VIX Calculation

 The Volitility Index (VIX) measures the volatility in the S&P 500 index, and is a useful measure of the risk and uncertainty in the market. The CBOE lays out the formula and background of the VIX in this whitepaper.

Winners vs Losers

 Peter Lynch is famous for the quote “Selling your winners and holding your losers is like cutting the flowers and watering the weeds.” This captures the problem with rebalancing into stocks that have fallen to maintain stocks with a certain percentage of a portfolio. However the S&P 500 is market cap weighted so it doesn’t need to rebalance based on price changes; it only needs to rebalance based on adding (winners) and removing (losers) stocks and changes in share count. The success of the S&P 500 is a great example of the value of that quote.

Terra crypto collapse

 The TerraUSD, or UST, stablecoin broke a $1 peg and fell to under $0.30. UST is an algorithmic stablecoin that maintains its value by increasing and decreasing the supply of another coin, Terra Luna. The Terra Luna quickly dropped from over $100 to fractions of a penny as its value collapsed with a supply increase from 340M to 6.5T. The Terra anchor protocol paid 20% APY on UST, and drove demand for the UST. Ultimately the peg couldn’t be maintained as UST size grew.

Link: WSJ

Tech M&A

 Five months into 2022, the Nasdaq-100 index is down over 25%. Tech stocks have been hit the hardest, which should lead to mergers and acquisitions by big tech. Elon Musk may take Twitter private and the CEO of FTX bought a big chunk of HOOD.

Three types of financial opportunities

 J. David Stein divides financial opportunities into three categories based on the likelihood of the financial outcome: investing, speculating, gambling. Investing has a high likelihood of a positive return, speculating has a very uncertain return, and gambling has a high likelihood of negative return. Another common aspect distinguishing investment and speculation is that an investment often yields a positive cash flow and a speculation does not.

Link: Money for the Rest of Us

Benjamin Graham in The Intelligent Investor describes an investment as having a reasonable return over a long period of time, while a speculation is a hope for a large return over a short period of time.

Carl Icahn: The restless billionaire

 HBO is showing a two hour documentary on Carl Icahn and his history as an activist investor. It chronicles his take over of TWA and subsequent failure along with his many successes. It’s a fascinating tale of his investing career including getting into tech stocks like Netflix and Apple.

Link: Documentary

Ark Invest 2022

 Ark Invest just announced their big ideas for investing in disruptive technologies. Link It’s interesting to see they deemphasized cloud technology to focus on AI and Robotics. Robotics has the highest estimated CAGR of their picks with 51% and AI the lowest at 26%. Although AI seems to have the largest estimated market at $108T in 2030.