Like you said in the article the average recovery time to put yourself in the green after a crash is about three years. So for a buy and hold investor (one that doesn't use leverage) that's pretty quick turnaround in the grand scheme of things. I think the one thing that would be more worrying than that is a long period of stagflation or near zero real growth. There was a post in r/fluentinfinance that got crossposted to r/marketsentiment on reddit here:
where it showed that the market has historically had long periods of no growth followed by strong bull markets. In a case where that happens to the stock market for the next decade or so I would think that following a put writing index would be the best option because it would generate premiums/returns even in flat markets. This paper shows that a put writing index outperforms during both bear markets and down markets:
One of the more recent articles I wrote did not directly touch on this aspect of using option writing to generate returns during flat markets, but it did show that selling options on leveraged indexes statistically is about as risky as selling options on an unleveraged index given you sell them far enough OTM.
Hi Tyler, that makes sense. I was also surprised by the 2 decades of near zero return. I went through your articles and its really well put together.
Feel free to share them in r/market_sentiment if you like. Just ping me at u/nobjos to know about the rules. We are pretty liberal in linking back to the original source :)
Thank you! I posted one in r/marketsentiment talking about the hedgefundie portfolio that people seemed to like. I really enjoy reading your articles and thought it might be fun to try something similar through sub stack. I actually have a draft that I was writing about randomized portfolios and what we can learn from them, and to my surprise, you posted something incredibly similar around the same time I started working on it.
Like you said in the article the average recovery time to put yourself in the green after a crash is about three years. So for a buy and hold investor (one that doesn't use leverage) that's pretty quick turnaround in the grand scheme of things. I think the one thing that would be more worrying than that is a long period of stagflation or near zero real growth. There was a post in r/fluentinfinance that got crossposted to r/marketsentiment on reddit here:
https://www.reddit.com/r/FluentInFinance/comments/twb7ts/two_decades_of_zero_returns3_different_times/?utm_source=share&utm_medium=web2x&context=3
where it showed that the market has historically had long periods of no growth followed by strong bull markets. In a case where that happens to the stock market for the next decade or so I would think that following a put writing index would be the best option because it would generate premiums/returns even in flat markets. This paper shows that a put writing index outperforms during both bear markets and down markets:
https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.458.4882&rep=rep1&type=pdf
One of the more recent articles I wrote did not directly touch on this aspect of using option writing to generate returns during flat markets, but it did show that selling options on leveraged indexes statistically is about as risky as selling options on an unleveraged index given you sell them far enough OTM.
https://premiumincomeinvestments.substack.com/p/leveraged-income-generation?r=1awcwu&s=w&utm_campaign=post&utm_medium=web
Hi Tyler, that makes sense. I was also surprised by the 2 decades of near zero return. I went through your articles and its really well put together.
Feel free to share them in r/market_sentiment if you like. Just ping me at u/nobjos to know about the rules. We are pretty liberal in linking back to the original source :)
Thank you! I posted one in r/marketsentiment talking about the hedgefundie portfolio that people seemed to like. I really enjoy reading your articles and thought it might be fun to try something similar through sub stack. I actually have a draft that I was writing about randomized portfolios and what we can learn from them, and to my surprise, you posted something incredibly similar around the same time I started working on it.
That's great - Was trying to find it again, could you post the link here? Others might enjoy it as well.
Do keep writing - I've got very useful feedback and new ideas from the sub and it's a very supportive community!
https://www.bogleheads.org/forum/viewtopic.php?t=272007
This is the link to the Bogleheads forum, he even shows the backtest going back to 1987.