VTS Community,

Is anyone here a fan of Deadpool?  You don’t need to have seen the movie to get my analogy today, but for some reason, it popped into my head when I started writing.  Anyway, in the movie, Colossus is explaining to Deadpool what it takes to be a hero.  He says you don’t walk around a hero, brush your teeth a hero, it’s not an everyday thing.  It’s just 4 or 5 moments when you really have an opportunity to be a hero.

I view investing much the same.  It’s not about being in the right positions every day.  It’s not about what we did every mundane Tuesday when nothing really happened.  For the most part, markets trend upwards.  For the most part, being short volatility is a profitable trade.  But since we know the grim statistics on just how few people are actually successful in the long run, clearly success and failure come down to key moments.

Maybe just 2 or 3 times a year, being in the right position, or how I like to view it, NOT being in the wrong position, can really smooth out performance.

Everybody gets caught from time to time, that’s unavoidable.  The only way to never get caught in a bad position is to never take any positions, so nobody can bat 1000.  But the people who avoid the highest number of those key moments go on to have the best long-term performance.  Well, yesterday was one of those days.  #11 on the list of largest VIX spikes in history.

 

We moved to safety positions in the Balanced and Volatility strategies last week.  And we’re glad we did because since then it’s been a bloodbath.  MDY is down -3.8%, SVXY is down -10.3%, ZIV is down -7.6%, VXX has spiked 17.1%.

The only ETF position we’ve held since Oct. 5th is IEF bonds which are up 0.5% so we actually made a profit during this latest crash.  Everybody will have different emotions when it comes to investing, but for me, I always get more satisfaction from avoiding losses during bad times than I do from making a profit during good times.  To each his own.  As I said, everybody gets caught in bad positions from time to time and we do too, it happens.  But the ones who succeed in the long run are the ones that avoid the most number of them.

And of course at some point in the future, maybe tomorrow, maybe in a few years, but at some point markets are going to turn south and keep going.  Down 10%, down 20%, down 50%?  It’s happened before and could again.  Having the ability to be nimble and move out of risky assets when that happens is going to be invaluable.  So yes we preserved a little bit of capital this week, high five.  But the real reason I do this, the reason I focus so much on risk management is to mitigate losses when it really matters.  Markets may recover in the next week, who knows, but I move to safety everytime things deteriorate because one day, it’ll matter.

Put another check mark next to Oct. 10, 2018 as a very bad day that our risk management filters successfully picked up on.

 

On a related note, we do have 4 options trades open right now  (that will remain open for now)  but I would like to do a full article showing how all those positions moved around during this massive VIX spike so I will leave that analysis for another day.

Spoiler alert:  Again risk management paid off and we did just fine, actually made a little profit there as well and our VTS Discretionary Options strategy as of now is up over 2% this month.  But I’ll get into the details soon.

 

Current VTS Total Portfolio Solution Allocations

6.7% VTS Conservative Vol Strategy  –  Volatility strategy for lower risk tolerance investors

6.7% VTS Aggressive Vol Strategy  –  Volatility strategy for higher risk tolerance investors

6.7% VTS Tactical Volatility Strategy  –  Volatility strategy using stock replacement through options

50% VTS Tactical Balanced Strategy

30% VTS Discretionary Strategy

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