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Corey Hoffstein 🏴‍☠️ Profile picture
@choffstein
Apr 10, 2021 • 9 tweets • 4 min read • Read on X
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New 🏴‍☠️Pirates of Finance episode out!

@JasonMutiny and I talk collectibles and have a special guest on to talk about the world of Scotch.

If you enjoy, please like, subscribe, and leave us a comment!

And if you don’t, let us know that too!

@JasonMutiny Some highlights…

1. UHNW investors have more money in collectibles than gold/precious metals.

(Are they just coming up with an excuse to buy what they want?)
@JasonMutiny 2. “What is a collectible?”

Beauty is in the eye of the beholder.

But it’s a pretty big and diverse space.
@JasonMutiny 3. And while prices did skyrocket in Q4 2020 for many of these assets, it turns out the long-term returns are actually pretty competitive with traditional assets.

(If you believe the numbers, at least.)
@JasonMutiny 4. Here’s a price graph of Lagavulin 21 plotted over time (scraped from auction site data).

It’s gone semi-exponential in price lately.

But you can also see March 2020 stick out like a sore thumb!
5. There are some interesting fractures in the scotch market that can lead to opportunity.

For investing, it might make sense to stick to the "blue chip" names.

But for those who plan to drink it, there are some other interesting wedges to exploit...
6. For a few of those ideas, check out BadaBing Whiskey.

badabingwhiskey.substack.com/p/welcome-to-b…
7. One of the big questions I have is, "how does the market change when you fractionalize ownership of collectibles?"

Not only are you introducing a new vector of demand, but the argument about deriving worth from physical ownership disappears.
And check out our whole channel if you haven’t seen it!

We’ve got episodes on NFTs, ARKK’s liquidity issues, reflation, solar climate effects, and social sentiment.

And if you have ideas or suggestions for topics, let us know!

youtube.com/channel/UCsfk9…

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More from @choffstein

Corey Hoffstein 🏴‍☠️ Profile picture
May 16
In celebration of another managed futures replication fund being launched today, here's a little insight into a problem that both top-down (returns-based) and bottom-up (process-based) replication face.
Both of these approaches use the historical returns of an index.

The return of that index is driven by two factors:

(1) The underlying component weights
(2) The underlying component returns

Replication is trying to figure out (1), but (2) can be a significant problem.
Consider this hypothetical example in Trend replication land.

Bonds go through a year-long negative trend. Trend managers are, almost certainly, short bonds.

But over the last 30-60 days, bond returns have flat-lined, making the contribution to index returns zero.
Read 9 tweets
Corey Hoffstein 🏴‍☠️ Profile picture
May 15
“Levered portfolios are subject to variance drain!"

So are your long-only active stock funds.

Don’t believe me? Read on.
Any long-only active stock strategy can be thought of as a combination of two parts:

- 100% exposure to the benchmark
- 100% exposure to a long/short portfolio capturing the over- and under-weight positions of the manager

(It's long/short portfolios all the way down...🐢)
How do we know what’s in that long/short portfolio?

Take the current positions and subtract the benchmark weights. (If the manager doesn’t hold a benchmark position, their weight to that position is 0%)

The resulting long/short portfolio represents their active bets.
Read 10 tweets
Corey Hoffstein 🏴‍☠️ Profile picture
Apr 30
Most folks are accustomed to evaluating investment products based upon their performance.

In the case of capital efficient strategies, I think this misses a huge opportunity.
Consider a capital efficient strategy that gives you $1 of exposure to stocks and $1 of exposure to bonds for every $1 invested.

i.e. a 2x levered 50/50.

I would expect most people to look at a long-term graph and pontificate about the trade offs of leverage and diversification Image
But I think that misses the point.

To me, what's interesting about a levered 50/50 strategy is that it can replicate a 50/50 portfolio with far less capital allocated.Image
Read 13 tweets
Corey Hoffstein 🏴‍☠️ Profile picture
Apr 20
One question I receive all the time is,

If Treasury futures don’t pay coupons, aren’t they just the price return of the bonds?

Let’s debunk it with a quick picture and then explain.Image
The white line is Ultra 10-year US Treasury Note Futures.

The yellow line is the S&P U.S. Treasury Bond Current 10-Year Index (Total Return) divided by 1-3 Month T-Bills (Total Return)
They’re right on top of each other.

Which tells us that the futures give us the total return in excess of T-Bills (i.e. the “excess return” of the bonds)

But why do we get the total return if we’re not collecting coupons?
Read 9 tweets
Corey Hoffstein 🏴‍☠️ Profile picture
Feb 21
Staying on trend
Designing an algorithmic trading strategy

Highlighting some new research from SocGen
Diversification matters.

“Consider a hypothetical experiment. We construct a series of model portfolios, each containing between 2 and 100 randomly selected trend-following strategies, drawn from a pool of 120 such strategies. For simplicity, we assign the same notional value to each strategy within a portfolio. We then calculate the Sharpe ratio of each portfolio."

cc @investingidiocyImage
Which trend measurement technique reigns supreme?

"As it turns out, there is no clear outstanding technique."Image
Read 7 tweets
Corey Hoffstein 🏴‍☠️ Profile picture
Sep 26, 2023
1/ People keep sending me this piece from AQR and asking for my thoughts regarding alternatives, cash rates, and return stacking.

At the risk of inviting the ire of Cliff… I disagree (a little) with the piece.

*ducks*

aqr.com/Insights/Resea…
2/ Actually, that’s probably not fair.

I disagree with the overwhelming interpretation I see people making, which is: higher cash returns imply lower forward asset class returns.
3/ Here’s my problem: that’s not really what the piece is saying.

The piece is measuring *contemporaneous* returns.

And I’m not sure contemporaneous returns are all that interesting to consider.
Read 22 tweets

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