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I put on a position in GLDX (04/17) at 3.74 and pulled it today (04/26) at 4.21 for a 12,061% (ann.) gain. That’s a silly, meaningless number, right? A more meaningful metric is “gains per market day in basis points”, because that makes it comparable to bond investing where 3 bps/day = 7.5%/year, using a 250-day market year. In the case of GLDX, I averaged about 18 bps/market day, which would convert to an annualized gain of 449%.

But an even better metric is to ask “What is the equivalent yield from doing the trade and then sitting in cash for the rest of the year at a zero-percent rate of return?”

The math goes like this: I put $373 at risk. I gained $47 bucks (after commish). That’s a “bond equivalent” yield of 12.6%, or about what an average quality, spec-grade bond is paying these days. Now comes an even more important question. Which would be the riskier trade? That’s a tough question to answer, right? My gut feeling is that getting in and then getting out is the lower-risk trade. But I don’t yet have a way to measure or prove that. I just know that the money has done its work, and if it wants to go on holiday for the rest of the year, it has my permission and blessings.

Why try to compute "asset-class equivalent" returns? Because money is money, and it spends the same at the grocery store or gas pump, no matter its source. If something in the neighborhood of 12%-13% can be obtained from one's investing/trading efforts, and if that rate of return is considered fair wages for one's research time, and if finding those returns is getting hard to do in bonds, then one has to look elsewhere, right?

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When Life Gives You Lemons
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