SSO (ETF) - double the fun!

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
indian86
Posts: 90
Joined: Tue Jan 03, 2012 4:28 pm

SSO (ETF) - double the fun!

Post by indian86 » Wed Mar 25, 2020 3:58 pm

I am reading a lot of folks here very happy that the market is selling off so they can load up on stocks "cheap". A popular way to do that is the SPY ETF. Do you realize that you can get "twice the deal" by buying SSO - with the same yield? If one is that confident in our stock market and believe it will appreciate over time, not sure why you wouldn't buy SSO or the triple return ETF, esp if your time horizon is more than 3 years.

Just as an example, SSO hit about $10 at the financial crises bottom, when SPY hit 666 (que creepy music). At the all-time high of 339 for Spy this year, SSO hit 156. Wouldn't you rather have a 15 bagger then a 6 bagger?

If you are confident in the US stock market and have the demeanor to accept a bit more volatily, and the time horizon, there is no logical reason to buy SPY over SSO.

Topic Author
indian86
Posts: 90
Joined: Tue Jan 03, 2012 4:28 pm

Re: SSO (ETF) - double the fun!

Post by indian86 » Wed Mar 25, 2020 4:04 pm

"A popular way to do that is the SPY ETF. Do you realize that you can get "twice the deal" by buying SSO - with the same yield?"

Actually the yield is about half SPY. But the difference is immaterial with the overall returns between the two vehicles.

DonIce
Posts: 860
Joined: Thu Feb 21, 2019 6:44 pm

Re: SSO (ETF) - double the fun!

Post by DonIce » Wed Mar 25, 2020 4:06 pm

Starting at the very bottom of the financial crisis is not a great comparison, you can't assume you can get the timing that perfect.

If you bought SSO when it came out in 2006, you would be about even with the returns of SPY now, and would have had ~80% drawdowns along the way instead of ~50%, a much more stressful ride for most people.

User avatar
David Jay
Posts: 7817
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: SSO (ETF) - double the fun!

Post by David Jay » Wed Mar 25, 2020 9:29 pm

Over the total duration of the SOO ETF (2006), it has dramatically underperformed VFINX +118% to +205%.

Image

I know you are making a point with this thread, but the market drop has brought many new people to Bogleheads who might not catch the nuance.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

MoneyMarathon
Posts: 946
Joined: Sun Sep 30, 2012 3:38 am

Re: SSO (ETF) - double the fun!

Post by MoneyMarathon » Wed Mar 25, 2020 11:24 pm

indian86 wrote:
Wed Mar 25, 2020 3:58 pm
Wouldn't you rather have a 15 bagger then a 6 bagger?
It's pretty much luck to get both the bottom and the top quite that right. Holding that much leverage after maybe 2015 was very risky (P/E over 25 during a long flat market top and corrections), and I don't think anyone back then knew the bear market would not arrive until 2020. There were a few congenital optimists who held stalwartly and then had an otherwise uncharacteristic concern on the news this last February, but they already got lucky in not getting burned by a larger downturn, which could have happened sooner.

User avatar
birdog
Posts: 444
Joined: Fri Apr 07, 2017 1:35 pm

Re: SSO (ETF) - double the fun!

Post by birdog » Thu Mar 26, 2020 3:37 am

Horrible suggestion. Leveraged ETFs are for day trades only. Read the prospectus. Try holding them for months and look at the price degradation. Not what they’re intended for.

klrjaa
Posts: 63
Joined: Sat Mar 23, 2019 10:55 am

Re: SSO (ETF) - double the fun!

Post by klrjaa » Thu Mar 26, 2020 9:58 am

birdog wrote:
Thu Mar 26, 2020 3:37 am
Horrible suggestion. Leveraged ETFs are for day trades only. Read the prospectus. Try holding them for months and look at the price degradation. Not what they’re intended for.
Not so horrible. Leveraged ETFs are not well understood. Key is to use them when markets are likely to rise, since volatility is lower when markets are rising. There is no inherent decay in leveraged ETFs. It's volatility and back/forth-ness that's creates the leverage trap. So if you don't buy/hold them, they can work

A good paper on the subject is Leverage for the Long run. https://papers.ssrn.com/sol3/papers.cfm ... id=2741701

Another take on this is From Trendx where they use a different signal for predicting low vol/positive return envts. You'll aslo see there are multiple timing models with historical results posted

https://indexswingtrader.blogspot.com/2 ... roids.html

So using leverage in a risk-on envt makes a ton of sense to me. Of course this is market timing so YMMV

Post Reply