HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by darkcam »

Correct me if I’m wrong but do we not need 4x the amount of LTT when using ITT if we want the same risk?
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

darkcam wrote: Wed Oct 20, 2021 2:20 pm Correct me if I’m wrong but do we not need 4x the amount of LTT when using ITT if we want the same risk?
Don't know what the amount is but I don't want to dedicate more of my portfolio to a leverage bet than the initial amount that I allocated
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

darkcam wrote: Wed Oct 20, 2021 2:20 pm Correct me if I’m wrong but do we not need 4x the amount of LTT when using ITT if we want the same risk?
If you were looking only at duration as a measure of risk, yes. If ITT have duration 5 years, and LTT have duration 20, you would replace at 4:1. And since the expected return on the 5 year is well over half the expected return on the 20 year, you would expect to more than double your returns.

However, duration isn't the only thing that affects risk. ITT interest rates exhibit greater variability. Ultimately we want to use backtesting to decide the correct ratio. I suggest replacing at around 2:1 if going from 18 years to 5 years in duration. If going from 18 years to 8 years, it would be more like 1.5:1. Look at some backtests and max-drawdowns to decide. Preferably going back to 1955.
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

skierincolorado wrote: Sun Sep 12, 2021 11:59 am
comeinvest wrote: Sun Sep 12, 2021 7:59 am
skierincolorado wrote: Fri Sep 03, 2021 6:19 pm
klaus14 wrote: Fri Sep 03, 2021 5:27 pm
skierincolorado wrote: Fri Sep 03, 2021 3:34 pm

OK so final numbers!
For ZN 1.117 -.1 = 1.017 * 4.44/6.38 = .708
For ZF .7621 -.1 = .6621

This I think is the carry relative to the effective duration. So it's basically how much (net) interest you are getting relative to how much risk. For ZB I got ~.45.
i am not sure if financing cost is already factored in futures yield or not. If factored in then simply:
For ZN 1.117 * 4.44/6.38 = .777
vs ZF .7621
Pretty sure it doesn't, the screenshot on this page shows a futures yield of 2.2% for the 10y ultra. It looks to be from Sept or Oct 2017. The 3 month rate was near 1% then and the 10 year rate was indeed around 2.2% (not 3.2%). There's no way (assuming this is from Sep/Oct 2017) that the yield after financing was 2.2%. Before financing makes more sense.
https://www.cmegroup.com/tools-informat ... guide.html

Another interesting question is does their calculation of futures yield include roll. I think it does. ZF has a futures yield of .76% right now with a duration and time to maturity both around 4.4 years. Looking at the yield curve, I would expect the yield of a 4.4y bond to be a lot less than .76%... more like .65% or .70%. So maybe it is including the roll? The interest rate on a 4.4 y bond would only be ~.65% but the yield in the first year would be more than that because it would become a 3.4y bond.
Not possibly that the numbers include the roll return. The current roll return of a 4.4y bond for example is much higher than 0.76% - 0.65%.
Yeah once I calculated the roll that became clear, but why does the futures yield seem to be higher than the duration would suggest?
Did anyone figure that out yet?
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

skierincolorado wrote: Sun Sep 12, 2021 11:56 am
comeinvest wrote: Sun Sep 12, 2021 9:03 am
skierincolorado wrote: Fri Sep 03, 2021 10:17 am Box spreads are awesome... Box spreads give us access to commercial lending markets at market short-term interest rates near LIBOR without a middle man, which I find to just be truly awesome.
Here's a thread on them: viewtopic.php?t=344667
Unfortunately you don't get rates as close to LIBOR as I would like, but about 0.4% above LIBOR. I think this must be more or less the equity index repo rate, because the SPX box can be viewed as a combination of two synthetic equity positions (put/call parity). This should be the same as the implied financing rate of equity index futures, which is higher than the implied financing rate of treasury futures, as you pointed out before.

Having that said, I'm thinking of selling boxes of treasury futures options instead of SPX options, in an attempt to get synthetic loans at rates close to the treasury repo rate of close to 0.1% instead of ca. 0.5%. Treasury futures options need to be rolled to avoid physical delivery, but that should be only a marginally more difficult task than replacing expiring SPX boxes, maybe even less difficult. Any thoughts?
I think that you could get closer to LIBOR if you did shorter duration boxes. For a longer box, it's not really LIBOR we should compare to, it's the corresponding treasury bill of the same duration. But I agree it still seems to come out a good bit above.

I'd have to think through a spread using futures a little more, it's a good idea and I'll definitely look into and post when I do. Is early exercise possible? Curious how it works out for you.
When I said "above LIBOR" I meant in reality "above some risk-free rate". Both were identical or close to each other for the length of my boxes - about 0.1%.

In the interim, I tried out futures options boxes, and got financing rates close to 0.0 from some. But there are a few technicalities. I'm still experimenting. As a heads up, I don't find the American options early exercise possibility a huge problem. First, it is rare that American options are exercised early. Second, if they are and you are assigned, you would typically make an instant profit (nice side effect), as the early exercise is almost always suboptimal for the long option holder. Third, if you are assigned and get the underlying delivered, the risk profile of the underlying kind of nicely complements that of the leftover option legs as it almost perfectly replaces the assigned option leg (at least in my case as I used strike prices far away from the market), so there should typically be none of the infamous positions liquidations happening unless the account is insanely overleveraged. Additionally and to be extra safe, before I created my box, I made sure that the margin requirements of all of the legs individually would be well below my margin limits, just in case somebody pierces my box by early exercise. Forth, if a box is ever "pierced" (damaged) by early exercise and assignment of a leg, this should normally not lead to leakage and box destruction, but the box could be repaired.

Some good amount of time before expiration you would typically rollover all 4 legs simultaneously to the next expiration of your choice. The good thing is you can do it whenever you want and have time, you don't have to wait for expiration.

Did you do any research on futures options boxes since?
parval
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

Can you tax loss harvest TMF and buy EDV? How do you tell if they're "substantially identical securities" for wash sale rules?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ChinchillaWhiplash »

parval wrote: Thu Oct 21, 2021 10:20 am Can you tax loss harvest TMF and buy EDV? How do you tell if they're "substantially identical securities" for wash sale rules?
EDV holdings = 80. TMF = 5. EDV does not use derivatives. Totally different funds as far as holdings go.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

parval wrote: Thu Oct 21, 2021 10:20 am Can you tax loss harvest TMF and buy EDV? How do you tell if they're "substantially identical securities" for wash sale rules?
I would think you can TLH but flip back to TMF or TYD ASAP. EDV is terrible.
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

skierincolorado wrote: Thu Oct 21, 2021 3:33 pm I would think you can TLH but flip back to TMF or TYD ASAP. EDV is terrible.
I'm curious to hear your thoughts on replacing UPRO with TQQQ/TNA. Was mentioned somewhere on these threads and it certainly does better in backtesting. It's also heavily biased by recent outperformance in QQQ. To me, it's a question of whether tech growth is transitory or secular. Also, I wonder whether these funds might be more likely to be liquidated.

Here's the portfolio for reference. Same drawdown as yours but 23% higher CAGR.
  • 25% TQQQ
  • 25% TNQ
  • 50% TYD
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

investor.was.here wrote: Thu Oct 21, 2021 3:54 pm
skierincolorado wrote: Thu Oct 21, 2021 3:33 pm I would think you can TLH but flip back to TMF or TYD ASAP. EDV is terrible.
I'm curious to hear your thoughts on replacing UPRO with TQQQ/TNA. Was mentioned somewhere on these threads and it certainly does better in backtesting. It's also heavily biased by recent outperformance in QQQ. To me, it's a question of whether tech growth is transitory or secular. Also, I wonder whether these funds might be more likely to be liquidated.

Here's the portfolio for reference. Same drawdown as yours but 23% higher CAGR.
  • 25% TQQQ
  • 25% TNQ
  • 50% TYD
You can and should backtest 3x qqq to 1999 or earlier. It is much worse than 3x spy.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

investor.was.here wrote: Thu Oct 21, 2021 3:54 pm
skierincolorado wrote: Thu Oct 21, 2021 3:33 pm I would think you can TLH but flip back to TMF or TYD ASAP. EDV is terrible.
I'm curious to hear your thoughts on replacing UPRO with TQQQ/TNA. Was mentioned somewhere on these threads and it certainly does better in backtesting. It's also heavily biased by recent outperformance in QQQ. To me, it's a question of whether tech growth is transitory or secular. Also, I wonder whether these funds might be more likely to be liquidated.

Here's the portfolio for reference. Same drawdown as yours but 23% higher CAGR.
  • 25% TQQQ
  • 25% TNQ
  • 50% TYD
I run a version of this and I think Hydromod is also running something somewhat similar. Neither of us uses quarterly rebalance for this since the individual equity components (TQQQ/TNA) are fairly volatile. If one want to capture any of the volatility bonus via rebalancing and avoid drag on performance, one will need to carefully consider how they will play the rebalancing game. Hydromod does risk budgeting and I run a version of adaptive asset allocation.

Look at Portfolio opimization for a bit of insights.
k.m.white
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by k.m.white »

First time poster because of HFEA. I have read through all of the part I thread and a large portion of part II.

Given the inflation issues that the US is facing and the somewhat likely event of interest rates increase, has anyone considered running the strategy with alternative long-term government bonds (such as China or Mexico)? From my view point, interest rates rising is the most significant risk to this strategy at the moment.

It has been mentioned several times before, but this theory was first developed before we realized how much TMF was juicing profits from the period of 1986 to present due to declining interest rates.
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cflannagan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

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Last edited by cflannagan on Thu Oct 21, 2021 5:21 pm, edited 1 time in total.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

k.m.white wrote: Thu Oct 21, 2021 4:56 pm First time poster because of HFEA. I have read through all of the part I thread and a large portion of part II.

Given the inflation issues that the US is facing and the somewhat likely event of interest rates increase, has anyone considered running the strategy with alternative long-term government bonds (such as China or Mexico)? From my view point, interest rates rising is the most significant risk to this strategy at the moment.

It has been mentioned several times before, but this theory was first developed before we realized how much TMF was juicing profits from the period of 1986 to present due to declining interest rates.
Welcome to the forum and the most discussed topic :wink: But keep in mind that one of the benefit of TMF is during crash, there's a run to safety and US LTT has demonstrated that. I don't see that happening with long term emerging market bonds. If anything, during global crisis, EM bond will likely face a significant sell off. Not to mention all the currency issue related to holding foreign govt bonds. Remember, EM bonds carry almost the same risk as equity. So if your desire is to play this, I think a more tactical/adaptive approach is required.
investor.was.here
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

Lots of discussion on the riskier end of the curve here but, playing around with balanced fund alternatives and using leverage still, I discovered something interesting. Replacing S&P500 with T Rowe Price New Horizon and pairing it with 3x ITT looks way better than a balanced fund.
  • 60/40 PRNHX/TYD
Backtest to 1992 shows 15% CAGR with -18% drawdown, compared to 8.5% CAGR and -32% drawdown for Vanguard balanced fund. Unfortunately, since it's a mutual fund, you can't buy it in M1Finance so I included a small cap growth in lieu for comparison. Not as good... but still good.

I assume small cap growth has just done well past 3 decades but we can't assume it'll continue to do well? Is this a byproduct of dropping interest rates?
Hfearless
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

k.m.white wrote: Thu Oct 21, 2021 4:56 pm has anyone considered running the strategy with alternative long-term government bonds (such as China or Mexico)?
Look at ETFs like EMB and how poorly they react to crises. Indeed, so poorly that I’m curious whether shorting such an ETF is a viable hedge against a market crash.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Hfearless wrote: Fri Oct 22, 2021 6:20 am
k.m.white wrote: Thu Oct 21, 2021 4:56 pm has anyone considered running the strategy with alternative long-term government bonds (such as China or Mexico)?
Look at ETFs like EMB and how poorly they react to crises. Indeed, so poorly that I’m curious whether shorting such an ETF is a viable hedge against a market crash.
Same view here (as I posted upthread). In the last few market crashes, EM bonds suffers as well, and they should be view with the same risk level as one's equity allocation.
Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

k.m.white wrote: Thu Oct 21, 2021 4:56 pm First time poster because of HFEA. I have read through all of the part I thread and a large portion of part II.

Given the inflation issues that the US is facing and the somewhat likely event of interest rates increase, has anyone considered running the strategy with alternative long-term government bonds (such as China or Mexico)? From my view point, interest rates rising is the most significant risk to this strategy at the moment.

It has been mentioned several times before, but this theory was first developed before we realized how much TMF was juicing profits from the period of 1986 to present due to declining interest rates.
Isn't this why Hedgefundie increased from 40% equity to 55%?

Some have gone a little farther, e.g., 60% or 65%

I don't think a few years of inflation kills the strategy even if not all of it is transitory. Long term, unexpected inflation, and stagnant economy is the kiss of death. Don't see that though, the 30 year treasury is at 2.09%, it's not like it is 3X the 10 year treasury or something
Hfearless
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Ramjet wrote: Fri Oct 22, 2021 2:35 pm Long term, unexpected inflation, and stagnant economy is the kiss of death.
But isn’t it a “strategy no longer viable, close your positions, consider your alternatives and purchase something else” kiss of death, as opposed to “oops, as of today your assets are worthless” kiss of death?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Hfearless wrote: Fri Oct 22, 2021 4:21 pm
Ramjet wrote: Fri Oct 22, 2021 2:35 pm Long term, unexpected inflation, and stagnant economy is the kiss of death.
But isn’t it a “strategy no longer viable, close your positions, consider your alternatives and purchase something else” kiss of death, as opposed to “oops, as of today your assets are worthless” kiss of death?
The former kiss doesn’t exist because it would require a crystal ball.

Fortunately it is neither. Diversification is always a benefit. But during inflation the correlation between assets could increase and the benefit would be less. Leveraged stocks and bonds did just fine pre 1982 and beats stocks or bonds individually. It just does a whole lot better after 1982 when the correlation was more negative.

The risk of a long period where bonds perform poorly is why I tilt a little heavier on stocks that hfea. And why I use higher quality bonds than LTT.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

If you identified the current state of economy as stagnant, would you not reconsider your asset allocation?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Also, what’s a good way of backtesting HFEA variants with 5 year T-notes? VFITX goes back to 1991 but that’s 5–10 year. The oldest ETF that I could find for the 5 year term is SPTI with inception in 2007.

Asking because the PIMCO paper recently linked here, Optimizing Yield Curve Positioning for Multi-Asset Portfolios, suggests 5 years as the optimal term, and that can be easily implemented with /ZF. PV comparison of HFEA and its variants (with leverages chosen to match the max drawdown of SPX) does show promise for that approach.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Hfearless wrote: Fri Oct 22, 2021 5:06 pm Also, what’s a good way of backtesting HFEA variants with 5 year T-notes? VFITX goes back to 1991 but that’s 5–10 year. The oldest ETF that I could find for the 5 year term is SPTI with inception in 2007.

Asking because the PIMCO paper recently linked here, Optimizing Yield Curve Positioning for Multi-Asset Portfolios, suggests 5 years as the optimal term, and that can be easily implemented with /ZF. PV comparison of HFEA and its variants (with leverages chosen to match the max drawdown of SPX) does show promise for that approach.
Did you try the Asset class backtest version of PV?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

cflannagan wrote: Fri Oct 22, 2021 5:27 pm Did you try the Asset class backtest version of PV?
Yes, and the Intermediate Term Treasury class is exactly VFITX, as can be seen by comparing the figures for identical intervals.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Hfearless wrote: Fri Oct 22, 2021 5:31 pm
cflannagan wrote: Fri Oct 22, 2021 5:27 pm Did you try the Asset class backtest version of PV?
Yes, and the Intermediate Term Treasury class is exactly VFITX, as can be seen by comparing the figures for identical intervals.
Yeah - I was thinking of something like 50% short term treasuries, 50% intermediate (or some mix) for the bond portion - to get something closer to what you were looking for (5-year's)
Hfearless
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

cflannagan wrote: Fri Oct 22, 2021 5:35 pm Yeah - I was thinking of something like 50% short term treasuries, 50% intermediate (or some mix) for the bond portion - to get something closer to what you were looking for (5-year's)
Curiously, that tracks SPTI very well—until it doesn’t. Any idea what happened in late 2018?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Hfearless wrote: Fri Oct 22, 2021 4:33 pm If you identified the current state of economy as stagnant, would you not reconsider your asset allocation?
No by that point I would probably have lost a ton of money and would be selling at a bottom. If the economy was obviously stagnant to a layperson like me, then the stock market would not lose all the high valuations we see today. If there was inflation expected as well, bond prices would also have dropped already. You can't get ahead of the market. There's very few if any economic events that would change my AA.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Hfearless wrote: Fri Oct 22, 2021 5:06 pm Also, what’s a good way of backtesting HFEA variants with 5 year T-notes? VFITX goes back to 1991 but that’s 5–10 year. The oldest ETF that I could find for the 5 year term is SPTI with inception in 2007.

Asking because the PIMCO paper recently linked here, Optimizing Yield Curve Positioning for Multi-Asset Portfolios, suggests 5 years as the optimal term, and that can be easily implemented with /ZF. PV comparison of HFEA and its variants (with leverages chosen to match the max drawdown of SPX) does show promise for that approach.
I'm pretty sure VFITX is quite close to 5 years. Vanguard lists it as like 5.3 I think. It should be similar to holding ZF and a little ZN. Do check out some of the recent discussion in the thread I started. There are some benefits to diversifying beyond ZF. Consider some ZT and ZN, mabe TN.

ZF and ZN would be primary holdings though.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

Circling back to ITT vs LTT again, am I missing something from this simple 50/50 backtesthttps://www.portfoliovisualizer.com/bac ... tion3_2=50? Feels like LTT >>> ITT?

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

Post by Hfearless »

parval wrote: Sun Oct 24, 2021 11:19 am Circling back to ITT vs LTT again, am I missing something from this simple 50/50 backtesthttps://www.portfoliovisualizer.com/bac ... tion3_2=50? Feels like LTT >>> ITT?
You need more ITT. The exact amount is subject to debate. SIC’s thread studies this in great detail.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

parval wrote: Sun Oct 24, 2021 11:19 am Circling back to ITT vs LTT again, am I missing something from this simple 50/50 backtesthttps://www.portfoliovisualizer.com/bac ... tion3_2=50? Feels like LTT >>> ITT?

Image
No you're not missing anything. Like you, I was initially dismissive of SIC's assertions that ITTs are better than LTTs, but I've came around to agree with him. Not entirely for the same reasons he was presenting, but part of it. The part of it for me that does it for me is the better risk-adjusted returns.

If you're like me and I believe for most others who has some HFEA positions in their portfolios, I didn't go all-in with HFEA. My risk tolerance is not that high, I would never leverage my entire NW x3. Through his comments & presentations, I started to look at my AA in a different way.

To illustrate: Let's say you are 50% VTI, 50% HFEA. That's pretty aggressive (more aggressive than HEDGEFUNDIE himself, I believe he uses HFEA only for 15% or so of his NW). That's equivalent to a 132.5%/67.5% AA. Through almost 133% equities, you have a more volatile ride than 100% VTI.

What if you could not only reduce the volatility but also have better returns? Not only can you keep ~132% equities, you could add 100% more to your bond portion! This can be done through 44/56 UPRO/TYD (equivalent to 132%/168% equities/bonds). Lower stdev, lower drawdown, better returns! If you were like me, lowering volatility is especially important if we're doing anything leveraged.

Sure, you can replace 44/56 UPRO/TYD with 44/56 UPRO/TMF for better returns, but now you're back to having significantly more volatility in your AA, something I'm actively avoiding in my leveraged positions. I hope this helps why it makes sense to go with ITTs over LTTs here.

Disclosure: I have HFEA positions for less than 5% of my overall NW, with some PSLDX and NTSX elsewhere.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

parval wrote: Sun Oct 24, 2021 11:19 am Circling back to ITT vs LTT again, am I missing something from this simple 50/50 backtesthttps://www.portfoliovisualizer.com/bac ... tion3_2=50? Feels like LTT >>> ITT?

Image
cflannagan and HFearless already covered it, but I'll cut and paste this as another example:

Instead of doing 10% of net worth in SPY plus 10% of net worth in HFEA 165/135 stock/LTT, do 20% of one's net worth in 135/165 stock/ITT. The latter portfolio has higher risk adjusted returns.

If we look at the 10% in HFEA and the other 10% that we are moving from (assuming) SPY to modified HFEA:

Originally 10% HFEA + 10% SPY = 132.5/67.5 stock/LTT for that 20% of your portfolio (ignoring the other 80%)

New 20% in modified HFEA = 135/165 stock/ITT (again ignoring the other 80% of your portfolio)

Let's run the PV for that 20%. The red line is 20% 'modified' HFEA. The blue line is 10% HFEA + 10% SPY. The red line has much higher CAGR and a lower max-drawdown.

https://www.portfoliovisualizer.com/bac ... on4_2=-200

If you already have 100% of net worth in HFEA, you need an instrument with more leverage like futures. If not, you can simply follow the example above to improve your overall efficiency.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

cflannagan wrote: Sun Oct 24, 2021 12:02 pm
parval wrote: Sun Oct 24, 2021 11:19 am Circling back to ITT vs LTT again, am I missing something from this simple 50/50 backtesthttps://www.portfoliovisualizer.com/bac ... tion3_2=50? Feels like LTT >>> ITT?
No you're not missing anything. Like you, I was initially dismissive of SIC's assertions that ITTs are better than LTTs, but I've came around to agree with him. Not entirely for the same reasons he was presenting, but part of it. The part of it for me that does it for me is the better risk-adjusted returns.

If you're like me and I believe for most others who has some HFEA positions in their portfolios, I didn't go all-in with HFEA. My risk tolerance is not that high, I would never leverage my entire NW x3. Through his comments & presentations, I started to look at my AA in a different way.

To illustrate: Let's say you are 50% VTI, 50% HFEA. That's pretty aggressive (more aggressive than HEDGEFUNDIE himself, I believe he uses HFEA only for 15% or so of his NW). That's equivalent to a 132.5%/67.5% AA. Through almost 133% equities, you have a more volatile ride than 100% VTI.

What if you could not only reduce the volatility but also have better returns? Not only can you keep ~132% equities, you could add 100% more to your bond portion! This can be done through 44/56 UPRO/TYD (equivalent to 132%/168% equities/bonds). Lower stdev, lower drawdown, better returns! If you were like me, lowering volatility is especially important if we're doing anything leveraged.

Sure, you can replace 44/56 UPRO/TYD with 44/56 UPRO/TMF for better returns, but now you're back to having significantly more volatility in your AA, something I'm actively avoiding in my leveraged positions. I hope this helps why it makes sense to go with ITTs over LTTs here.

Disclosure: I have HFEA positions for less than 5% of my overall NW, with some PSLDX and NTSX elsewhere.
The example assumes the levered component is continually rebalanced with the unlevered component.

Most participants are bucketing off the levered portfolio from the unlevered portfolio, however. This means that the asset allocation drifts over time. I was curious as to the effect of bucketing.

Assume CAGRs of 11, 23, and 19 percent for the S&P, HFEA (55/45 UPRO/TMF), and mHFEA (46/54 UPRO/TYD). These CAGRs roughly correspond to 1992-present, plus or minus some expenses.

After 5 years, a 90/10 unlevered/levered allocation drifts to 84/16 and 86/14 for HFEA and mHFEA (portfolio increase 1.73 and 1.69 times). After 10 years, 75/25 and 80/20 (3.13 and 2.90 times increase). After 20 years, 49/51 and 65/35 (12.33 and 9.30 times increase).
Effective CAGR goes from 11.3 to 11.9 to 13 to 16.3 for HFEA and from 11 to 11.2 to 11.7 to 13 for mHFEA.

After 5 years, a 80/20 unlevered/levered allocation drifts to 70/30 and 73/27 for HFEA and mHFEA (portfolio increase 1.85 and 1.76 times). After 10 years, 57/43 and 65/35 (3.66 and 3.21 times increase). After 20 years, 30/70 and 45/55 (17.95 and 11.87 times increase).
Effective CAGR goes from 12.6 to 13.7 to 15.3 to 18.8 for HFEA and from 11.8 to 12.3 to 13 to 14.7 for mHFEA.

After 5 years, a 50/50 unlevered/levered allocation drifts to 36/64 and 40/60 for HFEA and mHFEA (portfolio increase 2.21 and 2.00 times). After 10 years, 25/75 and 31/69 (5.26 and 4.14 times increase). After 20 years, 10/90 and 17/83 (34.77 and 19.58 times increase).
Effective CAGR goes from 16.5 to 17.9 to 19.5 to 21.6 for HFEA and from 14.5 to 15.2 to 16 to 17.4 for mHFEA.

The suggestion is to initially use double the HFEA allocation for mHFEA by replacing part of the unlevered portfolio. For example, 90/10 unlevered/HFEA with 80/20 unlevered mHFEA. This results in HFEA allocation going from 10 to 16 to 25 to 51 and mHFEA going from 20 to 27 to 35 to 55 after 5, 10, and 20 years. The portfolio goes from the initial value to 1.73x to 3.13x to 12.34x (HFEA) and to 1.77x to 3.21x to 11.87x (mHFEA).

So even when the HFEA component is bucketed off, allowing the initially small bucket grow and totally dominate the portfolio over time, using a doubled allocation for mHFEA would have given approximately the same returns over the first 20 years. Over longer periods, HFEA begins to win out.

Hope this helps.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Hydromod wrote: Sun Oct 24, 2021 1:45 pm
cflannagan wrote: Sun Oct 24, 2021 12:02 pm
parval wrote: Sun Oct 24, 2021 11:19 am Circling back to ITT vs LTT again, am I missing something from this simple 50/50 backtesthttps://www.portfoliovisualizer.com/bac ... tion3_2=50? Feels like LTT >>> ITT?
No you're not missing anything. Like you, I was initially dismissive of SIC's assertions that ITTs are better than LTTs, but I've came around to agree with him. Not entirely for the same reasons he was presenting, but part of it. The part of it for me that does it for me is the better risk-adjusted returns.

If you're like me and I believe for most others who has some HFEA positions in their portfolios, I didn't go all-in with HFEA. My risk tolerance is not that high, I would never leverage my entire NW x3. Through his comments & presentations, I started to look at my AA in a different way.

To illustrate: Let's say you are 50% VTI, 50% HFEA. That's pretty aggressive (more aggressive than HEDGEFUNDIE himself, I believe he uses HFEA only for 15% or so of his NW). That's equivalent to a 132.5%/67.5% AA. Through almost 133% equities, you have a more volatile ride than 100% VTI.

What if you could not only reduce the volatility but also have better returns? Not only can you keep ~132% equities, you could add 100% more to your bond portion! This can be done through 44/56 UPRO/TYD (equivalent to 132%/168% equities/bonds). Lower stdev, lower drawdown, better returns! If you were like me, lowering volatility is especially important if we're doing anything leveraged.

Sure, you can replace 44/56 UPRO/TYD with 44/56 UPRO/TMF for better returns, but now you're back to having significantly more volatility in your AA, something I'm actively avoiding in my leveraged positions. I hope this helps why it makes sense to go with ITTs over LTTs here.

Disclosure: I have HFEA positions for less than 5% of my overall NW, with some PSLDX and NTSX elsewhere.
The example assumes the levered component is continually rebalanced with the unlevered component.

Most participants are bucketing off the levered portfolio from the unlevered portfolio, however. This means that the asset allocation drifts over time. I was curious as to the effect of bucketing.

Assume CAGRs of 11, 23, and 19 percent for the S&P, HFEA (55/45 UPRO/TMF), and mHFEA (46/54 UPRO/TYD). These CAGRs roughly correspond to 1992-present, plus or minus some expenses.

After 5 years, a 90/10 unlevered/levered allocation drifts to 84/16 and 86/14 for HFEA and mHFEA (portfolio increase 1.73 and 1.69 times). After 10 years, 75/25 and 80/20 (3.13 and 2.90 times increase). After 20 years, 49/51 and 65/35 (12.33 and 9.30 times increase).
Effective CAGR goes from 11.3 to 11.9 to 13 to 16.3 for HFEA and from 11 to 11.2 to 11.7 to 13 for mHFEA.

After 5 years, a 80/20 unlevered/levered allocation drifts to 70/30 and 73/27 for HFEA and mHFEA (portfolio increase 1.85 and 1.76 times). After 10 years, 57/43 and 65/35 (3.66 and 3.21 times increase). After 20 years, 30/70 and 45/55 (17.95 and 11.87 times increase).
Effective CAGR goes from 12.6 to 13.7 to 15.3 to 18.8 for HFEA and from 11.8 to 12.3 to 13 to 14.7 for mHFEA.

After 5 years, a 50/50 unlevered/levered allocation drifts to 36/64 and 40/60 for HFEA and mHFEA (portfolio increase 2.21 and 2.00 times). After 10 years, 25/75 and 31/69 (5.26 and 4.14 times increase). After 20 years, 10/90 and 17/83 (34.77 and 19.58 times increase).
Effective CAGR goes from 16.5 to 17.9 to 19.5 to 21.6 for HFEA and from 14.5 to 15.2 to 16 to 17.4 for mHFEA.

The suggestion is to initially use double the HFEA allocation for mHFEA by replacing part of the unlevered portfolio. For example, 90/10 unlevered/HFEA with 80/20 unlevered mHFEA. This results in HFEA allocation going from 10 to 16 to 25 to 51 and mHFEA going from 20 to 27 to 35 to 55 after 5, 10, and 20 years. The portfolio goes from the initial value to 1.73x to 3.13x to 12.34x (HFEA) and to 1.77x to 3.21x to 11.87x (mHFEA).

So even when the HFEA component is bucketed off, allowing the initially small bucket grow and totally dominate the portfolio over time, using a doubled allocation for mHFEA would have given approximately the same returns over the first 20 years. Over longer periods, HFEA begins to win out.

Hope this helps.
Yes I've considered this before. If one is that convinced that the HFEA/mHFEA will grow much faster, there's little reason not to allocate a higher proportion initially. I assume people that are limiting the allocation are maxing out their risk tolerance. Since their risk tolerance is unlikely to be higher 20 years from now, when they are older, they will most likely be rebalancing out of the HFEA. Psychologically one can "bucket" it off and say I don't care what happens to this 10% and if it grows to 1 Billion then great. But rationally, the smart thing to do as a Boglehead, is 10 or 20 years from now, when it has grown to 1M, and your portfolio is now half HFEA or mHFEA, would be to pocket some of your gains and start to de-lever.
Eventually you're going to want to start basing your consumption off of your new-found wealth, and that means the new-found wealth must be protected. And by protected, I mean at least a little less risk than HFEA or mHFEA... like an 80/20 or 90/10 unlevered position.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

skierincolorado wrote: Sun Oct 24, 2021 12:55 pm If you already have 100% of net worth in HFEA, you need an instrument with more leverage like futures. If not, you can simply follow the example above to improve your overall efficiency.
Using margin just to leverage up TYD would also work, no? You'd want some other assets, as you'd likely get a margin call at some point with 75% maintenance on a prure HFEA portfolio.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

investor.was.here wrote: Mon Oct 25, 2021 12:30 pm
skierincolorado wrote: Sun Oct 24, 2021 12:55 pm If you already have 100% of net worth in HFEA, you need an instrument with more leverage like futures. If not, you can simply follow the example above to improve your overall efficiency.
Using margin just to leverage up TYD would also work, no? You'd want some other assets, as you'd likely get a margin call at some point with 75% maintenance on a pure HFEA portfolio.
Shouldn't get a margin call at 1.1x even from 50% drop.

If there are other assets in the account, I can't imagine any reason for not selling those assets and buying more UPRO and TYD to achieve the same AA more efficiently. The fees and implicit borrowing cost of UPRO/TYD are very likely less than the portfolio margin rate. I think if someone is using margin to buy UPRO and TYD while simultaneously holding other stocks or bonds in the same account (SPY, VTI, BND.. etc.) there is a real failure to understand that UPRO is holding nearly identical assets, what matters in the end is what you own, and that the same ownership could be achieved by selling SPY to pay off the margin loan and buy 1/3 as much UPRO.

If the margined UPRO/TYD (or unmargined UPRO/TMF) are in a separate account from other holdings like SPY, VTI, VXUS, BND, well I still don't like it - it's a complete waste of money - but at least there is the psychological benefit of tracking it separately. If people want to waste money on either higher borrowing costs by leveraging TYD and/or lower returns from TMF, in order to get the psychological benefit of separate accounts, that's their choice. If they're literally in the same account, I fail to see any benefit at all at that point. It's just a logical failure to understand that two AAs are fundamentally identical, and one is lower cost or more efficient.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kjm »

skierincolorado wrote: Thu Oct 21, 2021 4:07 pm
investor.was.here wrote: Thu Oct 21, 2021 3:54 pm
skierincolorado wrote: Thu Oct 21, 2021 3:33 pm I would think you can TLH but flip back to TMF or TYD ASAP. EDV is terrible.
I'm curious to hear your thoughts on replacing UPRO with TQQQ/TNA. Was mentioned somewhere on these threads and it certainly does better in backtesting. It's also heavily biased by recent outperformance in QQQ. To me, it's a question of whether tech growth is transitory or secular. Also, I wonder whether these funds might be more likely to be liquidated.

Here's the portfolio for reference. Same drawdown as yours but 23% higher CAGR.
  • 25% TQQQ
  • 25% TNQ
  • 50% TYD
You can and should backtest 3x qqq to 1999 or earlier. It is much worse than 3x spy.
This is something I've been interested in. Certain factors do better in certain economic environments. You could try to capitalize on this by rotating between small cap (value, ideally) and large cap growth.

Here's TQQQ and TNA:
https://bit.ly/3Gm1A8L

Here's QQQ and IJS for the longer backtest period:
https://bit.ly/3GiUFgB

Here's the approach I'm taking. Keep a fixed position in ITT and rotate between QQQ and IJS for the equity portion. I think the optimal ratio of ITT to stock is 2:1. The below model is 120% ITT and 60% stocks. You could of course scale this to your risk tolerance by going with longer duration bonds and/or leveraging the stock portion.
https://bit.ly/3nlMSWw
Hfearless
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

investor.was.here wrote: Thu Oct 21, 2021 3:54 pm I'm curious to hear your thoughts on replacing UPRO with TQQQ/TNA. Was mentioned somewhere on these threads and it certainly does better in backtesting. It's also heavily biased by recent outperformance in QQQ.
But the performance of QQQ has been equivalent to that of SPY for a year now.
kjm wrote: Mon Oct 25, 2021 3:33 pm You could try to capitalize on this by rotating between small cap (value, ideally) and large cap growth.
What do you mean by rotating?
investor.was.here wrote: Mon Oct 25, 2021 12:30 pm Using margin just to leverage up TYD would also work, no? You'd want some other assets, as you'd likely get a margin call at some point with 75% maintenance on a prure HFEA portfolio.
Or get portfolio margin, where the maintenance margin of 3x LETFs may be as low as 27%. And do listen to SIC’s words of wisdom—if HFEA or something similar is only one of several buckets, calculate asset allocations separately for each, but aggregate equivalent assets when deciding which (L)ETFs to buy. If your entire portfolio requires a particular degree of leverage, it doesn’t matter which instruments are leveraged.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

skierincolorado wrote: Sun Oct 24, 2021 1:57 pm
Yes I've considered this before. If one is that convinced that the HFEA/mHFEA will grow much faster, there's little reason not to allocate a higher proportion initially. I assume people that are limiting the allocation are maxing out their risk tolerance. Since their risk tolerance is unlikely to be higher 20 years from now, when they are older, they will most likely be rebalancing out of the HFEA. Psychologically one can "bucket" it off and say I don't care what happens to this 10% and if it grows to 1 Billion then great. But rationally, the smart thing to do as a Boglehead, is 10 or 20 years from now, when it has grown to 1M, and your portfolio is now half HFEA or mHFEA, would be to pocket some of your gains and start to de-lever.
Eventually you're going to want to start basing your consumption off of your new-found wealth, and that means the new-found wealth must be protected. And by protected, I mean at least a little less risk than HFEA or mHFEA... like an 80/20 or 90/10 unlevered position.
Personally, I do not have, per se, a rebalancing plan for HFEA, but I do have a de-risking plan. Essentially, my plan involves “letting it ride” up to a certain figure. Say, $1M. Then, on every quarterly rebalance where the EA exceeds the target, de-risk by 25% of the target. So, if the balance is $1.2M, the target is $1M, withdraw $250k.

Targets and EA proportions can be adjusted, but I thought it was a neat way to rigorously de-risk while accepting that some bucketing is necessary to reduce the behavioral risk with something so volatile. It also leaves open the potential for continued HFEA growth.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Tinkerer-in-Chief wrote: Tue Oct 26, 2021 7:41 am
skierincolorado wrote: Sun Oct 24, 2021 1:57 pm
Yes I've considered this before. If one is that convinced that the HFEA/mHFEA will grow much faster, there's little reason not to allocate a higher proportion initially. I assume people that are limiting the allocation are maxing out their risk tolerance. Since their risk tolerance is unlikely to be higher 20 years from now, when they are older, they will most likely be rebalancing out of the HFEA. Psychologically one can "bucket" it off and say I don't care what happens to this 10% and if it grows to 1 Billion then great. But rationally, the smart thing to do as a Boglehead, is 10 or 20 years from now, when it has grown to 1M, and your portfolio is now half HFEA or mHFEA, would be to pocket some of your gains and start to de-lever.
Eventually you're going to want to start basing your consumption off of your new-found wealth, and that means the new-found wealth must be protected. And by protected, I mean at least a little less risk than HFEA or mHFEA... like an 80/20 or 90/10 unlevered position.
Personally, I do not have, per se, a rebalancing plan for HFEA, but I do have a de-risking plan. Essentially, my plan involves “letting it ride” up to a certain figure. Say, $1M. Then, on every quarterly rebalance where the EA exceeds the target, de-risk by 25% of the target. So, if the balance is $1.2M, the target is $1M, withdraw $250k.

Targets and EA proportions can be adjusted, but I thought it was a neat way to rigorously de-risk while accepting that some bucketing is necessary to reduce the behavioral risk with something so volatile. It also leaves open the potential for continued HFEA growth.
Perhaps a more comprehensive plan is to make it analogous to a bond tent, where risk is temporarily lowered as a threshold is reached, then risk is ratcheted up again. Suppose you have a "number" for the portion of the portfolio that you wish to live on. As the HFEA portion gets comparable to this value, do some of the de-risking described to solidify that portion of the portfolio.

Once the de-risked portion is sufficient for your needs, you shouldn't care too much about what the HFEA portion does. Just let the HFEA rip with the excess and plan to use the proceeds to do good in the world.

That's my plan.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Hydromod wrote: Tue Oct 26, 2021 8:11 am Once the de-risked portion is sufficient for your needs, you shouldn't care too much about what the HFEA portion does. Just let the HFEA rip with the excess and plan to use the proceeds to do good in the world.
Sorry, that doesn’t make much mathematical sense to me. Let’s consider a concrete example. You want to retire with an annual income of, say, $100k. Years pass, you reach the point where you have $2M invested, equities are yielding 10% rather consistently, the return of bonds is a fraction of that but still positive, nothing fundamental changed about the market. What would you do?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Hfearless wrote: Tue Oct 26, 2021 9:12 am
Hydromod wrote: Tue Oct 26, 2021 8:11 am Once the de-risked portion is sufficient for your needs, you shouldn't care too much about what the HFEA portion does. Just let the HFEA rip with the excess and plan to use the proceeds to do good in the world.
Sorry, that doesn’t make much mathematical sense to me. Let’s consider a concrete example. You want to retire with an annual income of, say, $100k. Years pass, you reach the point where you have $2M invested, equities are yielding 10% rather consistently, the return of bonds is a fraction of that but still positive, nothing fundamental changed about the market. What would you do?
The example is a bit wide-ranging, because it really depends on personal circumstances. The actual plan would depend on several factors: predicted remaining income and duration before drawing from the portfolio being key. I'm assuming a relatively short horizon to retirement at this point, perhaps up to a decade. Short horizons would have to risk up further.

My personal safe target would be a standard portfolio that is something like 30 or 40x expenses, so 3 to 4M. With a good decade, you could get there without HFEA.

On the other hand, pure HFEA probably can support a SWR of up to 6 to maybe 8% (volatility is the killer!). So if your risk appetite is high enough, you could consider yourself done right now with a HFEA-only portfolio. I would strongly urge a volatility-limited version of HFEA though.

I'm personally comfortable keeping my low-volatility flavor of HFEA up to 25% of the total portfolio until the FI goal is reached. So ideally I'd be at 0.5M HFEA, 1.5M standard at this point, with HFEA in Roth and contributions primarily to the standard side (generally it's hard to get much into Roth). If I'm pushed for time, I'd go up to 50/50 with increasing discomfort.

I'd expect to rebalance periodically to limit it to the target, except I'd only rebalance out of HFEA, not into. This would result in de-risking the Roth.

Once I hit 3M standard, let'r rip on HFEA and live off the standard.

Note that this isn't the tent idea, it's what I would plan to do in this situation. My actual situation is a little more conservative, because I largely can't access LETFs. It'll take years before HFEA can grow to 25% of my portfolio under good conditions.

The tent idea is for those that are more concerned with ensuring the 3 to 4M. There you'd pick a target for HFEA that allows de-risking, then siphon off 50% or so of annual gain above the threshold to the standard side. This allows gradually large siphoning over time. Again, once the 3 to 4M is achieved in standard, let'r rip in HFEA.

But that's me. Don't know if that answers the question, but it illustrates my thought process.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

Hydromod wrote: Tue Oct 26, 2021 11:26 am 0.5M HFEA, 1.5M standard
What’s “standard”?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

Hfearless wrote: Tue Oct 26, 2021 12:18 pm
Hydromod wrote: Tue Oct 26, 2021 11:26 am 0.5M HFEA, 1.5M standard
What’s “standard”?
I interpreted ‘standard’ as a more orthodox Bogleheads portfolio. But Hydromod can correct me if wrong.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tinkerer-in-Chief »

Hydromod wrote: Tue Oct 26, 2021 8:11 am
Tinkerer-in-Chief wrote: Tue Oct 26, 2021 7:41 am
skierincolorado wrote: Sun Oct 24, 2021 1:57 pm
Yes I've considered this before. If one is that convinced that the HFEA/mHFEA will grow much faster, there's little reason not to allocate a higher proportion initially. I assume people that are limiting the allocation are maxing out their risk tolerance. Since their risk tolerance is unlikely to be higher 20 years from now, when they are older, they will most likely be rebalancing out of the HFEA. Psychologically one can "bucket" it off and say I don't care what happens to this 10% and if it grows to 1 Billion then great. But rationally, the smart thing to do as a Boglehead, is 10 or 20 years from now, when it has grown to 1M, and your portfolio is now half HFEA or mHFEA, would be to pocket some of your gains and start to de-lever.
Eventually you're going to want to start basing your consumption off of your new-found wealth, and that means the new-found wealth must be protected. And by protected, I mean at least a little less risk than HFEA or mHFEA... like an 80/20 or 90/10 unlevered position.
Personally, I do not have, per se, a rebalancing plan for HFEA, but I do have a de-risking plan. Essentially, my plan involves “letting it ride” up to a certain figure. Say, $1M. Then, on every quarterly rebalance where the EA exceeds the target, de-risk by 25% of the target. So, if the balance is $1.2M, the target is $1M, withdraw $250k.

Targets and EA proportions can be adjusted, but I thought it was a neat way to rigorously de-risk while accepting that some bucketing is necessary to reduce the behavioral risk with something so volatile. It also leaves open the potential for continued HFEA growth.
Perhaps a more comprehensive plan is to make it analogous to a bond tent, where risk is temporarily lowered as a threshold is reached, then risk is ratcheted up again. Suppose you have a "number" for the portion of the portfolio that you wish to live on. As the HFEA portion gets comparable to this value, do some of the de-risking described to solidify that portion of the portfolio.

Once the de-risked portion is sufficient for your needs, you shouldn't care too much about what the HFEA portion does. Just let the HFEA rip with the excess and plan to use the proceeds to do good in the world.

That's my plan.
That is a great way to conceptualize and frame it. Thanks, Hydromod!
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

Tinkerer-in-Chief wrote: Tue Oct 26, 2021 12:54 pm
Hfearless wrote: Tue Oct 26, 2021 12:18 pm
Hydromod wrote: Tue Oct 26, 2021 11:26 am 0.5M HFEA, 1.5M standard
What’s “standard”?
I interpreted ‘standard’ as a more orthodox Bogleheads portfolio. But Hydromod can correct me if wrong.
Precisely. Thanks.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hfearless »

An orthodox portfolio as in stocks and bonds? Plus HFEA, which contains stocks and bonds? Isn’t the result of combining the two the same thing but at a different leverage?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Hfearless wrote: Tue Oct 26, 2021 2:15 pm An orthodox portfolio as in stocks and bonds? Plus HFEA, which contains stocks and bonds? Isn’t the result of combining the two the same thing but at a different leverage?
Keep in mind that one of the biggest impact to retail investor performance is the emotional factor. While sometime bucket strategy is not mathematically optimized, it can still be the superior strategy due to the emotional factor.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

Hfearless wrote: Tue Oct 26, 2021 2:15 pm An orthodox portfolio as in stocks and bonds? Plus HFEA, which contains stocks and bonds? Isn’t the result of combining the two the same thing but at a different leverage?
yes. basically be on a decreased leverage glidepath when you reach your number
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

chrisdds98 wrote: Tue Oct 26, 2021 2:48 pm
Hfearless wrote: Tue Oct 26, 2021 2:15 pm An orthodox portfolio as in stocks and bonds? Plus HFEA, which contains stocks and bonds? Isn’t the result of combining the two the same thing but at a different leverage?
yes. basically be on a decreased leverage glidepath when you reach your number
Again, that's it exactly. It's analogous to going from 100/0 stock/bond to 60/40 or some such.

I'm envisioning something like gliding from 1.5x 65/35 (total portfolio) to 1x 60/40 (living-expense portfolio) + 3x (55/45) (do good stuff for others portfolio).
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