HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

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Kevin M
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Kevin M » Wed May 15, 2019 11:47 am

reformed.trader wrote:
Wed May 15, 2019 11:02 am
MotoTrojan wrote:
Tue May 14, 2019 11:12 pm
reformed.trader wrote:
Tue May 14, 2019 10:17 pm
Are the draw downs you are quoting month end draw downs only?
Yes.
So, the performance that has been cited using historical data will most certainly be wrong(performance overstates, DD understated). Given vol drag is what kills this strategy, leaving out intra month movement will overstate returns. But I believe the method used to reconstruct historical data was used for the last 10 years and compared right?
Although the quoted drawdowns might by monthly, I think (simulated) daily data was used as much as possible to construct the returns and volatility measures. I contributed a tiny bit to the effort to simulate Treasury returns from daily yield data.

There's an entire thread on simulating the returns for backtesting this strategy, so it would be discussed there. Someone else can provide the link to that thread if they want.

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

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 15, 2019 11:59 am

SovereignInvestor wrote:
Wed May 15, 2019 11:24 am
MotoTrojan wrote:
Wed May 15, 2019 9:42 am
SovereignInvestor wrote:
Wed May 15, 2019 9:38 am
Leveraging rates don't increase much. If you buy bonds with 3x leverage...rate increases don't increase your interest income but they skyrocket the cost of carrying. Then if the bonds decline the losses are magnified.

It reminds me of people who overstate benefits of owning housing. From 1982 to present one was a genius for borrowing as much as possible via 5 year ARMS and buying as many houses as possible.

But if short term financing costs/rates ever spiked while house values collapsed then one would get wiped out. In 2008, asset valued and homes tanked but short rates plunged.

This strategy is basically betting against rising inflation.
Why don't rate increases increase your interest income if long-treasury yields increase? If borrowing rates go from 2-10%, and let's assume the yield curve is flat through that for ease, your borrowing cost went from 2*2 to 10*2, but your interest went from 2*3 to 10*3, no?

But yes, Hedge has posted some interest articles about Fed policy and inflation and I agree it is a bet against similar behavior to the 1950-1970's.
SovereignInvestor wrote:
Wed May 15, 2019 9:38 am
I wonder if it can be hedged by buying gold with 2x leverage?
Direxion has 3x bull gold-miners ETF NUGT.
Aren't you locked into the yield once you buy a long bond?

Or are you saying it would reset higher because daily rebalancing?
Over the long-term your interest would increase as new bonds are purchased.

ToTheMoon
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by ToTheMoon » Wed May 15, 2019 12:00 pm

Misenplace wrote:
Tue May 14, 2019 8:25 pm
ToTheMoon wrote:
Tue May 14, 2019 11:52 am
Finding this really interesting. I am new to investing and thinking about putting a small percentage (10%) into this strategy.

A few questions, sorry if these have been answered already, but reading through 35 pages isn't doable.

1) How exactly are borrowing costs tied into these ETFs? I'm looking at TMF's expense ratio and it's listed at 1.09%, similarily UPRO is .92%. This seems incredibly low? How is money being borrowed to leverage at such low rates? I've read the prospectus and am still confused.

2) Is there any disadvantages (other than 15% dividend withholding on US dividends, or increased volatility due to exchanged rates) for a Canadian to try this method? I can't think of any others but wondering if this has been discussed?

Thanks
Hi ToTheMoon,

Welcome to the forum!

If you are new to investing, I would not recommend pursuing this strategy. I've been around here a few years and have a few decades of investing under my belt, and have no incentive to try this strategy. I guess that is why Hedgefundie calls it his "adventure". I recommend you don't, and certainly don't put anywhere near 10% of your portfolio in it, especially since you have some questions about significant issues such as the structure of the funds and about how they apply to your individual tax situation.

As for your questions about this strategy, you may get better information posting in the sister Canadian forum.
https://www.financialwisdomforum.org/

Their Wiki, which they call finiki, has great information for Canadian investors.

https://www.finiki.org/wiki/Main_Page

Kind regards,
Misenplace
Thanks the finiki wiki seems to be the type of thing I've been looking for for a while - hard to find high quality investment resources that are Canadian specific.

Walkure
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Walkure » Wed May 15, 2019 12:03 pm

staythecourse wrote:
Sun May 12, 2019 4:09 pm
james22 wrote:
Sun May 12, 2019 12:52 pm
HEDGEFUNDIE wrote:
Sat May 11, 2019 10:06 pm
Of all the "risks" to the strategy, in my opinion this is the largest one.
Yikes.

It's an interesting strategy, but built on back-testing "its inexactitude is hidden; its wildness lies in wait.”
Agreed. The biggest risk is it going to zero. Don't think anyone taking a chance is not cognizant of that and has limited that downside risk by limiting their networth in the strategy to less then 10% (in most cases).

Good luck.
This sounds like one of those cases of confusing outcomes with strategy. The worst risk in outcomes is the investment going to zero. The biggest threat to actually executing the strategy is the behavioral difficulty of staying the course when your funny money starts getting too real.

reformed.trader
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by reformed.trader » Wed May 15, 2019 12:06 pm

Kevin M wrote:
Wed May 15, 2019 11:47 am
reformed.trader wrote:
Wed May 15, 2019 11:02 am
MotoTrojan wrote:
Tue May 14, 2019 11:12 pm
reformed.trader wrote:
Tue May 14, 2019 10:17 pm
Are the draw downs you are quoting month end draw downs only?
Yes.
So, the performance that has been cited using historical data will most certainly be wrong(performance overstates, DD understated). Given vol drag is what kills this strategy, leaving out intra month movement will overstate returns. But I believe the method used to reconstruct historical data was used for the last 10 years and compared right?
Although the quoted drawdowns might by monthly, I think (simulated) daily data was used as much as possible to construct the returns and volatility measures. I contributed a tiny bit to the effort to simulate Treasury returns from daily yield data.

There's an entire thread on simulating the returns for backtesting this strategy, so it would be discussed there. Someone else can provide the link to that thread if they want.

Kevin
Ah ok, if it was daily data that was used that would work.

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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Wed May 15, 2019 12:52 pm

SovereignInvestor wrote:
Tue May 14, 2019 10:35 pm
The strategy is essentially long financial assets with leverage AKA short term borrowing.

Of course the strategy did well 1982 to present as asset prices surged as short term rates fall lowering the financing cost while boost asset prices.

This strategy would fail in a period of rising rates where asset valued are under pressure and borrowing costs rise.
This is actually the entire premise of the strategy. “Risk parity” seeks exposure to various risks, not just equity risk. In this strategy you are exposed to equity risk, interest rate risk, inflation risk. Is it logical to assume that even though rates are low long term treasuries have an expected positive return going forward? Why else would anyone own them? Of course they do. They have an expected return higher than short term treasuries as they should, regardless of interest rates because you are tying your money up for a longer period of time. Therefore, this strategy spreads your money out into various assets that provide completely separate risk premiums and actually have negative correlation to each other during major financial crises, providing great diversification benefit.

The leverage part of the strategy doesn’t use “true” leverage as leveraged ETFs rebalance daily. This actually HELPS leveraged ETFs like UPRO during bear markets as they are selling on the way down, thus a 33% fall in the s/p500 will not result in UPRO going to zero, it will drop more like 80-90%. Still a hard drawdown no doubt but hopefully TMF will be rising at the same time so your overall DD will not be too substantial. When you look at a 3x leveraged risk parity strategy using leveraged ETFs you see that you only get about 2x the total return of an unleveraged portfolio for taking on 3x the volatility. Sounds like a bad deal but this is actually still a better return for your risk than being 100% equities.

For me, I use UPRO/TMF and then I count the value of my home as a hedge against inflation. Not perfect by any stretch but I think it’s in the same ballpark. I don’t have interest in owning commodities as I think over the long term they just drag down your portfolio (much like my house does, but you gotta live somewhere). Also, our jobs/income streams are inflation hedges as well as fixed rate mortgages.

Anyhow the idea is that you are diversifying your exposure to various risk premiums and then leveraging up the portfolio to a desired volatility.

dave_k
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by dave_k » Wed May 15, 2019 12:55 pm

Walkure wrote:
Wed May 15, 2019 12:03 pm
This sounds like one of those cases of confusing outcomes with strategy. The worst risk in outcomes is the investment going to zero. The biggest threat to actually executing the strategy is the behavioral difficulty of staying the course when your funny money starts getting too real.
As I believe has been pointed out before, the risk of this actually going to 0 is quite small. Both TMF and UPRO would have to go to 0 within one rebalancing period. UPRO is unlikely to go to 0 because there are rules in place to suspend the markets before they drop the 33% in one day that would be required to wipe it out. It also seems unlikely for TMF to drop 33% in one day.

That said, it could suffer a massive draw-down that is close to 0. In that case, you could have a trigger where you add a small amount more if it's way down (or even 0) in hopes of buying at the bottom and eventually recovering. For example, if it's below 10% of the initial contribution at a rebalancing point, top it up to 10%, totaling no more than 20% over multiple occurrences before you give up. That would limit the total exposure to only a bit more that the initial contribution, while improving the chances of eventual recovery in the case of disaster. You may want to go even farther and top it up if it goes under a higher threshold like 50% if you're willing to take more risk, because the growth from low points is truly amazing.

Likewise, to address the issue of staying the course, you could have trigger points where you take some money off the table if there's considerable growth, but not so much that it severely diminishes the ultimate potential. Different situations may call for different rules. For example, I'm in my late 40s, so my time horizon isn't as long as others, and if this takes off I'll want to start drawing from it some even if it's under 20 years. One simple example that I posted previously would be withdrawing 5% of the amount over 5 times the original contribution each year it's over.

SovereignInvestor
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by SovereignInvestor » Wed May 15, 2019 1:15 pm

MotoTrojan wrote:
Wed May 15, 2019 11:59 am
SovereignInvestor wrote:
Wed May 15, 2019 11:24 am
MotoTrojan wrote:
Wed May 15, 2019 9:42 am
SovereignInvestor wrote:
Wed May 15, 2019 9:38 am
Leveraging rates don't increase much. If you buy bonds with 3x leverage...rate increases don't increase your interest income but they skyrocket the cost of carrying. Then if the bonds decline the losses are magnified.

It reminds me of people who overstate benefits of owning housing. From 1982 to present one was a genius for borrowing as much as possible via 5 year ARMS and buying as many houses as possible.

But if short term financing costs/rates ever spiked while house values collapsed then one would get wiped out. In 2008, asset valued and homes tanked but short rates plunged.

This strategy is basically betting against rising inflation.
Why don't rate increases increase your interest income if long-treasury yields increase? If borrowing rates go from 2-10%, and let's assume the yield curve is flat through that for ease, your borrowing cost went from 2*2 to 10*2, but your interest went from 2*3 to 10*3, no?

But yes, Hedge has posted some interest articles about Fed policy and inflation and I agree it is a bet against similar behavior to the 1950-1970's.
SovereignInvestor wrote:
Wed May 15, 2019 9:38 am
I wonder if it can be hedged by buying gold with 2x leverage?
Direxion has 3x bull gold-miners ETF NUGT.
Aren't you locked into the yield once you buy a long bond?

Or are you saying it would reset higher because daily rebalancing?
Over the long-term your interest would increase as new bonds are purchased.
At a slow pace when you have 30Y bonds. I think this is overcome by TMF re buying every day.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 15, 2019 1:25 pm

SovereignInvestor wrote:
Wed May 15, 2019 1:15 pm
MotoTrojan wrote:
Wed May 15, 2019 11:59 am
SovereignInvestor wrote:
Wed May 15, 2019 11:24 am
MotoTrojan wrote:
Wed May 15, 2019 9:42 am
SovereignInvestor wrote:
Wed May 15, 2019 9:38 am
Leveraging rates don't increase much. If you buy bonds with 3x leverage...rate increases don't increase your interest income but they skyrocket the cost of carrying. Then if the bonds decline the losses are magnified.

It reminds me of people who overstate benefits of owning housing. From 1982 to present one was a genius for borrowing as much as possible via 5 year ARMS and buying as many houses as possible.

But if short term financing costs/rates ever spiked while house values collapsed then one would get wiped out. In 2008, asset valued and homes tanked but short rates plunged.

This strategy is basically betting against rising inflation.
Why don't rate increases increase your interest income if long-treasury yields increase? If borrowing rates go from 2-10%, and let's assume the yield curve is flat through that for ease, your borrowing cost went from 2*2 to 10*2, but your interest went from 2*3 to 10*3, no?

But yes, Hedge has posted some interest articles about Fed policy and inflation and I agree it is a bet against similar behavior to the 1950-1970's.
SovereignInvestor wrote:
Wed May 15, 2019 9:38 am
I wonder if it can be hedged by buying gold with 2x leverage?
Direxion has 3x bull gold-miners ETF NUGT.
Aren't you locked into the yield once you buy a long bond?

Or are you saying it would reset higher because daily rebalancing?
Over the long-term your interest would increase as new bonds are purchased.
At a slow pace when you have 30Y bonds. I think this is overcome by TMF re buying every day.
TMF does not utilize a 30Y maturity and it resets its leverage exposure but there is no way to magically get increased yield without the price-drop, it is just like any other non-leveraged bond fund. Even if most funds have bonds expiring monthly and TMF were to reset daily, the effect over 20 year maturities is no different; you still hold a bunch of lower yielding bonds (if rates increase) and thus your price drops to bring the new yield up.

Rocky72
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Re: HEDGEFUNDIE's excellent adventure [3x leveraged ETF strategy]

Post by Rocky72 » Fri May 17, 2019 6:12 am

HEDGEFUNDIE wrote:
Wed Feb 06, 2019 11:02 pm
bgf wrote:
Wed Feb 06, 2019 9:51 pm
hohum wrote:
Wed Feb 06, 2019 8:50 pm
If you are in UPRO 100%, you will go down 90% in 2008. How many years of 24% returns does it take to recover from that?

You need an uncorrelated asset, and you need a lot of it.
and then go up a whole bunch in 2009 - 2019... 100% UPRO has a CAGR of almost 30% since inception.
Here is a comparison of 100% [simulated] UPRO (Portfolio 1) vs. my strategy of 40% UPRO + 60% TMF (Portfolio 2)

Image

The drawdowns really do kill you if you don't have an uncorrelated asset to balance. Max drawdown of 96%!
Why not just use trend following to cut UPRO when the trend is down? :greedy

By the beggining of 2008, it was obvious the trend was down. For example, you could use 50 and 200 day moving averages crossovers to exit the position.
If you had done that with the leveraged etf SSO, you would have avoided the crash. :sharebeer :moneybag

Rocky72
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Rocky72 » Fri May 17, 2019 7:12 am

Njm8845 wrote:
Sat Feb 16, 2019 1:12 am
Why not go 100% UPRO? If you’re willing to treat this as a lottery ticket, doesn’t that stand a better chance of reaching the $10M?
Exactly my thoughts. 100% UPRO, using trend following, cutting the position during downtrends would be much better.

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Fri May 17, 2019 11:24 am

Rocky72 wrote:
Fri May 17, 2019 7:12 am
Njm8845 wrote:
Sat Feb 16, 2019 1:12 am
Why not go 100% UPRO? If you’re willing to treat this as a lottery ticket, doesn’t that stand a better chance of reaching the $10M?
Exactly my thoughts. 100% UPRO, using trend following, cutting the position during downtrends would be much better.
Plenty of examples of trend following reducing drawdown but not boosting returns with unleveraged holdings out there. What makes you think doing the same with leverage and associated costs will do better?

One possibility is missing out on volatility decay when things are flat, but getting the daily compounding on upswings (UPRO is closer to 5x S&P500 return since the 2008 low).

Rocky72
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Rocky72 » Fri May 17, 2019 1:44 pm

Trend following not only reduce drawdowns but it can improve returns over long term.
It would be foolish to hold UPRO if the long term trend is down. But even more foolish to add to the position(rebalancing). 8-)

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Fri May 17, 2019 2:04 pm

Rocky72 wrote:
Fri May 17, 2019 1:44 pm
Trend following not only reduce drawdowns but it can improve returns over long term.
It would be foolish to hold UPRO if the long term trend is down. But even more foolish to add to the position(rebalancing). 8-)
We can agree to disagree. Did you get out of the market at the 2007 top?

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HEDGEFUNDIE
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by HEDGEFUNDIE » Fri May 17, 2019 3:11 pm

Rocky72 wrote:
Fri May 17, 2019 1:44 pm
Trend following not only reduce drawdowns but it can improve returns over long term.
It would be foolish to hold UPRO if the long term trend is down. But even more foolish to add to the position(rebalancing). 8-)
Feel free to start your own thread with real-time updates of your trades so we can all see your hypothesis confirmed.

Rocky72
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Rocky72 » Fri May 17, 2019 4:00 pm

MotoTrojan wrote:
Fri May 17, 2019 2:04 pm
Rocky72 wrote:
Fri May 17, 2019 1:44 pm
Trend following not only reduce drawdowns but it can improve returns over long term.
It would be foolish to hold UPRO if the long term trend is down. But even more foolish to add to the position(rebalancing). 8-)
We can agree to disagree. Did you get out of the market at the 2007 top?
No, but I went 100% cash January 2008.

sarabayo
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by sarabayo » Fri May 17, 2019 7:53 pm

SVT wrote:
Tue May 14, 2019 8:17 pm
Well, this thread seems to be attracting a lot of new members.
I wonder if it was linked from somewhere?

MotoTrojan
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Fri May 17, 2019 7:56 pm

sarabayo wrote:
Fri May 17, 2019 7:53 pm
SVT wrote:
Tue May 14, 2019 8:17 pm
Well, this thread seems to be attracting a lot of new members.
I wonder if it was linked from somewhere?
I thought I saw mention of it on a reddit post or some other forum discussing similar strategies.

coingaroo
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by coingaroo » Tue May 21, 2019 4:58 am

Is there a 2x leveraged version with less volatility and volatility drag?

Freefun
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Freefun » Tue May 21, 2019 6:02 am

MotoTrojan wrote:
Fri May 17, 2019 7:56 pm
sarabayo wrote:
Fri May 17, 2019 7:53 pm
SVT wrote:
Tue May 14, 2019 8:17 pm
Well, this thread seems to be attracting a lot of new members.
I wonder if it was linked from somewhere?
I thought I saw mention of it on a reddit post or some other forum discussing similar strategies.
Yes, this thread is referenced in reddit in several places. Here’s one :

https://www.reddit.com/r/wallstreetbets ... gh_income/
Remember when you wanted what you currently have?

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mikestorm
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by mikestorm » Tue May 21, 2019 8:24 am

Freefun wrote:
Tue May 21, 2019 6:02 am
Yes, this thread is referenced in reddit in several places. Here’s one :

https://www.reddit.com/r/wallstreetbets ... gh_income/
Here's another post that predates this one by about five months:
https://www.reddit.com/r/wallstreetbets ... h/uprotmf/

Leveraged100to1
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Leveraged100to1 » Tue May 21, 2019 2:36 pm

Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?

Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?

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Kevin M
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Kevin M » Tue May 21, 2019 4:01 pm

Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

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

Leveraged100to1
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Leveraged100to1 » Tue May 21, 2019 4:59 pm

Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?

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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Tue May 21, 2019 7:31 pm

Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
You’re 18 and on bogleheads?!?! Damn dude. You’re gonna be loaded. I would go with the first portfolio. Also, I would max out your Roth IRA each year and put anything left over into a brokerage account. In 20 years, when your not even 40, you’re gonna have a bunch of Benjamin’s.

User avatar
privatefarmer
Posts: 496
Joined: Mon Sep 08, 2014 2:45 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by privatefarmer » Tue May 21, 2019 7:34 pm

Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
And since upro is domestic stocks, I would direct your “index fund” to international equities or better yet emerging market equities. Emerging market equities have the lowest correlation to TMF and aren’t as correlated to UPRO as developed markets.

gtwhitegold
Posts: 413
Joined: Fri Sep 21, 2012 1:55 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by gtwhitegold » Tue May 21, 2019 8:07 pm

coingaroo wrote:
Tue May 21, 2019 4:58 am
Is there a 2x leveraged version with less volatility and volatility drag?
Yes, however, unless you are targeting small caps using SAA - S&P 600 2x ETF, you are better off splitting the difference between difference between a 1x ETF and a 3x ETF. There is more tracking error due to higher effective costs of a 2x ETF.

Reason being that all of the 3x US small cap ETFs track the Russell 2000 index which is not as well constructed as the S&P 600.

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Tue May 21, 2019 9:14 pm

Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
Time in the market not timing the market. There may never be a cheaper time to buy than today. Why 4 years after a crash?

Read Intro to Bogleheads and the wiki. Much to learn before even thinking about touching these leveraged funds.

lkar
Posts: 60
Joined: Sat May 04, 2019 4:02 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by lkar » Tue May 21, 2019 10:27 pm

Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
How will you know when the crash is over? What if the next crash doesn’t come until after more bull market. What if the cycle turns into a peak with valleys?

Vegas would be quicker.

Seriously, though, you are making assumptions about the future based on an expectation that it will go reasonably like it already has gone. If your prediction about that is right, there is no need to wait and no need to gamble or guess about your market timing.

pdavi21
Posts: 1025
Joined: Sat Jan 30, 2016 4:04 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by pdavi21 » Wed May 22, 2019 9:26 am

Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
It's fine to learn from mistakes, but various regulatory authorities and unbiased groups have issued warnings on Leveraged ETFs. The SEC, FINRA, and Morningstar to name a few. Vanguard, which Jack Bogle founded, recently banned all leveraged and inverse ETF trades (except for winding down a position).

There are risks such as volatility decay, larger drawdowns, higher expenses, etc. that can cause a leveraged fund to underperform a 1x fund even in rising markets. Real life examples are the Direxion Developed and Emerging 3x ETFs which would've underperformed 1x funds even if purchased cheap after 2008 crash.

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.

And good luck on your future endeavors, you should end up wealthy if you craft a good plan...I'd recommend against waiting for crashes as well. They are more patient than you.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

Leveraged100to1
Posts: 6
Joined: Tue May 14, 2019 11:49 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Leveraged100to1 » Wed May 22, 2019 9:59 am

lkar wrote:
Tue May 21, 2019 10:27 pm
Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
How will you know when the crash is over? What if the next crash doesn’t come until after more bull market. What if the cycle turns into a peak with valleys?

Vegas would be quicker.

Seriously, though, you are making assumptions about the future based on an expectation that it will go reasonably like it already has gone. If your prediction about that is right, there is no need to wait and no need to gamble or guess about your market timing.
How will you know when the crash is over?
I don't need to know exactly when the crash will be over, because I don't think anyone can deny the benefit of waiting for a lower price and buying somewhere around the bottom of the market crash rather than buying now (I am guessing that the next crash is starting in 1-2 years, since it's been a long time from the last 2008 crash, but that's a guess). Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down. It's easy to tell when we are in a crash...turn on the news and you'll see Lehman Brothers going bankrupt and Bear Stearns failing (if it was 2008).
What if the next crash doesn't come until after more bull market?
I will wait. I'm patient. I have no fear of missing out.
What if the cycle turns into a peak with valleys?
Correct me if I am misunderstanding you... do you mean the general economic cycle with cease to exist and instead the stock market will become a steep, upward sloping line with small dips along the way (with no 50% crashes)? Well, that would be awesome for everyone, but what would make that happen?
You are making assumptions about the future based on an expectation that it will go reasonably like it already has gone
The assumption I'm making is that economic cycles exist. I believe they exist because I read and am convinced by Ray Dalio's debt cycle book (the first part of it). Do you believe economic cycles won't exist anymore? Why do you believe that?
there is no need to wait and no need to gamble or guess about your market timing
The phrase "market timing" has negative connotations, but what I am doing (waiting for a crash) is an exception. Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down. I am not timing the market the way a day trader who already has a portfolio would.

I don't have a portfolio of stocks yet.
Last edited by Leveraged100to1 on Wed May 22, 2019 10:15 am, edited 1 time in total.

EddyB
Posts: 755
Joined: Fri May 24, 2013 3:43 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by EddyB » Wed May 22, 2019 10:03 am

pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?

pdavi21
Posts: 1025
Joined: Sat Jan 30, 2016 4:04 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by pdavi21 » Wed May 22, 2019 10:09 am

EddyB wrote:
Wed May 22, 2019 10:03 am
pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 22, 2019 10:17 am

Leveraged100to1 wrote:
Wed May 22, 2019 9:59 am
lkar wrote:
Tue May 21, 2019 10:27 pm
Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm
Leveraged100to1 wrote:
Tue May 21, 2019 2:36 pm
Do long term treasuries protect you during a stock market crash because during crashes the Fed lowers interest rates to ease debt burdens and thus old LTTs, which the TMF has, increase in value because they offer higher interest rates?
No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.
Is the purpose of the TMF to stop the entire portfolio from going down during a crash rather than to provide any returns?
I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
How will you know when the crash is over? What if the next crash doesn’t come until after more bull market. What if the cycle turns into a peak with valleys?

Vegas would be quicker.

Seriously, though, you are making assumptions about the future based on an expectation that it will go reasonably like it already has gone. If your prediction about that is right, there is no need to wait and no need to gamble or guess about your market timing.
How will you know when the crash is over?
I don't need to know exactly when the crash will be over, because I don't think anyone can deny the benefit of waiting for a lower price and buying somewhere around the bottom of the market crash rather than buying now (I am guessing that the next crash is starting in 1-2 years, since it's been a long time from the last 2008 crash, but that's a guess). Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down. It's easy to tell when we are in a crash...turn on the news and you'll see Lehman Brothers going bankrupt and Bear Stearns failing (if it was 2008).
What if the next crash doesn't come until after more bull market?
I will wait. I'm patient. I have no fear of missing out.
What if the cycle turns into a peak with valleys?
Correct me if I am misunderstanding you... do you mean the general economic cycle with cease to exist and instead the stock market will become a steep, upward sloping line with small dips along the way (with no 50% crashes)? Well, that would be awesome for everyone, but what would make that happen?
You are making assumptions about the future based on an expectation that it will go reasonably like it already has gone
The assumption I'm making is that economic cycles exist. I believe they exist because I read and am convinced by Ray Dalio's debt cycle book (the first part of it). Do you believe economic cycles won't exist anymore? Why do you believe that?
there is no need to wait and no need to gamble or guess about your market timing
The phrase "market timing" has negative connotations, but what I am doing (waiting for a crash) is an exception. Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down.

I don't have a portfolio of stocks yet.
You are young so you will be able to rebound hopefully, but you have a greatly flawed understanding of the market and will do yourself serious financial harm if you don't educate yourself sooner than later. Again, today may be THE cheapest day to buy the S&P500 you'll ever see again. You seem to think the stock market simply goes up, crashes 50%, and repeats. This happened twice in your lifetime (well, since conception perhaps), but that does not mean it is the norm.

People have been waiting for a crash since 2011. Even if there was a 50% crash today they'd still have lost out even on the price-index (dividends excluded).

There can even be a recession (you bring up economic cycles) without a bear market, and certainly without a 50% crash.

If you do do this strategy, I would consider yourself lucky and hold forever should you get a crash. Selling after 4 years (arbitrary) is a losing game.

I also am curious if you are a troll, but if not, I hope you learn something from this forum.

EddyB
Posts: 755
Joined: Fri May 24, 2013 3:43 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by EddyB » Wed May 22, 2019 10:19 am

pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am
pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 22, 2019 10:22 am

EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am
pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
+1. I imagined it was more of a scare-tactic to keep uniformed investors from simply wanting 3x returns and HODL'ing. I will say I was surprised to see the drag on the international developed fund and am glad I didn't implement that, but it seems ProShares has a better handle on things, and TMF is a bit volatile compared to a model but the drag seems under control.

pdavi21
Posts: 1025
Joined: Sat Jan 30, 2016 4:04 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by pdavi21 » Wed May 22, 2019 10:30 am

EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am
pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
You can't use a search engine to look up "SEC" + "leveraged ETFs"?

https://www.sec.gov/investor/pubs/lever ... -alert.htm
http://www.finra.org/investors/alerts/l ... -investors
https://www.morningstar.com/articles/27 ... olios.html
https://investor.vanguard.com/investing ... se-etf-etn
https://www.bogleheads.org/wiki/Inverse ... raged_ETFs
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

Leveraged100to1
Posts: 6
Joined: Tue May 14, 2019 11:49 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Leveraged100to1 » Wed May 22, 2019 10:49 am

MotoTrojan wrote:
Wed May 22, 2019 10:17 am
Leveraged100to1 wrote:
Wed May 22, 2019 9:59 am
lkar wrote:
Tue May 21, 2019 10:27 pm
Leveraged100to1 wrote:
Tue May 21, 2019 4:59 pm
Kevin M wrote:
Tue May 21, 2019 4:01 pm

No. The Fed only directly manages the federal funds rate (FFR), which is an overnight bank lending rate. This in turn has a pretty direct effect on very short-term Treasuries, but not necessarily on longer-term Treasuries.

After 2008, the Fed also did several rounds of quantitative easing (QE), which was targeted at lowering longer-term yields.

The big impact on LTT, in late 2008 for example, is the "flight to safety" reaction to financial turmoil. Demand for the safest assets, like Treasuries, increases, driving up the prices. Longer duration Treasuries benefit from this more due to the higher sensitivity of price change to yield change.


I'll leave that for others to answer, but that's certainly a big part of it. It doesn't necessarily "stop the portfolio from going down", but people are counting on the negative correlation that we sometimes/often see between long-term Treasuries and stocks when stock tank to mitigate the portfolio losses during such times.

Kevin
I am 18 (so I can take some risk) and I am waiting for the next stock market crash to build my portfolio. I plan on holding the portfolio for 4 years after the crash, after which I will sell everything. Would you recommend a portfolio of

50% index fund, 20% UPRO, 30% TMF
or
50% index fund, 50% UPRO
or
50% index fund, 25% UPRO, 25% LEAPS (long term calls)?

Is there a point in holding TMF if I am entering the market after a big crash and if I am not holding the portfolio for more than one economic cycle?
How will you know when the crash is over? What if the next crash doesn’t come until after more bull market. What if the cycle turns into a peak with valleys?

Vegas would be quicker.

Seriously, though, you are making assumptions about the future based on an expectation that it will go reasonably like it already has gone. If your prediction about that is right, there is no need to wait and no need to gamble or guess about your market timing.
How will you know when the crash is over?
I don't need to know exactly when the crash will be over, because I don't think anyone can deny the benefit of waiting for a lower price and buying somewhere around the bottom of the market crash rather than buying now (I am guessing that the next crash is starting in 1-2 years, since it's been a long time from the last 2008 crash, but that's a guess). Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down. It's easy to tell when we are in a crash...turn on the news and you'll see Lehman Brothers going bankrupt and Bear Stearns failing (if it was 2008).
What if the next crash doesn't come until after more bull market?
I will wait. I'm patient. I have no fear of missing out.
What if the cycle turns into a peak with valleys?
Correct me if I am misunderstanding you... do you mean the general economic cycle with cease to exist and instead the stock market will become a steep, upward sloping line with small dips along the way (with no 50% crashes)? Well, that would be awesome for everyone, but what would make that happen?
You are making assumptions about the future based on an expectation that it will go reasonably like it already has gone
The assumption I'm making is that economic cycles exist. I believe they exist because I read and am convinced by Ray Dalio's debt cycle book (the first part of it). Do you believe economic cycles won't exist anymore? Why do you believe that?
there is no need to wait and no need to gamble or guess about your market timing
The phrase "market timing" has negative connotations, but what I am doing (waiting for a crash) is an exception. Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down.

I don't have a portfolio of stocks yet.
You are young so you will be able to rebound hopefully, but you have a greatly flawed understanding of the market and will do yourself serious financial harm if you don't educate yourself sooner than later. Again, today may be THE cheapest day to buy the S&P500 you'll ever see again. You seem to think the stock market simply goes up, crashes 50%, and repeats. This happened twice in your lifetime (well, since conception perhaps), but that does not mean it is the norm.

People have been waiting for a crash since 2011. Even if there was a 50% crash today they'd still have lost out even on the price-index (dividends excluded).

There can even be a recession (you bring up economic cycles) without a bear market, and certainly without a 50% crash.

If you do do this strategy, I would consider yourself lucky and hold forever should you get a crash. Selling after 4 years (arbitrary) is a losing game.

I also am curious if you are a troll, but if not, I hope you learn something from this forum.
Thanks for your advice. My priority at the moment is to learn more.

I am not a troll. If what I genuinely believe in sounds like a "troll", then I must have A LOT to learn.

If you have been following my posts on this forum (there are only a few), could you tell me exactly what I said that was flawed and then tell me the reasons it is flawed?

EddyB
Posts: 755
Joined: Fri May 24, 2013 3:43 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by EddyB » Wed May 22, 2019 10:51 am

pdavi21 wrote:
Wed May 22, 2019 10:30 am
EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am
pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
You can't use a search engine to look up "SEC" + "leveraged ETFs"?

https://www.sec.gov/investor/pubs/lever ... -alert.htm
http://www.finra.org/investors/alerts/l ... -investors
https://www.morningstar.com/articles/27 ... olios.html
https://investor.vanguard.com/investing ... se-etf-etn
https://www.bogleheads.org/wiki/Inverse ... raged_ETFs
Thanks, but I’ve seen some of those before, and the others are similar. Do you have any sources that support your original claim? The sources you list here generally make the much narrower point that leveraged ETFs are designed to achieve a multiple performance over only a specific period, and touch on volatility decay. A fine point, but it’s addressed starting with the very first post in this thread, and since you’ve made a much broader claim, attributing it to specific authorities, I thought you’d like to share their reasoning.

pdavi21
Posts: 1025
Joined: Sat Jan 30, 2016 4:04 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by pdavi21 » Wed May 22, 2019 11:05 am

EddyB wrote:
Wed May 22, 2019 10:51 am
pdavi21 wrote:
Wed May 22, 2019 10:30 am
EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am


Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
You can't use a search engine to look up "SEC" + "leveraged ETFs"?

https://www.sec.gov/investor/pubs/lever ... -alert.htm
http://www.finra.org/investors/alerts/l ... -investors
https://www.morningstar.com/articles/27 ... olios.html
https://investor.vanguard.com/investing ... se-etf-etn
https://www.bogleheads.org/wiki/Inverse ... raged_ETFs
Thanks, but I’ve seen some of those before, and the others are similar. Do you have any sources that support your original claim? The sources you list here generally make the much narrower point that leveraged ETFs are designed to achieve a multiple performance over only a specific period, and touch on volatility decay. A fine point, but it’s addressed starting with the very first post in this thread, and since you’ve made a much broader claim, attributing it to specific authorities, I thought you’d like to share their reasoning.
They all say they are not designed to be held past their re-balancing period and are not suitable for buy and hold investors. Most people hold their trash longer than one day, so I guess the general consensus is that they are worse than garbage.

I was talking to the other person anyway. If you have already read these, why are you asking for sources? I assume you are undertaking this strategy and are aware of the risks...move along then.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

pdavi21
Posts: 1025
Joined: Sat Jan 30, 2016 4:04 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by pdavi21 » Wed May 22, 2019 11:27 am

MotoTrojan wrote:
Wed May 22, 2019 10:22 am
EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am
pdavi21 wrote:
Wed May 22, 2019 9:26 am

I just wanted to warn you before to go along this path. The general consensus of regulatory authorities, disinterested parties, and Bogleheads is that leveraged funds are garbage. So understand the risks before you make your choice.
Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
+1. I imagined it was more of a scare-tactic to keep uniformed investors from simply wanting 3x returns and HODL'ing. I will say I was surprised to see the drag on the international developed fund and am glad I didn't implement that, but it seems ProShares has a better handle on things, and TMF is a bit volatile compared to a model but the drag seems under control.
I was just warning the new investor of the risks. I do not disagree with the leverage strategy although I would never use it myself. To be fair, there was a period of at least 3+ months in 2009 from which DZK outperformed 1x funds. Additionally, in the accumulation phase, the volatility, contributions and re-balancing would've had DZK drastically outperform (at the expense of a reduction in total portfolio performance due to the lower holding in UPRO). Who is to say that UPRO will not swap places and underperform 1x while DZK and EDC crush 1x? It mostly depends on the future volatility of the underling 1x funds.

I actually see the results and draw the conclusion, that if one was to use leverage, they should diversify as much as possible (even with leveraged bond funds), but many will be looking backwards (but skip 1960-1980) and disagree with me.
Last edited by pdavi21 on Wed May 22, 2019 12:36 pm, edited 1 time in total.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 22, 2019 11:38 am

pdavi21 wrote:
Wed May 22, 2019 11:27 am


I was just warning the new investor of the risks. I do not disagree with the leverage strategy although I would never use it myself. To be fair, there was a period of at least 3+ months in 2019 from which DZK outperformed 1x funds. Additionally, in the accumulation phase, the volatility, contributions and re-balancing would've had DZK drastically outperform (at the expense of a reduction in total portfolio performance due to the lower holding in UPRO). Who is to say that UPRO will not swap places and underperform 1x while DZK and EDC crush 1x? It mostly depends on the future volatility of the underling 1x funds.

I actually see the results and draw the conclusion, that if one was to use leverage, they should diversify as much as possible (even with leveraged bond funds), but many will be looking backwards (but skip 1960-1980) and disagree with me.
To be clear I am not talking about which true 3x daily rebalancing index (not fund) would outperform when comparing DZK to UPRO, but I am comparing the respective funds to their simulated index. There are some fascinating tell-tale plots showing how well UPRO aligns with it's intent. TMF was a bit wonky when it first started but has since tracked very well. I believe DZK had a 3% annual drag (on-top of the ER and costs of swaps) which has nothing to do with volatility drag, comparative performance to the 1x index, etc... Likely has to do with the added costs of leveraging International assets and perhaps Direxion just isn't quite as well managed as Pro Shares.

Leveraged100to1
Posts: 6
Joined: Tue May 14, 2019 11:49 am

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by Leveraged100to1 » Wed May 22, 2019 11:44 am

pdavi21 wrote:
Wed May 22, 2019 11:27 am
MotoTrojan wrote:
Wed May 22, 2019 10:22 am
EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am
EddyB wrote:
Wed May 22, 2019 10:03 am


Sources?
Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
+1. I imagined it was more of a scare-tactic to keep uniformed investors from simply wanting 3x returns and HODL'ing. I will say I was surprised to see the drag on the international developed fund and am glad I didn't implement that, but it seems ProShares has a better handle on things, and TMF is a bit volatile compared to a model but the drag seems under control.
I was just warning the new investor of the risks. I do not disagree with the leverage strategy although I would never use it myself. To be fair, there was a period of at least 3+ months in 2019 from which DZK outperformed 1x funds. Additionally, in the accumulation phase, the volatility, contributions and re-balancing would've had DZK drastically outperform (at the expense of a reduction in total portfolio performance due to the lower holding in UPRO). Who is to say that UPRO will not swap places and underperform 1x while DZK and EDC crush 1x? It mostly depends on the future volatility of the underling 1x funds.

I actually see the results and draw the conclusion, that if one was to use leverage, they should diversify as much as possible (even with leveraged bond funds), but many will be looking backwards (but skip 1960-1980) and disagree with me.
Would long term calls on the SPY be a safer way of accelerating growth than 3x S&P 500?

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 22, 2019 12:07 pm

Leveraged100to1 wrote:
Wed May 22, 2019 10:49 am


Thanks for your advice. My priority at the moment is to learn more.

I am not a troll. If what I genuinely believe in sounds like a "troll", then I must have A LOT to learn.

If you have been following my posts on this forum (there are only a few), could you tell me exactly what I said that was flawed and then tell me the reasons it is flawed?
Glad to see you being respective to the feedback. A few themes:

Knowing the market is going to go down in 1-2 years is not possible, you seem to be banking on this.

Saying once it goes down you'll invest but only for 4 years is flawed, you should remain invested until you retire or need to spend down for other reasons.

On top of classic market timing, suggesting you'll do even better by using leveraged funds is even riskier.

I am a tinkerer, as it sounds like you are. The best thing I did for my investment philosophy was understand the merits of why lump-sum beats dollar-cost averaging, and how market timing is not possible in the long-term. You may get lucky once, but over the long-term you'll do best to pick an asset allocation (without leveraged funds, I'd use the 3-fund as a starting place or 100% equity at your age) and then invest every free dollar (ensure you have an emergency fund or savings for near-term needs) into your allocation as soon as you receive it. This is a winning strategy, what you are proposing is a sure-fire way to lose. If it was such a sure thing, why would anybody invest now? And if nobody would invest now (including the pros) why would the market not crash today to reflect the sure-thing crash that will occur in 2 years?


I'd suggest you read Random Walk Down Wallstreet and Intro To Bogleheads, then come back for more learning here.

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 22, 2019 12:09 pm

Leveraged100to1 wrote:
Wed May 22, 2019 11:44 am


Would long term calls on the SPY be a safer way of accelerating growth than 3x S&P 500?
You sure you aren't a troll :twisted: ? See my above post but this is also a flawed idea.

At 18 years old you have a 10-20 year headstart on when most people start investing. That could result in 2-4x the nest-egg in retirement for the same input (assume the market doubles every decade, which isn't unreasonable). You should accelerate growth by investing in a prudent/diversified manner today, not by using a get rich quick scheme.

pdavi21
Posts: 1025
Joined: Sat Jan 30, 2016 4:04 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by pdavi21 » Wed May 22, 2019 12:09 pm

Leveraged100to1 wrote:
Wed May 22, 2019 11:44 am
pdavi21 wrote:
Wed May 22, 2019 11:27 am
MotoTrojan wrote:
Wed May 22, 2019 10:22 am
EddyB wrote:
Wed May 22, 2019 10:19 am
pdavi21 wrote:
Wed May 22, 2019 10:09 am


Do you actually want the sources, or just to disagree? I named FINRA, SEC, Morningstar, Vanguard, and Bogleheads.org (check the wiki). Can you name a regulatory authority that has endorsed leveraged/inverse ETFs, or one that has NOT issued a warning to investors?

EDIT: If you are an experienced investor here to argue, move along. I just wanted to warn the new Boglehead, so he/she understands the risks of leveraged ETFs.
Yes, I want the sources. I would not have expected such an absolute conclusion (it seems to me that they have specific purposes, and would be inappropriate for (many) other specific uses). I’m curious as to whether those authorities more specifically identify appropriate and inappropriate uses (and their reasoning), or whether they really conclude they have no legitimate use (which is how I took the summary that they “are garbage”).
+1. I imagined it was more of a scare-tactic to keep uniformed investors from simply wanting 3x returns and HODL'ing. I will say I was surprised to see the drag on the international developed fund and am glad I didn't implement that, but it seems ProShares has a better handle on things, and TMF is a bit volatile compared to a model but the drag seems under control.
I was just warning the new investor of the risks. I do not disagree with the leverage strategy although I would never use it myself. To be fair, there was a period of at least 3+ months in 2019 from which DZK outperformed 1x funds. Additionally, in the accumulation phase, the volatility, contributions and re-balancing would've had DZK drastically outperform (at the expense of a reduction in total portfolio performance due to the lower holding in UPRO). Who is to say that UPRO will not swap places and underperform 1x while DZK and EDC crush 1x? It mostly depends on the future volatility of the underling 1x funds.

I actually see the results and draw the conclusion, that if one was to use leverage, they should diversify as much as possible (even with leveraged bond funds), but many will be looking backwards (but skip 1960-1980) and disagree with me.
Would long term calls on the SPY be a safer way of accelerating growth than 3x S&P 500?
I don't think there is a safe way. For someone who wants to go beyond 100% stocks, I think using low or zero interest debt might be a reasonable way so long as the investor understands that they may, at one point, be forced to liquidate stocks at a low price to pay expenses.

I cannot comment on leveraged funds or options contracts because I am not adequately educated on the subject. I can say that options may have a larger psychological risk (because it requires non automated action) and that both have volatility, expense, tracking, and wipe-out risks that someone more knowledgeable than myself hopefully would be able to compare for you. The debt method above also has some of these risks.
Last edited by pdavi21 on Wed May 22, 2019 12:11 pm, edited 1 time in total.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

lkar
Posts: 60
Joined: Sat May 04, 2019 4:02 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by lkar » Wed May 22, 2019 12:10 pm

Leveraged100to1 wrote:
Wed May 22, 2019 9:59 am
I don't need to know exactly when the crash will be over, because I don't think anyone can deny the benefit of waiting for a lower price and buying somewhere around the bottom of the market crash rather than buying now (I am guessing that the next crash is starting in 1-2 years, since it's been a long time from the last 2008 crash, but that's a guess). Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down. It's easy to tell when we are in a crash...turn on the news and you'll see Lehman Brothers going bankrupt and Bear Stearns failing (if it was 2008).
What if the next crash doesn't come until after more bull market?
I will wait. I'm patient. I have no fear of missing out.
What if the cycle turns into a peak with valleys?
Correct me if I am misunderstanding you... do you mean the general economic cycle with cease to exist and instead the stock market will become a steep, upward sloping line with small dips along the way (with no 50% crashes)? Well, that would be awesome for everyone, but what would make that happen?
You are making assumptions about the future based on an expectation that it will go reasonably like it already has gone
The assumption I'm making is that economic cycles exist. I believe they exist because I read and am convinced by Ray Dalio's debt cycle book (the first part of it). Do you believe economic cycles won't exist anymore? Why do you believe that?
there is no need to wait and no need to gamble or guess about your market timing
The phrase "market timing" has negative connotations, but what I am doing (waiting for a crash) is an exception. Buying somewhere around the bottom, using almost any definition of the word "somewhere", is better than buying before the peak starts heading down. I am not timing the market the way a day trader who already has a portfolio would.

I don't have a portfolio of stocks yet.
Yes, buy low and sell high. Sounds easy. Except, well, you know, the fortune telling part.

But why wait until there is a "crash"? If you can tell when the crash is at bottom and also when there is a peak, then why have a 1-4 year cycle? Why not just do it during the day every day. Surely, you can tell during the day when the market is crashing. I mean if it's down 300 points, it's a crash, right, time to buy. Or do you wait for 600? What if it goes up to 282? Back up? Or a blip on the way down. Everyone knows 600 is a lot. So, sure, once you're at 600, let's say that's a crash. Ok, now what. Buy at 599? Wait for 601?

I think it's relatively easy to see the fallacy in your thinking if you impose your view on your ability to predict 1-4 year "cycles" with your ability to predict intra-day (week, year, decade) peaks and valleys. Newflash: You can't.

Here's a game for you that hopefully illustrates the point. Pretend you had asked this question just three years ago. Pull up an S&P 500 chart for the last 3 years. The S&P was around 2200 3 years ago. Let's say you had $100,000 in your pocket waiting for a "crash". You watch the S&P 500 go all the way up to 2900 in early 2018. But you've been sitting there waiting for a crash. Rats. Ok, now, it dips 200 points in mid-2018. Was that a "crash"? Certainly it's not what anyone would define as one. But, well, you've missed the boat on a collossal bull market and so now maybe you're tempted to think it's a crash because you have missed out. But, let's say you have discipline. You say, no this isn't even a correction -- I'm going to stay true to my philosophy. Uh oh, now the market goes even higher getting almost to 2950, but then quickly drops to 2548. Is this a crash? When did you decide it was a crash? At 2650? At 2600? At 2550? Or are you just saying you are so good at this that you would know that the instant it hits 2548 that it's at rock bottom?

No, probably what you'll do is wait a few days to make sure you're not trying to catch a falling knife, and to see if it has further to go. It works it's way back to 2600, then 2650, very quickly. Uh oh. What do you do? Ok, you jump. It wasn't a crash, but close enough. You buy at 2650. You did very well! Because the market quickly rebounds to 2900. You bought low and you now are high. Very clever!!!

But, are you? You timed a dip nearly perfectly. You did everything right. Except . . . If you'd just invested your $100,000 3 years ago, you would have been in at 2200. All that time waiting for the dip cost you tens of thousands of dollars. Compounded over your life as an investor if you are willing to invest it correctly, you've cost yourself millions. Read that again. You timed things really well. You bought at the most significant dip in 3 years. Yet cost yourself millions.

MotoTrojan
Posts: 4189
Joined: Wed Feb 01, 2017 8:39 pm

Re: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs]

Post by MotoTrojan » Wed May 22, 2019 12:24 pm

https://engaging-data.com/market-timing-game/

I think 100-1 will have some fun with this as will others. I did poorly :).

Tried again, maybe I am a pro! $111K compared to a $88K market return. Anyone want to invest in my new fund called GUT?

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