HEDGEFUNDIE's excellent adventure Part II: The next journey

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Tingting1013
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Tingting1013 »

moontower wrote: Mon Jan 11, 2021 10:09 pm All this backtesting is an illusion. PIMCO has some of the best managers in the business and their PSLDX attempts to do 2x of the SPY but over time decay and expenses add up and after taxes it only beats the SPY by a few points, impressive but you'll never get those pie in the sky increases over the market. Its like perpetual motion, leverage without high friction costs and high risk of implosion in market crashes, just doesnt exist.
If by “a few points” you mean 7.5% CAGR over 13 years, then yes I agree with you completely.

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

Post by drock »

moontower wrote: Mon Jan 11, 2021 10:09 pm The problem with this "strategy" of leverage isnt the theory, its actually quite sound. The FLAW is the illusion of the perfect instrument, it doesnt exist. There's decay and these leveraged finds will all eventually BLOW UP. I lost 90% of my money in XIV and it wasnt even leveraged. It was an inverse of market volativlity, the VIX, and as volatility fell after 2009 crisis, it just keep rising and rising until it exploded and lost 90% of its value overnight, NEVER to come back. So thats the part i think is just irresponsible about putting longterm money in a 3x ETF, it's just not sustainable over time. All this backtesting is an illusion. PIMCO has some of the best managers in the business and their PSLDX attempts to do 2x of the SPY but over time decay and expenses add up and after taxes it only beats the SPY by a few points, impressive but you'll never get those pie in the sky increases over the market. Its like perpetual motion, leverage without high friction costs and high risk of implosion in market crashes, just doesnt exist.
I'm pretty sure they do not attempt to do 2x spy. Last I looked, they use futures and/or swaps to gain around 100% exposure to s&p 500 and then they layer on a bunch of fixed income on top of that.
corp_sharecropper
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by corp_sharecropper »

drock wrote: Mon Jan 11, 2021 10:26 pm
moontower wrote: Mon Jan 11, 2021 10:09 pm The problem with this "strategy" of leverage isnt the theory, its actually quite sound. The FLAW is the illusion of the perfect instrument, it doesnt exist. There's decay and these leveraged finds will all eventually BLOW UP. I lost 90% of my money in XIV and it wasnt even leveraged. It was an inverse of market volativlity, the VIX, and as volatility fell after 2009 crisis, it just keep rising and rising until it exploded and lost 90% of its value overnight, NEVER to come back. So thats the part i think is just irresponsible about putting longterm money in a 3x ETF, it's just not sustainable over time. All this backtesting is an illusion. PIMCO has some of the best managers in the business and their PSLDX attempts to do 2x of the SPY but over time decay and expenses add up and after taxes it only beats the SPY by a few points, impressive but you'll never get those pie in the sky increases over the market. Its like perpetual motion, leverage without high friction costs and high risk of implosion in market crashes, just doesnt exist.
I'm pretty sure they do not attempt to do 2x spy. Last I looked, they use futures and/or swaps to gain around 100% exposure to s&p 500 and then they layer on a bunch of fixed income on top of that.
I don't see much of anything accurate in that post. Wondering why you lost money in VIX should be a signal that it's time to go back to the drawing board and understand what you're investing in
Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

moontower wrote: Mon Jan 11, 2021 10:09 pm The problem with this "strategy" of leverage isnt the theory, its actually quite sound. The FLAW is the illusion of the perfect instrument, it doesnt exist. There's decay and these leveraged finds will all eventually BLOW UP. I lost 90% of my money in XIV and it wasnt even leveraged. It was an inverse of market volativlity, the VIX, and as volatility fell after 2009 crisis, it just keep rising and rising until it exploded and lost 90% of its value overnight, NEVER to come back. So thats the part i think is just irresponsible about putting longterm money in a 3x ETF, it's just not sustainable over time. All this backtesting is an illusion. PIMCO has some of the best managers in the business and their PSLDX attempts to do 2x of the SPY but over time decay and expenses add up and after taxes it only beats the SPY by a few points, impressive but you'll never get those pie in the sky increases over the market. Its like perpetual motion, leverage without high friction costs and high risk of implosion in market crashes, just doesnt exist.
It's certainly a very very risky play. When UPRO crashes, their hope is that TMF comes to the rescue - which is probably likely, but far from a guarantee.
taojaxx
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by taojaxx »

moontower wrote: Mon Jan 11, 2021 10:09 pm The problem with this "strategy" of leverage isnt the theory, its actually quite sound. The FLAW is the illusion of the perfect instrument, it doesnt exist. There's decay and these leveraged finds will all eventually BLOW UP. I lost 90% of my money in XIV and it wasnt even leveraged. It was an inverse of market volativlity, the VIX, and as volatility fell after 2009 crisis, it just keep rising and rising until it exploded and lost 90% of its value overnight, NEVER to come back. So thats the part i think is just irresponsible about putting longterm money in a 3x ETF, it's just not sustainable over time. All this backtesting is an illusion. PIMCO has some of the best managers in the business and their PSLDX attempts to do 2x of the SPY but over time decay and expenses add up and after taxes it only beats the SPY by a few points, impressive but you'll never get those pie in the sky increases over the market. Its like perpetual motion, leverage without high friction costs and high risk of implosion in market crashes, just doesnt exist.
I don't think anyone here thinks it's a "perfect instrument", at least I hope so. If anyone does, then let's tell them they're delusional.It's a lottery ticket, a reasoned one, but a lottery ticket, we all better make sure we only put in it money we can afford to LOSE entirely. No free lunch.
You're a lucky guy, by the way: you recouped 10% of your money betting against market vol. Most of the guys who did that got washed out completely: there's a whole legal saga between brokers on one side and clients selling VIX options way back trying to back out of their obligations. The clients lost the legal battle.
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firebirdparts
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

corp_sharecropper wrote: Mon Jan 11, 2021 10:33 pm I don't see much of anything accurate in that post. Wondering why you lost money in VIX should be a signal that it's time to go back to the drawing board and understand what you're investing in
I second this. It's important to understand what XIV is (or was). There are people even now talking about using long vix instruments as a hedge. It's not the same thing as UPRO and TMF, not by a long shot. Anybody who thinks they're comparable should not be giving advice.

I admit I don't understand why people would be willing counterparties to UPRO. I admit it.
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firebirdparts
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

Tingting1013 wrote: Mon Jan 11, 2021 10:16 pm it only beats the SPY by a few points,
Holy cow, do you know what you're saying?
A fool and your money are soon partners
Mickelous
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mickelous »

moontower wrote: Mon Jan 11, 2021 10:09 pm The problem with this "strategy" of leverage isnt the theory, its actually quite sound. The FLAW is the illusion of the perfect instrument, it doesnt exist. There's decay and these leveraged finds will all eventually BLOW UP. I lost 90% of my money in XIV and it wasnt even leveraged. It was an inverse of market volativlity, the VIX, and as volatility fell after 2009 crisis, it just keep rising and rising until it exploded and lost 90% of its value overnight, NEVER to come back. So thats the part i think is just irresponsible about putting longterm money in a 3x ETF, it's just not sustainable over time. All this backtesting is an illusion. PIMCO has some of the best managers in the business and their PSLDX attempts to do 2x of the SPY but over time decay and expenses add up and after taxes it only beats the SPY by a few points, impressive but you'll never get those pie in the sky increases over the market. Its like perpetual motion, leverage without high friction costs and high risk of implosion in market crashes, just doesnt exist.
Inverse volatility doesn't have circuit breakers.
kim.gold
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by kim.gold »

TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
SCraw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SCraw »

I’m sure this has been answered before (I can’t see it anywhere), but what exactly is the rationale for using 20Y LTTs rather than 30Ys?
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Ramjet
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Ramjet »

kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
Fine. From 1/4 until today I'm down 0.35%. **shrug**
Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

SCraw wrote: Tue Jan 12, 2021 11:16 am I’m sure this has been answered before (I can’t see it anywhere), but what exactly is the rationale for using 20Y LTTs rather than 30Ys?
Which 3x 30Y instrument do you suggest? I'd like to take a look myself, as I'm currently holding 1x 20Y.
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
“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
am
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by am »

willthrill81 wrote: Tue Jan 12, 2021 11:29 am
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
Stay the course. Just rebalanced from upro to tmf.
Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

willthrill81 wrote: Tue Jan 12, 2021 11:29 am
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

SCraw wrote: Tue Jan 12, 2021 11:16 am I’m sure this has been answered before (I can’t see it anywhere), but what exactly is the rationale for using 20Y LTTs rather than 30Ys?
There is no 3x leveraged 30-year treasury ETF. On that note I can't find any unleveraged ones either, there's only 7-10 and 20 year ETFs.

Does anyone here hedge this strategy with anything other than TMF?
Last edited by tomphilly on Tue Jan 12, 2021 12:08 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 »

Marseille07 wrote: Tue Jan 12, 2021 11:59 am
willthrill81 wrote: Tue Jan 12, 2021 11:29 am
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Meaty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Meaty »

willthrill81 wrote: Tue Jan 12, 2021 12:06 pm
Marseille07 wrote: Tue Jan 12, 2021 11:59 am
willthrill81 wrote: Tue Jan 12, 2021 11:29 am
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
Agree. I think this scenario has been back tested heavily. The out performance is significantly less in a rising rate environment but, from what I recall, it’s hyper-inflation and stagflation that are true killers for this strategy.
"Discipline equals Freedom" - Jocko Willink
sparksfly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by sparksfly »

Meaty wrote: Tue Jan 12, 2021 12:13 pm
willthrill81 wrote: Tue Jan 12, 2021 12:06 pm
Marseille07 wrote: Tue Jan 12, 2021 11:59 am
willthrill81 wrote: Tue Jan 12, 2021 11:29 am
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
Agree. I think this scenario has been back tested heavily. The out performance is significantly less in a rising rate environment but, from what I recall, it’s hyper-inflation and stagflation that are true killers for this strategy.
This has been beaten to death in this forum. Anyone who expects daily movements of UPRO and TMF to counter each other doesn't not have right understanding of the strategy. Similarly, anyone who gets frustrated in losing 15% in a 3x fund over a period of 1 week does not have the temperament suited to this strategy. It is as simple as that.
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willthrill81
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

sparksfly wrote: Tue Jan 12, 2021 12:18 pm
Meaty wrote: Tue Jan 12, 2021 12:13 pm
willthrill81 wrote: Tue Jan 12, 2021 12:06 pm
Marseille07 wrote: Tue Jan 12, 2021 11:59 am
willthrill81 wrote: Tue Jan 12, 2021 11:29 am

15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
Agree. I think this scenario has been back tested heavily. The out performance is significantly less in a rising rate environment but, from what I recall, it’s hyper-inflation and stagflation that are true killers for this strategy.
This has been beaten to death in this forum. Anyone who expects daily movements of UPRO and TMF to counter each other doesn't not have right understanding of the strategy. Similarly, anyone who gets frustrated in losing 15% in a 3x fund over a period of 1 week does not have the temperament suited to this strategy. It is as simple as that.
Bingo.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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cos
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

tomphilly wrote: Tue Jan 12, 2021 12:05 pm
SCraw wrote: Tue Jan 12, 2021 11:16 am I’m sure this has been answered before (I can’t see it anywhere), but what exactly is the rationale for using 20Y LTTs rather than 30Ys?
There is no 3x leveraged 30-year treasury ETF. On that note I can't find any unleveraged ones either, there's only 7-10 and 20 year ETFs.

Does anyone here hedge this strategy with anything other than TMF?
EDV, ZROZ, and GOVZ are the closest you're gonna get. Of those three, I've seen most people in this thread desiring a TMF substitute say they're using EDV. Plug that into the search box to find their posts. I believe MotoTrojan had the most to say about the strategy in general.
SCraw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SCraw »

Marseille07 wrote: Tue Jan 12, 2021 11:21 am
SCraw wrote: Tue Jan 12, 2021 11:16 am I’m sure this has been answered before (I can’t see it anywhere), but what exactly is the rationale for using 20Y LTTs rather than 30Ys?
Which 3x 30Y instrument do you suggest? I'd like to take a look myself, as I'm currently holding 1x 20Y.
I guess TMF is good enough as a basket of LTTs, given the alternatives. I’ll backtest it anyway. I would assume that 10Ys would be pretty bad compared to TMF, but I’m really not sure. (Has anyone already backtested isolated 10Y vs 20Y vs 30Y performance for the strategy?)

Here in Europe we don’t really have leveraged ETF restrictions (we’re still introducing more), so I’m thinking of allocating a small amount of my portfolio into similar strategies for Italy, Germany, and the UK. But I would have to use leveraged 10Ys. A brief look shows Direxion’s 3x 7-10Y delivering a CAGR 4% lower than TMF since inception. 10Ys really don’t deliver what LTTs do for the strategy.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

sparksfly wrote: Tue Jan 12, 2021 12:18 pm
Meaty wrote: Tue Jan 12, 2021 12:13 pm
willthrill81 wrote: Tue Jan 12, 2021 12:06 pm
Marseille07 wrote: Tue Jan 12, 2021 11:59 am
willthrill81 wrote: Tue Jan 12, 2021 11:29 am

15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
Agree. I think this scenario has been back tested heavily. The out performance is significantly less in a rising rate environment but, from what I recall, it’s hyper-inflation and stagflation that are true killers for this strategy.
This has been beaten to death in this forum. Anyone who expects daily movements of UPRO and TMF to counter each other doesn't not have right understanding of the strategy. Similarly, anyone who gets frustrated in losing 15% in a 3x fund over a period of 1 week does not have the temperament suited to this strategy. It is as simple as that.
There are people here the strategy is not suited to, but there are also folks who actively manage the strategy beyond quarterly re-balancing of just UPRO/TMF and might be juggling other 3x ETFs. For example, I know a bunch of people here are using TQQQ, and I'm guessing at least some of them are tempted to reduce that position and move back into UPRO or other 3x sector ETFs like FAS, ERX, TNA etc.

So it's frustration, but not about the risk, more about trying to beat vanilla HFEA, without compromising drawdowns, via some economic speculation (at least in my case). When you just hold UPRO, there's zero market speculation going on other than that the S&P500 will probably continue to grow. Which is totally fine, and it is the intention of the strategy to be the "best lazy portfolio" - but this is of course never enough for all the people out there who insist on trying (and probably failing) to beat the benchmark.

Personally, I would like to supplement TMF for a rising rate environment. Maybe it's a bit of UGL or VXX thrown in, I just don't have the brains to figure out what VXX call volume/delta/expiration would be appropriate.
Last edited by tomphilly on Tue Jan 12, 2021 1:18 pm, edited 3 times in total.
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noraz123
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by noraz123 »

Has any tried adding an international to this? I am not sure that there are too many leveraged internation ETFs, and it seems Direxion's closed its 3x leveraged international ETF - DZK.


I have a small amount in HFEA, using UPRO and TMF+EDV. I am wondering if I added a leveraged international component and maintained risk parity of the asset classes (S&P 500, LTT and international) would help to reduce the risk while still using leverage.

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

Post by Alaric »

sparksfly wrote: Tue Jan 12, 2021 12:18 pm
Meaty wrote: Tue Jan 12, 2021 12:13 pm
willthrill81 wrote: Tue Jan 12, 2021 12:06 pm
Marseille07 wrote: Tue Jan 12, 2021 11:59 am
willthrill81 wrote: Tue Jan 12, 2021 11:29 am

15% in 7 days is nothing. UPRO lost 77% between 2/19/20 and 3/23/20.
A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
Agree. I think this scenario has been back tested heavily. The out performance is significantly less in a rising rate environment but, from what I recall, it’s hyper-inflation and stagflation that are true killers for this strategy.
This has been beaten to death in this forum. Anyone who expects daily movements of UPRO and TMF to counter each other doesn't not have right understanding of the strategy. Similarly, anyone who gets frustrated in losing 15% in a 3x fund over a period of 1 week does not have the temperament suited to this strategy. It is as simple as that.
I downloaded the daily data for both TMF and UPRO since their inception dates in 2009 from Yahoo! Finance. UPRO, the slightly younger ETF, commenced on 6/25/09. From 6/26/09 to 1/11/21 there have been 2,906 trading days. How UPRO & TMF have combined to close each day relative to their prior closes:

Both closed higher than the prior day: 654 = 22.5%
TMF closed higher, UPRO closed lower: 886 = 30.5%
TMF closed lower, UPRO closed higher: 944 = 32.5%
Both closed lower than the prior day: 402 = 13.8%
One higher, one the same: 15 = 0.5%
One lower, one the same: 5 = 0.2%
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

Alaric wrote: Tue Jan 12, 2021 1:50 pm
sparksfly wrote: Tue Jan 12, 2021 12:18 pm
Meaty wrote: Tue Jan 12, 2021 12:13 pm
willthrill81 wrote: Tue Jan 12, 2021 12:06 pm
Marseille07 wrote: Tue Jan 12, 2021 11:59 am

A bigger concern isn't 15% vs 77% but that SPX down -0.15% and TMF going -2%. Not working as a hedge right now.
Both stocks and LTT falling at the same time is very far from unprecedented.
Agree. I think this scenario has been back tested heavily. The out performance is significantly less in a rising rate environment but, from what I recall, it’s hyper-inflation and stagflation that are true killers for this strategy.
This has been beaten to death in this forum. Anyone who expects daily movements of UPRO and TMF to counter each other doesn't not have right understanding of the strategy. Similarly, anyone who gets frustrated in losing 15% in a 3x fund over a period of 1 week does not have the temperament suited to this strategy. It is as simple as that.
I downloaded the daily data for both TMF and UPRO since their inception dates in 2009 from Yahoo! Finance. UPRO, the slightly younger ETF, commenced on 6/25/09. From 6/26/09 to 1/11/21 there have been 2,906 trading days. How UPRO & TMF have combined to close each day relative to their prior closes:

Both closed higher than the prior day: 654 = 22.5%
TMF closed higher, UPRO closed lower: 886 = 30.5%
TMF closed lower, UPRO closed higher: 944 = 32.5%
Both closed lower than the prior day: 402 = 13.8%
One higher, one the same: 15 = 0.5%
One lower, one the same: 5 = 0.2%
Just to add a bit more:

Going back to 1986 (the original daily sim data),
Both closed higher than the prior day: 25.4%
TMF closed higher, UPRO closed lower: 22.8%
TMF closed lower, UPRO closed higher: 24.2%
Both closed lower than the prior day: 20.0%
Other (either one higher/lower and the other stay the same): 7.6%

So yup, daily movement is not expect to counter each other (high negative correlation).
SCraw
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SCraw »

noraz123 wrote: Tue Jan 12, 2021 1:11 pm Has any tried adding an international to this? I am not sure that there are too many leveraged internation ETFs, and it seems Direxion's closed its 3x leveraged international ETF - DZK.


I have a small amount in HFEA, using UPRO and TMF+EDV. I am wondering if I added a leveraged international component and maintained risk parity of the asset classes (S&P 500, LTT and international) would help to reduce the risk while still using leverage.

Thoughts?
Yes. I’m thinking of doing this with Germany, Italy, and the UK. The main problem is that I can only find 10Y 3x leveraged bonds for each (all via WisdomTree, don’t have the tickers on hand).

Germany: Dax 30/Bund
Italy: MIB40/BTP
UK: FTSE100/Gilt

But it isn’t the same proposition as UPRO/TMF. 10Ys are worse than longer term bonds for the strategy, and these indices don’t include many firms. I’m not even sure if the same relationship holds up as there is between SPY & LTTs. All of these would have lost you quite a bit money over the past few years. And there’s only these three countries. Direxion have 3x Japan, Brazil, Mexico, Russia, and China ETFs, but I can’t find bonds anywhere. I don’t think any of these are worth it to be honest; UPRO/TMF probably gets you enough Int’l exposure.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

SCraw wrote: Tue Jan 12, 2021 3:26 pm But it isn’t the same proposition as UPRO/TMF. 10Ys are worse than longer term bonds for the strategy, and these indices don’t include many firms. I’m not even sure if the same relationship holds up as there is between SPY & LTTs. All of these would have lost you quite a bit money over the past few years. And there’s only these three countries. Direxion have 3x Japan, Brazil, Mexico, Russia, and China ETFs, but I can’t find bonds anywhere. I don’t think nay of these are worth it to be honest; UPRO/TMF probably gets you enough Int’l exposure.
At one point I thought about doing HEDGEFUNDIE myself but I do not recommend it now. With rates already so low, bonds might not do too hot going forward and this portfolio allocates 135% of your account in bond holdings.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Alaric »

jarjarM wrote: Tue Jan 12, 2021 3:17 pm
Alaric wrote: Tue Jan 12, 2021 1:50 pm
I downloaded the daily data for both TMF and UPRO since their inception dates in 2009 from Yahoo! Finance. UPRO, the slightly younger ETF, commenced on 6/25/09. From 6/26/09 to 1/11/21 there have been 2,906 trading days. How UPRO & TMF have combined to close each day relative to their prior closes:

Both closed higher than the prior day: 654 = 22.5%
TMF closed higher, UPRO closed lower: 886 = 30.5%
TMF closed lower, UPRO closed higher: 944 = 32.5%
Both closed lower than the prior day: 402 = 13.8%
One higher, one the same: 15 = 0.5%
One lower, one the same: 5 = 0.2%
Just to add a bit more:

Going back to 1986 (the original daily sim data),
Both closed higher than the prior day: 25.4%
TMF closed higher, UPRO closed lower: 22.8%
TMF closed lower, UPRO closed higher: 24.2%
Both closed lower than the prior day: 20.0%
Other (either one higher/lower and the other stay the same): 7.6%

So yup, daily movement is not expect to counter each other (high negative correlation).
Thank you for extending it.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SVT »

Marseille07 wrote: Tue Jan 12, 2021 3:31 pm
SCraw wrote: Tue Jan 12, 2021 3:26 pm But it isn’t the same proposition as UPRO/TMF. 10Ys are worse than longer term bonds for the strategy, and these indices don’t include many firms. I’m not even sure if the same relationship holds up as there is between SPY & LTTs. All of these would have lost you quite a bit money over the past few years. And there’s only these three countries. Direxion have 3x Japan, Brazil, Mexico, Russia, and China ETFs, but I can’t find bonds anywhere. I don’t think nay of these are worth it to be honest; UPRO/TMF probably gets you enough Int’l exposure.
At one point I thought about doing HEDGEFUNDIE myself but I do not recommend it now. With rates already so low, bonds might not do too hot going forward and this portfolio allocates 135% of your account in bond holdings.
I've been reading and hearing this about bonds for at least 10 years now. Maybe someday.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by freyj6 »

Marseille07 wrote: Tue Jan 12, 2021 3:31 pm
SCraw wrote: Tue Jan 12, 2021 3:26 pm But it isn’t the same proposition as UPRO/TMF. 10Ys are worse than longer term bonds for the strategy, and these indices don’t include many firms. I’m not even sure if the same relationship holds up as there is between SPY & LTTs. All of these would have lost you quite a bit money over the past few years. And there’s only these three countries. Direxion have 3x Japan, Brazil, Mexico, Russia, and China ETFs, but I can’t find bonds anywhere. I don’t think nay of these are worth it to be honest; UPRO/TMF probably gets you enough Int’l exposure.
At one point I thought about doing HEDGEFUNDIE myself but I do not recommend it now. With rates already so low, bonds might not do too hot going forward and this portfolio allocates 135% of your account in bond holdings.
I think hedgefundie would respond that it's important to remember that TMF is for negative correlations, not returns. Higher rates definitely help, but they shouldn't be necessary.
Semantics
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

Marseille07 wrote: Tue Jan 12, 2021 3:31 pm
SCraw wrote: Tue Jan 12, 2021 3:26 pm But it isn’t the same proposition as UPRO/TMF. 10Ys are worse than longer term bonds for the strategy, and these indices don’t include many firms. I’m not even sure if the same relationship holds up as there is between SPY & LTTs. All of these would have lost you quite a bit money over the past few years. And there’s only these three countries. Direxion have 3x Japan, Brazil, Mexico, Russia, and China ETFs, but I can’t find bonds anywhere. I don’t think nay of these are worth it to be honest; UPRO/TMF probably gets you enough Int’l exposure.
At one point I thought about doing HEDGEFUNDIE myself but I do not recommend it now. With rates already so low, bonds might not do too hot going forward and this portfolio allocates 135% of your account in bond holdings.
Bonds at the end of the day are assets and if the price goes down because of a rate increase that means people are selling and probably buying something else (e.g. stocks), so I don't think low rates necessarily mean this portfolio will do badly? 55/45 still dramatically outperformed the market from 2012-18 with the 30-year yield holding steady at 3% during that period (vs. currently 1.9%). It should be optimal according to mean variance optimization to reduce the TMF allocation a bit to match the lower expected returns of the present, but that would be minor tweaking, as the 55/45 allocation was chosen circa 2019 with low rates already in mind. Also, real borrowing rates are going to remain negative for a few years, which should help leveraged portfolios, although I suppose amplified volatility might counter that.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by caklim00 »

tomphilly wrote: Tue Jan 12, 2021 12:05 pm
SCraw wrote: Tue Jan 12, 2021 11:16 am I’m sure this has been answered before (I can’t see it anywhere), but what exactly is the rationale for using 20Y LTTs rather than 30Ys?
There is no 3x leveraged 30-year treasury ETF. On that note I can't find any unleveraged ones either, there's only 7-10 and 20 year ETFs.

Does anyone here hedge this strategy with anything other than TMF?
I don't do this strategy but I hold ZB Futures. Its the only thing that keeps going down for me right now. Had to transfer some money to IB so it doesn't get liquidated. I sold my Treasury futures ladder back about 4 or 5 months ago after I lost conviction in the strategy and now just hold the one 30 Year future.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
I bought a bunch today at 30.23 in line with the linear regression channel technique I showed previously.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

perfectuncertainty wrote: Tue Jan 12, 2021 5:56 pm
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
I bought a bunch today at 30.23 in line with the linear regression channel technique I showed previously.
Great timing, that's almost the low of the day. :beer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

jarjarM wrote: Tue Jan 12, 2021 8:16 pm
perfectuncertainty wrote: Tue Jan 12, 2021 5:56 pm
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
I bought a bunch today at 30.23 in line with the linear regression channel technique I showed previously.
Great timing, that's almost the low of the day. :beer
Yeah instead of buying TMF directly I've been selling ITM puts these past few weeks to bump back the allocation, LTTs definitely trending down so this dampens the price a little. Definitely fingers-crossed no crash on the UPRO side :D

We just need a golden asset that negatively correlates with SPY and somehow gives returns :D
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by keith6014 »

parval wrote: Tue Jan 12, 2021 8:38 pm
jarjarM wrote: Tue Jan 12, 2021 8:16 pm
perfectuncertainty wrote: Tue Jan 12, 2021 5:56 pm
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
I bought a bunch today at 30.23 in line with the linear regression channel technique I showed previously.
Great timing, that's almost the low of the day. :beer
Yeah instead of buying TMF directly I've been selling ITM puts these past few weeks to bump back the allocation, LTTs definitely trending down so this dampens the price a little. Definitely fingers-crossed no crash on the UPRO side :D

We just need a golden asset that negatively correlates with SPY and somehow gives returns :D
I am actually waiting for UPRO/SPXL crash. Hopefully TMF will do its thing :wink:
The past 4 months its been bad. But last 7 days it was worse. Most likely anticipated stimulus and stroking inflation fears.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

parval wrote: Tue Jan 12, 2021 8:38 pm We just need a golden asset that negatively correlates with SPY and somehow gives returns :D
While it's not quite 'golden', look at the performance below of 80% UPRO / 20% ^VIX.

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

Post by Mickelous »

willthrill81 wrote: Tue Jan 12, 2021 10:09 pm
parval wrote: Tue Jan 12, 2021 8:38 pm We just need a golden asset that negatively correlates with SPY and somehow gives returns :D
While it's not quite 'golden', look at the performance below of 80% UPRO / 20% ^VIX.

Image
But you can't invest directly in the VIX index...
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Mickelous wrote: Tue Jan 12, 2021 10:23 pm
willthrill81 wrote: Tue Jan 12, 2021 10:09 pm
parval wrote: Tue Jan 12, 2021 8:38 pm We just need a golden asset that negatively correlates with SPY and somehow gives returns :D
While it's not quite 'golden', look at the performance below of 80% UPRO / 20% ^VIX.

Image
But you can't invest directly in the VIX index...
Aye, therein lies the rub. None of the VIX-linked securities I've seen have worked nearly as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Steve Reading
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Steve Reading »

Mickelous wrote: Tue Jan 12, 2021 10:23 pm
willthrill81 wrote: Tue Jan 12, 2021 10:09 pm
parval wrote: Tue Jan 12, 2021 8:38 pm We just need a golden asset that negatively correlates with SPY and somehow gives returns :D
While it's not quite 'golden', look at the performance below of 80% UPRO / 20% ^VIX.

Image
But you can't invest directly in the VIX index...
Can't you just buy ATM straddles on SPX, say weekly, to act as a pseudo-VIX position?

Actually, you can probably just buy long-dated call options which, combined with some SPY, probably would act similar to a portfolio of 80% UPRO/20% VIX.

Just some food for thought, curious if anyone looked into it.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by saabaero »

Hi all, I'm back again with another VIX replication post. A few pages ago I backtested a portfolio of options that was highly correlated to the cash VIX from the Doran (2020) paper. This strategy was too complicated to use for real trading.

Here I'm replicating the CBOE VXTH (VIX Tail hedge Index) and extending the methodology to a UPRO/TMF portfolio. VXTH did superbly during the March COVID crash and afterward. According to the CBOE website, VXTH holds SPX and allocates a certain amount to 30 delta monthly VIX calls, with the allocation determined by "the one month forward value of VIX" which I'm taking to mean the front month /VX contract.

Code: Select all

VIX future    | Allocation
--------------|-----------
X <= 15       | 0%
15 > X <= 30  | 1%
30 > X <= 50  | 0.5%
X > 50        | 0%
I obtained VIX option data from IvyDB and historicaloptiondata.com. /VX prices were obtained from the Quandl continuous futures dataset. Backtesting was done with a custom R program. Option transactions occur at the midpoint of the bid/ask spread and have no transaction costs. I first replicated VXTH, and equity curves are below. I’m still experiencing some tracking error compared to the benchmark, especially in 2020. I think this could be due to differences in my price data or timing luck.
Image

Extension to a UPRO/TMF portfolio

How does adding a VIX call hedge deal with the added volatility of a leveraged portfolio? Quite well! Using the same parameters and a portfolio of 55% UPRO, 45% TMF, the equity curves are below. The outperformance in 2020 isn’t very visible on the log scale, but the VIX call hedged portfolio ends the backtest with a 30% higher balance. The stats on the hedged portfolio are also excellent – improved total and risk-adjusted return, and a comparable drawdown to holding SPX alone.
Image

Code: Select all

               |       | VXTH        | VXTH         |          |
               | SPX   | (benchmark) | (replicated) | UPRO/TMF | UPRO/TMF + VXTH
---------------------------------------------------------------------------
CAGR           | 7.49  | 12.2        |  8.8         | 17.1     | 19.2
Sharpe ratio   | 0.49  | 0.67        |  0.66        | 0.70     | 0.87
(Annualized)   |       |             |              |          |                  
StdDev         | 15.2  | 18.3        |  13.5        | 25.0     | 22.4
(Annualized)   |       |             |              |          |          
Worst drawdown | 52.5% | 37.4%       |  35.1%       | 70.9%    | 57.2% 
Future directions
I noticed some timing luck in replicating VXTH, specifically around the COVID crash. Slightly changing the days to expiration of the calls would result in very different outcomes, because the VIX calls could be held through the entire crash instead of sold at the “right” time. I think that’s part of why VXTH did so well in March – the VIX peak was right at an option expiration, so the position was exited at just the right time. Ideally we’d strive eliminate this timing luck from a portfolio. I can see a few ways to do this, that I’ll think about implementing in my backtests:

1. Instead of holding to expiration, positions should be dynamically opened or closed when VIX crosses one of the allocation thresholds.
2. Holding a “ladder” of calls with different expirations to reduce the effect of timing.
3. Daily rebalancing (probably not a good idea in practice because of transaction costs).

I want to optimize some other parameters, while being wary of the possibility of overfitting to the relatively few “tail risk” events that have happened in my dataset.

1. Allocation amounts (probably more hedge is better with the leveraged portfolio)
2. Hedge thresholds. Analyzing the transition matrix from one VIX state to the next may help with this.
3. Option delta. Lower delta options will give you more convexity when the rare crashes happen, but you may not benefit from small VIX spikes.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

jarjarM wrote: Tue Jan 12, 2021 8:16 pm
perfectuncertainty wrote: Tue Jan 12, 2021 5:56 pm
kim.gold wrote: Tue Jan 12, 2021 11:05 am TMF 15% down in 7 days. How is everyone doing? Frustrating to be more than 5% down when the market went 2% up.
I bought a bunch today at 30.23 in line with the linear regression channel technique I showed previously.
Great timing, that's almost the low of the day. :beer
Let's see if it holds :-).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

Finally TMF getting a little relief today. Been ugly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

firebirdparts wrote: Wed Jan 13, 2021 1:08 pm Finally TMF getting a little relief today. Been ugly.
Image
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

saabaero wrote: Wed Jan 13, 2021 12:44 am Hi all, I'm back again with another VIX replication post.
....
with the allocation determined by "the one month forward value of VIX" which I'm taking to mean the front month /VX contract.

Thank you for this: I found it very interesting, but I did not come to the same conclusion about how the "forward" vix is calculated, but I can't find anywhere that it's reported, so I am starting to think you must be right.

This just makes me wonder if there's anything strange about the pricing of the weeklies. I wonder if there is any effect of starting date.

I downloaded their vxth data but strangely, it only went through mid 2019. You can see from that spreadsheet they rolled their calls on Wednesday, or at least the person with the spreadsheet thought they did.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by keith6014 »

perfectuncertainty wrote: Wed Jan 13, 2021 2:01 pm
firebirdparts wrote: Wed Jan 13, 2021 1:08 pm Finally TMF getting a little relief today. Been ugly.
Image
The new Administration is proposing their COVID relief bill on Thursday. We shall see how the market reacts.
And I hope you called the bottom. Its been very UGLY and once I recoup my losses on TMF, I think I will do 20 TMF and 25 cash.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Impatience »

Good to see yields retrace today. Doubt it will last but I still expect them to rise less than most around here expect. I also have zero concern for inflation ... inflation is a ghost of the past.
keith6014 wrote: Wed Jan 13, 2021 5:59 pm
perfectuncertainty wrote: Wed Jan 13, 2021 2:01 pm
firebirdparts wrote: Wed Jan 13, 2021 1:08 pm Finally TMF getting a little relief today. Been ugly.
Image
The new Administration is proposing their COVID relief bill on Thursday. We shall see how the market reacts.
And I hope you called the bottom. Its been very UGLY and once I recoup my losses on TMF, I think I will do 20 TMF and 25 cash.
Ugly for all of a month - so what? Trying to trade and adjust this strategy actively will only eat away at your gains over time.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Kbg »

Billions of words in this thread and still most do not appear to understand that in a rising interest rate environment stocks and bonds become positively correlated.

VIX derivatives (long) are reliably negative, but come at a cost.

These things aren’t difficult concepts and the trade offs are clearly to be found in the data.

None of us know the future and performance stats going forward are unknown...we can understand the relationships however. In my view, acting on the basic principles is for more important than hand wringing to dial an allocation knob a couple percentage points one way or another.
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Steve Reading
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Steve Reading »

keith6014 wrote: Wed Jan 13, 2021 5:59 pm Its been very UGLY and once I recoup my losses on TMF, I think I will do 20 TMF and 25 cash.
Let me get this right. You’re going to hold both UPRO and cash simultaneously?
"... so high a present discounted value of wealth, it is only prudent for him to put more into common stocks compared to his present tangible wealth, borrowing if necessary" - Paul Samuelson
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