Search found 394 matches

by lee1026
Mon Aug 17, 2015 1:14 pm
Forum: Investing - Theory, News & General
Topic: XIV - Bogleheads Approved "Risk Premium" Investing?
Replies: 42
Views: 4716

Re: XIV - Bogleheads Approved "Risk Premium" Investing?

The ETNs rebalance automatically for no cap gains tax. Also, just because the market experiences a 20% loss in a single day doesn't mean that the VIX futures will double in a single day, I'm a bit confused as to why people are equating XIV with a 5x SPY ETF. While I can't say with any certainty on ...
by lee1026
Mon Aug 17, 2015 12:45 pm
Forum: Investing - Theory, News & General
Topic: XIV - Bogleheads Approved "Risk Premium" Investing?
Replies: 42
Views: 4716

Re: XIV - Bogleheads Approved "Risk Premium" Investing?

The problem with leverage is it increases arithmetic mean but the increase in volatility can decrease CAGR. CAGR being what the investor ultimately cares about. I pulled this formula from Investopedia, hoping it's right: (1 + r)^2 - StdDev^2 = (1 + CAGR)^2 suppose r = 0.10 and StdDev = 0.2. Your ex...
by lee1026
Mon Aug 17, 2015 11:11 am
Forum: Investing - Theory, News & General
Topic: the 12 commandments of gold bugs
Replies: 62
Views: 6521

Re: the 12 commandments of gold bugs

...From 1933 to 1971 it was effectively illegal for U.S. citizens to invest in gold... It is pointless to talk about the returns from investing in gold during a period where it was illegal to do so. Not at all. In the first place, over any period of time when the dollar was officially pegged to gol...
by lee1026
Sun Aug 16, 2015 12:45 pm
Forum: Investing - Theory, News & General
Topic: Does higher volatility make long-term bonds + stocks better than intermediate-term bonds + stocks?
Replies: 54
Views: 6446

Re: Does higher volatility make long-term bonds + stocks better than intermediate-term bonds + stocks?

Keep in mind that to some extent, inflation is very good for shareholders. The value of a corporation is partly owned by shareholders, and partly owned by bond holders. In a world where bondholders do very badly, shareholders will do well.

The period of 1940-1982 was not a bad one for shareholders.
by lee1026
Sun Aug 16, 2015 11:52 am
Forum: Investing - Theory, News & General
Topic: the 12 commandments of gold bugs
Replies: 62
Views: 6521

Re: the 12 commandments of gold bugs

Sure, you could buy Dec 2020 WTI futures for $64, a premium of about 50% over spot. After five years, you could roll to 2025, and so on, up until 2055. There is considerable uncertainty around contango/storage costs. It's not clear to me that this reduces variance relative to buying and holding gol...
by lee1026
Sun Aug 16, 2015 1:16 am
Forum: Investing - Theory, News & General
Topic: the 12 commandments of gold bugs
Replies: 62
Views: 6521

Re: the 12 commandments of gold bugs

Suppose you want to hedge your future energy costs (as measured by the price of WTI) in the year 2055. Which of these two investments, if held for 40 years, has the lowest variance in number of barrels of oil you can purchase in 2055: (1) an ounce of gold, (2) $1116 in short term T-bills rolled ove...
by lee1026
Fri Aug 14, 2015 11:44 am
Forum: Investing - Theory, News & General
Topic: Does higher volatility make long-term bonds + stocks better than intermediate-term bonds + stocks?
Replies: 54
Views: 6446

Re: Does higher volatility make long-term bonds + stocks better than intermediate-term bonds + stocks?

For a high-equity portfolio, are nominal treasuries or TIPs better? I would think nominal because the correlation to equities is lower and you get compensated for taking on "inflation risk" so over the long run nominal treasuries should have higher expected return. Unfortunately historical TIPS dat...
by lee1026
Fri Aug 14, 2015 9:42 am
Forum: Investing - Theory, News & General
Topic: Does higher volatility make long-term bonds + stocks better than intermediate-term bonds + stocks?
Replies: 54
Views: 6446

Re: Does higher volatility make long-term bonds + stocks better than intermediate-term bonds + stocks?

1.55% standard deviation is nothing to be sneezed at. 5.55% inflation over the next 30 years would mean terrible things for bond buyers today.
by lee1026
Wed Aug 12, 2015 8:48 pm
Forum: Investing - Theory, News & General
Topic: CDs vs. treasury bonds
Replies: 101
Views: 13601

Re: CDs vs. treasury bonds

fwd CD rates were 2.53% and 2.48% for the 1x5 and 2x5. I think this is where our math differed. I used the spread between 1 year treasury and 5 year treasury to calculate the "forward" CD rate. Calculating it that way got me a forward rate of around 40 bps over the current price for one year out, a...
by lee1026
Wed Aug 12, 2015 5:31 pm
Forum: Investing - Theory, News & General
Topic: CDs vs. treasury bonds
Replies: 101
Views: 13601

Re: CDs vs. treasury bonds

I fairly recently figured the actual market value of the CD put as around 25-30bps, per year over 5 yrs, assuming a penalty of 6 mo's interest, using estimated longer term interest rate swap option volatilities and roughly modeling the actual 5 yr american style option. One reason it's going to ten...
by lee1026
Tue Aug 11, 2015 10:50 pm
Forum: Personal Consumer Issues
Topic: Leasing vehicle vs. buying
Replies: 23
Views: 2410

Re: Leasing vehicle vs. buying

Isn't this a little like trying to beat the stock market? Why would I think that I'd be any better at predicting future car values than the people who do this for a living and have a lot more information than I do? Seems to me it's just a matter of luck. Leases come with an option on the price of a...
by lee1026
Tue Aug 11, 2015 9:12 pm
Forum: Investing - Theory, News & General
Topic: CDs vs. treasury bonds
Replies: 101
Views: 13601

Re: CDs vs. treasury bonds

But I probably wouldn't break/reinvest anyway unless I was guaranteed (assuming no bank default) to at least break even by the end of the original term. So based on your description, sounds like the main benefit is the extra 25 bps you earn on selling the put. Extra 25 bps per quarter, so a whole p...
by lee1026
Tue Aug 11, 2015 7:46 pm
Forum: Investing - Theory, News & General
Topic: CDs vs. treasury bonds
Replies: 101
Views: 13601

Re: CDs vs. treasury bonds

And the early withdrawal option of a good direct CD pretty much makes duration irrelevant, since there liquidation value is not sensitive to interest rate change, but if you want to put a duration value on it (as a measure of interest-rate sensitivity), it is closer to a 1-year bond than a 5-year b...
by lee1026
Tue Aug 11, 2015 4:22 pm
Forum: Investing - Theory, News & General
Topic: CDs vs. treasury bonds
Replies: 101
Views: 13601

Re: CDs vs. treasury bonds

As someone who is admittedly unfamiliar with CDs, there might be a few things to consider. For most CDs, people reinvest all of the interest into the CD. I am not sure if this is required, or just something that people do. If it is required, the proper point of comparison for a treasury would be the...
by lee1026
Sun Aug 09, 2015 12:28 am
Forum: Personal Investments
Topic: Best way to invest in OIL
Replies: 66
Views: 18730

Re: Best way to invest in OIL

I have ALWAYS wondered why there is no ETN for spot oil prices, but don't see that happening now with oil prices down in the dumps. If there is a way to track the spot price of oil, whoever who holds the formula can make billions with no risk. When oil is in contango, like now, simply go long on sp...
by lee1026
Sun Aug 02, 2015 12:24 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

The options market currently believe that bond returns are positively skewed. If you disagree, the bonds option markets may not be a bad place to go.
by lee1026
Mon Jul 27, 2015 11:06 pm
Forum: Investing - Theory, News & General
Topic: Help buying LEAPs
Replies: 26
Views: 3931

Re: Help buying LEAPs

I assumed that it would be an exchange based derivative. For example, if the CBOE were to add LEAPS options at 5 year intervals and then 10 year intervals beyond the current LEAPS limit. In that hypothetical, I suspect there will be arbitrageurs who deploys the hedge that I described. If it is OTC a...
by lee1026
Mon Jul 27, 2015 7:57 pm
Forum: Personal Investments
Topic: Why invest in BNDX's when 30 day SEC yield = 0.76%.
Replies: 102
Views: 13749

Re: Why invest in BNDX's when 30 day SEC yield = 0.76%.

But think about it -- this only creates a larger cliff for Euro bonds to fall from. Eventually, the piper will come calling. Maybe hedge return is enough to offset this, maybe it isn't. On one hand, I agree with you. Regardless of how bad the deflation problem in Europe is (or isn't) those bond yie...
by lee1026
Mon Jul 27, 2015 6:02 pm
Forum: Personal Investments
Topic: Why invest in BNDX's when 30 day SEC yield = 0.76%.
Replies: 102
Views: 13749

Re: Why invest in BNDX's when 30 day SEC yield = 0.76%.

Maybe it is because I use too much leverage, but I mainly look at returns after adjusting for the risk free rate. If we move permanently to a higher interest rate level in the US, there is no reason to expect that the returns of the treasuries will ever return to positive after been beaten down by a...
by lee1026
Mon Jul 27, 2015 5:00 pm
Forum: Personal Investments
Topic: Why invest in BNDX's when 30 day SEC yield = 0.76%.
Replies: 102
Views: 13749

Re: Why invest in BNDX's when 30 day SEC yield = 0.76%.

It's true that the hedging may introduce a lot of variability, but there's no way that this could be incorporated into a linear duration/yield framework. One possible way in which the SEC yield helps is if you take the very conservative view that you cannot expect any particular returns from hedgin...
by lee1026
Mon Jul 27, 2015 11:33 am
Forum: Investing - Theory, News & General
Topic: Help buying LEAPs
Replies: 26
Views: 3931

Re: Help buying LEAPs

This isn't my specialty, but I wonder who would take the short side of the 30-year option trade. That would be costly for a bank to keep on its balance sheet. I think there are variable annuities with floors that might actually be similar. Why would it be costly for a bank to keep on its balance sh...
by lee1026
Sun Jul 26, 2015 4:02 pm
Forum: Personal Investments
Topic: Why invest in BNDX's when 30 day SEC yield = 0.76%.
Replies: 102
Views: 13749

Re: Why invest in BNDX's when 30 day SEC yield = 0.76%.

Yep, doesn't look like they took into account that overnight interest rates are considerably higher in Canada then in the US.
by lee1026
Sun Jul 26, 2015 3:48 pm
Forum: Personal Investments
Topic: Why invest in BNDX's when 30 day SEC yield = 0.76%.
Replies: 102
Views: 13749

Re: Why invest in BNDX's when 30 day SEC yield = 0.76%.

As I've cited in my previous post, the total currency hedging cost (tracking error) has been of an annualized 2% for a major S&P 500 index ETF hedged to the Canadian dollar, between 2006 and 2011. This is significant. All this during a time when, as far as I know, the ETF didn't have to deal with a...
by lee1026
Fri Jul 10, 2015 8:24 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

(I still think the amounts of leverage talked about in this thread are kind of nuts.)
Joy of dealing with treasuries, I guess.
by lee1026
Sun Jul 05, 2015 2:16 am
Forum: Personal Investments
Topic: Risks of ETN
Replies: 17
Views: 6601

Re: Risks of ETN

If you are confident holding a position on VXX or XIV, then you should able to do it with futures. VXX and XIV are simply funds that hold either long or short position on the underlying futures. Since VXX and XIV is based on the underlying futures rather then the VIX itself, I would suggest understa...
by lee1026
Sat Jul 04, 2015 2:16 pm
Forum: Personal Investments
Topic: Risks of ETN
Replies: 17
Views: 6601

Re: Risks of ETN

Shorting XIV also have possible infinite losses - XIV can go up, potentially without bound. Meanwhile, going long on a VIX future have a very limited loss - if VIX goes to zero and stays there, the person going long on the futures would lose 16K per contract, and he can't possibly lose more. XIV is ...
by lee1026
Sat Jul 04, 2015 1:21 pm
Forum: Personal Investments
Topic: Risks of ETN
Replies: 17
Views: 6601

Re: Risks of ETN

Why would you want to short XIV rather than just going long on the underlying futures? XIV have relatively cheap borrow fees, but the underlying futures don't have any borrow fees. The compounding aspects of an inverse fund is fascinating, but I don't think that is a good reason for paying fairly su...
by lee1026
Thu Jun 25, 2015 8:20 pm
Forum: Investing - Theory, News & General
Topic: Thoughts on Fixed-Maturity Bond Funds?
Replies: 29
Views: 7208

Re: Thoughts on Fixed-Maturity Bond Funds?

Why not buy a treasury for whatever date you want and call it a day? 0 expense ratio.
by lee1026
Wed Jun 17, 2015 10:12 pm
Forum: Personal Investments
Topic: Selling Fund Before Dividend Distribution & Buying it Right Back to Avoid Withholding Tax
Replies: 16
Views: 3909

Re: Selling Fund Before Dividend Distribution & Buying it Right Back to Avoid Withholding Tax

Should work fine based on historical results. You will have a small tracking error due to you missing one night of results per year, but I doubt the difference will be noticeable.
by lee1026
Thu May 14, 2015 2:19 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

It is more the latter but some of the first. Futures accounts can't go negative, but the securities account can. So the collateral in stocks/bonds allowed me to take a margin loan and transfer that cash into the futures account. I am net cash positive, so I'm not paying any interest on that margin ...
by lee1026
Wed May 13, 2015 9:39 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

There are major tax benefits to using ETFs for stocks vs futures - the ability to defer taxes on capital gains is quite valuable and should not be thrown away lightly.
by lee1026
Wed May 13, 2015 3:51 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

I don't think there's any one definition, and the idea of there being "parity" is more marketing spin than a strict requirement. The hope is that the different assets have positive returns, not just low correlations, I don't think that is necessary. Negative correlations can make for for negative r...
by lee1026
Tue May 12, 2015 11:54 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

1994? Stocks and bonds were both down from what I remember.
by lee1026
Sun May 10, 2015 4:09 pm
Forum: Investing - Theory, News & General
Topic: How is Ameritrade making money from me?
Replies: 17
Views: 2575

Re: How is Ameritrade making money from me?

-Securities Lending If your brokerage account is eligible for margin trading (whether or not you ever use the margin is irrelevant) you probably signed an agreement allowing them to use your stocks for security lending (and you’re probably not remunerated for it) That is wrong. They are only allowe...
by lee1026
Wed Apr 29, 2015 7:30 pm
Forum: Investing - Theory, News & General
Topic: 140% Stocks (or why the Kelly criterion is cool)
Replies: 98
Views: 14462

Re: 140% Stocks (or why the Kelly criterion is cool)

But why would anyone ever care practically about what happens one in a billion times? I doubt anyone would care practically; but it doesn't change the mathematical reality of expected value. It also explains the difference between the theoretical (more leverage on a winning trade = more money) and ...
by lee1026
Wed Apr 29, 2015 4:03 pm
Forum: Investing - Theory, News & General
Topic: 140% Stocks (or why the Kelly criterion is cool)
Replies: 98
Views: 14462

Re: 140% Stocks (or why the Kelly criterion is cool)

I know graphs are more entertaining, sorry. :D Anyway these results like any historical results don't 'prove' anything about the future, nor would collecting them further back, whereas theoretical results out to infinity are meaningless (the usual dilemma). However I'd say the *general indication* ...
by lee1026
Tue Apr 28, 2015 8:15 pm
Forum: Investing - Theory, News & General
Topic: 140% Stocks (or why the Kelly criterion is cool)
Replies: 98
Views: 14462

Re: 140% Stocks (or why the Kelly criterion is cool)

Incidentally I'm not sure where or how risk, and risk-adjusted reward, make their appearance in the Kelly criterion framing. What exactly is the measure of risk in the Kelly world, and what is the counterpart to the Sharpe ratio? Sharpe ratio is independent of leverage, so all of the bets that we a...
by lee1026
Mon Apr 27, 2015 6:23 pm
Forum: Personal Investments
Topic: Investing on Margin
Replies: 79
Views: 12030

Re: Investing on Margin

From a tax perspective, bond futures are more efficient than leveraging bond ETFs because of the dividends. Bond dividends are considered ordinary income. Futures are capital gains/losses and are treated 60% long-term 40% short-term. You can carry forward and offset any amount of capital gains, but...
by lee1026
Fri Apr 24, 2015 6:17 pm
Forum: Personal Investments
Topic: Investing on Margin
Replies: 79
Views: 12030

Re: Investing on Margin

If you take the idea to its logical conclusion, you end up with a plan like this: 1. Figure out how much stocks and bonds you are going to have on the day of your retirement. 2. Figure out how much you have to buy today to end up with that much stock & bonds in the future. 3. Buy the amount from (2)...
by lee1026
Wed Apr 22, 2015 1:49 pm
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

Incidentally, you forgot to specify exactly what it fails at. My guess is not something that anyone was trying to use it for.
Predicting future 10 year returns. The thing that it is purported to be good at.
by lee1026
Wed Apr 22, 2015 1:36 pm
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

1. Yes there does seem to be a (n exaggerated IMO) tendency in that direction. If some relationship is calculated based on past data, it's automatically 'data mining'. IMO for something to be 'data mining' it should generally be a relationship or factor that wouldn't occur to anyone from a fundamen...
by lee1026
Wed Apr 22, 2015 1:01 am
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

You're spending less time exposed to the market, so you're removing risk and being compensated accordingly (if you'd moved into cheaper markets instead, you'd be balancing the risk side of the equation for a fairer comparison with the benchmark) ..
I was actually referring to per year invested.
by lee1026
Tue Apr 21, 2015 11:51 pm
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

If you buy and sell the board market based on P/E, you would have about zero market beating returns.

https://personal.vanguard.com/pdf/s338.pdf
by lee1026
Tue Apr 21, 2015 10:28 pm
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

http://www.gurufocus.com/shiller-PE.php I don't see the point of the link. I suppose it's this idea that anything we calculate backwards could be disregarded as 'data mining' ... But of course PE10's only a subtle refinement on good ol' Price/Earnings - and if we were data mining we'd probably be u...
by lee1026
Tue Apr 21, 2015 10:23 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

I was looking at Quandl. They wanted money for rolled futures data. I saw that they had data for each contract. I'll have to manually roll them. But I'm not afraid of a little work. I just need to do it for 4 different futures. I think that the e-mini S&P 500 started in 1997, so I'll have to switch...
by lee1026
Tue Apr 21, 2015 6:26 pm
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

Here are global returns from various CAPE starting points, with some data stretching back to 1881, and some only as recently as 1994 .. Considering the long-term nature of mean reversion, it only surprises me the shorter-term market histories don't appear more anomalous Again, these are all data fr...
by lee1026
Tue Apr 21, 2015 5:08 pm
Forum: Investing - Theory, News & General
Topic: Can Shiller's PE10 (CAPE) Get Any More Discredited?
Replies: 83
Views: 13450

Re: Can Shiller's PE10 (CAPE) Get Any More Discredited?

Moreover though, very few if any professional investors can really only aim for superior results over 10 or 15 yrs. Individual investors might wish to focus on only long term results and find themselves unable to ignore shorter term results, but it's up to them. A professional fund manager or trade...
by lee1026
Tue Apr 14, 2015 3:21 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

1) Let's say you have the 40/30/30 portfolio described above and for simplicity, I'll say you're leveraged 5x and that the margin requirement is 50%. If Total Stock Market dropped 15% on one day, that would immediately trigger a margin call. Do they give you any time to get the funds or what exactl...
by lee1026
Sat Apr 04, 2015 6:21 pm
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 933
Views: 267971

Re: Should I use margin to buy a balanced fund?

I wonder how they got their results in the seeking alpha article for 1979-1982. Bond returns are only roughly flat in nominal terms if you have free leverage, but in an era where the Tbill was roughly 10%, I am not sure where that free leverage would be coming from. While I rather not accuse anyone ...
by lee1026
Wed Apr 01, 2015 9:52 pm
Forum: Investing - Theory, News & General
Topic: Should a BH investor never use futures/options?
Replies: 70
Views: 7963

Re: Should a BH investor never use futures/options?

2. Quarterly contracts, and higher bid-offer spread in longer dated contracts generally means it's most economic just hold the front contract and roll the position 4 times a year. Thus, 8 trades (buy/sell each of the 4 quarterly contracts) per year. The first two contracts generally trade on a .25 ...