Street Light Wealth Management, LLC is a Texas Registered Investment Adviser. We invest and make money for successful professionals so they can focus on their careers and living their lives.
In January 2018, three things happened concurrently to add a finishing touch to an investment process that over the years had been focused solely on horsepower (or producing "alpha" as we call it).
First, a client who is a fellow investment professional came to me and said, "all of my money and my career is tied to the stock market. Can you build something for me that will help me to weather the next storm?"
Second, my team at Morgan Stanley received an email from the derivatives trading desk highlighting how inexpensive options were trading for at the time. With the VIX Index (a measurement of options cost) under 12, you could protect an entire stock portfolio for a cost of less than 0.15% per month (2% out of the money). It was like buying the most premium full coverage auto insurance for $20.
Finally, that month saw a correction in the price of equities (a greater than 10% drop in the stock market). Heading into the new year I had bought IEF for clients, the ETF that owns and tracks the performance of US Treasury Bonds that mature in 7-10 years. Theoretically, Treasury Bonds are supposed to hold their water and even move higher when turbulence enters the stock market. Their job is to be a ballast along side a stock portfolio. That month, for the first time in my career, Treasury Bonds sold off alongside stocks. Everything moved lower. Although more times than not this inverse relationship between stocks and bonds will hold true, I learned experientially that bonds are not a silver bullet for protecting people's money.
Like a boxer who quickly realizes it's a good idea to keep your hands up and your chin down, the light turned on with my investment process. I began using put options to protect people's money and client portfolios. To date, this investment process that focuses on offense and defense, has made money in a good year such as 2019. Tested in the months to follow, the results were exactly what the investment professional client was looking for during 2020 that unbeknownst at the time of creation, would boldly succeed while being tested by a global pandemic known as COVID-19. Isolation, medical crisis, and endless challenges were unavoidable sources of stress for all of us. Our portfolios weren't one of them.