Today’s video places context around market returns and provides insight into how to think about a strategy’s returns.

Notes

1. Stock market returns are extremely random in the short run.
   1. S&P 500: average annual return is 10% since 1926.
   1. Annual return is VERY RARELY even close to 10%
2. Trading performance is random in the short run.
   1. Sold naked puts on SPY every month for past 10 years: Return was 14%
   1. Reality: up 30%, down 25%, up 20%, down 10%
3. Past performance is no guarantee of future results.
4. Investing/trading is VERY different than a day job where you know exactly what you’re getting paid each month. There’s a lot more uncertainty. Range of outcomes is extremely wide: Get killed: -90%, Kill it: +25% every year for ten years.
5. High probability systems don’t typically generate high returns. If you want a system with a high probability of giving you consistent profits, it’s not usually super high returns.
   1. I sell 20 delta OTM puts on IWM each month.
6. High returning strategies require greater risk tolerance and skillset. Day trading/swing trading
   1. I’ve made 20% per year over the past 5 years with swing trading. That doesn’t translate very well from one trader to another because it’s heavily skill-based.
7. Asset class returns
   1. Stock market: 10%
   1. Bond returns: 5%
   1. Bill/Cash returns: 2%
8. We try to create more consistency with trading by being rules-based, having discipline, and using a journal to track performance.

Tyler’s preferences: High-probability strategies that have lower ROI. I favor greater confidence of returns than seeking lower probability but higher returns.

80% chance you make 10% return

20% chance you make 30% return

My savings rate and lifestyle is such that I can hit my goals by compounding at high single digits.

Target 1: get market returns (10%) with less volatility

Target 2: get better than market returns (10%+)

To try to enhance/juice the returns you have to do a couple of things: Sell puts on SPY/IWM

$100k account, SPY $100 ETF:

A) no margin: Sell 10 SPY puts cash secured every month.

B) use leverage/margin: Sell 15 SPY puts cash secured every month.

C) Time the market/pick stocks/be tactical

Play to your strengths.

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