Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

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MetaPhysician
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Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MetaPhysician » Fri Oct 25, 2019 6:37 pm

Hey all,

I didn't want to hijack another thread so I started a separate one.

There are now > 75 pages of HEDGEFUNDIES Excellent Adventure.

It is time consuming to read the entire thread. And I see some people asking the same question which was answered previously in another post.

What if there was a concise guide that had all the information inside of it?

I envision it laid out:
- The fundamentals behind the strategy
- How exactly to implement the strategy step-by-step
- Top concerns addressed
- The academic literature behind it
- Who the strategy is ideal for and who shouldn’t implement it
- Taxable or Tax Sheltered Account
- Optimizing when to rebalance
- Eureka! When to get out successfully
- Reasons why the original portfolio changed
- Discover the reasons why this wasn’t done before

What are your thoughts if there was a concise guide that packed all the highlights, key tenants, and graphs into an easy to read manner?

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by stan1 » Fri Oct 25, 2019 6:40 pm

Sure, are you volunteering or looking for a volunteer?

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MetaPhysician
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MetaPhysician » Fri Oct 25, 2019 7:01 pm

stan1 wrote:
Fri Oct 25, 2019 6:40 pm
Sure, are you volunteering or looking for a volunteer?
I think I'd be able to tackle it. I wanted to see if a) there was any interest and b) what people wanted answered.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Fri Oct 25, 2019 7:13 pm

I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MetaPhysician » Fri Oct 25, 2019 7:24 pm

MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Thanks for the specific info. So the topic would be, "What is volatility drag/decay and how does it impact the strategy?

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Fri Oct 25, 2019 9:30 pm

MetaPhysician wrote:
Fri Oct 25, 2019 7:24 pm
MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Thanks for the specific info. So the topic would be, "What is volatility drag/decay and how does it impact the strategy?
Yes, both positive and negative impacts I suppose.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Hydromod » Fri Oct 25, 2019 11:24 pm

MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Tyler Aspect » Sat Oct 26, 2019 3:11 am

For me there is no reason to call this the "excellent adventure". Calling it the excellent adventure already assumes a good outcome, which is not warranted. Is there a convincing exit strategy if things go bad? Do you have to wait until you have 80% loss before selling out the leveraged positions?
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by andrew99999 » Sat Oct 26, 2019 3:54 am

Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?
Absolutely!

I look at that thread and I just run for the hills. I'm not a fast reader or a good skimmer, so that's going to be a dozen hours of reading for me.
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by viewer0 » Sat Oct 26, 2019 8:54 am

Has anyone thought of writing OTM weekly covered call options on these to improve the return a bit ? You need to buy the calls back or roll if it exceeds the strike price.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Sat Oct 26, 2019 12:41 pm

Hydromod wrote:
Fri Oct 25, 2019 11:24 pm
MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...
This is incorrect actually. When the S&P500 is steadily declining you get less than 3x exposure, outperforming a true 3x exposure (via futures or similar). Think about it; during the GFC the S&P500 went down almost 50%, which should have put a true 3x S&P500 exposure well into the negative, but UPRO only went down 97%. The only way that UPRO moves more strongly downward than 3x S&P500 is with steady ups and downs, creating volatility decay.

The chart that I referenced showed just this as well.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Sat Oct 26, 2019 12:42 pm

Tyler Aspect wrote:
Sat Oct 26, 2019 3:11 am
For me there is no reason to call this the "excellent adventure". Calling it the excellent adventure already assumes a good outcome, which is not warranted. Is there a convincing exit strategy if things go bad? Do you have to wait until you have 80% loss before selling out the leveraged positions?
Just agree to disagree. You clearly do not understand these products at all.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by nisiprius » Sat Oct 26, 2019 1:47 pm

Isn't the first post in his first thread close to being that "concise guide?" It seems to me that many of your questions are addressed in it.

HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
  • What is your strategy?
  • What is a leveraged ETF?
  • How much does the leverage cost?
  • What is the evidence supporting your strategy?
  • What is the theory behind this strategy?
  • So you are relying on Long Term Treasuries and US Stocks not crashing together. How reliable is this assumption? Can I truly depend on a negative correlation to save me?
  • How confident are you that your simulated backtest actually tracks the real UPRO and TMF?
  • Don't you know that leveraged ETFs are only intended to be held for one day?
  • What are the risks of your strategy?
  • What if the funds shut down?
  • Doesn't this strategy rely on a stock bull market?
  • Doesn't this strategy rely on a bond bull market?
  • Why not just 100% UPRO?
  • Why not add gold / commodities / NASDAQ QQQ / small cap / international stocks?
  • Why don't you use futures? Wouldn't that be cheaper?
  • What is your goal with this strategy?
  • If this such a sure thing, why hasn’t anyone else done it?
  • All this cavalier talk about leverage makes me think we are at a market high. What if the market crashes from here?
  • Ok, you’ve convinced me. Let me copy what you're doing.
For example, you ask "Who the strategy is ideal for and who shouldn’t implement it." He says
This should go without saying, but I will say it. This is a risky investment. My backtesting shows strong performance vs. holding the S&P 500 by itself, but there is no guarantee this will continue. I am risking money that is a limited amount of my net worth, and if I lost it all, would not materially change the course of my retirement savings. Proceed at your own risk.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Sat Oct 26, 2019 2:00 pm

Tyler Aspect wrote:
Sat Oct 26, 2019 3:11 am
For me there is no reason to call this the "excellent adventure". Calling it the excellent adventure already assumes a good outcome, which is not warranted. Is there a convincing exit strategy if things go bad? Do you have to wait until you have 80% loss before selling out the leveraged positions?
Did you sell out during the GFC? If not, there's no difference is there?

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Sat Oct 26, 2019 2:03 pm

MotoTrojan wrote:
Sat Oct 26, 2019 12:41 pm
Hydromod wrote:
Fri Oct 25, 2019 11:24 pm
MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...
This is incorrect actually. When the S&P500 is steadily declining you get less than 3x exposure, outperforming a true 3x exposure (via futures or similar). Think about it; during the GFC the S&P500 went down almost 50%, which should have put a true 3x S&P500 exposure well into the negative, but UPRO only went down 97%. The only way that UPRO moves more strongly downward than 3x S&P500 is with steady ups and downs, creating volatility decay.

The chart that I referenced showed just this as well.
The true 3x is wiped out if it declines 33.4% but will recover faster if it's not wiped out up to the original leverage start point. That's the other difference in a decline.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Sat Oct 26, 2019 2:14 pm

Lee_WSP wrote:
Sat Oct 26, 2019 2:03 pm
MotoTrojan wrote:
Sat Oct 26, 2019 12:41 pm
Hydromod wrote:
Fri Oct 25, 2019 11:24 pm
MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...
This is incorrect actually. When the S&P500 is steadily declining you get less than 3x exposure, outperforming a true 3x exposure (via futures or similar). Think about it; during the GFC the S&P500 went down almost 50%, which should have put a true 3x S&P500 exposure well into the negative, but UPRO only went down 97%. The only way that UPRO moves more strongly downward than 3x S&P500 is with steady ups and downs, creating volatility decay.

The chart that I referenced showed just this as well.
The true 3x is wiped out if it declines 33.4% but will recover faster if it's not wiped out up to the original leverage start point. That's the other difference in a decline.
Why will a true 3x recover faster? A true 3x will drop further, and then only rebound at 3x while the daily-resetting asset will have less of a decline, and potentially rebound at >3x with steady compounding growth.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by 305pelusa » Sat Oct 26, 2019 2:20 pm

MotoTrojan wrote:
Sat Oct 26, 2019 2:14 pm
Lee_WSP wrote:
Sat Oct 26, 2019 2:03 pm
MotoTrojan wrote:
Sat Oct 26, 2019 12:41 pm
Hydromod wrote:
Fri Oct 25, 2019 11:24 pm
MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...
This is incorrect actually. When the S&P500 is steadily declining you get less than 3x exposure, outperforming a true 3x exposure (via futures or similar). Think about it; during the GFC the S&P500 went down almost 50%, which should have put a true 3x S&P500 exposure well into the negative, but UPRO only went down 97%. The only way that UPRO moves more strongly downward than 3x S&P500 is with steady ups and downs, creating volatility decay.

The chart that I referenced showed just this as well.
The true 3x is wiped out if it declines 33.4% but will recover faster if it's not wiped out up to the original leverage start point. That's the other difference in a decline.
Why will a true 3x recover faster? A true 3x will drop further, and then only rebound at 3x while the daily-resetting asset will have less of a decline, and potentially rebound at >3x with steady compounding growth.
By a "true 3x", I assume Lee meant a futures/options/margin position that begins at 3x leverage and does not rebalance leverage once started (unlike LETFs, which rebalance the leverage daily). Provided that position is not forced to rebalance the leverage (i.e. liquidation), it will recover faster than a LETF.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Sat Oct 26, 2019 2:22 pm

305pelusa wrote:
Sat Oct 26, 2019 2:20 pm
MotoTrojan wrote:
Sat Oct 26, 2019 2:14 pm
Lee_WSP wrote:
Sat Oct 26, 2019 2:03 pm
MotoTrojan wrote:
Sat Oct 26, 2019 12:41 pm
Hydromod wrote:
Fri Oct 25, 2019 11:24 pm


Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...
This is incorrect actually. When the S&P500 is steadily declining you get less than 3x exposure, outperforming a true 3x exposure (via futures or similar). Think about it; during the GFC the S&P500 went down almost 50%, which should have put a true 3x S&P500 exposure well into the negative, but UPRO only went down 97%. The only way that UPRO moves more strongly downward than 3x S&P500 is with steady ups and downs, creating volatility decay.

The chart that I referenced showed just this as well.
The true 3x is wiped out if it declines 33.4% but will recover faster if it's not wiped out up to the original leverage start point. That's the other difference in a decline.
Why will a true 3x recover faster? A true 3x will drop further, and then only rebound at 3x while the daily-resetting asset will have less of a decline, and potentially rebound at >3x with steady compounding growth.
By a "true 3x", I assume Lee meant a futures/options/margin position that begins at 3x leverage and does not rebalance leverage once started (unlike LETFs, which rebalance the leverage daily). Provided that position is not forced to rebalance the leverage (i.e. liquidation), it will recover faster than a LETF.
Yes. The future position increases leverage during drawdowns.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MetaPhysician » Sat Oct 26, 2019 2:35 pm

nisiprius wrote:
Sat Oct 26, 2019 1:47 pm
Isn't the first post in his first thread close to being that "concise guide?" It seems to me that many of your questions are addressed in it.

HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]
  • What is your strategy?
  • What is a leveraged ETF?
  • How much does the leverage cost?
  • What is the evidence supporting your strategy?
  • What is the theory behind this strategy?
  • So you are relying on Long Term Treasuries and US Stocks not crashing together. How reliable is this assumption? Can I truly depend on a negative correlation to save me?
  • How confident are you that your simulated backtest actually tracks the real UPRO and TMF?
  • Don't you know that leveraged ETFs are only intended to be held for one day?
  • What are the risks of your strategy?
  • What if the funds shut down?
  • Doesn't this strategy rely on a stock bull market?
  • Doesn't this strategy rely on a bond bull market?
  • Why not just 100% UPRO?
  • Why not add gold / commodities / NASDAQ QQQ / small cap / international stocks?
  • Why don't you use futures? Wouldn't that be cheaper?
  • What is your goal with this strategy?
  • If this such a sure thing, why hasn’t anyone else done it?
  • All this cavalier talk about leverage makes me think we are at a market high. What if the market crashes from here?
  • Ok, you’ve convinced me. Let me copy what you're doing.
For example, you ask "Who the strategy is ideal for and who shouldn’t implement it." He says
This should go without saying, but I will say it. This is a risky investment. My backtesting shows strong performance vs. holding the S&P 500 by itself, but there is no guarantee this will continue. I am risking money that is a limited amount of my net worth, and if I lost it all, would not materially change the course of my retirement savings. Proceed at your own risk.
If people feel that the first page answers their questions in a concise and clear manner then I suppose there is no need for something separate?

I get the sense that it leaves some people needing more, though. But I could be wrong :)

Call me old fashioned but I remember when writing out ANY ticker was frowned upon. Now there are tickers all over the place. And not to mention some advanced terms as well.

By the way I'm not taking a side on the 'excellent' part - just trying to lay out the argument for people to come to their own conclusion.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by AlphaLess » Sat Oct 26, 2019 2:39 pm

For sure. But I am guessing it is going to be a moving target.

I would also like to see people's reactions when things don't go as planned.
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Tyler Aspect » Sat Oct 26, 2019 2:56 pm

MotoTrojan wrote:
Sat Oct 26, 2019 12:42 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 3:11 am
For me there is no reason to call this the "excellent adventure". Calling it the excellent adventure already assumes a good outcome, which is not warranted. Is there a convincing exit strategy if things go bad? Do you have to wait until you have 80% loss before selling out the leveraged positions?
Just agree to disagree. You clearly do not understand these products at all.
Ok. If I do not understand these products then how did I get this chart to almost match?

I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShares Ultra S&P500. I was hoping to remove the influence of expense ratio from the comparison. Indeed the performance curve is almost an exact match over 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Stinky » Sat Oct 26, 2019 3:00 pm

MetaPhysician wrote:
Fri Oct 25, 2019 7:01 pm
stan1 wrote:
Fri Oct 25, 2019 6:40 pm
Sure, are you volunteering or looking for a volunteer?
I think I'd be able to tackle it. I wanted to see if a) there was any interest and b) what people wanted answered.
If you will write it, I will definitely read it.
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Sat Oct 26, 2019 3:08 pm

Tyler Aspect wrote:
Sat Oct 26, 2019 2:56 pm
MotoTrojan wrote:
Sat Oct 26, 2019 12:42 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 3:11 am
For me there is no reason to call this the "excellent adventure". Calling it the excellent adventure already assumes a good outcome, which is not warranted. Is there a convincing exit strategy if things go bad? Do you have to wait until you have 80% loss before selling out the leveraged positions?
Just agree to disagree. You clearly do not understand these products at all.
Ok. If I do not understand these products then how did I get this chart to almost match?

I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShareoer 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Sat Oct 26, 2019 3:10 pm

Tyler Aspect wrote:
Sat Oct 26, 2019 2:56 pm
MotoTrojan wrote:
Sat Oct 26, 2019 12:42 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 3:11 am
For me there is no reason to call this the "excellent adventure". Calling it the excellent adventure already assumes a good outcome, which is not warranted. Is there a convincing exit strategy if things go bad? Do you have to wait until you have 80% loss before selling out the leveraged positions?
Just agree to disagree. You clearly do not understand these products at all.
Ok. If I do not understand these products then how did I get this chart to almost match?

I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShares Ultra S&P500. I was hoping to remove the influence of expense ratio from the comparison. Indeed the performance curve is almost an exact match over 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
I do not understand what you're trying to achieve or what that proves. Please explain.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MetaPhysician » Sat Oct 26, 2019 3:23 pm

Stinky wrote:
Sat Oct 26, 2019 3:00 pm
MetaPhysician wrote:
Fri Oct 25, 2019 7:01 pm
stan1 wrote:
Fri Oct 25, 2019 6:40 pm
Sure, are you volunteering or looking for a volunteer?
I think I'd be able to tackle it. I wanted to see if a) there was any interest and b) what people wanted answered.
If you will write it, I will definitely read it.
#1 Best Seller on the Stinky List. :o

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Hydromod » Sun Oct 27, 2019 11:34 am

MotoTrojan wrote:
Sat Oct 26, 2019 12:41 pm
Hydromod wrote:
Fri Oct 25, 2019 11:24 pm
MotoTrojan wrote:
Fri Oct 25, 2019 7:13 pm
I would focus a good bit of effort into volatility drag/decay. Moneymarathon had some great charts showing the impact of regular rebalancing with an uncorrelated asset. Another post (can't recall) posted some fascinating charts that compared annual performance of UPRO to unleveraged S&P500 as a factor of UPRO/S&P500 (daily is 3x, but it showed annual factor). This chart was extremely telling for me personally as it showed that UPRO actually outperforms 3x S&P500 when the S&P500 does exceedingly well (>3x) AND most interestly, when the S&P500 does very poorly with steep declines (<3x). Volatility decay really hurts you primarily during flatter market periods.

This thought was the primary reason for my departure of TMF in favor of unleveraged EDV; equities have a reason to go up over time, but rates could easily bounce around 2% forever while remaining uncorrelated with equities. In a situation like that, the portfolio theory (equity and uncorrelated long bonds) could work, but TMF could be crushed by volatility decay.
Just so we're clear, I think the original poster with the charts was showing that UPRO moved more than 3x S&P500 when the S&P was moving steadily, regardless of whether the change was positive or negative. So you might get +5x and -5x S&P for UPRO, say. I think the wording was something like positive reinforcement, which is easy to misinterpret. The key is that UPRO will move more strongly than 3x UPRO in the direction of change. I certainly wouldn't like that kind of outperformance when the S&P is dropping...
This is incorrect actually. When the S&P500 is steadily declining you get less than 3x exposure, outperforming a true 3x exposure (via futures or similar). Think about it; during the GFC the S&P500 went down almost 50%, which should have put a true 3x S&P500 exposure well into the negative, but UPRO only went down 97%. The only way that UPRO moves more strongly downward than 3x S&P500 is with steady ups and downs, creating volatility decay.

The chart that I referenced showed just this as well.
It depends on whether one is discussing rate of change or cumulative change. I'm claiming that, for a series of the same fractional loss per step, UPRO will cross a given threshold more than 3 times faster than the S&P 500 does. But you are correct, in the sense that the total loss for UPRO will be less than 3 times the total loss for the S&P 500. These are not inconsistent.

Let FV = 1 + f = (1+v)^n, so = ln(FV / (1+v))

Let R = ((1 + 3v)^n - 1) / ((1 + v)^n - 1)

where v is the fractional change per step, FV is the future value, f is the fractional change, n is the number of steps, and R is the ratio of f for UPRO to f for S&P.

Say S&P loses 5%/day, UPRO loses 15%/day.

The number of steps until only 10% of the portfolio is left: (i) for S&P, n = ln(0.1/0.95) = 44.89; (ii) for UPRO, n = ln(0.1/0.85) = 14.17.

So it takes 44.89/14.17 = 3.17 times as many steps for the S&P to drop 90% than UPRO. In this sense, UPRO drops more than 3 times faster.

After 10 days, say, UPRO has lost 80% of its value while S&P has lost 40%, so R is 2. In general, R < 3 whenever v < 0. In this sense, UPRO loses less than 3 times the S&P loss for a fixed number of steps.

The effect reverses when v > 0. In this case, it takes less than 3 times as many steps for S&P than UPRO to cross a given threshold (UPRO increases less than 3 times faster), but R > 3 (the amount of change for UPRO is more than 3 times the amount of change for S&P 500, given a fixed number of steps).

So relative performance is opposite depending on whether one is discussing (i) the number of steps to a reach a threshold or (ii) the amount of change given a fixed number of steps.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Tyler Aspect » Mon Oct 28, 2019 3:35 pm

MotoTrojan wrote:
Sat Oct 26, 2019 3:08 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 2:56 pm
I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShareoer 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?
Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome. Notice this is only a chart involving SSO; I have not charted UPRO and TMF yet in this thread.

I will try to discuss volatility decay next time.
Last edited by Tyler Aspect on Mon Oct 28, 2019 6:56 pm, edited 1 time in total.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Tyler Aspect » Mon Oct 28, 2019 3:39 pm

Volatility Decay of Leveraged ETFs

Let us examine the price movements of leveraged ETFs.

Before we begin we will set up some price goal posts at $50, $100, and $200. If our tracking index was at $100 per share, then doubling it would make it $200 per share. A sebsequent price halfing movements would drop the share price to $100. Doubling is multiplication by 2, while halfing is division by 2. It is useful to notice that a doubling is canceled out by halfing, thus returning price to the original point.

Let us bring in a 2X daily leveraged ETF into the picture. Suppose the current net asset price is $100, if we want the end of day net asset price to hit $200, then the tracking index needs to go up 1.5 times today. Doubling the gain brings the price up to $200.

How about the downward movement involved in price halfing of the 2X daily leveraged ETF? Daily net asset value drop from $100 to $50 would considered to be halfing. That would take a division by 1.3333 of the tracking index, which happens to be (2.0 / 1.5).

$100 / 1.3333 = $75

Doubling the loss would then bring it down to $50.

We can see in the 2X daily leveraged ETF to double it needs 1.5X daily increase of the tracking index, while halfing it only needs 1.3333X daily decrease of the tracking index.

This is the source of the leveraged ETF price volatility decay. For large price movements it requires less force for the price to drop than to go up.

How about the case when the price movement of a 2X daily leveraged ETF is small? Suppose our target daily price movement is 2%.

It would take a 1.01 times daily price increase of the tracking index to hit the upward target. For the downward direction it would take a 1.0099 (1.02 / 1.01) times daily price decrease of the tracking index to hit the downward target. This is a small difference.

Volatility decay in leveraged ETFs can be seen when we have large percentage daily price movements in the tracking index.
Past result does not predict future performance. Mentioned investments may lose money. Contents are presented "AS IS" and any implied suitability for a particular purpose are disclaimed.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by MotoTrojan » Mon Oct 28, 2019 5:01 pm

Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm
MotoTrojan wrote:
Sat Oct 26, 2019 3:08 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 2:56 pm
I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShareoer 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?
Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Mon Oct 28, 2019 5:18 pm

MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm
MotoTrojan wrote:
Sat Oct 26, 2019 3:08 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 2:56 pm
I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShareoer 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?
Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 9:22 pm

MetaPhysician wrote:
Fri Oct 25, 2019 6:37 pm
Hey all,

I didn't want to hijack another thread so I started a separate one.

There are now > 75 pages of HEDGEFUNDIES Excellent Adventure.

It is time consuming to read the entire thread. And I see some people asking the same question which was answered previously in another post.

What if there was a concise guide that had all the information inside of it?

I envision it laid out:
- The fundamentals behind the strategy
- How exactly to implement the strategy step-by-step
- Top concerns addressed
- The academic literature behind it
- Who the strategy is ideal for and who shouldn’t implement it
- Taxable or Tax Sheltered Account
- Optimizing when to rebalance
- Eureka! When to get out successfully
- Reasons why the original portfolio changed
- Discover the reasons why this wasn’t done before

What are your thoughts if there was a concise guide that packed all the highlights, key tenants, and graphs into an easy to read manner?


What would be really interesting to read is why this strategy failed miserably after one of the unpredictable events have unfolded.

Elysium
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 9:25 pm

Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm
MotoTrojan wrote:
Sat Oct 26, 2019 3:08 pm
Tyler Aspect wrote:
Sat Oct 26, 2019 2:56 pm
I compared the portfolio performance between a portfolio of (60% Columbia Large Cap Index A / 40% CASHX) versus (30% ProShares Ultra S&P500 / 70% CASHX). I picked Columbia Large Cap Index A because its expense ratio is almost half of ProShareoer 12 years of data.

Where is the volatility decay? Maybe 2 servings of 6 eggs equals 12 eggs after all.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?
Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by lassevirensghost » Mon Oct 28, 2019 9:38 pm

Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm
MotoTrojan wrote:
Sat Oct 26, 2019 3:08 pm


I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?
Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
Really? Taleb seems to think it is a vanilla 60/40 that will be wiped out by a black swan.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Hydromod » Mon Oct 28, 2019 9:41 pm

MetaPhysician wrote:
Fri Oct 25, 2019 6:37 pm
Hey all,

I didn't want to hijack another thread so I started a separate one.

There are now > 75 pages of HEDGEFUNDIES Excellent Adventure.

It is time consuming to read the entire thread. And I see some people asking the same question which was answered previously in another post.

What if there was a concise guide that had all the information inside of it?

I envision it laid out:
- The fundamentals behind the strategy
- How exactly to implement the strategy step-by-step
- Top concerns addressed
- The academic literature behind it
- Who the strategy is ideal for and who shouldn’t implement it
- Taxable or Tax Sheltered Account
- Optimizing when to rebalance
- Eureka! When to get out successfully
- Reasons why the original portfolio changed
- Discover the reasons why this wasn’t done before

What are your thoughts if there was a concise guide that packed all the highlights, key tenants, and graphs into an easy to read manner?


Feel free to include any of the material in Refinements to Hedgefundie's excellent approach.

Lee_WSP
Posts: 1208
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Location: Arizona

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Mon Oct 28, 2019 9:44 pm

Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm
MotoTrojan wrote:
Sat Oct 26, 2019 3:08 pm


I am beyond confused now. Your point in this post and many others is that these portfolios can and will wipe themselves out (or have an 80% decline). What you've have shown me here is that they can actually be a very effective way to gain leveraged equity exposure, enabling someone to hold some uncorrelated bonds, and even gain more than 100% equity exposure. Now you are arguing these products are great and volatility decay doesn't matter?
Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?

rascott
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by rascott » Mon Oct 28, 2019 9:53 pm

Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm


Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
That would equate to a total collapse of the US economy + govt... in which case, most all portfolios around here would also be nearly wiped out. By their nature of daily resetting, LETFs can't really go to zero.... and the idea of both LTT bonds and equities crashing both through the floor is really impossible to imagine.. barring full implosion.

However, the scenario of this setup trailing the SP500 by a healthy margin for a very long time, is entirely plausible.

Elysium
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 9:55 pm

Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm


Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the leveraged ETF's to go to zero value that aren't more or less world as we know it ending?
Black swan events cannot be known or planned for by definition. I cannot answer that question for that reason. We will know after the fact.

LTCM folks also considered their strategy fail proof, but they got wiped out and the world didn't end. Bear Sterns in 2007 thought they were immune and had built a solid model, there are many examples.

Also, I made a small correction to your original text, ETFs may not go to zero, but leveraged ETFs may.

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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by whodidntante » Mon Oct 28, 2019 10:05 pm

Elysium wrote:
Mon Oct 28, 2019 9:55 pm
Also, I made a small correction to your original text, ETFs may not go to zero, but leveraged ETFs may.
Entire markets have gone to zero. An ETF certainly could go to zero. Although an ETF might be liquidated by the issuer before things get that bad.

Elysium
Posts: 1832
Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 10:05 pm

lassevirensghost wrote:
Mon Oct 28, 2019 9:38 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm
Tyler Aspect wrote:
Mon Oct 28, 2019 3:35 pm


Not quite. Columbia Large Cap Index A at expense ratio of 0.45% is not exactly a shining example of a S&P 500 index fund.

Although the performance chart looks similar there can be many different subtle things going on for the leveraged ETF that could effect the outcome.

I will try to discuss volatility decay next time.
Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
Really? Taleb seems to think it is a vanilla 60/40 that will be wiped out by a black swan.
Yes, different black swan events could affect different types of investment, but we are dealing in probabilities here, and traditional getting wiped out is less of a chance than a back of the envelope hedge fund idea. It's all a matter of taking probabilities into account in investing. What is the cost of being wrong?

Lee_WSP
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Location: Arizona

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Mon Oct 28, 2019 10:14 pm

Elysium wrote:
Mon Oct 28, 2019 9:55 pm
Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm


Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
Black swan events cannot be known or planned for by definition. I cannot answer that question for that reason. We will know after the fact.

LTCM folks also considered their strategy fail proof, but they got wiped out and the world didn't end. Bear Sterns in 2007 thought they were immune and had built a solid model, there are many examples.
If you don’t want to be treated like Cassandra, you’re going to have to come up with a plausible scenario.

Elysium
Posts: 1832
Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 10:17 pm

rascott wrote:
Mon Oct 28, 2019 9:53 pm
Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm
MotoTrojan wrote:
Mon Oct 28, 2019 5:01 pm


Maybe I am confusing you with someone else who keeps posting in these threads stating that this is a doomed idea and surefire to fail.
I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
That would equate to a total collapse of the US economy + govt... in which case, most all portfolios around here would also be nearly wiped out. By their nature of daily resetting, LETFs can't really go to zero.... and the idea of both LTT bonds and equities crashing both through the floor is really impossible to imagine.. barring full implosion.

However, the scenario of this setup trailing the SP500 by a healthy margin for a very long time, is entirely plausible.
S&P 500 and US Treasuries need not go to zero value for leveraged ETFs to fail, we cannot answer that with all the available information and by applying all the models at our disposal at present. It's just the nature of taking on exponential amounts of risks that exposes it to vulnerability from black swans that will wipe out those instruments.

That said, there is no way to convince someone who have tested the method with all available models and data that something bad is likely to happen, because the process known to us at present says nothing like that is about to happen. This is why such failures happened to extremely smart people, they were hit by something that hadn't happened before, and none of the models would forecast an event like that happening.

Elysium
Posts: 1832
Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 10:19 pm

Lee_WSP wrote:
Mon Oct 28, 2019 10:14 pm
Elysium wrote:
Mon Oct 28, 2019 9:55 pm
Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm


I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
Black swan events cannot be known or planned for by definition. I cannot answer that question for that reason. We will know after the fact.

LTCM folks also considered their strategy fail proof, but they got wiped out and the world didn't end. Bear Sterns in 2007 thought they were immune and had built a solid model, there are many examples.
If you don’t want to be treated like Cassandra, you’re going to have to come up with a plausible scenario.
You are asking me to predict a black swan event, which by definition cannot be predicted, okay got it :oops:

Elysium
Posts: 1832
Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 10:30 pm

Lee_WSP wrote:
Mon Oct 28, 2019 10:14 pm
Elysium wrote:
Mon Oct 28, 2019 9:55 pm
Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm


I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
Black swan events cannot be known or planned for by definition. I cannot answer that question for that reason. We will know after the fact.

LTCM folks also considered their strategy fail proof, but they got wiped out and the world didn't end. Bear Sterns in 2007 thought they were immune and had built a solid model, there are many examples.
If you don’t want to be treated like Cassandra, you’re going to have to come up with a plausible scenario.
I'll tell you a true story. Several years back, way before the housing crisis of 2007-08 unfolded, I had a discussion with a noted economist who has now gone on to become one the prominent experts in the field globally. I had observed there is a chance of bubble forming in the housing market that could cause prices to fall across the board taking down entire housing market along with the two GSEs that were exposed to systemic risks. I was told with the help of data and statistics readily available at the finger tips of the expert that nothing like that will happen because there has never been such a thing and all the models show it cannot happen, moreover the people who disagree with me are all more qualified than me in the field. So I was asked to shut up and put up, I did, later we know what happened. What went wrong, they didn't take into account the possibility of the unknown, that prices could fall beyond a certain amount at national level.

Lee_WSP
Posts: 1208
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Mon Oct 28, 2019 10:49 pm

Elysium wrote:
Mon Oct 28, 2019 10:30 pm
Lee_WSP wrote:
Mon Oct 28, 2019 10:14 pm
Elysium wrote:
Mon Oct 28, 2019 9:55 pm
Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm


It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
Black swan events cannot be known or planned for by definition. I cannot answer that question for that reason. We will know after the fact.

LTCM folks also considered their strategy fail proof, but they got wiped out and the world didn't end. Bear Sterns in 2007 thought they were immune and had built a solid model, there are many examples.
If you don’t want to be treated like Cassandra, you’re going to have to come up with a plausible scenario.
I'll tell you a true story. Several years back, way before the housing crisis of 2007-08 unfolded, I had a discussion with a noted economist who has now gone on to become one the prominent experts in the field globally. I had observed there is a chance of bubble forming in the housing market that could cause prices to fall across the board taking down entire housing market along with the two GSEs that were exposed to systemic risks. I was told with the help of data and statistics readily available at the finger tips of the expert that nothing like that will happen because there has never been such a thing and all the models show it cannot happen, moreover the people who disagree with me are all more qualified than me in the field. So I was asked to shut up and put up, I did, later we know what happened. What went wrong, they didn't take into account the possibility of the unknown, that prices could fall beyond a certain amount at national level.
And yet the world, housing, and the stock market didn’t end, did they? And those who held have now recovered.

I accept the fact the world will end and the world as we know it may end in my lifetime, but that’s no reason leveraged etfs are going to end without an equally devastating end to the stock market as we know it.

Elysium
Posts: 1832
Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Mon Oct 28, 2019 11:06 pm

Lee_WSP wrote:
Mon Oct 28, 2019 10:49 pm
And yet the world, housing, and the stock market didn’t end, did they? And those who held have now recovered.

I accept the fact the world will end and the world as we know it may end in my lifetime, but that’s no reason leveraged etfs are going to end without an equally devastating end to the stock market as we know it.
Obviously, not everyone recovered, I am sure you are aware of this? billions have been lost actually, there was no recovery for many in housing, stock, and fixed income markets. The markets have recovered as a whole, but not the individuals participants who did lose and not recover. I personally know several families that are still under water on homes bought back then.

Counterparty risk is one of the ways in which leveraged ETFs could be exposed unlike non-leveraged investments in stocks and bonds. All it takes is one of the chains to break and the domino effect will do the rest. Obviously, there is no way to prove, that's the reason I said there is an element of unknown risk in this. I'll just leave it at that.

rascott
Posts: 1114
Joined: Wed Apr 15, 2015 10:53 am

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by rascott » Mon Oct 28, 2019 11:13 pm

Elysium wrote:
Mon Oct 28, 2019 10:17 pm
rascott wrote:
Mon Oct 28, 2019 9:53 pm
Lee_WSP wrote:
Mon Oct 28, 2019 9:44 pm
Elysium wrote:
Mon Oct 28, 2019 9:25 pm
Lee_WSP wrote:
Mon Oct 28, 2019 5:18 pm


I'm pretty sure it's him and someone else, but so far no one has been able to state why this strategy is doomed to losing the initial investment. I think everyone agrees it has a strong chance of underperforming though. By strong I mean greater than ten percent.
It will likely underperform S&P 500, but there is also a probability it could outperform by a large margin, it's just a mathematical probability based on sequence of events as we all know, but what is unknown is the black swan event that will wipe out everything. That black swan is simply why you cannot bet any significant amount of money on something like this.
What black swan event do you think would cause the ETF's to go to zero value that aren't more or less world as we know it ending?
That would equate to a total collapse of the US economy + govt... in which case, most all portfolios around here would also be nearly wiped out. By their nature of daily resetting, LETFs can't really go to zero.... and the idea of both LTT bonds and equities crashing both through the floor is really impossible to imagine.. barring full implosion.

However, the scenario of this setup trailing the SP500 by a healthy margin for a very long time, is entirely plausible.
S&P 500 and US Treasuries need not go to zero value for leveraged ETFs to fail, we cannot answer that with all the available information and by applying all the models at our disposal at present. It's just the nature of taking on exponential amounts of risks that exposes it to vulnerability from black swans that will wipe out those instruments.

That said, there is no way to convince someone who have tested the method with all available models and data that something bad is likely to happen, because the process known to us at present says nothing like that is about to happen. This is why such failures happened to extremely smart people, they were hit by something that hadn't happened before, and none of the models would forecast an event like that happening.

Unless your hypotheticals defy mathematics, what you've concocted isn't readily feasible outside of doomsday scenarios, where things like 60/40 retirement portfolios drop 60+%.

Lee_WSP
Posts: 1208
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Location: Arizona

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Lee_WSP » Mon Oct 28, 2019 11:23 pm

Elysium wrote:
Mon Oct 28, 2019 11:06 pm
Lee_WSP wrote:
Mon Oct 28, 2019 10:49 pm
And yet the world, housing, and the stock market didn’t end, did they? And those who held have now recovered.

I accept the fact the world will end and the world as we know it may end in my lifetime, but that’s no reason leveraged etfs are going to end without an equally devastating end to the stock market as we know it.
Obviously, not everyone recovered, I am sure you are aware of this? billions have been lost actually, there was no recovery for many in housing, stock, and fixed income markets. The markets have recovered as a whole, but not the individuals participants who did lose and not recover. I personally know several families that are still under water on homes bought back then.

Counterparty risk is one of the ways in which leveraged ETFs could be exposed unlike non-leveraged investments in stocks and bonds. All it takes is one of the chains to break and the domino effect will do the rest. Obviously, there is no way to prove, that's the reason I said there is an element of unknown risk in this. I'll just leave it at that.
They only lost it all because they were either forced out their positions (Mortgage equivalent of a margin call) or they panicked and sold.

At the end of the day, your argument is plain absurd. The same logic can be applied to the S&P 500 and bonds. Some unknown black swan event can wipe out our portfolios, therefore we shouldn't invest. Well, of course something horrible can happen, but not investing is worse.

Elysium
Posts: 1832
Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Tue Oct 29, 2019 8:55 am

Lee_WSP wrote:
Mon Oct 28, 2019 11:23 pm
Elysium wrote:
Mon Oct 28, 2019 11:06 pm
Lee_WSP wrote:
Mon Oct 28, 2019 10:49 pm
And yet the world, housing, and the stock market didn’t end, did they? And those who held have now recovered.

I accept the fact the world will end and the world as we know it may end in my lifetime, but that’s no reason leveraged etfs are going to end without an equally devastating end to the stock market as we know it.
Obviously, not everyone recovered, I am sure you are aware of this? billions have been lost actually, there was no recovery for many in housing, stock, and fixed income markets. The markets have recovered as a whole, but not the individuals participants who did lose and not recover. I personally know several families that are still under water on homes bought back then.

Counterparty risk is one of the ways in which leveraged ETFs could be exposed unlike non-leveraged investments in stocks and bonds. All it takes is one of the chains to break and the domino effect will do the rest. Obviously, there is no way to prove, that's the reason I said there is an element of unknown risk in this. I'll just leave it at that.
They only lost it all because they were either forced out their positions (Mortgage equivalent of a margin call) or they panicked and sold.

At the end of the day, your argument is plain absurd. The same logic can be applied to the S&P 500 and bonds. Some unknown black swan event can wipe out our portfolios, therefore we shouldn't invest. Well, of course something horrible can happen, but not investing is worse.
I guess you haven't been exposed to what people have experienced, based on you belief that people only lose if they sell/forced to sell, okay :|

As for unlikely events, yes never assume the unlikely as impossible. There is no equivalency between risks in leveraged positions and non-leveraged positions. An investment in S&P 500 or US Treasuries is a bet on the underlying assets, where as a leveraged instrument is not just betting on an asset but taking on counter party risks that may materialize differently. In other words you could have assets falling 50% in value and still surviving given enough time, but a leveraged instrument could blow up due to counter party risk.

Anyhow, I believe there is a mathematical probability this strategy could outperform S&P 500, but more likely probability is to trail modestly, with a very small chance of completely blowing up (We are talking small outliers). That's all from me, I'll grab the popcorn.
Last edited by Elysium on Tue Oct 29, 2019 9:01 am, edited 1 time in total.

Elysium
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Joined: Mon Apr 02, 2007 6:22 pm

Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by Elysium » Tue Oct 29, 2019 8:58 am

rascott wrote:
Mon Oct 28, 2019 11:13 pm
Unless your hypotheticals defy mathematics, what you've concocted isn't readily feasible outside of doomsday scenarios, where things like 60/40 retirement portfolios drop 60+%.
Yes, LTCM folks thought they knew it all as well, after all they had Ivy league qualifications and super computing abilities. Risk shows up in ways you do not imagine, especially with leveraged instruments. That said good luck to all, I am not going to post on these threads except occasionally checking in.

HEDGEFUNDIE
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Re: Any interest in concise guide to HEDGEFUNDIE 3x Leveraged ETF Excellent Adventure?

Post by HEDGEFUNDIE » Tue Oct 29, 2019 9:53 am

A critique that resorts to black swans is a critique that has run out of gas, as it can be used against any investment strategy.

Here are two logical correlates; black swan critics love to harp on the former but conveniently ignore the latter.

1. The unlikely is not impossible
2. The unlikely is not inevitable
Last edited by HEDGEFUNDIE on Tue Oct 29, 2019 10:47 am, edited 1 time in total.

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