Muni is doing well And ARK is not

After I posted a while back on recommendation of Muni, it has been 4-5 months, Muni is indeed doing well. The PIMCO closed-end muni funds have generated monthly cash flow for me (roughly 5% tax-exempted return) and some of them have quite a bit price gain (> 10%). e.g. PNI, PYN and PMX. At the same time, the hottest ETF last year ARK series has not done well (YTD is negative).

I believe the overall market has reflected some of the reasons I listed before. Tax increase is on the horizon, interest rate level is low but on the projection of rising and in the U.S., the pandemic is gradually under control with more and more people getting vaccinated.

The market is still at the all-time high, but value stocks have probably more been favored than growth at this moment. Investing in overall market is ok, but be cautious about investing in high risk stocks. ARK series have reflected that.

The tragic death of prominent investor Charles de Vaulx has been a clear sign that traditional value investing is cornered. This has been repeatedly tested. As the SPY 500 heavily tilted towards Tech, now-days the tech giants (GOOG, APPL, FB, MSFT) are more like new value stocks, and we should rethink our strategy along with that line.

Will the America be saved

This is the longest dark day for 2020, and tomorrow the day becomes longer, every day, non-stop. Will the America be saved?

Covid-19 not only brought us economic crisis, also shows how our democracy is at risk. The politicians, globalists and big tech, media have gained so much power and aggression, they rather choose to destroy the foundation of this country in order to defeat who stands in their way, through cheating and lies. The country is at great danger of destroying itself within.

The founding fathers were fully aware of the weakness of men, thus they had chosen to use different branches to balance the power and avoid concentration. but they didn’t imagine all these branches rotten in the same swamp, colluded. in 2016, the election outcome had people’s voice heard, now they used ballot harvesting, machine to cheat. Without fair election, the elites don’t need to listen to the true voice anymore, as long as “there is no riot on the street”. Will American people live with this? Will the America be saved? The biggest democracy country in the world. We need courage, we need to stand up and we need to fight back. We need to pray, this is the last free land. There is nowhere else to go, so we can’t back down. We have to remember what our country was created for.

God bless USA.

Closed-End Muni as a Passive Income for High Income Earner


I came across the closed-end muni in Sep and have started purchasing for 2-3 months. In this historically low interest environment, I believe it has provided high income earner a good alternative of tax-free cash flow monthly.

我在今年九月接触到封闭式地方债基金,并且这两,三个月都在购买。在利率历史新低点的, 我认为它提供了高工资人士一种免税月付分红。

Why Muni? Municipal bond’s income is tax exempted at federal level and state level if you live in the state. If you put in the money in the saving or buy CD, the income is taxed, even the dividend from stock, interest from corporate bond and treasury note/bond, you have to pay tax as well.


Why closed-end? Closed end fund is traded like ETF, managed like typical mutual fund. But it has unique advantage being closed at not being able to issue new or redeem old shares after IPO. It can use more leverage and it can invest more in asset. I was walking away from muni mutual fund several times because its lackluster yield. Muni closed-end funds I bought now have a distribution rate around 4.5% (tax equivalent yield around 9%) which is very attractive.

为什么选择封闭式基金。封闭式基金像ETF交易,像mutual fund这样被管理。但是封闭式基金在IPO以后不会发行或则赎回, 所以它具有一些独特的优势,可以加更多的杠杆,基金可以绝大部分投入到购买资产。我曾经看过并且放弃了地方债基金,主要是回报率太低。但是封闭式现在有4.5%的分红率(相当于税前9%)非常吸引人。

Risk? Yes, there is always some risk. It is not new that muni bond declared default. Not to mention, we are in a pandemic thus a lot of uncertainties. So to counter this, we need to invest in a fund which has good diversity as oppose to buying single bond. Secondly, pick a reputable fund that have expertise in local market so they can predict bond performance with business activities constantly in observation. Risk also presents opportunities, the fund manager can finance the buy and leverage at near-zero interest rate, also the muni bond price had been beaten down due to pandemic so the fund can add a lot of bargains to its portfolio. We are near the end of pandemic, so cash flow from distribution now should be more certain and likely to increase.


As I mentioned earlier due to political and economic outlook, Muni is a good place to be. Of course, a good investor will purchase the asset in several steps to smooth out price volatility.


Why Non-Hedge is Better 为什么不对冲反而更好

This year I have learnt a great lesson from investing in hedge fund in a volatile market. My financial advisor suggested a famous hedge fund from Renaissance for me last year, I was once excited and hoped it could boost my return over my passive index fund. However its return is brutal this year.


Yes, we had a very shocking pandemic early in the year and market went down 40% in March and it was devastating. Then the Fed lowered interest to 0, after several crazy meltdowns as 10% down daily, then market stopped right there and went back up, like 10% up daily. It was very unpredictable and volatility went through the roof. If the investor were to stay the course and not make changes, it would not be bad after all if you look back. If you experienced 2008, it took several years to come back, while due to the powerful financial relief and optimism of pandemic overcome, the market bounced back much quickly this time. My passive index is doing so well, but the the hedge fund from Renaissance didn’t recover as fast as it should. And in July, Aug, the market turns positive while the fund didn’t come back and in Sep, Oct, the market is edging up more, Sadly the fund even lost more. What went wrong?

的确,今年年初来了一场震惊的世界范围流行病,三月份大盘跌了40%。然后美联储把利息讲到了0, 来了几次10%的熔断,市场下跌突然停止,又来了几次接近10%的上扬。这是非常难以推测的,波动性惊人的大。如果投资人不要乱调整,维持原状,现在回顾结果一点都不差。如果经历过2008的金融危机,就知道市场花了几年时间回到原处。但是这次非常有力的金融救助和最终会克服流行病的乐观,市场回弹非常快。我的指数基金走的非常好,但是我文艺复新的对冲基金却没有回来。7,8月份的时候,大盘都已经比年初要高,但是我的对冲基金没有完全恢复,9,10月,市场继续上升,但是对冲基金却还在亏钱。这到底出了什么问题呢?

I called my advisor and she got me into their monthly client meeting tele conf. The fund manager explained how they hedge by calculating beta, and the beta is off and dated in the extremely volatile market, so they under hedged when the market went down and over hedged when the market went up. The rational sounds very reasonable, but I felt they are going to have hard time again in a volatile market: the beta calculation is always dated, the faster the market change, the more difficult they can catch up with the market. I finally made up my mind to pull back the money. The redemption took months, hopefully I will get it in Dec so I can roll the money into my passive indexer and assume all the market risk and never think about hedging again.


How will the market move next year 明年美股方向

I am not a person who likes to predict how the market would move in the future, but given the historical moment we are at, it is probably worth thinking where we would put our money in the market next year.


Who is the next President of United states is still in the air. Trump may still have a chance to win even the media seems to have already chosen who is the winner.


Economy wise, If Biden wins, he would pursue tax increase and bailout of big cities that are in budget crisis. If Trump wins, the tax mostly will remain low, corporate and tax payers will benefit from this and economy will bounce back quickly. Interest will remain low in both scenarios to give time for economy to heal. I would think muni is a good market to go in if Biden wins, the broad market will rise more if Trump wins and delivers vaccine more efficiently.


If Biden wins and in my opinion, it was done through cheating. It is a great danger to the foundation of United States. They could employ the same mechanism to steal votes in the future and eventually controls the congress and supreme court. The change they push can radically reshape America. If nobody trusts the democracy of United States, then U.S. market is not free market anymore. The aftermath would be devastating. I simply don’t know where to invest money safely in the long run and probably think about leaving the country as the last resort.

拜扽赢出很大可能性是作弊。这是对美国的立国之本很大的伤害。他们以后会通过一样的手段控制议会和最高法庭, 然后作出一些可怕的变化。如果没人信任美国的民主, 美国的市场也不是自由市场了,后果是相当绝望的。我不能想象长期投资股市的安全性而且可能离开这个国家。

If Trump wins and he is able to put the election process in the safe hands for future, the market should be stabilized and steady up given the trust of the democratic system. But at the same time he may also put more pressure on US-Sino relationship, so there might be some bumps in the road in the short-term. But I would stay in the market amid head-winds.


So I would allocate 20% in Muni (close-end fund to have more leverage), 80% in stock market as a balance.

考虑到两者的可能性,我会投20%到地方债(用close-end 基金加大杠杆),80%在股市。

超越市场 Beat the market

If everybody was happy with the market return (Beta Return), it would be a very boring world. Just because there are unlimited opportunities, some people do manage to beat the market and make a better return (Alpha Return) and some people fail to win the market thus they lose money. Today I am going to introduce several strategies that are useful.
如果每个人就安于市场回报(Beta 回报), 这个世界会相当的无聊。正是因为市场上有无穷多的机会,一些人的确能够赢过市场;同时一些人也会输于市场。今天我会介绍一些有用的策略。
First of all, let me introduce Core-Satellite concept: We can assign most of our money into a passive index (e.g S&P 500), let’s say 80% and it is your core position, the rest of money can go to some other investment, such as buying some cool stock like Tesla or Amazon and they are your satellite positions. This composition allows you to gain extra return if the picked stocks are going well, and even if they don’t go well, you still have 80% in the passive index, so downside is limited and you are not going the complete opposite of the market.
先让我介绍一下核心-卫星投资概念:我们可以把大部分钱放到被动管理的大盘(比如 S&P 500), 比如80%, 它是你的核心投资。剩下的钱可以投资一些不错的股票例如特斯拉和亚马逊,这些是你的卫星投资。 这种方式可以让你获得超过大盘的回报, 如果这些股票走势不错,如果他们走势不行,你仍然有80%在大盘里,你的回报不会完全反向市场走向。
There are some options that can be your alpha:
Some good stocks you think will outperform.
Some sector likely to perform (NASDAQ, or QQQ The top 100 stock in NASDAQ).
挑选一些好的板块(比如纳斯达克, 或则QQQ , 纳斯达克前100的股票)
Add some leverage (There are are leveraged ETF, such as UPRO (3 times of return of S&P 500), TQQQ ( 3 times of return of QQQ)
加一些杠杆(3 倍的大盘回报 UPRO, 3 倍 TQQQ的回报)
Some leveraged Muni fund (Their return are very attractive if your tax bracket is high and it also generates passive cashflow every month)
One of my retirement fund has employed leverage UPRO at certain time, and it beats S&P 500 by 10% for the last year.
There could be other options you can apply, let me know what your thoughts are!

美国投资基金 U.S Investment Funds

As the most comprehensive,  sophisticated capital market in the world,  U.S  market has provided numerous investment options.

作为世界上最全面,最成熟的金融市场, 美国市场提供无数的投资选择。

To track the U.S economy: S&P 500 is one of the best proxies because it tracks the biggest 500 U.S company in terms of market value and it is supposed to be the strongest and it has the blend of growth and value in different industries. At the time of crisis, holding S&P 500 is safer than most of investment assuming the sizes of those big company allow them to navigate through the difficult time.  There is a broader index:  total market index that includes big cap, middle cap and small cap if you want to capture all the aspect of the economy(e.g. ITOT, Fidelity total market fund), but the performance is very close to S&P 500 itself due to those big companies taking more than 90% of the total economy. The representative ETFs for S&P500 are IVV, VOO, SPY (SPY being the most popular one)

跟踪美国经济, S&P500是最好的代理之一, 因为它代表美国最大500个公司,最强而且有各个工业,成长,价值各种组合。在经济危机的时候,手持S&P500是最比较安全的方式,因为这些大公司一般可以熬过困难时期而存活下来。还有一些更广阔的市场指数, 包括大,中等,小公司, 这更加全面的追踪美国经济(举例:ITOT ETF,Fidelity total market fund),但是由于美国大公司占了整个市场90%, 他们的表现非常相似。追踪市场的ETF有IVV, VOO, SPY(SPY是最流通一个)

To capture the bond market, there are some varieties as well, bond issued by Federal, local government and enterprises. There are some longer term treasury bill but 20-year treasury bill (TLT) only yields 1.5% now-days making bond market very unattractive. Muni bonds are attractive to people who are in high tax brackets which allow the return to be exempted from federal and local tax if the bond is issued by the local government. Bond issues by company has different ratings: AAA rating is safer with lower return; Junk bond is not safe but return is high.

债券市场也有不同投资方式国债,地方政府债,企业债。政府有不同时间长短的国债,例如TLT代表20年期限的国债, 但是现在只有1.5%回报的国债非常不吸引人。对于处于税率比较高的人来说,地方政府债券是不错的选择,因为利息是不用交联邦,州税的。企业债有不同的评级,AAA的企业债比较安全,回报低,垃圾债不安全,但是回报比较高。

Traditionally, people like to hold balance of stock and bond for better risk-adjusted return. Given that it is low rate environment, to achieve better return, there is a strategy called risk-parity trade, which adds leverage to bond, thus the return is similar to stock even with a combination of bond and stock.

一般来说,人们喜欢持有股票和债券的组合,波动性较小。但是最近是低利息时间,为了更好的收益, 有一种投资策略是risk-parity, 在债券方面增加杠杠,收益就可以和股票差不多。

Sailing 帆船


Going with the family, investment-dog has a chance to learn a bit sailing. Rise the mainsail and jib, and go with the winds. when the sail captures the wind, the whole boat is almost tilted and like flying on the water with full speed. Next time I will talk about sailing in more details.