The Allegory of the Hawk and Serpent
The thought experiment it opens with
“Imagine you have the opportunity to grant your family great wealth and prosperity for 100 years… You must decide what assets to invest in and maintain that allocation for an entire century without ever changing it. The future of your children’s children depends on your decision. What do you do?”
The constraint is the whole argument. Removing the ability to rebalance by judgment forces the portfolio to survive regimes rather than predict them.
The allegory
The Serpent is secular growth — a virtuous cycle of value creation and rising asset prices, begun by some mix of favourable demographics, technology, globalization and prosperity. As the boom matures it is corrupted by greed, “as fiat devaluation and debt expansion replace fundamentals as critical drivers of asset price gains, not unlike a Serpent devouring its tail into oblivion.”
The Hawk is the force that destroys the corrupted cycle, and it has two wings that are not mutually exclusive and often arrive in sequence: the left wing is deflationary (aging population, low inflation, faltering growth, crash, debt default); the right wing is inflationary (fiat default, helicopter money).
Cole dates the seasons: Serpent booms 1947–1963 and 1984–2007; Hawk eras 1929–1946 and 1964–1983.
The finding
Portfolio optimization run over 90 years, since 1929, produces an allocation Cole calls the Dragon Portfolio — the animal that balances both forces:
| Sleeve | Weight |
|---|---|
| Domestic Equity | 24% |
| Active Long Volatility | 21% |
| Physical Gold | 19% |
| Fixed Income | 18% |
| Trend-Following Commodities | 18% |
The comparison that makes the point: a traditional pension portfolio is 73% equity-linked and 21% fixed income. Cole’s charge is that most investors over-allocate to assets that profit from secular growth (equity, credit, real estate) and under-allocate to the ones that profit from change — and that a “diversified” portfolio is typically “exposed as a leveraged long-growth portfolio with no real diversification at all” in a crisis.
The load-bearing claim is about Long Volatility, which he calls “mathematically one of the most under-allocated assets in the tool-box.” His argument is that it is as essential to wealth preservation as fixed income, and that Long Volatility, Gold, Commodity Trend and Discretionary Global Macro should be core holdings rather than satellite ones — owned “regardless of short term performance.”
The Dragon “makes money in the middle, but is most explosive on either wing” of the Hawk.
How to read it
⚠️ This is a fund’s investor letter, and the fund sells long volatility. The paper’s central non-obvious claim — that long vol deserves a ~21% core weight — is also the product Artemis manages. The 90-year backtest is the evidence; the conflict is structural and should be stated whenever the paper is cited.
⚠️ January 2020. Published weeks before a Hawk event the paper did not name. That is a point in its favour on process, not on prediction, and the distinction is worth preserving.
⚠️ Note the unusual copyright terms on the cover page: unauthorized duplication “contractually binds the party to provide a donation to a charity at $1 per page view.” Local archival for private reference is the reason this copy exists; it is not for redistribution.
Connections
- The strongest outside challenge to the 60/40 and risk-parity defaults that sit behind Personal Finances.
- The 100-year framing is a Historical Futurism document as much as an investing one — it argues that generational cycles, not market cycles, are the correct unit of analysis for family wealth.
Where this came from
- Added directly to the collection.
49 pages. A copy is archived locally against link rot; the header links the original source.