We already know that this is a crazy financial world we live in:
Bonds Have Gone Mad
Recession Seems More and More Likely
In such a world, it's no wonder to see certain assets delivering returns that nobody ever thought to be possible.
Here are three assets that have doubled in value over the past year (or so) without anyone seeing it coming a year ago:
Austria 100-Year Debt
Yes, there's such a thing, and Austria (EWO) issued its first "century debt" back in September 2017 with a ridiculously low coupon of 2.1%
Have I said "ridiculously low"? I take these words back. In hindsight, this was a fantastic, super high, yield!... If you don't believe me, this is how the price chart of that bond looks like:
Yes, your eyes aren't deceiving you. With the accrued interest on this bond, anyone who held this issue over the past year (or so) is now sitting on a total return of nearly 100%!
And the good part: You still have almost 98 years to enjoy from investing in this debt. Well, taking into consideration that the current yield is only 0.73% I'm sure about "enjoy", but hey - I really don't see a reason not to be optimistic here. After all, if this bond went from 2.1% to 0.73% in 22.5 months, I really don't see a reason why it can't make another, similar move, from 0.73% to -0.64% in the foreseeable future.
After losing about 80% of its value from the only one-year old peak (end of 2017), it was hard to believe that Bitcoin can act like a Phoenix and rise from the ashes.
I actually do know of someone who was quite hopeful and bullish at that time - yours truly. As a matter of fact, I published at that time two articles where I pointed out at the potential of Bitcoin to rise from the then-distressed levels. Judge for yourself:
Point 1 (in the below chart): Article dated December 13th, 2018:
From the current relatively low levels, there's a good reason to be bullish long-term.
Point 2 (in the below chart): Article dated January 17th, 2019:
Taking into consideration where the "next stage" halving/capacity supposed to be reached (mid-2020), those who follow this theory expect Bitcoin to trade anywhere between $7,559 (=62% off prior all time high) to $11,338 (=43% off prior all time high), about 18 months from now.
I do know that there's more to it than many people think (usually out of lack of knowledge), and a hundred years from now we may look back crying over what might be the opportunity of a lifetime.
I was actually wrong. It took Bitcoin much less time to dig its way back to $11,338 than the up to 18 months I thought it might take.
YTD, the most popular cryptocurrency is up over 200% as, miraculously, it has managed to position itself as an asset that provides protection at uncertain times. It seems like people, nowadays, buy Bitcoin just like they buy Gold (GLD), US Treasuries (TLT), or even US Dollars (UUP).
Long volatility, through its various VIX index related ETFs (TVIX, VXX, UVXY) is a very tough trade, for a very simple reason: In most days, stocks (SPY, DIA, QQQ, IWM) simply move, pushing volatility lower and lower.
In the current >10-year old bullish cycle, we've seen many cases when sharp daily declines have been erased intra-day. The past week provides a very good, live-recent, example:
That is especially true when it comes to the last two trading days that started with significant declines and ended in the green. That is making a severe damage to long volatility positions:
Nonetheless, it's not a lost case.
Although long volatility requires a near-perfect timing (of entry), as well as a very short period of holding (due to the huge decay these positions/ETFs suffer from), if you get in - and out - at the right time (and for the right purpose) - this can be a very profitable trade.
So much so that, over the past 18 months, investors actually went long volatility/VIX at least 3 times and ending up doubling their money.
Again, we wish to emphasize that long volatility is a tough position that is very likely to lose money. However, for the right purpose and at the right time - it can be a great hedging tool.
As a matter of fact, at the Wheel of FORTUNE, we just executed such a trade. On July 31st, as a measure of protection ahead of the FOMC meeting/decision, we bought UVXY 08/02/2019 26.00 CALL for $0.60. Two hours later, we sold it for $2.40.
Now, if you think we are selling you the 300% return - you're damn wrong! What we actually try to describe is that certain trades/strategies are only appropriate for certain purposes and specific times. To wit:
We are very proud of our risk-adjusted returns but we never sell returns. Never! Instead, we are selling our methodology, our thinking, our risk/reward approach, that may slightly under-perform a 20% rallying market, but is certain to out-perform, meaningfully, a market that is using the elevator on its way down.
By the way, anyone who kept this option for 48 hours (till Friday) could have sold it for a 1000% gain. Yes, had we haven't closed it quickly, due to its nature (playing defense, not offense!) this trade (after less than two days) was a 10x multi-bagger.
And if you decided to roll this trade and buy the exact same option, but with a future (down the road) expiry date - you're sitting on a massive gain today.
Again, for us this was about playing defense, not offense. As such, once the option fulfilled its part - we let it go. There are other-different hedges that we keep for longer periods. It all depends on the purpose of the trade.
Sure thing, one can make a double out of owning certain stocks. That's always a possibility. For example (2019 YTD stocks that more than doubled in price):
- MercadoLibre Inc. (MELI)
- Roku Inc. (ROKU)
- Snap Inc. (SNAP)
- Shopify Inc. (SHOP)
- Universal Display Corp. (OLED)
- eHealth Inc. (EHTH)
- Innovative Industrial Properties Inc. (IIPR)
- Avon Products Inc. (AVP)
- Enphase Energy Inc. (ENPH)
- Beyond Meat Inc. (BYND)
- Diebold Nixdorf Inc. (DBD)
- ZIOPHARM Oncology Inc. (ZIOP)
- SunPower Corp. (SPWR)
- Odonate Therapeutics Inc. (ODT)
- Lattice Semiconductor Corp. (LSCC)
- Spark Therapeutics Inc. (ONCE)
However, investing in such stocks obviously come with a higher degree of risk than most trades.
I'm definitely not saying that investing in an Austrian 100-year debt, Bitcoin, and/or volatility are risk-free trades. Not at all! As a matter of fact, I would think much more before trading any of these three than I do/would with any stock I'm buying.
However, this trio of assets is providing diversification, hedging, and an "out of the box" type of thinking that may complement a portfolio quite favourably, when it's done for the right purpose and at the right time.
Speaking of the right purpose, at the right time...
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.