Bud Light's No-Win Scenario

Portfolio Armor's Photo
by Portfolio Armor
Sunday, May 21, 2023 - 19:16
Kirstie Alley in Star Trek II
The late Kirstie Alley as the Vulcan Lieutenant Saavik, in command during the Kobayashi Maru test in Star Trek II: The Wrath of Khan (1982).

The Kobayashi Maru Test

Star Trek II: The Wrath of Khan (1982) opens with this iconic scene. If you’re unfamiliar with it, and want to avoid spoilers, watch it before reading below.

Okay, now that everyone who wanted to has seen it, we can get to the salient point for this post, which is that “Kobayashi Maru” has come to refer to a no-win scenario in popular culture. In a previous post, our friend Isaac Simpson wrote about how to save Bud Light, 

But in a recent thread, Auron Macintyre argued that Anheuser-Busch had painted itself into a corner with Bud Light. A viral tweet I saw afterwards suggests he's probably right. I've shared both Macintyre's thread and the viral tweet below, and following that, I have something neat to share with you: a successful use of a leveraged ETF in a small, conservative portfolio. 

Why Bud Light Is Stuck 

The viral tweet that had me believing MacIntyre was right was this one, by Megyn Kelly, quote tweeting comedienne Chrissie Mayr. 

Kelly seemed to have missed that Mayr is right-leaning comedienne mocking the trans insanity, but what's notable here is how wrecked Bud Light's brand is that she wouldn't blink an eye at tweet suggesting Bud Light and transgenderism go together like peanut butter and jelly. 

Now on to that neat example I mentioned of how a conservative investor could successfully hold a leveraged ETF in a small, concentrated portfolio. 

Risky Funds For Conservative Investors

I thought this was kind of interesting. The hedged portfolio construction algorithm on the Portfolio Armor website built this portfolio last November for a small investor unwilling to risk a decline of more than 13% over the next six months. 

The main two positions there were the ProShares UltraShort Bloomberg Natural Gas ETF (KOLD) and Prothena Corp. Plc (PRTA). The algorithm started with equal dollar amounts of both, and then rounded down to get round lots of each. Then it used a tightly collared position in SunPower Corp. (SPWR) to absorb some of the leftover cash. 

Portfolio Armor's algorithm estimated an expected return of 5% for the portfolio, with a best case scenario of a 19% return. Here's how it actually did. 

In the end, the investor was up 13.4%, net of hedging and trading costs, while the SPDR S&P 500 Trust ETF (SPY) was up 5.81%. And despite holding a 2x leveraged, short commodity fund, the investor never risked a decline greater than 12%. You can find an interactive version of that chart here

Maybe an approach for some of you to consider in addition to your precious metals. 


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