HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
Meaty
Posts: 737
Joined: Mon Jul 22, 2013 7:35 pm
Location: Texas

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

Post by Meaty » Mon Jun 29, 2020 6:26 pm

jolmscheid wrote:
Mon Jun 29, 2020 4:29 pm
Meaty wrote:
Mon Jun 29, 2020 3:37 pm
queso wrote:
Mon Jun 29, 2020 3:06 pm
I can't speak for hedgefundie, but I started last september and am up 30% (original 55/45 with only one rebalance that wasn't adding additional funds).
Started last august and up 20%.
cos wrote:
Mon Jun 29, 2020 11:37 am
Just thought I'd check in since I just hit the big yellow rebalance button. I've been following the Adventure with a portion of my portfolio for quite awhile, but I didn't go all-in until the end of last year so note that my returns reflect that. Also note that I contribute regularly so all returns are money-weighted.

I'm up ~25% all-time, since March 29th, 2019 (on average, ~50% of my portfolio has been allocated to the adventure during this time, the rest tracked unleveraged total world stock pretty closely).

I'm up ~26% in the past quarter, since March 30th, 2020 (100% of my portfolio has been allocated to the vanilla 55/45 adventure during this time).

I wish I could get money-weighted returns from a specified date out of the M1 app, but my options are limited to past day, past week, past month, past quarter, past year, and all-time.

Is this using the UPRO/TMF allocation, or is there any TQQQ in there (as some are doing)? Also, these "up" percentages are current (includes the corona drop-off in March/April)?
For me - 55 UPRO/ 45 TMF
"Discipline equals Freedom" - Jocko Willink

Lost Halls
Posts: 4
Joined: Sun Aug 11, 2019 9:09 pm

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

Post by Lost Halls » Mon Jun 29, 2020 9:08 pm

Since Feb. 10 2020, I am up 23% (this is not money-weighted return, and would be much higher if it was to be calculated). Using TQQQ/TMF & adaptive allocation to determine allocations.

TechFI
Posts: 110
Joined: Fri Jun 05, 2020 12:07 am

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

Post by TechFI » Tue Jun 30, 2020 3:57 am

I came across this by chance when reading one of ERN's article on UPRO/TMF.

I don't suppose there is a good primer for understanding this leverage ETF strategy (wiki page on leverage ETF ain't all that helpful)? I've read the original first post by HedgeFundie and it provided a quick overview of this strategy, except the backtesting charts some were missing.

Has anyone considered what happens to TMF if long-term interest rates goes negative?

Lastly, are people putting 100% of their portfolio in leveraged ETFs, or is this only your play money?

User avatar
firebirdparts
Posts: 1581
Joined: Thu Jun 13, 2019 4:21 pm

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

Post by firebirdparts » Tue Jun 30, 2020 6:05 am

1. Nobody was that optimistic. My bet would be it does about what you'd expect. Bonds can't really surprise you if you dictate what the interest rates do in a thought experiment.

2. Play money, except for 2 people here and one bankrupt guy on wallstreetbets.
A fool and your money are soon partners

User avatar
queso
Posts: 843
Joined: Thu Jan 07, 2016 3:52 pm

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

Post by queso » Tue Jun 30, 2020 7:03 am

firebirdparts wrote:
Tue Jun 30, 2020 6:05 am
2. Play money, except for 2 people here and one bankrupt guy on wallstreetbets.
This.

occambogle
Posts: 384
Joined: Thu Dec 12, 2019 4:58 am

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

Post by occambogle » Tue Jun 30, 2020 8:03 am

firebirdparts wrote:
Tue Jun 30, 2020 6:05 am
2. Play money, except for 2 people here and one bankrupt guy on wallstreetbets.
Is this the guy? https://www.reddit.com/r/wallstreetbets ... call_from/

The one with 400k of 3x leveraged TMF/UPRO leveraged again 8x with margin to a total of 3.2million?
In any case yes, the correct answer should be play money.....

mroe800
Posts: 165
Joined: Mon Jan 27, 2020 1:37 am

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

Post by mroe800 » Tue Jun 30, 2020 8:16 am

A significant enough chunk of my retirement portfolio to make a difference whichever way it swings, but not enough to crush my life plans. ~25% of current principal by eyeballing it, but that's also not a whole lot of money.

Semantics
Posts: 33
Joined: Tue Mar 10, 2020 1:42 pm

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

Post by Semantics » Tue Jun 30, 2020 9:39 am

TechFI wrote:
Tue Jun 30, 2020 3:57 am
I came across this by chance when reading one of ERN's article on UPRO/TMF.

I don't suppose there is a good primer for understanding this leverage ETF strategy (wiki page on leverage ETF ain't all that helpful)? I've read the original first post by HedgeFundie and it provided a quick overview of this strategy, except the backtesting charts some were missing.

Has anyone considered what happens to TMF if long-term interest rates goes negative?

Lastly, are people putting 100% of their portfolio in leveraged ETFs, or is this only your play money?
I would assume TMF would behave similar to how it has been if rates go negative, maybe more volatile due to bond convexity. IBGL seems somewhat comparable to TLT (EU long term govt bonds, long term rates are negative there).

Personally I am more concerned about rising rates and inflation, and the correlation turning positive. From 1955-1982 the portfolio had negative returns. Hydromod has done some incredible work on backtesting it and trying to come up with variants that thrive in that environment too: viewtopic.php?p=4632096#p4632096, turns out switching from TMF to -TMF (aka TMV) actually has merit in those conditions.

Mickelous
Posts: 63
Joined: Mon Apr 20, 2020 11:24 pm

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

Post by Mickelous » Tue Jun 30, 2020 9:54 am

TechFI wrote:
Tue Jun 30, 2020 3:57 am
I came across this by chance when reading one of ERN's article on UPRO/TMF.

I don't suppose there is a good primer for understanding this leverage ETF strategy (wiki page on leverage ETF ain't all that helpful)? I've read the original first post by HedgeFundie and it provided a quick overview of this strategy, except the backtesting charts some were missing.

Has anyone considered what happens to TMF if long-term interest rates goes negative?

Lastly, are people putting 100% of their portfolio in leveraged ETFs, or is this only your play money?
I'm early on in the investing life cycle, but I have my 401k and my Roth IRA almost fully invested into this strategy. There is a small bit that I can't transfer into my brokerage in my 401k that I have in an index fund. As far as risk goes, to me it's still less risky than a small business, while I have a stable job that isn't going anywhere for an essential business.

User avatar
firebirdparts
Posts: 1581
Joined: Thu Jun 13, 2019 4:21 pm

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

Post by firebirdparts » Tue Jun 30, 2020 12:14 pm

occambogle wrote:
Tue Jun 30, 2020 8:03 am
firebirdparts wrote:
Tue Jun 30, 2020 6:05 am
2. Play money, except for 2 people here and one bankrupt guy on wallstreetbets.
Is this the guy? https://www.reddit.com/r/wallstreetbets ... call_from/
Yep.
A fool and your money are soon partners

taojaxx
Posts: 88
Joined: Wed Jul 18, 2012 8:25 pm

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

Post by taojaxx » Tue Jun 30, 2020 12:29 pm

Had no idea there was such a thing as a broker allowing clients to leverage 3X LETF 8 times...

User avatar
ltdshred
Posts: 65
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Tue Jun 30, 2020 12:37 pm

Mickelous wrote:
Sat Jun 27, 2020 2:27 pm
lemerou wrote:
Fri Jun 26, 2020 11:38 pm
Bosro wrote:
Fri Jun 26, 2020 11:20 am
Wonder if HEDGEFUNDIE found another home on a different forum?

Would follow him there.
Curious to this as well.

It's really a shame he left.
I am certainly glad HF posted this adventure, he may have created financial independence for many people willing to take the plunge, and in the future may be looked at as a pioneer such as the early adopters of the index fund strategy. Leveraged ETF Risk Parity could be the norm in 10 years. I am seeing more and more ETFs and funds emerge that are using leverage.
Entirely agree. Rational middle-class retail investors who can get behind this or a variant of this investment strategy will be able to shorten their length to retirement and have the ability to de-risk after their adventures are over. I personally have been in variants of risk parity since late August and have officially started a disciplined 55-45 TQQQ TMF strategy since January 1st of this year. I have this thread, Bridgewater, Ed Thorpe, and a few other authors of very important papers to thank for this. It's improved my market knowledge greatly doing my own backtesting and research, and this is coming from someone who works in the financial industry.

vijaym73
Posts: 26
Joined: Fri Sep 08, 2017 11:34 am

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

Post by vijaym73 » Tue Jun 30, 2020 12:50 pm

Made the mistake of chiken out of this strategy during the march dump.

Got back in to PSLDX 6 weeks later and it has been good.

Going to take just my profits in PSLDX and get back into the leveraged strategy.

Key is TRY NOT to look daily -- worry about this in 20 years when im closer to calling it quits.

Will be 50% PSLDX and then place the other 50% into TQQQ/TMF @ 55/45 -- might do 60/40

July 1st is start of new quarter. 2nd half of year

thanks everyone

VJ

TechFI
Posts: 110
Joined: Fri Jun 05, 2020 12:07 am

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

Post by TechFI » Tue Jun 30, 2020 2:40 pm

I'm thinking of DCA-ing this with my 5% (maybe 10%?) play money over the next few months.

So my understanding is that UPRO can go to zero if the daily drop of S&P 500 drops by 33%, since the leverage calcs are accumulated on a daily basis. But because of circuit breakers S&P 500 will not drop by 33% in one day in practice. Does that mean UPRO in theory cannot drop to zero?

Are there are similar circuit breakers for LT treasury bonds? I'm guessing no... So if LT bonds drop by 33% in one day that would cause TMF to go to zero also right? Has this risk been considered/debated?

I checked LT treasury on portfolio visualizer but it only goes back to 1970s and the largest drop was -23%... but historical macro trends have indicated we have been in a declining interest rate environment, so sustained interest rate increases might be an out-of-distribution portion of our historical data?

Mickelous
Posts: 63
Joined: Mon Apr 20, 2020 11:24 pm

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

Post by Mickelous » Tue Jun 30, 2020 3:05 pm

TechFI wrote:
Tue Jun 30, 2020 2:40 pm
I'm thinking of DCA-ing this with my 5% (maybe 10%?) play money over the next few months.

So my understanding is that UPRO can go to zero if the daily drop of S&P 500 drops by 33%, since the leverage calcs are accumulated on a daily basis. But because of circuit breakers S&P 500 will not drop by 33% in one day in practice. Does that mean UPRO in theory cannot drop to zero?

Are there are similar circuit breakers for LT treasury bonds? I'm guessing no... So if LT bonds drop by 33% in one day that would cause TMF to go to zero also right? Has this risk been considered/debated?

I checked LT treasury on portfolio visualizer but it only goes back to 1970s and the largest drop was -23%... but historical macro trends have indicated we have been in a declining interest rate environment, so sustained interest rate increases might be an out-of-distribution portion of our historical data?
Portfolio visualizer only does monthly drops, not daily. So that wouldn't be a good indicator of the largest daily drop. I think Yahoo Finance might have the daily info.

lcdx22
Posts: 20
Joined: Thu Jan 03, 2019 1:30 pm

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

Post by lcdx22 » Wed Jul 01, 2020 9:18 am

Just initiated my quarterly re-balance. Unfortunately its a 3 day process for me. 401k self directed portion through Merrill and they wont let me buy until the sold funds settle after 2-3 days. Crazy. But I did sell of UPRO today to get me down to 55%.

Started March 2019, one time buy. No additional money contributed since, just quarterly re-balances. Up 76% since then.

User avatar
Dr. Long
Posts: 34
Joined: Sun Jun 23, 2019 2:14 pm
Location: Location, Location, Location

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

Post by Dr. Long » Wed Jul 01, 2020 9:28 am

Rebal day!

07/19 5k
10/19 5.4k
01/20 5.6k
04/20 6.6k
07/20 8.5k

Chart: https://imgur.com/a/xKt2FJ0

70% return for 1st year - not too shabby!
"(It's) the economy, stupid," - James Carville

User avatar
ltdshred
Posts: 65
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Wed Jul 01, 2020 10:50 am

Lee_WSP wrote:
Thu Jun 25, 2020 10:56 pm
ltdshred wrote:
Thu Jun 25, 2020 7:47 pm
Lee_WSP wrote:
Wed Jun 24, 2020 9:23 pm
ltdshred wrote:
Wed Jun 24, 2020 3:52 pm
Does anyone have simulated backtested EDV data 30+ years? Thinking about deleveraging when I meet my short term aggressive goals
See Simba's leveraged spreadsheet.
I've seen it, and it's monthly data. Is it just long term treasuries with the exact target duration of EDV? Does it replicate zero-coupon strips? Or is it a vanilla long duration treasury fund?
I'm not sure what is confusing about the line item "Long Term Treasury STRIPS EDV"
Found it at the bottom, thanks

dave_k
Posts: 401
Joined: Sat Dec 26, 2015 8:25 pm

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

Post by dave_k » Wed Jul 01, 2020 11:09 am

Are there no distributions this quarter for either UPRO or TMF? Time to rebalance, and I usually include the dividends, but I don't see any listed or scheduled.

HawkeyePierce
Posts: 1326
Joined: Tue Mar 05, 2019 10:29 pm
Location: Colorado

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

Post by HawkeyePierce » Wed Jul 01, 2020 12:05 pm

Rebal day for me too. Up 37% over the last quarter.

My 43/57 UPRO/EDV allocation drifted to 58/42 since my last rebalance.

User avatar
ltdshred
Posts: 65
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Wed Jul 01, 2020 12:19 pm

Just backtested a 34/66 TQQQ-EDV portfolio since 1987 and compared it to 43/57 UPRO-EDV portfolio and market. I definitely like the metrics I'm seeing. Most likely going to be my long-term portfolio going forward after de-risking from 55/45 TQQQ-TMF in 5-10 years

Image

Semantics
Posts: 33
Joined: Tue Mar 10, 2020 1:42 pm

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

Post by Semantics » Wed Jul 01, 2020 8:09 pm

Does anyone have any recommendations for software/websites to help track this when it's used within a larger portfolio that has other assets (or even more of the same assets)? Ideally free, but I'd be willing to pay a bit if it works really well. I'd like to see daily returns, charts of returns over time, and the good stuff all brokerages have at the account level. I'm okay with having to input all of my trades, but I'd hopefully be able to leave it at that. I'm currently using a tracking spreadsheet I made, which is adequate for giving me a snapshot of overall and daily returns and telling me what to do to rebalance, but it's inconvenient to have to input dividends manually, and more advanced features like charts will take some effort that I'd rather avoid. I believe that M1 has this kind of capability in how it lets you create different "pies", which sounds ideal, but I don't want to switch brokerages (I'm primarily using Schwab for this, so if they have some tools for this I'm unaware of that could help, though I'd like to also have something not tied to any brokerage since I have a few accounts).

TechFI
Posts: 110
Joined: Fri Jun 05, 2020 12:07 am

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

Post by TechFI » Thu Jul 02, 2020 10:34 am

Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!

User avatar
queso
Posts: 843
Joined: Thu Jan 07, 2016 3:52 pm

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

Post by queso » Thu Jul 02, 2020 10:36 am

TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
A lot of us are using M1 Finance.

TechFI
Posts: 110
Joined: Fri Jun 05, 2020 12:07 am

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

Post by TechFI » Thu Jul 02, 2020 11:03 am

queso wrote:
Thu Jul 02, 2020 10:36 am
TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
A lot of us are using M1 Finance.
Thanks did some digging and found that Vanguard recently banned leveraged ETFs.

Any concerns with using these 'next-gen' brokers like M1 Finance? I'm thinking in terms of security issues (accounts getting hacked because these companies don't invest much in security), execution screw ups (like what happened to Robinhood), other glitches (also Robinhood I think that displayed wrong values), etc...

mt2k
Posts: 43
Joined: Thu May 21, 2020 8:13 am

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

Post by mt2k » Thu Jul 02, 2020 11:04 am

TechFI wrote:
Thu Jul 02, 2020 11:03 am
queso wrote:
Thu Jul 02, 2020 10:36 am
TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
A lot of us are using M1 Finance.
Thanks did some digging and found that Vanguard recently banned leveraged ETFs.

Any concerns with using these 'next-gen' brokers like M1 Finance? I'm thinking in terms of security issues (accounts getting hacked because these companies don't invest much in security), execution screw ups (like what happened to Robinhood), other glitches (also Robinhood I think that displayed wrong values), etc...
I am using Fidelity in my HSA account

User avatar
queso
Posts: 843
Joined: Thu Jan 07, 2016 3:52 pm

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

Post by queso » Thu Jul 02, 2020 11:06 am

TechFI wrote:
Thu Jul 02, 2020 11:03 am
queso wrote:
Thu Jul 02, 2020 10:36 am
TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
A lot of us are using M1 Finance.
Thanks did some digging and found that Vanguard recently banned leveraged ETFs.

Any concerns with using these 'next-gen' brokers like M1 Finance? I'm thinking in terms of security issues (accounts getting hacked because these companies don't invest much in security), execution screw ups (like what happened to Robinhood), other glitches (also Robinhood I think that displayed wrong values), etc...
Others with more experience will be better qualified than I am to comment on M1 and other similar brokerages. My hedgefundie experiment is a play money experiment so I didn't worry too much about the platform at the time.

hilink73
Posts: 435
Joined: Tue Sep 20, 2016 3:29 pm

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

Post by hilink73 » Thu Jul 02, 2020 11:43 am

Semantics wrote:
Wed Jul 01, 2020 8:09 pm
Does anyone have any recommendations for software/websites to help track this when it's used within a larger portfolio that has other assets (or even more of the same assets)? Ideally free, but I'd be willing to pay a bit if it works really well. I'd like to see daily returns, charts of returns over time, and the good stuff all brokerages have at the account level. I'm okay with having to input all of my trades, but I'd hopefully be able to leave it at that. I'm currently using a tracking spreadsheet I made, which is adequate for giving me a snapshot of overall and daily returns and telling me what to do to rebalance, but it's inconvenient to have to input dividends manually, and more advanced features like charts will take some effort that I'd rather avoid. I believe that M1 has this kind of capability in how it lets you create different "pies", which sounds ideal, but I don't want to switch brokerages (I'm primarily using Schwab for this, so if they have some tools for this I'm unaware of that could help, though I'd like to also have something not tied to any brokerage since I have a few accounts).
I'm using Portfolio Performance: https://www.portfolio-performance.info/en/ (free and open souce)
- Auto-update prices (Alpha Vantage, Yahoo Finance, csv import, manual entry)
- fully customizable dashboards
- Asset classes,
- Java, so runs on any plattform
- and much more
- It has English language settings, too (development originated in Germany, though)

hilink73
Posts: 435
Joined: Tue Sep 20, 2016 3:29 pm

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

Post by hilink73 » Thu Jul 02, 2020 12:12 pm

TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
Interactive Brokers

hilink73
Posts: 435
Joined: Tue Sep 20, 2016 3:29 pm

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

Post by hilink73 » Thu Jul 02, 2020 12:21 pm

Haven't update my numbers in a while.

Still doing target volatility 25% strategy using PV.

Allocation is per end of month for the next month (end of month rebalancing).
Performance is per end of month.

Feb UPRO 42% / TMF 58% Perf.: -9.3%
Mar UPRO 9% / TMF 91% Perf.: -10.9%
Apr UPRO 21% / TMF 79% Perf.: 6.7%
May UPRO 37% / TMF 63% Perf.: -3.0%
June UPRO 31% / TMF 69% Perf.: 0.3%


Still having trouble to sell into losses to maintain the suggested allocation for the target volatility.
I've considered switching back to HF original strategy with "normal" rebalancing (sell high, buy low), which just feels more intuitive.

NMBob
Posts: 324
Joined: Thu Apr 23, 2015 8:13 pm

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

Post by NMBob » Thu Jul 02, 2020 1:08 pm

TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
you can buy about everything at schwab, and that includes psldx with a transfer fee. Merrill edge you can buy the leveraged etfs like upro/tmf by direxion and proshares companies, but not the less leveraged etf ntsx or fund psldx.

User avatar
7th_Diagram
Posts: 36
Joined: Fri Jan 25, 2019 11:37 pm

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

Post by 7th_Diagram » Thu Jul 02, 2020 1:19 pm

hilink73 wrote:
Thu Jul 02, 2020 12:21 pm
Haven't update my numbers in a while.

Still doing target volatility 25% strategy using PV.

Allocation is per end of month for the next month (end of month rebalancing).
Performance is per end of month.

Feb UPRO 42% / TMF 58% Perf.: -9.3%
Mar UPRO 9% / TMF 91% Perf.: -10.9%
Apr UPRO 21% / TMF 79% Perf.: 6.7%
May UPRO 37% / TMF 63% Perf.: -3.0%
June UPRO 31% / TMF 69% Perf.: 0.3%


Still having trouble to sell into losses to maintain the suggested allocation for the target volatility.
I've considered switching back to HF original strategy with "normal" rebalancing (sell high, buy low), which just feels more intuitive.
I've been using a target volatility 35% stragey with TQQQ/TMF. This adventure is part of my overall barbell strategy with a large portion of my "safe" assets being my NYC Pension. 401k, and 457b plans. My high risk/reward portion is this adventure.
"You have to understand, most people are not ready to be unplugged,and many of them are so injured, so hopelessly dependent upon the system, that they will fight to protect it." | ~Morpheus

hilink73
Posts: 435
Joined: Tue Sep 20, 2016 3:29 pm

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

Post by hilink73 » Thu Jul 02, 2020 1:56 pm

7th_Diagram wrote:
Thu Jul 02, 2020 1:19 pm
hilink73 wrote:
Thu Jul 02, 2020 12:21 pm
Haven't update my numbers in a while.

Still doing target volatility 25% strategy using PV.

Allocation is per end of month for the next month (end of month rebalancing).
Performance is per end of month.

Feb UPRO 42% / TMF 58% Perf.: -9.3%
Mar UPRO 9% / TMF 91% Perf.: -10.9%
Apr UPRO 21% / TMF 79% Perf.: 6.7%
May UPRO 37% / TMF 63% Perf.: -3.0%
June UPRO 31% / TMF 69% Perf.: 0.3%


Still having trouble to sell into losses to maintain the suggested allocation for the target volatility.
I've considered switching back to HF original strategy with "normal" rebalancing (sell high, buy low), which just feels more intuitive.
I've been using a target volatility 35% stragey with TQQQ/TMF. This adventure is part of my overall barbell strategy with a large portion of my "safe" assets being my NYC Pension. 401k, and 457b plans. My high risk/reward portion is this adventure.
Interesting.
I think TQQQ is even more volatile, isn't it.
If I remember correctly, a target volatility between 20-25% was considered a sweet spot for UPRO (but that's a discussion a few hundred posts in the past).

But looking at the charts, TQQQ has recovered much more than UPRO up to this day. :shock:

Alaric
Posts: 60
Joined: Tue Feb 05, 2019 1:38 pm

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

Post by Alaric » Thu Jul 02, 2020 2:01 pm

TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
My UPRO/TQQQ/TMF Adventure is in my E*Trade Roth IRA.

glenmalan
Posts: 35
Joined: Sun Feb 04, 2018 7:44 pm

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

Post by glenmalan » Thu Jul 02, 2020 6:22 pm

Does anyone know where Hedgefundie went to?

User avatar
ltdshred
Posts: 65
Joined: Sun Jul 07, 2019 9:41 pm

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

Post by ltdshred » Thu Jul 02, 2020 7:22 pm

hilink73 wrote:
Thu Jul 02, 2020 1:56 pm
7th_Diagram wrote:
Thu Jul 02, 2020 1:19 pm
hilink73 wrote:
Thu Jul 02, 2020 12:21 pm
Haven't update my numbers in a while.

Still doing target volatility 25% strategy using PV.

Allocation is per end of month for the next month (end of month rebalancing).
Performance is per end of month.

Feb UPRO 42% / TMF 58% Perf.: -9.3%
Mar UPRO 9% / TMF 91% Perf.: -10.9%
Apr UPRO 21% / TMF 79% Perf.: 6.7%
May UPRO 37% / TMF 63% Perf.: -3.0%
June UPRO 31% / TMF 69% Perf.: 0.3%


Still having trouble to sell into losses to maintain the suggested allocation for the target volatility.
I've considered switching back to HF original strategy with "normal" rebalancing (sell high, buy low), which just feels more intuitive.
I've been using a target volatility 35% stragey with TQQQ/TMF. This adventure is part of my overall barbell strategy with a large portion of my "safe" assets being my NYC Pension. 401k, and 457b plans. My high risk/reward portion is this adventure.
Interesting.
I think TQQQ is even more volatile, isn't it.
If I remember correctly, a target volatility between 20-25% was considered a sweet spot for UPRO (but that's a discussion a few hundred posts in the past).

But looking at the charts, TQQQ has recovered much more than UPRO up to this day. :shock:
Nasdaq was the same during the last financial crisis. Energy and financials aren't in Nasdaq, so you're going to get some safety. It is not all tech like a lot of contributors like you to believe on this thread. It's a very well balanced index with large cap growth companies. 99 out of 101 of the companies in the index are also in the S&P anyway.

getjiggy
Posts: 32
Joined: Mon Apr 08, 2019 9:33 pm

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

Post by getjiggy » Thu Jul 02, 2020 8:29 pm

Interesting that recently after the Mar 23 recovery, NTSX is trailing SPY good bit. (18% vs 26%)
https://imgur.com/a/lujCxUM

But comes out ahead for the whole year (3.7% vs -3.1%)
https://imgur.com/a/qNbxqcX

What does it tell about behavior of NTSX?

ChrisBenn
Posts: 329
Joined: Mon Aug 05, 2019 7:56 pm

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

Post by ChrisBenn » Thu Jul 02, 2020 8:49 pm

getjiggy wrote:
Thu Jul 02, 2020 8:29 pm
Interesting that recently after the Mar 23 recovery, NTSX is trailing SPY good bit. (18% vs 26%)
https://imgur.com/a/lujCxUM

But comes out ahead for the whole year (3.7% vs -3.1%)
https://imgur.com/a/qNbxqcX

What does it tell about behavior of NTSX?

I replied here:
viewtopic.php?f=10&t=302218&p=5348392#p5348392

(I think your data is wrong:)

https://stockcharts.com/h-perf/ui?s=NTS ... 2580067370
Image

TechFI
Posts: 110
Joined: Fri Jun 05, 2020 12:07 am

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

Post by TechFI » Thu Jul 02, 2020 9:58 pm

I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?

drzzzzz
Posts: 506
Joined: Sat Sep 22, 2012 9:56 pm

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

Post by drzzzzz » Thu Jul 02, 2020 10:01 pm

TechFI wrote:
Thu Jul 02, 2020 10:34 am
Where are people buying UPRO/TMF? I tried purchasing some in my Roth IRA (Vanguard), and it would not allow me to buy leveraged products?!
fidelity

RocketShipTech
Posts: 270
Joined: Sat Jun 13, 2020 10:08 pm

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

Post by RocketShipTech » Thu Jul 02, 2020 10:02 pm

TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
You remember incorrectly. In March there was never a day when the market crashed -20% and stayed there for the full day.

TechFI
Posts: 110
Joined: Fri Jun 05, 2020 12:07 am

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

Post by TechFI » Thu Jul 02, 2020 10:08 pm

RocketShipTech wrote:
Thu Jul 02, 2020 10:02 pm
TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
You remember incorrectly. In March there was never a day when the market crashed -20% and stayed there for the full day.
Regardless of history, that means we are still betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines? I'm assuming the fund will close down once it loses most of its value...

For example, I've noticed the backtesting never went back to the Great Depression era, and the drop was almost 90%. I'm not sure what the daily drops were though, but I wouldn't be surprised if we have consecutive days of 20% loses... would this UPRO/TMF risk parity worked back then?

EDIT: To clarify by consecutive I should be stated that it could be non-consecutive days interspersed with days of close to zero growth/decline.
Last edited by TechFI on Thu Jul 02, 2020 10:11 pm, edited 1 time in total.

RocketShipTech
Posts: 270
Joined: Sat Jun 13, 2020 10:08 pm

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

Post by RocketShipTech » Thu Jul 02, 2020 10:11 pm

TechFI wrote:
Thu Jul 02, 2020 10:08 pm
RocketShipTech wrote:
Thu Jul 02, 2020 10:02 pm
TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
You remember incorrectly. In March there was never a day when the market crashed -20% and stayed there for the full day.
Regardless of history, that means we are still betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines? I'm assuming the fund will close down once it loses most of its value...

For example, I've noticed the backtesting never went back to the Great Depression era, and the drop was almost 90%. I'm not sure what the daily drops were though, but I wouldn't be surprised if we have consecutive days of 20% loses... would this UPRO/TMF risk parity worked back then?
You are speculating about something that has only happened once in history. In 1987 Black Monday the S&P 500 dropped -20% in one day.

No other day has come close, including during the Great Depression.

Gufomel
Posts: 524
Joined: Sat Feb 14, 2015 9:52 pm

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

Post by Gufomel » Fri Jul 03, 2020 6:21 am

TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
The S&P circuit breakers trigger at 7%, 13%, and 20% declines. You’re correct that the circuit breaker triggered a few times in March, but that was the 7% trigger.

3-4 straight days of 20% circuit breaker triggers is not worth worrying about IMO. Even an unleveraged investment in the S&P would lose 60% of its original value if it saw 4 consecutive days of 20% down circuit breakers. We have much bigger things to worry about if the S&P loses 60% in 4 days.

I’d be more concerned about this strategy going south due to inflation crushing TMF and/or a long-term flat equity market bleeding UPRO to death due to volatility decay. Neither of those have an extremely high cause for concern IMO, but significantly higher than 4 straight days of S&P 20% down.

taojaxx
Posts: 88
Joined: Wed Jul 18, 2012 8:25 pm

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

Post by taojaxx » Fri Jul 03, 2020 8:32 am

TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
This strategy is not the Holy Grail of outsized returns with managed risk. It is basically short tail risk so if tail risk (in many forms: inflation returns, stocks crater, LETF issuers go belly up and others I can't fathom) materializes, the strategy blows up. Hence reserve it to money you can afford to lose.
I like to think of it as having three equally likely potential outcomes: Blows up, Mediocre returns close to the index but with crazy vol, Big payout.
That Hedgefundie's yacht doesn't come easy. 66% chance it never shows up. And I'm thinking positive here.
Also, don't trust PV too much: PV runs on monthly numbers and is blind to intra-month moves. Plenty of chances to blow up in between.

Rad Dad
Posts: 25
Joined: Fri Aug 09, 2019 9:48 pm

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

Post by Rad Dad » Fri Jul 03, 2020 10:42 am

Gufomel wrote:
Fri Jul 03, 2020 6:21 am
The S&P circuit breakers trigger at 7%, 13%, and 20% declines. You’re correct that the circuit breaker triggered a few times in March, but that was the 7% trigger.

3-4 straight days of 20% circuit breaker triggers is not worth worrying about IMO. Even an unleveraged investment in the S&P would lose 60% of its original value if it saw 4 consecutive days of 20% down circuit breakers. We have much bigger things to worry about if the S&P loses 60% in 4 days.

I’d be more concerned about this strategy going south due to inflation crushing TMF and/or a long-term flat equity market bleeding UPRO to death due to volatility decay. Neither of those have an extremely high cause for concern IMO, but significantly higher than 4 straight days of S&P 20% down.
Completely agree with this assessment.

RocketShipTech
Posts: 270
Joined: Sat Jun 13, 2020 10:08 pm

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

Post by RocketShipTech » Fri Jul 03, 2020 10:44 am

taojaxx wrote:
Fri Jul 03, 2020 8:32 am
TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
This strategy is not the Holy Grail of outsized returns with managed risk. It is basically short tail risk so if tail risk (in many forms: inflation returns, stocks crater, LETF issuers go belly up and others I can't fathom) materializes, the strategy blows up. Hence reserve it to money you can afford to lose.
I like to think of it as having three equally likely potential outcomes: Blows up, Mediocre returns close to the index but with crazy vol, Big payout.
That Hedgefundie's yacht doesn't come easy. 66% chance it never shows up. And I'm thinking positive here.
Also, don't trust PV too much: PV runs on monthly numbers and is blind to intra-month moves. Plenty of chances to blow up in between.
Tail risk showing up is “equally likely” as the other outcomes? Explain that one for us please.

taojaxx
Posts: 88
Joined: Wed Jul 18, 2012 8:25 pm

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

Post by taojaxx » Fri Jul 03, 2020 10:57 am

RocketShipTech wrote:
Fri Jul 03, 2020 10:44 am
taojaxx wrote:
Fri Jul 03, 2020 8:32 am
TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
This strategy is not the Holy Grail of outsized returns with managed risk. It is basically short tail risk so if tail risk (in many forms: inflation returns, stocks crater, LETF issuers go belly up and others I can't fathom) materializes, the strategy blows up. Hence reserve it to money you can afford to lose.
I like to think of it as having three equally likely potential outcomes: Blows up, Mediocre returns close to the index but with crazy vol, Big payout.
That Hedgefundie's yacht doesn't come easy. 66% chance it never shows up. And I'm thinking positive here.
Also, don't trust PV too much: PV runs on monthly numbers and is blind to intra-month moves. Plenty of chances to blow up in between.
Tail risk showing up is “equally likely” as the other outcomes? Explain that one for us please.
1) Fat tails
2) Equally likely in my mind. I want to invest with eyes wide open so don't care much about the ex-ante probability, as I'd rather overweight tail risk rather than the other way around.

Mickelous
Posts: 63
Joined: Mon Apr 20, 2020 11:24 pm

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

Post by Mickelous » Fri Jul 03, 2020 11:08 am

taojaxx wrote:
Fri Jul 03, 2020 10:57 am
RocketShipTech wrote:
Fri Jul 03, 2020 10:44 am
taojaxx wrote:
Fri Jul 03, 2020 8:32 am
TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
This strategy is not the Holy Grail of outsized returns with managed risk. It is basically short tail risk so if tail risk (in many forms: inflation returns, stocks crater, LETF issuers go belly up and others I can't fathom) materializes, the strategy blows up. Hence reserve it to money you can afford to lose.
I like to think of it as having three equally likely potential outcomes: Blows up, Mediocre returns close to the index but with crazy vol, Big payout.
That Hedgefundie's yacht doesn't come easy. 66% chance it never shows up. And I'm thinking positive here.
Also, don't trust PV too much: PV runs on monthly numbers and is blind to intra-month moves. Plenty of chances to blow up in between.
Tail risk showing up is “equally likely” as the other outcomes? Explain that one for us please.
1) Fat tails
2) Equally likely in my mind. I want to invest with eyes wide open so don't care much about the ex-ante probability, as I'd rather overweight tail risk rather than the other way around.
That's like a binary theory of with two outcomes both are equally likely to happen. So apple stock @ $1,000,000,000 / share equally as likely as $0. Probabilities need to be weighted properly to make a rational decision.

taojaxx
Posts: 88
Joined: Wed Jul 18, 2012 8:25 pm

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

Post by taojaxx » Fri Jul 03, 2020 3:39 pm

Mickelous wrote:
Fri Jul 03, 2020 11:08 am
taojaxx wrote:
Fri Jul 03, 2020 10:57 am
RocketShipTech wrote:
Fri Jul 03, 2020 10:44 am
taojaxx wrote:
Fri Jul 03, 2020 8:32 am
TechFI wrote:
Thu Jul 02, 2020 9:58 pm
I wanted to revisit the 3X leverage calcs again to be sure I understand it correct.

UPRO will basically 3X the daily returns, so by definition if the S&P 500 crashes by 33% it will go to zero (technically 1%).

But because of circuit breakers, the max the index can decrease is 20%, so that's a 60% loss on UPRO.

Doesn't that mean that if we have a 3-consecutive day of circuit breaking drops we would get 0.4 x 0.4 x 0.4 = 6.4% of its original value? Add on a 4th day and it becomes 2.56%. Wouldn't that be sufficient to cause a liquidation event?

During the fast crashing period in Mar, I remember reading the circuit breakers went off on numerous days. Is the only reason UPRO did not go to near zero because those days were usually interspersed with some days of rather rapid recovery?

If all of these is true, then we are basically betting that S&P 500 will not have 3-4+ consecutive days of max circuit breaker declines, am I right?
This strategy is not the Holy Grail of outsized returns with managed risk. It is basically short tail risk so if tail risk (in many forms: inflation returns, stocks crater, LETF issuers go belly up and others I can't fathom) materializes, the strategy blows up. Hence reserve it to money you can afford to lose.
I like to think of it as having three equally likely potential outcomes: Blows up, Mediocre returns close to the index but with crazy vol, Big payout.
That Hedgefundie's yacht doesn't come easy. 66% chance it never shows up. And I'm thinking positive here.
Also, don't trust PV too much: PV runs on monthly numbers and is blind to intra-month moves. Plenty of chances to blow up in between.
Tail risk showing up is “equally likely” as the other outcomes? Explain that one for us please.
1) Fat tails
2) Equally likely in my mind. I want to invest with eyes wide open so don't care much about the ex-ante probability, as I'd rather overweight tail risk rather than the other way around.
That's like a binary theory of with two outcomes both are equally likely to happen. So apple stock @ $1,000,000,000 / share equally as likely as $0. Probabilities need to be weighted properly to make a rational decision.
Taleb showed us way back that "properly weighting" went way beyond Statistics 101. Especially as regards asset prices. Not to mention triple leveraged assets.

Post Reply