SHARPE INCOME … “Monster Hi-Yield” vs. “Kitten Stocks” Battle Royale!

Posted on Oct 5 2015 - 9:19am by Dan

The original Sharpe Income post that explains this project can be found here.

The Sharpe Income category be found by clicking on that red ‘Sharpe Income’ tag next to this post title, or by clicking here.

We continue the discussion from the last entry.

For the brief history of this free project run for the benefit of small retail investors, we have held a hi-yield instrument.  Namely, the ETF, JNK.  As you know, in the last entry, we lightened up a bit this position.  But we stated within that entry that we were keeping some JNK exposure …

Quote From Hi-Yield Adjustment Sharpe Income

As we said then … ‘more on that later‘.

Well … it’s later.  

So let’s discuss our thoughts on high-yield now.

Hi-yield instruments have received a bit of attention lately.  Carl Icahn released a short video in which he discussed problems he sees facing the markets as a whole.  One of these ‘dangers’ was that of ‘high-yield’ instruments, leverage on those instruments and the continuing flight from high-yield.

So did we lighten up on our JNK exposure in response to ‘Carl Icahn’s dire warnings‘?


If you remember, we discussed the problems and flight from high-yield instruments back in 2014.

We knew all of this.  

Then why in the world, did we hold JNK for this entire time in this project?

To demonstrate a very, very important point to new retail investors and traders.

People seem to like to over-sensationalize and turn entire sectors of the market into ‘Angels’ and ‘Demons’.  This ABC asset class is “bad”.  But XYZ is a complete angel, and is a “good”!  In 2010, to buy Silver was a fight against tyranny!  To buy stocks was to become complicit with the ruling oligarchy!

Asset classes are neither good, nor evil.  There is no “Monster Godzilla” of High-yield.  There are no “kittens”.

All assets are simply assets, all of which have their own risks and characteristics.  It is vital for new investors and traders to learn this lesson.

In fact, JNK is used within this project, with a basket of other instruments for capital gains.   As you saw last week … this basket of instruments, including JNK, was beating the stock market’s performance, year to date …

Sharpe Income Capital Gains 09_30_15

So … all of the above being said?

We dislike ‘sensationalism’.  We prefer …

Reason ….. rationality … balance.

So while JNK has weighed us down a bit, we were still beating the S&P 500 Index as measured by the SPX with reasonable draw-down numbers.  We’ll lighten up just a little bit on JNK.  That’s all.  It’s not complicated.  It requires no in-depth differential modeling.  We simply lighten up a bit on the position.  But to highlight and underscore the fact that there are no “monsters” and “angel” asset classes, we are going to keep a small amount of JNK regardless.

Albeit, at a much smaller weighting … 

The link to the Google Drive Spreadsheet that you can view, that we will edit, build upon and refer to over time can be found at this link.

We continue the Sharpe Income project with this next entry.

The Sharpe Income PDF breakdown for Week 45 can be found here (numbers computed off of Friday’s close) …

2 Comments so far. Feel free to join this conversation.

  1. Christopher October 10, 2015 at 8:53 am - Reply

    Hi. The link to the PDF actually links to an open office document. Is that intentional?

    • Dan October 12, 2015 at 5:26 pm - Reply

      Ooops. Thanks for pointing that out. I don’t know why I just caught this comment. But let me work on correcting that now (the new PDF is out for this entry)


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