2021 has been a great year for our #BASON predictions @OraclumIS


Because in 2021, over a period of 22 weeks, we have made stunningly accurate predictions of the #markets, and made a whopping 107% return from these predictions!

A quick thread 🧵on how we did this 👇
1/ First, how does #BASON work?
We ask people where they & their friends think the markets will end up at the end of each week, while applying network analysis to control for their groupthink bias.

Here’s a video explaining it:
2/ We’ve been running the whole thing as a survey competition where we asked stock market enthusiasts to give their predictions on the weekly movements of Dow, S&P500, BTC, WTI oil price, and the 10Y yield + 4 stocks: $AAPL , $TSLA , $GME , $AMC
3/ Competition was open 24h each week; people made predictions on Tue for the Fri close.

We sent out predictions each Wed morning to competition participants, and published them online for everyone to see on Thu afternoon.

This way you could track our precision each week.
4/ More importantly, we had our own #SkinInthegame - we invested $$$ each week on our S&P predictions using two strategies:

First, an $SPY iron condor where our prediction confidence intervals are the upper and lower boundaries of the condor range …
… and second, $SPY call options to act as a hedge if $SPY breaks the upper (lower) boundary.

The downward hedge was a simple stop-limit order that either reduces losses or preserves profits (like it did last week).
6/ How’d we do?
Our portfolio went up from $10,000 to $20,658, earning a 107% return.

A passive investment in the S&P during the same period would have produced a mere 10% return.

High risk – high reward? Not really.
7/ We were careful to hedge against all risk exposure

E.g. of the $10,000 portfolio, we only used a max 20% exposure to buy options based on our predictions

Each week we would spend ≈$1000 on 2 $SPY calls, and would be exposed to ≈$600 loss if the iron condor broke its range
8/ Our max loss was around $1600.
In reality, about half that with stop-limit orders.

We were therefore hedged from both an 🔼shock and a 🔻shock.

Our upward hedge made sure we made money during higher volatility, and our downward hedge made sure we limited our losses.
9/ To this we've added $AAPL in the last two weeks, further boosting our profitability.

Interestingly, $AAPL's prediction went against us in the last week, but given that it shot up two days before, our stop-limit made sure we took profits when it started going down on Fri.
10/ Why not expose ourselves even more?

Because that would increase the risk.

We opted for a limited risk exposure strategy, with a goal of always preserving the initial $10,000, even when the portfolio grew to over $15,000.
11/ What about #correlation with the market?

You don’t want high correlation (close to 1), that means the results were mostly due to good luck – markets went up most of the time, so did we.

You don’t want negative given that, well, markets went up most of the time 😊
12/ We got a very decent 0.57 correlation btw #BASON returns (y-axis) and S&P weekly returns (x-axis)

In most weeks, S&P went up, we predicted it would go up – made money.

3x it went down, we predicted up, we both lost money (lower left quadrant)
13/ But over 6 weeks, markets went down, we predicted they’d go down, or had the #BASON really close to the final value – so we made money.

This is ideal - markets losing money, but the BASON still being able to profit.

That is exactly the scenario we’re most excited about! 🤩
14/ So, even with a strongly hedged strategy, limited risk exposure, and 0.57 market correlation, we managed to deliver a 107% return.

Is this called “beating the market” then?

No, not yet.

Anyone can outperform the market during a short window.
15/ What matters is how this will hold up over a longer time horizon.

This is why we will carry on with the competition during the entire 2022, keep gathering data and adding to the consistency in #BASON’s predictions.

And most importantly, keep having that skin in the game.
16/ Thanks for reading!

We’re running a newsletter where we remind you of the competition each week (awarded $1500 to two winners last time).

Sign up, help us predict markets, and maybe even earn some money!

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More from @wolf_vukovic

15 Nov
What’s a yield curve? Why is it important? Why the inverted relationship btw bond yields and prices? And why do investors keep obsessing about it?

Everything you wanted to know about bond yields and the yield curve but were too afraid to ask – explained 😊 (27-point thread)👇🧵
1/ You’re probably aware that the 10-Y T-bill yield shot up from 0.5% in July ‘20 to 1.1% in Jan ’21, and then to its 1.7% March peak.
It fell back to 1.2% in Jul, shot up to 1.6% in mid-Oct, and is jumping around from one inflation report to the next.

Why does this matter?
2/ What does it even mean when bond yields rise?

Usually, it is a sign that demand is moving away from T-bills and into other higher-return assets, which is what typically happens during recoveries.

But this time, however, this is also due to higher #inflation expectations.
Read 28 tweets
9 Nov
Last week the #BASON once again called 8 out of 9 in the right direction, and once again had pinpoint accuracy for the Dow (0.6% error), the S&P (1.2% error), oil (0.5% error), TSLA (1.9% error), while the AAPL price prediction was almost perfect (0.02% error!).
In terms of collected profits on the trading strategy, this was the best week yet.

Our weekly profit was $2045, or an average 146% return!

This doubled our weekly winnings, and our total profits for the first 4 weeks stand at $4100.
Two strategies were used for the week:

(1) iron condor for the SPY 05/11, at 460/461 to 469/470

The S&P500 ended at 4697, but the SPY ended just below our upper interval, at 468.5, allowing us to capture the full $400 from its initial sale. Close, but in the money :)
Read 8 tweets
8 Nov
The Baltic Dry Index (BDI) has gone down 52% since its early October peak (largest peak since '08)

Last time it went down so quickly was just before the '08 crisis, announcing the collapse of international trade.

But in today's context, is this good news or bad news?
1/ The BDI, listed on the London-based Baltic Exchange, measures the costs of transporting various important raw materials by sea (e.g. coal, iron ore, grain).

It takes into account shipping routes, timing of delivery, ship capacity, and is a widely used benchmark in shipping.
2/ Generally, it is also considered to be a very important leading economic indicator:

When it goes 📈 , it signals high demand for shipping and hence booming international trade. 👍

When it goes 📉 it signals a decline of demand, and an upcoming economic crisis. 👎
Read 13 tweets
2 Nov
An options investment strategy based on our #BASON predictions has delivered a 49.9% return since May, compared to a 10% passive S&P return.

And all that while not even running during August and September!

A quick thread on how it works? 👇🧵 Image
1/ This 50% return is actually severely underestimated, given that we took a portfolio of $10,000 where we only invest $1000 each week (the risk is greater actually, we risk to lose $1000 used to buy the call options, and $600 on the iron condor).
2/ What options strategy do we use? Each week we invest $1,000 (risk $1,600) into:
(1) an iron condor strategy that uses the BASON prediction’s confidence intervals for the $SPY, and
(2) an $SPY call (or put) option based on the predicted direction for that week.
Read 10 tweets
24 Oct
There has been ample talk about an upcoming market #crash ever since, well, the previous crash.

People point to, among other things, Shiller’s CAPE ratio, at a 38 multiple (second highest ever).

How do we know if we really are in a #bubble? A thread is due.
Let’s dive in👇🧵
1/ Is there anything we can use to tell whether a market is indeed in a bubble? To borrow a quote from The Big Short:

Lawrence Fields: “Actually, no one can see a bubble... that's what makes it a bubble.”

Michael Burry: “That's dumb, Lawrence. There are always markers.”
2/ Let’s examine those “markers” by revisiting what the top authority on market irrationality and exuberance has to say about it – Nobel winner @RobertJShiller

His book Irrational Exuberance anticipated both the 2000 dot-com bubble burst and the 2006 housing bubble burst.
Read 26 tweets
21 Oct
Today $DWAC went up 365% after a merger with #Trump’s new media company, Trump Media & Technology Group (TMTG), the idea of which is to launch an alternative social network to disrupt the FAANGs.

I read TMTG’s pitch deck (did MY OWN research!!!) and here’s what I think👇🧵
1/ The idea is to create a new media powerhouse, with a streaming and news service that aims to disrupt CNN, $NFLX & $DIS+ (Fox news too?), and take on $AMZN in the long run.

The biggest impact ofc was the announcement of launching a new social network to disrupt $FB and $TWTR
2/ The name of the new social network? TRUTH Social.

Mission: “stand up to the tyranny of Big Tech.”

The premise: $TWTR and $FB banned Trump from their platforms but did not ban the Taliban.
Read 16 tweets

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