QSPIX - thoughts on interesting fund

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lack_ey
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Jan 22, 2017 1:36 pm

grok87 wrote:
packer16 wrote:
IMO back testing can be misleading and has led many astray in the past. If I am not mistaken this is how one of AQR's funds blew up in the past (folks relying on historical back-tested results). A
Packer

yep.

As lack_ey points out the backtest for this fund starts in 1990. How could one possibly argue with that? a nice round number to start on.
But i seem to recall there was a somewhat significant event in the market just a few years before that blew up a lot of leveraged funds (and QSPIX is very leveraged IMHO).
https://en.wikipedia.org/wiki/Black_Monday_(1987)

Or maybe it's just data availability issues? French library global factor series start in 1990 for a reason too. Some of the contracts don't go back that far.

Many of the components like value and momentum within stocks, other trades, have been explored going far beyond 1990.

Do you have a sense for how such a strategy would have done on Black Monday or are you just throwing things out there? Remember, this is long/short with zero market beta. If long the S&P 500 and short some other markets, that would have been bad, yes, but it can just as well be the other way around. And based on the 2015 annual report, total notional equity index exposure was on the order of $600 million up and down each spread across multiple stock market indexes for a $1.8 billion fund (there are additional long and short exposures for stocks within markets, around the same amount, roughly beta neutral).

There's a considerable amount of leverage overall, but a lot of that is in the form of Eurodollar, 2-year Treasury, and other contracts that honestly do need to be leveraged a lot to make any kind of difference. You're acting as if there are strong directional bets on volatile assets relative to total fund equity, and ignoring the fact that there are shorts on the other side.

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Re: QSPIX - thoughts on interesting fund

Post by long_gamma » Sun Jan 22, 2017 1:50 pm

I just checked their "Carry" Paper. Their data series is longer than 1990.

Equity Index Futures: 13 country from March 1988
Currencies: 20 of them from Nov 1983
Commodities: 24 Commodities from Jan 1980
Govt. Bonds: 10 govt. bonds from Nov 1983
US treasuries: sample period is from Aug 1971
Credit: from Jan 1973
Index Options: From Jan 1996.

Momentum is practical application from very, very long time. They may not have used the data above when they wanted to combine all the factors and back test it together.
Last edited by long_gamma on Sun Jan 22, 2017 2:24 pm, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Post by long_gamma » Sun Jan 22, 2017 2:12 pm

Imageupload image online free

Volatility was also rising just before the crash, going from around 10% to 20% just before the crash. With their vol target in practice, position would have been halved (approximately) before entering the crash.

Also market structure was so different compared to today, that type of crash is very remote.
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Jan 22, 2017 2:25 pm

long_gamma wrote:Imageupload image online free

Volatility was also rising just before the crash, going from around 10% to 20% just before the crash. With their vol target in practice, position would have been halved (approximately) before entering the crash.

Also market structure was so different compared to today, that type of crash is very remote.

Thanks for the charts- nice.
:)

IMHO it is a mistake to look at what happened on Black Monday and say- "they would have been fine because of x,y,z". The next market disruption will likely be different. The main point is leverage is dangerous- playing with fire.

I think there are analogies between portfolio insurance in the 1987 crash
http://www.nytimes.com/2012/10/19/busin ... treet.html
and the volatility targeting that they and others are doing today. As Newt says in Aliens, when the monsters come, all of that stuff "won't make any difference"- i.e. it will not save you.
http://i.imgur.com/0YXnxSk.jpg
Last edited by grok87 on Sun Jan 22, 2017 8:12 pm, edited 3 times in total.
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Jan 22, 2017 2:36 pm

lack_ey wrote:
grok87 wrote:
packer16 wrote:
IMO back testing can be misleading and has led many astray in the past. If I am not mistaken this is how one of AQR's funds blew up in the past (folks relying on historical back-tested results). A
Packer

yep.

As lack_ey points out the backtest for this fund starts in 1990. How could one possibly argue with that? a nice round number to start on.
But i seem to recall there was a somewhat significant event in the market just a few years before that blew up a lot of leveraged funds (and QSPIX is very leveraged IMHO).
https://en.wikipedia.org/wiki/Black_Monday_(1987)



There's a considerable amount of leverage overall, but a lot of that is in the form of Eurodollar, 2-year Treasury, and other contracts that honestly do need to be leveraged a lot to make any kind of difference. You're acting as if there are strong directional bets on volatile assets relative to total fund equity, and ignoring the fact that there are shorts on the other side.

I'll have to think about the point you are making about leverage. I guess I just sort of think "leverage is leverage"
From their fact sheet, for every $100 you give QSPIX, they are making $329 worth of equity bets, some long, some short.
https://funds.aqr.com/fund-documents
That's plenty to blow up if those bets go south.
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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Sun Jan 22, 2017 2:41 pm

grok87 wrote:IMHO it is a mistake to look at what happened on Black Monday and say- "they would have been fine because of x,y,z". The next market disruption will likely be different. The main point is leverage is dangerous- playing with fire.

I think there are analogies between portfolio insurance in the 1987 crash
http://www.nytimes.com/2012/10/19/busin ... treet.html
and the volatility targeting that they and others are doing today. As Newt says in Aliens, when the monsters come all of that "won't make any difference"
https://memegenerator.net/instance/55720066

The structure is by design not heavily invested in any given type of risk precisely because we don't know which will be manifested very unpleasantly in the future (and which might generate more positive returns over the longer run). That's not a guarantee of anything in the future, no.

Vol targeting is historically a good idea for something like this, particularly if exposed to short-side momentum. It's a bonus or a feature. We're not talking about an underlying strategy that relies on this to remain solvent.

grok87 wrote:
lack_ey wrote:
grok87 wrote:
packer16 wrote:
IMO back testing can be misleading and has led many astray in the past. If I am not mistaken this is how one of AQR's funds blew up in the past (folks relying on historical back-tested results). A
Packer

yep.

As lack_ey points out the backtest for this fund starts in 1990. How could one possibly argue with that? a nice round number to start on.
But i seem to recall there was a somewhat significant event in the market just a few years before that blew up a lot of leveraged funds (and QSPIX is very leveraged IMHO).
https://en.wikipedia.org/wiki/Black_Monday_(1987)



There's a considerable amount of leverage overall, but a lot of that is in the form of Eurodollar, 2-year Treasury, and other contracts that honestly do need to be leveraged a lot to make any kind of difference. You're acting as if there are strong directional bets on volatile assets relative to total fund equity, and ignoring the fact that there are shorts on the other side.

I'll have to think about the point you are making about leverage. I guess I just sort of think "leverage is leverage"
From their fact sheet, for every $100 you give QSPIX, they are making $329 worth of equity bets, some long, some short.
https://funds.aqr.com/fund-documents
That's plenty to blow up if those bets go south.

And what's the probability that a critical mass goes wrong simultaneously (some going down, others going up)?

The risk is certainly there and not zero, and maybe let's say the vol targeting doesn't help and they don't even react in time to deleverage in times of stress. Okay, that would suck.

Stocks can also fall 80%. Inflation can go back to 10%+. You never know there either.

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Re: QSPIX - thoughts on interesting fund

Post by long_gamma » Sun Jan 22, 2017 3:07 pm

lack_ey wrote:There's a considerable amount of leverage overall, but a lot of that is in the form of Eurodollar, 2-year Treasury, and other contracts that honestly do need to be leveraged a lot to make any kind of difference. You're acting as if there are strong directional bets on volatile assets relative to total fund equity, and ignoring the fact that there are shorts on the other side.


Exactly.

Raw leverage isn't great way to measure risk.

For Eg. Combining 1 ES contract with 5 two year bond (ZT) in a account of 200k. Leverage ratio looks like 5 to 6, but actual risk is much lower.

NYtimes is looking just stock market in isolation. When combine with low correlated assets picture (and grok's meme :o ) looks different
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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Sun Jan 22, 2017 4:35 pm

larryswedroe wrote:...LENDX and SRRIX as the alternatives, at least relative to safe bonds I would say the odds they will outperform vs. say equities are higher, while adding diversification benefits...
Larry,
Does this LENDX/SRRIX/AQR's expected outperformance account for their significantly higher ERs?
From what you can see from your hilltop, do Stoneridge and/or AQR show any signs of upcoming ER reductions? Do they even have a competitional motivation to lower them?
Thank you.
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Re: QSPIX - thoughts on interesting fund

Post by packer16 » Sun Jan 22, 2017 7:34 pm

If it is not applicable to compare to other alternatives out there with similar levels of risk, then how do you know if the fund is performing to expectations? I do not invest in some sectors, commodities as an example, because I do not think the expected returns are worth the risk (short funds are in the same bucket). I used the value factor outperformance as this is one of the most familiar factors & had a return of 13% versus 26% for value + market to isolate the value factor. My simple understanding of this fund is to isolate factor returns and use leverage to increases some of these returns. It will be interesting to see the attribution analysis to see if there is any slippage from expectations.

Although the system is mechanical there are some rules developed by humans that dictate weights and when to change the weights. The basis for these rules are historic relationships which may or may not hold going forward. I also hope that they do make some changes to how they mechanically invest to prevent front running of their positions.

Packer
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Re: QSPIX - thoughts on interesting fund

Post by grok87 » Sun Jan 22, 2017 8:19 pm

lack_ey wrote:
grok87 wrote:IMHO it is a mistake to look at what happened on Black Monday and say- "they would have been fine because of x,y,z". The next market disruption will likely be different. The main point is leverage is dangerous- playing with fire.

I think there are analogies between portfolio insurance in the 1987 crash
http://www.nytimes.com/2012/10/19/busin ... treet.html
and the volatility targeting that they and others are doing today. As Newt says in Aliens, when the monsters come all of that "won't make any difference"
https://memegenerator.net/instance/55720066

The structure is by design not heavily invested in any given type of risk precisely because we don't know which will be manifested very unpleasantly in the future (and which might generate more positive returns over the longer run). That's not a guarantee of anything in the future, no.

Vol targeting is historically a good idea for something like this, particularly if exposed to short-side momentum. It's a bonus or a feature. We're not talking about an underlying strategy that relies on this to remain solvent.

grok87 wrote:
lack_ey wrote:
grok87 wrote:
packer16 wrote:
IMO back testing can be misleading and has led many astray in the past. If I am not mistaken this is how one of AQR's funds blew up in the past (folks relying on historical back-tested results). A
Packer

yep.

As lack_ey points out the backtest for this fund starts in 1990. How could one possibly argue with that? a nice round number to start on.
But i seem to recall there was a somewhat significant event in the market just a few years before that blew up a lot of leveraged funds (and QSPIX is very leveraged IMHO).
https://en.wikipedia.org/wiki/Black_Monday_(1987)



There's a considerable amount of leverage overall, but a lot of that is in the form of Eurodollar, 2-year Treasury, and other contracts that honestly do need to be leveraged a lot to make any kind of difference. You're acting as if there are strong directional bets on volatile assets relative to total fund equity, and ignoring the fact that there are shorts on the other side.

I'll have to think about the point you are making about leverage. I guess I just sort of think "leverage is leverage"
From their fact sheet, for every $100 you give QSPIX, they are making $329 worth of equity bets, some long, some short.
https://funds.aqr.com/fund-documents
That's plenty to blow up if those bets go south.

And what's the probability that a critical mass goes wrong simultaneously (some going down, others going up)?

The risk is certainly there and not zero, and maybe let's say the vol targeting doesn't help and they don't even react in time to deleverage in times of stress. Okay, that would suck.

Stocks can also fall 80%. Inflation can go back to 10%+. You never know there either.

Well you are asking a good question: "what's the probability that a critical mass goes wrong simultaneously..."?

I think the thing to keep in mind is that we have to some extent seen this story before. Remember the Quant fund meltdown of 2007?
http://business.time.com/2007/08/23/a_m ... of_the_gr/
What happened in early August was that too many people with copies of that book next to their Bloombergs did the same things at the same time. It was, as Goldman Sachs’s CFO later put it, a case “of the crowded trade overwhelming market fundamentals.”


the main point is, it's not as if AQR just picked a bunch of random long and short equity positons and geez it be like 1 in a million shot if the dominoes all fell against them at the same time. No, They have picked a bunch of positions based on a quant model. And guess what- a lot of other folks are probably looking at the same research and the same models and doing similar things. So when you get a regime change in the markets (and we got a little bit of whiff of that in november) all of those trades could get hammered at the same time...
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Sun Jan 22, 2017 9:52 pm

lt
As in all capitalists systems, competition and supply and demand set market pricing. I would hope that over time the ERs will come down due to competition and also scale. In the case of LENDX they have said they expect to lower ERs about 20bp say by end of the year, but nothing on SRRIX which is much more difficult to duplicate and limited capacity. But I would expect some competition in both and eventually ERs to come down.

IN the meantime they are the best value out there.

Larry

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Re: BRK - thoughts on interesting stock

Post by james22 » Mon Jan 23, 2017 1:55 am

The distinction between 'smart beta' and *disciplined* active management (primarily focused on recognized factors) seems very fine to me.

BRK, for example (http://www.etf.com/sections/index-inves ... nopaging=1) seems an attractive index AND 'smart beta' alternative as a no cost, tax-efficient, simple way to gain diversified factor exposure.

Certainly more adaptable than the relatively 'dumb' PCRIX too.
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Jan 23, 2017 8:05 am

lt
And yes the expected returns would be after fees

Larry

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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Wed Jan 25, 2017 10:50 pm

larryswedroe wrote:RT6,would be something like 50% BOSVX, 37.5% DISVX and 12.5% DFEVX, or 50% BOSVX and 50% DWUSX
Larry,
What are the practical differences between holding an RT6 that is 50% BOSVX, 37.5% DISVX and 12.5% DFEVX, and holding an RT6 that is
50% BOSVX and 50% DWUSX?
Thanks.
Last edited by Lieutenant.Columbo on Thu Jan 26, 2017 8:19 am, edited 1 time in total.
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Re: QSPIX - thoughts on interesting fund

Post by james22 » Wed Jan 25, 2017 11:23 pm

Larry,

What are the practical differences between holding BRK and a passively managed fund that mimics the identified BRK factors?

Thanks.
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Thu Jan 26, 2017 12:09 am

james22 wrote:Larry,

What are the practical differences between holding BRK and a passively managed fund that mimics the identified BRK factors?

Thanks.


What does this or the question(s) above from Lt. Columbo have to do with QSPIX? Perhaps start new threads to address your questions?
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Re: QSPIX - thoughts on interesting fund

Post by james22 » Thu Jan 26, 2017 12:26 am

You're right, sorry.
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Thu Jan 26, 2017 9:17 am

LT
DWUSX has bit lower loadings on size/value but has advantage of not needing to rebalance between EM and international, which has value for taxable accounts in particular.

James
Simple answer, with BRK you have uncompensated idiosyncratic risks for which you are not rewarded. A diversified portfolio minimizes/eliminates that risk.

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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Thu Jan 26, 2017 9:39 am

larryswedroe wrote:LT
DWUSX has bit lower loadings on size/value but has advantage of not needing to rebalance between EM and international, which has value for taxable accounts in particular
Thank you, Larry.
Would you say, then, that if RT6 has to go in Taxable, it definitely should be DWUSX?
(Like, do/would you yourself ever use DISVX and DFEVX in Taxable? :wink:)
Thanks.
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Thu Jan 26, 2017 9:52 am

LT
Both choices fine. If in accumulation phase especially then can rebalance with new cash and divs/distributions anyway. The one issue could be that when countries shift from EM to developed, which happens occasionally then DWUSX would not have to be a seller.


Larry

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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Thu Jan 26, 2017 10:53 am

larryswedroe wrote:...when countries shift from EM to developed, which happens occasionally then DWUSX would not have to be a seller...
Larry,
Do you mean that if holding DWUSX, the investor would not incur the cost of taxation derived from the EM fund selling the stocks from the country that moved from EM to Developed?
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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Thu Jan 26, 2017 12:01 pm

LT
Yes that is basically correct.
But keep in mind that DFA would NOT sell immediately when a country left EM for developed as an index fund would be forced to, and avoid the market impact costs of lots of funds selling at the same time. They would opportunistically sell, while not buying any more. And it might even take a long time.
Larry

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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Thu Jan 26, 2017 4:12 pm

matjen wrote:What does this or the question(s) above from Lt. Columbo have to do with QSPIX? Perhaps start new threads to address your questions?
you are right, I apologize;
I got carried away
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Thu Jan 26, 2017 4:35 pm

Lieutenant.Columbo wrote:
matjen wrote:What does this or the question(s) above from Lt. Columbo have to do with QSPIX? Perhaps start new threads to address your questions?
you are right, I apologize;
I got carried away


I'll let it slide this time since I hold a bunch of DFA World ex US Targeted Val Instl (DWUSX) in both taxable and a 401(k). :wink:

:beer

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Thu Jan 26, 2017 5:14 pm

Hope this is helpful

Having sat in on the quarterly call on QSPRX, I thought a short summary might be helpful. Keep in mind the fund has many positions. Basically the fund had a small loss because MOM was -11%, offsetting the large gain from value which was +8%, Carry was positive I think about 3% and defensive was a small loss. Remember each is across multiple asset classes. MOM was negative because of several turns in market from risk on to risk off, as examples are the highly negative start to the year, then reversal, then Brexit, and then post Trump.

We would expect the fund to have negative returns about 1/3 of the years and this was barely negative.

Hope that helps
Larry

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Re: QSPIX - thoughts on interesting fund

Post by lack_ey » Thu Jan 26, 2017 5:22 pm

larryswedroe wrote:Hope this is helpful

Having sat in on the quarterly call on QSPRX, I thought a short summary might be helpful. Keep in mind the fund has many positions. Basically the fund had a small loss because MOM was -11%, offsetting the large gain from value which was +8%, Carry was positive I think about 3% and defensive was a small loss. Remember each is across multiple asset classes. MOM was negative because of several turns in market from risk on to risk off, as examples are the highly negative start to the year, then reversal, then Brexit, and then post Trump.

We would expect the fund to have negative returns about 1/3 of the years and this was barely negative.

Hope that helps
Larry

Thanks for the update. I wish they just made this broadly publicly available but okay.

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Re: QSPIX - thoughts on interesting fund

Post by tarheel » Fri Jan 27, 2017 7:03 am

larryswedroe wrote:Hope this is helpful

Having sat in on the quarterly call on QSPRX, I thought a short summary might be helpful. Keep in mind the fund has many positions. Basically the fund had a small loss because MOM was -11%, offsetting the large gain from value which was +8%, Carry was positive I think about 3% and defensive was a small loss. Remember each is across multiple asset classes. MOM was negative because of several turns in market from risk on to risk off, as examples are the highly negative start to the year, then reversal, then Brexit, and then post Trump.

We would expect the fund to have negative returns about 1/3 of the years and this was barely negative.

Hope that helps
Larry


I know this is the wrong thread Larry, but many of us have QSPIX and QMHIX.

How did the attribution analysis of QMHIX go? Thanks!

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Fri Jan 27, 2017 9:03 am

tarheel
Since TS momentum is correlated to CS momentum, in fact in the book we show a study that found that "Time-series stock momentum fully subsumes cross-sectional stock momentum, while cross-sectional stock momentum cannot capture time-series stock momentum."
Given that and the large negative outcome for MOM last year for the style premium fund you might expect similar results in the managed futures. Remember we had several big reversals last year and that is when MOM does poorly. It does well in prolonged trends.
Larry

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Fri Jan 27, 2017 9:51 am

Thanks for the updates Larry. Much appreciated.
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Re: QSPIX - thoughts on interesting fund

Post by Angst » Fri Jan 27, 2017 8:37 pm

larryswedroe wrote:Hope this is helpful

Having sat in on the quarterly call on QSPRX, I thought a short summary might be helpful. Keep in mind the fund has many positions. Basically the fund had a small loss because MOM was -11%, offsetting the large gain from value which was +8%, Carry was positive I think about 3% and defensive was a small loss. Remember each is across multiple asset classes. MOM was negative because of several turns in market from risk on to risk off, as examples are the highly negative start to the year, then reversal, then Brexit, and then post Trump.

We would expect the fund to have negative returns about 1/3 of the years and this was barely negative.

Hope that helps
Larry

Understand that QSPRX is simply the advisor version of QSPIX and QSPNX. It's all essentially the same, plus .1% to the ER for QSPIX and +.35% for QSPNX

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Mon Jan 30, 2017 6:31 pm

Days like today is one of the reasons many of us love us some QSPIX. :D

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Re: QSPIX - thoughts on interesting fund

Post by larryswedroe » Mon Jan 30, 2017 6:37 pm

matjen
Let's not hope for too many more of those type days (:-))
Larry

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Re: QSPIX - thoughts on interesting fund

Post by matjen » Mon Jan 30, 2017 6:42 pm

larryswedroe wrote:matjen
Let's not hope for too many more of those type days (:-))
Larry


Crud! I forgot I am 7% QSPIX and not 70% ;-)
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Re: QSPIX - thoughts on interesting fund

Post by Lieutenant.Columbo » Sun Jul 16, 2017 7:18 pm

matjen wrote:
larryswedroe wrote:matjen
Let's not hope for too many more of those type days (:-))
Larry
Crud! I forgot I am 7% QSPIX and not 70% ;-)
matjen, does it seem like you'll be sticking to "7% in QSPIX" for the long run? thanks
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sun Jul 16, 2017 7:50 pm

Lieutenant.Columbo wrote:
matjen wrote:
larryswedroe wrote:matjen
Let's not hope for too many more of those type days (:-))
Larry
Crud! I forgot I am 7% QSPIX and not 70% ;-)
matjen, does it seem like you'll be sticking to "7% in QSPIX" for the long run? thanks
I haven't sold any QSPIX but the market run up has moved me closer to 6% now. I'll stick with that and I have some of Stone Ridge's LENDX and will likely add some SRRIX. Perhaps 10-15% between the three.
A man is rich in proportion to the number of things he can afford to let alone.

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zaboomafoozarg
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Re: QSPIX - thoughts on interesting fund

Post by zaboomafoozarg » Sun Jul 16, 2017 8:07 pm

matjen wrote:I haven't sold any QSPIX but the market run up has moved me closer to 6% now. I'll stick with that and I have some of Stone Ridge's LENDX and will likely add some SRRIX. Perhaps 10-15% between the three.
I assume you have to have an advisor to buy SRRIX?

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matjen
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Re: QSPIX - thoughts on interesting fund

Post by matjen » Sun Jul 16, 2017 8:20 pm

zaboomafoozarg wrote:
matjen wrote:I haven't sold any QSPIX but the market run up has moved me closer to 6% now. I'll stick with that and I have some of Stone Ridge's LENDX and will likely add some SRRIX. Perhaps 10-15% between the three.
I assume you have to have an advisor to buy SRRIX?
That is my understanding. On the recent alternatives thread from Grap there is info on the inexpensive way to get that access if one desires. I don't know if there is an account size minimum but if you have a small account then the 1K doesn't make sense anyways.

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A man is rich in proportion to the number of things he can afford to let alone.

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