SHARPE INCOME … ‘Comfort’ Income Purchases?

Posted on Feb 3 2015 - 4:30pm by Sharpe Trade

The original Sharpe Income post can be found here.

The Sharpe Income category be 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.

So I stated that for the purposes of this project, I was interested in buying not one, but two different income producing assets as a bit of ‘Comfort Income’ after a trading loss I experienced in the Sharpe Report.  As we said, I will be looking to buy two different assets.

Which assets?

Well, this is going to take a bit of explaining, because one of them might seem … well … insane.  Actually, both assets may seem a bit insane.  That’s ok by me, because with a well-thought out plan, it is usually best to take actions in the markets that perform contrary to popular wisdom.  This is known as being somewhat contrarian.

Dan, you still haven’t explained to us which two assets you are looking at picking up for the Sharpe Income project …

I know, I know.  That’s because I’m busy getting my disclaimer in here, so that when I mention the two assets, everyone doesn’t freak out, and you’ll know there is more to the story …

The assets are ETF’s, and they are JNK (what Dan, with what you said about High-Yield!?) and the ETF, PCY (what Dan, with what you said about the Dollar and Emerging Markets!?)


Again, allow me to explain.

Can we predict the direction of JNK and PCY?

Absolutely not.

It can’t be done.

Do you remember how many ‘market geniuses’ said when looking at short-term bonds, that “bonds can’t go any higher, because that would be negative territory”.  Well, as we have discovered, yes … bonds can go into negative territory.  The lesson here, is that you can never … ever … say: “the market cannot go to ….”  As soon as you say that, you’re almost guaranteeing that it will go there.  People will then get involved in the auction with that particular belief, they set their stops which can be triggered, and off we go … right off into the land of “the-market-never-goes-there” that so many amateurs seem to believe in.

Where are bonds going?

I don’t know.

I don’t have to know.

And more than that?  I don’t have to care, in order to make some money.

I cannot highlight this fact enough ….

It is possible to directionally trade (buy low and sell high) and make money timing pure direction.  BUT IT IS ALSO possible to make money, and not simply think in directional terms.  To not care one iota, about market direction.

How many ‘guru’s’ are out there telling you that?

But it’s true.

I can’t tell you how many times I chuckled to myself, hearing some “guru” talk about a particular market, say … like Gold, and say thinks like:  “So-and-So-Big-Shot-Investor is buying Gold so that means it will go up!

Really genius?  Did you also think that maybe he’s not just buying Gold?  He has a net-net position of long Gold, short Silver perhaps?  That he views such a maneuver as one pair trade?  Or an excellent and popular trade, short silver, long palladium … viewing the two positions as one pair trade.

I can buy assets, and on each single asset, not care about where the price is going, if I begin to look at two pieces, as one piece, and measure them as one piece.

This makes the direction of a single asset of much less concern.  You don’t sit around all day, concerned about what XYZ is doing.  You can breathe easier.

So that it is to say, that I will have an entire other strategy beyond simple stock purchases, going on inside of The Sharpe Income project.  This strategy has, as a part of it, PCY and JNK.  But only a portion of this strategy is PCY and JNK.  There are other pieces we can discuss more in the future.  But this strategy will also pay dividends over time.  That strategy will even add capital gains over time.  This gives me incredible flexibility in my Fixed Income investing.  If I make a mistake somewhere along the road, this strategy provides a ‘cushion’ if one of these companies that I use for fixed income, lands itself in trouble.

In short, I can use this separate strategy as a means of risk control to the entire account.

So, when I stated that I was looking at possibly buying a couple of assets, as a bit of ‘comfort income’ after my trade loss?  JNK and PCY are two of the assets that I was looking at buying, and JNK and PCY fit inside of a larger strategy that helps me control my risk.

I’m not purchasing them just yet.  There are no orders outstanding.  But know, that in the future these are two assets that you may see me announce here at ‘Sharpe Trade’, that I am putting in orders for the ‘Sharpe Income’ project.

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

The next Sharpe Income entry can be found here.

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

  1. investing early February 3, 2015 at 9:09 pm - Reply

    Dan, I have read plenty of articles bashing JNK over the past few years in our low-interest rate environment…but as a long term owner I really appreciate how much stability is has provided my overall portfolio.

  2. Dan Shy February 4, 2015 at 9:50 am - Reply

    You make an interesting point. Because the _*when*_ of a purchase makes such an important impact.

    We now could just buy it as a straight purchase …. or we could buy it as a correlation as noted above and then it really doesn’t matter where it goes in direction, but back to your point …

    If you have held it, not buying in, for like … the last 4 years? Well, you are going to have a much better position, because your yield on cost will be great. You wouldn’t have to worry at all, because so many dividends have built up in that time, that you’ll be sitting pretty


Leave A Response