2014 Year in Review

Blended 2014 statistics for the “Lawrence Zhou No Real Alpha High Leverage Don’t Follow Me Into Trades Fund”, including deposits/withdrawals purely for “safety” margin (understates actual P&L). This is almost straight from IB (except for DD, which they calculate incorrectly).

Blended Stats:
Return: 237.64%
Daily StDev: 4.32%
Sharpe: 2.46
Max Drawdown: 42%

Best Delta Exposures:
Long Dollar
Long SPX

Worst Delta Exposures:
Long Crude
Long Bitcoin (still have two R9 290xs for a mining-switch strats [that bombed] for sale)
Short USDRUB (so far) – will write something more robust in the future

Basically, long bubbles (non-linear growth in log prices) & long momentum worked. Long mean reversion did not work.

2015 Initial Thoughts:

  • I targeted an insane RoR this year – which came with insane risks. I plan to “de-risk” significantly next year, with the expectation that volatility will increase.
  • As long as QE / intervention persist globally, a “long bubble” strat should work. Will rate/QE-driven credit booms happen in Europe & China (the two holdouts)? Who knows… Draghi has under-delivered, and China seems committed to “fine-tuning”. But rates globally are incredibly low (especially in the US), which should continue to fuel yield (or dividend) seeking plays.
  • Equity markets are probably over-valued, but might be over-valued for quite some time. New (and massive) tech IPOs will put pressure on the market via supply.
  • Geopolitical risk is real, especially with Grexit in the near term. Does Greece really pose a systemic risk to the world? Ultimately, unlikely. We’ve had since 2011 to prepare… and the country’s GDP is only a few billion more than AAPL’s revenues. The tremors & uncertainty it causes, though, will be felt. What are the implications if all the periphery decide to bail (as a tail case)? Euro was a bad idea to begin with.
  • Russia will probably not default… but edge chance they invade Ukraine. Certainly a risk to look out for.
  • Oil – I have 0 idea where it goes. I got burned already, so I’ll stay away and watch. Apparently, oil is extremely inelastic on the short end, and the tankers rates are already skyrocketing (Brent March 2016 vs 2015 is 67.3 vs 58.21, or ~15%).
  • Volatility looks cheap going into 2015…


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