BTC (part 2)
Yesterday I laid a foundation for my BTC position. I pointed out ARKs Kathy Woods sharpe ratio portfolio holding of almost 20% BTC.
In just a few years BTC has gone from a scam used by drug dealers (incidentally read this report how wrong they have been about BTC vs USD illicet trade: forbes.com/site...) to a portfolio requires 2% to balance a portfolio on sharpes risk/reward basis to Kathy Woods group giving it a 19.4% allocation.
Well hate to bust your balloon but Blackrock, the largest money manager in the US priduced a report that shows from real data that the risk off ratio of ones portfolio for BTC w/ 60% stocks / 40% bonds is 84.9%!
Understand that the sharpes ratio is a way to maximize returns while minimizing risk in certain asset classes (yes BTC is an asset class now).
Look at this chart:
the x-axis is colitility and the y-axis is expected return. (this is not the BTC stocks and bonds chart as i could not locate Blackrocks). Every colored dot represents different portfolio percentages and the model might have 10,000 model runs.
Since return is in the y axis then you want a portfolio whose alloction lies ON the black curve from the apex (green x) and the upper right end but realize risk increases with return.
I dont have Blackrock data but I presume the portfolio is on the line midway up the curve.
Folks digest a portfolio recommendation of 85% BTC and 15.1% split between stocks and bonds 60/40.
(cont’d tommorrow)
P.S. I run an engineering company so this has to be in digestible “chunks”
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25 years as engineer and CEO of a consulting firm. Early retirement will require aggressive strategy.
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AkLi : Hi, incredibly interesting chart you included. Almost appears to be discontinuous function, and if that is a graph in regards to Cathie Woods holdings it might be worth while to look further into if there is a certain degree of mathematics which she uses to base her positions on. All hedge funds have their own metrics and reasons to enter a sizable position in markets, maybe its more formulaic than not
Sean McFarland OP AkLi : So that is a typical chart based on sharpies ratio. It is a common shaped chart for all portfolios. The reason there is an apex on the left and two portfolio horizons on the right (top leg and bottom leg of parabola) is that you can have a lower and higher return based on the same RISK. As investors we always want the highest return with same risk, right.
AkLi Sean McFarland OP : Makes complete sense! Investers would ideally want to position themselves in stocks which have a higher return while maintaining the same risk. Your explination also makes sense where AMZN (according to the chart) has an exponentially greater anticipated return with respect to the underlying risk involved. The reason why options can make so much money so fast, but lose just as much money due to volitility / risk. It would be nice to know the other stocks name involved within the .02-.03 return Y axis and those aligned from .14-.16 volatility X axis. Might make very good consistant money, possibly strong divident plays. Regardless, there will be outliars to the forluma. Wonder if, at all possible, there are stocks ranging from (.03-.04, .14-.16). Finding those could return incredible realized returns