HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by jarjarM »

cflannagan wrote: Mon Sep 13, 2021 6:16 pm I think we've humored the whole QQQ/TQQQ and non-diversification drivel long enough. Change of subject, to keep things on topic (see how long that lasts)

It appears PortfolioVisualizer added a "Leverage" option in the backtest settings on 8/30/21. https://imgur.com/z7kegCO, anyone tried playing with this setting yet? I don't think I'm getting good results but I might be using the setting wrong, wondering if anyone have better luck? What I did: I used 300% for "leverage ratio", with 55% VFINX, 45% VUSTX.. the final balance is way up there (seems too high) :confused Nowhere close to what the final balance is using 165/135/-200 VFINX/VUSTX/CASHX
What do you set your interest rate for the leverage as?
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

cflannagan wrote: Mon Sep 13, 2021 6:16 pm I think we've humored the whole QQQ/TQQQ and non-diversification drivel long enough. Change of subject, to keep things on topic (see how long that lasts)

It appears PortfolioVisualizer added a "Leverage" option in the backtest settings on 8/30/21. https://imgur.com/z7kegCO, anyone tried playing with this setting yet? I don't think I'm getting good results but I might be using the setting wrong, wondering if anyone have better luck? What I did: I used 300% for "leverage ratio", with 55% VFINX, 45% VUSTX.. the final balance is way up there (seems too high) :confused Nowhere close to what the final balance is using 165/135/-200 VFINX/VUSTX/CASHX
It looks like one also has to set an interest rate for the borrowing? That's unfortunate because using a fixed rate is of course absurd.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

skierincolorado wrote: Mon Sep 13, 2021 6:23 pm
cflannagan wrote: Mon Sep 13, 2021 6:16 pm I think we've humored the whole QQQ/TQQQ and non-diversification drivel long enough. Change of subject, to keep things on topic (see how long that lasts)

It appears PortfolioVisualizer added a "Leverage" option in the backtest settings on 8/30/21. https://imgur.com/z7kegCO, anyone tried playing with this setting yet? I don't think I'm getting good results but I might be using the setting wrong, wondering if anyone have better luck? What I did: I used 300% for "leverage ratio", with 55% VFINX, 45% VUSTX.. the final balance is way up there (seems too high) :confused Nowhere close to what the final balance is using 165/135/-200 VFINX/VUSTX/CASHX
It looks like one also has to set an interest rate for the borrowing? That's unfortunate because using a fixed rate is of course absurd.
That's my take as well, fixed interest rate is not realistic, should tag it to some short term rate index.
adamhg
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by adamhg »

cflannagan wrote: Mon Sep 13, 2021 6:16 pm I think we've humored the whole QQQ/TQQQ and non-diversification drivel long enough. Change of subject, to keep things on topic (see how long that lasts)
I'm running a TQQQ variation and they're literally talking me out of it lol
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cflannagan
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

jarjarM wrote: Mon Sep 13, 2021 6:19 pm What do you set your interest rate for the leverage as?
Was toying with that. It seems 4% gets me pretty close for 55/45 VFINX/VUSTX when trying to replicate UPRO/TMF from 2010 to 2021. https://www.portfoliovisualizer.com/bac ... tion2_1=45

But I don't think that necessarily means I can use the same figure when going further back (beyond 2010) with VFINX/VUSTX.

Kind of wish something in the backtest keeps track of the rates over time.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

cflannagan wrote: Mon Sep 13, 2021 6:28 pm
jarjarM wrote: Mon Sep 13, 2021 6:19 pm What do you set your interest rate for the leverage as?
Was toying with that. It seems 4% gets me pretty close for 55/45 VFINX/VUSTX when trying to replicate UPRO/TMF from 2010 to 2021. https://www.portfoliovisualizer.com/bac ... tion2_1=45

But I don't think that necessarily means I can use the same figure when going further back (beyond 2010) with VFINX/VUSTX.

Kind of wish something in the backtest keeps track of the rates over time.
Yeah, that's why I think it's not as useful of a tool as PV would imagine, as I said upthread, it's better if they track it against some short term rate index.
Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

skierincolorado wrote: Mon Sep 13, 2021 4:30 pm This whole TQQQ vs UPRO discussion is silly. The 25-yr existence of TQQQ is not even close to long enough to draw conclusions about its long-term performance. It is less diversified plain and simple. There is a distinct possibility that tech does worse than the rest of the market the next 20 years. Underperforming the rest of the market is a unique and avoidable risk by simply owning the market. If you truly believe in the permanent long-term outperformance of tech, tilting is the answer not going all-in.
This is just too surface-level of an analysis and tbh I was expecting a whole lot more from this forum given the hefty math that can be found sifting through this thread and the extensive (simulated) backtests that have been done.

If we cannot draw conclusions from even 25 years of data, exactly how much more data do you need? The idea that more data is always better is so fundamentally flawed when you consider how fast the stock market and the global economy as a whole evolves. In its most rudimentary form, modern valuation is performed using a discounted future cash flow analysis, heavy emphasis on the "discounted" part. The rate at which the future cash flow is discounted is tied to the Fed interest rate, therefore making it one of the most important (if not THE most important) component in future predictions. Of what good is it to compare how the stock market performed in the 70s/80s/90s in extrapolating how the stock market will perform over the next decade? A time at which interest rates in the U.S. were consistently above 5% and went as high as 20%, a time when globalization was just starting to take-off, China was not even on the map in terms of world superpowers, the internet was not a thing and even the Fed mandate itself was fundamentally different? It's basically useless information.

As I've said before, imo, the most accurate time period we have for predicting the next decade is 2004-2020 since that is the only time period we have in which interest rates are similar to what they are now. During that period of time the results are very clear; the NASDAQ-100 is far superior.

You keep speaking in empty platitudes: "There is a distinct possibility that tech does worse than the rest of the market in the next 20 years" ... Based on what, exactly? The fact that it has outperformed the previous 15? I am not saying that it is an impossibility, I am simply stating that the data overwhelmingly suggests that that is not the case. I want to know probabilities, after all, in participating in HFEA, we are all consciously or subconsciously agreeing that the expected reward is worth the risk of stagflation, in which the results would be disastrous.

Similarly, I am making assumptions that are logically sound to me and weighing the risk to reward in those scenarios. I am not going to pick UPRO over TQQQ on the <2% chance that we will have another dotcom bubble or the <20% chance that tech underperforms. If we can agree that 2004-2020 is the most likely scenario for what will happen in 2021-2030 due to their similarity in environment both on a macro and micro level, then there really is no discussion in what the correct decision is.

The one single counter-argument that I keep hearing over and over and over again is that the S&P500 is more diversified. Yes... I know. But we can measure that diversification in real numbers. Once again, diversifying just for the sake of diversifying is USELESS. You need to be able to reap the tangible benefit from said diversification for it to useful in the form of volatility reduction and minimizing drawdowns. This fundamental principle is the basis for HFEA itself. We use leveraged US treasuries not because they are "diversification" per se, we use them because they provide maximum benefit in the form of volatility reduction and drawdown minimization while also providing a positive expected return, in nominal terms at least.

I'm weighing the pros and cons of picking TQQQ and all I've got for cons is "lack of diversification", but even that falls apart as soon as you turn that lack of diversification into actual numbers with which you can then compare it to UPRO. That extra bit of diversification within the S&P500 DOES NOT make up for the loss in returns, hence the lower Sharpe and Sortino ratios.

It's not so much that I believe in the outperformance of tech (let's not forget that the NASDAQ-100 does hold a sizeable chunk of other sectors too, like consumer discretionary and healthcare), its simply that the S&P500 has simply too many declining or stagnating companies that were once titans and thus still make up a decent portion of SPY. Take Exxon Mobil for example. Oil is becoming increasingly irrelevant and the industry is shrinking, we all know this. I'm not saying we won't need any oil in the future, simply that it will be harder and harder for the company to pump out profits as they have done in the past. Will they be able to pivot to other revenue-generating avenues? Possibly, but their past performance certainly speaks volumes and not in a good way. Why would I want to fill up 0.6% of my portfolio (Exxon's share of SPY) with a company like that when I can fill it with more Microsoft, a company that has consistently grown at ferocious rates year after year after year? More importantly, a company that has PROVEN that it can pivot to new revenue-generating avenues. I don't speak in absolutes, only probabilities. What scenario is more probable: Microsoft having another great year after nearly 20 years of uninterrupted growth or Exxon Mobil, the company that has had more quarters of negative YoY "growth" than positive ones since 2005? All companies are not created equally.

And the S&P500 is laden with companies like this: Chevron, Philip Morris, Ford, GM, IBM, General Electric, Pfizer, Nextera Energy and on and on. My philosophy on investing in the NASDAQ-100 has little to do with liking tech specifically and everything to do with wanting to REMOVE companies that are declining or stagnating. I want to see growth. Period. It's a whole lot easier to justify paying 2x more for a company when it has doubled revenue and EPS than when it has declined 10% and you're relying solely on dividends to keep your investment in the green overall. It's hard to pick winners, but it certainly doesn't take a rocket scientist to remove the trash from the pile. That is why the NASDAQ-100 has consistently outperformed, because it has the least amount of duds holding its winners back.
000
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Afrofreak wrote: Mon Sep 13, 2021 6:46 pm Of what good is it to compare how the stock market performed in the 70s/80s/90s in extrapolating how the stock market will perform over the next decade? A time at which interest rates in the U.S. were consistently above 5% and went as high as 20%, a time when globalization was just starting to take-off, China was not even on the map in terms of world superpowers, the internet was not a thing and even the Fed mandate itself was fundamentally different? It's basically useless information.

[...]

It's not so much that I believe in the outperformance of tech (let's not forget that the NASDAQ-100 does hold a sizeable chunk of other sectors too, like consumer discretionary and healthcare), its simply that the S&P500 has simply too many declining or stagnating companies that were once titans and thus still make up a decent portion of SPY. Take Exxon Mobil for example. Oil is becoming increasingly irrelevant

[...]

And the S&P500 is laden with companies like this: Chevron, Philip Morris, Ford, GM, IBM, General Electric, Pfizer, Nextera Energy and on and on. My philosophy on investing in the NASDAQ-100 has little to do with liking tech specifically and everything to do with wanting to REMOVE companies that are declining or stagnating. I want to see growth. Period.
Two words: priced in.

You're welcome. :sharebeer
Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

000 wrote: Mon Sep 13, 2021 7:03 pm Two words: priced in.

You're welcome.
I was expecting someone would say this. Is it though? When the P/E ratios of both NASDAQ-100 and S&P500 continue to rise when they should be shrinking as profits are realized? When large investing firms make horrendous predictions about the future that turn out to be completely false?
https://www.morningstar.com/articles/90 ... 19-edition

Is it reeaally priced in?
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Afrofreak wrote: Mon Sep 13, 2021 6:46 pm
skierincolorado wrote: Mon Sep 13, 2021 4:30 pm This whole TQQQ vs UPRO discussion is silly. The 25-yr existence of TQQQ is not even close to long enough to draw conclusions about its long-term performance. It is less diversified plain and simple. There is a distinct possibility that tech does worse than the rest of the market the next 20 years. Underperforming the rest of the market is a unique and avoidable risk by simply owning the market. If you truly believe in the permanent long-term outperformance of tech, tilting is the answer not going all-in.
This is just too surface-level of an analysis and tbh I was expecting a whole lot more from this forum given the hefty math that can be found sifting through this thread and the extensive (simulated) backtests that have been done.

If we cannot draw conclusions from even 25 years of data, exactly how much more data do you need? The idea that more data is always better is so fundamentally flawed when you consider how fast the stock market and the global economy as a whole evolves. In its most rudimentary form, modern valuation is performed using a discounted future cash flow analysis, heavy emphasis on the "discounted" part. The rate at which the future cash flow is discounted is tied to the Fed interest rate, therefore making it one of the most important (if not THE most important) component in future predictions. Of what good is it to compare how the stock market performed in the 70s/80s/90s in extrapolating how the stock market will perform over the next decade? A time at which interest rates in the U.S. were consistently above 5% and went as high as 20%, a time when globalization was just starting to take-off, China was not even on the map in terms of world superpowers, the internet was not a thing and even the Fed mandate itself was fundamentally different? It's basically useless information.

As I've said before, imo, the most accurate time period we have for predicting the next decade is 2004-2020 since that is the only time period we have in which interest rates are similar to what they are now. During that period of time the results are very clear; the NASDAQ-100 is far superior.

You keep speaking in empty platitudes: "There is a distinct possibility that tech does worse than the rest of the market in the next 20 years" ... Based on what, exactly? The fact that it has outperformed the previous 15? I am not saying that it is an impossibility, I am simply stating that the data overwhelmingly suggests that that is not the case. I want to know probabilities, after all, in participating in HFEA, we are all consciously or subconsciously agreeing that the expected reward is worth the risk of stagflation, in which the results would be disastrous.

Similarly, I am making assumptions that are logically sound to me and weighing the risk to reward in those scenarios. I am not going to pick UPRO over TQQQ on the <2% chance that we will have another dotcom bubble or the <20% chance that tech underperforms. If we can agree that 2004-2020 is the most likely scenario for what will happen in 2021-2030 due to their similarity in environment both on a macro and micro level, then there really is no discussion in what the correct decision is.

The one single counter-argument that I keep hearing over and over and over again is that the S&P500 is more diversified. Yes... I know. But we can measure that diversification in real numbers. Once again, diversifying just for the sake of diversifying is USELESS. You need to be able to reap the tangible benefit from said diversification for it to useful in the form of volatility reduction and minimizing drawdowns. This fundamental principle is the basis for HFEA itself. We use leveraged US treasuries not because they are "diversification" per se, we use them because they provide maximum benefit in the form of volatility reduction and drawdown minimization while also providing a positive expected return, in nominal terms at least.

I'm weighing the pros and cons of picking TQQQ and all I've got for cons is "lack of diversification", but even that falls apart as soon as you turn that lack of diversification into actual numbers with which you can then compare it to UPRO. That extra bit of diversification within the S&P500 DOES NOT make up for the loss in returns, hence the lower Sharpe and Sortino ratios.

It's not so much that I believe in the outperformance of tech (let's not forget that the NASDAQ-100 does hold a sizeable chunk of other sectors too, like consumer discretionary and healthcare), its simply that the S&P500 has simply too many declining or stagnating companies that were once titans and thus still make up a decent portion of SPY. Take Exxon Mobil for example. Oil is becoming increasingly irrelevant and the industry is shrinking, we all know this. I'm not saying we won't need any oil in the future, simply that it will be harder and harder for the company to pump out profits as they have done in the past. Will they be able to pivot to other revenue-generating avenues? Possibly, but their past performance certainly speaks volumes and not in a good way. Why would I want to fill up 0.6% of my portfolio (Exxon's share of SPY) with a company like that when I can fill it with more Microsoft, a company that has consistently grown at ferocious rates year after year after year? More importantly, a company that has PROVEN that it can pivot to new revenue-generating avenues. I don't speak in absolutes, only probabilities. What scenario is more probable: Microsoft having another great year after nearly 20 years of uninterrupted growth or Exxon Mobil, the company that has had more quarters of negative YoY "growth" than positive ones since 2005? All companies are not created equally.

And the S&P500 is laden with companies like this: Chevron, Philip Morris, Ford, GM, IBM, General Electric, Pfizer, Nextera Energy and on and on. My philosophy on investing in the NASDAQ-100 has little to do with liking tech specifically and everything to do with wanting to REMOVE companies that are declining or stagnating. I want to see growth. Period. It's a whole lot easier to justify paying 2x more for a company when it has doubled revenue and EPS than when it has declined 10% and you're relying solely on dividends to keep your investment in the green overall. It's hard to pick winners, but it certainly doesn't take a rocket scientist to remove the trash from the pile. That is why the NASDAQ-100 has consistently outperformed, because it has the least amount of duds holding its winners back.
There are literally an infinite number of subsets of the market that have outperformed the market for the last 25 years, literally by definition. Why QQQ over any one of those other subsets? In a random distribution there will always be an infinite number of subsets that outperform, even if the outperformance was random and not driven by any fundamental long-term driver of performance that we can expect to continue into the future. It's "data-mining." Mathematically, you could go to year 2000 and select an outperforming subset from the previous 25 years. If you repeat this process you will find that on average, the selected subsets do not outperform the market. Outperformance for the prior 25 years is not an indicator of future performance. If it was, stock picking would be easy - just buy everything that outperformed the prior 25 years.

Oh, and let's not forget that QQQ did not outperform the last 23 years. It's risk-adjusted return is far worse than SPY. Even it's absolute return only inched out SPY by a mere .25% of CAGR, despite much higher std deviation and drawdown. Take it back to 1995, maybe QQQ looks better I don't know - I can't find data prior to 1999 at the moment. My guess is the risk-adjusted return is still worse than SPY.

The idea that 2004-2020 will "predict the future" is mistaken. Has the prior 16 years EVER been a good predictor of the next 16 years? Go ahead and pick stocks or industries or indexes that did well for 16 years. Then see how well they did in the next 16 years. This is not a method for success.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

We should all invest in small cap, since 1993, small cap out perform sp500 by 0.3% CAGR (28 yr and counting) :twisted:

https://www.portfoliovisualizer.com/bac ... ion2_2=100
000
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Afrofreak wrote: Mon Sep 13, 2021 7:15 pm I was expecting someone would say this. Is it though? When the P/E ratios of both NASDAQ-100 and S&P500 continue to rise when they should be shrinking as profits are realized? When large investing firms make horrendous predictions about the future that turn out to be completely false?
https://www.morningstar.com/articles/90 ... 19-edition

Is it reeaally priced in?
If anything it's probably over-priced. At a certain point (may not be there yet I suppose) if top NASDAQ firms continue outperforming they'd eventually have to swallow the whole market cap.

I posted this in the free fall thread to critical vituperation, but their analysis has some good points IMO: The Tech Bubble Then and Now.
Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

Forgot to quote...
Last edited by Afrofreak on Mon Sep 13, 2021 7:33 pm, edited 1 time in total.
Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

skierincolorado wrote: Mon Sep 13, 2021 7:16 pm There are literally an infinite number of subsets of the market that have outperformed the market for the last 25 years, literally by definition. Why QQQ over any one of those other subsets? In a random distribution there will always be an infinite number of subsets that outperform, even if the outperformance was random and not driven by any fundamental long-term driver of performance that we can expect to continue into the future. It's "data-mining." Mathematically, you could go to year 2000 and select an outperforming subset from the previous 25 years. If you repeat this process you will find that on average, the selected subsets do not outperform the market. Outperformance for the prior 25 years is not an indicator of future performance. If it was, stock picking would be easy - just buy everything that outperformed the prior 25 years.

Oh, and let's not forget that QQQ did not outperform the last 23 years. It's risk-adjusted return is far worse than SPY. Even it's absolute return only inched out SPY by a mere .25% of CAGR, despite much higher std deviation and drawdown. Take it back to 1995, maybe QQQ looks better I don't know - I can't find data prior to 1999 at the moment. My guess is the risk-adjusted return is still worse than SPY.

The idea that 2004-2020 will "predict the future" is mistaken. Has the prior 16 years EVER been a good predictor of the next 16 years? Go ahead and pick stocks or industries or indexes that did well for 16 years. Then see how well they did in the next 16 years. This is not a method for success.
Your response makes no sense. It's as if you did not even read the post. I explained exactly why the market behaved the way it did and why I have reason to believe that the NASDAQ-100 will outperform based on past performance. In another post a few pages back I also explained why it is extremely unlikely that the dotcom bust -- which you are so heavily relying on to make SPY look better by comparison -- will occur again in the near future. The stock market is anything but random and that is the entire basis of your argument. Can't predict the future so why even bother trying. Ok, I guess, if you can't criticize the rationale or method that I used to come to my conclusion I guess I can be even more confident in it.

Also 2004-2020 is 17 years, not 16 but you completely missed the point on that anyways. :happy
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

cflannagan wrote: Mon Sep 13, 2021 6:28 pm
jarjarM wrote: Mon Sep 13, 2021 6:19 pm What do you set your interest rate for the leverage as?
Was toying with that. It seems 4% gets me pretty close for 55/45 VFINX/VUSTX when trying to replicate UPRO/TMF from 2010 to 2021. https://www.portfoliovisualizer.com/bac ... tion2_1=45

But I don't think that necessarily means I can use the same figure when going further back (beyond 2010) with VFINX/VUSTX.

Kind of wish something in the backtest keeps track of the rates over time.
What we could do that would be of some interest is break it down by decade and use the average interest rate for that decade. Or even smaller 5-yr chunks.
I
Here's 78-82 (5 years) using my guestimated 14% borrowing rate. It's not insanely sensitive to the rate over a short time period like this, so this it gives a good general idea of what HFEA would have looked like during the bond crash.

https://www.portfoliovisualizer.com/bac ... teTreasury
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

skierincolorado wrote: Mon Sep 13, 2021 7:39 pm What we could do that would be of some interest is break it down by decade and use the average interest rate for that decade. Or even smaller 5-yr chunks.
I
Here's 78-82 (5 years) using my guestimated 14% borrowing rate. It's not insanely sensitive to the rate over a short time period like this, so this it gives a good general idea of what HFEA would have looked like during the bond crash.

https://www.portfoliovisualizer.com/bac ... teTreasury
Yeah, not a pretty picture.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Afrofreak wrote: Mon Sep 13, 2021 7:33 pm
skierincolorado wrote: Mon Sep 13, 2021 7:16 pm There are literally an infinite number of subsets of the market that have outperformed the market for the last 25 years, literally by definition. Why QQQ over any one of those other subsets? In a random distribution there will always be an infinite number of subsets that outperform, even if the outperformance was random and not driven by any fundamental long-term driver of performance that we can expect to continue into the future. It's "data-mining." Mathematically, you could go to year 2000 and select an outperforming subset from the previous 25 years. If you repeat this process you will find that on average, the selected subsets do not outperform the market. Outperformance for the prior 25 years is not an indicator of future performance. If it was, stock picking would be easy - just buy everything that outperformed the prior 25 years.

Oh, and let's not forget that QQQ did not outperform the last 23 years. It's risk-adjusted return is far worse than SPY. Even it's absolute return only inched out SPY by a mere .25% of CAGR, despite much higher std deviation and drawdown. Take it back to 1995, maybe QQQ looks better I don't know - I can't find data prior to 1999 at the moment. My guess is the risk-adjusted return is still worse than SPY.

The idea that 2004-2020 will "predict the future" is mistaken. Has the prior 16 years EVER been a good predictor of the next 16 years? Go ahead and pick stocks or industries or indexes that did well for 16 years. Then see how well they did in the next 16 years. This is not a method for success.
Your response makes no sense. It's as if you did not even read the post. I explained exactly why the market behaved the way it did and why I have reason to believe that the NASDAQ-100 will outperform based on past performance. In another post a few pages back I also explained why it is extremely unlikely that the dotcom bust -- which you are so heavily relying on to make SPY look better by comparison -- will occur again in the near future. The stock market is anything but random and that is the entire basis of your argument. Can't predict the future so why even bother trying. Ok, I guess, if you can't criticize the rationale or method that I used to come to my conclusion I guess I can be even more confident in it.

Also 2004-2020 is 17 years, not 16 but you completely missed the point on that anyways. :happy
I suggest you backtest your methodology. Pick subsets of the market that have over-performed for 16 years and see how they do the next 16 years.

You can come up with all sorts of reasons for the past outperformance and why it will continue, but I'm sure I could do the same for any other subset that outperformed for 16 years. The outperformance doesn't continue. Stock picking doesn't work. Diversification is good. These are central tenets of this forum with strong empirical and theoretical evidence.
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OohLaLa
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

adamhg wrote: Mon Sep 13, 2021 6:25 pm
cflannagan wrote: Mon Sep 13, 2021 6:16 pm I think we've humored the whole QQQ/TQQQ and non-diversification drivel long enough. Change of subject, to keep things on topic (see how long that lasts)
I'm running a TQQQ variation and they're literally talking me out of it lol
I would be a hypocrite if I knew nothing of your situation and on principle tried to talk you out of including TQQQ; My target AA for HFEA in 2021 is: 65% TQQQ/ 5% UPRO/ 10% TMF/ 10% TYD/ 10% VXZ.

The difference is that I do not pretend diversification is a moot point and that my choice is safer. I understand the different risk for TQQQ vs UPRO and accept it, temporarily. There are others running TQQQ as well, so one cannot pretend that it's some pariah here.

Like cflannagan mentions, diversification and its validity is a bit off-topic here. If some people want to pursue page upon page of debate on it, they can always open a new topic and they would actually get even more participation. This thread doesn't bring all the Bogleheads to the yard.
jarjarM
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

000 wrote: Mon Sep 13, 2021 7:24 pm If anything it's probably over-priced. At a certain point (may not be there yet I suppose) if top NASDAQ firms continue outperforming they'd eventually have to swallow the whole market cap.

I posted this in the free fall thread to critical vituperation, but their analysis has some good points IMO: The Tech Bubble Then and Now.
I read it when it was in the free fall thread, it was interesting and definitely make me aware of the risk I take by having $$$ in stock.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

OohLaLa wrote: Mon Sep 13, 2021 7:54 pm I would be a hypocrite if I knew nothing of your situation and on principle tried to talk you out of including TQQQ; My target AA for HFEA in 2021 is: 65% TQQQ/ 5% UPRO/ 10% TMF/ 10% TYD/ 10% VXZ.

The difference is that I do not pretend diversification is a moot point and that my choice is safer. I understand the different risk for TQQQ vs UPRO and accept it, temporarily. There are others running TQQQ as well, so one cannot pretend that it's some pariah here.

Like cflannagan mentions, diversification and its validity is a bit off-topic here. If some people want to pursue page upon page of debate on it, they can always open a new topic and they would actually get even more participation. This thread doesn't bring all the Bogleheads to the yard.
All of that and you didn't snuck in small cap :twisted:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

jarjarM wrote: Mon Sep 13, 2021 7:58 pm
OohLaLa wrote: Mon Sep 13, 2021 7:54 pm I would be a hypocrite if I knew nothing of your situation and on principle tried to talk you out of including TQQQ; My target AA for HFEA in 2021 is: 65% TQQQ/ 5% UPRO/ 10% TMF/ 10% TYD/ 10% VXZ.
[...]
All of that and you didn't snuck in small cap :twisted:
Hey, if this is not diversified enough, I don't know what is!:
https://www.portfoliovisualizer.com/bac ... ion10_3=10

I actually ran out of slots for all the stuff I could find. haha :mrgreen:
https://media.gettyimages.com/photos/as ... ?s=170667a
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

jarjarM wrote: Mon Sep 13, 2021 6:34 pm
cflannagan wrote: Mon Sep 13, 2021 6:28 pm
jarjarM wrote: Mon Sep 13, 2021 6:19 pm What do you set your interest rate for the leverage as?
Was toying with that. It seems 4% gets me pretty close for 55/45 VFINX/VUSTX when trying to replicate UPRO/TMF from 2010 to 2021. https://www.portfoliovisualizer.com/bac ... tion2_1=45

But I don't think that necessarily means I can use the same figure when going further back (beyond 2010) with VFINX/VUSTX.

Kind of wish something in the backtest keeps track of the rates over time.
Yeah, that's why I think it's not as useful of a tool as PV would imagine, as I said upthread, it's better if they track it against some short term rate index.
I match 55/45 UPRO/TMF pretty close from 2010-present with debt interest of 4.6%.

Edit: Actually the leverage is debt/equity ratio, so 200% is the same as 3x. I matched 55/45 UPRO/TMF 2010-present using 55/45 VFINX/VUSTX with 200% leverage & 2% debt interest. 55/45 SPY/TLT needed 2.3% debt interest.
Last edited by Hydromod on Mon Sep 13, 2021 9:02 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by adamhg »

OohLaLa wrote: Mon Sep 13, 2021 7:54 pm
adamhg wrote: Mon Sep 13, 2021 6:25 pm
cflannagan wrote: Mon Sep 13, 2021 6:16 pm I think we've humored the whole QQQ/TQQQ and non-diversification drivel long enough. Change of subject, to keep things on topic (see how long that lasts)
I'm running a TQQQ variation and they're literally talking me out of it lol
I would be a hypocrite if I knew nothing of your situation and on principle tried to talk you out of including TQQQ; My target AA for HFEA in 2021 is: 65% TQQQ/ 5% UPRO/ 10% TMF/ 10% TYD/ 10% VXZ.

The difference is that I do not pretend diversification is a moot point and that my choice is safer. I understand the different risk for TQQQ vs UPRO and accept it, temporarily. There are others running TQQQ as well, so one cannot pretend that it's some pariah here.

Like cflannagan mentions, diversification and its validity is a bit off-topic here. If some people want to pursue page upon page of debate on it, they can always open a new topic and they would actually get even more participation. This thread doesn't bring all the Bogleheads to the yard.
Exactly. I know and understand the risks and have no illusions that what I'm doing is somehow safer or better because I'm somehow throwing out the "trash" that magically self selected out of the only worthwhile exchange that is the nasdaq and successfully managed to not be a financial services company. I've also hedged more towards the bond side and am sufficiently diversified thoughtful the rest of my portfolio.

The nasdaq 100 really makes no sense as an index of you really think about it. Why a particular exchange should have a monopoly on the best growth companies doesn't really make sense. Why exclude financial services by rule on top of that? What about fintech? I'm sure it made sense at some point but seems pretty arbitrary today.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

skierincolorado wrote: Mon Sep 13, 2021 7:39 pm
cflannagan wrote: Mon Sep 13, 2021 6:28 pm
jarjarM wrote: Mon Sep 13, 2021 6:19 pm What do you set your interest rate for the leverage as?
Was toying with that. It seems 4% gets me pretty close for 55/45 VFINX/VUSTX when trying to replicate UPRO/TMF from 2010 to 2021. https://www.portfoliovisualizer.com/bac ... tion2_1=45

But I don't think that necessarily means I can use the same figure when going further back (beyond 2010) with VFINX/VUSTX.

Kind of wish something in the backtest keeps track of the rates over time.
What we could do that would be of some interest is break it down by decade and use the average interest rate for that decade. Or even smaller 5-yr chunks.
I
Here's 78-82 (5 years) using my guestimated 14% borrowing rate. It's not insanely sensitive to the rate over a short time period like this, so this it gives a good general idea of what HFEA would have looked like during the bond crash.

https://www.portfoliovisualizer.com/bac ... teTreasury
It looks better with the 200% debt/equity ratio. Not good, but better.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Hydromod wrote: Mon Sep 13, 2021 9:08 pm
It looks better with the 200% debt/equity ratio. Not good, but better.
You're right, 200% makes more sense now that I look at tooltip (debt/equity).

I then used 1.067% for debt interest. The CAGR matches exactly for HFEA 2010-2021. But the yearly % are off, so it doesn't track as well as I hope it would. https://www.portfoliovisualizer.com/bac ... tion2_1=45
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by telandra »

Hydromod wrote: Mon Sep 13, 2021 9:08 pm It looks better with the 200% debt/equity ratio. Not good, but better.
I kinda like leveraged golden butterfly w/ int treasuries over long and short treasuries.

78-82 (14%) (2:1 d/e)
https://www.portfoliovisualizer.com/bac ... rtTreasury

Didn't help much for drawdown in the guestimated bond crash but holds up better than HFEA. Additionally, here it is since 1972 surviving a 10% debt interest:

1972-2021 (10%) (2:1 d/e)
https://www.portfoliovisualizer.com/bac ... rtTreasury

Though personally I would go lower for a 1:1 debt/equity like below;

1972-2021 (10%) (1:1 d/e)
https://www.portfoliovisualizer.com/bac ... rtTreasury

1978-1982 (14%) (1:1 d/e)
https://www.portfoliovisualizer.com/bac ... rtTreasury

Obviously 10% is too high of an average but I wanted to stress the portfolio a bit since this is a silly way of running debt interest in the first place.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

cflannagan wrote: Mon Sep 13, 2021 9:24 pm
Hydromod wrote: Mon Sep 13, 2021 9:08 pm
It looks better with the 200% debt/equity ratio. Not good, but better.
You're right, 200% makes more sense now that I look at tooltip (debt/equity).

I then used 1.067% for debt interest. The CAGR matches exactly for HFEA 2010-2021. But the yearly % are off, so it doesn't track as well as I hope it would. https://www.portfoliovisualizer.com/bac ... tion2_1=45
Interesting, there's a difference when rebalancing monthly. I needed 2.6% for debt interest to match CAGR with monthly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by AllomancerJack »

Isn't HFEA sensitivity to rebalancing an argument for using rebalancing bands?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

AllomancerJack wrote: Tue Sep 14, 2021 5:20 am Isn't HFEA sensitivity to rebalancing an argument for using rebalancing bands?
I'm comfortable with rebalancing bands of say 10 to 15 percent based on historical performance as an alternative to monthly or quarterly rebalancing. All three should get you there during long accumulation periods; I expect quarterly results to be most dependent on timing luck though.

Part of the HFEA choice is whether to run a fixed allocation (based on long-term average risk) or fixed risk budget (which adjusts the allocation target according to recent volatility). The ride will tend to be smoother with risk-budget approaches, even if long-term returns are similar.

Drawdowns are especially dangerous for late-stage accumulators and decumulators, and volatility-based methods may be a better option for that situation. Same issues about rebalancing frequency persist though.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

If I used rebalancing bands in HFEA, I would probably use pretty wide bands....

If one had them set at 10,15,20 %.... How many times in March 2020 would one rebalance? (aka throw money into the fire?)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rchmx1 »

dziuniek wrote: Tue Sep 14, 2021 9:54 am If I used rebalancing bands in HFEA, I would probably use pretty wide bands....

If one had them set at 10,15,20 %.... How many times in March 2020 would one rebalance? (aka throw money into the fire?)
As UPRO went from ~$80 to ~$20, quite a few times, I'd guess. Though with what we know now, each of those would have been a fantastic purchase.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

rchmx1 wrote: Tue Sep 14, 2021 10:38 am
dziuniek wrote: Tue Sep 14, 2021 9:54 am If I used rebalancing bands in HFEA, I would probably use pretty wide bands....

If one had them set at 10,15,20 %.... How many times in March 2020 would one rebalance? (aka throw money into the fire?)
As UPRO went from ~$80 to ~$20, quite a few times, I'd guess. Though with what we know now, each of those would have been a fantastic purchase.
Sure, with hindsight. Wider bands would've been better. Also... with hindsight :twisted:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by FIRE55 »

dziuniek wrote: Tue Sep 14, 2021 9:54 am If one had them set at 10,15,20 %.... How many times in March 2020 would one rebalance? (aka throw money into the fire?)
Why do you say "throw money into the fire"? Isn't this the whole point? Were you not delighted that TMF took off to ~$40, enabling you to buy UPRO down to $20.63 on March 18? Even if it rebalanced several times on the way down (say using a 5% band instead of a 15% band) each one of those transactions is still a good one. Sure, one single optimal rebalance on a specific date may be easy to see in retrospect, but at the time, every rebalance trigger that fires should make you happy, regardless of the actual % band. You're selling one thing high and buying the other thing low.

What am I missing?

/FIRE55
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

Afrofreak wrote: Mon Sep 13, 2021 7:33 pm
skierincolorado wrote: Mon Sep 13, 2021 7:16 pm There are literally an infinite number of subsets of the market that have outperformed the market for the last 25 years, literally by definition. Why QQQ over any one of those other subsets? In a random distribution there will always be an infinite number of subsets that outperform, even if the outperformance was random and not driven by any fundamental long-term driver of performance that we can expect to continue into the future. It's "data-mining." Mathematically, you could go to year 2000 and select an outperforming subset from the previous 25 years. If you repeat this process you will find that on average, the selected subsets do not outperform the market. Outperformance for the prior 25 years is not an indicator of future performance. If it was, stock picking would be easy - just buy everything that outperformed the prior 25 years.

Oh, and let's not forget that QQQ did not outperform the last 23 years. It's risk-adjusted return is far worse than SPY. Even it's absolute return only inched out SPY by a mere .25% of CAGR, despite much higher std deviation and drawdown. Take it back to 1995, maybe QQQ looks better I don't know - I can't find data prior to 1999 at the moment. My guess is the risk-adjusted return is still worse than SPY.

The idea that 2004-2020 will "predict the future" is mistaken. Has the prior 16 years EVER been a good predictor of the next 16 years? Go ahead and pick stocks or industries or indexes that did well for 16 years. Then see how well they did in the next 16 years. This is not a method for success.
Your response makes no sense. It's as if you did not even read the post. I explained exactly why the market behaved the way it did and why I have reason to believe that the NASDAQ-100 will outperform based on past performance. In another post a few pages back I also explained why it is extremely unlikely that the dotcom bust -- which you are so heavily relying on to make SPY look better by comparison -- will occur again in the near future. The stock market is anything but random and that is the entire basis of your argument. Can't predict the future so why even bother trying. Ok, I guess, if you can't criticize the rationale or method that I used to come to my conclusion I guess I can be even more confident in it.

Also 2004-2020 is 17 years, not 16 but you completely missed the point on that anyways. :happy
The entire market has all the same reasons as you to believe that QQQ will outperform. What do you know that the rest of the market doesn't?

(I also have a mostly-TQQQ variant of HFEA, I also don't think today in any way resembles the dotcom bubble, but I am under no illusion that this isn't significantly more risky than UPRO.)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LTCM »

Semantics wrote: Tue Sep 14, 2021 5:03 pm The entire market has all the same reasons as you to believe that QQQ will outperform. What do you know that the rest of the market doesn't?
Just to take the other side...

How do you short S&P enough to drive the price down to "correct" market value when then entire retirement industry is buying it in billion dollar lumps every week? Isn't that like trying to bet against the Fed?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

AllomancerJack wrote: Tue Sep 14, 2021 5:20 am Isn't HFEA sensitivity to rebalancing an argument for using rebalancing bands?
perhaps in theory but not practice. I think narrow bands are better for flat markets and historically quarterly has done the best
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

LTCM wrote: Tue Sep 14, 2021 5:13 pm
Semantics wrote: Tue Sep 14, 2021 5:03 pm The entire market has all the same reasons as you to believe that QQQ will outperform. What do you know that the rest of the market doesn't?
Just to take the other side...

How do you short S&P enough to drive the price down to "correct" market value when then entire retirement industry is buying it in billion dollar lumps every week? Isn't that like trying to bet against the Fed?
Well when people just buy SPY or VTI they are also buying QQQ since QQQ is a subset of SPY and VTI. If SPY is overbought, QQQ should be overbought just as much. Except maybe you have a whole contingent of people buying even more QQQ because they're performance chasing. Also the demand isn't going anywhere so is it really overbought? I suppose it lowers the dividend yield. Also the FED has bought trillions in a short time. And finally, if passive index investing was really majorly distorting the market, the returns of hedge funds would be a lot better.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Snerks »

I am running a small HFEA experiment in taxable in order to understand it better.

I started with UPRO/TMF 55/45 several weeks ago.

As of today UPRO is -5.15% and TMF is +6.17%

UPRO now comprises 52.2% and TMF comprises 47.8%

I understand it is too soon to rebalance (I should rebalance quarterly, but haven't seen any suggestions for when exactly, other than first trading days of Jan, Apr, Jul, and Oct--are there any?)

I understand SPXL can be used to replace UPRO when tax loss harvesting.

Is now a good time to tax loss harvest my UPRO? If so, should I sell it all and replace SPXL with the proceeds? If not, what should I wait for or how long should I wait to do so?

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

Post by investor.was.here »

Is there consensus on whether it's possible to implement HFEA in a taxable account? what does that look like?

I know taxes will be a big drag and tax-free would be better but, for the sake of discussion, assume that a tax-free option doesn't exist. Does it still have something to offer over a straight balanced fund? Or is NTSX the best I'll do?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

skierincolorado wrote: Mon Sep 13, 2021 7:16 pm Oh, and let's not forget that QQQ did not outperform the last 23 years. It's risk-adjusted return is far worse than SPY. Even it's absolute return only inched out SPY by a mere .25% of CAGR, despite much higher std deviation and drawdown. Take it back to 1995, maybe QQQ looks better I don't know - I can't find data prior to 1999 at the moment. My guess is the risk-adjusted return is still worse than SPY.
You can use RYOCX instead of QQQ to backtest the NASDAQ 100 all the way back to 1994. It doesn't look much better.
jarjarM wrote: Mon Sep 13, 2021 7:22 pm We should all invest in small cap, since 1993, small cap out perform sp500 by 0.3% CAGR (28 yr and counting) :twisted:

https://www.portfoliovisualizer.com/bac ... ion2_2=100
Smallcap is great and all, but have you seen midcap?

https://www.portfoliovisualizer.com/bac ... ion3_3=100

100% UMDD TO THE MOON!!! 💯🚀🌜 /s
investor.was.here wrote: Tue Sep 14, 2021 11:52 pm Is there consensus on whether it's possible to implement HFEA in a taxable account? what does that look like?

I know taxes will be a big drag and tax-free would be better but, for the sake of discussion, assume that a tax-free option doesn't exist. Does it still have something to offer over a straight balanced fund? Or is NTSX the best I'll do?
Use the search, Luke!

See: viewtopic.php?p=5746280#p5746280

In short, this strategy works out just fine in taxable. I've been doing it with the majority of my net worth for going on 2 years now and returns have far outweighed taxes.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

Snerks wrote: Tue Sep 14, 2021 7:24 pm I am running a small HFEA experiment in taxable in order to understand it better.

I started with UPRO/TMF 55/45 several weeks ago.

As of today UPRO is -5.15% and TMF is +6.17%

UPRO now comprises 52.2% and TMF comprises 47.8%

I understand it is too soon to rebalance (I should rebalance quarterly, but haven't seen any suggestions for when exactly, other than first trading days of Jan, Apr, Jul, and Oct--are there any?)
There's no "right" answer but yes, first trading day in those months are often mentioned. That is what my rebalancing strategy is.

I also started small HFEA positions in taxable (and much bigger ones in my HSA at Fidelity).

In tax-advantaged accounts, I'll be straight up rebalancing (selling overperforming asset, into underperforming). But for taxable, my plan is to add new money only into the underperforming asset. Do this for 1st year at least, so if my taxable HFEA positions grow big enough where I don't have enough new money to add into underperforming asset, I'll just sell the underperforming asset, which should be long-term at this point (will be using tax lots to select right shares). M1 Finance should be doing this automatically for me I believe (I will double check on this).
Snerks wrote: Tue Sep 14, 2021 7:24 pm I understand SPXL can be used to replace UPRO when tax loss harvesting.
Yes, SPXL tracks pretty closely to UPRO as far as I can tell.
Snerks wrote: Tue Sep 14, 2021 7:24 pm Is now a good time to tax loss harvest my UPRO? If so, should I sell it all and replace SPXL with the proceeds? If not, what should I wait for or how long should I wait to do so?

Many thanks!
Can't think of reasons not to, other than as long as you're okay with being stuck with SPXL instead of UPRO if your driver ETF (SPXL) becomes positive from that point forward, but as mentioned, UPRO and SPXL seems to track each other very well when I looked at history. Also, SPXL have slightly higher expense ratio compares to UPRO (+0.07% I think?)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

FIRE55 wrote: Tue Sep 14, 2021 4:50 pm
dziuniek wrote: Tue Sep 14, 2021 9:54 am If one had them set at 10,15,20 %.... How many times in March 2020 would one rebalance? (aka throw money into the fire?)
Why do you say "throw money into the fire"? Isn't this the whole point? Were you not delighted that TMF took off to ~$40, enabling you to buy UPRO down to $20.63 on March 18? Even if it rebalanced several times on the way down (say using a 5% band instead of a 15% band) each one of those transactions is still a good one. Sure, one single optimal rebalance on a specific date may be easy to see in retrospect, but at the time, every rebalance trigger that fires should make you happy, regardless of the actual % band. You're selling one thing high and buying the other thing low.

What am I missing?

/FIRE55
You're not missing anything. The market recovery was real fast so every one of those trades worked out really well.

The drawdowns in UPRO can be severe so wider bands could be better. That's all.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

dziuniek wrote: Wed Sep 15, 2021 7:15 am You're not missing anything. The market recovery was real fast so every one of those trades worked out really well.

The drawdowns in UPRO can be severe so wider bands could be better. That's all.
Is this the reason small/mid-caps aren't used instead? Seems odds to me that we use long-dated treasuries for the extra beta but low-beta stocks. The numbers certainly look better the further down the market cap you go. I know historically, UPRO has or would not have ever been wiped out but is the same true for UMDD and TNA?

Otherwise, we can get a similar CAGR with lower drawdowns using a modified 3x all-weather portfolio. Of course, you could substitute UPRO in HFEA too but it makes more sense for the all-weather portfolio since you have more inversely correlated assets to protect against the larger drawdowns. Results using actual funds look good too, should fare well if the market crashes and in rising interest rate environments.
Last edited by investor.was.here on Wed Sep 15, 2021 12:53 pm, edited 2 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cflannagan »

investor.was.here wrote: Wed Sep 15, 2021 12:08 pm Seems odds to me that we use long-dated treasuries for the extra beta but low-beta stocks.
As far as I know, beta is not the reason why we're using TMF. Longer duration bonds are better as crash insurance than shorter duration term bonds, thus we're using 20+ year long term treasuries, but leveraged at x3.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jarjarM »

cos wrote: Wed Sep 15, 2021 12:03 am
Smallcap is great and all, but have you seen midcap?

https://www.portfoliovisualizer.com/bac ... ion3_3=100

100% UMDD TO THE MOON!!! 💯🚀🌜 /s
We all know why we don't love UMDD, it's because of Merriman :P On a serious note, that 28k shares daily volume average is a bit scary. You could seriously distort the market with a cool $1m buy/sell. I wish it has better AUM and more liquidity, then it's a worthwhile consideration. :beer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

jarjarM wrote: Wed Sep 15, 2021 1:01 pm
cos wrote: Wed Sep 15, 2021 12:03 am
Smallcap is great and all, but have you seen midcap?

https://www.portfoliovisualizer.com/bac ... ion3_3=100

100% UMDD TO THE MOON!!! 💯🚀🌜 /s
We all know why we don't love UMDD, it's because of Merriman :P On a serious note, that 28k shares daily volume average is a bit scary. You could seriously distort the market with a cool $1m buy/sell. I wish it has better AUM and more liquidity, then it's a worthwhile consideration. :beer
Anyone remember Mel's unloved mid caps thread from way back when? :beer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by parval »

Forget if this was discussed, but does using margin instead of the 3x ETFs trigger margin-call in the backtests?

I can only see 1985-present

And seems much cheaper than the expense ratios paid (at least on IBKR), because in a taxable the margin expense deducts against dividends right?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

parval wrote: Wed Sep 15, 2021 8:21 pm Forget if this was discussed, but does using margin instead of the 3x ETFs trigger margin-call in the backtests?

I can only see 1985-present

And seems much cheaper than the expense ratios paid (at least on IBKR), because in a taxable the margin expense deducts against dividends right?
CASHX is an overly optimistic estimate of margin interest, given that it's 1 month t-bills. Realistically even if you use box spreads you're probably going to be paying a spread of 0.5% above that, and with actual margin at IBKR you're looking at 1-2%.

Secondly, because leveraged ETFs typically use total return swaps, they don't earn dividends for the entire "borrowed" part of the fund, so that tax is deferred until you sell and realize it as capital gains. These ETFs are very tax efficient. I'd imagine even with the expense ratio it's hard to do better on your own with a margin account.

The margin approach does let you reduce volatility decay somewhat, so there's arguably a small win there so long as monthly returns remain less volatile than daily returns (that's only been the case in the past 20-30 years).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Mel Lindauer »

dziuniek wrote: Wed Sep 15, 2021 1:39 pm
jarjarM wrote: Wed Sep 15, 2021 1:01 pm
cos wrote: Wed Sep 15, 2021 12:03 am
Smallcap is great and all, but have you seen midcap?

https://www.portfoliovisualizer.com/bac ... ion3_3=100

100% UMDD TO THE MOON!!! 💯🚀🌜 /s
We all know why we don't love UMDD, it's because of Merriman :P On a serious note, that 28k shares daily volume average is a bit scary. You could seriously distort the market with a cool $1m buy/sell. I wish it has better AUM and more liquidity, then it's a worthwhile consideration. :beer
Anyone remember Mel's unloved mid caps thread from way back when? :beer
Still love those Mel's unloved mid-caps. In fact, I have my granddaughter's 529 College Plan entirely in the mid-cap index and it's done very well for me and her, thank you.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

Mel Lindauer wrote: Thu Sep 16, 2021 12:55 am
dziuniek wrote: Wed Sep 15, 2021 1:39 pm
jarjarM wrote: Wed Sep 15, 2021 1:01 pm
cos wrote: Wed Sep 15, 2021 12:03 am
Smallcap is great and all, but have you seen midcap?

https://www.portfoliovisualizer.com/bac ... ion3_3=100

100% UMDD TO THE MOON!!! 💯🚀🌜 /s
We all know why we don't love UMDD, it's because of Merriman :P On a serious note, that 28k shares daily volume average is a bit scary. You could seriously distort the market with a cool $1m buy/sell. I wish it has better AUM and more liquidity, then it's a worthwhile consideration. :beer
Anyone remember Mel's unloved mid caps thread from way back when? :beer
Still love those Mel's unloved mid-caps. In fact, I have my granddaughter's 529 College Plan entirely in the mid-cap index and it's done very well for me and her, thank you.
Good to hear! :sharebeer
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