HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by wackerdr »

AnilG wrote: Thu Sep 10, 2020 8:07 am 20 day volatility = Standard Deviation of daily returns for past 20 trading days.

inverse volatility = 1 / volatility = 1/ Standard Deviation

Rebalancing using inverse volatility = portfolio allocation of an ETF = inverse volatility of the ETF / sum of inverse volatility of both ETFs.

Refer to Section 3.1 of following research paper. I used the equation in this section to calculate portfolio allocation.

Mailard S., Roncalli T., Teiletche J., On the properties of equally-weighted risk contributions portfolios, (May 2009)
http://www.thierry-roncalli.com/download/erc.pdf. Older version available at SSRN at https://papers.ssrn.com/sol3/papers.cfm ... id=1271972
worthit wrote: Wed Sep 09, 2020 10:17 am
AnilG wrote: Tue Sep 08, 2020 5:00 am I am using TQQQ/TMF strategy with monthly rebalancing using inverse volatility with 20 day volatility.
Now this is what I am not clear about. What does "rebalancing using inverse volatility with 20 day volatility" mean in the above response?

TIA.
@AnilG , can you post a idiots guide/example to implement this. I checked the section 3.1 but cant figure out the mechanics of implementation.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

kerstverlichting wrote: Thu Sep 10, 2020 5:48 am [@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
The calculations are correct for the samples I tried.
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

jarjarM wrote: Thu Sep 10, 2020 11:17 am
cos wrote: Wed Sep 09, 2020 9:33 pm
jarjarM wrote: Wed Sep 09, 2020 7:42 pm Yes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.
Have you shared the code elsewhere in the thread? If not, I'd love to see it!
Not yet, was going to fix a few items and publish it but got sidetracked by work project. Probably will jump back into fixing this little pet project in the next week or so I hope.
Awesome! I eagerly await its arrival. By the way, how does Tiingo compare to Polygon as a data provider? I've been using the latter in my scripts, but if the former is better, I might want to switch.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

cos wrote: Thu Sep 10, 2020 8:39 pm
jarjarM wrote: Thu Sep 10, 2020 11:17 am
cos wrote: Wed Sep 09, 2020 9:33 pm
jarjarM wrote: Wed Sep 09, 2020 7:42 pm Yes, the original backtest shown was using the same parameters as presented in smartly's strategy paper. I don't think the new spreadsheet uses 126 day correlation due to the fact that yahoo only allows download data of 100 days. I uses Tiingo API and python to do my backtest as my little side project during the pandemic, just for fun.
Have you shared the code elsewhere in the thread? If not, I'd love to see it!
Not yet, was going to fix a few items and publish it but got sidetracked by work project. Probably will jump back into fixing this little pet project in the next week or so I hope.
Awesome! I eagerly await its arrival. By the way, how does Tiingo compare to Polygon as a data provider? I've been using the latter in my scripts, but if the former is better, I might want to switch.
If you are only working with closing price, then Tiingo free is better since its historical data goes much farther back (I think up to 30 years). If you're working with real time data to trade the Polygon is better I think.
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kerstverlichting
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kerstverlichting »

Perfect Uncertainty wrote: Thu Sep 10, 2020 2:59 pm If you get a daily AAA reading and it says allocate 35% to UPRO and you want to execute the order the next day. Let’s say it’s a highly volatile period and UPRO gaps down over 5% at the open. I personally like to have the AAA close to real-time so I can execute my order accordingly
This makes a lot of sense. I'll see if I can update my file to optionally include the current day, last price (I can, just need to find some extra time mostly). This way you can run the file the last trading day of the month before close, the calculations will include that day, and you can still place your trades before close to avoid the risk of it gapping a lot the next day.
jarjarM wrote: Thu Sep 10, 2020 11:23 am I'll take a look at it tonight. Though I think 100 days or 126 days may not make much of a difference and any positive or negative will be more due to overfitting of past performance data. However, one thing I would say though is that there's real evidence (either thru backtest or academic study) that trading day makes difference. Last trading of the month is generally use for the calculation and then trade takes place using the first day of trading in next month. But one shifts to the trading day to middle of the month (11 day offset), one loses 2% in CAGR, or if one shift trading day toward 2nd 1/2 of the month (15 day offset), one loses 5% CAGR. Very crazy. I'll try to pose some of these backtest nugget tonight. But everyone should seriously consider their rebalance day, just food for thought. :beer
Solid advice jarjarM, can you tell me, if I were to implement current day prices (optionally) as explained to be optimal by Perfect Uncertainty, what would be the best day to both run the report and rebalance? Would it be the last day of the month, the first, ...? Would be really helpful to know this if it makes that much of a difference!
e5116 wrote: Thu Sep 10, 2020 4:27 pm [...]

I must be dumb beacuse I'm missing something. I thought the spreadsheet defaults to 21 days volatility? What cell did you update to get the resulting more "normal" UPRO/TMF with under 60% in TMF. I, too, am getting like 22% UPRO/78% TMF. (Note: I'm not implementing this strategy...yet...just trying to learn). Thank you!
Hi, just use the asset allocation block, you can choose 3 tickers for stocks, and 3 for bonds. If you click the fields a drop down will appear.
Mickelous wrote: Thu Sep 10, 2020 5:12 pm Would you be able to fit 2x gold UGL in there? I wasn't able to get it working with the steps. Too bad the 3x gold etf got shut down, unless there is another one I'm not aware of.
Yes, I'll add a few more tickers that have been mentioned here in the next update. :)
perfectuncertainty wrote: Thu Sep 10, 2020 8:08 pm
kerstverlichting wrote: Thu Sep 10, 2020 5:48 am [@perfectuncertainty, could you perhaps have a quick look and verify the calculated results (for min var and inv vol) look alright to you? I more or less copied the logic from your file but just want to be sure as this is not my area of expertise.
The calculations are correct for the samples I tried.
Nice, much appreciated!
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Meaty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Meaty »

Is anyone dollar cost averaging into this strategy? I run this in both Roth and taxable and have been adding bi-weekly to the taxable portion and will probably add more Roth next year too. Interested to know if anyone has determined if that would be detrimental (ie essentially rebalancing away from the gains throughout the quarter)
"Discipline equals Freedom" - Jocko Willink
RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

Meaty wrote: Fri Sep 11, 2020 6:37 am Is anyone dollar cost averaging into this strategy? I run this in both Roth and taxable and have been adding bi-weekly to the taxable portion and will probably add more Roth next year too. Interested to know if anyone has determined if that would be detrimental (ie essentially rebalancing away from the gains throughout the quarter)
Its a very good question I have also been wondering. Someone is probably capable of some good analysis on the topic, but my guess is that DCA is suboptimal compared to a single deposit and quarterly rebalancing the HFEA (but who knows when you account for the drag of taxes). For a lump sum, CAGR for quarterly rebalancing is better than for monthly, so my guess is that bi-weekly "rebalancing" is likely closer to the monthly rebalancing. That would all be with the caveat that one could deposit the lump sum instead of DCA.

Comparing rebalancing a lump sum vs DCA seems difficult because some have shown that 2/3 of the times lump sum investments outperform DCA, so there seems to be sequence of deposit difference between the two techniques which clouds the picture. My guess is that it just represents having more money in the market earlier to grow. Some of us DCA because we are contributing parts of our paycheck, so in a lot of ways a large lump sum isn't even possible (or we would lose out on time in the market).

If you are doing DCA because of salary contributions, it seems like the real comparison would be to compare biweekly deposits to the HFEA and rebalancing to 55/45 upro/tmf with the deposits vs biweekly contributions to the standard 55/45 upro/tmf with quarterly rebalancing (and subtracting the tax implications). Also depending on the growth of your taxable portion, you may get to the point where your biweekly deposits are not enough to rebalance.

Hopefully someone smart is able to calculate that difference for us!
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Meaty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Meaty »

RovenSkyfall wrote: Fri Sep 11, 2020 7:25 am
Meaty wrote: Fri Sep 11, 2020 6:37 am Is anyone dollar cost averaging into this strategy? I run this in both Roth and taxable and have been adding bi-weekly to the taxable portion and will probably add more Roth next year too. Interested to know if anyone has determined if that would be detrimental (ie essentially rebalancing away from the gains throughout the quarter)
Its a very good question I have also been wondering. Someone is probably capable of some good analysis on the topic, but my guess is that DCA is suboptimal compared to a single deposit and quarterly rebalancing the HFEA (but who knows when you account for the drag of taxes). For a lump sum, CAGR for quarterly rebalancing is better than for monthly, so my guess is that bi-weekly "rebalancing" is likely closer to the monthly rebalancing. That would all be with the caveat that one could deposit the lump sum instead of DCA.

Comparing rebalancing a lump sum vs DCA seems difficult because some have shown that 2/3 of the times lump sum investments outperform DCA, so there seems to be sequence of deposit difference between the two techniques which clouds the picture. My guess is that it just represents having more money in the market earlier to grow. Some of us DCA because we are contributing parts of our paycheck, so in a lot of ways a large lump sum isn't even possible (or we would lose out on time in the market).

If you are doing DCA because of salary contributions, it seems like the real comparison would be to compare biweekly deposits to the HFEA and rebalancing to 55/45 upro/tmf with the deposits vs biweekly contributions to the standard 55/45 upro/tmf with quarterly rebalancing (and subtracting the tax implications). Also depending on the growth of your taxable portion, you may get to the point where your biweekly deposits are not enough to rebalance.

Hopefully someone smart is able to calculate that difference for us!
Thanks - I think your analysis is right although I’m also not skilled enough to do the testing. As an anecdotal data point, I’ve been DCA’ing into the taxable portion for the last year and am still up considerably over the S&P but less than my Roth portion by almost 10%.
"Discipline equals Freedom" - Jocko Willink
AnilG
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AnilG »

Try DCA monthly instead of biweekly and use DCA to bring back allocation in balance. By reducing sale of rising ETF, you will reduce your capital gain tax bill. In my backtesting with TQQQ/TMF, biweekly rebalancing had poorer results compared to monthly rebalancing. I can't explain the reasons. I didn't test DCA specifically as it is not a use case of interest personally,
Meaty wrote: Fri Sep 11, 2020 6:37 am Is anyone dollar cost averaging into this strategy? I run this in both Roth and taxable and have been adding bi-weekly to the taxable portion and will probably add more Roth next year too. Interested to know if anyone has determined if that would be detrimental (ie essentially rebalancing away from the gains throughout the quarter)
worthit
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by worthit »

wackerdr wrote: Thu Sep 10, 2020 6:59 pm
AnilG wrote: Thu Sep 10, 2020 8:07 am 20 day volatility = Standard Deviation of daily returns for past 20 trading days.

inverse volatility = 1 / volatility = 1/ Standard Deviation

Rebalancing using inverse volatility = portfolio allocation of an ETF = inverse volatility of the ETF / sum of inverse volatility of both ETFs.

Refer to Section 3.1 of following research paper. I used the equation in this section to calculate portfolio allocation.

Mailard S., Roncalli T., Teiletche J., On the properties of equally-weighted risk contributions portfolios, (May 2009)
http://www.thierry-roncalli.com/download/erc.pdf. Older version available at SSRN at https://papers.ssrn.com/sol3/papers.cfm ... id=1271972
worthit wrote: Wed Sep 09, 2020 10:17 am
AnilG wrote: Tue Sep 08, 2020 5:00 am I am using TQQQ/TMF strategy with monthly rebalancing using inverse volatility with 20 day volatility.
Now this is what I am not clear about. What does "rebalancing using inverse volatility with 20 day volatility" mean in the above response?

TIA.
@AnilG , can you post a idiots guide/example to implement this. I checked the section 3.1 but cant figure out the mechanics of implementation.
Thank you, AnilG. I was thinking of the same as wackerdr. Some of the calcualations are too tedious for a lazyphile like me. :D. I just dont want to mess this up. Thanks for the paper. If you or someone can do a dummies version of this, that would be greatly appreciated.
RovenSkyfall
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RovenSkyfall »

worthit wrote: Fri Sep 11, 2020 8:43 am
Thank you, AnilG. I was thinking of the same as wackerdr. Some of the calcualations are too tedious for a lazyphile like me. :D. I just dont want to mess this up. Thanks for the paper. If you or someone can do a dummies version of this, that would be greatly appreciated.
People can correct me if I am wrong, but I believe the wonderful excel file recently made available should be able to do the calculations for you.
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Meaty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Meaty »

AnilG wrote: Fri Sep 11, 2020 8:11 am Try DCA monthly instead of biweekly and use DCA to bring back allocation in balance. By reducing sale of rising ETF, you will reduce your capital gain tax bill. In my backtesting with TQQQ/TMF, biweekly rebalancing had poorer results compared to monthly rebalancing. I can't explain the reasons. I didn't test DCA specifically as it is not a use case of interest personally,
Meaty wrote: Fri Sep 11, 2020 6:37 am Is anyone dollar cost averaging into this strategy? I run this in both Roth and taxable and have been adding bi-weekly to the taxable portion and will probably add more Roth next year too. Interested to know if anyone has determined if that would be detrimental (ie essentially rebalancing away from the gains throughout the quarter)
Thank you
"Discipline equals Freedom" - Jocko Willink
number1bestevan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by number1bestevan »

RovenSkyfall wrote: Fri Sep 11, 2020 8:50 am
worthit wrote: Fri Sep 11, 2020 8:43 am
Thank you, AnilG. I was thinking of the same as wackerdr. Some of the calcualations are too tedious for a lazyphile like me. :D. I just dont want to mess this up. Thanks for the paper. If you or someone can do a dummies version of this, that would be greatly appreciated.
People can correct me if I am wrong, but I believe the wonderful excel file recently made available should be able to do the calculations for you.
Loving the excel doc + collaboration.

For the excel, 6 month data for free here. https://www.barchart.com/ondemand/free-market-data-api

Same setup as yahoo in excel.
- Data -> From Web -> enter something like https://marketdata.websol.barchart.com/ ... 0101000000 into popup and it will load symbol, timestamp, day, open, high, low, close, volume. (note:doesn't matter what date as long as its after 6 months, barchart auto limits to 6 months.)

I'm interested in seeing the SIM data backtests for TQQQ/TMF, QLD/TMF, and UPRO/TMF since the 80s for Minimum Variance compared to Inverse Volatility, Equal Weight, and HFEA. I know someone dumped a chart showing Min Var and Inverse Vol worked great, but what are the stats for that time frame (sharpe, sortino, drawdown, cagr, ect)? Is it really that much better than quarterly rebalance 55/45 for minimizing drawdown while maintaining CAGR?
Last edited by number1bestevan on Fri Sep 11, 2020 8:21 pm, edited 1 time in total.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

number1bestevan wrote: Fri Sep 11, 2020 8:19 pm
RovenSkyfall wrote: Fri Sep 11, 2020 8:50 am
worthit wrote: Fri Sep 11, 2020 8:43 am
Thank you, AnilG. I was thinking of the same as wackerdr. Some of the calcualations are too tedious for a lazyphile like me. :D. I just dont want to mess this up. Thanks for the paper. If you or someone can do a dummies version of this, that would be greatly appreciated.
People can correct me if I am wrong, but I believe the wonderful excel file recently made available should be able to do the calculations for you.
Loving the excel doc + collaboration.

For the excel, 6 month data for free here. https://www.barchart.com/ondemand/free-market-data-api

Same setup as yahoo in excel.
- Data -> From Web -> enter something like https://marketdata.websol.barchart.com/ ... 0101000000 into popup and it will load symbol, timestamp, day, open, high, low, close, volume. (note:doesn't matter what date as long as its after 6 months, barchart auto limits to 6 months.)

I'm interested in seeing the SIM data backtests for TQQQ/TMF, QLD/TMF, and UPRO/TMF since the 80s for Minimum Variance compared to Inverse Volatility, Equal Weight, and HFEA. I know someone dumped a chart showing Min Var and Inverse Vol worked great, but what are the stats for that time frame (sharpe, sortino, drawdown, cagr, ect)? Is it really that much better than quarterly rebalance 55/45 for minimizing drawdown while maintaining CAGR?
upro/tmf/tqqq inverse volatility has gotten 37.97% CAGR since July 2011 according to my backtest. Minimum Variance 35.88%.
Jdahlen
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jdahlen »

What is the most aggressive option to use? I am currently using my brokerage for Schwab, and have been reading through this thread.

If I’m understanding correctly, I can use the excel spreadsheet to plug in my account value and it will then tell me where to put my allocations of assets?
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Jdahlen wrote: Sun Sep 13, 2020 12:43 am What is the most aggressive option to use? I am currently using my brokerage for Schwab, and have been reading through this thread.

If I’m understanding correctly, I can use the excel spreadsheet to plug in my account value and it will then tell me where to put my allocations of assets?
The 'most aggressive option' would be to go 100% UPRO, but that's highly inadvisable due to the strong historic likelihood of a 90%+ drawdown that it would take decades to recover from.

If you're looking for a fixed allocation, I'd say that something like 60% UPRO and 40% TMF is about as aggressive as seems prudent to me.
“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
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

willthrill81 wrote: Sun Sep 13, 2020 10:19 am
Jdahlen wrote: Sun Sep 13, 2020 12:43 am What is the most aggressive option to use? I am currently using my brokerage for Schwab, and have been reading through this thread.

If I’m understanding correctly, I can use the excel spreadsheet to plug in my account value and it will then tell me where to put my allocations of assets?
The 'most aggressive option' would be to go 100% UPRO, but that's highly inadvisable due to the strong historic likelihood of a 90%+ drawdown that it would take decades to recover from.

If you're looking for a fixed allocation, I'd say that something like 60% UPRO and 40% TMF is about as aggressive as seems prudent to me.
I'd say tqqq/tmf is more aggressive.
Perfect Uncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Perfect Uncertainty »

Mickelous wrote: Sun Sep 13, 2020 11:11 am
willthrill81 wrote: Sun Sep 13, 2020 10:19 am
Jdahlen wrote: Sun Sep 13, 2020 12:43 am What is the most aggressive option to use? I am currently using my brokerage for Schwab, and have been reading through this thread.

If I’m understanding correctly, I can use the excel spreadsheet to plug in my account value and it will then tell me where to put my allocations of assets?
The 'most aggressive option' would be to go 100% UPRO, but that's highly inadvisable due to the strong historic likelihood of a 90%+ drawdown that it would take decades to recover from.

If you're looking for a fixed allocation, I'd say that something like 60% UPRO and 40% TMF is about as aggressive as seems prudent to me.
I'd say tqqq/tmf is more aggressive.
Asking what’s the most aggressive sounds like the wrong question. But if that’s the question use the Target Volatility model with FNGU/TMF 80/20 using target volatility of 35%
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

Perfect Uncertainty wrote: Sun Sep 13, 2020 11:29 am
Mickelous wrote: Sun Sep 13, 2020 11:11 am
willthrill81 wrote: Sun Sep 13, 2020 10:19 am
Jdahlen wrote: Sun Sep 13, 2020 12:43 am What is the most aggressive option to use? I am currently using my brokerage for Schwab, and have been reading through this thread.

If I’m understanding correctly, I can use the excel spreadsheet to plug in my account value and it will then tell me where to put my allocations of assets?
The 'most aggressive option' would be to go 100% UPRO, but that's highly inadvisable due to the strong historic likelihood of a 90%+ drawdown that it would take decades to recover from.

If you're looking for a fixed allocation, I'd say that something like 60% UPRO and 40% TMF is about as aggressive as seems prudent to me.
I'd say tqqq/tmf is more aggressive.
Asking what’s the most aggressive sounds like the wrong question. But if that’s the question use the Target Volatility model with FNGU/TMF 80/20 using target volatility of 35%
Hmm inverse volatility with FNGU TMF is looking pretty good. May switch into that at the beginning of the month.
occambogle
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by occambogle »

FNGU looks to have underperformed TQQQ up until the point that the coronavirus hit:

https://stockcharts.com/h-perf/ui?s=UPR ... 6101109688

PV Feb 2018-present - FNGU does well because of recent rise

PV Feb 2018-Jan 2020 - tells a different story, FNGU underperformed TQQQ with higher volatility

(Looking at the Efficient Frontier tabs...)
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

occambogle wrote: Sun Sep 13, 2020 12:18 pm FNGU looks to have underperformed TQQQ up until the point that the coronavirus hit:

https://stockcharts.com/h-perf/ui?s=UPR ... 6101109688

PV Feb 2018-present - FNGU does well because of recent rise

PV Feb 2018-Jan 2020 - tells a different story, FNGU underperformed TQQQ with higher volatility

(Looking at the Efficient Frontier tabs...)
TQQQ is also well more diversified than FGNU.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by occambogle »

Mickelous wrote: Sun Sep 13, 2020 12:30 pm TQQQ is also well more diversified than FGNU.
But if diversification isn't your thing you could go all-in on 3LTS, a 3x leveraged Tesla-only ETP (!!). Would be fun to plug it into PV just to see the StdDev, but it's UK only and PV doesn't have it. Obviously I am not even remotely suggesting it, am mentioning for entertainment purposes only... :-)
Perfect Uncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Perfect Uncertainty »

Use TECL and TMF then.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

Is there any other asset or asset class with a negative correlation to stocks that can be used as a hedge? There's the volatility stocks which could be beneficial, any more?
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

Trying to run a simulation where when S&P moves under 200 day moving average, to allocate a portion of the portfolio into UVXY. However portfoliovisualizer doesn't allow for that sort of calculation. I think it could be worth looking into for crash protection.
Bearbug
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Bearbug »

I'm considering ABRTX for crash protection. It's a dynamic volatility mutual fund that appears to work similarly to XVZ, but stays more flat in bull periods. Downside is the high expense ratio.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

Is there something like this on m1finance?
Investing Lawyer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Investing Lawyer »

Bearbug wrote: Mon Sep 14, 2020 2:09 pm I'm considering ABRTX for crash protection. It's a dynamic volatility mutual fund that appears to work similarly to XVZ, but stays more flat in bull periods. Downside is the high expense ratio.
Since I'm an XVZ proponent, I looked into this. That fund will hold a lot of equities from time to time which explains the superior performance during bull periods. However, we're trying to get our equity exposure through UPRO/Other equity leveraged etfs. So for pure crash protection, I'm going to stick with XVZ. It'd be nice if they had a fund that was only the volatility and cash component, but ABRTX is an all-in-one fund.

I also don't like that their asset allocation formula is kept completely secret. XVZ formula is out there for the world to see and for possible tinkering/improvement/replication.
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coingaroo
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by coingaroo »

Investing Lawyer wrote: Mon Sep 14, 2020 9:49 pm Since I'm an XVZ proponent, I looked into this. That fund will hold a lot of equities from time to time which explains the superior performance during bull periods. However, we're trying to get our equity exposure through UPRO/Other equity leveraged etfs. So for pure crash protection, I'm going to stick with XVZ. It'd be nice if they had a fund that was only the volatility and cash component, but ABRTX is an all-in-one fund.

I also don't like that their asset allocation formula is kept completely secret. XVZ formula is out there for the world to see and for possible tinkering/improvement/replication.
As you are a XVZ proponent, can I ask what your thoughts are regarding VXZ seemingly being uneffective for slow-moving market declines, such as the GFC for example? VXZ seems to perform well for situations like Covid, but I'm not sure if it can be generalised to more "typical" recessions.
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kerstverlichting
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kerstverlichting »

Hi everyone, I updated my file (v4.0 now) to include some new features:
🎈 Added a warning to indicate a refresh of the data is required
🎈 Option to include/exclude latest day's data
This is very useful if one wants to calculate the reallocation and perform the reallocation on the same day.
I've noticed TYD has very low volume, so sometimes this ticker doesn't update until sometime after market open, whereas the others update right away. If this happens, I suggest waiting until closer to market close, or disabling this option and thus exclude the current trading day's data.
🎈 Added a few requested tickers! You can now use the following:

💹 Stocks:
SPY, SSO, UPRO, QQQ, QLD, TQQQ, FNGU, TECL

💹 Bonds/Gold/Vix:
TLT, UBT, TMF, IEF, UST, TYD, GLD, UGL, VXX

Also limited the range to 94 days (4½ months) because some tickers lack a few days of data. Should not be an issue for most, as using 21 days and rebalancing monthly seems optimal.

Preview:
Image

👉 Download (1.2MB):
http://ny.hazy.cc/bogleheads/AAA.xlsx
https://gofile.io/d/3QzOge
https://www.filehosting.org/file/detail ... 8/AAA.xlsx

Would be appreciated it anyone can upload to TinyUpload as a mirror (the site doesn't load for me?), as these hosts will probably remove it after a while.
Last edited by kerstverlichting on Wed Sep 16, 2020 3:47 pm, edited 1 time in total.
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Mickelous wrote: Mon Sep 14, 2020 12:12 pm Trying to run a simulation where when S&P moves under 200 day moving average, to allocate a portion of the portfolio into UVXY. However portfoliovisualizer doesn't allow for that sort of calculation. I think it could be worth looking into for crash protection.
You're right; PV won't test that because it will not allow you to have more than one out of market asset.
“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
TMO86
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TMO86 »

Hello everyone,

I followed this thread back a few months ago but I am coming back to see how things are going.

How many of you guys are running this in your Roth IRA and what percentage is it of your Roth portfolio?

I am thinking about adding some but I want to see what how you guys are doing it.
I may not end up doing this at all but I feel like my portfolio could use a jolt. I am 29 years old and have a long term investing horizon.
Volkl_One
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Volkl_One »

TMO86 wrote: Tue Sep 15, 2020 10:37 am Hello everyone,

I followed this thread back a few months ago but I am coming back to see how things are going.

How many of you guys are running this in your Roth IRA and what percentage is it of your Roth portfolio?

I am thinking about adding some but I want to see what how you guys are doing it.
I may not end up doing this at all but I feel like my portfolio could use a jolt. I am 29 years old and have a long term investing horizon.
I'm 29 as well and 100% of my ROTH IRA is in this strategy. It's beating the S&P500 so far. It was definitely nerve-wracking during the Covid crisis, and UPRO and TMF had some wild swings. Overall this is 30% of my holdings so if it goes belly up, it will suck but it's not the end of the world.
Last edited by Volkl_One on Tue Sep 15, 2020 5:16 pm, edited 1 time in total.
vijaym73
Posts: 35
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by vijaym73 »

I’m 46

This is 100% in my 401(K) with continued bimonthly contribution— probably will change to just once a month.

Plan on doing this for 5 more years then will stop and monitor.

Have other buckets to withdraw from so not worried.

Hoping to have a sizable amount of money by end of year and will put it into the strategy in a taxable account.

Rhx

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

Post by ATLGator »

Volkl_One wrote: Tue Sep 15, 2020 4:28 pm
I'm 29 as well and 100% of my ROTH IRA is in this strategy. It's beating the S&P500 so far. It was definitely nerve-wracking during the Covid crisis, and UPRO and TMF had some wild swings. Overall this is 30% of my overall holdings so if it goes belly up, it will suck but it's not the end of the world.
Are you using the 55% UPRO / 45% TMF allocation?
Volkl_One
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Volkl_One »

ATLGator wrote: Tue Sep 15, 2020 5:17 pm
Volkl_One wrote: Tue Sep 15, 2020 4:28 pm
I'm 29 as well and 100% of my ROTH IRA is in this strategy. It's beating the S&P500 so far. It was definitely nerve-wracking during the Covid crisis, and UPRO and TMF had some wild swings. Overall this is 30% of my overall holdings so if it goes belly up, it will suck but it's not the end of the world.
Are you using the 55% UPRO / 45% TMF allocation?
That's it and I'm rebalancing quarterly.🤞
Investing Lawyer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Investing Lawyer »

coingaroo wrote: Tue Sep 15, 2020 9:25 am
Investing Lawyer wrote: Mon Sep 14, 2020 9:49 pm Since I'm an XVZ proponent, I looked into this. That fund will hold a lot of equities from time to time which explains the superior performance during bull periods. However, we're trying to get our equity exposure through UPRO/Other equity leveraged etfs. So for pure crash protection, I'm going to stick with XVZ. It'd be nice if they had a fund that was only the volatility and cash component, but ABRTX is an all-in-one fund.

I also don't like that their asset allocation formula is kept completely secret. XVZ formula is out there for the world to see and for possible tinkering/improvement/replication.
As you are a XVZ proponent, can I ask what your thoughts are regarding VXZ seemingly being uneffective for slow-moving market declines, such as the GFC for example? VXZ seems to perform well for situations like Covid, but I'm not sure if it can be generalised to more "typical" recessions.
First, Mid term VIX futures have an extremely low beta to the VIX index, less than .3.
See https://www.cboe.com/micro/vix/pdf/VIX% ... 202019.pdf pg. 3. Essentially because of the mean reverting nature of the VIX, VIX moves are extremely dampened out on the curve.
Thus, in order to mimic the VIX index, the nearer term you hold the better. However, the main problem with the near term VIX futures is the usual contago "drag" is at its highest. XVZ mixes short and midterm futures depending on the term structure of the VIX futures curve.

Second, buying volatility as a hedge works as short horizon "pop." Once we pop into a high volatility regime, volatility will slowly decay back to normal. Therefore, I don't expect volatility to ever be a good hedge for long persistent draw downs, with all the benefits coming at the initial "shock." The CBOE has some index that will use volatility hedging only if the VIX is above or below some absolute levels to try to counteract this effect.
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coingaroo
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by coingaroo »

kerstverlichting wrote: Tue Sep 15, 2020 9:41 am Hi everyone, I updated my file (v4.0 now) to include some new features:
🎈 Added a warning to indicate a refresh of the data is required
🎈 Option to include/exclude latest day's data
This is very useful if one wants to calculate the reallocation and perform the reallocation on the same day.
I've noticed TYD has very low volume, so sometimes this ticker doesn't update until sometime after market open, whereas the others update right away. If this happens, I suggest waiting until closer to market close, or disabling this option and thus exclude the current trading day's data.
🎈 Added a few requested tickers! You can now use the following:

💹 Stocks:
SPY, SSO, UPRO, QQQ, QLD, TQQQ, FNGU, TECL

💹 Bonds/Gold/Vix:
TLT, UBT, TMF, IEF, UST, TYD, GLD, UGL, VXX

Also limited the range to 94 days (4½ months) because some tickers lack a few days of data. Should not be an issue for most, as using 21 days and rebalancing monthly seems optimal.

Preview:
Image

👉 Download (1.2MB):
https://gofile.io/d/3QzOge
https://www.filehosting.org/file/detail ... 8/AAA.xlsx

Would be appreciated it anyone can upload to TinyUpload as a mirror (the site doesn't load for me?), as these hosts will probably remove it after a while.

Nice one, thank you! I will host a mirror of your file on my server for as long as possible:

http://ny.hazy.cc/bogleheads/AAA.xlsx
worthit
Posts: 263
Joined: Tue Jun 19, 2018 2:10 pm

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

Post by worthit »

coingaroo wrote: Wed Sep 16, 2020 9:08 am
kerstverlichting wrote: Tue Sep 15, 2020 9:41 am Hi everyone, I updated my file (v4.0 now) to include some new features:
🎈 Added a warning to indicate a refresh of the data is required
🎈 Option to include/exclude latest day's data
This is very useful if one wants to calculate the reallocation and perform the reallocation on the same day.
I've noticed TYD has very low volume, so sometimes this ticker doesn't update until sometime after market open, whereas the others update right away. If this happens, I suggest waiting until closer to market close, or disabling this option and thus exclude the current trading day's data.
🎈 Added a few requested tickers! You can now use the following:

💹 Stocks:
SPY, SSO, UPRO, QQQ, QLD, TQQQ, FNGU, TECL

💹 Bonds/Gold/Vix:
TLT, UBT, TMF, IEF, UST, TYD, GLD, UGL, VXX
y.cc
Also limited the range to 94 days (4½ months) because some tickers lack a few days of data. Should not be an issue for most, as using 21 days and rebalancing monthly seems optimal.

Preview:
Image

👉 Download (1.2MB):
https://gofile.io/d/3QzOge
https://www.filehosting.org/file/detail ... 8/AAA.xlsx

Would be appreciated it anyone can upload to TinyUpload as a mirror (the site doesn't load for me?), as these hosts will probably remove it after a while.

Nice one, thank you! I will host a mirror of your file on my server for as long as possible:

http://ny.hazy.cc/bogleheads/AAA.xlsx
Thank you folks.

May be it is just me but I keep getting a message that the file is corrupt from the hazy.cc and gofile.io websites when I try to download. However, the filehosting.org is asking for my email ID. I am not sure if it is safe to proceed with an email. Any suggestions?
worthit
Posts: 263
Joined: Tue Jun 19, 2018 2:10 pm

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

Post by worthit »

worthit wrote: Wed Sep 16, 2020 9:31 am
coingaroo wrote: Wed Sep 16, 2020 9:08 am
kerstverlichting wrote: Tue Sep 15, 2020 9:41 am Hi everyone, I updated my file (v4.0 now) to include some new features:
🎈 Added a warning to indicate a refresh of the data is required
🎈 Option to include/exclude latest day's data
This is very useful if one wants to calculate the reallocation and perform the reallocation on the same day.
I've noticed TYD has very low volume, so sometimes this ticker doesn't update until sometime after market open, whereas the others update right away. If this happens, I suggest waiting until closer to market close, or disabling this option and thus exclude the current trading day's data.
🎈 Added a few requested tickers! You can now use the following:

💹 Stocks:
SPY, SSO, UPRO, QQQ, QLD, TQQQ, FNGU, TECL

💹 Bonds/Gold/Vix:
TLT, UBT, TMF, IEF, UST, TYD, GLD, UGL, VXX
y.cc
Also limited the range to 94 days (4½ months) because some tickers lack a few days of data. Should not be an issue for most, as using 21 days and rebalancing monthly seems optimal.

Preview:
Image

👉 Download (1.2MB):
https://gofile.io/d/3QzOge
https://www.filehosting.org/file/detail ... 8/AAA.xlsx

Would be appreciated it anyone can upload to TinyUpload as a mirror (the site doesn't load for me?), as these hosts will probably remove it after a while.

Nice one, thank you! I will host a mirror of your file on my server for as long as possible:

http://ny.hazy.cc/bogleheads/AAA.xlsx
Thank you folks.

May be it is just me but I keep getting a message that the file is corrupt from the hazy.cc and gofile.io websites when I try to download. However, the filehosting.org is asking for my email ID. I am not sure if it is safe to proceed with an email. Any suggestions?
Sorry :oops:, please ignore my post. I just got it to download.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LadyGeek »

^^^ We posted at the same time, but I would have recommended that you don't download the file.

Never give an unknown site your email. File hosting sites can include unwanted software that show up with your download. If you've downloaded the file, run a malware check.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
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kerstverlichting
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kerstverlichting »

worthit wrote: Wed Sep 16, 2020 9:31 am Thank you folks.

May be it is just me but I keep getting a message that the file is corrupt from the hazy.cc and gofile.io websites when I try to download. However, the filehosting.org is asking for my email ID. I am not sure if it is safe to proceed with an email. Any suggestions?
Yes this is also one of the reasons I asked for a mirror (thanks for that btw coingaroo! I have added it to the post). The site seems reliable and you can use a 10minutemail but it's all a bit clumsy.
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

langlands wrote: Wed Sep 16, 2020 4:23 pm
cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
I think you're right. I guess I'm just trying to be optimistic. Maybe another way to look at this is that the cost of unexpected rate hikes is now likely to be a lot higher since the market has priced in stable low rates (ouch), and we might see a lot more volatility in TMF toward the end of the next 3 years as the market tries to more accurately price in future rate hikes (double ouch).

Or maybe something entirely different will happen because nobody knows nothing and we're all just betting on hopefully persistently positively biased dice rolls with hopefully persistently low average correlation and hopefully persistently similar average volatility.
langlands
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

cos wrote: Wed Sep 16, 2020 5:14 pm
langlands wrote: Wed Sep 16, 2020 4:23 pm
cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
I think you're right. I guess I'm just trying to be optimistic. Maybe another way to look at this is that the cost of unexpected rate hikes is now likely to be a lot higher since the market has priced in stable low rates (ouch), and we might see a lot more volatility in TMF toward the end of the next 3 years as the market tries to more accurately price in future rate hikes (double ouch).

Or maybe something entirely different will happen because nobody knows nothing and we're all just betting on hopefully persistently positively biased dice rolls with hopefully persistently low average correlation and hopefully persistently similar average volatility.
Yeah, considering it seemed to work out reasonably well in the recent past, I guess no news is good news. But I definitely agree that there's this sense in which risk seems to keep being pushed into the future. The conventional thinking (e.g. Milton Friedman) was that you can't do that indefinitely and eventually the chickens must come home to roost so to speak. More and more though we're hearing the opinion that $10 trillion in government debt is not only not a problem, it's too little. The big question is whether this new sentiment is a correct shift in our understanding of macroeconomics or whether it is instead a disturbing sign of a bond bubble.
Mickelous
Posts: 133
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

cos wrote: Wed Sep 16, 2020 5:14 pm
langlands wrote: Wed Sep 16, 2020 4:23 pm
cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
I think you're right. I guess I'm just trying to be optimistic. Maybe another way to look at this is that the cost of unexpected rate hikes is now likely to be a lot higher since the market has priced in stable low rates (ouch), and we might see a lot more volatility in TMF toward the end of the next 3 years as the market tries to more accurately price in future rate hikes (double ouch).

Or maybe something entirely different will happen because nobody knows nothing and we're all just betting on hopefully persistently positively biased dice rolls with hopefully persistently low average correlation and hopefully persistently similar average volatility.
I think what is more important than daily correlation, is how has TMF correllated over the last quarter? Since most of us are rebalancing once every few months. I've noticed that TMF has been pretty flat while UPRO has been steadily gaining and TQQQ has taken off in the past 3 months. Fine by me. I'd rather have TMF take a dive while the other assets are doing well so it will have room to grow when TQQQ and UPRO hit a wall.
corp_sharecropper
Posts: 307
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by corp_sharecropper »

langlands wrote: Wed Sep 16, 2020 5:50 pm
cos wrote: Wed Sep 16, 2020 5:14 pm
langlands wrote: Wed Sep 16, 2020 4:23 pm
cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
I think you're right. I guess I'm just trying to be optimistic. Maybe another way to look at this is that the cost of unexpected rate hikes is now likely to be a lot higher since the market has priced in stable low rates (ouch), and we might see a lot more volatility in TMF toward the end of the next 3 years as the market tries to more accurately price in future rate hikes (double ouch).

Or maybe something entirely different will happen because nobody knows nothing and we're all just betting on hopefully persistently positively biased dice rolls with hopefully persistently low average correlation and hopefully persistently similar average volatility.
Yeah, considering it seemed to work out reasonably well in the recent past, I guess no news is good news. But I definitely agree that there's this sense in which risk seems to keep being pushed into the future. The conventional thinking (e.g. Milton Friedman) was that you can't do that indefinitely and eventually the chickens must come home to roost so to speak. More and more though we're hearing the opinion that $10 trillion in government debt is not only not a problem, it's too little. The big question is whether this new sentiment is a correct shift in our understanding of macroeconomics or whether it is instead a disturbing sign of a bond bubble.
People who think borrowing to infinity forever are living in a fantasy world. There's some nincompoop lady that recently published a book advocating this and I happen to notice that the most receptive audience/media for her publicity tour were all those with publicly known inclinations to spend even more of said borrowed/printed money. There's a point where common sense and finite natural laws trump ivory tower theory and sociopolitical desires. These people will be nowhere to be found when those chickens come home to roost. There's a reason no other countries have this luxury of a seemingly infinite line of credit and anyone believing it is in fact infinite is basically saying this exceptionalism, which has only existed for a few decades (conveniently the decades in which the majority of the living population has experienced), will continue indefinitely or at least as long as they care about (which may or may not include yours, children, grandchildren, etc.. lifetimes).
Last edited by corp_sharecropper on Wed Sep 16, 2020 6:42 pm, edited 1 time in total.
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

corp_sharecropper wrote: Wed Sep 16, 2020 6:24 pm
langlands wrote: Wed Sep 16, 2020 5:50 pm
cos wrote: Wed Sep 16, 2020 5:14 pm
langlands wrote: Wed Sep 16, 2020 4:23 pm
cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
I think you're right. I guess I'm just trying to be optimistic. Maybe another way to look at this is that the cost of unexpected rate hikes is now likely to be a lot higher since the market has priced in stable low rates (ouch), and we might see a lot more volatility in TMF toward the end of the next 3 years as the market tries to more accurately price in future rate hikes (double ouch).

Or maybe something entirely different will happen because nobody knows nothing and we're all just betting on hopefully persistently positively biased dice rolls with hopefully persistently low average correlation and hopefully persistently similar average volatility.
Yeah, considering it seemed to work out reasonably well in the recent past, I guess no news is good news. But I definitely agree that there's this sense in which risk seems to keep being pushed into the future. The conventional thinking (e.g. Milton Friedman) was that you can't do that indefinitely and eventually the chickens must come home to roost so to speak. More and more though we're hearing the opinion that $10 trillion in government debt is not only not a problem, it's too little. The big question is whether this new sentiment is a correct shift in our understanding of macroeconomics or whether it is instead a disturbing sign of a bond bubble.
People who think borrowing to infinity forever are living in a fantasy world. There's some nincompoop lady that recently published a book advocating this and I happen to notice that the most receptive audience/media for her publicity tour were all those with publicly known inclinations to spend even more of said borrowed/printed money. There's a point where common sense and finite natural laws trump ivory tower theory and sociopolitical desires. These people will be nowhere to be found when those chickens come home to roost. There's a reason no other countries have this luxury of a seemingly infinite line of credit and anyone believing it is in fact infinite is basically saying this exceptionalism, which has only existed for a few decades (conveniently the decades in which the majority of the living population has experienced), will continue indefinitely or at least as long as they care about (which may or may not include yours, children, grandchildren, etc..).
Unless the powers that be have figured out that with healthy inflation and low interest debt can be wiped clean with time as a big help. Even on a personal level my mortgage payment is going to look a lot nicer 10 years from now.
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

corp_sharecropper wrote: Wed Sep 16, 2020 6:24 pm
langlands wrote: Wed Sep 16, 2020 5:50 pm
cos wrote: Wed Sep 16, 2020 5:14 pm
langlands wrote: Wed Sep 16, 2020 4:23 pm
cos wrote: Wed Sep 16, 2020 1:39 pm Good news for those of us with high TMF allocations. Looks like we shouldn't have to worry about rate hikes until at least 2023.

Again, I'd like to remind everyone that this is a very long-term strategy on the order of decades, and it's silly to focus on time periods as short as 3 years. However, this bodes well for anyone looking to get started in the next 3 years as they're less likely to face any serious headwinds on the bond side.

Back when I was running simulations, the majority of worst case scenarios seemed to result from low or negative returns in the first few years. The opposite was also true with the best outcomes manifesting after strong starts. This strategy is frighteningly start-date-sensitive.

So, here's hoping that rates really stay low and that the bull rages on! :beer
I'm not sure that's the right way to look at it. First of all, Fed announcements are immediately priced in, so even if the announcement is about their projection of rate hikes up to 3 years into the future, the effect all occurs now, not spread out over the next 3 years. In other words, this announcement definitely does not mean that TMF is safe for the next 3 years. In any case, TMF barely moved today because of the announcement (and it was actually a slight drop), so the market wasn't particularly excited by the announcement. Personally, I wasn't much surprised by the Fed announcement either and don't think much of anything has changed.
I think you're right. I guess I'm just trying to be optimistic. Maybe another way to look at this is that the cost of unexpected rate hikes is now likely to be a lot higher since the market has priced in stable low rates (ouch), and we might see a lot more volatility in TMF toward the end of the next 3 years as the market tries to more accurately price in future rate hikes (double ouch).

Or maybe something entirely different will happen because nobody knows nothing and we're all just betting on hopefully persistently positively biased dice rolls with hopefully persistently low average correlation and hopefully persistently similar average volatility.
Yeah, considering it seemed to work out reasonably well in the recent past, I guess no news is good news. But I definitely agree that there's this sense in which risk seems to keep being pushed into the future. The conventional thinking (e.g. Milton Friedman) was that you can't do that indefinitely and eventually the chickens must come home to roost so to speak. More and more though we're hearing the opinion that $10 trillion in government debt is not only not a problem, it's too little. The big question is whether this new sentiment is a correct shift in our understanding of macroeconomics or whether it is instead a disturbing sign of a bond bubble.
People who think borrowing to infinity forever are living in a fantasy world. There's some nincompoop lady that recently published a book advocating this and I happen to notice that the most receptive audience/media for her publicity tour were all those with publicly known inclinations to spend even more of said borrowed/printed money. There's a point where common sense and finite natural laws trump ivory tower theory and sociopolitical desires. These people will be nowhere to be found when those chickens come home to roost. There's a reason no other countries have this luxury of a seemingly infinite line of credit and anyone believing it is in fact infinite is basically saying this exceptionalism, which has only existed for a few decades (conveniently the decades in which the majority of the living population has experienced), will continue indefinitely or at least as long as they care about (which may or may not include yours, children, grandchildren, etc.. lifetimes).
There’s a fundamental misunderstanding of how government debt works that is widespread across not just our citizens but our elected officials as well. Government debt is an investors asset. When govt borrows it issues treasury bills which you and I gladly own as part of our portfolio. The fact that treasury yields are so low show how confident the global market is in the US govt being able to always pay its debt even if it means creating more debt to pay off its old debt (printing money). Everything is relative, however. The fact that our yields are actually HIGHER than many other nations yields may suggest that there’s slightly more risk in our debt. Nonetheless, it is close to risk free as the yields are almost nothing. Now, in a world where we have very little inflation, “printing money” by issuing more treasuries and even buying those treasuries via the Fed, where essentially the govt is loaning itself money just to keep yields low, is inflationary but only if other deflationary factors aren’t more prominent. The govt can print money like it is and we can still have deflation if other factors (ie lack of population growth, lack of consumerism etc) are more prominent. My point is that the govt could owe hundreds of trillions in debt and its meaningless IF the dollar is still strong (like it is) and inflation is not out of control. Presently, our debt is not a problem in fact I believe the govt needs far more stimulus to boost economic growth/weaken the dollar/stimulate some inflation. The Fed could “pay off” all its debt tomorrow if it wanted, it would simply create money out of thin air and buy all the treasuries up. That would most likely lead to massive inflation and is unnecessary - investors want to own govt debt and if the fed paid it all off tomorrow there will still be demand for newly issued treasuries.

My point is that the size of our debt is meaningless. What does matter is the strength of our currency and the rate of inflation, which are both currently very healthy and if anything we could use more govt borrowing.
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