HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by nocebo » Fri Feb 14, 2020 2:45 pm

Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
Dont you see? We're at the top and if you dont yolo your entire portfolio into these leveraged funds before a bear market/recession, you're not doing it right.

But really though, I put an unhealthy mount of money in because stonks only go up :D

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

Post by elderwise » Fri Feb 14, 2020 2:50 pm

nocebo wrote:
Fri Feb 14, 2020 2:45 pm
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
Dont you see? We're at the top and if you dont yolo your entire portfolio into these leveraged funds before a bear market/recession, you're not doing it right.

But really though, I put an unhealthy mount of money in because stonks only go up :D
I see what you did there...did i see you @ r/wallstreetbets, nocebo?

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

Post by uberaeth » Fri Feb 14, 2020 2:55 pm

elderwise wrote:
Fri Feb 14, 2020 2:50 pm
nocebo wrote:
Fri Feb 14, 2020 2:45 pm
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
Dont you see? We're at the top and if you dont yolo your entire portfolio into these leveraged funds before a bear market/recession, you're not doing it right.

But really though, I put an unhealthy mount of money in because stonks only go up :D
I see what you did there...did i see you @ r/wallstreetbets, nocebo?
nocebo is a great name for someone that is in r/wallstreetbets

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

Post by MoneyMarathon » Fri Feb 14, 2020 3:43 pm

Ramjet wrote:
Fri Feb 14, 2020 1:33 pm
Have you considered adding any of the PIMCO Stocksplus International funds, e.g., PSKIX or PISIX
Yes, I considered, and I don't like it.

viewtopic.php?p=4660173#p4660173
I also decided that I didn't like PISIX, the international fund. They're a bit too active for my tastes on the bond side, whipping around their duration exposure based on manager decisions, I guess because they have no "secondary index" or duration target like PSLDX (that secondary index and duration target forces the PSLDX guys to be sort-of closet indexers at heart, which is good).

The other reason that I don't like PISIX is that PSLDX is too darn good. It takes up valuable tax-advantaged space that is better used by PSLDX, which throws off more income on the bond side.

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

Post by danielc » Fri Feb 14, 2020 9:21 pm

stoxtrader wrote:
Sat Sep 21, 2019 8:22 pm
Hydromod and others -

I was a NASDAQ market maker and sellside sales trader on wallstreet from 1997-2005. I can't find any holes in your analysis. You are basically trying to predict frictional costs for the daily rebalance. Execution quality (spread and timing) + commissions. Predicting execution quality is very difficult and it can vary widely. The M1 solution for rebalancing seems to be pretty good but I don't have a sense for the quality of the executions - the ultimate test on this would be for people to chime in and measure their ACTUAL trade results.

When a firm like M1 offers commission free trading, one must wonder how they are making revenue. One way is to sell the order flow, another way is to take the other side of it. Both ways generally mean poor execution quality for the customer. Remember, you can have zero commissions and tiny spreads but still receive terrible execution quality because of timing. If M1 systemically executes buy orders towards the high price of it's "trading window" and executes your sell orders more often towards the lowest prices of it's "trading window" then you are likely getting poor execution.

I use TD ameritrade and have 315k allocated to this strategy. Unfortunately, I am in a taxable! account so this complicates matters greatly. MY "rebalance" strategy so far has consisted of adding funds to the underweight asset quarterly. Somewhat clunky I know. With TD I pay a flat commission of 5.95 and control my executions. This also means I have to (get to) do it myself.

If M1 can be shown to be quality execution over a reasonable sample size then I think that is the best solution I can think of. It basically comes down to what happens under the hood/behind the scenes during the trading window.

I'm still catching up with the discussion. Fidelity has no commissions for ETF trades and they've said that they do not sell order flow. Do you think that they probably have good "execution quality"? Every time I buy an ETF at Fidelity I use a market order and they always execute immediately, and at a price very close to the mid-way point between the bid and the ask.

How do you "control executions" at TD? How would I know if I am "controlling" executions at Fidelity?

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

Post by wije » Fri Feb 14, 2020 9:58 pm

shoehead wrote:
Thu Feb 13, 2020 9:46 am
Do you have the specific post where Hedgefundie talks about adding US utilities? Would like to learn more and backtest.
I'm afraid I don't. I just know he used FUTY, which isn't very different from VPU. I'm not sure why he didn't use UTSL to keep up with the rest of the Excellent Adventure, unless he wanted to minimize relying on Direxion funds.

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

Post by danielc » Sun Feb 16, 2020 3:01 am

Hydromod wrote:
Fri Nov 29, 2019 2:56 pm
Lee_WSP wrote:
Thu Nov 28, 2019 12:17 pm
I think we're not even looking at the same data. I still can't find the raw simulated data in his spreadsheet.
It's in the command tab in columns A through BA. These are hidden. You have to unhide columns A through BA. Poke around on the top to unhide.
I'm still replying to old comments... Can you help me find the simulated data for leveraged ETFs in Simba's spreadsheet? I believe that that's what you and Lee_WSP were discussing at the time that you wrote this comment.

I downloaded version v19b of the spreadsheet from this post. I opened the spreadsheet with LibreOffice (there is no Excel for Linux). I don't see a tab called "command". I see the following tabs (sheets):

- README
- Analyze_Portfolio
- Compare_Portfolios
- Lazy_Portfolios
- Portfolio_Math
- Analyze_Series
- Data_Series
- Raw_Data
- Data_Sources

I have been mostly looking at the Data_Series and Raw_Data sheets. In either case I see a lot of columns named after indices, ETFs, or index funds. I am looking for a column called UPRO, or something about LEFTs, or something like that. Is there simulated UPRO data in the Simba spreadsheet?

Thanks!

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

Post by MoneyMarathon » Sun Feb 16, 2020 4:19 am

wije wrote:
Fri Feb 14, 2020 9:58 pm
I'm not sure why he didn't use UTSL
To have something to sell in a crunch.

The max drawdown of VPU (utilities) in 2007-2009 was -38.23%.

The max drawdown of SPY (S&P 500) in 2007-2009 was -50.8%.

The max drawdown of UPW (2x utilities) in 2007-2009 was -70.2%.

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lock.that.stock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lock.that.stock » Sun Feb 16, 2020 8:16 am

MotoTrojan wrote:
Tue Feb 11, 2020 10:52 am
lock.that.stock wrote:
Tue Feb 11, 2020 10:45 am


Ditto. I’m doing the same thing with a very small portion of my portfolio. Adaptive monthly allocation with target volatility of 40%. I watch it every day and I concur - it’s not for the faint of heart but definitely an interesting experiment to test the strategy that comes with risks. Up 13% YTD but it doesn’t move the needle for me since my allocation is so small. Just an interesting experiment that I may end if market stops climbing.
Given that TQQQ has had about 46.6% standard deviation since inception, I find your 40% target pretty interesting. Would love to hear more about how you came up with that number. Seems steep.
Mainly I was looking for higher market correlation to take advantage of the recent climb without going into TQQQ 100%. 40% target seemed to do the trick (0.68 market correlation, boosted CAGR & sortino at the expense of a 4% higher stdev. compared to 20% TV). Also performs better than a fixed allocation 80/20.

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

Post by Hydromod » Sun Feb 16, 2020 12:21 pm

danielc wrote:
Sun Feb 16, 2020 3:01 am
Hydromod wrote:
Fri Nov 29, 2019 2:56 pm
Lee_WSP wrote:
Thu Nov 28, 2019 12:17 pm
I think we're not even looking at the same data. I still can't find the raw simulated data in his spreadsheet.
It's in the command tab in columns A through BA. These are hidden. You have to unhide columns A through BA. Poke around on the top to unhide.
I'm still replying to old comments... Can you help me find the simulated data for leveraged ETFs in Simba's spreadsheet? I believe that that's what you and Lee_WSP were discussing at the time that you wrote this comment.

I downloaded version v19b of the spreadsheet from this post. I opened the spreadsheet with LibreOffice (there is no Excel for Linux). I don't see a tab called "command". I see the following tabs (sheets):

- README
- Analyze_Portfolio
- Compare_Portfolios
- Lazy_Portfolios
- Portfolio_Math
- Analyze_Series
- Data_Series
- Raw_Data
- Data_Sources

I have been mostly looking at the Data_Series and Raw_Data sheets. In either case I see a lot of columns named after indices, ETFs, or index funds. I am looking for a column called UPRO, or something about LEFTs, or something like that. Is there simulated UPRO data in the Simba spreadsheet?

Thanks!
These comments were referring to the RayKeynes dataset. Completely different.

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

Post by spefactor » Sun Feb 16, 2020 1:24 pm

Interesting article this morning from the WSJ that seems relevant:
https://www.wsj.com/articles/the-bond-m ... 1581849181

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

Post by LadyGeek » Sun Feb 16, 2020 1:26 pm

I removed an off-topic post and several replies related to a member's health condition.
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stoxtrader
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by stoxtrader » Sun Feb 16, 2020 1:34 pm

danielc wrote:
Fri Feb 14, 2020 9:21 pm

I'm still catching up with the discussion. Fidelity has no commissions for ETF trades and they've said that they do not sell order flow. Do you think that they probably have good "execution quality"? Every time I buy an ETF at Fidelity I use a market order and they always execute immediately, and at a price very close to the mid-way point between the bid and the ask.

How do you "control executions" at TD? How would I know if I am "controlling" executions at Fidelity?
For liquid ETFs, it is very difficult to get hurt on execution with market orders during market hours. Many ETfs trade with a spread of a penny these days and mostly you do not have to worry about execution quality on those.

Something that trades with a wider spread, or if the size of your order is material relative to daily trading volume, then execution quality can make a difference.

If you are almost always getting the midpoint with immediate execution then that is great. I suspect Fidelity does just fine - it seems to be a good time for the consumer because the competition for assets is pretty high right now and everyone is fighting based on cost. fund expense ratios are trending towards zero, commissions are trending towards zero and even cash sweeps are starting to be a battleground.

I use TD Ameritrades thinkorswim trading platform and can break my trades up how I see fit, thats how I "control executions". Though that is a bit of a misnomer. I control the parameters of my orders but cannot guarantee executions the way I want them all of the time of course.

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

Post by danielc » Sun Feb 16, 2020 2:18 pm

stoxtrader wrote:
Sun Feb 16, 2020 1:34 pm
For liquid ETFs, it is very difficult to get hurt on execution with market orders during market hours. Many ETfs trade with a spread of a penny these days and mostly you do not have to worry about execution quality on those.

...
Thanks for the info. How do I know if an ETF is liquid? My understanding is that it's not very straight forward because it depends by the liquidity of the underlying assets rather than the volume of the ETF itself. I normally don't worry about this because I normally invest in large broad market ETFs with many billions in assets. But for example, TMF is only has $256M in assets and the underlying assets are weird things like swap agreements. I suspect that it's probably fine because the bid/ask spread I see in Fidelity seems to be around a penny or so.

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

Post by parval » Sun Feb 16, 2020 6:29 pm

danielc wrote:
Sun Feb 16, 2020 2:18 pm
stoxtrader wrote:
Sun Feb 16, 2020 1:34 pm
For liquid ETFs, it is very difficult to get hurt on execution with market orders during market hours. Many ETfs trade with a spread of a penny these days and mostly you do not have to worry about execution quality on those.

...
Thanks for the info. How do I know if an ETF is liquid? My understanding is that it's not very straight forward because it depends by the liquidity of the underlying assets rather than the volume of the ETF itself. I normally don't worry about this because I normally invest in large broad market ETFs with many billions in assets. But for example, TMF is only has $256M in assets and the underlying assets are weird things like swap agreements. I suspect that it's probably fine because the bid/ask spread I see in Fidelity seems to be around a penny or so.
I would assume for TMF, it's liquidity can be somewhat derived from the tracked ETF, TLT? That thing has tons of volume and very little spread. So any initially large spreads for TMF gets closed by MM to match.

-edit I guess technically TMF tracks the index, and TLT is just the largest implementation. From arbitrage principle it shouldn't matter though.

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

Post by Lee_WSP » Sun Feb 16, 2020 8:11 pm

parval wrote:
Sun Feb 16, 2020 6:29 pm
danielc wrote:
Sun Feb 16, 2020 2:18 pm
stoxtrader wrote:
Sun Feb 16, 2020 1:34 pm
For liquid ETFs, it is very difficult to get hurt on execution with market orders during market hours. Many ETfs trade with a spread of a penny these days and mostly you do not have to worry about execution quality on those.

...
Thanks for the info. How do I know if an ETF is liquid? My understanding is that it's not very straight forward because it depends by the liquidity of the underlying assets rather than the volume of the ETF itself. I normally don't worry about this because I normally invest in large broad market ETFs with many billions in assets. But for example, TMF is only has $256M in assets and the underlying assets are weird things like swap agreements. I suspect that it's probably fine because the bid/ask spread I see in Fidelity seems to be around a penny or so.
I would assume for TMF, it's liquidity can be somewhat derived from the tracked ETF, TLT? That thing has tons of volume and very little spread. So any initially large spreads for TMF gets closed by MM to match.

-edit I guess technically TMF tracks the index, and TLT is just the largest implementation. From arbitrage principle it shouldn't matter though.
Tmf is very highly traded. It is very liquid.

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

Post by LittleBitMore » Mon Feb 17, 2020 11:43 am

pepys wrote:
Fri Feb 14, 2020 1:10 am
LittleBitMore wrote:
Fri Feb 14, 2020 12:39 am
kmft wrote:
Thu Feb 13, 2020 9:09 pm
privatefarmer wrote:
Thu Feb 13, 2020 9:03 pm
kmft wrote:
Thu Feb 13, 2020 8:39 pm


Yes, they allow LETF trades. But IIRC you are using IBKR margin from time to time to lever your position further during drawdowns. I’m not sure you’d make enough interest from loaning shares on Fidelity to offset the higher margin rates at Fidelity (5%) relative to IBKR (<3%).
Thanks. I was thinking of using fidelity for my Roth IRAs, assuming their security lending program is offered in IRA?
Yes, Fidelity offers it in their IRAs.
Any idea how to sign up for it? Got my IRA all loaded at Fidelity but I can't find the "sign up for security lending" button. All I found is articles talking about their "Fully Paid Lending" program but no where to actually do it.
I just filled out the form here. Have not gotten the email with the application yet.
Did that a week ago and nothing. I've submitted 2 messages to Secure Email (no reply on the first one). Will give them a call sometime this week. Would be good if someone doing the adventure in IB could comment on any payments they've received on UPRO or TMF

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

Post by LittleBitMore » Mon Feb 17, 2020 11:47 am

Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.

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

Post by firebirdparts » Mon Feb 17, 2020 1:55 pm

Yeah, lot of talk on the internet about "those other people". I don't know nothing about 'em. I have enough trouble with myself. If there's a total loss on the UPRO side I will be switching from 100% TMF to 100% UPRO.
A fool and your money are soon partners

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

Post by kim.gold » Mon Feb 17, 2020 2:12 pm

LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Although your statement regarding the expected 75% drawdown is accurate, I doubt that more than one in 100 people here would have the strength to ride a 75% pull back. 95% of people would give up once they see 50% of the money gone.

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

Post by siamond » Mon Feb 17, 2020 2:26 pm

danielc wrote:
Sun Feb 16, 2020 3:01 am
Can you help me find the simulated data for leveraged ETFs in Simba's spreadsheet? I believe that that's what you and Lee_WSP were discussing at the time that you wrote this comment.

I downloaded version v19b of the spreadsheet from this post. I opened the spreadsheet with LibreOffice (there is no Excel for Linux). I don't see a tab called "command". I see the following tabs (sheets):

- README
- Analyze_Portfolio
- Compare_Portfolios
- Lazy_Portfolios
- Portfolio_Math
- Analyze_Series
- Data_Series
- Raw_Data
- Data_Sources

I have been mostly looking at the Data_Series and Raw_Data sheets. In either case I see a lot of columns named after indices, ETFs, or index funds. I am looking for a column called UPRO, or something about LEFTs, or something like that. Is there simulated UPRO data in the Simba spreadsheet?
If you have a question about the Simba spreadsheet, the best way is either to send me a PM or to post something in the Simba thread. But I'll answer your question here.

The regular Simba spreadsheet (v19b is indeed the latest) only includes mainstream data series, it does NOT include leveraged data series. I did share a custom version of the spreadsheet with leveraged data series a while ago (click here to download it). Please note that this provides annual returns, not monthly or daily.

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

Post by danielc » Mon Feb 17, 2020 3:08 pm

siamond wrote:
Mon Feb 17, 2020 2:26 pm
If you have a question about the Simba spreadsheet, the best way is either to send me a PM or to post something in the Simba thread. But I'll answer your question here.

The regular Simba spreadsheet (v19b is indeed the latest) only includes mainstream data series, it does NOT include leveraged data series. I did share a custom version of the spreadsheet with leveraged data series a while ago (click here to download it). Please note that this provides annual returns, not monthly or daily.
Thanks! I'll move my follow-up question to the Simba thread.

EDIT: Actually, no follow-up question. I figured it out. Thanks for all the work!

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

Post by shoehead » Tue Feb 18, 2020 10:39 am

Has anybody thought about using TQQQ and Target Volatility for a timing portfolio? It backtests pretty favorably in comparison to a similar UPRO timing model, but I'm not sure what volatility I should be targeting or how strong an indicator short-term volatility is for QQQ. The backtest definitely makes it seem like a reliable indicator, but it's tough when most of the data comes from this bull run.

EDIT: Seems like this was covered earlier. Going to try and come up with some correlation stats for QQQ and short-term volatility.

nicobo78
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by nicobo78 » Tue Feb 18, 2020 11:54 am

What about using 60% ProShares Ultra Consumer Services UCC 2x + TMF 40% maybe is more conservative ?

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

Post by shoehead » Tue Feb 18, 2020 11:54 am

lock.that.stock wrote:
Tue Feb 11, 2020 10:45 am
Mainly I was looking for higher market correlation to take advantage of the recent climb without going into TQQQ 100%. 40% target seemed to do the trick (0.68 market correlation, boosted CAGR & sortino at the expense of a 4% higher stdev. compared to 20% TV). Also performs better than a fixed allocation 80/20.
Do you think at some point you'll look to decrease market correlation (by decreasing TV), or would you just abandon TQQQ entirely? Performance definitely improves as TV increases, but this bull market will not be around forever.

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lock.that.stock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lock.that.stock » Tue Feb 18, 2020 12:00 pm

shoehead wrote:
Tue Feb 18, 2020 11:54 am
lock.that.stock wrote:
Tue Feb 11, 2020 10:45 am
Mainly I was looking for higher market correlation to take advantage of the recent climb without going into TQQQ 100%. 40% target seemed to do the trick (0.68 market correlation, boosted CAGR & sortino at the expense of a 4% higher stdev. compared to 20% TV). Also performs better than a fixed allocation 80/20.
Do you think at some point you'll look to decrease market correlation (by decreasing TV), or would you just abandon TQQQ entirely? Performance definitely improves as TV increases, but this bull market will not be around forever.
Absolutely. I’m not expecting high market correlation to outperform for a long time, it’s just an opportunistic strategy for the time being in light of the recent market climb. Long term I see myself either reducing the volatility target to 20% or less, or limit the max TQQQ allocation to about 60% or both. I won’t be abandoning TQQQ entirely.

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

Post by Stump909 » Tue Feb 18, 2020 12:17 pm

LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.

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

Post by shoehead » Tue Feb 18, 2020 12:42 pm

lock.that.stock wrote:
Tue Feb 18, 2020 12:00 pm
shoehead wrote:
Tue Feb 18, 2020 11:54 am
lock.that.stock wrote:
Tue Feb 11, 2020 10:45 am
Mainly I was looking for higher market correlation to take advantage of the recent climb without going into TQQQ 100%. 40% target seemed to do the trick (0.68 market correlation, boosted CAGR & sortino at the expense of a 4% higher stdev. compared to 20% TV). Also performs better than a fixed allocation 80/20.
Do you think at some point you'll look to decrease market correlation (by decreasing TV), or would you just abandon TQQQ entirely? Performance definitely improves as TV increases, but this bull market will not be around forever.
Absolutely. I’m not expecting high market correlation to outperform for a long time, it’s just an opportunistic strategy for the time being in light of the recent market climb. Long term I see myself either reducing the volatility target to 20% or less, or limit the max TQQQ allocation to about 60% or both. I won’t be abandoning TQQQ entirely.
Yeah the backtests are pretty persuasive. Better risk-adjusted returns with TQQQ at TV of 25% at the cost of 3% greater volatility sounds like a solid deal. Will probably implement this in a different portfolio than UPRO/TMF.

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

Post by privatefarmer » Tue Feb 18, 2020 6:11 pm

Stump909 wrote:
Tue Feb 18, 2020 12:17 pm
LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.
#1) 2008 was statistically speaking an extremely terrible and rare downturn. It is unlikely we will experience one that bad again in our lifetimes, but possible.

#2) so then someone who wasn’t invest in 2008 should sit out of the market until they’ve “first hand” seen another drawdown that horrifying? They’d be old and grey by then, if ever, and poor.

backtests don’t predict the future but if we want to make money we have to take on risks and backtests at least give us a sense of what the volatility might look like. I also think BHs are far different than your typical naive investor. There is no certainty that we will ride through rough waters but I’d wager the odds are much higher amongst BHs than the general public. I think using backtests to make CALCULATED risks is prudent, we can’t all hide with our heads in the sand forever, if we want to make an amount we can live off of then we need to jump in the water.

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

Post by willthrill81 » Tue Feb 18, 2020 6:13 pm

privatefarmer wrote:
Tue Feb 18, 2020 6:11 pm
Stump909 wrote:
Tue Feb 18, 2020 12:17 pm
LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.
#1) 2008 was statistically speaking an extremely terrible and rare downturn. It is unlikely we will experience one that bad again in our lifetimes, but possible.

#2) so then someone who wasn’t invest in 2008 should sit out of the market until they’ve “first hand” seen another drawdown that horrifying? They’d be old and grey by then, if ever, and poor.
Precisely. Those who sold in 1996 due to the 'irrational exuberance' concerns never again saw stocks fall to the levels set that year.

Getting out of stocks is the easy part. Getting back in is much harder.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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

Post by privatefarmer » Tue Feb 18, 2020 8:45 pm

I don’t mean to sound dismissive in my prior post. Hanging on during any bear market is a challenge and many sell out at precisely the wrong time. Being careful to not take on too much volatility is paramount to having a successful retirement.

All that being said, I am one of the “crazies” who have gone into THIS strategy with 100% of my portfolio. Since this is an anonymous forum, I can hide behind a screen name, I feel comfortable sharing my personal details. The fact is, at the age of 35, my net worth has increased from 600k to over $1mil over the last year. Not 100% due to this strategy (and I dont follow the exact strategy that hedgefundie laid out but a variant), but LETFs have largely been the driver in my net worth nearly doubling.

I realize that my good fortune could just as quickly turn the other direction and I could experience a massive loss starting tomorrow. But the fact that I took the risk, put my investments into this “risky” strategy, is what has driven my wife and I nearly to complete financial independence at a young age. I can now take a major loss and still be ahead of where I would have been had I not taken this risk.

All I am trying to say is that if we want to seriously get ahead I believe we need to be aggressive at times. Just my .02

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

Post by MoneyMarathon » Tue Feb 18, 2020 8:59 pm

privatefarmer wrote:
Tue Feb 18, 2020 8:45 pm
I realize that my good fortune could just as quickly turn the other direction and I could experience a massive loss starting tomorrow. But the fact that I took the risk, put my investments into this “risky” strategy, is what has driven my wife and I nearly to complete financial independence at a young age. I can now take a major loss and still be ahead of where I would have been had I not taken this risk.
Have you dialed down the risk on the heels of this success or still keeping it cranked to 11?

Mostly just curious.

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

Post by privatefarmer » Tue Feb 18, 2020 9:02 pm

No haven’t changed anything. I have enough “cushion” in my margin account at IB to withstand roughly a 50% drawdown, and I could also move assets from my Roth IRA to my brokerage Acct if need be to prevent a margin call. I am basically taking on as much leverage as I can without getting hit with a margin call.

I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.

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

Post by langlands » Tue Feb 18, 2020 9:06 pm

privatefarmer wrote:
Tue Feb 18, 2020 9:02 pm
No haven’t changed anything. I have enough “cushion” in my margin account at IB to withstand roughly a 50% drawdown, and I could also move assets from my Roth IRA to my brokerage Acct if need be to prevent a margin call. I am basically taking on as much leverage as I can without getting hit with a margin call.

I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.
Are you buying LETFs on margin?

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

Post by privatefarmer » Tue Feb 18, 2020 9:22 pm

langlands wrote:
Tue Feb 18, 2020 9:06 pm
privatefarmer wrote:
Tue Feb 18, 2020 9:02 pm
No haven’t changed anything. I have enough “cushion” in my margin account at IB to withstand roughly a 50% drawdown, and I could also move assets from my Roth IRA to my brokerage Acct if need be to prevent a margin call. I am basically taking on as much leverage as I can without getting hit with a margin call.

I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.
Are you buying LETFs on margin?
Yes. I use the adaptive allocation tool on portfolio visualizer. I hold equities/LTTs/gold/REITs all via 3x LETFs. My total leverage is 3.4x including my margin loan. And then I buy more during drawdowns (increase my leverage accordingly) to offset the daily selling that the LETFs make during drawdowns.

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lock.that.stock
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by lock.that.stock » Tue Feb 18, 2020 9:27 pm

privatefarmer wrote:
Tue Feb 18, 2020 9:22 pm
langlands wrote:
Tue Feb 18, 2020 9:06 pm
privatefarmer wrote:
Tue Feb 18, 2020 9:02 pm
No haven’t changed anything. I have enough “cushion” in my margin account at IB to withstand roughly a 50% drawdown, and I could also move assets from my Roth IRA to my brokerage Acct if need be to prevent a margin call. I am basically taking on as much leverage as I can without getting hit with a margin call.

I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.
Are you buying LETFs on margin?
Yes. I use the adaptive allocation tool on portfolio visualizer. I hold equities/LTTs/gold/REITs all via 3x LETFs. My total leverage is 3.4x including my margin loan. And then I buy more during drawdowns (increase my leverage accordingly) to offset the daily selling that the LETFs make during drawdowns.
Did you isolate the impact of gold/REITs on your strategy vs. standard adaptive allocation with equities/LTTs?

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

Post by privatefarmer » Tue Feb 18, 2020 9:34 pm

lock.that.stock wrote:
Tue Feb 18, 2020 9:27 pm
privatefarmer wrote:
Tue Feb 18, 2020 9:22 pm
langlands wrote:
Tue Feb 18, 2020 9:06 pm
privatefarmer wrote:
Tue Feb 18, 2020 9:02 pm
No haven’t changed anything. I have enough “cushion” in my margin account at IB to withstand roughly a 50% drawdown, and I could also move assets from my Roth IRA to my brokerage Acct if need be to prevent a margin call. I am basically taking on as much leverage as I can without getting hit with a margin call.

I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.
Are you buying LETFs on margin?
Yes. I use the adaptive allocation tool on portfolio visualizer. I hold equities/LTTs/gold/REITs all via 3x LETFs. My total leverage is 3.4x including my margin loan. And then I buy more during drawdowns (increase my leverage accordingly) to offset the daily selling that the LETFs make during drawdowns.
Did you isolate the impact of gold/REITs on your strategy vs. standard adaptive allocation with equities/LTTs?
No so I use the “minimum variance” strategy using a 2-month look back, rebalancing monthly, and I use all 4 asset classes in the calculation. But I think it’s splitting hairs. I think a general risk parity strategy using equities/LTTs/commodities would do just fine the bigger issue is how much or if you want to use leverage.

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

Post by Hydromod » Tue Feb 18, 2020 11:22 pm

There's a site called Breaking the Market that purportedly uses the Kelly criterion to calculate weights for a mix of SPY, TLT, gold, and cash. It's discussed in this thread. He claims that from 1978-present the approach with just SPY and TLT would have beaten 100% S&P for returns by 1.5 percent a year with smaller drawdowns than 60/40.

The author is not very clear on exactly what he is doing, but he provides several examples and a formula for two funds. I can reproduce the initial examples but not the most recent here (it appears that the provided numbers may not be consistent with the figure and calculation results in his example). I've been waiting for the explanation of how to handle 3 or more assets for months now.

However, if I have the formula and numbers correct, and have extrapolated to UPRO and TMF correctly (see here), it appears that the corresponding weights are 56/44 for a UPRO/TMF portfolio based on September 2019 returns. Seems vaguely familiar, no?

I'd be interested in having people check this and make sure I'm on the right track or explain where I went wrong, because I surely don't completely follow what he's doing. It seems like it should be much simpler than the explanations make it out to be.

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

Post by LittleBitMore » Wed Feb 19, 2020 12:05 am

Stump909 wrote:
Tue Feb 18, 2020 12:17 pm
LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.
I think that's our disconnect -- this adventure should never involve a "life changing amount of money". I disagree with HF's idea that you hold this until it hits 10m irrespective of how that compares to your main portfolio. If you've started to blow past 30, 40, 50% of your portfolio in this (either by contribution or return) odds are you're over your skis on risk tolerance. Additionally this should start paring back as part of you portfolio by age 40-50 as you no longer have a guaranteed 30 years of being able to float losses.

People who "need" to sell are too deep in the adventure and people who panic shouldn't have been here in the first place.

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

Post by Uncorrelated » Wed Feb 19, 2020 3:01 am

privatefarmer wrote:
Tue Feb 18, 2020 9:22 pm
And then I buy more during drawdowns (increase my leverage accordingly) to offset the daily selling that the LETFs make during drawdowns.
Don't do this. This is the #1 way to bankrupt yourself.

If you believe that 3.4x leverage is the right choice for your risk tolerance, the best choice of action is to hold on to that leverage forever. If you ever go back to a different asset allocation (whether that is 2x leverage of 5x leverage), you would be taking more risk than necessarily for the same expected return.

See an introduction to commputational investing without agonizing pain, page 119, Theorem 1 Ineffectiveness of Glide Path Strategies. Theory assumes that contributions are negligible compared to net worth, If that's not the case I have a different paper for you.
privatefarmer wrote:
Tue Feb 18, 2020 9:02 pm
I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.
See above.

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

Post by MoneyMarathon » Wed Feb 19, 2020 4:15 am

Uncorrelated wrote:
Wed Feb 19, 2020 3:01 am
Theory assumes that contributions are negligible compared to net worth, If that's not the case I have a different paper for you.
What's the other paper? :mrgreen:

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

Post by Uncorrelated » Wed Feb 19, 2020 4:53 am

MoneyMarathon wrote:
Wed Feb 19, 2020 4:15 am
Uncorrelated wrote:
Wed Feb 19, 2020 3:01 am
Theory assumes that contributions are negligible compared to net worth, If that's not the case I have a different paper for you.
What's the other paper? :mrgreen:
Life-Cycle Investing and Leverage: Buying Stock on Margin Can Reduce Retirement Risk. This paper specifies the optimal way to wind down your position as you get closer towards retirement. It sounds complicated, but is actually quite simple. The optimal stock allocation is linear to (W+S) / W, where W is your net wealth and S is discounted future savings. If S is negligible, then the optimal allocation is a constant that depends on your personal risk tolerance. There is also a topic about this paper: viewtopic.php?f=10&t=274390

Stump909
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Stump909 » Wed Feb 19, 2020 10:27 am

privatefarmer wrote:
Tue Feb 18, 2020 6:11 pm
Stump909 wrote:
Tue Feb 18, 2020 12:17 pm
LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.
#1) 2008 was statistically speaking an extremely terrible and rare downturn. It is unlikely we will experience one that bad again in our lifetimes, but possible.

#2) so then someone who wasn’t invest in 2008 should sit out of the market until they’ve “first hand” seen another drawdown that horrifying? They’d be old and grey by then, if ever, and poor.

backtests don’t predict the future but if we want to make money we have to take on risks and backtests at least give us a sense of what the volatility might look like. I also think BHs are far different than your typical naive investor. There is no certainty that we will ride through rough waters but I’d wager the odds are much higher amongst BHs than the general public. I think using backtests to make CALCULATED risks is prudent, we can’t all hide with our heads in the sand forever, if we want to make an amount we can live off of then we need to jump in the water.
Those are some tremendous leaps you're making. I never said the next downturn will be like 2008, but this strategy would absolutely make a normal downturn feel like 2008. I also never said someone that wasn't invested in 2008 should sit out the market...I'm saying someone that hasn't been through an actual downturn has NO IDEA how they'll respond, despite their historical knowledge and assumptions. Dipping your toes into the world of investing, with this strategy, almost certainly increases the likelihood of an irrational, emotional decision (vs a 3-fund) down the line. If you want to make a gamble, that's perfectly fine, but I would almost certainly advise that the house is in order first.
Last edited by Stump909 on Wed Feb 19, 2020 10:39 am, edited 1 time in total.

Stump909
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Stump909 » Wed Feb 19, 2020 10:38 am

LittleBitMore wrote:
Wed Feb 19, 2020 12:05 am
Stump909 wrote:
Tue Feb 18, 2020 12:17 pm
LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.
I think that's our disconnect -- this adventure should never involve a "life changing amount of money". I disagree with HF's idea that you hold this until it hits 10m irrespective of how that compares to your main portfolio. If you've started to blow past 30, 40, 50% of your portfolio in this (either by contribution or return) odds are you're over your skis on risk tolerance. Additionally this should start paring back as part of you portfolio by age 40-50 as you no longer have a guaranteed 30 years of being able to float losses.

People who "need" to sell are too deep in the adventure and people who panic shouldn't have been here in the first place.
I don't think a life changing amount of money is totally out of the question, but without a safety net of sensible holdings, it becomes a remarkably dangerous gamble. It's not just the money at risk, but mental well being too. This is an extreme example, but some guy at my old gym attempted to kill himself after he lost $2MM on an Apple bet. Just the chaos of going from everything to nothing can wreck havoc.

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

Post by pepys » Wed Feb 19, 2020 11:03 am

Stump909 wrote:
Wed Feb 19, 2020 10:27 am
I'm saying someone that hasn't been through an actual downturn has NO IDEA how they'll respond, despite their historical knowledge and assumptions.
I have not been in a 50%+ downturn, but I have been in plenty of risky life situations and have been through a 20% downturn, and have been completely emotionless during these, if not mildly amused. I have lived with myself for 25 years, I have a very good idea about how I would react, and you certainly do not know otherwise.

And that argument can be expanded to anyone and to any drawdown amount. Even if you faced a 1% drawdown in the past, you have "no idea" how you will respond to the next, despite your historical knowledge and assumptions. You are older now (and closer to retirement if you were not retired during the last downturn), and people tend to become more risk-averse as they age, in addition to other potential changes.
"Give me enough leverage and a fund on which to place it, and I shall move the world." - Archimedes

Stump909
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Stump909 » Wed Feb 19, 2020 11:17 am

pepys wrote:
Wed Feb 19, 2020 11:03 am
Stump909 wrote:
Wed Feb 19, 2020 10:27 am
I'm saying someone that hasn't been through an actual downturn has NO IDEA how they'll respond, despite their historical knowledge and assumptions.
I have not been in a 50%+ downturn, but I have been in plenty of risky life situations and have been through a 20% downturn, and have been completely emotionless during these, if not mildly amused. I have lived with myself for 25 years, I have a very good idea about how I would react, and you certainly do not know otherwise.

And that argument can be expanded to anyone and to any drawdown amount. Even if you faced a 1% drawdown in the past, you have "no idea" how you will respond to the next, despite your historical knowledge and assumptions. You are older now (and closer to retirement if you were not retired during the last downturn), and people tend to become more risk-averse as they age, in addition to other potential changes.
I don't recall singling you out, but what I'm discussing isn't my personal opinion. There have been plenty of behavioral studies on panic selling. Also, a -20% downturn over 3 months is nothing like a -50% drop over 24 months. Two entirely different beasts with different root causes, time frames, and commentary. Holding tight while some experts are predicting a total collapse of the financial systems is much easier said than done.

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

Post by langlands » Wed Feb 19, 2020 11:24 am

privatefarmer wrote:
Tue Feb 18, 2020 9:22 pm
langlands wrote:
Tue Feb 18, 2020 9:06 pm
privatefarmer wrote:
Tue Feb 18, 2020 9:02 pm
No haven’t changed anything. I have enough “cushion” in my margin account at IB to withstand roughly a 50% drawdown, and I could also move assets from my Roth IRA to my brokerage Acct if need be to prevent a margin call. I am basically taking on as much leverage as I can without getting hit with a margin call.

I think if we get to $2-3 mil we will likely cut down on the leverage. But I don’t intend on diverting from the overall risk parity strategy but would just adjust the amount of leverage I use.
Are you buying LETFs on margin?
Yes. I use the adaptive allocation tool on portfolio visualizer. I hold equities/LTTs/gold/REITs all via 3x LETFs. My total leverage is 3.4x including my margin loan. And then I buy more during drawdowns (increase my leverage accordingly) to offset the daily selling that the LETFs make during drawdowns.
I'm not sure I understand that last sentence. If your entire portfolio is 3x LETFs, why would leverage change during a drawdown? The whole point of 3x etfs is that leverage stays constant (namely at 3x). Naturally, you might want to rebalance between your 3x etfs if one draws down more than another. If you're talking about the fact you have 3.4x leverage instead of 3x because of the margin loan, shouldn't your leverage increase during a drawdown? Buying more during drawdowns will decrease your leverage back to 3.4.

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

Post by rascott » Wed Feb 19, 2020 11:28 am

Stump909 wrote:
Wed Feb 19, 2020 10:27 am
privatefarmer wrote:
Tue Feb 18, 2020 6:11 pm
Stump909 wrote:
Tue Feb 18, 2020 12:17 pm
LittleBitMore wrote:
Mon Feb 17, 2020 11:47 am
Stump909 wrote:
Fri Feb 14, 2020 12:53 pm
I'm honestly blown away by the number of people starting off their investment journey, with this strategy, and how popular these app brokerages are. I wouldn't trust any of them with a sizable portfolio, especially considering the number of reliable big names out there. I'm curious how many here run for the hills, once we have a real pull-back and their entire portfolio is down 75%. It's a curious side-bet, but absolutely no one should have their entire portfolio dedicated to this.
I can't understand that logic. Anyone who is signing up for this should EXPECT a 75% drawdown while in the adventure, why would you ever choose to sell once it is down that far? Like you rode down 75%, might as well risk the last 25%. This should never be a substantial enough of your portfolio that you "need" to sell during a drawdown.
Because it's easy to stomach hypothetical losses. It's not so easy to stomach actual losses, when economic conditions are bad for months/years on end and people are predicting a total collapse of the financial system as we know it. There were plenty of 'buy and hold' investors that jumped ship in 08. There were plenty of people that didn't understand 'why anyone would sell' that ending up selling themselves. Unless you've lived through a downturn, with life changing amounts of money on the line, there's no chance you can predict even your own personal response.
#1) 2008 was statistically speaking an extremely terrible and rare downturn. It is unlikely we will experience one that bad again in our lifetimes, but possible.

#2) so then someone who wasn’t invest in 2008 should sit out of the market until they’ve “first hand” seen another drawdown that horrifying? They’d be old and grey by then, if ever, and poor.

backtests don’t predict the future but if we want to make money we have to take on risks and backtests at least give us a sense of what the volatility might look like. I also think BHs are far different than your typical naive investor. There is no certainty that we will ride through rough waters but I’d wager the odds are much higher amongst BHs than the general public. I think using backtests to make CALCULATED risks is prudent, we can’t all hide with our heads in the sand forever, if we want to make an amount we can live off of then we need to jump in the water.
Those are some tremendous leaps you're making. I never said the next downturn will be like 2008, but this strategy would absolutely make a normal downturn feel like 2008. I also never said someone that wasn't invested in 2008 should sit out the market...I'm saying someone that hasn't been through an actual downturn has NO IDEA how they'll respond, despite their historical knowledge and assumptions. Dipping your toes into the world of investing, with this strategy, almost certainly increases the likelihood of an irrational, emotional decision (vs a 3-fund) down the line. If you want to make a gamble, that's perfectly fine, but I would almost certainly advise that the house is in order first.
The drawdown of this strategy could be more or less than a 100% equity strategy... depending upon how LTTs behave.

The drawdown of this was no worse than straight SP500 in 2008.

langlands
Posts: 120
Joined: Wed Apr 03, 2019 10:05 pm

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

Post by langlands » Wed Feb 19, 2020 11:32 am

Stump909 wrote:
Wed Feb 19, 2020 11:17 am
pepys wrote:
Wed Feb 19, 2020 11:03 am
Stump909 wrote:
Wed Feb 19, 2020 10:27 am
I'm saying someone that hasn't been through an actual downturn has NO IDEA how they'll respond, despite their historical knowledge and assumptions.
I have not been in a 50%+ downturn, but I have been in plenty of risky life situations and have been through a 20% downturn, and have been completely emotionless during these, if not mildly amused. I have lived with myself for 25 years, I have a very good idea about how I would react, and you certainly do not know otherwise.

And that argument can be expanded to anyone and to any drawdown amount. Even if you faced a 1% drawdown in the past, you have "no idea" how you will respond to the next, despite your historical knowledge and assumptions. You are older now (and closer to retirement if you were not retired during the last downturn), and people tend to become more risk-averse as they age, in addition to other potential changes.
I don't recall singling you out, but what I'm discussing isn't my personal opinion. There have been plenty of behavioral studies on panic selling. Also, a -20% downturn over 3 months is nothing like a -50% drop over 24 months. Two entirely different beasts with different root causes, time frames, and commentary. Holding tight while some experts are predicting a total collapse of the financial systems is much easier said than done.
Yes there are many behavioral studies, but the notion that you know someone better than they know themselves can be a bit grating. Referencing these studies and a gentle warning to make sure someone has really thought through the risks is a reasonable thing to do. Stating categorically that no one can ever truly know how they will react is a bit patronizing. Not every investor needs to be coddled and protected from themselves. There are "sophisticated" retail investors who are trying to invest for themselves in the most rational and efficient way possible and this forum is a great place to share ideas on how to do this.

Texanbybirth
Posts: 1317
Joined: Tue Apr 14, 2015 12:07 pm

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

Post by Texanbybirth » Wed Feb 19, 2020 11:39 am

I appreciate Stump909's (and all other detractors') warnings. They don't offend me because I've got thick enough skin to see through any emotion to the heart of the message. I personally don't think they are saying anything that hasn't already been said in the thousands of posts on this "adventure".

I plan to hold onto this position (and contribute) throughout the "adventure", but it's good for posterity's sake to have all opinions on the table in this thread and the previous one. My number to get out, though, is def not $10MM. Once it is reached, I will terminate this strategy and switch to a balanced portfolio. (Not NTSX, mind you, :P )
Old Tom Bombadil is a merry fellow, | Bright blue his jacket is, and his boots are yellow. | None has ever caught him yet, for Tom, he is the master: | His songs are stronger songs, and his feet are faster.

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