Poor Man's Investment Journal

0.68%	2.11%	5.14%	9.5% *
Apr-May	YTD	1 Year	Fund Flow

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* Fund flow is for the full month of May

This is the first series in the end-of-the-month updates, this series will provide detailed status of the portfolio, what worked, what did not work and the road ahead.

To give a quick summary:

1. The portfolio health overall remains stable and strong, allocation target away from Treasuries for this month has been achieved as of today.
2. No more position build up will be done until mid/end of June.
3. A downside move compared to the mid month update was solely caused by one trade of a muni bond sale which my brokerage firm scammed me out of, the loss attributed to that one trade is 0.16% of the total portfolio value.
4. The learning from the muni sale debacle is that I need to diversify my brokerage too (what an irony).
5. My personal outlook for this year remains unchanged i.e. rate cuts to arrive in Q1 2025, current mild recession to worsen in coming quarters.

Source: Senior Financial Officer Survey

New fund positions have been added to the portfolio and some more will be added throughout the year. The current expectation is a 10-15% market downside in the next 1-3 year market cycle, I would love to be proven otherwise. The current position buildup is being done keeping that outlook in my mind i.e. only add value positions with downside risk coverage. In the upcoming market volatility a growth portfolio has a higher risk looking forward while value stocks although cheap currently would have a lower overall downturn.

I think the Q3 earnings are going to be abysmal across the board. The market’s forward PE for all stocks is insanely high, to me the market participants look way too optimistic about the future which makes me look like a cynical person. If you look back at the growth since 90’s, it has been primarily driven by the evolution of semiconductor technology and advances in the field of science and engineering which started a chain reaction all around the globe, creating value and growth.

The new wave on which market is currently betting is dependent upon AI and Jensen’s chips. It definitely is fueling innovation and growth of new types of companies, however the impact of these will be the death of low value jobs. If your job is repeatable and does not require extreme skills and expertise then you will be made redundant. Labor of mid-skill class will be seen in the new low class jobs. This will surely drive profit margins in the short term but I am unsure if it would prove to be an appreciating value generator in the long term.

The current double digit YoY growth figures to me doesn’t looks to be sustainable, a Government simulated economy train can only go so far before it starts running out of fuel. Market have already punished multiple bogus high PE companies since the Fed tightening began and I think a larger chunk will start arriving to the chopping board soon.

The current allocation target has been amended with a longer time horizon, below are the allocation targets for the full financial year of 2024

1. 50-70% exposure to 0-3 month T-Bill in ladder
2. 10-15% exposure to Muni Bond exempt from federal and/or state taxes
3. 5-8% exposure to Corporate Bonds
4. 10-15% of equities via hedge funds
5. 10-15% exposure to equities via alternative funds
6. < 1 % combined exposure of any individual stock or bond CUSIP (except T Bill) across all the investments
7. Keep 15-20% of additional funds for black swan or market down events to average down position cost basis

The allocation target is inline with Moderate allocation for the portfolio, however the portfolio’s equities exposure will all be in hedged instruments so as to avoid >5% total downside. The current T-Bill rates still remain lucrative but to align the portfolio more towards better tax aware strategy I am performing a pivot towards Muni bonds. You can find further details later in this post.

The portfolio will continue to keep its distance from leverage and self created hedges, however in the Portfolio 2 which is currently not covered VIX future short position will be taken in that if and when the market conditions becomes more lucrative.

This month in general has been good for overall investment, from the down market of last week of April to the cost improvement throughout this month, things on the surface looks stable. The portfolio has started its diversification journey away from T-Bills to more long term and tax aware format. I increased my position in Fixed income section by 4X since mid May, similarly positions in equities has also been increased by 1.5X. Treasury allocation is down 6.45% since the last update.

The largest position build up has been done in the Muni bond section.

The performance has been slightly dented by one bad trade around the end of the month which was mentioned previously, below graphs shows the total return, portfolio’s performance compared to 3 month Treasury index ^SPBDUB3T and comparison to CPI, if we remove that loss from the portfolio then the portfolio has had a net improvement of 6 basis points over SPBDUB3T and an overall 12 basis point improvement since April.

The portfolio encountered 3 down day since April, compared to S&P which has had 20 down days. Overall appreciation in S&P has been 0.99% since April 1st while the portfolio trails at 0.68%.

1 Year return

Portfolio vs SPBDUB3T

Portfolio vs CPI

Below are the new positions added to the portfolio since mid May

Name	Category	% portfolio
BlackRock Muni Ca (MUC)	Muni Bond	1.06
First Trust Lng/Shrt (FTLS)	Long-Short	0.96
BlackRock CA Muni (BFZ)	Muni Bond	0.43
JP Morgan Hedged Equity 3 (JHTAX)	Options Trading	0.41
FT Snr Float Inc (FCT)	Commercial Bond	0.48
Virtus ETF (SEIX)	Commercial Bond	0.38
FT Deep Buffer May (DMAY)	Options Trading	0.53

Below are the positions that were removed from the portfolio since mid May

Name	Category
Boston Partners Lng/Shrt (BPLEX)	Long-Short
Tidal Trst Def S&P (JEPY)	Options Trading
Tidal Trst Def R2000 (IWMY)	Options Trading
AP Moeller Maersk (AMKBY)	Shipping & Transport

Below are the top 10 holdings in the portfolio

Name	Category	% portfolio
US Treasury 6/27/2024	Government Bond	56.85
US Treasury 7/25/2024	Government Bond	16.87
US Treasury 9/24/2024	Government Bond	13.47
AQR Style Premia Alternative N (QSPNX)	Alternative Multi Strategy	1.91
Blackrock Muni Hold (MUC)	Muni Bond	1.06
Nuveen CA Quality Muni Inc (NAC)	Muni Bond	1.05
First Trust Long/Short Eq (FTLS)	Long-Short	0.96
Nuveen CA Muni Value (NCA)	Muni Bond	0.76
Nuveen Muni High Income (NMZ)	Muni Bond	0.59
FT Deep Buffer May (DMAY)	Options Trading	0.53

In terms of allocation target I have moved 2% over the mid May allocation target out of Bonds into equities. Below charts shows the distributions.

In terms of individual stock intersection across all the fund based investments the largest one is Microsoft Corp with 1.39% exposure to the whole portfolio. The smallest one is Altria Group with 0.11% exposure.

Below are the top 10 performing positions

Name	Category	% gain	% portfolio
BlackRock ESG Cap (ECAT)	Tactical Allocation	6.11	0.28
US Bancorp Dep (USBPRH)	Bank Note	5.38	0.04
AQR FDS Premia (QSPNX)	Alternative	4.57	1.91
Saba Closed Fund (CEFS)	Long-Short Credit	3.96	0.05
Blackrock Enhanced Capital (CII)	Derivative Income	3.68	0.42
Eaton Vance Tax Mngd (ETY)	Derivative Income	3.15	0.11
Nuveen S&P 500 Overwrite (SPXX)	Derivative Income	2.94	0.06
RITHM Capital (RITM)	REIT	1.86	0.02
Blackrock Innov Grow (BIGZ)	Mid-Cap Growth	1.53	0.06
Madison Cov Call (MCN)	Derivative Income	1.28	0.31

Below are the bottom 10 positions

Name	Category	% loss	% portfolio
Nuveen Ca Select (NXC)	Muni Bond	3.49	0.16
Nuveen Ca AMT Free (NKX)	Muni Bond	2.60	0.28
Nuveen Muni High Inc (NMZ)	Muni Bond	2.19	0.59
Goldman Sachs BDC (GSBD)	Financial Services	1.99	0.03
Arbor Realty 6% (ABRPRE)	REIT	1.67	0.03
JPM Hedged (JHQAX)	Options Trading	0.48	0.28
Blackrock MUNI (BFZ)	Muni Bond	0.36	0.43
Morgan Stanley Pref (MSPRE)	Banking	0.31	0.12
DNP Select Income (DNP)	Utilities	0.26	0.29
Blackrock CA Muni (MUC)	Muni Bond	0.22	1.06