HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by MotoTrojan » Tue Nov 26, 2019 11:34 am

RayKeynes wrote:
Tue Nov 26, 2019 10:34 am
elderwise wrote:
Tue Nov 26, 2019 10:17 am
What is the outcome if stocks keep going up and up (albeit gradually) and thus DJIA / S&P / Nasdaq etc..

and Interest rates stagnate at or near 0%..and dont rise.

Does this strategy fail then or still beat the S&P or Nasdaq (UPRO / TQQQ)
In this very unlikely case - the strategy might perform "ok". UPRO does go up with 55% * X the SP500. TMF will go more or less sideways or loosing some money, but not too much. Therefore - The strategy will probably be more or less in line with the market - however - with more higher portfolio volatility - thus a stupid idea to do so.

In any current scenario for the future I do not see any reason to go for UPRO/TMF. I'd rather perform a UPRO-ONLY strategy with continued monthly investing. Thus, if UPRO crashes (and it will!), you will buy every month at a cheaper price.
Your 1st point is reasonable but a UPRO-only buy & hold strategy is intriguing, especially for someone who just stated a return in line with the market but with higher volatility was a "stupid idea".

If you started with $1000 and contributed an inflation-adjusted $100/month from 1955 to 2018 here are the results for UPRO vs. S&P500:

UPRO - MWRR 10.15%, ending balance $9.76M (CAGR includes contributions so is flawed), 43.8% std-dev, -97.6% drawdown

S&P500 - MWRR 10.20%, ending balance $9.97M, 14.5% std-dev, -51% drawdown

Along that wild ride you spent most of your time underperforming the S&P500, with a triumphant peak in the tech boom.

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

Post by Hydromod » Tue Nov 26, 2019 11:39 am

langlands wrote:
Tue Nov 26, 2019 10:56 am
However, I came across the following article https://www.morningstar.com/articles/30 ... s-answered that seems to contradict this.
Just as a point of information, the article is 10 years old. I have no idea if that is significant though.

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

Post by elderwise » Tue Nov 26, 2019 11:40 am

RayKeynes wrote:
Tue Nov 26, 2019 11:28 am
elderwise wrote:
Tue Nov 26, 2019 11:16 am

would it not then be just better to do TQQQ vs UPRO.

I am doing both personally , but wanted to know others thoughts
The bigger stake, I'd put definitely into UPRO. I would do 4 : 1 ratio (UPRO:TQQQ).

Reason: Nasdaq is a lot volatiler than SP500 and less diversified. Leveraged ETFs suffer from Volatililty.

How much of your wealth do you have invested in those two funds?
TQQQ in Roth IRA's total (me and wife's) around 30 K in each.But i have it split as 60/40 and 80/20 (TQQQ/TMF)

UPRO / TMF - 70K (split as 3 pie's each containing (55/45):(40/60)/(100 UPRO) - UPRO/TMF) -- PIE 1 is 45%, PIE 2 is 45%, PIE 3 is 10% )

This is not a big % of my portfolio..I entered into this few months back ..

UPRO is in taxable and TQQQ in Roth's.

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

Post by MotoTrojan » Tue Nov 26, 2019 11:41 am

Lee_WSP wrote:
Tue Nov 26, 2019 10:33 am
RayKeynes wrote:
Tue Nov 26, 2019 7:13 am
spae wrote:
Tue Nov 26, 2019 5:53 am

I agree with MT that it's unrealistic to expect performance like we saw in the original post, which uses a backtest from 1987 to 2018, but I think it's a bit much to assume that the up arrow on the right side of the quoted graph is indicative of the future and we'll see another cycle that results in much higher interest rates going forward. We might, but we might also see something more like

Image
Even if a scenario like in Japan of rates at 0% for decades would not let the strategy work out as it should. Interest rates can simply not fall below 0% as monetary systems do not work anymore.

If interest rates cant go lower, TMF also will not rise anymore.
TMF is only there as a hedge against a run on equities. It will still work as a hedge even in a flat rate environment.
+1. Is looking at the full 1955-present data set a flawed analysis for performance of these funds? Some of the intricacies of bonds are still black-magic to me; how would the returns compare between a zero-coupon bond that starts at 2%, rises to 20%, then declines back to 2% compare to if it had just stayed at 2% the whole time (EDV)? In the case of TMF it would also depend on how the spread in long/short rates varied throughout that time to determine which instance would do best.

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

Post by langlands » Tue Nov 26, 2019 11:45 am

MotoTrojan wrote:
Tue Nov 26, 2019 11:29 am
langlands wrote:
Tue Nov 26, 2019 10:56 am
I've been following this thread rather intently and have always assumed that selling shares in UPRO and other leveraged ETFs are like selling shares in any other stock- namely selling after a year would result in long term capital gains. However, I came across the following article https://www.morningstar.com/articles/30 ... s-answered that seems to contradict this. Quoting from the article,

"Finally, investors should be aware of the unusual tax issues that result from the underlying holdings of these funds. Index swaps, the derivatives used by leveraged and inverse funds to produce their daily returns, are always taxed at short-term capital gains rates. Because ETFs are taxed on a look-through basis, by which investors pay what they would have if they'd directly held the underlying securities, any investor who sells this fund for a gain will face a hefty tax bite equal to the short-term capital gains rate, even if the fund was held for more than a year."

This is wrong right?
If that were the case then you would see the massive capital gains distributions every quarter, which you do not. I presume the fact it is an ETF allows them to manage this. PSLDX and the other Pimco StocksPLUS funds on the other hand have massive distributions in the low double-digits annually (IRA is the only reasonable home for those funds).
Well, my reading of the quote is that even if the fund itself doesn't disburse any distributions, somehow UPRO and other leveraged ETFs are looked at differently by the IRS such that selling these particular tickers results in a STCG instead of a LTCG event even if held more than a year. I just wanted to confirm there is no such ticker discrimination (which sounds rather implausible on the face of it). But in any case, you seem to agree that it would result in a LTCG like any other stock.

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

Post by Kevin M » Tue Nov 26, 2019 11:55 am

MotoTrojan wrote:
Tue Nov 26, 2019 11:41 am
Some of the intricacies of bonds are still black-magic to me; how would the returns compare between a zero-coupon bond that starts at 2%, rises to 20%, then declines back to 2% compare to if it had just stayed at 2% the whole time (EDV)?
You need to specify the maturity parameter for the zero-coupon bond.

A zero-coupon bond held to maturity will return the initial yield.

I think you are thinking more about something like a constant-maturity zero-coupon bond, as that would be closer to approximating the yield of a fund that held zero-coupon bonds while maintaining approximately a constant maturity/duration. A zero generates no coupon payments, so all return is from price change. The price is determined by the maturity, coupon rate (0%), and yield. If no change in maturity (constant maturity) or yield, there is no change in price. Thus the return would be 0%.

But a constant-maturity bond is a conceptual construct. To approximate it, you could roll a zero-coupon bond as often as possible given available offerings, in which case there would be some roll-down return. The roll-down return would be positive for positively-sloped yield curve (typical), negative for inverted yield curve (roll-up return?), and zero for flat yield curve, all assuming a static yield curve. Since the yield curve is not static, the return also would depend on changes in yield curve, and this would be more difficult to model.

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)

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

Post by rascott » Tue Nov 26, 2019 11:56 am

elderwise wrote:
Tue Nov 26, 2019 11:16 am
On comparison between the 3X leveraged Funds TQQQ and UPRO, I noticed the following

TQQQ:

TOTAL NET ASSETS

$3.67B

AVERAGE VOLUME

16.09M


UPRO:

TOTAL NET ASSETS

$1.31B

AVERAGE VOLUME

2.98M

Granted one is S&P and other is Nasdaq, so different indices but does usually having more Net assets mean the fund is more heavily invested in / has more liquidity ? and also the average volume TQQQ > UPRO ( 16 M vs 3 M)..

would it not then be just better to do TQQQ vs UPRO.

I am doing both personally , but wanted to know others thoughts

I've been holding a slug of TQQQ for a while now in a Roth as part of a market timing system. It's been on fire... up like 30%+ since I bought it a few months back. Which helps you appreciate how quickly it could go the other way.

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

Post by MotoTrojan » Tue Nov 26, 2019 12:03 pm

langlands wrote:
Tue Nov 26, 2019 11:45 am
MotoTrojan wrote:
Tue Nov 26, 2019 11:29 am
langlands wrote:
Tue Nov 26, 2019 10:56 am
I've been following this thread rather intently and have always assumed that selling shares in UPRO and other leveraged ETFs are like selling shares in any other stock- namely selling after a year would result in long term capital gains. However, I came across the following article https://www.morningstar.com/articles/30 ... s-answered that seems to contradict this. Quoting from the article,

"Finally, investors should be aware of the unusual tax issues that result from the underlying holdings of these funds. Index swaps, the derivatives used by leveraged and inverse funds to produce their daily returns, are always taxed at short-term capital gains rates. Because ETFs are taxed on a look-through basis, by which investors pay what they would have if they'd directly held the underlying securities, any investor who sells this fund for a gain will face a hefty tax bite equal to the short-term capital gains rate, even if the fund was held for more than a year."

This is wrong right?
If that were the case then you would see the massive capital gains distributions every quarter, which you do not. I presume the fact it is an ETF allows them to manage this. PSLDX and the other Pimco StocksPLUS funds on the other hand have massive distributions in the low double-digits annually (IRA is the only reasonable home for those funds).
Well, my reading of the quote is that even if the fund itself doesn't disburse any distributions, somehow UPRO and other leveraged ETFs are looked at differently by the IRS such that selling these particular tickers results in a STCG instead of a LTCG event even if held more than a year. I just wanted to confirm there is no such ticker discrimination (which sounds rather implausible on the face of it). But in any case, you seem to agree that it would result in a LTCG like any other stock.
May have something to do with the ETF creation/redemption process which eliminates capital gains distributions across the board. This is why at all brokerages other than Vanguard, ETFs are more tax-efficient than Mutual Funds. If these sorts of things were to be passed through to you you would have to pay them even if you didn't sell, thus it would be a distribution.

https://www.schwabfunds.com/public/file/P-11570533

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

Post by MotoTrojan » Tue Nov 26, 2019 12:04 pm

Kevin M wrote:
Tue Nov 26, 2019 11:55 am
MotoTrojan wrote:
Tue Nov 26, 2019 11:41 am
Some of the intricacies of bonds are still black-magic to me; how would the returns compare between a zero-coupon bond that starts at 2%, rises to 20%, then declines back to 2% compare to if it had just stayed at 2% the whole time (EDV)?
You need to specify the maturity parameter for the zero-coupon bond.

A zero-coupon bond held to maturity will return the initial yield.

I think you are thinking more about something like a constant-maturity zero-coupon bond, as that would be closer to approximating the yield of a fund that held zero-coupon bonds while maintaining approximately a constant maturity/duration. A zero generates no coupon payments, so all return is from price change. The price is determined by the maturity, coupon rate (0%), and yield. If no change in maturity (constant maturity) or yield, there is no change in price. Thus the return would be 0%.

But a constant-maturity bond is a conceptual construct. To approximate it, you could roll a zero-coupon bond as often as possible given available offerings, in which case there would be some roll-down return. The roll-down return would be positive for positively-sloped yield curve (typical), negative for inverted yield curve (roll-up return?), and zero for flat yield curve, all assuming a static yield curve. Since the yield curve is not static, the return also would depend on changes in yield curve, and this would be more difficult to model.

Kevin
Sorry Kevin to be clear I am referring to a bond fund. How would the return of a bond fund such as TLT, or a zero-coupon one like EDV compare if rates stayed constant at 2% for 3 decades, vs. if they went from 2% to 20% and back to 2% over that same time-span?

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

Post by RayKeynes » Tue Nov 26, 2019 12:09 pm

MotoTrojan wrote:
Tue Nov 26, 2019 11:34 am
Your 1st point is reasonable but a UPRO-only buy & hold strategy is intriguing, especially for someone who just stated a return in line with the market but with higher volatility was a "stupid idea".

If you started with $1000 and contributed an inflation-adjusted $100/month from 1955 to 2018 here are the results for UPRO vs. S&P500:

UPRO - MWRR 10.15%, ending balance $9.76M (CAGR includes contributions so is flawed), 43.8% std-dev, -97.6% drawdown

S&P500 - MWRR 10.20%, ending balance $9.97M, 14.5% std-dev, -51% drawdown

Along that wild ride you spent most of your time underperforming the S&P500, with a triumphant peak in the tech boom.
I guess you mean 1'000 $ monthly and 10'000$ in the beginning. For you personally, I've recalculated 4 different portfolios:

100% UPRO
100% SSO
100% SP500
50% SP500, 30% SSO, 20% UPRO

Look at the results. Especially take a look at my green portfolio which I call the golden investment rule (50/30/20)

Image
Last edited by RayKeynes on Tue Nov 26, 2019 12:15 pm, edited 3 times in total.

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

Post by rascott » Tue Nov 26, 2019 12:11 pm

ebot wrote:
Fri Nov 22, 2019 7:44 am
Does anyone know why both SPY and TLT / UPRO & TMF went down together back in 2018? I know it doesn't happen often but I am just trying to understand why this has occurred in the past and what may cause it again.

https://www.portfoliovisualizer.com/bac ... ion2_3=100


If you recall the market sell off last fall.... the equity markets were freaking out that interest rates were moving higher.

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

Post by MotoTrojan » Tue Nov 26, 2019 12:15 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:09 pm
MotoTrojan wrote:
Tue Nov 26, 2019 11:34 am
Your 1st point is reasonable but a UPRO-only buy & hold strategy is intriguing, especially for someone who just stated a return in line with the market but with higher volatility was a "stupid idea".

If you started with $1000 and contributed an inflation-adjusted $100/month from 1955 to 2018 here are the results for UPRO vs. S&P500:

UPRO - MWRR 10.15%, ending balance $9.76M (CAGR includes contributions so is flawed), 43.8% std-dev, -97.6% drawdown

S&P500 - MWRR 10.20%, ending balance $9.97M, 14.5% std-dev, -51% drawdown

Along that wild ride you spent most of your time underperforming the S&P500, with a triumphant peak in the tech boom.
I guess you mean 1'000 $ monthly and 10'000$ in the beginning. For you personally, I've recalculated 4 different portfolios:

100% UPRO
100% SSO
100% SP500
50% SP500, 30% SSO, 20% UPRO

Look at the results.

Image
No, I meant $1000 initially and $100/month inflation adjusted contribution, as I said.

Your chat proves my point, 100% UPRO even with recurring contributions is a terrible idea.

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

Post by RayKeynes » Tue Nov 26, 2019 12:16 pm

MotoTrojan wrote:
Tue Nov 26, 2019 12:15 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:09 pm
MotoTrojan wrote:
Tue Nov 26, 2019 11:34 am
Your 1st point is reasonable but a UPRO-only buy & hold strategy is intriguing, especially for someone who just stated a return in line with the market but with higher volatility was a "stupid idea".

If you started with $1000 and contributed an inflation-adjusted $100/month from 1955 to 2018 here are the results for UPRO vs. S&P500:

UPRO - MWRR 10.15%, ending balance $9.76M (CAGR includes contributions so is flawed), 43.8% std-dev, -97.6% drawdown

S&P500 - MWRR 10.20%, ending balance $9.97M, 14.5% std-dev, -51% drawdown

Along that wild ride you spent most of your time underperforming the S&P500, with a triumphant peak in the tech boom.
I guess you mean 1'000 $ monthly and 10'000$ in the beginning. For you personally, I've recalculated 4 different portfolios:

100% UPRO
100% SSO
100% SP500
50% SP500, 30% SSO, 20% UPRO

Look at the results.

Image
No, I meant $1000 initially and $100/month inflation adjusted contribution, as I said.

Your chat proves my point, 100% UPRO even with recurring contributions is a terrible idea.
I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.

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

Post by rascott » Tue Nov 26, 2019 12:18 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:09 pm
MotoTrojan wrote:
Tue Nov 26, 2019 11:34 am
Your 1st point is reasonable but a UPRO-only buy & hold strategy is intriguing, especially for someone who just stated a return in line with the market but with higher volatility was a "stupid idea".

If you started with $1000 and contributed an inflation-adjusted $100/month from 1955 to 2018 here are the results for UPRO vs. S&P500:

UPRO - MWRR 10.15%, ending balance $9.76M (CAGR includes contributions so is flawed), 43.8% std-dev, -97.6% drawdown

S&P500 - MWRR 10.20%, ending balance $9.97M, 14.5% std-dev, -51% drawdown

Along that wild ride you spent most of your time underperforming the S&P500, with a triumphant peak in the tech boom.
I guess you mean 1'000 $ monthly and 10'000$ in the beginning. For you personally, I've recalculated 4 different portfolios:

100% UPRO
100% SSO
100% SP500
50% SP500, 30% SSO, 20% UPRO

Look at the results.

Image
The "ideal" historical leverage of equity markets has been discussed repeatedly throughout this topic..... if you are just going to lever up your equities..... tighten up the bootstraps and hold on for dear life..... something in the area of 1.5x is what has worked in the past. Getting much above that and you risk drawdowns that are too bad to recover from... and you'd underperform just holding non- levered equities.

Your combo here looks like it's 170% SP500.... so pretty close to that. Not sure why you'd use the SSO..... seems something like 65% SP500, 35% UPRO would be the same exposure.... and less money going to ERs.


The other way.... and what I personally think is probably more ideal..... is to combine 3x leverage with some form of trend following/ market timing system. Just another type of insurance mechanism rather than holding leveraged LT bonds.
Last edited by rascott on Tue Nov 26, 2019 12:23 pm, edited 1 time in total.

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

Post by MotoTrojan » Tue Nov 26, 2019 12:22 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.

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

Post by Stef » Tue Nov 26, 2019 12:27 pm

@rascott
So you mean 50% SP500 50% SSO for example? Or 75% SPY 25% UPRO?

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

Post by RayKeynes » Tue Nov 26, 2019 12:29 pm

MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now an uneducated answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.

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

Post by MotoTrojan » Tue Nov 26, 2019 12:32 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.

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

Post by RayKeynes » Tue Nov 26, 2019 12:37 pm

MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?
Last edited by RayKeynes on Tue Nov 26, 2019 12:43 pm, edited 2 times in total.

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

Post by rascott » Tue Nov 26, 2019 12:38 pm

Stef wrote:
Tue Nov 26, 2019 12:27 pm
@rascott
So you mean 50% SP500 50% SSO for example? Or 75% SPY 25% UPRO?

Yes... preferably the latter one as then you are only paying the higher 1% ER on 25% of your money, rather than 50% of it using SSO.. and they should give you basically the same exposure.

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

Post by rascott » Tue Nov 26, 2019 12:46 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:37 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?

That's interesting...I have not seen much difference in using one or at the same leverage levels.... but was only looking back to 2007....as don't have simulated SSO data loaded.... only UPRO.

MotoTrojan
Posts: 7582
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Tue Nov 26, 2019 12:46 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:37 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?
Are you rebalancing in both cases? What about if you target 170% leverage then with only SPY & SSO?

User avatar
305pelusa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 305pelusa » Tue Nov 26, 2019 12:50 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:37 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:16 pm


I was not saying to invest 100% into UPRO. But i meant rather completely forget about TMF and only use UPRO as leverage. Thats what I meant.

You can use a strategy like 50% SP500, 30% SSO and 20% UPRo and you will outperform the market with a very high probability.
Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?
My initial reaction is to be very suspicious of whatever data produced that.

Maybe this is a dumb question but: Has anyone actually peer reviewed Siamond's calculations, formulas, and how he generated the data? Taking into account fees, daily reconstitution, borrowing costs, etc appropriately?

RayKeynes
Posts: 72
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RayKeynes » Tue Nov 26, 2019 12:52 pm

MotoTrojan wrote:
Tue Nov 26, 2019 12:46 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:37 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:22 pm


Why combine UPRO and SSO? I would think it would be cheaper and more efficient to hold more unleveraged S&P500, no SSO, and a bit more UPRO.
This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?
Are you rebalancing in both cases? What about if you target 170% leverage then with only SPY & SSO?
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage
Portfolio 4 = 100% SPY (100%)

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Portfolio 4 = 12.65m $
Last edited by RayKeynes on Tue Nov 26, 2019 12:55 pm, edited 1 time in total.

MotoTrojan
Posts: 7582
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Tue Nov 26, 2019 12:55 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:52 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:46 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:37 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:29 pm


This is now a stupid answer from you. But I try to explain to you: More leverage is not always good depending on the investment period backtested in the past. I have backtested SSO, UPRO and SP500 from 1929 onwards. Then I've done matrix analysis using various scenarios.

In most scenarios, UPRO did indeed beat SSO over 25/30 years. However, in 30% of all cases, SSO was stronger. UPRO with 20% is the bet of a good 25 years - whereas 30% SSO includes 70% of all cases where SP500 got beaten by leverage ETFs. Using this strategy - one can significantly improve confidence interval statistically.
My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?
Are you rebalancing in both cases? What about if you target 170% leverage then with only SPY & SSO?
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Gotcha. In that case I find this analysis flawed without rebalancing and disagree with your thesis. Prove me wrong :).

Also curious why you still prefer the UPRO case when your backtest clearly shows the 30/70 SPY/SSO wins (although I think a lot of this has to do with your lack of rebalancing, which these products need to reset leverage).

RayKeynes
Posts: 72
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RayKeynes » Tue Nov 26, 2019 12:57 pm

MotoTrojan wrote:
Tue Nov 26, 2019 12:55 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:52 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:46 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:37 pm
MotoTrojan wrote:
Tue Nov 26, 2019 12:32 pm


My answer was stupid? Listen more carefully please. I am not suggesting taking more leverage, I am asking why you have a mix of SPY, SSO, and UPRO when you could hold the same amount of leverage with only SPY and UPRO, and reduce your expenses.
I've called it uneducated ;) However, SSO does behave significantly different than UPRO due to the leverage factor. In other words:

Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) =170% leverage

Both have the same leverage, correct? I will backtest shortly with the results for 1955 - 2018 including 1000$ monthly investment; endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $

Do you now understand that there is a significant deviation in behaviour of UPRO and SSO?
Are you rebalancing in both cases? What about if you target 170% leverage then with only SPY & SSO?
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Gotcha. In that case I find this analysis flawed without rebalancing and disagree with your thesis. Prove me wrong :).

Also curious why you still prefer the UPRO case when your backtest clearly shows the 30/70 SPY/SSO wins (although I think a lot of this has to do with your lack of rebalancing, which these products need to reset leverage).
I have tested 67 periods à 25 years over the total time period of 1929 to November 2019 (matrix analysis and confidence analysis).
70/30 SSO may win from 1955 - 2018. However, the highest confidence I still get with something similiar to 50 30 20.
I am not only testing 1955 - 2018. I've just quickly calculated that period for you guys.

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

Post by Stef » Tue Nov 26, 2019 12:58 pm

Well should you even rebalance?

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

Post by MotoTrojan » Tue Nov 26, 2019 1:01 pm

Stef wrote:
Tue Nov 26, 2019 12:58 pm
Well should you even rebalance?
Of course. It is the best way to combat volatility decay, especially when done with weakly correlated assets.

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

Post by RayKeynes » Tue Nov 26, 2019 1:03 pm

MotoTrojan wrote:
Tue Nov 26, 2019 1:01 pm
Stef wrote:
Tue Nov 26, 2019 12:58 pm
Well should you even rebalance?
Of course. It is the best way to combat volatility decay, especially when done with weakly correlated assets.
UPRO SSO and SP500 are 100% correlated. Rebalancing is nonsense. Therefore I've not included rebalancing into my calculator. Rebalancing is just risk adjustment in the sense that you are adding risk or taking risk away from your portfolio (assumption = perfectly correlated assets).

The best way to combat volatility decay is to invest on a continued basis (monthly/quarterly).

In case of TMF / UPRO, of course, you need to rebalance as otherwise the strategy doesn't work (however, it wont work anyway as explained earlier).
Last edited by RayKeynes on Tue Nov 26, 2019 1:07 pm, edited 1 time in total.

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

Post by MotoTrojan » Tue Nov 26, 2019 1:07 pm

RayKeynes wrote:
Tue Nov 26, 2019 1:03 pm
MotoTrojan wrote:
Tue Nov 26, 2019 1:01 pm
Stef wrote:
Tue Nov 26, 2019 12:58 pm
Well should you even rebalance?
Of course. It is the best way to combat volatility decay, especially when done with weakly correlated assets.
UPRO SSO and SP500 are 100% correlated. Rebalancing is nonsense. Therefore I've not done that. Rebalancing is just risk adjustment in the sense that you are adding risk or taking risk away from your portfolio (assumption = perfectly correlated assets).

In case of TMF / UPRO, of course, you need to rebalance as otherwise the strategy doesn't work (however, it wont work anyway as explained earlier).
Comparing three portfolios because their baseline allocation has equal leverage, but then not rebalancing them, is nonsense. Yes they are correlated but you are now letting your leverage drift unevenly and it is a deeply flawed comparison. Good luck.

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

Post by schone » Tue Nov 26, 2019 1:17 pm

Excuse me if this has been answered but as a newbie to this strategy, I have three questions:

1) Is entering it today just as "wise" as it was entering it at the beginning of the year? I understand TMF is a hedge that should protect well in case of a market down turn, but I'm curious about your up to date outlook on that statement.

2) Is risk contribution metric presetend on portfolio analysis a good way of judging the AA ratios to maintain risk parity?

2a) If the above is correct, would an updated AA of 54/46 (UPRO/TMF) be more appropriate for a 51%/48% risk contributions respectively.

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

Post by rascott » Tue Nov 26, 2019 1:22 pm

RayKeynes wrote:
Tue Nov 26, 2019 1:03 pm
MotoTrojan wrote:
Tue Nov 26, 2019 1:01 pm
Stef wrote:
Tue Nov 26, 2019 12:58 pm
Well should you even rebalance?
Of course. It is the best way to combat volatility decay, especially when done with weakly correlated assets.
UPRO SSO and SP500 are 100% correlated. Rebalancing is nonsense. Therefore I've not included rebalancing into my calculator. Rebalancing is just risk adjustment in the sense that you are adding risk or taking risk away from your portfolio (assumption = perfectly correlated assets).

The best way to combat volatility decay is to invest on a continued basis (monthly/quarterly).

In case of TMF / UPRO, of course, you need to rebalance as otherwise the strategy doesn't work (however, it wont work anyway as explained earlier).


LOL....wut? Without rebalancing you could quite quickly get to a situation where you are WAY above 170% leverage when you are using UPRO in particular..... that's why your SP500/UPRO only combo underperformed straight SP500.

I think you will find if you are rebalancing these to maintain roughly 170% leverage throughout your period.... they'll all come out roughly the same. And you are better off to dump SSO entirely.

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

Post by MotoTrojan » Tue Nov 26, 2019 1:32 pm

rascott wrote:
Tue Nov 26, 2019 1:22 pm
RayKeynes wrote:
Tue Nov 26, 2019 1:03 pm
MotoTrojan wrote:
Tue Nov 26, 2019 1:01 pm
Stef wrote:
Tue Nov 26, 2019 12:58 pm
Well should you even rebalance?
Of course. It is the best way to combat volatility decay, especially when done with weakly correlated assets.
UPRO SSO and SP500 are 100% correlated. Rebalancing is nonsense. Therefore I've not included rebalancing into my calculator. Rebalancing is just risk adjustment in the sense that you are adding risk or taking risk away from your portfolio (assumption = perfectly correlated assets).

The best way to combat volatility decay is to invest on a continued basis (monthly/quarterly).

In case of TMF / UPRO, of course, you need to rebalance as otherwise the strategy doesn't work (however, it wont work anyway as explained earlier).


LOL....wut? Without rebalancing you could quite quickly get to a situation where you are WAY above 170% leverage when you are using UPRO in particular..... that's why your SP500/UPRO only combo underperformed straight SP500.

I think you will find if you are rebalancing these to maintain roughly 170% leverage throughout your period.... they'll all come out roughly the same. And you are better off to dump SSO entirely.
Glad someone else agreed, was starting to think I was going crazy for saying dump the SSO :).

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

Post by RayKeynes » Tue Nov 26, 2019 1:40 pm

Rebalancing is nonsense in the sense that you are adding risk or taking risk away. As I've tested all investment periods completely without rebalancing (not doing anything), I can still figure out which strategy is the best for leveraged ETFs.

When you are rebalancing, you are taking away the potential upside of leveraged ETFs (e.g. 2008/2001 etc.). When you are not rebalancing, you are not buying when UPRO, SSO etc. fall in a crysis. However, doing the strategy completely based on Rebalancing or Non-rebalancing are two completely different approaches.

50 30 20 does deliver outstanding results in nearly all scenarios when NOT rebalancing. If you rebalance, you might loose as you're not taking the potential upside with you. And the SP500 tends to rise over time rather than decrease.

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

Post by RayKeynes » Tue Nov 26, 2019 1:51 pm

Here would be the used leverage ratio for 1955 - 2018 using 50/30/20-strategy:

As one can see, it strongly fluctuates between 170 - 150%. Can someone explain to me why "fixing" leverage ratio @ 170% would be better? This is simply market timing...

Image

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

Post by BogleBobby » Tue Nov 26, 2019 1:59 pm

Rebalancing does work even with a perfectly correlated assets like SPY.

When you rebalance, in scenarios like 2008 and 2001, you are adding money to UPRO at the bottom of the dips from your SPY pile to increase returns because your UPRO/SSO buckets go down so much.

Anyways, this shouldn't be a subjective argument - this is based on numbers. Did you run the numbers for annual rebalancing vs. no rebalancing Ray?

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

Post by Stef » Tue Nov 26, 2019 2:03 pm

BogleBobby wrote:
Tue Nov 26, 2019 1:59 pm
Rebalancing does work even with a perfectly correlated assets like SPY.

When you rebalance, in scenarios like 2008 and 2001, you are adding money to UPRO at the bottom of the dips from your SPY pile to increase returns because your UPRO/SSO buckets go down so much.

Anyways, this shouldn't be a subjective argument - this is based on numbers. Did you run the numbers for annual rebalancing vs. no rebalancing Ray?
Works the other way too.

Rebalancing SPY/UPRO from 2009-today would have damaged your performance quite well.

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

Post by rascott » Tue Nov 26, 2019 2:10 pm

RayKeynes wrote:
Tue Nov 26, 2019 1:51 pm
Here would be the used leverage ratio for 1955 - 2018 using 50/30/20-strategy:

As one can see, it strongly fluctuates between 170 - 150%. Can someone explain to me why "fixing" leverage ratio @ 170% would be better? This is simply market timing...

Image

You could well be correct (though don't agree that holding a constant leverage ratio is market timing... it would be much preferable). Your graph shows clearly that you peak your leverage at market highs, and drop your leverage at market lows.

The opposite of what you'd actually want. The inherent draw back of LETFs if you are not rebalancing. And why they are suboptimal for a pure leveraged strategy.

But it's all a rather academic argument when you are discussing starting at roughly zero and contributing $1k/mo.....

Your contributions are going to continue to rebalance the portfolio for the first decade or so..... only once the portfolio gets large in the out years is the sequence of returns going to really drive returns of the different allocations. We could create a different scenario fairly easily where a different sequence of returns would have made holding a different allocation more favorable.

And I think it's ridiculously unrealistic to think anyone is going to hold a ~170% leveraged equity portfolio for 40-50+ years.

I actually do agree with your general premise, however.... that a consistent contribution to reasonably leveraged equities back tests very well. This was kind of agreed upon months ago.

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

Post by guyinlaw » Tue Nov 26, 2019 3:33 pm

RayKeynes wrote:
Tue Nov 26, 2019 10:34 am


In any current scenario for the future I do not see any reason to go for UPRO/TMF. I'd rather perform a UPRO-ONLY strategy with continued monthly investing. Thus, if UPRO crashes (and it will!), you will buy every month at a cheaper price.
If you want to go long S&P 500 with leverage. Wouldn't it be best to buy LEAPs or buy micro E-mini futures?

UPRO is much more expensive that LEAPs and futures.

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

Post by spae » Tue Nov 26, 2019 4:32 pm

RayKeynes wrote:
Tue Nov 26, 2019 10:34 am
elderwise wrote:
Tue Nov 26, 2019 10:17 am
What is the outcome if stocks keep going up and up (albeit gradually) and thus DJIA / S&P / Nasdaq etc..

and Interest rates stagnate at or near 0%..and dont rise.

Does this strategy fail then or still beat the S&P or Nasdaq (UPRO / TQQQ)
In this very unlikely case - the strategy might perform "ok".
If you have high confidence that interest rates won't stay low, why don't you make a bet on that? I know people who are making bets on interest rates. It's not for me since I don't think I can predict the future, but you seem to think that you know what's likely and unlikely in the future.
Interest rates can simply not fall below 0% as monetary systems do not work anymore.
Image

Image
I have tested 67 periods à 25 years over the total time period of 1929 to November 2019 (matrix analysis and confidence analysis).
70/30 SSO may win from 1955 - 2018. However, the highest confidence I still get with something similiar to 50 30 20.
I am not only testing 1955 - 2018. I've just quickly calculated that period for you guys
This sounds like overfitting.
Last edited by spae on Tue Nov 26, 2019 4:54 pm, edited 1 time in total.

Lee_WSP
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Location: Arizona

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

Post by Lee_WSP » Tue Nov 26, 2019 4:36 pm

RayKeynes wrote:
Tue Nov 26, 2019 12:52 pm
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage
Portfolio 4 = 100% SPY (100%)

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Portfolio 4 = 12.65m $
I was not able to replicate your results using the Siamond spreadsheet. Please post your dataset.

Total - Rebalanced
Portfolio 1: 13,095,339
Portfolio 2:11,134,542
Portfolio 3: 14,758,360
Portfolio 4: 4,661,186


Total - Not Rebalanced
Portfolio 1: 5,135,675
Portfolio 2: 6,114,577
Portfolio 3: 5,610,165
Portfolio 4: 4,661,186

Although both back tests indicate that SSO may be worth taking another look at.

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

Post by RayKeynes » Tue Nov 26, 2019 4:48 pm

Lee_WSP wrote:
Tue Nov 26, 2019 4:36 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:52 pm
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage
Portfolio 4 = 100% SPY (100%)

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Portfolio 4 = 12.65m $
I was not able to replicate your results using the Siamond spreadsheet. Please post your dataset.

Total - Rebalanced
Portfolio 1: 13,095,339
Portfolio 2:11,134,542
Portfolio 3: 14,758,360
Portfolio 4: 4,661,186


Total - Not Rebalanced
Portfolio 1: 5,135,675
Portfolio 2: 6,114,577
Portfolio 3: 5,610,165
Portfolio 4: 4,661,186

Although both back tests indicate that SSO may be worth taking another look at.
Could you please send me the dataset? i will send you a mail adress via PN.
I will check my data. The deviations are quite big.

I do not understand how you're portfolio is more than double that high when rebalancing. That does not make any sense to me as these assets are perfectly correlated.

Lee_WSP
Posts: 1388
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

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

Post by Lee_WSP » Tue Nov 26, 2019 4:56 pm

RayKeynes wrote:
Tue Nov 26, 2019 4:48 pm
Lee_WSP wrote:
Tue Nov 26, 2019 4:36 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:52 pm
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage
Portfolio 4 = 100% SPY (100%)

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Portfolio 4 = 12.65m $
I was not able to replicate your results using the Siamond spreadsheet. Please post your dataset.

Total - Rebalanced
Portfolio 1: 13,095,339
Portfolio 2:11,134,542
Portfolio 3: 14,758,360
Portfolio 4: 4,661,186


Total - Not Rebalanced
Portfolio 1: 5,135,675
Portfolio 2: 6,114,577
Portfolio 3: 5,610,165
Portfolio 4: 4,661,186

Although both back tests indicate that SSO may be worth taking another look at.
Could you please send me the dataset? i will send you a mail adress via PN.
I will check my data. The deviations are quite big.

I do not understand how you're portfolio is more than double that high when rebalancing. That does not make any sense to me as these assets are perfectly correlated.
The dataset is publicly available here: https://drive.google.com/open?id=16ORud ... WfTP-0FggA

You can see the rebalancing bonus with SSO & VFINX in portfolio visualizer. If you don't understand why the rebalancing bonus exists, I'm not sure I can help you understand this strategy.

https://www.portfoliovisualizer.com/bac ... tion2_1=50


https://www.portfoliovisualizer.com/bac ... tion2_1=50

User avatar
Stef
Posts: 345
Joined: Thu Oct 10, 2019 10:13 am

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

Post by Stef » Tue Nov 26, 2019 4:58 pm

Lee_WSP wrote:
Tue Nov 26, 2019 4:36 pm
I was not able to replicate your results using the Siamond spreadsheet. Please post your dataset.

Total - Rebalanced
Portfolio 1: 13,095,339
Portfolio 2:11,134,542
Portfolio 3: 14,758,360
Portfolio 4: 4,661,186


Total - Not Rebalanced
Portfolio 1: 5,135,675
Portfolio 2: 6,114,577
Portfolio 3: 5,610,165
Portfolio 4: 4,661,186

Although both back tests indicate that SSO may be worth taking another look at.
Pretty interesting numbers. Investing part of savings (on a monthly basis) into leveraged ETFs seems like a great way to boost earnings longterm. I'm just not sure how much. I was thinking about VT as a base, around 60-70%. The other 30-40% leveraged, either completely SSO or divided into SSO and UPRO, maybe even a small bit of TQQQ.

Any thoughts on a equity only SAA for 25-30 years horizon?

rascott
Posts: 1256
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Tue Nov 26, 2019 5:04 pm

RayKeynes wrote:
Tue Nov 26, 2019 4:48 pm
Lee_WSP wrote:
Tue Nov 26, 2019 4:36 pm
RayKeynes wrote:
Tue Nov 26, 2019 12:52 pm
No rebalancing done in my calculations. I can go back to 1929 if you wish with the backtesting.

Period (1955 - 2018, 10'000$ initial, 1'000$ monthly)
Portfolio 1 = 65% SPY (100%) + 35% UPRO (300%) = 170% leverage
Portfolio 2 = 50% SPY (100%) + 30% SSO (200%)+ 20% UPRO (300%) = 170% leverage
Portfolio 3 = 30% SPY (100%) + 70% SSO (200%) = 170% leverage
Portfolio 4 = 100% SPY (100%)

Endvalues:

Portfolio 1 = 12.02m $
Portfolio 2 = 19.74m $
Portfolio 3 = 30.03m $
Portfolio 4 = 12.65m $
I was not able to replicate your results using the Siamond spreadsheet. Please post your dataset.

Total - Rebalanced
Portfolio 1: 13,095,339
Portfolio 2:11,134,542
Portfolio 3: 14,758,360
Portfolio 4: 4,661,186


Total - Not Rebalanced
Portfolio 1: 5,135,675
Portfolio 2: 6,114,577
Portfolio 3: 5,610,165
Portfolio 4: 4,661,186

Although both back tests indicate that SSO may be worth taking another look at.
Could you please send me the dataset? i will send you a mail adress via PN.
I will check my data. The deviations are quite big.

I do not understand how you're portfolio is more than double that high when rebalancing. That does not make any sense to me as these assets are perfectly correlated.

It's actually very simple..... I pointed this out to you already.

When you don't rebalance you end up with much higher allocations in the LETF at the end of a bull run..... and you've increased your leverage at market peaks.... and during bear markets those large allocations to LETFs get crushed.... and at market bottoms you are then under leveraged.

Your own chart showed you this pretty clearly.

If you rebalance to stay close to your target leverage rate..... you don't have this issue. You are selling LETFs at peaks and buying them in the troughs when you rebalance.

RayKeynes
Posts: 72
Joined: Mon Nov 11, 2019 2:14 am

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

Post by RayKeynes » Tue Nov 26, 2019 5:10 pm

Lee_WSP wrote:
Tue Nov 26, 2019 4:56 pm
The dataset is publicly available here: https://drive.google.com/open?id=16ORud ... WfTP-0FggA

You can see the rebalancing bonus with SSO & VFINX in portfolio visualizer. If you don't understand why the rebalancing bonus exists, I'm not sure I can help you understand this strategy.

https://www.portfoliovisualizer.com/bac ... tion2_1=50


https://www.portfoliovisualizer.com/bac ... tion2_1=50
I've already downloaded the data. However, I am not very familiar with this excel. I could only find the annual returns for these investments.
How did you calculate these figures?

I am using daily returns from 1929.

Lee_WSP
Posts: 1388
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

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

Post by Lee_WSP » Tue Nov 26, 2019 5:12 pm

RayKeynes wrote:
Tue Nov 26, 2019 5:10 pm
Lee_WSP wrote:
Tue Nov 26, 2019 4:56 pm
The dataset is publicly available here: https://drive.google.com/open?id=16ORud ... WfTP-0FggA

You can see the rebalancing bonus with SSO & VFINX in portfolio visualizer. If you don't understand why the rebalancing bonus exists, I'm not sure I can help you understand this strategy.

https://www.portfoliovisualizer.com/bac ... tion2_1=50


https://www.portfoliovisualizer.com/bac ... tion2_1=50
I've already downloaded the data. However, I am not very familiar with this excel. I could only find the annual returns for these investments.
How did you calculate these figures?

I am using daily returns from 1929.
viewtopic.php?f=10&t=272640

Are you using some sort of proprietary dataset? Since LETF's have only been around for a couple decades at most, any dataset with 2x or 3x returns must be simulated.

rascott
Posts: 1256
Joined: Wed Apr 15, 2015 10:53 am

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

Post by rascott » Tue Nov 26, 2019 5:15 pm

guyinlaw wrote:
Tue Nov 26, 2019 3:33 pm
RayKeynes wrote:
Tue Nov 26, 2019 10:34 am


In any current scenario for the future I do not see any reason to go for UPRO/TMF. I'd rather perform a UPRO-ONLY strategy with continued monthly investing. Thus, if UPRO crashes (and it will!), you will buy every month at a cheaper price.
If you want to go long S&P 500 with leverage. Wouldn't it be best to buy LEAPs or buy micro E-mini futures?

UPRO is much more expensive that LEAPs and futures.

Yes those are more ideal.... though it's a little tougher to do so if you are starting small and want to throw small monthly contributions into it like is being discussed. Options/LEAPs are probably the way go, ideally... equity futures are another option, but they require pretty constant monitoring and can throw you into margin calls if you aren't careful.

User avatar
Stef
Posts: 345
Joined: Thu Oct 10, 2019 10:13 am

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

Post by Stef » Tue Nov 26, 2019 5:16 pm

I just did a backtest for July 2006 - October 2019. 10'000$ initial and 1'000$/month, 50% SPY 50% SSO.

No rebalancing: $478,739
Quarterly rebalancing: $498,719
Semi-annually rebalancing: $497,959
Annually rebalancing: $501,898
5% absolut deviation: $499,137
10% absolut deviation: $507,724
20% absolut deviation: $534,869

Too bad we don't have more real data to back this up even further. But the result is very surprising! I mean this is 1.5 years bull market, 1.5 years bear market and then 10 years bull market. So with such a long bull market you would expect that no rebalancing should outperform rebalancing, but it doesn't.

I have to privilege to live in Switzerland. We don't pay taxes or realized profits, just on dividends. So I could even rebalance on a monthy basis. Rebalancing with absolut deviation seems like the best way to do it?

Lee_WSP
Posts: 1388
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

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

Post by Lee_WSP » Tue Nov 26, 2019 5:17 pm

rascott wrote:
Tue Nov 26, 2019 5:15 pm
guyinlaw wrote:
Tue Nov 26, 2019 3:33 pm
RayKeynes wrote:
Tue Nov 26, 2019 10:34 am


In any current scenario for the future I do not see any reason to go for UPRO/TMF. I'd rather perform a UPRO-ONLY strategy with continued monthly investing. Thus, if UPRO crashes (and it will!), you will buy every month at a cheaper price.
If you want to go long S&P 500 with leverage. Wouldn't it be best to buy LEAPs or buy micro E-mini futures?

UPRO is much more expensive that LEAPs and futures.

Yes those are more ideal.... though it's a little tougher to do so if you are starting small and want to throw small monthly contributions into it like is being discussed. Options/LEAPs are probably the way go, ideally... equity futures are another option, but they require pretty constant monitoring and can throw you into margin calls if you aren't careful.
I agree. Futures require some significant capital and more monitoring. They also require much more study than I'm willing to put towards this. I already have a job and I'd want a heck of a lot more money to be an expert at futures.

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