HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
spae
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Joined: Tue Oct 08, 2019 9:29 pm

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

Post by spae » Sat Nov 30, 2019 10:40 pm

get_g0ing wrote:
Sat Nov 30, 2019 9:37 pm
am wrote:
Sat Nov 30, 2019 9:03 pm
Main driver of the 55 upro/45 tmf strategy is sp 500 returns. The tmf is for crash insurance.

Hi am,

I saw this point come up earlier as well, that TMF is mostly for crash insurance. If that's the case then wouldn't EDV be better? I've been following their prices, and TMF looks way more volatile than EDV.

Thoughts please?
The goal with the risk parity portfolios is to get the volatility of the bond portion to match the volatility of the stock portion, so the extra volatility is part of the reason people want to hold TMF over EDV.
am wrote:
Sat Nov 30, 2019 9:03 pm
Main driver of the 55 upro/45 tmf strategy is sp 500 returns. The tmf is for crash insurance.
Although the main driver of returns is S&P 500, it's not 99% or even 90%. In the original post, the suggested timeframe for looking at poor bond returns is from 1968-2018. The linked image is now gone, but if that's Jan 1968 to Jan 2018, that still includes the federal funds rate dropping from 4.6% to 1.41% over that time period. As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.

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

Post by HEDGEFUNDIE » Sat Nov 30, 2019 10:48 pm

spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45

spae
Posts: 54
Joined: Tue Oct 08, 2019 9:29 pm

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

Post by spae » Sat Nov 30, 2019 10:53 pm

HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sure, you can find periods where you get 20% CAGR without falling interest rates. I can pick out lots of different things that return 20% CAGR over a seven year period subject to some arbitrary constraint.

Are you saying that people should expect a 20% CAGR if interest rates don't fall or go back up? Stock in my employer had a much better return over the same time period but I'm certainly not going to tell people they should expect the same return if they buy stock in my employer now.
Last edited by spae on Sat Nov 30, 2019 10:57 pm, edited 1 time in total.

am
Posts: 3070
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by am » Sat Nov 30, 2019 10:55 pm

HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sp 500 returns were strong during this time.

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

Post by HEDGEFUNDIE » Sat Nov 30, 2019 11:00 pm

am wrote:
Sat Nov 30, 2019 10:55 pm
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sp 500 returns were strong during this time.
That's the point.

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

Post by HEDGEFUNDIE » Sat Nov 30, 2019 11:01 pm

spae wrote:
Sat Nov 30, 2019 10:53 pm
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sure, you can find periods where you get 20% CAGR without falling interest rates. I can pick out lots of different things that return 20% CAGR over a seven year period subject to some arbitrary constraint.

Are you saying that people should expect a 20% CAGR if interest rates don't fall or go back up? Stock in my employer had a much better return over the same time period but I'm certainly not going to tell people they should expect the same return if they buy stock in my employer now.
Yes that's exactly what I'm saying. The stock market goes up over time (not true of any individual stock). If it didn't no one would invest in it.

What is the long term CAGR of the US stock market? Close to 10%.

am
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Joined: Sun Sep 30, 2007 9:55 am

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

Post by am » Sat Nov 30, 2019 11:03 pm

HEDGEFUNDIE wrote:
Sat Nov 30, 2019 11:00 pm
am wrote:
Sat Nov 30, 2019 10:55 pm
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sp 500 returns were strong during this time.
That's the point.
What is expected return of this strategy given low expected future sp 500 returns and low bond yields? Probably still much better than a 60/40 3 funder?

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

Post by guyinlaw » Sun Dec 01, 2019 12:34 am

am wrote:
Sat Nov 30, 2019 9:03 pm

Main driver of the 55 upro/45 tmf strategy is sp 500 returns. The tmf is for crash insurance.
Wasn't the ratio 55 UPRO/ 45 TMF chosen because back-testing 2010-2019

PV Eff Frontier

TMF peaked in July of 2012. So Backtesting from 2012, 67 UPRO/ 33 TMF seems to be better.

Time periods are quite short for either case..

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

Post by Lee_WSP » Sun Dec 01, 2019 12:37 am

It's unlikely to see either a 1990 - present rate drop precisely because it is currently unlikely to see a 1955 to 1980 rate hike.

TMF is a large source of the back test returns for 1990+.

Black Monday is what should have all the believers quaking in their pants. You can foresee rising rates. You cannot foresee a 60% drop in one month.



55/45 was chosen because a few of us kept pointing out that TMF drove a large portion of the high CAGR in the back test of 1985+

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

Post by RayKeynes » Sun Dec 01, 2019 6:04 am

Lee_WSP wrote:
Sun Dec 01, 2019 12:37 am
It's unlikely to see either a 1990 - present rate drop precisely because it is currently unlikely to see a 1955 to 1980 rate hike.
I do not fully agree. While it is clear that near-term rates will gradually drop over the coming months, I do expect rate hikes in the mid-term.

I do not see any realistic scenario for long-term rates to stay at or below 0%. However, even in such a scenario, I would not expect TMF/UPRO to outperform SP500 on a risk-adjusted basis.

The most likely scenario for the future are gradual rate hikes until 2040 and thus a slow destruction of a TMF/UPRO portfolio. TMF has outperformed in the last 20 years due to the gradual rate declines and UPRO has outperformed mainly due to massive QE as it was the case in the 30's.

Don't expect any of the above two to be present in the mid-term / long-term future.

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

Post by am » Sun Dec 01, 2019 8:17 am

RayKeynes wrote:
Sun Dec 01, 2019 6:04 am
Lee_WSP wrote:
Sun Dec 01, 2019 12:37 am
It's unlikely to see either a 1990 - present rate drop precisely because it is currently unlikely to see a 1955 to 1980 rate hike.
I do not fully agree. While it is clear that near-term rates will gradually drop over the coming months, I do expect rate hikes in the mid-term.

I do not see any realistic scenario for long-term rates to stay at or below 0%. However, even in such a scenario, I would not expect TMF/UPRO to outperform SP500 on a risk-adjusted basis.

The most likely scenario for the future are gradual rate hikes until 2040 and thus a slow destruction of a TMF/UPRO portfolio. TMF has outperformed in the last 20 years due to the gradual rate declines and UPRO has outperformed mainly due to massive QE as it was the case in the 30's.

Don't expect any of the above two to be present in the mid-term / long-term future.
I have read that interest rate predictions are tougher than stocks. We will see. I am cashing in a small % of 401k bonds and letting it ride on this strategy. It’s the first time in 12 years I have seen a strategy that has piqued my interest. I’ve been a pretty faithful 3 fund boglehead otherwise. :D

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

Post by MotoTrojan » Sun Dec 01, 2019 2:13 pm

am wrote:
Sat Nov 30, 2019 11:03 pm
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 11:00 pm
am wrote:
Sat Nov 30, 2019 10:55 pm
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sp 500 returns were strong during this time.
That's the point.
What is expected return of this strategy given low expected future sp 500 returns and low bond yields? Probably still much better than a 60/40 3 funder?
Comparing this strategy to a 60/40 3 funder is deeply flawed. The risk is not even close to comparable. Expected return just means the average of all possibilities.

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

Post by Lee_WSP » Sun Dec 01, 2019 7:49 pm

RayKeynes wrote:
Sun Dec 01, 2019 6:04 am
Lee_WSP wrote:
Sun Dec 01, 2019 12:37 am
It's unlikely to see either a 1990 - present rate drop precisely because it is currently unlikely to see a 1955 to 1980 rate hike.
I do not fully agree. While it is clear that near-term rates will gradually drop over the coming months, I do expect rate hikes in the mid-term.

I do not see any realistic scenario for long-term rates to stay at or below 0%. However, even in such a scenario, I would not expect TMF/UPRO to outperform SP500 on a risk-adjusted basis.

The most likely scenario for the future are gradual rate hikes until 2040 and thus a slow destruction of a TMF/UPRO portfolio. TMF has outperformed in the last 20 years due to the gradual rate declines and UPRO has outperformed mainly due to massive QE as it was the case in the 30's.

Don't expect any of the above two to be present in the mid-term / long-term future.
The extreme interest rate hikes and manipulation during the 70s to combat inflation was irrational and ineffective. I do not think the same will happen in the current climate.

I make no predictions further than five years out. This is all imo.

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

Post by spae » Sun Dec 01, 2019 9:03 pm

HEDGEFUNDIE wrote:
Sat Nov 30, 2019 11:01 pm
The stock market goes up over time (not true of any individual stock). If it didn't no one would invest in it.
This seems obviously untrue. People invest in all kinds of things that don't go up over time. Commodities for one. Housing for another. Housing is up now in real terms, but only due to the last couple of decades. Despite that, housing was what most Americans thought of as their largest investment last century (this century too, it just happens to have gone up this century). For the median American, housing dwarfs stock as an investment.

It's true that the stock market goes up over time, but I find this to be an unconvincing justification for that.
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 11:01 pm
spae wrote:
Sat Nov 30, 2019 10:53 pm
HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
Sure, you can find periods where you get 20% CAGR without falling interest rates. I can pick out lots of different things that return 20% CAGR over a seven year period subject to some arbitrary constraint.

Are you saying that people should expect a 20% CAGR if interest rates don't fall or go back up? Stock in my employer had a much better return over the same time period but I'm certainly not going to tell people they should expect the same return if they buy stock in my employer now.
Yes that's exactly what I'm saying. The stock market goes up over time (not true of any individual stock). If it didn't no one would invest in it.

What is the long term CAGR of the US stock market? Close to 10%.
As with the above, if it's true that you should expect 20% CAGR regardless of what happens to interest rates, the fact that you can cherry pick a single period or even a handful of periods with 26% CAGR is a pretty unconvincing justification for me.

The initial posts had claims of CAGR in the low 20s. If you claim that there will be 20% CAGR with flat or rising interest rates, the claim must be that CAGR is if not invariant, nearly invariant, with respect to interest rates. Is that correct?
Last edited by spae on Sun Dec 01, 2019 9:27 pm, edited 1 time in total.

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

Post by rascott » Sun Dec 01, 2019 9:13 pm

RayKeynes wrote:
Sun Dec 01, 2019 6:04 am
Lee_WSP wrote:
Sun Dec 01, 2019 12:37 am
It's unlikely to see either a 1990 - present rate drop precisely because it is currently unlikely to see a 1955 to 1980 rate hike.
I do not fully agree. While it is clear that near-term rates will gradually drop over the coming months, I do expect rate hikes in the mid-term.

I do not see any realistic scenario for long-term rates to stay at or below 0%. However, even in such a scenario, I would not expect TMF/UPRO to outperform SP500 on a risk-adjusted basis.

The most likely scenario for the future are gradual rate hikes until 2040 and thus a slow destruction of a TMF/UPRO portfolio. TMF has outperformed in the last 20 years due to the gradual rate declines and UPRO has outperformed mainly due to massive QE as it was the case in the 30's.

Don't expect any of the above two to be present in the mid-term / long-term future.
This point has been repeated ad nauseam by people for the last decade. Predicting what interest rates will do next year is basically impossible..... predicting what they will do over the next two decades is a fool's game.

There is absolutely nothing that says rising rates are the most likely thing to occur. I could make an argument we are heading into a worldwide deflationary period just as easily.

ltdshred
Posts: 19
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Sun Dec 01, 2019 11:00 pm

The more I look at doing a 45-55 TQQQ-TMF strategy, the more it makes sense to me. Backtesting over a long time period using the data provided since 1987 has produced a CAGR of 22% versus 17% against the 45-55 UPRO-TMF strategy (using the conservative formula and data available). I also am starting to feel comfortable about the actual companies within the QQQ portfolio as 88 of the 103 stocks in QQQ are also in the SP index. There is some concentration risk however, as 60% of the index is in 10 stocks, but they are all companies I feel really good about and don't have a going-concern issue with them: Apple, Microsoft, Google, Amazon, Facebook, Intel, Comcast, Cisco, Pepsi, and Adobe. If my time period is 10+ years, then I should be taking NASDAQ 100 over SP500 because of the superior Sharpe ratio. My guess (I haven't done the math) is that the probability of another tech bubble in large cap growth is low, and this concentration of 41% tech itself is entering a maturation stage for this sector. P/E ratio compared to the SP does appeared a little overvalued, but I don't think it's anywhere near dotcom or financial crisis levels at the moment. The sectors that this index excludes are also what I agree with and that they have no future or massive growth potential because of structural factors, regulation, and interest rates (energy, utilities, financials in particular).

Come January, I will switch from my 45-55 UPRO-TMF strategy into 45-55 TQQQ-TMF. I understand why people make the point that SP500 is diversified more than Nasdaq 100, but going back since 1986, Nasdaq has beaten the SP 79 out of 130 quarters, and when I did the analysis since inception, I think the winning percentage was about 54% in favor of Nasdaq. I also how the rebalance bonus from TMF assisted TQQQ and produced nearly a percentage better drawdown in the financial crisis and a much quicker drawdown recovery quarter earlier (Jul2010) than any of the UPRO strategies. I know a lot of the discussion now has been centered around what happened in 1955-1964, and there may be merit to that in terms of adjusting the levels of TMF, but we've been in nearly flat rate territory since 2008 and TMF still produced.

Again, my background is not mathematics, so my analysis may be a little elementary compared to our hydrologists and quants on here, but I just wanted to put that rationale out there. Apologies if TQQQ vs UPRO has been discussed in earlier posts.

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

Post by igglywiggly » Sun Dec 01, 2019 11:14 pm

Has anyone given more thought on obtaining 170% leverage using 70/30 SSO/SPY or some variation of SSO/SPY/UPRO? Its seems more ideal for a taxable account since there should be less re-balancing needed compared to the UPRO/TMF strategy.

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

Post by HEDGEFUNDIE » Sun Dec 01, 2019 11:17 pm

ltdshred wrote:
Sun Dec 01, 2019 11:00 pm
The more I look at doing a 45-55 TQQQ-TMF strategy, the more it makes sense to me. Backtesting over a long time period using the data provided since 1987 has produced a CAGR of 22% versus 17% against the 45-55 UPRO-TMF strategy (using the conservative formula and data available). I also am starting to feel comfortable about the actual companies within the QQQ portfolio as 88 of the 103 stocks in QQQ are also in the SP index. There is some concentration risk however, as 60% of the index is in 10 stocks, but they are all companies I feel really good about and don't have a going-concern issue with them: Apple, Microsoft, Google, Amazon, Facebook, Intel, Comcast, Cisco, Pepsi, and Adobe. If my time period is 10+ years, then I should be taking NASDAQ 100 over SP500 because of the superior Sharpe ratio. My guess (I haven't done the math) is that the probability of another tech bubble in large cap growth is low, and this concentration of 41% tech itself is entering a maturation stage for this sector. P/E ratio compared to the SP does appeared a little overvalued, but I don't think it's anywhere near dotcom or financial crisis levels at the moment. The sectors that this index excludes are also what I agree with and that they have no future or massive growth potential because of structural factors, regulation, and interest rates (energy, utilities, financials in particular).

Come January, I will switch from my 45-55 UPRO-TMF strategy into 45-55 TQQQ-TMF. I understand why people make the point that SP500 is diversified more than Nasdaq 100, but going back since 1986, Nasdaq has beaten the SP 79 out of 130 quarters, and when I did the analysis since inception, I think the winning percentage was about 54% in favor of Nasdaq. I also how the rebalance bonus from TMF assisted TQQQ and produced nearly a percentage better drawdown in the financial crisis and a much quicker drawdown recovery quarter earlier (Jul2010) than any of the UPRO strategies. I know a lot of the discussion now has been centered around what happened in 1955-1964, and there may be merit to that in terms of adjusting the levels of TMF, but we've been in nearly flat rate territory since 2008 and TMF still produced.

Again, my background is not mathematics, so my analysis may be a little elementary compared to our hydrologists and quants on here, but I just wanted to put that rationale out there. Apologies if TQQQ vs UPRO has been discussed in earlier posts.
You are not alone. TQQQ is by far the most popular leveraged ETF, with $3.8B in assets. UPRO is only #8, with $1.4B.

MotoTrojan
Posts: 6823
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Sun Dec 01, 2019 11:24 pm

ltdshred wrote:
Sun Dec 01, 2019 11:00 pm
The more I look at doing a 45-55 TQQQ-TMF strategy, the more it makes sense to me. Backtesting over a long time period using the data provided since 1987 has produced a CAGR of 22% versus 17% against the 45-55 UPRO-TMF strategy (using the conservative formula and data available). I also am starting to feel comfortable about the actual companies within the QQQ portfolio as 88 of the 103 stocks in QQQ are also in the SP index. There is some concentration risk however, as 60% of the index is in 10 stocks, but they are all companies I feel really good about and don't have a going-concern issue with them: Apple, Microsoft, Google, Amazon, Facebook, Intel, Comcast, Cisco, Pepsi, and Adobe. If my time period is 10+ years, then I should be taking NASDAQ 100 over SP500 because of the superior Sharpe ratio. My guess (I haven't done the math) is that the probability of another tech bubble in large cap growth is low, and this concentration of 41% tech itself is entering a maturation stage for this sector. P/E ratio compared to the SP does appeared a little overvalued, but I don't think it's anywhere near dotcom or financial crisis levels at the moment. The sectors that this index excludes are also what I agree with and that they have no future or massive growth potential because of structural factors, regulation, and interest rates (energy, utilities, financials in particular).

Come January, I will switch from my 45-55 UPRO-TMF strategy into 45-55 TQQQ-TMF. I understand why people make the point that SP500 is diversified more than Nasdaq 100, but going back since 1986, Nasdaq has beaten the SP 79 out of 130 quarters, and when I did the analysis since inception, I think the winning percentage was about 54% in favor of Nasdaq. I also how the rebalance bonus from TMF assisted TQQQ and produced nearly a percentage better drawdown in the financial crisis and a much quicker drawdown recovery quarter earlier (Jul2010) than any of the UPRO strategies. I know a lot of the discussion now has been centered around what happened in 1955-1964, and there may be merit to that in terms of adjusting the levels of TMF, but we've been in nearly flat rate territory since 2008 and TMF still produced.

Again, my background is not mathematics, so my analysis may be a little elementary compared to our hydrologists and quants on here, but I just wanted to put that rationale out there. Apologies if TQQQ vs UPRO has been discussed in earlier posts.
I find more fault with your 55% TMF allocation dragging down the portfolio. I would be looking at 45/55 TQQQ/EDV myself.

20 year treasuries have not been in “nearly flat rate territory”, that is a deeply flawed take.

guyinlaw
Posts: 108
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Mon Dec 02, 2019 12:28 am

HEDGEFUNDIE wrote:
Sat Nov 30, 2019 10:48 pm
spae wrote:
Sat Nov 30, 2019 10:40 pm
As Trajan has pointed out, returns aren't as good if you simulate a period where interest rates don't drop over the time period. Returns are still above unlevered S&P 500, but you shouldn't expect the 20% CAGRs that are thrown around in the early comments.
On Friday the 30 year Treasury was yielding 2.21%

The first time 30YTs hit these lows was back in July 2012, when it dropped to 2.46%

From July 2012 to Nov 2019 the 55/45 strategy delivered 25.8% CAGR:

https://www.portfoliovisualizer.com/bac ... tion2_1=45
July 2012 to Nov 2019

Strategy --- CAGR --- Sharpe ratio
55 UPRO/45 TMF --- 25.8% --- 1.21
67 UPRO/33 TMF --- 29.4% --- 1.27

67 UPRO/33 TMF has higher Risk adjusted returns in this period.

With EDV
50 UPRO/50 EDV --- 22.6% --- 1.30

PV Link UPRO/TMF - July 2012 to Nov 2019

ltdshred
Posts: 19
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Mon Dec 02, 2019 11:28 am

HEDGEFUNDIE wrote:
Sun Dec 01, 2019 11:17 pm
ltdshred wrote:
Sun Dec 01, 2019 11:00 pm
The more I look at doing a 45-55 TQQQ-TMF strategy, the more it makes sense to me. Backtesting over a long time period using the data provided since 1987 has produced a CAGR of 22% versus 17% against the 45-55 UPRO-TMF strategy (using the conservative formula and data available). I also am starting to feel comfortable about the actual companies within the QQQ portfolio as 88 of the 103 stocks in QQQ are also in the SP index. There is some concentration risk however, as 60% of the index is in 10 stocks, but they are all companies I feel really good about and don't have a going-concern issue with them: Apple, Microsoft, Google, Amazon, Facebook, Intel, Comcast, Cisco, Pepsi, and Adobe. If my time period is 10+ years, then I should be taking NASDAQ 100 over SP500 because of the superior Sharpe ratio. My guess (I haven't done the math) is that the probability of another tech bubble in large cap growth is low, and this concentration of 41% tech itself is entering a maturation stage for this sector. P/E ratio compared to the SP does appeared a little overvalued, but I don't think it's anywhere near dotcom or financial crisis levels at the moment. The sectors that this index excludes are also what I agree with and that they have no future or massive growth potential because of structural factors, regulation, and interest rates (energy, utilities, financials in particular).

Come January, I will switch from my 45-55 UPRO-TMF strategy into 45-55 TQQQ-TMF. I understand why people make the point that SP500 is diversified more than Nasdaq 100, but going back since 1986, Nasdaq has beaten the SP 79 out of 130 quarters, and when I did the analysis since inception, I think the winning percentage was about 54% in favor of Nasdaq. I also how the rebalance bonus from TMF assisted TQQQ and produced nearly a percentage better drawdown in the financial crisis and a much quicker drawdown recovery quarter earlier (Jul2010) than any of the UPRO strategies. I know a lot of the discussion now has been centered around what happened in 1955-1964, and there may be merit to that in terms of adjusting the levels of TMF, but we've been in nearly flat rate territory since 2008 and TMF still produced.

Again, my background is not mathematics, so my analysis may be a little elementary compared to our hydrologists and quants on here, but I just wanted to put that rationale out there. Apologies if TQQQ vs UPRO has been discussed in earlier posts.
You are not alone. TQQQ is by far the most popular leveraged ETF, with $3.8B in assets. UPRO is only #8, with $1.4B.
And one of the most liquid probably

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

Post by ltdshred » Mon Dec 02, 2019 11:32 am

MotoTrojan wrote:
Sun Dec 01, 2019 11:24 pm
ltdshred wrote:
Sun Dec 01, 2019 11:00 pm
The more I look at doing a 45-55 TQQQ-TMF strategy, the more it makes sense to me. Backtesting over a long time period using the data provided since 1987 has produced a CAGR of 22% versus 17% against the 45-55 UPRO-TMF strategy (using the conservative formula and data available). I also am starting to feel comfortable about the actual companies within the QQQ portfolio as 88 of the 103 stocks in QQQ are also in the SP index. There is some concentration risk however, as 60% of the index is in 10 stocks, but they are all companies I feel really good about and don't have a going-concern issue with them: Apple, Microsoft, Google, Amazon, Facebook, Intel, Comcast, Cisco, Pepsi, and Adobe. If my time period is 10+ years, then I should be taking NASDAQ 100 over SP500 because of the superior Sharpe ratio. My guess (I haven't done the math) is that the probability of another tech bubble in large cap growth is low, and this concentration of 41% tech itself is entering a maturation stage for this sector. P/E ratio compared to the SP does appeared a little overvalued, but I don't think it's anywhere near dotcom or financial crisis levels at the moment. The sectors that this index excludes are also what I agree with and that they have no future or massive growth potential because of structural factors, regulation, and interest rates (energy, utilities, financials in particular).

Come January, I will switch from my 45-55 UPRO-TMF strategy into 45-55 TQQQ-TMF. I understand why people make the point that SP500 is diversified more than Nasdaq 100, but going back since 1986, Nasdaq has beaten the SP 79 out of 130 quarters, and when I did the analysis since inception, I think the winning percentage was about 54% in favor of Nasdaq. I also how the rebalance bonus from TMF assisted TQQQ and produced nearly a percentage better drawdown in the financial crisis and a much quicker drawdown recovery quarter earlier (Jul2010) than any of the UPRO strategies. I know a lot of the discussion now has been centered around what happened in 1955-1964, and there may be merit to that in terms of adjusting the levels of TMF, but we've been in nearly flat rate territory since 2008 and TMF still produced.

Again, my background is not mathematics, so my analysis may be a little elementary compared to our hydrologists and quants on here, but I just wanted to put that rationale out there. Apologies if TQQQ vs UPRO has been discussed in earlier posts.
I find more fault with your 55% TMF allocation dragging down the portfolio. I would be looking at 45/55 TQQQ/EDV myself.

20 year treasuries have not been in “nearly flat rate territory”, that is a deeply flawed take.
Sorry, my comment was a little incorrect, I meant to say the short end of the curve in which we've experienced a flat rate environment since the financial crisis.

Do you have a .csv of historical simulated data for EDV? I'm interested to see what the results look like in PV, but I'm afraid EDV won't provide enough volatility cushion or crash insurance when I need it most if I go a 43/57 TQQQ-EDV route... curious to see the results

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

Post by MotoTrojan » Mon Dec 02, 2019 11:44 am

ltdshred wrote:
Mon Dec 02, 2019 11:32 am



Do you have a .csv of historical simulated data for EDV? I'm interested to see what the results look like in PV, but I'm afraid EDV won't provide enough volatility cushion or crash insurance when I need it most if I go a 43/57 TQQQ-EDV route... curious to see the results
No but the siamond sheet has it back to 1955 for annual returns, along with 3x S&P500 and 20 year bonds.

FWIW the 43/57 ratio came from targeting the same ratio of volatility from 1955-2018 per that sheet as the OPs 55/45 UPRO/TMF; so in essence the same portfolio allocation but with less leverage overall. TQQQ is more volatile so it certainly would offset things some; in general I think TQQQ is a poor decision for these strategies too, as does the OP. S&P500 has plenty of return potential with more modest volatility and measures to prevent single-day drops that would wipe-out a 3x LETF.

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

Post by Walkure » Tue Dec 03, 2019 10:51 am

Apparently my rebalance missed the TMF Cyber Monday 5% off sale by one trading day :oops:

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

Post by MotoTrojan » Tue Dec 03, 2019 11:48 am

Officially out, have fun all!

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

Post by Stef » Tue Dec 03, 2019 12:04 pm

MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?

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

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

Post by MotoTrojan » Tue Dec 03, 2019 12:27 pm

Stef wrote:
Tue Dec 03, 2019 12:04 pm
MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.

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

Post by HEDGEFUNDIE » Tue Dec 03, 2019 12:31 pm

MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm
Stef wrote:
Tue Dec 03, 2019 12:04 pm
MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.

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

Post by MotoTrojan » Tue Dec 03, 2019 12:39 pm

HEDGEFUNDIE wrote:
Tue Dec 03, 2019 12:31 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm
Stef wrote:
Tue Dec 03, 2019 12:04 pm
MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.
Indeed, appreciate the nudge; a thank you is genuinely warranted. Not only for the extra $ in my pocket, but most importantly for the knowledge learned both directly in this thread and from the interest it sparked to research elsewhere. It will be interesting to watch the journey from the sidelines (especially with the countless LETF thread popping up now... I wonder why...) and at some point you may see me jump back in the mix :).

Truly, thank you.

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

Post by 305pelusa » Tue Dec 03, 2019 12:50 pm

HEDGEFUNDIE wrote:
Tue Dec 03, 2019 12:31 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm
Stef wrote:
Tue Dec 03, 2019 12:04 pm
MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.
If you're implying people should be appreciative for their good results, I'm assuming that means people are allowed to be upset at you for their bad results right? Will you apologize if that's what occurs? :confused

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

Post by queso » Tue Dec 03, 2019 12:56 pm

Nobody asked, but I started in Sept and am up about 3% (rebalanced recently with new contribution). After today I'll probably be about even. :happy

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

Post by UberGrub » Tue Dec 03, 2019 12:58 pm

MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
Why did you get out?

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

Post by HEDGEFUNDIE » Tue Dec 03, 2019 1:22 pm

305pelusa wrote:
Tue Dec 03, 2019 12:50 pm
HEDGEFUNDIE wrote:
Tue Dec 03, 2019 12:31 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm
Stef wrote:
Tue Dec 03, 2019 12:04 pm
MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.
If you're implying people should be appreciative for their good results, I'm assuming that means people are allowed to be upset at you for their bad results right? Will you apologize if that's what occurs? :confused
We'll have to wait for some bad results to see :wink:

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

Post by HEDGEFUNDIE » Tue Dec 03, 2019 2:21 pm

MotoTrojan wrote:
Tue Dec 03, 2019 12:39 pm
HEDGEFUNDIE wrote:
Tue Dec 03, 2019 12:31 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm
Stef wrote:
Tue Dec 03, 2019 12:04 pm
MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.
Indeed, appreciate the nudge; a thank you is genuinely warranted. Not only for the extra $ in my pocket, but most importantly for the knowledge learned both directly in this thread and from the interest it sparked to research elsewhere. It will be interesting to watch the journey from the sidelines (especially with the countless LETF thread popping up now... I wonder why...) and at some point you may see me jump back in the mix :).

Truly, thank you.
Are you thinking of getting into PSLDX?

MotoTrojan
Posts: 6823
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MotoTrojan » Tue Dec 03, 2019 2:55 pm

HEDGEFUNDIE wrote:
Tue Dec 03, 2019 2:21 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:39 pm
HEDGEFUNDIE wrote:
Tue Dec 03, 2019 12:31 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm
Stef wrote:
Tue Dec 03, 2019 12:04 pm

When did you start? How much did you gain?
March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.
Indeed, appreciate the nudge; a thank you is genuinely warranted. Not only for the extra $ in my pocket, but most importantly for the knowledge learned both directly in this thread and from the interest it sparked to research elsewhere. It will be interesting to watch the journey from the sidelines (especially with the countless LETF thread popping up now... I wonder why...) and at some point you may see me jump back in the mix :).

Truly, thank you.
Are you thinking of getting into PSLDX?
Not at the moment, no. I was also looking at the absolute return variant for a bit less duration exposure along with the Wisdom Tree 90/60 fund but for now I’m just sticking to equities with a small/value tilt.

guyinlaw
Posts: 108
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Tue Dec 03, 2019 3:25 pm

HEDGEFUNDIE wrote:
Tue Dec 03, 2019 1:22 pm
305pelusa wrote:
Tue Dec 03, 2019 12:50 pm

If you're implying people should be appreciative for their good results, I'm assuming that means people are allowed to be upset at you for their bad results right? Will you apologize if that's what occurs? :confused
We'll have to wait for some bad results to see :wink:
It will be scary when LTT and Stocks both decline together. Hope we have the stomach for the draw-downs that may happen.

In recent past 1989-1994 was a scary time.
Of particular importance, a single economic event wasn’t responsible for the simultaneous decline. In fact, the decline occurred in a variety of economic circumstances, including:
  • Rising rate environments (1994, 2004–2006) and falling rate environments (1989–1992).
  • Periods of robust market returns (6 times during the late ’90s tech boom†) and periods of economic catastrophe (6 times during the 2008 global financial crisis††).
  • When the U.S. economy was the focal point of panic (3 times in 2000, during the “tech wreck”) and when non-U.S. markets were the center of an economic scare (3 times in 2015, during concerns about a possible “hard landing” in China).
While a simultaneous decline can happen anytime, there’s good news: Both asset classes experienced above-average returns when they recovered. During the 363 months I observed, the median return for the 12 months after the simultaneous decline was 12.17% for stocks and 8.18% for bonds.
https://vanguardblog.com/2018/07/09/exp ... and-bonds/

Draw-downs
Year --- Stocks --- 3 X 55 Stocks/ 45 LTT
1987 --- 29.8% --- 45.1%
1990 --- 14.7% --- 33.1%
1994 ---- 7.0% ---- 25.2%

Particularly scary when TMF/EDV doesn't work as a shock absorbed to UPRO declines.

Image
PV-rough SIM 1986-1996 - see the drawdowns tab

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

Post by Crushtheturtle » Tue Dec 03, 2019 6:30 pm

Well, today:

SPY: -0.67%
UPRO: -2.05%
TMF: +6.04%

Negative Correlation for the win!

UPRO YTD: +77.52%
TMF YTD: +51.47%

And at this rate, I can't help but to get rich- and quick!
Money comes in, money goes out- you can't explain that

guyinlaw
Posts: 108
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by guyinlaw » Tue Dec 03, 2019 10:51 pm

Crushtheturtle wrote:
Tue Dec 03, 2019 6:30 pm
Well, today:

SPY: -0.67%
UPRO: -2.05%
TMF: +6.04%
Negative Correlation for the win!
Dec 2nd both dropped together :confused
UPRO: -2.6%
TMF: -3.9%

In 1994 SPY drawdown was 7.0% and 3x leveraged UPRO/TMF drawdown would have been around 25.2%. So SPY and LTT both dropped together in 1994. and this happened in many other years. (see the vanguard blog, link previous post)

With rates so low things can go wrong and with leverage it can happen in a hurry. This will be awesome, until it breaks. Full disclosure: I do have small amounts in UPRO/EDV and w/TMF.

In the life cycle investing book. the authors suggested taking leverage early in life, but under 2x. You can read their paper and buy their book.

viewtopic.php?t=274390#p4409544

See the thread from back in 2007 of market timer using leverage. He lost $210K of borrowed money. I don't think I can handle that. :shock:

viewtopic.php?f=10&t=5934
market timer wrote:
Tue Nov 04, 2008 5:08 pm
I'm not sure how to upload a graph. Here is a table of my equity exposure showing how the whipsaws can be devastating, and how my net worth fell from -$80K to -$210K in a month.

Date Exposure (in 000s) S&P Net worth (in 000s)
11/4/08 170 1000 -180
10/28/08 120 860 -205
10/27/08 90 825 -210
10/24/08 200 855 -200
10/13/08 240 1000 -155
10/12/08 150 930 -167
10/10/08 60 880 -170
10/7/08 110 995 -162
10/6/08 220 1055 -152
10/6/08 290 1080 -142
10/5/08 360 1090 -137
10/4/08 430 1100 -130
10/2/08 430 1115 -125
9/29/08 450 1105 -140
9/19/08 440 1255 -80

I could power a lightbulb with my frustration at being forced to sell low and buy high.

get_g0ing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Wed Dec 04, 2019 2:21 pm

MotoTrojan wrote:
Tue Dec 03, 2019 11:48 am
Officially out, have fun all!
All the best! Thanks for your contributions to this thread.

get_g0ing
Posts: 581
Joined: Sat Dec 09, 2017 11:09 am

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

Post by get_g0ing » Wed Dec 04, 2019 4:40 pm

queso wrote:
Tue Dec 03, 2019 12:56 pm
Nobody asked, but I started in Sept and am up about 3% (rebalanced recently with new contribution). After today I'll probably be about even. :happy
Thanks for sharing. Hopefully you are back up today :beer

MotoTrojan
Posts: 6823
Joined: Wed Feb 01, 2017 8:39 pm

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

Post by MotoTrojan » Wed Dec 04, 2019 4:52 pm

get_g0ing wrote:
Wed Dec 04, 2019 4:40 pm
queso wrote:
Tue Dec 03, 2019 12:56 pm
Nobody asked, but I started in Sept and am up about 3% (rebalanced recently with new contribution). After today I'll probably be about even. :happy
Thanks for sharing. Hopefully you are back up today :beer
The OP’s allocation was down today (see TMF).

caklim00
Posts: 1936
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 » Wed Dec 04, 2019 10:04 pm

MotoTrojan wrote:
Tue Dec 03, 2019 2:55 pm
HEDGEFUNDIE wrote:
Tue Dec 03, 2019 2:21 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:39 pm
HEDGEFUNDIE wrote:
Tue Dec 03, 2019 12:31 pm
MotoTrojan wrote:
Tue Dec 03, 2019 12:27 pm


March I started with TMF and swapped to EDV coincidently when treasuries began dropping. My XIRR (contributed throughout) was in the mid 60%’s and gain was 43% overall.
You're welcome.
Indeed, appreciate the nudge; a thank you is genuinely warranted. Not only for the extra $ in my pocket, but most importantly for the knowledge learned both directly in this thread and from the interest it sparked to research elsewhere. It will be interesting to watch the journey from the sidelines (especially with the countless LETF thread popping up now... I wonder why...) and at some point you may see me jump back in the mix :).

Truly, thank you.
Are you thinking of getting into PSLDX?
Not at the moment, no. I was also looking at the absolute return variant for a bit less duration exposure along with the Wisdom Tree 90/60 fund but for now I’m just sticking to equities with a small/value tilt.
You could always jump on board with me. SLYV/VIOV/VFMF and ISCF/AVDV along with some ZN futures contracts :) I'm still keeping the UPRO/EDV thing going since I've basically set it and forget it. I see I'm up around 10% from when I started in the summer.

I have access to PIMCO StocksPLUS Instl PSTKX in a previous company 401k but have been sticking to the DFA funds. Perhaps using PSTKX would have been a better decision in hindsight.

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

Post by MotoTrojan » Wed Dec 04, 2019 10:31 pm

caklim00 wrote:
Wed Dec 04, 2019 10:04 pm

You could always jump on board with me. SLYV/VIOV/VFMF and ISCF/AVDV along with some ZN futures contracts :) I'm still keeping the UPRO/EDV thing going since I've basically set it and forget it. I see I'm up around 10% from when I started in the summer.

I have access to PIMCO StocksPLUS Instl PSTKX in a previous company 401k but have been sticking to the DFA funds. Perhaps using PSTKX would have been a better decision in hindsight.
While some of the longer duration StocksPLUS funds did great, PSTKX just barely beat out the S&P500 and did not on a risk-adjusted basis:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Why SLYV and VIOV? Same fund basically. Haven't looked in to VFMF much but I like my current allocation of sticking to broad US exposure and tilting to small-value domestically and internationally (50/20/30 Total US, Domestic Small-value, International with mostly small-value). Also went with FNDC and AVDV, but ISCF seems reasonable too. Nice day for all three of them today.

caklim00
Posts: 1936
Joined: Mon May 26, 2008 10:09 am

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

Post by caklim00 » Thu Dec 05, 2019 9:48 am

MotoTrojan wrote:
Wed Dec 04, 2019 10:31 pm
caklim00 wrote:
Wed Dec 04, 2019 10:04 pm

You could always jump on board with me. SLYV/VIOV/VFMF and ISCF/AVDV along with some ZN futures contracts :) I'm still keeping the UPRO/EDV thing going since I've basically set it and forget it. I see I'm up around 10% from when I started in the summer.

I have access to PIMCO StocksPLUS Instl PSTKX in a previous company 401k but have been sticking to the DFA funds. Perhaps using PSTKX would have been a better decision in hindsight.
While some of the longer duration StocksPLUS funds did great, PSTKX just barely beat out the S&P500 and did not on a risk-adjusted basis:

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Why SLYV and VIOV? Same fund basically. Haven't looked in to VFMF much but I like my current allocation of sticking to broad US exposure and tilting to small-value domestically and internationally (50/20/30 Total US, Domestic Small-value, International with mostly small-value). Also went with FNDC and AVDV, but ISCF seems reasonable too. Nice day for all three of them today.
Holding viov in taxable and slyv in ira. Now that they both have the same ER only discernible differences would be the higher volume on slyv and perhaps the better tax efficiency of viov (although I heard this has been fixed on slyv). Not sure if there are any security lending differences.

get_g0ing
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by get_g0ing » Thu Dec 05, 2019 10:29 am

MotoTrojan wrote:
Wed Dec 04, 2019 4:52 pm
get_g0ing wrote:
Wed Dec 04, 2019 4:40 pm
queso wrote:
Tue Dec 03, 2019 12:56 pm
Nobody asked, but I started in Sept and am up about 3% (rebalanced recently with new contribution). After today I'll probably be about even. :happy
Thanks for sharing. Hopefully you are back up today :beer
The OP’s allocation was down today (see TMF).
Oops, I saw that later. It's an experience to see such swings, thousands of dollars of gains can be wiped out in a few minutes.

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

Post by dhuser » Thu Dec 05, 2019 10:50 am

If one is only allocating a small chunk of their portfolio to such an approach, why not go 100% UPRO in that portion, and assume that the rest of your portfolio is the steadying factor against it?

(sorry if this has been addressed but I searched back through for 100% UPRO, and couldn't find anything)

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

Post by MotoTrojan » Thu Dec 05, 2019 11:08 am

dhuser wrote:
Thu Dec 05, 2019 10:50 am
If one is only allocating a small chunk of their portfolio to such an approach, why not go 100% UPRO in that portion, and assume that the rest of your portfolio is the steadying factor against it?

(sorry if this has been addressed but I searched back through for 100% UPRO, and couldn't find anything)
Because if you are not rebalancing the UPRO with an imperfect correlated asset then your return will likely be less than S&P500 long term, and risk adjusted return will be abysmal. The uncorrelated asset is necessary to maintain a more reasonable leverage ratio and reduce volatility decay.

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

Post by dhuser » Thu Dec 05, 2019 11:38 am

MotoTrojan wrote:
Thu Dec 05, 2019 11:08 am
dhuser wrote:
Thu Dec 05, 2019 10:50 am
If one is only allocating a small chunk of their portfolio to such an approach, why not go 100% UPRO in that portion, and assume that the rest of your portfolio is the steadying factor against it?

(sorry if this has been addressed but I searched back through for 100% UPRO, and couldn't find anything)
Because if you are not rebalancing the UPRO with an imperfect correlated asset then your return will likely be less than S&P500 long term, and risk adjusted return will be abysmal. The uncorrelated asset is necessary to maintain a more reasonable leverage ratio and reduce volatility decay.
Ok thanks for that, that helps. I guess this is where the re-balanced 55%UPRO/45%CASH leads to the roughly that same as S&P500 adjusted return, so if you don't use a leveraged uncorrelated asset, you might as will stick with the index fund. Is that correct line of thinking?

langlands
Posts: 11
Joined: Wed Apr 03, 2019 10:05 pm

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

Post by langlands » Thu Dec 05, 2019 11:51 am

dhuser wrote:
Thu Dec 05, 2019 10:50 am
If one is only allocating a small chunk of their portfolio to such an approach, why not go 100% UPRO in that portion, and assume that the rest of your portfolio is the steadying factor against it?

(sorry if this has been addressed but I searched back through for 100% UPRO, and couldn't find anything)
I think doing this is perfectly fine. You won't have any diversification benefit from the bonds, but going 100% UPRO for a small amount is essentially applying a small amount of leverage to your portfolio. Keep in mind that in downturns and choppy markets, your UPRO will decrease faster than the rest of your portfolio and your leverage will decrease whereas in prolonged bull markets, your UPRO will increase much faster than the rest of your portfolio and your leverage will increase. I tend to think that leverage below about 1.5 is in general a net benefit for your CAGR, so if you put say 5% of your net worth in UPRO, you can wait until it grows almost 5x before you need to start worrying about rebalancing. Of course you can sell off much earlier if you wish.

ltdshred
Posts: 19
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Thu Dec 05, 2019 2:12 pm

Doing some more analysis because I'm so obsessed with TQQQ. I have two portfolios in the PV simulations to backtest against OP's 55/45 allocation:

Image

Backtesting dates: Jan 1987 to Jan 2019

Portfolio 1: 43/57 TQQQ-TMF (Max IR)
Portfolio 2: 31/69 TQQQ-TMF (Risk Parity)
Portfolio 3: 55/45 UPRO-TMF (OP)

In the first two scenarios, you can get the drawdown pretty close (in which most of the drawdown is coming from the dotcom bubble) to the financial crisis drawdown in Portfolio 3. Even the risk parity portfolio, which produces an exposure of 93% to QQQ dominates the 55/45 portfolio.

To address OP's & Moto's earlier concerns about the fund being wiped out in a single day, I don't really foresee that happening with the circuit breakers. Fund would automatically readjust leverage downward and be ok during the next trading day. I think with a maturing tech industry, one would want to include this in the allocation when it produces a higher Sharpe even including dotcom crash and using conservative approach on 3x leverage returns.

Also, I know we're probably beating a dead-horse when US Treasury stopped issuing callable bonds in 1985, but I really do think that skews the valuation of prior periods and have made the long end of the curve a decent attractive asset going forward. So much discussion has been dedicated to looking at 1955-1982, and I honestly can't see the point if treasuries were a completely different instrument during those time periods. Sorry if I missed the conclusion of that discussion

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