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A speculative education [Members]
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I love this @finumus – great post! The Gladiator tweet still makes me laugh. I’ve learnt to just enjoy this kind of action vicariously as I have no stomach for when it goes sideways! Please do keep writing these 🙂
Excellent piece as always 🙂 Thanks @Finumus.
I’ve been fishing in somewhat similar waters – see “Weekend reading: Bitcoin is a bubble. Probably”, 2nd December 2017, at comments #58 to #86; and “Chose Your Fighter”, Moguls, 4th April 2024, at comments #16 to #22.
It’s got to be adjusted Kelly criterion for this rollercoaster stuff – and adjusted right down. Otherwise it’s pure kryptonite (although, come to think of it, that’s also the name of a UK crypto based share, but that’s another story again 😉 )
For me that means, with MSTR and LMI3 (and 3MST too now), DCA / drip feed monthly via ISA with the total sum eventually committed hard capped at 1% of the ISA starting amount using a rules based approach, e.g.:
– LETF between 80% down and 400% up month on month =1x target DCA amount
– LETF down >80% = 2x target DCA amount
– LETF up >400% = sell
With the LMI3 and MST3 LETFs carrying a shocking 20 to 30 times the volatility of the S&P 500 the only sane thing is to either steer clear altogether or to try to make a virtue of the volatility drag effects whether the underlying (MSTR/BTC) is in a chopsolidation phase or an outright down mode. Drip feed in on the crashes and just bail out beyond a certain point on the rallies. Set a hard and fast absolute cap on what goes in eventually (i.e. in total) and then make sure that the cap is low enough such that the pain of a total loss is de minimis. For me that’s 1% of ISA (i.e. if it all incinerates then I still have 99% of what I would have had had I not taken the punt at all).
Thanks, Finumus. I really enjoyed this. I know very few people (possibly none) who I can discuss the ups and downs of investing. Monevator is where I come to know I’m not alone and its a real pleasure to hear an honest and humorous account. My youth was more marbles and top trumps then moving onto smoking and snogging than financial research. I bought my first shares in the late 90s when I was 20ish and have had a lot of very bad clangers but also enough big wins to keep me excited. I probably would have done about as well by going all in with a world tracker from day one then taking up watercolor painting. But I enjoy the ups and downs and only speculate with an amount I don’t need. Easy come easy go.
Thanks again!
Ive followed bitcoin for 10 years and bought in and out. Mostly i dont like it and cant see what good it can do. I currently own mstr despite my bemused distrust of saylor. Its in some ways been my only win-win bet. I’m pleased when it goes either up or down.
I, for one, am certainly entertained. Finumus continues his unbroken run of never posting anything less than excellent.
Do you now short $MSTR? Being 3x long on the way up then short on the way down would be rather heroic. Citron seem to have a point on the whole listed BTC vehicle with a $100bn market cap and $30bn of BTC
I think if you cut Finumus in two you would see ‘mogul’ printed down the middle? Entertaining as always – keep up the good work! If only I were brave enough for these sort of japes.
Bitcoin is fully crazy, it makes no sense on any level, but that’s no barrier here 😉
@all — Just a note to say Finumus has read and appreciates the comments. I’m not sure why he hasn’t popped back on to enjoy a bit of well-deserved acclaim!
Maybe he’s too busy trading Solana derivatives on leverage with Taiwanese students via 4Chan or something. 😉
Really enjoyed this, living vicariously through Finumus because of my own PAD rules.
A meme perspective on MSTR:
https://open.substack.com/pub/shrubbery/p/microstrategy-and-mega-nonsense
Volatility arbitrage and MSTR as a Lehman’s lesson:
https://open.substack.com/pub/campbellramble/p/convert-of-doom
Here’s an all things MicroStrategy related trackers site:
https://mstr-tracker.com/
MSTR’s acquiring BTC fast now, and the BTC/share is rising rapidly, even as the NAV premium falls towards 2x (from a recent peak of 3x).
Interesting to note, as the NAV premium tracker shows, just how volatile the premium or discount to NAV has been over the whole period since Saylor’s BTC Treasury strategy began in 2020.
Also interesting to observe that the net interest expense on the $7.2 bn of debt used to acquire BTC is only $34 mn p.a., or less than half of one percent annually. Not obviously an oppressive burden on the balance sheet.
And here’s an argument (evidently from a true believer) on why a national US BTC reserve might not be great idea:
https://open.substack.com/pub/inbitcoinwetrust/p/should-america-sell-all-its-gold
There’s a very illuminating illustration in Nate Silver’s latest book of the up and down sides of these super skewed punts like LMI3. It comes down to the difference in the median and mean outcome (a sort of ergodicity) and Kelly bet sizing.
In most cases LMI3 will end in disaster, but the potential for an exponentially outsized return – though present in only a small number of outturns – significantly skews the average of all hypothetical return pathways sharply upwards.
Nate gives the example of betting on all 272 NHL games per season with an edge of 50 to 60 percent (so, slightly better than no edge, but not much).
Bet Kelly and (across 5,000 runs of the starting scenario) then above the lowest quartile of outcomes you’re in profit.
Bet 5 times Kelly (again across 5,000 runs of the scenario) and you’re only in profit in the top decile of outcomes.
But the average outcome on 5 times Kelly is many times Kelly only (even though the median Kelly outcome is much better than 5 times Kelly) because the most extreme payoffs at 5 times Kelly are so much more than at just Kelly sized bets.
I think this is likely what SBF was trying to do at FTX but, unfortunately for him, he didn’t end up in the top decile of outcomes.
And now a Michael Saylor tracker as well:
https://saylorcharts.com/?chart=accumulation
The rising BTC per diluted MSTR share ‘accumulation momentum’ narrative is not going so well in the aftermath of J Powell cancelling the Santa Rally yesterday. BTC since 2018 has acted like leveraged QQQ. MSTR is, FAPP, just leveraged BTC. And LMI3 is leveraged MSTR. The one thing guaranteed is plenty of volatility. Any trading plan involving instruments like LMI3 has to try and to turn that volatility from a vice into a virtue.
@Delta Hedge — Yeah, I’m pretty happy with my timing of this post/Tweet 😉
https://x.com/Monevator/status/1859327686549614838
Microstrategy might work in the long-term but there’s an awful lot of smoke and mirrors written about what’s basically a roll-up in 2024 crypto-guise, in my view.
Disclosure: I still own a tiny bit of MSTR (less than 0.5%) and I do hope to add to it again, hopefully at much closer to par on book value! But I’m not averse to playing momentum with what’s clearly a momentum driven trade, for good or ill 😉
‘Playing’ being the operative word! As per Finumus’ post above.
As ever, wish I could just buy some BTC ETF and have done with it. But UK regulators…
0.5% is a non-trivially positive prior towards BTC gaining on gold as a SoV *and* MSTR holding on to a meaningful premium to NAV *and* MSTR not going bankrupt in executing on it’s $42 bn BTC acquisition program. I see MSTR myself as a bit like a call option (and a form of insurance for FOMO purposes) if the apex coin does go to $1 mn. At that price, if the premium to NAV is at 2.5x or more (versus 2x now, and 3x earlier this month) and the milli-BTC per share is at 2 or more (i.e. no less than now) then MSTR should 15 bag from here to >$5k per share (assuming no more splits). That would ease the pain of being a no coiner, and also solve both the custody problem for crypto (no keys, no coins) and the CGT issue (as MSTR can be ISA’d). God only knows though what use LMI3 is for. Trying to harness the (frankly ludicrous) volatility there with a turbo martingale seems too much like a claim for financial perpetual motion or an infinite money glitch.