I want to document my journey in my attempt to outperform the index over the next three years. Throughout the journey, I will talk my thoughts and my trades as well as concepts I’ve come across and lessons I’ve learned.
The overarching strategy of my investment thesis is to use equity derivatives to achieve my returns while managing volatility risks. As Buffett use to say, I’d rather take a bumpy 15% than a smooth 12%. In the bumpy up and downs of derivatives lies a lot of values that normal investors would stay away from. Having started this path since 2019, I’ve slowly built up a lot of experience in equity derivatives without the usual academic or mathematical backgrounds.
While outperforming one year can easily be attributed to luck, I’m hoping to build a track record that I can consistently outperform the index. By documenting the process, I hope to articulate my strategy in real time. At the end of the run, if I do well, I want to create a fund and bring in investors. Being able to create values for more than just myself would be my ultimate achievement.
After all, one can argue that the simplest way to beat the index is to lever the portfolio to a certain percentage and hope that the next downturn won’t trigger a margin call. In December 2018 and February 2020, I came close to getting margin called because I was too overlevered. I thought interest rates were low and I was taking more risks that I thought. Thankfully, those periods I did truly commit myself into equities as the majority of my capital was tied to real estate. But it taught me a lesson that lumpy returns do require a significant amount of monitoring and care. It is truly through a bear market that you can see whether you are truly a good investor or just got lucky in a period because of leverage.
In 2021, it was different as I truly committed a significant portion of my capital into this venture. For the first time, any bad decisions would have had a serious effect on my net worth. So having done well in 2021, I’m looking forward to 2022 and let’s see if I can outperform the market again.