The issue I have, which is separate but unrelated to this is the long term performance drift of those funds where the CAGR doesn’t tie out with the underlying over time. It bleeds off significant value over time and if you aren’t in an unprecedented period of Fed driven asset inflation could be really bad. Going 2x vs 3x does go a long way toward mitigating this as the data is much worse on the 3x funds, but not enough for me to consider this a great strategy long term. I may be wrong, Ohai seems smart, but that’s just the way I look at it.
I’ve been thinking about that too… likely not the right instrument if I want to hold a few years if I need to. I made that mistake back a few years ago with uso. Maybe it would be better if I could take out margin and lever up only slightly instead.
fully agree with what you said. but i wouldnt midn the bleed after a 50% decline. the risk reward after a 25% decline is very different from the risk reward of a market peak.
anyways interesting comment on margin. i actually dont know whats worse.
leveraging your own assets.
or having a levered product.
you have protection when you use a levered product although there are fees. margining ur own assets is cheaper but you run the risk of a margin call. you might end up selling during the best time to buy!
Yeah, but have some 'spect would ya? I don’t walk around here calling you grandpa all day do I?
Meh, kid fits.
The way I view it. The issue is that in your early to mid 20’s you’re really 1-5 years into real life in terms of adult issues having an actual grown up job, expenses, experience, responsibilities, investments, social life, etc. So in those terms, you’re basically a toddler screaming randomly. By early 30’s you’re now breaking into real world teen years and basically the young teenager of the adult world, you sort of can grasp what’s going on but probably have a sense of confidence out of sync with reality. And so on, so forth. So basically college graduation = T(0).
i thought that old people dont really have a social life.
It varies, a lot of active older people but sort of depends on how burned out or poor you are. In a lot of instances it slows down at first but once the kids get old enough that you can use them to source low interest liar loans its models and bottles again.
Nerdy doing the classic risk aversion analysis. You look at draw downs absent of the recovery? Cmon man no one forces you to liquidate at any point. If you will need liquidity this isn’t where you’d store it
The 2x does make assumptions about the market to avoid the problem of drift. But it works in a lot of environments. While a lot of America’s history works better at 3x than 2x, the strategy seems too sensitive at that level IMO
at markets peaks is precisely when you want to look at max drawdowns.
and even if you do not liquidate your position in a levered fund, that levered fund will still be forced to liquidate positions when it goes against them.
as for recovery cycles, levered etfs have had only 1 economic cycle, and its a 10 year trendy cycle that arguably is still ongoing.
in addition trends and volatility play a key role in your performance. timing will also play an issue. the more leverage you take, the more it will matter because they are using derivatives to achieve your desired return.
anyways my bottom line is i am not against using it, but i am against holding it to perpetuity. there just isnt sufficient data to conclude that the next recovery after a bear market will be as generous nor as trendy.
What part of “YTD Return: 50.6%” is not up to your standards?
percentage gains is really meaningless. let me show you how much you need to make to get back even.
if you lose 25%, you need 33%
lose 50%, need 100%
lose 85%, need 566%
The 10-yr return jumps to 1,941.7% BTW.
Sounds like everyone’s still just scared about the bull run ending.
This guy and Ripple guy need to get a room together.
as long as it doesnt fall by 95% then ur in the money! anyways thats the main concern with these levered etfs. blow up risk!
If the S&P 500 moves down 5%, a fund like the SSO should move down 10%. If we assume a share price of $10, the SSO should be down to about $9 after the first day. On the second day, if the S&P 500 moves up 5%, over the two days the S&P 500 return will be -0.25%. An unaware investor would think the SSO should be down 0.5%. The 10% increase on day two will bring shares up from $9.00–$9.90, and the SSO will, in reality, be down by 1%. It decreases a full four times the decline of the S&P 500.
Typically, you will find that the more volatile the benchmark (the S&P 500 in this example) for a leveraged ETF, the more value the ETF will lose over time, even if the benchmark ends up flat or had a 0% return at the end of the year. If the benchmark moved up and down drastically along the way, you may end up losing a significant percentage of the value of the ETF if you bought and held it. For example, if a leveraged ETF moves within 10 points every two days for 60 days, then you will likely lose more than 50% of your investment.
There are theoretical worlds. The stock market may not go up for the next 20 years. Then there are theoretical worlds that are less or more likely. You are just focusing on when the strategy doesn’t work irrespective of how frequently that sort of market occurs. Rookie forecasting mistake
The multiverse theory is generally accepted these days. That means there’s another universe with an Earth that’s exactly the same as ours but the only ETFs ever created have been leveraged to their benchmark. Just recently, someone on that Earth introduced non-levered ETFs and everyone is flocking to them because they’re less risky with a more predictable performance contour. Meanwhile the establishment is trying to squash them because they don’t provide enough return to meet the retirement needs of the planet’s inhabitants.
Backwards looking; rookie forecasting mistake.