It's cool to be boring - why it's time to trade less & read more

but if you have to trade, got a good one for you.

All the analytical work one investor does is to equip himself/herself with the mental preparation to pull the trigger when opportunities present themselves.

There isn’t and shouldn’t be a linear relationship though between the amount of mental preparations and number of trigger pullings. There are times in the market when a lot trades should be made, such as mid-late 2020 (actively taking profit, trimming expensive names, speculating using call options, seeking for option market inefficiencies ..etc), and there are times like now, that one should try hard to limit the number of trades to limit the chance of making unworthy mistakes, and to save the every penny from paying excessive option commissions, leverage charges …etc.

Similar to last writing, I still hold the view that there’re very few thematic trades one can find now to beat the overall index (both S&P500 and Nasdaq100). You can hold a few high confidence single names, but majority of your position should be diversified and in line with market beta, as it’s not a good time to be exotic in alpha seeking.


One should be very cautious adding risks to growth/tech sectors:

  • The recent strong rally from US treasury bonds might turn out to be a very technical one, meaning the price is more driven by retail and pension fund inflows, rather than the bond market expressing its strong view of much lower longer term inflation (even which might be the case though).

  • As we've discussed before, the typical risk-parity or 60/40 model to run portfolios will lead many assets allocators to look at long term bond yields and ask how much potential capital gain they can get from holding these long term bonds.

    • A 30 year treasury bonds with 2.5% yield, assuming a lower bound of 1% yield, implies a (2.5%-1%) * 22 = 33% capital gain (a US treasury bond maturing in 2051 has roughly 22 years interest rate duration, a rough measure of its price sensitivity to its yield movement).

    • As treasury bonds are usually negatively correlated to risky assets in sharp sell-off, having more these long duration bonds would allow asset allocators reduce their portfolios’ model volatility and/or taking more equity risks.

    • This is precisely why when we suggested our trade idea on shorting TLT (the long term US Treasury ETF) at the beginning of this year, we used an put spread structure — as there does tend to be a technical level of long term bond yield that would drive asset allocators to start buying those bonds as a diversifier and a protection.

  • This technical rally of bonds happens pretty quickly and has caught many investors and banks in a surprise, especially in a way that very few believes this reflects the view that the concern on higher inflation has already gone away. If the inflation concerns come back and drive long term yields up again along with FED tapering, more volatility should be expected in the growth/tech sector.


US CPI is a passionately debated topic. I’m in the camp that you have to looking into the detailed components and prepare to have a nuanced view. When you decompose the US CPI, it’s clear that:

  • Second-hand vehicles, albeit an extremely small weight, contributed A LOT to the headline number recently.

  • Commodity related sectors are hotter than services.

  • Compulsory components, including & especially Owner’s Equivalent Rents, are (not) driving the CPI.

My nuanced view is:

  • Vehicle related components should turn out to be truly transitory.

  • Many argued as we re-open, the higher commodity price will spread to service components. The opposite might be the case:

    • People will spend more. But willingly on the biggest service components? They are namely Rents, Healthcare, Education, and Insurances. These categories combined account more than 51% of overall CPI and even more for CPI ex-Energy-&-Food (scale up by 1/0.79 roughly)

    • These components are rather driven by policy and technology (stable or deflationary ) , and less by consumer behaviours. Such weighting dynamics fundamentally decides that hotter consumer spending would NOT drive the CPI much higher as most expect. In other words, you paying more for your recreation activities probably would only make a small ripple in the future CPI prints.

    • On the other hand, the energy and commodity related sectors, often thought to be very cyclical, might experience a longer period of elevated price. As many energy companies transition to the sustainable future, they are (have to) cutting back CapEx on traditional exploring & drilling (less supply) and spending more R&D on green energy (increasing unit cost of clean energy). Albeit the volatile nature, we are likely to see high energy price here to stay.

    • One tricky part is the Owner’s Equivalent Rents (the single biggest component), which is a function of both interest rate (mortgage rate) and house price.

      • So the lower rates (and higher rates) do have some self-fulfilling impact on the rents.

      • Sharply higher housing prices (a global phenomenon) has also historically led to higher rentals, due to higher yield requirements of new investment, and that lower house affordability leads to higher renting demand.

      • However the rents increase normally take a lot longer to happen and to be reflected in the statistics. Such lagging nature of it might mean that both central banks and investors would act much earlier before it materialises its contribution.

  • So what’s the implication? I do think higher inflation for longer (and driven by commodities ) initially would cause growth/tech to feel pressure as the market keeps guessing & front-running the FED tapering timing. Eventually, the tapering and rate hiking would stabilise at a level that it should: 1) co-exist with stabilised commodity prices well 2) not hurt real good businesses.

    As the true growth compounders shouldn’t be massively impacted by the

    1. electricity price (non-heavy capital model)

    2. interest rates (enough capital in the system to fund good projects)

    3. and valuation concern (true long term return rate should still largely outrun normalised interest rates, which I doubt would be much higher than 2-3%, in which case the real yield [nominal rates- inflation rates], that what really matters, is still hovering around zero).


There’s one interesting trade I think worth considering: accumulating long-vol positions on equity indices.

As most single name equities still see their implied volatility (therefore option prices) remain at a pretty expensive level, partially thanks to more retail activities this time around, equity index implied volatility, on the other hand has come down to a pretty reasonable. It’s still a few percentage points higher than pre-Covid, but considering the massive option-selling-yield-enhancing strategies hasn’t come back ( probably won’t for a while, these are the ones selling options to collect premium as a yield enhancement strategy given low interest rate environment, and really got hurt in Covid ), it is at a pretty fair level given the uncertainty in front of us.

As one remains invested in this uncertain environment, sacrificing some short term profitability isn’t too bad if it’s able to give reasonable exposure to both tails.

Taking QQQ as an examples. Buying the put option expiring on 17th-Sep 2021 with 320 strike (~11% out-the-money) will cost about 1% of the notional size. The 17th-Sep-2021 call with 400 strike (~10% out-the-money) will only cost 0.25% of the notional size.

That is to say, if you are managing a 100k equity portfolio (with 1:1 beta to QQQ), spend $600 in total will provide you 50% (50k) exposure to both upside and downside for almost 3 month time, should the move is bigger than 10% either side. As an insurance policy with some upside participation, this isn’t too bad at all. One should start accumulate long-vol positions as they get even lower & lower (blue & orange lines above).


It is a great time, to stay inactive in portfolio trading but very active in reading & learning. I have attached below a few good articles I’ve read recently and hope it leads you to explore more.

US Credit Market is better than you think (no default waves coming)

Learn about Redfin

Learn about Robinhood

Bubble makes history?

And it’s always good to learn from Charlie


And of course, if you happen to be a podcast user, you can already start using our web-app: ninjaCast — a smart podcast player for savvy investors.

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Thanks for you time.