Said a bit more straightforward, true diversification seeks to accomplish the two things most investors care about in their portfolios: However, 2008 and subsequent events suggested to us that the commonly touted forms of diversification were not as effective as advertised. As such, they are not suitable for all investors. So, when we were sent the latest research piece by Chris Cole of Artemis, we dug in (you can read the piece here). This implementation of the portfolio is targeted at European investors. With the past few years being so crazy, Im definitely open to the idea that the past 40 years might not be the best representation of the next 40. by JackoC Sun Oct 11, 2020 12:55 pm, Post YQA 232-3. Ever since the paper was released, discussions about how a normal retail investor could implement the portfolio has been going on. However, the more I look at this, I wonder if this is recency bias. There is however a big problem with Mr. Coles approach as he is the first to admit. The dragon portfolio is a portfolio construction that was presented by Christopher Cole in his 2020 paper The allegory of the hawk and serpent - How to All Rights Reserved. By including global stocks, global bonds, four different volatility strategies and three different trend approaches, The Cockroach approach diversifies within each of the quadrants, further robustifying the portfolio. Please disable your ad-blocker and refresh. The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services. Simple enough but how exactly do you go about this, much less test it going back 100 years. In fact, there are frequently sharp differences between a hypothetical composite performance record and the actual record subsequently achieved. As Chris wrote in his 2020 report, to thrive, we must embody the cosmic duality between the hawk and the serpent. by dcabler Sat Oct 10, 2020 5:27 am, Post The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client's commodity interest trading and that certain risk factors be highlighted. Particularly in light of the current very low bond yields and an extremely overvalued U.S. stock market, which will likely result in very low returns for those assets over the next 10-years. Traditional portfolio diversification is overwhelmingly focused on offensive assets: stocks, bonds, REITs, private equity, and venture capital. From a portfolio construction perspective, this is ideal, and explains why the Dragon Portfolio is robust to different market conditions. And, the research showed, 93% of rolling 12-month periods delivering positive nominal returns. As such, they are not suitable for all investors. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA. Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. This is what we would expect true diversification to look like: over a 40 year period which included periods of growth, recession, inflation, and some deflation, the Permanent Portfolio chugged along providing solid returns with much more manageable levels of risk. May 13, 2021 104 minutes. Discuss all general (i.e. by minimalistmarc Sat Oct 10, 2020 5:12 am, Post Meb Fabers Trinity Portfolio included more diversification within each of the buckets and incorporated factors such as momentum and value. The Allegory of the Hawk and Serpent. Any period of recorded economic history in any country in the world can be fit into one or a combination of these four environments. Christopher R. Cole, CFA, is the founder of Artemis Capital Management LP and the CIO of the Artemis Vega Fund LP. Artemis did the work, recreating many modern financial portfolio methods like risk parity and the 60/40 portfolio and testing them through multiple generations and one lifetime (90yrs) back to 1928. Trend following allows you to catch these major movements. Include punctuation and upper and lower cases. Having a lot of assets in the future: maximizing the long-term compounding, or expected terminal wealth of our portfolios. In a twist of the quip - on a long enough timeline, everyone dies. From what I understand, you can do a Series 65 to become an accredited investor: $175 in fees, ~60 hours of study and a 3 hour test. However, stock and bond focused portfolios only do well in two of the four quadrants. Investors could certainly add the fiat alternative component by buying the GLD ETF and adding bitcoin to the mix but its the trend momentum strategies and long volatility strategies that are hard to replicate because there are no good ETF and ETN products that can mimic these approaches. Re: Anyone going for the Dragon portfolio? However, Artemis Capital's Dragon Portfolio is a form of all-weather that adds exposure to commodity trend and volatility. Cole sees that bet, and re-raises it 4 or 5 times by saying forget the typical amorphous investment cycle. by balbrec2 Mon Oct 12, 2020 7:41 am, Post The Dragon portfolio describes itself as a 100 year portfolio. He saw that there were four possible macroeconomic environments: Growth, Recession, Inflation, and Deflation. Why not invest in something that will be resilient in the face of all turmoil? We do not allow any sharing of private or personal contact or other information about any individual or organization. (Well it was almost cut in half in just a year from 1929 - 1930 but it recovered quickly.) We set out to find the best balance between two goals: Having spent over a decade thinking about and working on this problem, we believe that the Cockroach approach is the best way to achieve this. WebARTEMIS DRAGON PORTFOLIO: Mark Drawing Type: 4 - STANDARD CHARACTER MARK: Mark Type: SERVICE MARK: Register: PRINCIPAL: Current Location: NEW APPLICATION PROCESSING 2021-05-14: Basis: 1(b) Class Status: ACTIVE: Primary US Classes: 100: Miscellaneous 101: Advertising and Business 102: Insurance and Financial by JoMoney Sat Oct 10, 2020 9:55 am, Post So, when we were sent the latest research piece by Chris Cole of Artemis, we dug in (you can read the piece here). Im not a huge fan of trend following, but for commodities, I get it. However, I The journey for us began in the depths of the 2008 global financial crisis. The federal status of this trademark filing is REGISTERED as of Tuesday, March 8, 2022. One of the limitations of a hypothetical composite performance record is that decisions relating to the selection of trading advisors and the allocation of assets among those trading advisors were made with the benefit of hindsight based upon the historical rates of return of the selected trading advisors. Wall Street closes sharply higher, notches weekly gains as Treasury Stock market today: Dow snaps 4-week losing streak as growth stocks Dell, Zscaler, ChargePoint fall premarket; Tesla, Hewlett Packard rise, Oil settles up on China demand hopes, posts weekly gain. Simply put, the dragon has been unleashed. By breeding two dragons that collectively contribute Olympus and Purple to the type pool. Simple enough but how exactly do you go about this, much less test it going back 100 years. Has some similarities to Dalio's All-Seasons portfolio: Amateur Self-Taught Senior Macro Strategist, I have a position in silver. Heres what they found: Assets like Long Volatility, Gold, Commodity Trend, and Discretionary Global Macro should be core portfolio holdings. The entries on this blog are intended to further subscribers understanding, education, and at times enjoyment of the world of alternative investments. Unfortunately everything comes at a cost. The mention of specific asset class performance (i.e. A simple question, really. Luckily for you, I share them all here! Many investors assemble a varied portfolio of asset classes thinking there is safety in diversification, but in a crisis, the portfolio is exposed as a leveraged long-growth portfolio with no real diversification at all. Having enough assets in the interim: making sure that if we need to use our assets for a family emergency, illness or other unexpected life event (dare I say global pandemic?) Gen Zers, according to a recent survey, are overly optimistic about being wealthy. The portfolio comprises five asset classes: equity-linked investments/stocks (24%), fixed income/bonds (18%), active long volatility (21%), commodity trend following It does not lend itself to a simple do-it-yourself construction like the traditional 60/40 portfolio which can be replicated with nothing more than aSPY andTLT ETF purchases. This was the portfolio allocation which not only performed best historically, but was robust to different economic and market environments. Jeff Malec is the CEO and founding partner of Attain Capital Management (www.AttainCapital.com) - a commodity futures brokerage and research firm specializing in managed futures investments through individually managed accounts and privately offered funds. Here's what they found: Assets like Long Volatility, Gold, Commodity Trend, and Discretionary Global Macro should be core portfolio holdings. 12 Jan 2022 This is a very innovative idea as it addresses one of the key problems of diversification by asset namely that in certain market regimes correlation moves to 1.0 providing no actual protection to the investor as many assets move in the same direction. The upshot of this research was the Artemis Dragon Portfolio. Only post material thats relevant to the topic being discussed. The Sharpe Ratio Problem and Cole Wins Above Replacement Portfolio Solution, How to Grow and Protect Wealth for 100 Years2020, Reflexivity in the Shadows of Black Monday 19872017, False Peace, Moral Hazard, and Shadow Convexity2015, Risk, Fear, and Safety in Games of Perception2012, Deflation, Hyperinflation and the Alchemy of Risk2012, Artemis Capital Management, LPinfo@artemiscm.com, What Is Water In Markets? A simple question, really. In general, we feel that gold is an excellent hedge against hyperinflation but doesnt always do well with bouts of high, but not runaway inflation (say 5-15% annually). This site is about how you can implement the portfolio yourself. Here's what they found: What does a portfolio look like over many, many, many different investment cycles spanning booming growth, nasty drawdowns, inflation, stagflation, and everything in between. However, trend following generally requires active trading (constantly buying and selling), which takes more work than I generally want to do. The mention of market based performance (i.e. Assets like Long Volatility, Gold, Commodity Trend, and Discretionary Global Macro should be core portfolio holdings. "Imagine you have the opportunity to grant your family great wealth and prosperity over 100 years, but its subject to one final choice. No guarantees are made as to the accuracy of the information on this site or the appropriateness of any advice to your particular situation. I am becoming more and more convinced that investors who limit themselves to stocks and bonds are victims to recency bias. https://www.artemiscm.com/welcome#research. Because of this, long volatility has a negative correlation to stocks, and provides an important hedging function. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author. In a 2020 research paper, theAllegory of the Hawk and the Serpent, Chris posed the question: What is the optimal 100-year portfolio?. Artemis shows that on a long enough timeline every strategy sucks. Replace the attached chart with a new chart ? There are some long vol ETFs that may be an option, such as the TAIL ETF. The Cockroach Strategy is intended to be a total portfolio solution that includes long volatility as well as stocks, income producing assets, commodities, gold and bitcoin with the ultimate goal of making an investment strategy that produces ataraxia. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. They arent just talking their book. by heyyou Sun Oct 11, 2020 10:15 am, Post If you browse their website, you can find the dragon portfolio as one of the first advertised. If the latter, which ETF did you choose? Success does not bring happiness.
It's an interesting read, but the portfolio strikes me as overly complicated for the typical investor. The question is whether you are playing a 100 week game, or a 100 year game? How do we protect our wealth and our familys future amidst an unknown and chaotic world? Artemis is a long volatility manager, after all, and talking up their book, so to speak. WebChris Cole -- Implementing the Dragon Portfolio. We have different laws in Europe and its usually fairly simple to invest in hedge funds and other actively managed funds thats needed to implement the dragon portfolio the best way. Ahh well. by dml130 Sun Oct 11, 2020 6:41 pm, Post You have to decide what assets to invest in, and maintain that allocation for an entire century. So any critique or suggestions for how to improve my implementation of the portfolio is welcome. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the clients commodity interest trading and that certain risk factors be highlighted. This can certainly happen with a simple bonds and stock portfolio as there have been many periods in history when both stock and bonds fell at the same time, most recently during the pandemic crash of 2020. Long volatility is magic, it just needs patience. Obviously, we can get into that a little bit more, but I wrote the paper prior to the COVID crisis. As can be seen, its very similar to the performance of the Permanent Portfolio (light blue area). The USPTO has given the ARTEMIS DRAGON PORTFOLIO trademark a serial number of 90521341. But that doesn't make them wrong. When commodities start to fall up or down, it is generally driven by a larger event (think supply chain woes or increased demand). They are talking about what weve covered before protecting against the Black Swan while capturing the White Moose. We identified and spoke with dozens of long volatility managers and figured out a structure that would allow us to invest in a diversified ensemble of long volatility managers. Our search for better answers led us to studying many portfolios and asset allocation strategies. You can read it by going to https://www.artemiscm.com/welcome#research. In the same way, a portfolio requires both offensive assets like stocks and bonds, but also defensive assets. However, when the offense has a couple of off days, the championship hopes go out the window. It will be interesting to track performance going forward. Talking Trend, Miami, and Volatility with Nasdaqs Kevin Davitt. Commodity trend has been around for a long time and, importantly, its historic performance has had low correlation to stocks, bond and gold. I am not a professional investor, so this is not investment advise. Still despite the practical obstacles to its construction, investors should still consider Mr. Coles ideas. In this video we're answering the question "The Dragon Portfolio by Chris Cole It was the year many retirees or near-retirees had to rethink their futures, families downsized, and plans for the future changed in big ways. They are talking about what we've covered before - protecting against the Black Swan while capturing the White Moose. Now, Cole loves him some animal metaphors - as evidenced by their deer logo, and title of this piece - the allegory of the hawk and serpent, but it was the subtitle which caught our eye: How to Grow and Protect Wealth for 100 years. Whats really happening here is that the Dragon is not the Serpent and Hawk mating, its everybodys typical short volatility portfolio (think stairs up, elevator down movement of stocks) merged with a long volatility portfolio. While this is certainly possible, we do not feel it is prudent and certainly doesnt qualify as a well-diversified portfolio. His argument is that investors should essentially create a moneyball for money approach where no one asset is superior but the sum of the parts is greater than the whole. by snailderby Sat Oct 10, 2020 10:35 am, Post Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. Commodity trend is an active strategy which seeks to buy when an asset price trend is rising and sell, or short, when the asset price trend is falling. Artemis did the work, recreating many modern financial portfolio methods like risk parity and the 60/40 portfolio and testing them through multiple generations and one lifetime (90yrs) back to 1928. 2007-2023 Fusion Media Limited. Offense can work great in the short term for a single game, but you need defense to win in the long run. Witness the disastrous performance of the OIL ETF when the futures market went into negative pricing. Furthermore, the composite performance record may be distorted because the allocation of assets changes from time to time and these adjustments are not reflected in the composite. Their graphics breaking down performance across 5 different economic eras over the past 100 years are particularly interesting, and none of them show an asset that performs across all of the periods. Some of the components in the dragon portfolio is hard for retail investors to invest in. The easiest way to become a dragon is to do it through Artemis Capital, but this would require being an accredited investor (basically you need to be a millionaire). The best portfolio balances assets that profit from either regime. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. The easiest way to become a dragon is to do it through Artemis Capital, but this would require being an accredited investor (basically you need to be a millionaire). The S&P didnt return to its inflation-adjusted 1968 level for 25 years, until 1993.1 Bonds did poorly too over the 1970s which had repeated bouts of high inflation. When I first started looking at assets like these, the idea of allocating capital to lower returning assets, seems dumb. Chris Cole at Artemis tested different portfolios over longer period including the great depression, and came up with the Dragon portfolio which should well in all All of the ETF or ETN products that attempt to replicate these strategies rely on derivatives such as futures and options and inevitably lose net asset value to the cost of carry embedded in those products. These have by far the highest returns and Im young. Cole would like say, do you really - Mr. Pension. Before we examine the specifics, its important to note that Mr. Cole central tenet is that investors should diversify across market regimes rather than asset classes. Jun 2, 2021. But that doesnt make them wrong. The successful 100-year portfolio must be able to navigate the secular booms of the Serpent (1947-1963, 1984-2007) while not losing capital on either wing of the revolutionary and regenerative eras of the Hawk (1929-1946, 1964-1983). If youre interested in learning more, please fill out the form below and we will send you more information. And what I did is I went back and I tested various financial engineering strategies, portfolio allocation strategies not over 10 years, not over 20 years, over 100 years. On the surface, investing primarily in stocks (with a little bit of bonds) makes sense. Is this happening to you frequently? Well, a dragon is a combination between a hawk and a serpent. by Uncorrelated Sat Oct 10, 2020 5:32 pm, Post I haven't carefully read Chris Cole/Artemis's original article, but according to him, what does adding trending commodities and long volatility offer over something like the Permanent Portfolio or All Weather Portfolio? Most recently and similarly to the Cockroach, Artemis Capital developed the Dragon Portfolio. Their graphics breaking down performance across 5 different economic eras over the past 100 years are particularly interesting, and none of them show an asset that performs across all of the periods. And what I mean by that is, its a strategy and a framework that performs every market cycle. ), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. Though nothing is guaranteed, Mutiny seeks to use long volatility strategies to generate superior growth with smaller drawdowns compared to traditional portfolios. Hypothetical performance results have many inherent limitations, some of which are described below. Artist's illustration of two Artemis astronauts at work on the lunar surface. Chris Cole -- Implementing the Dragon Portfolio, Only pay $239 for 1 year of Real Vision video access. When expanded it provides a list of search options that will switch the search inputs to match the current selection. What would it have to look like to not just end up erasing all of the boom time gains (the serpent) and in the inevitable busts (the Hawk). Artemis did the work, recreating many modern financial portfolio methods like risk parity and the 60/40 portfolio and testing them through multiple generations and one lifetime (90yrs) back to 1928. For a small fee, you gain an uncorrelated asset that helps ease situations where everything is going wrong. Past Performance is Not Necessarily Indicative of Future Results. In our opinion, investors tend to focus too specifically on the risk characteristics of a single investment, as opposed to the overall portfolio. As we spoke with more and more people, we realized that we were not the only people looking to solve this problem and decided to launch our long volatility strategy to the investing public in 2020. non-personal) investing questions and issues, investing news, and theory. In another way, however, the level performance similarity is surprising, given the difference in the non-overlapping allocations of the portfolios; the commodity trend and long volatility allocations of the Hundred Year Portfolio are quite distinct from the cash allocation of the Permanent Portfolio. Some of this is a little misleading, but I do see some interesting aspects of the Dragon that are worth diving into. As such, they are not suitable for all investors. by nisiprius Sat Oct 10, 2020 9:51 am, Post Yet, here we are. The stock/bond focused portfolio is like a sports team that is all offense. To show this effect, we rank major hedge fund indices by CWARP and show their effect on a portfolio of Equity Beta and 60/40. We saw that incorporating trend strategies on commodity, stock and bond markets would help to cover these possibilities. Please. The equities, fixed income and gold components are fairly self-explanatory. by nisiprius Sat Oct 10, 2020 10:15 am, Post by Register44 Sat Nov 21, 2020 2:40 pm, Post Another inherent limitation on these results is that the allocation decisions reflected in the performance record were not made under actual market conditions and, therefore, cannot completely account for the impact of financial risk in actual trading. The optimal portfolio, since 1929, included risk weighted combinations of Domestic Equity (24%), Fixed Income (18%), Active Long Volatility (21%), Trend Following Commodities (18%), and Physical Gold (19%). Chris Cole, CIO of Artemis Capital, sits down with Jason Buck, CIO of Mutiny Fund, to go beyond the theory and discuss how Cole While gold performed exceedingly well in the 1970s inflationary environment, its longer history is more checkered. Best Investment Portfolio - The Dragon Portfolio Turns $1 WebMost recently and similarly to the Cockroach, Artemis Capital developed the Dragon Portfolio. The problem us humans have, is that if it has sucked more recently than something else sucked thats a particularly hard thing to not do get all panicky about. In the wake of 2008, one thing in particular became clear: traditional approaches to diversification were not working. WebARTEMIS DRAGON PORTFOLIO represents roughly equal ARTEMIS DRAGON PORTFOLIO exposure to five critical market regime classes that perform in different economic environments, including: SECULAR GROWTH LINKED ASSETS, such as U.S. domestic LONG INTEREST VOLATILITY RATE LINKED and international equity, outperform during periods of These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record. The maximum drawdown was reduced by 66% (the worst daily drawdown was -18% for the Permanent Portfolio vs. -53% for stocks). More info about Artemis Capitals Dragon Portfolio can be found here: https://www.artemiscm.com/artemis-dragon. There are five components of the dragon portfolio: equities, fixed income, gold, commodity trend and long volatility. "To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." I do like the idea of the dragon portfolio, but I am still researching before I implement it. If you asked me a year ago whether Russia would invade Ukraine or inflation would exceed 8%, I would have bet strongly against that. The Dragon, according to philosopher Pliney the Elder, being a serpent so tightly wound around a hawk that they appear as a single animal, a sort of winged serpent. This article has already been saved in your. However, the backtest performance of the Hundred Year Portfolio only dates back 15-years, a lot less than the near 100-year backtest of the Artemis Dragon Portfolio. And that's the point. Im an optimist, but sometimes shit just hits the fan. Indeed, one could make an argument that the massive gains of the 60/40 portfolio over the past 40 years are due simply to the incredibly long positive correlation cycle between bonds and stocks. Fundamentally, this portfolio is very similar to a lot of risk averse portfolios, but includes commodity trend following and long volatility. Managed Futures Disclaimer:Past Performance is Not Necessarily Indicative of Future Results. Many investors assemble a varied portfolio of asset classes thinking there is safety in diversification, but in a crisis, the portfolio is exposed as a leveraged long-growth portfolio with no real diversification at all. Brownes approach showed the world that to be truly diversified, investors need something that reacts positively to defensive environments including recessions and risk events like 2008 and periods of sustained inflation like the 1970s. Fiat devalue and growth such as we have now, favor equities and trend and momentum strategies. How did silver and gold do from 1980 - 2000 compared to stocks and bonds? Even negative opinions can be framed positively and diplomatically. in the near term, that it will be there when we need it. Since the Dragon portfolio is a combination of the Hawk and the Serpent, it is more capable of making money throughout all market cycles while reducing overall risk. Mr. Coles portfolio construction consists of dividing the assets into approximately five equal buckets of allocation. But not one we read much about in today's world of instant gratification and investments jettisoned at the first signs of stress. RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. Long volatility is confusing, but the easiest explanation I see is that it is portfolio insurance. Mr. Coles core focus is systematic, quantitative, and behavioral based trading of volatility and derivatives. The Dragon portfolio describes itself as a 100 year portfolio. by Forester Sat Oct 10, 2020 9:23 am, Post Lets dive into what makes the Dragon different. They are showing that it's about more than just active long vol (what they do, essentially providing a long options profile via various methods aimed at doing just that without the implicit cost of doing just that). The Dragon Portfolio is based on historical research stretching back to the 1920s that Rather than the specific allocations above, however, the Hundred Year Portfolio simply allocates an equal weight, 20 percent, to each portfolio component. Economic Events and content by followed authors, It's Here: the Only Stock Screener You'll Ever Need, www.investing.com/analysis/the-hundred-year-portfolio-200578351. Cole's premise is quite simple, and comes back to the thing investment managers are always trying to get through to their clients judge investments not by their performance this month, this quarter, or even this year - but over a full investment style. Coles premise is quite simple, and comes back to the thing investment managers are always trying to get through to their clients..judge investments not by their performance this month, this quarter, or even this year but over a full investment style.