HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
TeeDee
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TeeDee » Wed Mar 11, 2020 7:08 pm

Jason Zweig once wrote:

Most people who claim to have “a high tolerance for risk” just have a high tolerance for making money. As soon as the market goes down, their tolerance for risk shrivels and their idea of “the long term” withers to “a week or two.”

Link to full article
https://jasonzweig.com/tie-me-down-and-make-me-rich/

AHTFY
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AHTFY » Wed Mar 11, 2020 7:22 pm

HEDGEFUNDIE wrote:
Wed Mar 11, 2020 7:06 pm
AHTFY wrote:
Wed Mar 11, 2020 6:31 pm
DaveG75 wrote:
Wed Mar 11, 2020 6:25 pm
shoehead wrote:
Wed Mar 11, 2020 11:54 am
blacksmith4 wrote:
Wed Mar 11, 2020 11:27 am
and also is the explanation for today's movement on this portfolio that (a) stimulus package increases rates, but (b) stimulus is insufficient to resolve panic & potentially previously overbought markets? And also, nobody is like, flying on Delta to stay in a Hyatt to go to some concert just because of this stimulus package
Why would a stimulus package increase rates? Not debating, just trying to learn. Can anyone give a concise answer as to why treasuries are falling?
In general terms, the more one borrows, the higher the interest rate you must pay. A large stimulus package is paid for by borrowing more (running a larger deficit). Of course, that is ignoring all sorts of other forces, such as petrodollar flows, flight-to-safety, the money like quality of U.S. debt, liquidity, leverage, etc. etc. etc. No one can give a concise answer as to why treasuries are doing anything at any point in time. However, it is generally true that movements of U.S. equities and U.S. long term treasuries are negatively correlated.
Actually, the correlation of US equities and US long-term Treasuries is about zero. But since the early 1980s, the correlation has been negative and that's what people seem to remember.
Yeah it's almost like something fundamental changed in the early 80s...
Perhaps. It sure seems that way. But I don't think it is wise to assume a negative correlation going forward. The last couple of days shows why. I assume a zero correlation.

Thesaints
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Thesaints » Wed Mar 11, 2020 7:25 pm

You will see how negative, or zero, the correlation is should interest rates spike up !

marky2kk
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by marky2kk » Wed Mar 11, 2020 7:48 pm

HEDGEFUNDIE wrote:
Wed Mar 11, 2020 7:06 pm
AHTFY wrote:
Wed Mar 11, 2020 6:31 pm
DaveG75 wrote:
Wed Mar 11, 2020 6:25 pm
shoehead wrote:
Wed Mar 11, 2020 11:54 am
blacksmith4 wrote:
Wed Mar 11, 2020 11:27 am
and also is the explanation for today's movement on this portfolio that (a) stimulus package increases rates, but (b) stimulus is insufficient to resolve panic & potentially previously overbought markets? And also, nobody is like, flying on Delta to stay in a Hyatt to go to some concert just because of this stimulus package
Why would a stimulus package increase rates? Not debating, just trying to learn. Can anyone give a concise answer as to why treasuries are falling?
In general terms, the more one borrows, the higher the interest rate you must pay. A large stimulus package is paid for by borrowing more (running a larger deficit). Of course, that is ignoring all sorts of other forces, such as petrodollar flows, flight-to-safety, the money like quality of U.S. debt, liquidity, leverage, etc. etc. etc. No one can give a concise answer as to why treasuries are doing anything at any point in time. However, it is generally true that movements of U.S. equities and U.S. long term treasuries are negatively correlated.
Actually, the correlation of US equities and US long-term Treasuries is about zero. But since the early 1980s, the correlation has been negative and that's what people seem to remember.
Yeah it's almost like something fundamental changed in the early 80s...
Like the way the Fed conducted monetary policy after Volcker...

With inflation expectations so low and the Philipps curve dead, there is perhaps room for another structural shock to how monetary policy is conducted. I see no cost for the Fed to lower interest rates into deep negative territory (except for costs that will only be known with hindsight, like a 30-year flat stock market as in Japan).

Speaking of Japan, I never really understood Japan. Some people said it was demographics, etc., but it doesn't seems that's the reason because it happened in Europe, it appear to be happening in the U.S. as well. Is there any way you could test the strategy on the Japanese market for the last 30 years? Would be curious to see how the strategy would have done with a flat market and litte variation in long-term yields.

guyinlaw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Wed Mar 11, 2020 7:57 pm

With 30y rate at 1.33% there is little upside remaining for TMF.

In 2010 30y Bond yield was around 5%, now it is 1.33%.

https://www.marketwatch.com/investing/b ... rycode=bx

Looking at Germany, which has zero rate for a few years, it's 30 year Bond yield before crisis was between 0 and 1%.

https://www.marketwatch.com/investing/b ... rycode=bx

US banks/economists are quite worried about zero interest rates, IMO they will not let it drop much further.

In the last 10 years around half the returns from UPRO/TMF came from TMF. (42.5% to be precise). See the PV link below.

In the future UPRO/TMF will likely perform like UPRO/CASH.
Holdings - CAGR
UPRO/TMF - 29%
UPRO/SHY - 17.9%

https://www.portfoliovisualizer.com/bac ... ion4_3=90

I think next time TMF rises close to $58.3 (all time high) it might be best to switch from TMF to cash.

Would be interested to hear what others think.

PS TMF will rise tomorrow, after hours 30y yield is falling.
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

BogleRetirement
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BogleRetirement » Wed Mar 11, 2020 8:25 pm

guyinlaw wrote:
Wed Mar 11, 2020 7:57 pm


PS TMF will rise tomorrow, after hours 30y yield is falling.
Where do you find the AF yield? Does this mean TLT will rise tomorrow as well? I was super shocked to see treasuries fall.

guyinlaw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Wed Mar 11, 2020 8:40 pm

BogleRetirement wrote:
Wed Mar 11, 2020 8:25 pm
guyinlaw wrote:
Wed Mar 11, 2020 7:57 pm


PS TMF will rise tomorrow, after hours 30y yield is falling.
Where do you find the AF yield? Does this mean TLT will rise tomorrow as well? I was super shocked to see treasuries fall.
SP500 futures down 3.5%.

30y yield dropped from 1.39% at close to 1.26% right now.

https://www.marketwatch.com/investing/b ... rycode=bx
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

BogleRetirement
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BogleRetirement » Wed Mar 11, 2020 9:01 pm

guyinlaw wrote:
Wed Mar 11, 2020 8:40 pm
BogleRetirement wrote:
Wed Mar 11, 2020 8:25 pm
guyinlaw wrote:
Wed Mar 11, 2020 7:57 pm


PS TMF will rise tomorrow, after hours 30y yield is falling.
Where do you find the AF yield? Does this mean TLT will rise tomorrow as well? I was super shocked to see treasuries fall.
SP500 futures down 3.5%.

30y yield dropped from 1.39% at close to 1.26% right now.

https://www.marketwatch.com/investing/b ... rycode=bx
Thank you. Is there a way to check 20-yr? I have calls on TLT that expire 3/27, and I thought I would be able to make some money, but not sure if I should cut my losses.

RandomWord
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RandomWord » Wed Mar 11, 2020 9:13 pm

guyinlaw wrote:
Wed Mar 11, 2020 7:57 pm
With 30y rate at 1.33% there is little upside remaining for TMF.

In 2010 30y Bond yield was around 5%, now it is 1.33%.

https://www.marketwatch.com/investing/b ... rycode=bx

Looking at Germany, which has zero rate for a few years, it's 30 year Bond yield before crisis was between 0 and 1%.

https://www.marketwatch.com/investing/b ... rycode=bx

US banks/economists are quite worried about zero interest rates, IMO they will not let it drop much further.

I am also quite worried about the zero lower bound. But, one big difference I notice, is that there's no where left to run. In the past, European bond investors could avoid negative yields by buying US treasuries instead. If US treasuries also go negative, there aren't really any safe assets left with that kind of liquidity.

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Forester
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Forester » Wed Mar 11, 2020 11:50 pm

Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by HEDGEFUNDIE » Thu Mar 12, 2020 12:10 am

Forester wrote:
Wed Mar 11, 2020 11:50 pm
Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.
I’d like to think we won’t need to Face the Music quite yet...

guyinlaw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Thu Mar 12, 2020 12:18 am

Forester wrote:
Wed Mar 11, 2020 11:50 pm
Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.
So far over the last year (and earlier) this has done exceedingly well. Rising stocks and dropping interest rates have been excellent with UPRO and TMF both rising on many days. (we loved the positive correlation on those days)

With super low yields (30y @ 1.29%) and bear market this may not continue.

PS: I abandoned this many months ago. Still hold a bit of TMF in Roth (under 10% - 90-10 stocks +LTT). Most of my risk parity comes from 2y treasury futures and gold futures. Former has done well, the later not as much.
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

LittleBitMore
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LittleBitMore » Thu Mar 12, 2020 12:42 am

HEDGEFUNDIE wrote:
Thu Mar 12, 2020 12:10 am
Forester wrote:
Wed Mar 11, 2020 11:50 pm
Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.
I’d like to think we won’t need to Face the Music quite yet...
I think it's clear that the 1 day worth of results speak for themselves and that despite continuing to outperform the S&P 500, this adventure is nothing more than a gross insult to Lord Bogle's vision

/s

getjiggy
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by getjiggy » Thu Mar 12, 2020 1:03 am

LittleBitMore wrote:
Thu Mar 12, 2020 12:42 am
HEDGEFUNDIE wrote:
Thu Mar 12, 2020 12:10 am
Forester wrote:
Wed Mar 11, 2020 11:50 pm
Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.
I’d like to think we won’t need to Face the Music quite yet...
I think it's clear that the 1 day worth of results speak for themselves and that despite continuing to outperform the S&P 500, this adventure is nothing more than a gross insult to Lord Bogle's vision

/s
Been in this adventure since last summer. SPY down single digit. My upro/TMF portfolio up 39% on a base of $75k+ despite massive drops recently. Today was perhaps worst single down day for this portfolio but still far better than overall market. Still a believer and going to ride this all the way to riches :moneybag :moneybag :moneybag I am sure lot of us in similar boat including OP

occambogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by occambogle » Thu Mar 12, 2020 3:34 am

guyinlaw wrote:
Wed Mar 11, 2020 8:40 pm
30y yield dropped from 1.39% at close to 1.26% right now.
30-year is now 1.21%. Newbie question - this should cause the price of long bond funds like EDV and TMF to rise a fair bit today... is that correct? Is there any rule of thumb or formula to predict what a change of X % in yield will result in terms of price % change? Or is everything too all over the place?

yawhide
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by yawhide » Thu Mar 12, 2020 8:53 am

what is the recommended rebalance strategy? Is it to rebalance quarterly? Or monthly? Or whenever the balance is 25% off (so for 60/40 upro/tmf you would rebalance whenenver upro goes above 75% or below 45%)?

blacksmith4
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by blacksmith4 » Thu Mar 12, 2020 9:03 am

since i entered yesterday, it appears a rebalance already due

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Mar 12, 2020 9:11 am

Forester wrote:
Wed Mar 11, 2020 11:50 pm
Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.
So far it's not done worse than 100% equities. And bonds have already bailed out the leveraged stocks. The adventurists are actually up compared to the unlevered crowd.

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Mar 12, 2020 9:12 am

yawhide wrote:
Thu Mar 12, 2020 8:53 am
what is the recommended rebalance strategy? Is it to rebalance quarterly? Or monthly? Or whenever the balance is 25% off (so for 60/40 upro/tmf you would rebalance whenenver upro goes above 75% or below 45%)?
If you could time the bottom, wait for the bottom.

ten7four
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ten7four » Thu Mar 12, 2020 9:22 am

yawhide wrote:
Thu Mar 12, 2020 8:53 am
what is the recommended rebalance strategy? Is it to rebalance quarterly? Or monthly? Or whenever the balance is 25% off (so for 60/40 upro/tmf you would rebalance whenenver upro goes above 75% or below 45%)?
I don't think there's a recommended strategy as many people have varying opinions on it. Some people in here believe that you should only rebalance once every 3 months, no exceptions.

I'm personally of the mindset of balancing monthly, as well as whenever the balance is off by more than 15%. Some might consider that overkill but eh. It's the strategy that makes me feel most comfortable, personally.

guyinlaw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Thu Mar 12, 2020 9:49 am

guyinlaw wrote:
Wed Mar 11, 2020 5:38 pm
Rumors...
Immediately, unfounded theories emerged: a risk parity fund was deleveraging and blowing out of both bonds and stocks; oil exporters were dumping TSYs to obtain cash amid the price plunge in crude, bond vigilantes fuming at the upcoming coronavirus-driven budget deficit explosion, a fund was margin called and liquidated all of its best performing assets. The truth is nobody knows what caused it, but the puke in both stocks and bonds raised quite a few eyebrows, while hammering 60/40 balanced fund returns, generating the biggest weekly total return drop in a combined stock & bond portfolio since Lehman.

What is perhaps just as notable, is that whoever was puking duration did so until the very close with an accelerating liquidation and erratic futures price action observed in the late U.S. afternoon and peaking by 4pm, when the ultra-long bond futures plunged nearly 6 points in less than an hour - an unprecedented move - and the Ultra contract closed well in the red even as stocks crashed into a bear market.

Was today's bizarre balanced portfolio unwind a one-time event, or have forced liquidations finally made it to risk parity funds? We'll know tomorrow, if not overnight, but if for whatever reason US Treasurys are no longer a safe haven if one or more forced sellers are set to drag prices lower, then watch as the real safe haven - gold - jumps above its all time high on very short notice.
https://www.zerohedge.com/markets/treas ... quidation
Every time LTTs are rallying, there is a large selloff..
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

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kerstverlichting
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kerstverlichting » Thu Mar 12, 2020 9:56 am

guyinlaw wrote:
Thu Mar 12, 2020 9:49 am
guyinlaw wrote:
Wed Mar 11, 2020 5:38 pm
Rumors...
Immediately, unfounded theories emerged: a risk parity fund was deleveraging and blowing out of both bonds and stocks; oil exporters were dumping TSYs to obtain cash amid the price plunge in crude, bond vigilantes fuming at the upcoming coronavirus-driven budget deficit explosion, a fund was margin called and liquidated all of its best performing assets. The truth is nobody knows what caused it, but the puke in both stocks and bonds raised quite a few eyebrows, while hammering 60/40 balanced fund returns, generating the biggest weekly total return drop in a combined stock & bond portfolio since Lehman.

What is perhaps just as notable, is that whoever was puking duration did so until the very close with an accelerating liquidation and erratic futures price action observed in the late U.S. afternoon and peaking by 4pm, when the ultra-long bond futures plunged nearly 6 points in less than an hour - an unprecedented move - and the Ultra contract closed well in the red even as stocks crashed into a bear market.

Was today's bizarre balanced portfolio unwind a one-time event, or have forced liquidations finally made it to risk parity funds? We'll know tomorrow, if not overnight, but if for whatever reason US Treasurys are no longer a safe haven if one or more forced sellers are set to drag prices lower, then watch as the real safe haven - gold - jumps above its all time high on very short notice.
https://www.zerohedge.com/markets/treas ... quidation
Every time LTTs are rallying, there is a large selloff..
True, and it's hurting the strategy, but to suggest gold (or metals in general) as an alternative for now seems premature; it's done even worse. TMF is up 5% for the day (as of this post), UGLD is down 10%. PALL is even worse off at down 16%, and---for those interested in miners--NUGT is down 19%...

Might be interesting to look at implementing VIX into the strategy, e.g. switch to 50/50 cash/TMF when VIX>30 or something like that. I suppose someone with Quantconnect would be able to backtest some variants of such a strategy and see if any one would outperform Fundie's basic strategy. Sadly I don't posses those skills myself. It would make the whole thing a bit more complex of course (and I do value its simplicity), but probably not significantly.

As for myself, I am sorry but I chickened out yesterday and sold my UPRO for SQQQ and SPXU. My portfolio is only worth a couple grand btw, so it won't have an enormous impact on me either way, and I am planning on jumping back in, in a month or 2-3 when things have calmed down a little.
Last edited by kerstverlichting on Thu Mar 12, 2020 10:09 am, edited 6 times in total.

lkar
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lkar » Thu Mar 12, 2020 9:58 am

It is interesting to see how things have operated in times of stress and volatility. I have learned a bit about myself.

The most important point is this — even if the original premises are true I think I will have trouble staying in if this method generates outsized returns in the future.

I am dabbling in this with 1 percent of my assets. Let’s say things recover and it goes back to over production generating returns above SP. So in 2025 it is a more significant percentage of my portfolio.

In that event I think the volatility in difficult times would be too much for me and I would have trouble staying the course. At 1 percent it is an experiment. At 3 percent it starts to potentially affect my retirement.

The original premise was this is a long term play. The irony is that I can stomach the volatility on the downside now when the balance is a relatively smaller amount.

If I question my ability to make this a long term play I think I am taking risk for not enough potential reward. I will probably get out and just buy VV. Hard to know when though.

yawhide
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by yawhide » Thu Mar 12, 2020 10:22 am

ten7four wrote:
Thu Mar 12, 2020 9:22 am
yawhide wrote:
Thu Mar 12, 2020 8:53 am
what is the recommended rebalance strategy? Is it to rebalance quarterly? Or monthly? Or whenever the balance is 25% off (so for 60/40 upro/tmf you would rebalance whenenver upro goes above 75% or below 45%)?
I don't think there's a recommended strategy as many people have varying opinions on it. Some people in here believe that you should only rebalance once every 3 months, no exceptions.

I'm personally of the mindset of balancing monthly, as well as whenever the balance is off by more than 15%. Some might consider that overkill but eh. It's the strategy that makes me feel most comfortable, personally.
I know from the couch potato blog (canadian here), they recommend to use the "Larry Swedroe" rebalance strategy (or the 5/25 rule they call it). https://canadiancouchpotato.com/2011/02 ... rebalance/

5/25 rule is when you are an absolute 5% off or a relative 25% off you rebalance

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ltdshred
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ltdshred » Thu Mar 12, 2020 10:55 am

Hydromod wrote:
Fri Mar 06, 2020 1:31 pm
These last weeks have been a good test for risk tolerance.

I've got small two versions of this going, (i) one "low-volatility" mix of nominally 50% UPRO+TMF/50% BND with monthly additions using M1 to rebalance and (ii) one tactical adaptive mix of TQQQ/TMF + a small amount of trending equity. I'm happy with gains for the first one but rather not lose too much. I'm hoping for good appreciation with the second.

These are good contrasts to test how I will do at the tail of a bull.

The UPRO/TMF/BND one started with the 40/60 UPRO/TMF blend. It reached new highs yesterday and is blowing past them (so far) today.

The TQQQ/TMF one is pointing out that I don't handle well the uncertainty of trading in the face of volatility, especially constrained with the morning M1 window when prices are rapidly changing. Two weeks ago I was set with a small allocation of DRIP as a counterpart to TQQQ. Flying by the seat of my pants, I adjusted with a couple of trades based on daily swings. Now I'm tracking how these would have turned out, but as of right now the original portfolio is still outperforming any of the next ones. At one point it was 12% better than the one I'm in now; it's still better by 5 %. I just couldn't handle DRIP volatility and got out.

At this point I've found I'm happy to hold in there without fussing much. It's much less stressful and the risk parity is doing exactly what it's supposed to do.

Even though the TQQQ/TMF one, with my blundering about, is down significantly from it's peak and the UPRO/TMF/BND one is at a new high, I will say that the TQQQ/TMF one has still outperformed since 10/1/2019 when both were in place.
From a fundamental point of view. TQQQ contains no oil companies and has performed better during crashes (ex dot-com) than SP500 and the DOW.

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by HEDGEFUNDIE » Thu Mar 12, 2020 11:00 am

lkar wrote:
Thu Mar 12, 2020 9:58 am
It is interesting to see how things have operated in times of stress and volatility. I have learned a bit about myself.

The most important point is this — even if the original premises are true I think I will have trouble staying in if this method generates outsized returns in the future.

I am dabbling in this with 1 percent of my assets. Let’s say things recover and it goes back to over production generating returns above SP. So in 2025 it is a more significant percentage of my portfolio.

In that event I think the volatility in difficult times would be too much for me and I would have trouble staying the course. At 1 percent it is an experiment. At 3 percent it starts to potentially affect my retirement.

The original premise was this is a long term play. The irony is that I can stomach the volatility on the downside now when the balance is a relatively smaller amount.

If I question my ability to make this a long term play I think I am taking risk for not enough potential reward. I will probably get out and just buy VV. Hard to know when though.
This is exactly why I take the mental approach that I have already "lost" this money.

If you start at 1% and it grows to 15%, and you lose it all, then you have really lost only the 1% you put in at the beginning. If you had kept that 1% in your normal AA, then it would still be 1% and losing it would not put anything at risk.
Last edited by HEDGEFUNDIE on Thu Mar 12, 2020 11:06 am, edited 1 time in total.

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Mar 12, 2020 11:02 am

ltdshred wrote:
Thu Mar 12, 2020 10:55 am
From a fundamental point of view. TQQQ contains no oil companies and has performed better during crashes (ex dot-com) than SP500 and the DOW.
It's still being beaten down pretty badly.

occambogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by occambogle » Thu Mar 12, 2020 11:06 am

I'm reading about Treasuries liquidity problems, apparently:

https://www.nytimes.com/2020/03/12/busi ... s-fed.html
https://finance.yahoo.com/news/50-trill ... 57519.html

Does anyone understand why, or what the implications are for LTT ETFs like TMF and EDV? Is it essentially a temporary problem, or something more substantial? Sorry my knowledge is very lacking....


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Forester
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Forester » Thu Mar 12, 2020 11:23 am

How to make a small fortune with leveraged risk parity?

Start with a large fortune

hicabob
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hicabob » Thu Mar 12, 2020 11:28 am

Forester wrote:
Thu Mar 12, 2020 11:23 am
How to make a small fortune with leveraged risk parity?

Start with a large fortune
It worked until it didn't.

dave_k
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dave_k » Thu Mar 12, 2020 11:42 am

hicabob wrote:
Thu Mar 12, 2020 11:28 am
Forester wrote:
Thu Mar 12, 2020 11:23 am
How to make a small fortune with leveraged risk parity?

Start with a large fortune
It worked until it didn't.
As of now, from the market peak, the original 40/60 UPRO/TMF strategy I have been following has dropped less than the S&P 500, and I'm still up nearly 60% from when I started just over a year ago, while the S&P 500 is down around 10%. Definitely a rough ride recently, but it's still too early to write this whole idea off.

Thinking of doing another partial early rebalance back to 33/67 today since it's so far off again (about 25/75).

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by HEDGEFUNDIE » Thu Mar 12, 2020 12:01 pm

hicabob wrote:
Thu Mar 12, 2020 11:28 am
Forester wrote:
Thu Mar 12, 2020 11:23 am
How to make a small fortune with leveraged risk parity?

Start with a large fortune
It worked until it didn't.
Spread false narratives all you'd like.

The fact is the strategy is working as intended.

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ltdshred
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ltdshred » Thu Mar 12, 2020 12:01 pm

DaveG75 wrote:
Wed Mar 11, 2020 6:27 pm
AHTFY wrote:
Wed Mar 11, 2020 1:06 pm
Forester wrote:
Wed Mar 11, 2020 1:04 pm
UPRO & TMF looking ugly. Peter Schiff called the end of the bond bull yesterday :?
Peter Schiff? Time to buy!!!
Absolutely. That guy is a very good contrary indicator.
He predicts a market recession every year. A broken clock is right twice a day

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ltdshred
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ltdshred » Thu Mar 12, 2020 12:02 pm

Lee_WSP wrote:
Thu Mar 12, 2020 11:02 am
ltdshred wrote:
Thu Mar 12, 2020 10:55 am
From a fundamental point of view. TQQQ contains no oil companies and has performed better during crashes (ex dot-com) than SP500 and the DOW.
It's still being beaten down pretty badly.
Every basis point counts man

Jags4186
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 » Thu Mar 12, 2020 12:11 pm

HEDGEFUNDIE wrote:
Thu Mar 12, 2020 12:01 pm
hicabob wrote:
Thu Mar 12, 2020 11:28 am
Forester wrote:
Thu Mar 12, 2020 11:23 am
How to make a small fortune with leveraged risk parity?

Start with a large fortune
It worked until it didn't.
Spread false narratives all you'd like.

The fact is the strategy is working as intended.
Seriously...the portfolio is up today. People need to calm down.

cheezit
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cheezit » Thu Mar 12, 2020 12:19 pm

Long treasurys shot up 5% in the last hour (and thus TMF went up by ~15%). Intraday volatility obviously way up the last week or two, and usually the net intraday movement has been in the opposite direction of the delta between the previous day's close and the current day's open. Must be exciting times on trading floors.

occambogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by occambogle » Thu Mar 12, 2020 12:23 pm

cheezit wrote:
Thu Mar 12, 2020 12:19 pm
Long treasurys shot up 5% in the last hour (and thus TMF went up by ~15%). Intraday volatility obviously way up the last week or two, and usually the net intraday movement has been in the opposite direction of the delta between the previous day's close and the current day's open. Must be exciting times on trading floors.
Presumably this: https://www.marketwatch.com/story/fed-r ... =home-page

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1789
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 1789 » Thu Mar 12, 2020 12:53 pm

Folks,

OP designed and experiment for the long term and some people joining it. I don't as i don't understand how these funds work but i am reading thread to learn and etc.. I want to mention one thing thou. No one knows it will work or not but i believe you agree with me that jumping in and out of strategy will definitely end with failure. Thoughts?
Last edited by 1789 on Thu Mar 12, 2020 1:14 pm, edited 1 time in total.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

interestediniras
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by interestediniras » Thu Mar 12, 2020 12:58 pm

imagine if people started saying market indexing was dead after a single day of stock market declines

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Mar 12, 2020 12:59 pm

1789 wrote:
Thu Mar 12, 2020 12:53 pm
Folks,

OP designed and experiment for the long term and some people joining it. I don't as i don't understand these funds work but i am reading thread to learn and etc.. I want to mention one thing thou. No one knows it will work or not but i believe you agree with me that jumping in and out of strategy will definitely end with failure. Thoughts?
The whipsaws would be very very bad and if you're going to be jumping in and out based on a trend system or something else, you might as well just invest in a 100% S&P500. See below:

https://www.portfoliovisualizer.com/tes ... tion2_1=55

That said, you still beat the S&P, but not by a lot and for a lot of angst.

If the trend avoids the 2008 & 2000 crisis, obviously it comes out smelling like a rose and prescient.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by abracadabra11 » Thu Mar 12, 2020 1:06 pm

Forester wrote:
Wed Mar 11, 2020 11:50 pm
Less of an Excellent Adventure, more of a Bogus Journey if bonds don't bail out stocks.
I don't ascribe to the adventure. It definitely piques my intellectual interests, but like many on this board, I remain on the sidelines and adhere to the prescribed safety of 3-fund portfolios (or similar) and an established asset allocation that reflects my perceived risk tolerance. Regardless, this 'adventure' and its various contributors have added much to the financial literacy of this board and that should be view as a clear benefit to all participants on the forum.

The primary risk of the portfolio and its long term dependency on the historical S&P and LTT historical correlations was established early and accepted. Historical simulations discussed earlier in the thread clearly show that the max drawdown is much higher (for the updated 55/45 UPRO/TMF split) than the S&P. So it shouldn't come as a surprise that there may be periods where this underperforms (though to date that has rarely happened on a day-to-day basis and is patently not true for those that started from the beginning). Those that are flailing because of the recent volatility have hopefully learned that this adventure (and perhaps even high allocations to stocks in general) is above their risk tolerance.

I'm excited to see how this turns our over the course of several years, but will remain a casual, yet fascinated observer hoping for success. Some part of me (like many that continue to lambast the strategy) is hoping for underperformance, but hopefully we all recognize that's strictly selfish motivation related to FOMO.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Mar 12, 2020 1:17 pm

Hedgefundie,
I just want to say thank you for even doing this. If nothing else, it has caused me to increase my financial literacy by leaps & bounds.

To all the detractors,
Just stop. It's obviously a very risky play, and if one can't even accept 100% equities, they have no business being in the strategy in the first place. But if one is looking for more risk & more return than 100% equities, this is it. There is no better alternative other than accepting lower risk & lower return.

To everyone in the journey trying to eek out a few extra points,
By now, I think it's quite obvious whether or not the juice is worth the squeeze. It's time to re-evaluate your jitters and decide if 100% TSM, 80% TSM, or 200% TSM is the right risk level you should take.

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1789
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 1789 » Thu Mar 12, 2020 1:20 pm

I agree with you that if a person cant' handle 100% TSM, they cant handle 20% daily ups and down in this strategy. I don't see a way.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)

guyinlaw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Thu Mar 12, 2020 1:31 pm

Lee_WSP wrote:
Thu Mar 12, 2020 12:59 pm
1789 wrote:
Thu Mar 12, 2020 12:53 pm
Folks,

OP designed and experiment for the long term and some people joining it. I don't as i don't understand these funds work but i am reading thread to learn and etc.. I want to mention one thing thou. No one knows it will work or not but i believe you agree with me that jumping in and out of strategy will definitely end with failure. Thoughts?
The whipsaws would be very very bad and if you're going to be jumping in and out based on a trend system or something else, you might as well just invest in a 100% S&P500. See below:

https://www.portfoliovisualizer.com/tes ... tion2_1=55

That said, you still beat the S&P, but not by a lot and for a lot of angst.

If the trend avoids the 2008 & 2000 crisis, obviously it comes out smelling like a rose and prescient.
Target volatility timing followed by some has worked fairly well..

See how UPRO/TMF has performed
Strategy - CAGR
Timing - 33.60%
Buy/Hold - 28.84%

https://www.portfoliovisualizer.com/te ... tion2_1=55

see the target volatility spreadsheet here..
viewtopic.php?t=302333#p5004885

Looking at Feb volatility one would be at 33/67 UPRO/TMF portfolio.. (including till yesterday it is down 16/84)
"Equity markets could get worse if the slowdown extends further, but also realize that the markets will rebound far before economic data improve."

Tellurius
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tellurius » Thu Mar 12, 2020 1:33 pm

Who are the counterparties in the Excellent Adventure? for the swaps etc
La nuit semblait profonde. L'hiver interminable.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos » Thu Mar 12, 2020 1:49 pm

Tellurius wrote:
Thu Mar 12, 2020 1:33 pm
Who are the counterparties in the Excellent Adventure? for the swaps etc
Big banks like Bank of America and BNP Paribas.

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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by gw » Thu Mar 12, 2020 1:51 pm

Lee_WSP wrote:
Thu Mar 12, 2020 1:17 pm
To all the detractors,
Just stop. It's obviously a very risky play, and if one can't even accept 100% equities, they have no business being in the strategy in the first place. But if one is looking for more risk & more return than 100% equities, this is it. There is no better alternative other than accepting lower risk & lower return.
Counterpoint: you could 8x-leverage the excellent adventure, backstopped by bankruptcy and disability income.

Sir, your "safer" portfolio just caused a $276k margin call.

*This* is how you gamble, kids.

bgf
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by bgf » Thu Mar 12, 2020 2:45 pm

so this is still working well, but what is the likeliest cause of future underperformance? is it just the simple explanation that with bonds paying so little people sell all securities and hide in cash? is that really so hard to believe as a reasonable potential outcome?

the market is currently nowhere near people giving up. its happened too fast. its still exciting. its when small losses accumulate daily over months that people give up.

thats how this strategy fails i think. people just hoard cash.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

Lee_WSP
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Lee_WSP » Thu Mar 12, 2020 2:46 pm

gw wrote:
Thu Mar 12, 2020 1:51 pm
Lee_WSP wrote:
Thu Mar 12, 2020 1:17 pm
To all the detractors,
Just stop. It's obviously a very risky play, and if one can't even accept 100% equities, they have no business being in the strategy in the first place. But if one is looking for more risk & more return than 100% equities, this is it. There is no better alternative other than accepting lower risk & lower return.
Counterpoint: you could 8x-leverage the excellent adventure, backstopped by bankruptcy and disability income.

Sir, your "safer" portfolio just caused a $276k margin call.

*This* is how you gamble, kids.
Lol.

But we all agree (privatefarmer & 305 excepted) that margin is bad. Bad bad bad, no good, nothing good can come of it bad.

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