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Dragon Portfolio: Everything You Need To Know To Get Started!

Educational Series

What is the Dragon Portfolio and Why You Need It

The Dragon Portfolio, created by Chris Cole of artemis capital, is an investment strategy that has been gaining popularity in the financial world. Its ability to generate significant year-over-year returns has made it a favorite among investors.

What sets this portfolio apart is its unique design, which allows it to withstand even the most volatile stock market conditions.

The Dragon Portfolio consists of a few key components, including long volatility, trend-following in commodities, and a few other moving parts. While these components may seem intimidating to new investors, they can be learned and understood with the right guidance.

Long vol, for example, is a strategy that involves betting on increased market volatility, which can be a key driver of returns for the Dragon Portfolio.

However, it is important to note that this strategy requires a good understanding of options trading and risk management.

Similarly, trend-following in commodities involves identifying and capitalizing on commodity trends such as precious metals and energy.

This strategy requires a keen understanding of supply and demand dynamics and a willingness to take a contrarian view when necessary.

Despite the complexity of its components, the Dragon Portfolio is an investment strategy that investors can assemble and manage on their own.

This DIY approach is particularly appealing to those who want to take control of their investments and avoid the high fees associated with traditional active management.

The Dragon Portfolio is a powerful investment strategy that can generate consistent returns year after year.

While it may require some expertise in options trading and commodities, these skills can be learned and mastered with the right guidance.

With its unique design and potential for high returns, the Dragon Portfolio is definitely worth considering for investors looking to take their portfolio to the next level.

How Do You Prepare a Market Crash Portfolio?

In the event of a market crash, a Dragon Portfolio may be a suitable option. However, if you are unable or unwilling to create this type of portfolio, investing in “safe” assets such as gold, commodity producers, and blue-chip dividend-producing stocks can help to strengthen your portfolio against negative market fluctuations.

Benefits of Having a Dragon Portfolio

A Dragon Portfolio is a type of investment strategy that is designed to balance risk and reward. It is named after the mythical creature because it is meant to be a powerful yet balanced approach to investing.

The idea behind the Dragon Portfolio is to have a mix of assets that will perform well in different market conditions. This means that even if one asset class, such as stocks or bonds, is performing poorly, other portfolio assets will help offset those losses.

The Dragon Portfolio typically includes five asset classes:

Equities (stock market), Bonds, Long vol (managed with options contracts), commodity trend following (managed with options contracts), and precious metals. Each of these asset classes have unique characteristics that make them suitable for different market conditions.

For example, equities tend to perform well when the economy is growing, while bonds tend to perform well when the economy is in a recession.

One of the key benefits of having a Dragon Portfolio is that it can help investors to achieve a more stable and consistent return over time.

By diversifying their investments across different asset classes, investors can reduce their overall risk and volatility.

This can be particularly important for retail investors nearing retirement or with a low-risk tolerance.

Overall, the Dragon Portfolio is a powerful investment strategy that can help investors achieve their financial goals while managing risk.

By diversifying their investments across different asset classes, investors can reduce their overall risk and volatility and potentially achieve more stable and consistent returns over time.

What is a Recession-Proof Investment Portfolio?

During an economic recession, having a reliable investment portfolio that can yield consistent returns is important. The Dragon Portfolio is an example of such a portfolio.

Median U.S. Pension System Portfolio

Before diving into Chris Cole's Dragon Portfolio and how it can grow your wealth for decades to come, we better look at the typical portfolio allocation of your average US employee.

It doesn't take long to see why the Fed is so desperate to keep markets propped up. If the financial economy crashes, it will wipe out these fragile, obsolete risk parity and 60/40 portfolio's that many employees are invested in.

The pie charts below show the typical portfolio structure of all the normies out there, just like your friend and family member, Fred.

It comprises of 73% stocks, 21% bonds, and 7% cash.

The Dragon Portfolio is much different than a boring old “Median US System Pension Portfolio”. Take a look.

Dragon Portfolio Allocations

The Dragon Portfolio is a unique investment strategy that money manager Chris Cole developed. It is a well-diversified portfolio that aims to provide a hedge against high inflation, deflation, and market volatility.

The portfolio comprises various asset classes: stocks, bonds, gold, commodities, and long volatility. Each asset class serves a specific purpose in the portfolio and helps reduce risk and maximize returns.

Stocks make up the largest portion of the portfolio at 24%. The stock portion is further diversified across multiple sectors and industries to reduce risk.

Bonds make up 18% of the portfolio and provide stability and income. Physical gold comprises 19% of the portfolio and serves as a hedge against inflation and currency devaluation.

Commodity trend following, which makes up 18% of the portfolio, helps to diversify and provide returns that are not correlated with the stock and bond markets.

Physical Gold – 19%.

Lastly, long volatility, which makes up 21% of the portfolio, provides protection against market crashes and unexpected events.

The Dragon Portfolio is a unique approach to investing that emphasizes diversification and risk management.

While it may not be suitable for every investor, it is worth considering for those looking for a well-diversified portfolio that can provide returns in different market conditions.

By incorporating a variety of asset classes, the portfolio aims to provide a balance between risk and reward.

Dragon Portfolio Vs. Buy The Dip – Who Did Better Over 90 Years' Time?

Using the 60/40 as our investment portfolio of choice for this test, what would happen if we bought the dip every time the market corrected? How much money would we have after 90 years?

Dragon Portfolio Performance

If we started back in 1928 with $1 and maintained good dragon portfolio discipline for 100 years, then the dragon portfolio would have turned $1 into $100k.

If you look back to the section of the video where timeframes were discussed – in the recency bias and risk parity portfolio section – the dragon portfolio does exceptionally well regardless of whether or not we're in a serpent cycle or a hawk cycle.

To take it a step further, the hawk cycle can be inflationary or deflationary, the complete opposite of one another, and the dragon portfolio still crushes it.

Buy The Dip Performance

What would happen if you had taken the advice of every single financial guru on YouTube and just bought the dip?

buy the dip portfolio returns performanceWhenever stocks go down, you are buying because you know the stock market always goes up over time. If you started with a dollar in 1918, you'd have around 4 cents by 2018, which doesn't even include high inflation.

Excluding high inflation, you still would have lost about 96%. Then, your friend and family member, Fred, who tells you that you are wearing a tinfoil hat because you don't want to buy the dip, gets crushed. While you, the tin foil hatter who dares to go against the grain and challenge the mainstream narrative, do quite well and get rich.

I am sure you are saying to yourself, “Yes, George, I'm a tin foil hatter. I agree. I'll raise my hand. I admit. I'm coming out of the closet, a tinfoil hatter…”

  • …But how do I set up this dragon portfolio like Cole?

  • Or better yet, how do I set up a hawk portfolio?

Because I think the cycle of the serpent has come to an end…”

How Does the Dragon Portfolio Perform During Bull Markets?

During periods of market growth, the Dragon Portfolio excels thanks to the significant allocation of assets towards equities.

How to Build a Successful Dragon Portfolio

  1. Start with a long-term investment horizon: The Dragon Portfolio is designed to be a long-term investment strategy, so it's important to have a long-term investment horizon of at least 10 years or more. This is because the portfolio includes more volatile assets than traditional investments, which can lead to short-term losses but potentially higher long-term gains.

  2. Determine your risk tolerance: In the short term, The Dragon Portfolio is not without risk, so it's important to determine your risk tolerance before investing. This means assessing how much risk you are willing to take on and what percentage of your portfolio you are willing to allocate to higher-risk assets.

  3. Allocate assets according to the Dragon Portfolio allocation: The Dragon Portfolio consists of four asset classes: equities, bonds, long volatility, gold, and commodity trend-following strategies. Chris Cole states the ideal allocation is 24% equities, 18% fixed income, 19% gold, 18% long vol, and 21% trend-following strategies.

  4. Invest in low-cost index funds: For the portfolio's equities and long-term treasuries portion, investing in low-cost index funds that track the S&P 500 and long-term treasury bonds is recommended.

  5. Invest in physical gold or gold ETFs: For the gold portion of the portfolio, investors can choose to invest in physical gold or gold ETFs, such as SPDR Gold Shares (GLD) or iShares Gold Trust (IAU).

  6. Invest in managed futures funds: For the trend-following portion of the portfolio, consider looking into managed futures funds, which are designed to follow trends in various markets and asset classes. Some popular options include AQR Managed Futures Strategy Fund (AQMIX) and PIMCO Trends Managed Futures Strategy Fund (PTMAX).

  7. Rebalance the portfolio regularly: It's important to regularly rebalance it to maintain each asset class's target allocation. This means selling assets that have performed well and buying assets that have underperformed to maintain the desired allocation.

  8. Stay disciplined and patient: The Dragon Portfolio is a long-term investment strategy that requires discipline and patience. It's important to stay the course and resist the temptation to make changes based on short-term market fluctuations.

Building a portfolio is a personal decision, and the Dragon Portfolio may not be suitable for everyone. Doing your research and consulting with a financial advisor before making investment decisions is important.

Tips for Optimizing Your Dragon Portfolio As Time Goes On

  1. Rebalance periodically: Since the Dragon Portfolio is an actively managed portfolio, it's essential to rebalance it periodically to maintain the desired asset allocation. The portfolio may deviate from the original allocation as some assets outperform and others underperform.

    To rebalance, you need to sell some overperforming assets and buy more underperforming ones to get back to your target allocation.

  2. Monitor correlation: One of the key principles of the Dragon Portfolio is diversification, and you want to ensure that your portfolio components have a low correlation with each other. Regularly monitor the correlation between different assets and make adjustments if necessary.

  3. Keep an eye on market conditions: The Dragon Portfolio is designed to perform well in different market conditions, but that doesn't mean it's immune to stock market downturns. Keep an eye on the market and adjust your portfolio accordingly. For example, if you expect high inflation, you may want to increase your allocation to inflation-hedging assets like commodities.

  4. Be flexible: The Dragon Portfolio is not set in stone, and you may need to make changes based on your goals, risk tolerance, and market conditions. Be open to making adjustments to your portfolio to keep it aligned with your objectives.

  5. Keep costs low: The Dragon Portfolio includes a mix of different assets, some of which may have higher fees than others. Keep an eye on the fees you're paying for each component and try to keep costs low by choosing low-cost funds or ETFs.

  6. Don't forget about taxes: When making changes to your portfolio, consider the tax implications of your decisions. For example, selling assets that have appreciated in value may trigger capital gains taxes. Plan your portfolio changes to minimize your tax liability.

Overall, the Dragon Portfolio is a complex investment strategy that requires careful monitoring and management.

By following these tips, you can optimize your portfolio over time and increase your chances of achieving your financial independence and retirement goals.

Common Mistakes to Avoid When Creating a Dragon Portfolio

Here are some common mistakes to avoid when creating and managing a Dragon Portfolio:

  1. Failing to Rebalance: The Dragon Portfolio requires periodic rebalancing to maintain the desired asset allocation. Failing to rebalance can lead to an unbalanced portfolio and increase risk.

  2. Chasing Performance: Investors often make the mistake of chasing recent top-performing assets and funds. However, past performance does not guarantee future returns, and this strategy can lead to buying high and selling low.

  3. Neglecting Diversification: Diversification is one of the key principles of the Dragon Portfolio. Neglecting diversification can result in a portfolio that is overly concentrated in a few assets or asset classes, leading to higher risk.

  4. Overlooking Fees: Fees can eat into investment returns, so it's essential to be mindful of them. Investors should seek low-cost index funds and ETFs to reduce expenses.

  5. Ignoring Taxes: Taxes can significantly impact investment returns, so it's important to consider them when managing a portfolio. Tax-efficient investment strategies can help minimize the impact of taxes on investment returns.

  6. Failing to Consider Personal Goals and Risk Tolerance: The Dragon Portfolio is not a one-size-fits-all solution. When creating and managing a portfolio, Investors should consider their financial goals, risk tolerance, and investment time horizon.

  7. Making Emotional Decisions: Emotional decisions can lead to poor investment choices. Investors should focus on their long-term investment goals and stick to a disciplined investment strategy to avoid making impulsive decisions based on short-term market fluctuations.

Example of A Successful Dragon Portfolio

The exact allocations for a model Dragon Portfolio may vary depending on the investor's goals and risk tolerance. However, based on Chris Cole's original paper and Artemis Capital's case study, the portfolio typically includes the following assets:

  • 20% in Long Volatility: This could be achieved by investing in long-dated options or VIX futures, which tend to increase in value during market crashes or sudden volatility spikes.

  • 20% in Trend Following Commodity Trading: This involves investing in commodity futures based on trends and price movements. The goal is to capitalize on long-term trends in the commodity markets and protect against inflation.

  • 20% in Gold: Gold has historically been seen as a safe haven asset and a hedge against high inflation, making it a popular choice for portfolio diversification.

  • 20% in Growth Stocks: This refers to stocks of companies with strong potential for growth, typically in sectors such as technology or healthcare. These stocks may be more volatile than other investments but can offer significant long-term returns.

  • 20% in U.S. Treasury Bonds: Treasury bonds are considered safe investments and can provide a stable source of income. They also tend to perform well during periods of economic uncertainty.

It's important to note that these allocations may be adjusted depending on market conditions and the investor's preferences.

For example, during periods of high inflation, the allocation to commodities and gold may be increased.

Additionally, the allocation to long volatility may be decreased during periods of low volatility in the markets. The Dragon Portfolio is designed to be adaptable and perform well in a variety of market conditions.

Conclusion: Why Dragon Portfolio is Essential for Protecting Your Wealth

The Dragon Portfolio is a unique investment strategy that has attracted a lot of attention from investors and financial experts alike. Its success is largely attributed to its ability to provide above-average returns, regardless of market conditions.

This is because it follows a fixed asset allocation model, which requires less frequent rebalancing than other investment strategies.

The Dragon Portfolio is also known for its resiliency and adaptability, which makes it a popular choice for investors looking for a low-maintenance option.

However, it is important to note that the Dragon Portfolio is not a set-it-and-forget-it investment strategy. While it requires less maintenance than other strategies, it still requires active management of certain components, such as long volatility and commodity trends.

These components can be difficult to manage for retail investors, making it challenging for them to recreate the portfolio. In addition, the Dragon Portfolio may not be suitable for all investors due to liquidity constraints and the risk of dead cash.

Despite these challenges, the Dragon Portfolio is still a promising investment option that can safeguard and grow your wealth. Seeking the help of a professional can help investors navigate these challenges and ensure that their investment strategy aligns with their financial goals.

Overall, the Dragon Portfolio is an innovative approach to investing that can offer above-average returns and is certainly worth considering for any investor looking to diversify their portfolio.