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Implementing the Dragon Portfolio

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
moneybagz
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Implementing the Dragon Portfolio

#472729

Postby moneybagz » January 13th, 2022, 12:32 pm

Looking back over the last 90 years the Dragon Portfolio (Chris Cole, Artemis) was one of the best-performing (https://www.artemiscm.com/artemis-dragon).

But similar to the tail hedge strategies of Mark Spitznagel (Universa), the average investor can't access the more unusual investments.

I hold the stocks and gold from the portfolio, but I was wondering if there are any methods to replicate commodity trend, long vol, or even a tail hedge

The Dragon Portfolio consists of:

24% stocks
18% bonds
19% physical gold
18% commodity trend following
21% long volatility

Thanks
moneybagz

hiriskpaul
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Re: Implementing the Dragon Portfolio

#472755

Postby hiriskpaul » January 13th, 2022, 1:59 pm

Long vol strategies are ones where you make money when implied volatility increases, lose when it falls. There is no simple way of doing that, unlike say long equity risk premium investing where you can just buy and hold an ETF, or roll over equity index futures if you want leverage. Well, there is - you could go long and continually roll over VIX futures. However, unlike with equity ETFs, doing that is more likely to lose you money most of the time. Doing the opposite, being short VIX futures, is likely to make you money most of the time, but you will occasionally lose big time.

Long vol strategies are all active strategies. Whoever is doing it is going to have to regularly trade in and out and there is no systematic way of making money. That means trading costs and if you are paying someone to do it, management fees. You could DIY, but be prepared to do a lot of learning before you get started.

I follow a short vol strategy, although calling it a strategy is stretching the definition of the word. I sell puts into rising vol, based on the belief that I can profit from market over reaction. Usually I then hold until expiry, pocketing the premium. Occasionally it goes wrong, or looks as though it is going wrong, and sometimes spectacularly so. I then bail out before expiry, usually at a loss. I have traded all sorts of things in the past, but currently focus on S&P 500, DAX and WTI oil futures. Sometimes the FTSE 100 as well (I am currently short JAN puts at 6500, expiring on 21st).

Long vol I never attempt, no matter how low vol goes. My preference these days is to wait for vol to spike, sitting on my hands until it does. Over the last couple of years I have not had to wait very long!


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