asset is unbelievably dire. A hypothetical $1,000.00 investment in default risk free government bonds would be worth $526.28 nominally at the end of its 20 year life. Lets assume a conservative 2% inflation rate on that, the Bank of Canada's target rate (Canadian July 2021 inflation was 3.7%). After accounting for 20 years of 2% inflation your $1,000.00 bond investment has a purchasing power of $354.17. Using an aggressive 3.7% inflation rate leaves it at just $254.47.

So bonds are out of the picture as a long term investment.

How will stocks do? I would bet that they will be positive. However, with a high inflation rate, if interest rates were left near zero, would greatly reduce the real rate of return. So if rates stay low, you can expect lower real returns due to inflation. Not only will inflation affect your real rate of return but a high inflation rate will leave the average consumer with less money to spend in the economy as the average consumer doesn't own many inflation hedges to protect themselves.

So stocks aren't going to perform great in a low rate environment.

Well how about if we raise rates? That should read when, not if, we raise rates. Well, without getting too complicated here, stocks are priced as the sum of all the companies future earnings adjusted for a rate of return. If you owned stock in a company that would pay you $110 next year and your rate of return or discount rate was 10% you would pay $100 for the stock ($110 in a year minus $100 today = $10 and $10 is 10% of your initial investment). As interest rates rise, so do the discount rates applied to stocks earnings. This causes stocks to be priced lower. Additionally, the economic factors effecting earnings would be massively negatively affected. Higher interest rates means a higher cost of borrowing, less spending, and more saving. GDP would decline and the foreign exchange rate would rise, decreasing exports and lowering GDP further. Businesses would have to pay more interest expenses and have less money to invest in the economy.

So I guess stocks won't be performing very well in a high rate environment now either. Cheap money for the past four decades is finally catching up to us.

I'll skip all the math (go to the above linked blog post on inflation if you're curious) but the takeaway is after calculating a t-stat of 1.96 for a 3.51% inflation rate we can say, with 95% confidence that, on average, the annual inflation rate is not lower than 3.51% over the long term and there is a 5% chance we are wrong. See below for the probability distribution:

Self Directed Investing

What You Can Realistically Expect

So here's where we're at:

1) We can say with 95% confidence that, on average, stocks will return no more than 7.94% annually over the long run.

2) We can say with 95% confidence that, on average, inflation will not be less than 3.51% annually over the long run.

3) We can therefore say, with approximately 95% confidence, 4.27% is an appropriate estimate of stocks real rate of return.

We use the Fisher Effect to calculate a real rate of return to accurately decrease the purchasing power of the asset base (this adjusts for the fact that if you invested $100 at a nominal return of 10% and inflation of 3%, not only is your 10% return reduced by inflation but the $100 base loses purchasing power as well - Fisher Effect = (1+nominal)/(1+inflation))

In 2019, the most recent years data available, the median Canadian salary was reported to be $53,625 annually.

The range of average tax rates, depending on province of residence is 13.45% to 19.9%. We will assume the lowest tax rate to arrive at an after tax income of $42,954. Unfortunately, the average monthly household expense in Canada is $7,172 per month with the average household income, not yet excluding taxes, is just $6,232. So let's assume this individual is somehow actually able to save 5% of their after tax salary, even though, on average, Canadians are running a deficit. That brings us to total annual savings of $2,147.70. Lets assume this individual was able to arrive at the median salary with a two year education and starts saving at age 20, depositing savings at the beginning of the year. Every assumption made has skewed the results in favour of the individual. Using our real rate of return of 4.27% we plot a model portfolio below:

This individuals retirement account at age 65 had a value of $306,506.81. By age 72 it was negative due to drawing out annual living expenses equivalent to his salary. Remember, we made every assumption in their favour... realistically, the retirement account would have been smaller and drained sooner.

Have I convinced you that buy and hold investing won't work yet?

Why Us?

Tactical Investing - Rotating Between Assets

This is one of our simpler trading strategies. As I pointed out above, the staples of a portfolio, stocks and bonds don't look very attractive going forward. Any way you look at it, its likely going to be a bumpy ride full of volatility. It seems only right that we capitalize on this volatility through financial derivatives.

The main product we trade in this strategy is a 6th derivative on the stock market. Don't let that derivative word intimidate you. Financial derivatives are much easier than anything in your calculus classes. We are essentially selling investors in the insurance for a stock market crash and then exiting our position, selling it to someone else, when the main metric that guides this trading strategy flashes its signal.

What I mean when I say "financial derivative" is simply an asset that derives its price/value from a separate product, referred to as the underlying. There are financial derivative on whatever you can think of:

There are weather derivatives, which derive their price based on events like rainfall, days with sum, temperature, etc.
Futures contracts, which allow you to lock in the current price to buy or sell something in the future.
Swaps, which allow you to enter into an agreement to swap the net cashflows between two underlying's. Maybe you borrow at a floating/variable interest rate and you think interest rates will rise: you enter into a fixed for floating swap and receive the difference between the fixed and floating rate.
Options, my personal favourite. They grant you the right, but you are not contractually required to buy (if you own a call option) or sell (if you own a put option). See below for the profit/loss structures for the 4 possible single leg options trades we can make.
Long call option
- The right to buy a stock at a certain price, the x in the graphs, you pay the option price, the premium, and you choose an expiry date that suites your strategy; the longer dated the option the higher premium you pay.
- So what? Well, a regular share has a linear profit/loss structure; the stock rises $1 you make 1$, the stock falls to $0 and you lose everything.
- Here's what: The S&P 500, as of 9/3/2021, was trading at $4,535.43.
- An Aug 19, 2022 expiration $4,550.00 strike call option traded for $294.86.
- This 1 year, near the money (strike price is approximately equal to stock price) option trades for just 6.5% of the index price.
- You can buy 100 shares of the index for $453,543.00 or:
  - If you are a risk adverse investor you can spend just $294.86 and if the stock returns 10% it will trade at $4988.97 ~ you spend $294.86 to make 438.97 per option; an single option contract gives you the right to buy 100 shares. So, you spend $29,486.00 per contract to make $43,897.00 a 48.90% annual return. Additionally, you have $424,057.00 left over to use somewhere else, or 93.5% of your portfolio - it doesn't need to be the half million dollar example; just adjust to your portfolio value.
  - If you are a risky investor you can spend the full $453,543.00 and if the stock returns 10% it will trade at $4988.97 ~ you spend $453,543.00 to make 438.97 per option; an single option contract gives you the right to buy 100 shares. So, you spend $29,486.00 per contract, you buy 15.38 contracts, to make $438,970.00 a 96.79% annual return. Remember, it doesn't need to be the half million dollar example; just adjust to your portfolio value.
  - So, the take away here is options allow you to control your risk, boost returns, and create asymmetrical profit structures.
  - An analogy for a call option would be a lease with a option to buy at the end of the contract. Some care financing agreements allow you to make your monthly payment and then at the end of the contract you have the option to buy the car or return it to the dealership. Say you can buy the car for $10,000.00 at the end of the contract and you see on auto-trader that the car is valued at $15,000.00. So you exercise the option to buy, you "call" away the car for the "strike price" of $10,000.00. If you like the car you keep it, if you don't, you sell it for $15,000.00 and make an immediate $5,000.00 profit; a 50% return before adjusting for whatever your monthly car payments were. If the car was valued at less than $10,000.00, say $5,000.00, then you return it to the dealership and buy it on auto-trader for $5,000.00.
  - Another analogy is a cell phone contract. My current phone plan gives me the option to buy the phone for about $80.00 at the end of the 2 year term or simply return it to the cellular provider.

Long put option
- The right to sell a stock at a certain price, the x in the graphs, you pay the option price, the premium, and you choose an expiry date that suites your strategy; the longer dated the option the higher premium you pay.
- So what? Well, a regular share has a linear profit/loss structure; the stock rises $1 you make 1$, the stock falls to $0 and you lose everything.
- Here's what: The stock falls to $0 and you only lose the premium paid for the option. The S&P 500, as of 9/3/2021, was trading at $4,535.43.
- An Aug 19, 2022 expiration $4,525.00 strike put option traded for $332.90.
- This 1 year, near the money (strike price is approximately equal to stock price) option trades for just 7.34% of the index price.
- You can sell short (a bet that the stock market will fall) 100 shares of the index for $453,543.00 or:
- If you are a risk adverse investor you can spend just $332.90 and if the stock returns 10% it will trade at $4988.97 ~ you spend $332.90 and lose the full $332.90 per option; an single option contract gives you the right to sell 100 shares. So, you spend $33,290.00 per contract and lose it all. But, you only lost 7.34% of what you would have if you sold short the index. Additionally, you have $420,253.00 left over to use somewhere else, or 92.66% of your portfolio - it doesn't need to be the half million dollar example; just adjust to your portfolio value.
- Say the index falls 10% to $4081.89, you spent $332.90 per option to make $453.54 per option. You made 36.24%
- Notice that the put contract trades for more than the calls. This is due to investors being less willing to lose money than to make money. The market as a whole are hedgers, they look to protect their portfolio more than to speculate on the market.
- If you are a risky investor you can spend the full $453,543.00 and if the stock returns 10% it will trade at $4988.97 ~ you spend $453,543.00 and lose it all; an single option contract gives you the right to sell 100 shares. So, you spend $33,290.00 per contract, you buy 13.62 contracts, to lose it all. Remember, it doesn't need to be the half million dollar example; just adjust to your portfolio value.
- Say the index falls 10% to $4081.89, you spent $332.90 per option to make $453.54 per option. you spent the full $453,543.00 to make $616,055.54, 36.24%.
- So, the take away here is options allow you to control your risk, boost returns, and create asymmetrical profit structures.
- An analogy for a pit option is simply insurance; you pay a premium to be protected from a loss. Say you buy a car for $10,000.00, you pay $734.00 a year to fully insure your car. You hit an elk and total the car. You "put" the car to the insurance company and they pay you$10,000.00.
Short call and short put.
- Simply reverse the positions. For a call you are better on a decline in value. Imagine you're selling your house. The potential buyer, Jose, is unsure if he wants your house, he's on the fence and wants to keep searching but doesn't want to lose the option to buy your house. you agree to take $6,500.00 to give him the option to buy your house in the next year for $100,000.00.
- Oh no, your house burns down, Jose doesn't want a yard of ashes, so he doesn't exercise the option to buy.
  - You were an irresponsible home owner and while selling this call option to Jose you also sold the house to someone else. You gave Jose-B the right to sell your house back to you at $100,000.00, a put option, and collected $7,340.00 in premium for this option, essentially insurance. Jose-B "puts" the house back to you for $100,000.00.
  - You collected $13,840.00 from these options and lost $100,000.00 for a net loss of $86,160.00.
  - But wait! You were a responsible home owner with home insurance! You essentially bought a put option on your house from the insurance company for $7,340.00. Things are looking good again, you spent $7,340.00, received $13,840.00, and now the insurance company gives you $100,000.00.
  - You Receive $113,840.00 and spent $7,340.00. A return of 1,450.95%. Not bad.

What we do at Quantitative Financial Advisory?

Who do you think makes more money? The insurance company or the customer?
- We always look to sell insurance when possible. We are more interested in protecting our portfolios from losses rather than chasing those huge gains.
- When you consider the four different payoff structures of the above options, you can create, quite literally, any profit/loss payoff structure imaginable. The below strategies barely scratch the surface... You have four different positions that can be varied by strike, expiry date, either bought of sold, traded in any multiples... etc.

The Strategy

The S&P 500 Derivatives Alpha Hedge

So before I dive in, we need to look at some other assets performance; How about volatility? Call options? Put Options? Debit Spreads? Credit Spreads? We'll examine it all.

So stocks are going to be volatile. Easy, if volatility is going to be on the rise lets buy in:

Sure, imagine you were lucky enough to bet $1,000.00 on volatility the very first day you could find an exchange traded product for it. Let's put everything in your favour and say instead of using the methods listed in the prospectus; you somehow manage to buy and sell the futures exactly at the day's closing price.

Ah yes, turning $1,000.00 in twenty five cents, a 100% loss, for all intents and purposes.

Cool, long volatility sucks. How about short selling it?

Now we're cooking! $1,000.00 into $4,000,000.00. Not a fan of near 100% drawdowns though...

So what we've learned is we need to be premium sellers; the sellers of insurance make far far more than the insurance buyers. I believe this strategy is extremely simple, lets look at the data of volatility futures; these funds buy and sell these futures with a set formula. Anything that is definable is exploitable. These funds, VXX or UVXY for example, hold a constant 1 month futures contract; every day they buy and sell the futures they hold to maintain a constant one month future of volatility. We know what they sell, how much of it, at what time, and how much. Let's capitalize on it.

Portfolio losses are far, far, more costly than big gains are beneficial. We reduce our risk, we define our losses, with derivatives. I'm not going to give away my secret sauce, but what we trade off is the level of volatility futures contango. The level of which the next futures contract is above or below the near term future. If you buy something for $100 and sell it for $99, every single day, that strategy will lose really quickly. If you buy something for $100 and sell it for $101 you win really big really quick. This is what contango tells us.

So we know what to buy/sell, when to do it, for how much and at what time. We know what our counterparty is doing down to the T, down to a public formula, the math is on our side.

So lets model the percentile of historical contango and let's buy put options, a bet on declining volatility, when contango is high. When it is above a percentile threshold we set for maximum risk/reward. Lets take a look:

Not bad, I'll turn $1,000.00 into $1.4 billion any day of the week. So what is that actually? Anyone doubtful of the performance can email Morgan.Price@QuantitativeFinancialAdvisory.com to discuss/view/receive the data in spreadsheet format with links to sources.

That's a 323% compound annual growth rate.

S&P 500 is 7.59% since 2000. Before inflation ~ knock 2-3% off that return.

That's an average drawdown of -1.4989%

S&P 500 has an average drawdown of 11.9126% since 2000

That's a maximum drawdown of -24.4746%

S&P 500 has a maximum drawdown, since 2000, of -55.1894% (1929 saw a >-80% drawdown).

So what are you waiting for? Sign up below:

https://www.quantitativefinancialadvisory.com/plans-pricing