Your Portfolio Strategy Will Be The Key To Surviving Volatility in 2025
Addison Wiggin / January 3, 2025
“When it comes to investing, there is no such thing as a one-size-fits-all portfolio.”
–Barry Ritholtz
January 3, 2025— On yesterday’s first day of trading in 2025, markets closed lower. But not before they first rallied far higher, up nearly 1% in early morning trading.
That’s going to be the trend for 2025 – more volatility and a lot more disappointment. Investors who went into 2024 expecting a repeat of 2023 got what they expected. Research from Bloomberg published yesterday reveals among institutional investors on Wall Street the preponderance of bears in early 2024… have now become bullish for 2025.
When the balance of bears capitulates… look out below.
Think about it. For markets to gently rise over 20% in the course of a year for a third time running? The statistics… and common sense… both say “fat chance.” You go long the indexes in ‘25 at your own peril.
Not a problem. It only means the prudent bear only needs to think differently from the herd. In institutional parlance, we might call that “asset allocation.”
Hopefully, you’re willing to discuss how you allocate your portfolio every year.
Following a one-size-fits-all approach won’t work in 2025 like it did in 2024. Today’s whipsaw markets and Grey Swan-laden economy are harder to predict.
Especially since we’ll be getting a whole new policy mix for government spending and political bias coming out of Washington.
Historically, government spending in the United States has hovered around one-third of the total US economy, meaning it represents roughly 37% of Gross Domestic Product (GPD). That’s broken down to about 20% federal, 17% state and local. The percentage has consistently risen since World War II.
During the Biden administration, spending boomed to the highest level ever for an economy that was purportedly doing well.
In other words, government spending has been supporting the empire of debt to a higher level than ever during a non-crisis (relative) peacetime economy.
Analyzing the credit markets in 2025 will be vital. We are particularly concerned about the consumer front.
In the third quarter of 2024, the latest for which data is available, total credit card debt in the United States soared $1.166 trillion—the highest balance since the Federal Reserve Bank of New York began tracking it in 1999.
That record quarter reveals a 51% increase from the pandemic low of $770 billion in the first quarter of 2021, thanks to direct payments to citizens from the US treasury financed by debt.
Credit card debt has increased in eight of the last 10 quarters. New credit card delinquency rates stabilized in late 2024, but the overall balance that’s seriously delinquent continues to grow.
Credit card “utilization”—daily dependence on credit to survive—is just shy of 30% of GDP.
On a macro level, Fed policy also distorts the credit markets. If you’ve watched our research presentation The Great Taking, you know that on September 15, 2022, the Fed did something it has never done since its inception in 1913: It started carrying a negative balance sheet and stopped paying its remittance to the Treasury, purportedly designed to help balance the budget.
In 2022, the Federal Reserve’s interest rate hikes were so aggressive that it forced a bear market in stocks. And caused 3 of the 5 largest bank failures in US history, starting with Signature Bank… then Silicon Valley Bank… then First Republic Bank in successive order.
There’s a reason bonds also sold off heavily: yields soared even as the Fed tried to lower interest rates to address the demand for cheap money on Wall Street and the broader economy. Cheaper rates also help the government roll over the $28 trillion in short-term debt Janet Yellen helped herself to as Treasury Secretary.
These are extraordinary measures for an economy the Biden administration spent considerable time in 2003 and 2024 trying to convince the public was in the best shape it had ever been.
Typically, stocks and bonds move opposite each other, providing some stability over time. Yet in 2022, a “diversified” 60-40 portfolio split of stocks and bonds failed to hold up for just the third year in American history.
Bonds have now had their worst three-year performance on record, as the Fed’s interest rate cuts in 2024 failed to push yields on long bonds lower; instead, they shifted higher, leading to further price drops.
We’re expecting more of the same in 2025: rising stock volatility and bond yields at the same time regardless of the Fed’s best efforts to feed the beast with cheap and dirty money.
We’ve built the Grey Swan Model Portfolio accordingly, around a mix of assets, not just dividend stocks and high-yield bonds, but gold, crypto and alternative assets, including some speculative plays.
Today, our Portfolio strategist Andrew Packer is opening the books on what he calls his “trading” account to give a tutorial on how to shift gears for 2025. Enjoy ~Addison
My “4-C” Trading Portfolio Soared In 2024 – And Should Keep Trending Higher in 2025
Andrew Packer, Grey Swan Investment Fraternity
Happy New Year! Hopefully your investments fared well in 2024, and you beat, or at least kept up, with the S&P 500’s 23% rally.
And it shouldn’t have mattered if you were a day trader or a buy-and-hold investor … 2024 rewarded everyone long the market.
Fidelity reported that the number of 401(K) millionaires hit its highest level ever, a sign that sticking to a simple investment strategy can work out great over time.
For more active traders, 2024 was great for bullish traders. Bearish traders had only a few pullbacks big enough to really profit from. That may change in 2025, as we expect volatility back on the menu.
I found that 2024 was a transformative year for my investments. That’s because I’ve been sticking with what I call a “4-C” portfolio. It’s a way of looking at my “trading” portfolio that allows me to mostly take a passive approach, but also embrace today’s market opportunities.
So without further ado, I’ll share with you the four components of this portfolio, how they fared in 2024, and what I expect in 2025. And then at the very end, I’ll show you how this portfolio performed last year. Even if you don’t want to follow this exact approach, it should give you some ideas for how to position yourself for the New Year.
4-C Component #1: Common Stocks
At its core, about half of my “trading” portfolio is comprised of common stocks that I intend to hold for several years. As long as the fundamentals don’t change, I don’t mind holding indefinitely.
For instance, I’ve held shares of McDonald’s (MCD) since 2009. The burger giant had a volatile year, and ended up declining about 2.2%. After the dividend, it was a breakeven. Hardly something to brag about.
But shares are up nearly six-fold since I bought them in 2009. And with a cost basis of about $50 per share, today’s $7.08 annualized dividend works out
That’s the power of a long-term holding. Other long-term holdings of mine include Berkshire Hathaway (BRK-B), and AT&T (T). Most years, the returns don’t look exceptional, but over time, the returns on these great businesses add up.
But I’m not entirely a value guy. Palantir Technologies (PLTR), a big-data company that’s essentially the world’s top digital defense contractor, soared 340% this year, the second-best returning stock I owned in 2024.
For 2025, my goal is to add some more common stock positions. It depends entirely on what stocks fall into a great buy range, so stay tuned.
4-C Component #2: Cash
The second component to my portfolio is cash. All throughout the 2010s, interest rates were at 0%. Cash was trash. Even in a world of “just” 2% inflation, keeping money in the bank was like holding on to an ice cube and watching it generally melt.
That trend has finally reversed. In 2024, investors could hold cash in a money market account or Treasury bills, earning a yield of over 4%, even as sticky inflation was less than that. As long as there’s a real positive return to hold cash, it should look attractive.
I try and keep my trading portfolio at about 20% cash, but increased that to around 30% in November following the market’s big run, and as interest rates continued to hold up higher. That may be a bit high for younger investors, but if you’re also owning volatile high-risk assets like crypto, it makes sense.
4-C Component #3: Crypto
At the start of 2024, I had about 5% of my portfolio in crypto. Thanks to soaring bitcoin prices, that ended up being closer to 20% before I started to take some profits and lower exposure there.
My largest exposure came from holding shares of MicroStrategy (MSTR). It’s a position I bought in late 2022 as a bitcoin proxy. My goal? Take advantage of bitcoin’s four-year price cycle.
Although 2024 saw the creation of bitcoin ETFs, that wasn’t an option in 2022. MicroStrategy closed the year up 360%, at one point up more than 500%. I took the opportunity to take a “free ride,” selling 20% of my stake in November, and getting back my original capital.
Given bitcoin’s price cycle, I expect more upside into late 2025.
MircoStrategy’s recent decision to embrace an increase in dilution to acquire more bitcoin may lead to much lower share price returns compared to 2024, but I still expect to close out more of this position next year at higher prices than where shares closed the year.
Buy buyer beware – most investors should start with a bitcoin ETF or buy bitcoin itself.
4-C Component #4: Credit
This final component is the “secret sauce” to managing the portfolio. And it’s where most of the “trading” comes in. Credit is a catch-all term for tools like credit spreads, which are growing in popularity with soaring daily options trading.
For me, credit largely encompasses trades like put selling or covered call writing. Both generate cash. With put selling, you’re willing to buy shares of a company if it falls to a certain level.
During periods of market fears, put selling sounds risky, but with great companies and a knowledge of support zone, these trades can bring in regular amounts of cash.
On the flip side, covered call writing can help you either generate additional cash off of a long stock position, or take some profits along the way. You can even use it to ensure you take a “free ride” on a stock.
Remember, a “free ride” is when you sell part of a position to get back your original cost basis in cash. This ensures you take some profits. And that one portfolio position doesn’t come to dominate your portfolio. Just as you don’t need to be “all in” on a stock, you don’t need to be “all out” either.
For instance, covered call writing allowed me to take “free ride” on Palantir.
I got “called away” on 20% of my position at $80 in late December, recovering my cost basis on the 500-share position in this portfolio. Not too shabby.
I (thankfully) started selling covered calls on part of my remaining MicroStrategy position over the past few weeks as well. Any time a stock makes a big move higher, it will take months to consolidate, and selling covered calls can help take some of the sting out of a multi-month sideways price movement.
With these credit tools, my account continues to increase its cash holdings, which in turn earn a reasonable amount of interest today. Looking to 2025, covered call writing should help generate a good portion of my portfolio’s overall returns.
Wrap-Up: The 4-C Approach in 2025
Thanks to soaring prices in 2024 in Palantir and MicroStrategy, my trading portfolio ended the year up 158%, about 6X better than the S&P 500. And it did so with a 20-30% cash holding.
Going into 2025, I’m happy that the 30% of my portfolio that’s in cash can earn a reasonable return, and also be put to use on during a likely downturn this year.
I do see my crypto allocation coming down later in the year, as bitcoin will likely hit its next cycle peak in the summer or autumn.
Time will tell how this approach works in 2025, and where my 4-C allocation system ends up.
My goal with this approach is to beat the market in an up year, so that’s a check for 2024. But I also want to lose much less than the overall market in a down year … stay tuned. ~ Andrew Packer, Grey Swan Investment Fraternity
Regards,
Addison Wiggin,
Grey Swan
P.S. Andrew’s approach may or may not be right for you. He is on the more aggressive side of the spectrum. And Andrew is quick to point out that this is just one brokerage account, not his entire investment holdings. And… what he’s showing you today is not a “retirement account”, but it is an account set up for more aggressive holdings like crypto and options trades.
This portfolio is analogous to following the research that we include in our special reports to paid-up Grey Swan Fraternity members. The correct positions can move the needle on your portfolio – once you’ve built a portfolio of safe assets and longer-term holdings.
Please read the first two paragraphs of this P.S. again. Especially the last line above. Write in with questions, addison@greyswanfraternity.com
But do remember, even as directors of the fraternity, we can’t give you personalized investment advice, but we can share our thoughts on strategy. You’re invited to ask specific questions we can address to all members.
P.P.S. Your questions are perfect if, as many of you have already indicated, you’re in favor of a member-driven community app. Let me invite you again to say “aye” and raise your hand to be involved should we add an online community app to the paid section of the Grey Swan website.
And, as always, send your own comments on the top Grey Swan events of 2025 here: addison@greyswanfraternity.com
So… hit us with your best shot… fire away! Respond to this email address: addison@greyswanfraternity.com