The Cockroach Portfolio: The Strategy Behind the Offensive + Defensive “Least Shitty Portfolio” with Jason Buck

When it comes to portfolio construction most investors are laser focused on offensive assets.

Stocks and bonds.

The 60/40 portfolio.

But 2022 revealed this type of classic configuration is woefully unprepared for certain economic regimes such as high inflation.

What if there was a portfolio that cared just as much about its ability to defend?

Well, such a portfolio exists!

The Cockroach Portfolio.

The Cockroach Portfolio - Digital Art

Aside from having the coolest name in the game it also cleverly attempts to be “the least shitty portfolio”.

Now that’s a refreshing take in an industry rife with ego, bold claims and unfulfilled promises.

What’s different about The Cockroach Portfolio is that it takes a balanced approach to diversification between traditional and adaptive assets.

Fortunately, we have its creator Jason Buck to unpack everything in detail as we continue our “Strategy Behind The Fund” series.

Without further ado, let’s turn things over to Jason!

The Cockroach Portfolio: Offensive and Defensive Juggernaut All Weather Approach To Asset Allocation

Meet Jason Buck of Mutiny Funds - Digital Art

Meet Jason Buck of Mutiny Funds

Cockroach Portfolio Four Quadrant Pirate - Digital Art

Jason Buck is an entrepreneur and trader specializing in volatility, options hedging, and portfolio construction.

After living through 2008 as a commercial real estate developer, Jason became focused on how investors could better manage their risk.

He spent the following decade consulting on portfolio construction and building bespoke long volatility strategies for family offices and high net worth individuals.

This experience in cross asset class trading spotlighted the need to create a diversified long volatility and tail risk fund designed to hedge the risks associated with economic downturns.

A former D1 soccer player and IMG academy graduate, Jason currently resides in Napa Valley, California.

The Cockroach Portfolio Strategy Review with its creator Jason Buck
source: mutinyfund.com/

Reviewing The Strategy Behind The Cockroach Portfolio with its creator Jason Buck

The Cockroach Portfolio is the least shitty portfolio ever created represented in the form of an infographic - digital art

Hey guys! Here is the part where I mention I’m a travel content creator! This “The Strategy Behind The Fund” interview is entirely for entertainment purposes only. There could be considerable errors in the data I gathered. This is not financial advice. Do your own due diligence and research. Consult with a financial advisor.

The Cockroach Portfolio Four Quadrant Asset Allocation: True Diversification Requires 4 Macro Quadrants
source: mutinyfund.com (The investment performance results presented here are based on historical backtesting and are hypothetical. Past performance, whether actual or indicated by historical tests of strategies, is not indicative of future results. The results obtained through backtesting are only theoretical and are provided for informational purposes to illustrate investment strategies under certain conditions and scenarios.)

These asset allocation ideas and model portfolios presented herein are purely for entertainment purposes only. This is NOT investment advice. These models are hypothetical and are intended to provide general information about potential ways to organize a portfolio based on theoretical scenarios and assumptions. They do not take into account the investment objectives, financial situation/goals, risk tolerance and/or specific needs of any particular individual. 

What’s The Strategy Of The Cockroach Portfolio? - Digital Art

What’s The Strategy Of The Cockroach Portfolio?

For those who aren’t necessarily familiar with a “Cockroach Portfolio style of asset allocation” (that extends beyond merely stocks and bonds), let’s first define what it is and then explain this strategy in practice by giving some clear examples.

Our goal at Mutiny Funds is to help investors maximize the long-term growth of their portfolios.

We approach this problem differently than most because of our core belief that:

“Offense wins games. Defense wins championships.” 

The Cockroach Portfolio where Offense wins games. Defense wins championships - digital art

In an investing context, this means we believe that combining defensive-minded strategies such as long volatility or trend with offensive-minded strategies such as stocks or fixed income provides the best opportunity for long-term capital growth while reducing drawdowns in the interim.

The promise of diversification is to allow investors to improve risk-adjusted returns – either by realizing less risk for a similar return or a higher return for the same risk.

We view true diversification as the ability to accomplish the two things most investors care about in their portfolios:

  • Having a lot of assets in the future: That is, maximizing the long-term compounding, or expected terminal wealth of a portfolio.

  • Having enough assets in the interim: That is, making sure that if we need to use our assets for a family emergency, illness, or other unexpected life events (dare I say global pandemic?) in the near term, that it will be there when we need it.

Cockroach Portfolio playing defensive by being a hockey goaltender and making a save - digital art

We believe building a team of diversified strategies with different return drivers is the best way to facilitate these dual objectives.

The Mutiny Investment Strategy takes a multi-strategy, multi-manager approach.

This approach hopes to offer broader and more effective diversification across both offensive and defensive strategies.

Cockroach Portfolio: Ensemble Approach to diversify each quadrant including stocks, bonds, tend and volatility
source: mutinyfund.com (The investment performance results presented here are based on historical backtesting and are hypothetical. Past performance, whether actual or indicated by historical tests of strategies, is not indicative of future results. The results obtained through backtesting are only theoretical and are provided for informational purposes to illustrate investment strategies under certain conditions and scenarios.)

Unique Features Of The Cockroach Portfolio - Digital Art

Unique Features Of The Cockroach Portfolio

Let’s go over all the unique features your fund offers so investors can better understand it.

What key exposure does it offer?

Is it static or dynamic in nature?

Is it active or passive?

Is it leveraged or not?

Is it a rules-based strategy or does it involve some discretionary inputs?

How about its fee structure?

The Cockroach Portfolio what makes it unique with all of its features - digital art

We use the four quadrant model, originally designed by Harry Browne to cover as many macroeconomic environments as possible along the cross axis of Growth and Inflation.

We use equal allocations to: Global Stocks, Global Bonds, Long Volatility, and Commodity Trend.

We also carve off a little bit for Fiat Hedges with Gold, BTC futures, and ETH futures.

The asset class buckets are fixed weights that are rebalanced monthly.

An ensemble of hedge fund managers and traders with a contrarian outlook on life - digital art

We use an ensemble of active managers to be able to harness the dispersion of returns within the asset class buckets.

We use the implicit leverage that we can achieve in the futures and options markets.

This gives us notional exposures of:  50% Global Stocks, 50% Global Bonds, 50% Long Volatility ensemble, 50% Commodity Trend ensemble, and 20% for Fiat Hedges.

The Cockroach Portfolio is made up of the following: This gives us notional exposures of:  50% Global Stocks, 50% Global Bonds, 50% Long Volatility ensemble, 50% Commodity Trend ensemble, and 20% for Fiat Hedges - digital art

Every strategy, including the ones we don’t utilize, is a combo of rules-based and discretionary inputs, no matter how systematic they try to be, their discretionary inputs create the system.

We are a high fee product.

For us it is about what are your net return after fees on a risk/drawdown adjusted basis?

Cockroach Portfolio defensive assets making a save in soccer as the goalkeeping - digital art

We provide 100% exposure to active management Defensive strategies, but we overlay the 100% exposure to the Offensive assets and manage those in-house.

The Cockroach Portfolio defends in all four economic regimes

What Sets The Cockroach Portfolio Apart From Other Asset Allocation Strategies?

How does your fund set itself apart from other asset allocation funds being offered in what is already a crowded marketplace?

What makes it unique?

What Sets The Cockroach Portfolio Apart From Other Asset Allocation Strategies? - Digital Art

My partner, Taylor Pearson, and I built exactly what we wanted that was not available in the marketplace.

Studies show that investors should have large allocations to Commodity Trend and Long Volatility.

Yet, no one actually does this in practice.

We run equal exposures to the Defensive side of our portfolio.

We also built this because non-institutional investors generally do not have access to products like ours.

Most of our managers have minimums of $5M, which becomes even more prohibitive when you are building ensembles.

We built our products so that we could personally access these strategies, and in taking on outside clients this allows us to collectively get access to these ensembles of active managers starting at a $100,000 initial investment.


source: Flirting With Models on YouTube

The Cockroach portfolio with sword and shield ready for economic regime battle

What Else Was Considered For The Cockroach Portfolio?

What’s something that you carefully considered adding to your fund that ultimately didn’t make it past the chopping board?

What made you decide not to include it?

What Else Was Considered For The Cockroach Portfolio? - Digital Art

We constantly are assessing managers across the investing landscape.

For example, we allocate to 14 Volatility managers and track another 30-40, which we believe is basically everyone in the Vol space.

There are a myriad of reasons why a strategy is not a good fit.

It’s more about finding niche managers that have a specific strategy that will fill out any holes in our ensemble approaches.

We decided early on not to include equity short selling strategies into our Long Volatility and Tail Risk ensemble because we believe these strategies are negative expected value, negatively skewed, and there are too many counterparty risks to their margin and borrow costs.


source: Mutiny Funds on YouTube

The Cockroach Portfolio performs well during market chaos

When Will The Cockroach Portfolio Perform At Its Best/Worst?

Let’s explore when your fund/strategy has performed at its best and worst historically or theoretically in backtests.

What types of market conditions or other scenarios are most favourable for this particular strategy?

On the other hand, when can investors expect this strategy to potentially struggle?

When Will The Cockroach Portfolio Perform At Its Best/Worst? - Digital Art

We try to build the least shitty portfolios.

Most people are trying to optimize for the perfect portfolio.

We do not believe this is possible.

We try to build boring, robust portfolios that just muddle along in any environment.

We are never going to be the best or worst portfolio in any given year.

By reducing the drawdowns, we believe our Cockroach portfolio will effectively and efficiently compound savings over the short and long term.

The point to proper portfolio diversification is that you will always have a part of your portfolio that makes you want to puke.

We do not have a crystal ball, we cannot predict the future, so we try to structure a portfolio that should survive any market environment.

The Mighty Cockroach Portfolio Defeating The Bear and Bull Market Onboard The Pirate Ship - Digital Art


source: ReSolve Asset Management on YouTube

Reasons for investors to consider the cockroach portfolio

Why Should Investors Consider The Cockroach Portfolio?

If we’re assuming that an industry standard portfolio for most investors is one aligned towards low cost beta exposure to global equities and bonds, why should investors consider your fund/strategy?

Why Should Investors Consider The Cockroach Portfolio? - Digital Art

We have no problem with beta as they tend to do well for very long stretches of time, until they crash unexpectedly.

We just believe that if we pair them with Defensive assets then it will improve your long-term risk-adjusted returns.

Long Volatility assets should do well when there is a liquidity cascade and everything sells off sharply.

Commodity Trend has historically done well in a long, slow, protracted drawdown or recession.

More importantly, it is about the emergent quality of a diversified portfolio and what rebalancing can do for you.

Take March 2020 as an example, as markets sell off, long volatility was providing a ballast, which is incredibly helpful from a behavioral standpoint of managing fear and not panicking.

In addition, the ability to rebalance the gains from the Volatility portion into Stocks at that lower cost basis, is exactly what we need to do to improve compounding.


source: Rocket Dollar on YouTube

How Does The Cockroach Portfolio Fit Into A Portfolio At Large? - Digital Art

How Does The Cockroach Portfolio Fit Into A Portfolio At Large?

Let’s examine how your fund/strategy integrates into a portfolio at large.

Is it meant to be a total portfolio solution, core holding or satellite diversifier?

What are some best case usage scenarios ranging from high to low conviction allocations?

How Does The Cockroach Portfolio Fit Into A Portfolio At Large? - Digital Art

We believe the Cockroach Strategy is a Total Portfolio Solution.

We have 17 sub-managers, while continually adding more as AUM increases.

We also have almost 20 assets that we roll in-house on a monthly basis using the futures markets.

We feel this is one of the most broadly diversified Total Portfolio Solutions we have ever seen, which is why we built it.

We believe that the Cockroach Strategy tends to pair well with deterministic cash flows that one can get from private Real Estate or private businesses.

The combo of our liquid markets portfolio and private illiquid assets has a nice symbiotic effect.

The Cockroach Portfolio with sword and shield anime Japanese style

The Cons of The Cockroach Portfolio

What’s the biggest point of constructive criticism you’ve received about your fund since it has launched?

The Cons of The Cockroach Portfolio - Digital Art

Generally I think people have hindsight bias and they don’t like true diversification.

People want all aspects of their portfolio to have positive returns, but this simply is not proper diversification.

Investing requires time which is multiplication not addition, and a portfolio like ours really shines over time.

We are not likely to be impressive over a month or a quarter.


source: Excess Returns on YouTube

Lean cockroach portfolio ready for battle with sword

The Pros of The Cockroach Portfolio

On the other hand, what have others praised about your fund?

The Pros of The Cockroach Portfolio - Digital Art

Our clients tend to love the “set it and forget it” aspect of our strategy.

Clients love having access to the Defensive strategies that they previously did not have access to.

I would like to see people go back to a time where they were not checking their portfolios 7 times a day on their smartphones.

We hope to manage their savings prudently, so they can enjoy their daily passions and be more present with the people they love.


source: RCM Alternatives on YouTube

The Cockroach Portfolio With Giant Shield Ready To Defend

Constantly Improving & Working On Cockroach 2.0

We’ll finish things off with an open-ended question.

Is there anything that we haven’t covered yet that you’d like to mention about your fund/strategy?

Constantly Improving & Working On Cockroach 2.0 - Digital Art

We are constantly working on improving our portfolio and finding new niche managers.

We are always working on what Cockroach 2.0 could look like by combining what we do with those deterministic private cash flow investments into one capital efficient vehicle that holds all the world’s asset classes and rebalances them.

Mutiny Funds Logo: Connect With Jason Buck
source: mutinyfund.com

Connect With Jason Buck of Mutiny Funds

Website: Mutiny Funds

Fund: The Cockroach Portfolio 

Podcast: Mutiny Funds / Pirates Of Finance 

Twitter: @MutinyFunds / @jasoncbuck (Jason) / @TaylorPearsonMe (Taylor)

Cockroach Portfolio Is Prepared For All Economic Regimes And Outcomes - Digital Art

Nomadic Samuel Final Thoughts

I want to personally thank Jason for taking the time to participate in the “Strategy Behind The Fund” series by contributing thoughtful answers to all of the questions!

Jason was also a guest for the “Investing Legends” series (The Cockroach Portfolio | A Diversified Portfolio Ready For All Economic Regimes) which I recommend checking out.

If you’ve read this article and would like to have your fund featured, feel free to reach out to nomadicsamuel at gmail dot com. 

That’s all I’ve got!

Ciao for now!

DISCLAIMER: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RETURNS
This article provides information regarding the following commodity pools: The Long Volatility Fund LLC and The Cockroach Fund, LLC (collectively the “US Funds”) and Mutiny Funds Cayman Ltd. (together with the US Funds, collectively the “Fund(s)“), which are managed and operated by Attain Portfolio Advisors LLC and Mutiny Funds  LLC (the “Managers”). Investments in the US Funds are only available to Accredited Investors as defined in Rule 501 of Regulation D of The Securities Act of 1933. Investments in Mutiny Funds Cayman Ltd. are only available to non-US investors.This content is being provided for information and discussion purposes only and should not be seen as a solicitation for said Fund(s). Any information relating to the Fund(s) is qualified in its entirety by the information included in the Fund’(s)’ offering documents and supplements (collectively, the “Memorandum(s)”) described herein. Any offer or solicitation of the Fund(s) may be made only by delivery of the Memorandum(s). Before making any investment in the Fund(s), you should thoroughly review the Memorandum(s) with your professional advisor(s) to determine whether an investment in the Fund(s) are suitable for you in light of your investment objectives and financial situation. The Memorandum(s) contain important information concerning risk factors, including a more comprehensive description of the risks and other material aspects of an investment in the Fund(s), and should be read carefully before any decision to invest is made. This site is not intended for European investors, and nothing herein should be taken as a solicitation of such investors.

Important Information

Investment Disclaimer: The content provided here is for informational purposes only and does not constitute financial, investment, tax or professional advice. Investments carry risks and are not guaranteed; errors in data may occur. Past performance, including backtest results, does not guarantee future outcomes. Please note that indexes are benchmarks and not directly investable. All examples are purely hypothetical. Do your own due diligence. You should conduct your own research and consult a professional advisor before making investment decisions. 

“Picture Perfect Portfolios” does not endorse or guarantee the accuracy of the information in this post and is not responsible for any financial losses or damages incurred from relying on this information. Investing involves the risk of loss and is not suitable for all investors. When it comes to capital efficiency, using leverage (or leveraged products) in investing amplifies both potential gains and losses, making it possible to lose more than your initial investment. It involves higher risk and costs, including possible margin calls and interest expenses, which can adversely affect your financial condition. The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the official policy or position of anyone else. You can read my complete disclaimer here

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