HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by Afrofreak »

Hydromod wrote: Thu Jan 27, 2022 10:36 am
Afrofreak wrote: Thu Jan 27, 2022 12:51 am To reiterate, my point is simply that if one accepts quarterly rebalancing for the entirety of the portfolio as the most optimal option, one cannot then also contribute in a manner that is antithetical to quarterly rebalancing, whether that be contributing only to the depreciated asset or according to the intended allocation (55/45, 60/40, 70/30, etc.).
I don't think the contribution strategy is very important. The contribution allocation cannot affect the returns for the previously contributed portfolio.

So we are talking only about the returns of the contribution from the contribution date to the rebalance date, which is less than a quarter.

On average, UPRO might return 6% in a typical six-week period and TMF might return 4%. Assuming a monthly $1000 contribution, on an annual basis that averages to $720 vs. $480. The difference is $240. After a couple of years, this is roundoff error relative to the portfolio returns.

With that said, the risk profile is different for the contributions, since it is a short-term calculation only. You can take advantage of expected behavior without worrying much about tail risk prior to rebalancing. I'd argue that it might make sense to contribute 100% UPRO in tax-advantaged and to the underweight in taxable.
The person was talking about DCA'ing, so the contributions would stretch out for a long period of time, not just one quarter. Even so, to me it's a matter of principle. It's like buying going to the supermarket and seeing two identical sticks of butter, one is $4.95 and the other is $5. Which do you buy? Obviously the one that's $4.95 even if the difference is only 5 cents. Why do something that is inferior, even if only by fractions of a percentage? As for asset location, I fully agree with you. My tax-advantaged account is 100% TQQQ, my taxable is about 60/40 and my "tax-disadvantaged" (It's complicated) is 100% TMF.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

LeverageWBeverage wrote: Thu Jan 27, 2022 10:38 am I don't think that quarterly rebalancing is luck. When you run the choices available in portfolio visualizer, the more you rebalance the better it gets. No rebalancing is worse than yearly, which is worse than semi-annually, which is worse than quarterly.

But when you get to monthly it gets worse than quarterly. Is that because something magically happens exactly on the quarter or is it because you need to give the etfs some time to run and take advantage of momentum between rebals? Maybe one or the other or a bit of both.

So what does that mean for daily? I have no idea but I would think letting them run a bit is probably better than daily rebals. All I know for sure is that portfolio visualizer clearly only has month end data. At least that is true for the free version. I have been running it all month to see where my portfolio is since i started vs where portfolio visualizer thinks it should be at. Its been a crazy month but the number is the same every day i try it because it has no idea what is going on until month end. So that is something to keep in mind.
I concur. Logically you would think if monthly is inferior to quarterly then daily must also be inferior but I don't have evidence to back this up. My hypothesis was that it has to do with the fact that earnings come out once a quarter. Someone else stated that if that were the case, we would see large variation in the CAGR based on when, within the quarter, the rebalance was initiated. I think the above graphs point to this pretty conclusively.
adamhg
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by adamhg »

wfrobinette wrote: Wed Jan 26, 2022 3:24 pm
adamhg wrote: Mon Jan 24, 2022 10:56 pm This isn't really HFEA specific, but I know a lot of us use M1.

I moved to M1 to make rebalancing HFEA easier at the end of last year. I thought today was a gift and tried to do a simple TLH by swapping out my UPRO/UMDD with SPXL/MIDU. At 2, M1 successfully closes out my positions but reopened with nearly $1k in cash left over for no apparent reason which missed out on the end of day 6% rally.

Some more details here: https://www.reddit.com/r/M1Finance/comm ... gned_to_do

I'll be closing my M1 account asap. Support didn't even seem bothered by it. They tried to assure me they'd trade it tomorrow morning but couldn't promise they wouldn't just decide to leave 100k in cash the next time.
If you want in and out at your discretion then M1 is the wrong place for sure. It's not for day trading. To top it off if you are doing this type of trading in a cash account is not the smartest move either.
You may have missed the part where I said I was TLH?? Not sure where you got the idea I was day trading HFEA
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hillclimber
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

Afrofreak wrote: Thu Jan 27, 2022 11:00 am I can't understand people who follow one rule for the entire portfolio and another for their additional contributions. If they do not believe quarterly rebalancing to be superior then that's their prerogative, I have no issues with that as long as it's consistent.
I think re-reading the thread may help cure your lack of understanding. Start at the first page and start reading.
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

Hydromod wrote: Thu Jan 27, 2022 10:36 am
Afrofreak wrote: Thu Jan 27, 2022 12:51 am To reiterate, my point is simply that if one accepts quarterly rebalancing for the entirety of the portfolio as the most optimal option, one cannot then also contribute in a manner that is antithetical to quarterly rebalancing, whether that be contributing only to the depreciated asset or according to the intended allocation (55/45, 60/40, 70/30, etc.).
I don't think the contribution strategy is very important. The contribution allocation cannot affect the returns for the previously contributed portfolio.

So we are talking only about the returns of the contribution from the contribution date to the rebalance date, which is less than a quarter.

On average, UPRO might return 6% in a typical six-week period and TMF might return 4%. Assuming a monthly $1000 contribution, on an annual basis that averages to $720 vs. $480. The difference is $240. After a couple of years, this is roundoff error relative to the portfolio returns.

With that said, the risk profile is different for the contributions, since it is a short-term calculation only. You can take advantage of expected behavior without worrying much about tail risk prior to rebalancing. I'd argue that it might make sense to contribute 100% UPRO in tax-advantaged and to the underweight in taxable.
I too think it doesn't matter, it will be a roundoff error. I don't understand your last paragraph with the risk profile. The contribution will add to the risk of whatever asset you add it to between the time of contribution to the next rebalancing time. If you add it to equities, infinitesimally higher return but infinitesimally higher risk during that short time frame. But again, I think this is a boring discussion and a non-issue. It will be a wash in the end, on a risk-return basis, and the differences will be minuscule in comparison to the portfolio returns. I personally would contribute to the underperforming asset, to save a small amount of transaction cost on the next rebalancing date. If my contribution is e.g. 5 days before the rebalancing date, why would I make my life complex and contribute to something else, then reshuffle 5 days later and pay a few cents or dollars to some market maker (and maybe tax in taxable), when my life could be easy. Especially given that which is the optimal rebal method is highly debated and inconclusive in the first place. Pick a method and stick to it. I think this is a boring issue, a total non-issue. Yawn.
Last edited by comeinvest on Thu Jan 27, 2022 5:11 pm, edited 1 time in total.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

hillclimber wrote: Thu Jan 27, 2022 12:41 pm
Afrofreak wrote: Thu Jan 27, 2022 11:00 am I can't understand people who follow one rule for the entire portfolio and another for their additional contributions. If they do not believe quarterly rebalancing to be superior then that's their prerogative, I have no issues with that as long as it's consistent.
I think re-reading the thread may help cure your lack of understanding. Start at the first page and start reading.
What?
Hydromod
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

comeinvest wrote: Thu Jan 27, 2022 12:44 pm
Hydromod wrote: Thu Jan 27, 2022 10:36 am With that said, the risk profile is different for the contributions, since it is a short-term calculation only. You can take advantage of expected behavior without worrying much about tail risk prior to rebalancing. I'd argue that it might make sense to contribute 100% UPRO in tax-advantaged and to the underweight in taxable.
I too think it doesn't matter, it will be a roundoff error. I don't understand your last paragraph with the risk profile. The contribution will add to the risk of whatever asset you add it to between the time of contribution to the next rebalancing time. If you add it to equities, infinitesimally higher return but infinitesimally higher risk during that short time frame. But again, I think this is a boring discussion and a non-issue. It will be a wash in the end, on a risk-return basis, and the differences will be minuscule in comparison to the portfolio returns. I personally would contribute to the underperforming asset, to save a small amount of transaction cost on the next rebalancing date. If my contribution is e.g. 5 days before the rebalancing date, why would I make my life complex and contribute to something else, then reshuffle 5 days later and pay a few cents or dollars to some market maker (and maybe tax in taxable), when my life could be easy. Especially given that which is the optimal rebal method is highly debated in inconclusive in the first place. I think this is a boring issue, a non-issue. Yawn.
Yawn yes.

Just to clarify, my point with the risk profile is that one sets the overall portfolio allocation to mitigate the tail risk of a portfolio crash over time scales of decades. Contributions can be thought of as independent short-term investments (weekly, biweekly, monthly) over a few weeks that lose their separate identity during the rebalance; whatever you allocate for the contribution has no impact whatsoever on the returns of the previously invested portfolio (or other contributions during the quarter).

The probability of a crash occurring in a few weeks is much smaller than the probability of it occurring over a portfolio lifetime. So each independent contribution has much lower tail risk than the overall portfolio, and can be invested for those few weeks based on maximizing expected return over dozens of independent small samples. This is a different goal from minimizing risk of portfolio failure on the one and only portfolio.

Of course, there will be some contributions that occur during a crash, and those contributions may be hit hard, but you are not risking the entire portfolio by investing aggressively.

Personally, I'm also perfectly content with letting M1 buy the underweight asset.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by wfrobinette »

adamhg wrote: Thu Jan 27, 2022 12:33 pm
wfrobinette wrote: Wed Jan 26, 2022 3:24 pm
adamhg wrote: Mon Jan 24, 2022 10:56 pm This isn't really HFEA specific, but I know a lot of us use M1.

I moved to M1 to make rebalancing HFEA easier at the end of last year. I thought today was a gift and tried to do a simple TLH by swapping out my UPRO/UMDD with SPXL/MIDU. At 2, M1 successfully closes out my positions but reopened with nearly $1k in cash left over for no apparent reason which missed out on the end of day 6% rally.

Some more details here: https://www.reddit.com/r/M1Finance/comm ... gned_to_do

I'll be closing my M1 account asap. Support didn't even seem bothered by it. They tried to assure me they'd trade it tomorrow morning but couldn't promise they wouldn't just decide to leave 100k in cash the next time.
If you want in and out at your discretion then M1 is the wrong place for sure. It's not for day trading. To top it off if you are doing this type of trading in a cash account is not the smartest move either.
You may have missed the part where I said I was TLH?? Not sure where you got the idea I was day trading HFEA
No, I did not miss that. Read my first sentence. But the TLH you tried to pull off was pretty close to a "day trade like move". Had you left your money alone you would have seen the gain. Again, M1 is not designed for active trading.

And if you are going to perform the rebalancing acts the taxes are going to eat you alive when one or the other is up.
clarkjohnson188
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by clarkjohnson188 »

Thought I might contribute to the daily rebalance debate...This visualizer uses daily values for stocks/etfs, so you are able to experiment with daily, weekly, or any length you want

https://portfoliotoolbox.com/backtest-p ... s=upro+tmf

In my brief research, it seems like daily is the best for total results, but I'm not sure if it's worth it because I think it would have more tax drag than quarterly? Another main concern is I don't know how it would perform in a longer-term crash like 2008 or longer

The results since inception in 2009 for 55 45 upro tmf are:
Note that the below results are slightly skewed as the simulator has not updated the upro split from a few days ago so the actual CAGR is slightly higher
CAGR
30.59% (daily rebalance)
27.25% (quarterly rebalance)
28.86% (weekly rebalance)
Drawdown
-43.89% (daily rebalance)
-44.38% (quarterly rebalance)
-47.01% (weekly rebalance)


I'm not sure what to make of this...I don't know how much extra the tax drag would be, but daily rebalance would take out the luck in rebalancing dates, but I don't know if the extra few percentages in returns is actually worth it. I also don't know how it would perform in a longer-term crash like 2008 or similar
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

clarkjohnson188 wrote: Thu Jan 27, 2022 5:38 pm Thought I might contribute to the daily rebalance debate...This visualizer uses daily values for stocks/etfs, so you are able to experiment with daily, weekly, or any length you want

https://portfoliotoolbox.com/backtest-p ... s=upro+tmf

In my brief research, it seems like daily is the best for total results, but I'm not sure if it's worth it because I think it would have more tax drag than quarterly? Another main concern is I don't know how it would perform in a longer-term crash like 2008 or longer

The results since inception in 2009 for 55 45 upro tmf are:
Note that the below results are slightly skewed as the simulator has not updated the upro split from a few days ago so the actual CAGR is slightly higher
CAGR
30.59% (daily rebalance)
27.25% (quarterly rebalance)
28.86% (weekly rebalance)
Drawdown
-43.89% (daily rebalance)
-44.38% (quarterly rebalance)
-47.01% (weekly rebalance)


I'm not sure what to make of this...I don't know how much extra the tax drag would be, but daily rebalance would take out the luck in rebalancing dates, but I don't know if the extra few percentages in returns is actually worth it. I also don't know how it would perform in a longer-term crash like 2008 or similar
I'm getting the same numbers as you but something is still wrong with them because this calculator is showing a higher return for monthly rebalancing vs. quarterly rebalancing ending on Dec. 31, 2021, which can't be right according to PV. I can't figure out how to change the start date but it shouldn't matter, the portfolio was up all of $2 between June 25 and July 1, 2009, when PV starts tracking.
clarkjohnson188
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by clarkjohnson188 »

Afrofreak wrote: Thu Jan 27, 2022 6:13 pm
clarkjohnson188 wrote: Thu Jan 27, 2022 5:38 pm Thought I might contribute to the daily rebalance debate...This visualizer uses daily values for stocks/etfs, so you are able to experiment with daily, weekly, or any length you want

https://portfoliotoolbox.com/backtest-p ... s=upro+tmf

In my brief research, it seems like daily is the best for total results, but I'm not sure if it's worth it because I think it would have more tax drag than quarterly? Another main concern is I don't know how it would perform in a longer-term crash like 2008 or longer

The results since inception in 2009 for 55 45 upro tmf are:
Note that the below results are slightly skewed as the simulator has not updated the upro split from a few days ago so the actual CAGR is slightly higher
CAGR
30.59% (daily rebalance)
27.25% (quarterly rebalance)
28.86% (weekly rebalance)
Drawdown
-43.89% (daily rebalance)
-44.38% (quarterly rebalance)
-47.01% (weekly rebalance)


I'm not sure what to make of this...I don't know how much extra the tax drag would be, but daily rebalance would take out the luck in rebalancing dates, but I don't know if the extra few percentages in returns is actually worth it. I also don't know how it would perform in a longer-term crash like 2008 or similar
I'm getting the same numbers as you but something is still wrong with them because this calculator is showing a higher return for monthly rebalancing vs. quarterly rebalancing ending on Dec. 31, 2021, which can't be right according to PV. I can't figure out how to change the start date but it shouldn't matter, the portfolio was up all of $2 between June 25 and July 1, 2009, when PV starts tracking.


I think I might've figured out why the slight variation is from...Its taking 30 days from inception date and rebalancing every 30 days from that day, which is not always at the end of the month. Same with rebalancing every 3 months....So its not properly rebalancing at the end of each month as we would like it to so we can compare to PV. I also do not know how to change the start date to make it an accurate comparison
comeinvest
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

clarkjohnson188 wrote: Thu Jan 27, 2022 5:38 pm Thought I might contribute to the daily rebalance debate...This visualizer uses daily values for stocks/etfs, so you are able to experiment with daily, weekly, or any length you want

https://portfoliotoolbox.com/backtest-p ... s=upro+tmf

In my brief research, it seems like daily is the best for total results, but I'm not sure if it's worth it because I think it would have more tax drag than quarterly? Another main concern is I don't know how it would perform in a longer-term crash like 2008 or longer

The results since inception in 2009 for 55 45 upro tmf are:
Note that the below results are slightly skewed as the simulator has not updated the upro split from a few days ago so the actual CAGR is slightly higher
CAGR
30.59% (daily rebalance)
27.25% (quarterly rebalance)
28.86% (weekly rebalance)
Drawdown
-43.89% (daily rebalance)
-44.38% (quarterly rebalance)
-47.01% (weekly rebalance)


I'm not sure what to make of this...I don't know how much extra the tax drag would be, but daily rebalance would take out the luck in rebalancing dates, but I don't know if the extra few percentages in returns is actually worth it. I also don't know how it would perform in a longer-term crash like 2008 or similar
Don't forget trading cost for daily.
adamhg
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by adamhg »

wfrobinette wrote: Thu Jan 27, 2022 2:28 pm
adamhg wrote: Thu Jan 27, 2022 12:33 pm
wfrobinette wrote: Wed Jan 26, 2022 3:24 pm
adamhg wrote: Mon Jan 24, 2022 10:56 pm This isn't really HFEA specific, but I know a lot of us use M1.

I moved to M1 to make rebalancing HFEA easier at the end of last year. I thought today was a gift and tried to do a simple TLH by swapping out my UPRO/UMDD with SPXL/MIDU. At 2, M1 successfully closes out my positions but reopened with nearly $1k in cash left over for no apparent reason which missed out on the end of day 6% rally.

Some more details here: https://www.reddit.com/r/M1Finance/comm ... gned_to_do

I'll be closing my M1 account asap. Support didn't even seem bothered by it. They tried to assure me they'd trade it tomorrow morning but couldn't promise they wouldn't just decide to leave 100k in cash the next time.
If you want in and out at your discretion then M1 is the wrong place for sure. It's not for day trading. To top it off if you are doing this type of trading in a cash account is not the smartest move either.
You may have missed the part where I said I was TLH?? Not sure where you got the idea I was day trading HFEA
No, I did not miss that. Read my first sentence. But the TLH you tried to pull off was pretty close to a "day trade like move". Had you left your money alone you would have seen the gain. Again, M1 is not designed for active trading.

And if you are going to perform the rebalancing acts the taxes are going to eat you alive when one or the other is up.
You have some interesting views on TLH. Day trading is in and out of a stock on the same day. You're the first person I've heard to suggest selling one stock and making another purchase of another stock is pretty close to a day trade.

Rebalancing is also operationally no different than TLH. In both cases M1 calculates the difference between current and future holdings, sells one current security and buys another. Going from 47% to 45% of stock A and 53% to 55% and stock B (rebalancing) is the exact same number and kinds of trades as going from 47% to 0% of stock A and 0% to 47% of stock B (TLH). Maybe we should all stop rebalancing too since it's as close to day trading as TLH is!
Last edited by adamhg on Thu Jan 27, 2022 11:55 pm, edited 1 time in total.
oldnewb
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by oldnewb »

I wonder how Hedgefundie portfolio is doing these days?
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
CletusCaddy
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by CletusCaddy »

Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
UPRO down 27% YTD, TMF down 3%.

55/45 is -16% compared to -10% for the S&P.
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dziuniek
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dziuniek »

CletusCaddy wrote: Fri Jan 28, 2022 12:28 am
Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
UPRO down 27% YTD, TMF down 3%.

55/45 is -16% compared to -10% for the S&P.
Not bad at all then.
Get rich or die tryin'
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

dziuniek wrote: Fri Jan 28, 2022 6:36 am
CletusCaddy wrote: Fri Jan 28, 2022 12:28 am
Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
UPRO down 27% YTD, TMF down 3%.

55/45 is -16% compared to -10% for the S&P.
Not bad at all then.
Would still be the 3rd worst drawdown in history if we keep this up through the end of the month. I guess if you frame it like that it's actually a good thing.
TheDoctor91
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by TheDoctor91 »

Afrofreak wrote: Fri Jan 28, 2022 8:35 am
dziuniek wrote: Fri Jan 28, 2022 6:36 am
CletusCaddy wrote: Fri Jan 28, 2022 12:28 am
Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
UPRO down 27% YTD, TMF down 3%.

55/45 is -16% compared to -10% for the S&P.
Not bad at all then.
Would still be the 3rd worst drawdown in history if we keep this up through the end of the month. I guess if you frame it like that it's actually a good thing.
Was doing the same and looking at other historical bad months. This is historically a very bad month for multiple strategies.
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tomphilly
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tomphilly »

Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
Aren't you running TQQQ/TMF 70/30? Hang in there. I'm running UPRO/TQQQ/TMF 45/15/40 and down about ~20% since the ATH. I made major contributions toward the end of 2021, so I've lost over a year of gains due to buying near the peak. I'm not sure if there's a better way to make contributions than to just make them when you have them, so that's what I did. Anyway, I'm not fazed - I added to UPRO & TQQQ earlier this week.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

tomphilly wrote: Fri Jan 28, 2022 12:48 pm
Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
Aren't you running TQQQ/TMF 70/30? Hang in there. I'm running UPRO/TQQQ/TMF 45/15/40 and down about ~20% since the ATH. I made major contributions toward the end of 2021, so I've lost over a year of gains due to buying near the peak. I'm not sure if there's a better way to make contributions than to just make them when you have them, so that's what I did. Anyway, I'm not fazed - I added to UPRO & TQQQ earlier this week.
Yeah, I'm down bad, bad. $227K portfolio at peak is now $156K as of yesterday's close. Still up though by about $15K overall. Like you, not fazed. I started my investing journey in cr**** so for better or for worse, I'm completely numb. Like I said before, it helps that I move 5% more from TMF to TQQQ for every 5% that QQQ drops, so right now my current allocation is roughly 76/24 when it should be 63/37. When we get to 30%+ drop on the NASDAQ I'll start to sweat but for now, A-OK. I also rebalanced right in the nick of time and got a good deal on TMF when it tanked 7% which was great.
bgf
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by bgf »

CletusCaddy wrote: Fri Jan 28, 2022 12:28 am
Afrofreak wrote: Fri Jan 28, 2022 12:12 am
oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Down. Badly.
UPRO down 27% YTD, TMF down 3%.

55/45 is -16% compared to -10% for the S&P.
My modified version, 50-25-25 of IXUS (international equities), UPRO, TMF is down 9.6% YTD.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
HedgeFundMillionaire
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by HedgeFundMillionaire »

Does anyone know the exact rebalancing dates Portfolio Visualizer uses for quaterly? Is it 1st of Jan, 1st of April, 1st of July and 1st of October?
RussellWilson
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RussellWilson »

I've been thinking of how to implement this while reducing stress and downside risk and thought of this version, as well as a rule regarding rebalancing. I'm early in the accumulation phase and thinking of making this my entire Roth.

80% HFEA (44% UPRO 36% TMF)
20% short term TIPS (VTIP)

Rebalancing quarterly, if the TIPS dropped below 20% at quarter's end, rebalance. If the TIPS is above 20%, change the portfolio allocation to the current TIPS percentage and then rebalance. The percentage allocation will only go back to 20 when the current amount of TIPS at quarter's end has naturally drifted to 20% or below. The idea, if I'm correct is that the raw total of TIPS never goes down, except for maybe due to rounding and I could just round the TIPS percentage up. This is obviously most easily implemented with pies in M1 Finance.

A reason one might do this is for the psychological effect of taking wins off the table and the actual downside risk protection of "only" being able to lose 80% and always knowing they'll have at least the TIPS amount. I chose VTIP because it seemed like a good thing to hold during the kind of scenario that would wipe out HFEA.

I'll often think of something that'll seem awesome and foolproof and then a couple days later realize it's dumb, so perhaps posting this here could speed up that cycle. This seems really similar to Mototrojan's 43 UPRO/57 EDV only with more volatility drag and ER. However using VTIP with the rebalancing rule *might* provide more loss protection (not sure about this), psychological benefit of knowing the "floor", and maybe some diversification.
chrisdds98
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

RussellWilson wrote: Sat Jan 29, 2022 5:52 pm I've been thinking of how to implement this while reducing stress and downside risk and thought of this version, as well as a rule regarding rebalancing. I'm early in the accumulation phase and thinking of making this my entire Roth.

80% HFEA (44% UPRO 36% TMF)
20% short term TIPS (VTIP)

Rebalancing quarterly, if the TIPS dropped below 20% at quarter's end, rebalance. If the TIPS is above 20%, change the portfolio allocation to the current TIPS percentage and then rebalance. The percentage allocation will only go back to 20 when the current amount of TIPS at quarter's end has naturally drifted to 20% or below. The idea, if I'm correct is that the raw total of TIPS never goes down, except for maybe due to rounding and I could just round the TIPS percentage up. This is obviously most easily implemented with pies in M1 Finance.

A reason one might do this is for the psychological effect of taking wins off the table and the actual downside risk protection of "only" being able to lose 80% and always knowing they'll have at least the TIPS amount. I chose VTIP because it seemed like a good thing to hold during the kind of scenario that would wipe out HFEA.

I'll often think of something that'll seem awesome and foolproof and then a couple days later realize it's dumb, so perhaps posting this here could speed up that cycle. This seems really similar to Mototrojan's 43 UPRO/57 EDV only with more volatility drag and ER. However using VTIP with the rebalancing rule *might* provide more loss protection (not sure about this), psychological benefit of knowing the "floor", and maybe some diversification.
why VTIP instead of short treasuries? it looks like you're anticipating a steep rise in interest rates which would probably reduce inflation expectations. maybe 10%vtip 10%vsgh?
RussellWilson
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RussellWilson »

chrisdds98 wrote: Sat Jan 29, 2022 6:15 pm why VTIP instead of short treasuries? it looks like you're anticipating a steep rise in interest rates which would probably reduce inflation expectations. maybe 10%vtip 10%vsgh?
True, it might be better to split them. I figured a scenario where VGSH was doing better than VTIP was also a time TMF was doing well so it wasn't worth catching that extra gain from VGSH. I chose VTIP because the most likely death of HFEA would be runaway inflation.

Edit: I see now what you're saying regarding interest rates. Since inflation likely precedes rate hikes, wouldn't the thing to do be to switch to VGSH after the rate hikes were priced in? Or maybe TIPS would have already dropped in value in anticipation of rate hikes halting inflation.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

RussellWilson wrote: Sat Jan 29, 2022 6:22 pm
chrisdds98 wrote: Sat Jan 29, 2022 6:15 pm why VTIP instead of short treasuries? it looks like you're anticipating a steep rise in interest rates which would probably reduce inflation expectations. maybe 10%vtip 10%vsgh?
True, it might be better to split them. I figured a scenario where VGSH was doing better than VTIP was also a time TMF was doing well so it wasn't worth catching that extra gain from VGSH. I chose VTIP because the most likely death of HFEA would be runaway inflation.

Edit: I see now what you're saying regarding interest rates. Since inflation likely precedes rate hikes, wouldn't the thing to do be to switch to VGSH after the rate hikes were priced in? Or maybe TIPS would have already dropped in value in anticipation of rate hikes halting inflation.
yeah, if you split it you're agnostic towards inflation expectations. both have very short duration so wouldn't be hurt by rising rates. the returns are quite low though. if you can handle a longer duration an SCHP/GOVT split would be similar with higher expected returns
RussellWilson
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by RussellWilson »

chrisdds98 wrote: Sat Jan 29, 2022 8:00 pm yeah, if you split it you're agnostic towards inflation expectations. both have very short duration so wouldn't be hurt by rising rates. the returns are quite low though. if you can handle a longer duration an SCHP/GOVT split would be similar with higher expected returns
After thinking about this more I think BND works for the whole 20%, it just needs to be safe enough, and that seems like a good compromise between safety and return.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

RussellWilson wrote: Sat Jan 29, 2022 9:21 pm
chrisdds98 wrote: Sat Jan 29, 2022 8:00 pm yeah, if you split it you're agnostic towards inflation expectations. both have very short duration so wouldn't be hurt by rising rates. the returns are quite low though. if you can handle a longer duration an SCHP/GOVT split would be similar with higher expected returns
After thinking about this more I think BND works for the whole 20%, it just needs to be safe enough, and that seems like a good compromise between safety and return.
yeah thats probably just fine. I like the inflation expectation protection so I have a bit of SCHP.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by dublin »

oldnewb wrote: Thu Jan 27, 2022 11:51 pm I wonder how Hedgefundie portfolio is doing these days?
Super duper well for those of us who started mid-day last Monday!
Centurion
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
DarkMatter731
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DarkMatter731 »

Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
Yeah mate, I think you should go all in.

Christ. I'm not being a snob here but these are questions you should be able to figure out according to your own risk tolerance.

Of course there are disadvantages to going all in on UPRO including the obvious one of getting killed if there's a significant drawdown.

Have you backtested your strategy on Excel? I'm not against market timing but you don't even appear to be doing any in this strategy of yours.

If you're worried about interest rate risk, use shorter duration treasuries.

I do suspect though across a longer time period, your strategy won't really over-perform a standard index without any sort of market timing.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Yes - I know my post probably sounded like your typical noob doing stupid bets and going all in. :D That's not at all the case.

I backtested HFEA extensively and of course in many timeframes a UPRO/TMF combo (which I already hold for several years in my portfolio) beats pure UPRO. However with the long bond bull run having come to an end I am not too sure how representative that is. Of course bond convexity might still make UPRO/TMF a better bet. But that has been discussed extensively.

My question was more aimed at scenarios that could wipe out UPRO as you say. I am not aware of any obvious ones as circuit breakers should prohibit getting killed in a significant downturn. But I am not sure if the construction of UPRO has any really serious risks (counterparty failing, etc.) that we should be aware of? How UPRO achieves the 3x leverage and which risks that includes is what I would like to understand more. From looking at the prospectus i do not see any risks that a "conservative" synthetic ETF does not have.
DarkMatter731 wrote: Thu Feb 03, 2022 5:35 am
Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
Yeah mate, I think you should go all in.

Christ. I'm not being a snob here but these are questions you should be able to figure out according to your own risk tolerance.

Of course there are disadvantages to going all in on UPRO including the obvious one of getting killed if there's a significant drawdown.

Have you backtested your strategy on Excel? I'm not against market timing but you don't even appear to be doing any in this strategy of yours.

If you're worried about interest rate risk, use shorter duration treasuries.

I do suspect though across a longer time period, your strategy won't really over-perform a standard index without any sort of market timing.
Last edited by Centurion on Thu Feb 03, 2022 6:28 am, edited 1 time in total.
DarkMatter731
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by DarkMatter731 »

Centurion wrote: Thu Feb 03, 2022 6:21 am Yes - I know my post probably sounded like your typical noob doing stupid bets and going all in. That's not at all the case.

I backtested HFEA extensively and of course in many timeframes a UPRO/TMF combo (which I already hold for several years in my portfolio) beats pure UPRO. However with the long bond bull run having come to an end I am not too sure how representative that is. Of course bond convexity might still make UPRO/TMF a better bet. But that has been discussed extensively.

My question was more aimed at scenarios that could wipe out UPRO as you say. I am not aware of any obvious ones as circuit breakers should prohibit getting killed in a significant downturn. But I am not sure if the construction of UPRO has any really serious risks (counterparty failing, etc.) that we should be aware of? How UPRO achieves the 3x leverage and which risks that includes is what I would like to understand more...
DarkMatter731 wrote: Thu Feb 03, 2022 5:35 am
Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
Yeah mate, I think you should go all in.

Christ. I'm not being a snob here but these are questions you should be able to figure out according to your own risk tolerance.

Of course there are disadvantages to going all in on UPRO including the obvious one of getting killed if there's a significant drawdown.

Have you backtested your strategy on Excel? I'm not against market timing but you don't even appear to be doing any in this strategy of yours.

If you're worried about interest rate risk, use shorter duration treasuries.

I do suspect though across a longer time period, your strategy won't really over-perform a standard index without any sort of market timing.
Why..why would circuit breakers prevent you from getting killed in a drawdown?

Circuit breakers prevent very significant downward intraday movement but they do not prevent downward movement over multiple days. For example, holding pure UPRO with no market timing would have had a 97+% drawdown during the Global Financial Recession.

Circuit breakers were introduced decades before the GFC. I guess I could be missing something here but circuit breakers don't prevent drawdowns to the extent you seem to think they do.

You should already know how UPRO is constructed (futures + swaps) considering I'm assuming you've already invested in UPRO.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Circuit breakers prevent very significant downward intraday movement but they do not prevent downward movement over multiple days. For example, holding pure UPRO with no market timing would have had a 97+% drawdown during the Global Financial Recession.

Circuit breakers were introduced decades before the GFC. I guess I could be missing something here but circuit breakers don't prevent drawdowns to the extent you seem to think they do.
Yes of course. Without market timing only holding UPRO can be fatal in terms of performance but the circuit breakers at least prohibit UPRO from having to shutdown completely (going to zero). Just trying to make sure i don't miss any risks of UPRO closing completely (as i.e. has been the case for some leveraged ETFs due to >33.3% overnight drops) before thinking about any market timing strategy or any strategy that at times goes into UPRO 100%.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
I just don't understand why you would ever want to give up the free lunch. I mean, at that point it's not even HFEA anymore, it's just 3x SPY. HFEA works/(ed) because you're decreasing volatility by adding Treasuries by more than you're losing in returns and as a result being able to add volatility back into the portfolio using leverage. I can understand 45% allocated to TMF may be a bit excessive, but why not try maybe 20% or 30%? A 70/30 TQQQ/TMF portfolio has a CAGR just 2.6% less than 100% TQQQ and in exchange you get a 19.5% reduction in volatility and a 17% reduction in max. drawdown. And that's only in the last 12 years. You also shield yourself from total/catastrophic loss, emotional distress from not having additional funds in the form of TMF to rebalance into TQQQ when things get rough (this one has personally been a lifesaver to me this drawdown) and you get a small yield no matter what. You want to give all that up for an extra 2.6% annually?!

Let's not forget TMF has performed pretty poorly in the past too and HFEA was still throwing up insane numbers: 2013: -39%, 2015: -14%, 2018: -11%. By comparison 2021 and 2022 really haven't been that bad at -20% and -12% respectively. We're already priced in for 5 rate hikes this year so in order for TMF to really suffer at this point the Fed would have to lose complete control over inflation. Possible, sure, but is that really worth the extra 2.6%? And then the question becomes, if the Fed does lose all control, what happens to UPRO? You can bet your bottom dollar it's going to suffer too. Already UPRO is down 16% YTD to TMF's 12%, so the doomsday scenario for TMF that you are predicting is actually precisely when you want it in your portfolio. I see no pro and lots of cons. This would have been a smart market timing move back in the summer of last year, but not now. If you don't like TMF the other alternative is just hold a percentage in cash. Not as good as TMF but still way better than 300% equities.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

As stated above, 100% UPRO has a massive increase in volatility for a very slight gain in CAGR historically. I think dropping TMF to 30% is reasonable for someone with an extremely high risk tolerance. Of course, as I've pointed out numerous times in this thread, the first thing one should do if one has a high risk appetite is allocate more of ones net worth to HFEA, up to 100% if necessary. Or preferably to a mHFEA portfolio with a significantly improved sharpe ratio. 200% equities + 200% ITT should be more than enough risk for just about anybody.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by director84 »

Afrofreak wrote: Thu Feb 03, 2022 8:47 am
Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
I just don't understand why you would ever want to give up the free lunch.
Agreed. HFEA backtested to 1992 outperforms 3x SPY with much lower volatility and max drawdown. Sure, it may not outperform for the next 30 years, but seems like you'd be taking on a lot of added risk for not much reward.

It's easy to forget that the market can go down after the 13-year bull run we've had.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by firebirdparts »

Centurion wrote: Thu Feb 03, 2022 5:07 am {A]} Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

{B}Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
Simple really.
{A}You will lose big and permanently in a major drawdown due to volatility decay. The daily rebalancing of UPRO causes this and there's nothing you can do about it.

{B} That's what the HFEA is. FWIW, Buying in a drawdown is harder than you think. If you buy at (talking 1X here) 20% down and it goes up, you're happy. If you buy UPRO when SPY is at 20% down and SPY goes down another 20%, you're gonna be hurt mathematically. People try to predict, but predictions are hard.
Last edited by firebirdparts on Thu Feb 03, 2022 10:57 am, edited 1 time in total.
This time is the same
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by tchoupitoulas »

Afrofreak wrote: Thu Feb 03, 2022 8:47 am
Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
I just don't understand why you would ever want to give up the free lunch. I mean, at that point it's not even HFEA anymore, it's just 3x SPY. HFEA works/(ed) because you're decreasing volatility by adding Treasuries by more than you're losing in returns and as a result being able to add volatility back into the portfolio using leverage. I can understand 45% allocated to TMF may be a bit excessive, but why not try maybe 20% or 30%? A 70/30 TQQQ/TMF portfolio has a CAGR just 2.6% less than 100% TQQQ and in exchange you get a 19.5% reduction in volatility and a 17% reduction in max. drawdown. And that's only in the last 12 years. You also shield yourself from total/catastrophic loss, emotional distress from not having additional funds in the form of TMF to rebalance into TQQQ when things get rough (this one has personally been a lifesaver to me this drawdown) and you get a small yield no matter what. You want to give all that up for an extra 2.6% annually?!

Let's not forget TMF has performed pretty poorly in the past too and HFEA was still throwing up insane numbers: 2013: -39%, 2015: -14%, 2018: -11%. By comparison 2021 and 2022 really haven't been that bad at -20% and -12% respectively. We're already priced in for 5 rate hikes this year so in order for TMF to really suffer at this point the Fed would have to lose complete control over inflation. Possible, sure, but is that really worth the extra 2.6%? And then the question becomes, if the Fed does lose all control, what happens to UPRO? You can bet your bottom dollar it's going to suffer too. Already UPRO is down 16% YTD to TMF's 12%, so the doomsday scenario for TMF that you are predicting is actually precisely when you want it in your portfolio. I see no pro and lots of cons. This would have been a smart market timing move back in the summer of last year, but not now. If you don't like TMF the other alternative is just hold a percentage in cash. Not as good as TMF but still way better than 300% equities.
Excellent points!
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hillclimber
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hillclimber »

Centurion wrote: Thu Feb 03, 2022 6:39 am
Circuit breakers prevent very significant downward intraday movement but they do not prevent downward movement over multiple days. For example, holding pure UPRO with no market timing would have had a 97+% drawdown during the Global Financial Recession.

Circuit breakers were introduced decades before the GFC. I guess I could be missing something here but circuit breakers don't prevent drawdowns to the extent you seem to think they do.
Yes of course. Without market timing only holding UPRO can be fatal in terms of performance but the circuit breakers at least prohibit UPRO from having to shutdown completely (going to zero). Just trying to make sure i don't miss any risks of UPRO closing completely (as i.e. has been the case for some leveraged ETFs due to >33.3% overnight drops) before thinking about any market timing strategy or any strategy that at times goes into UPRO 100%.
Holding 100% upro is just a more extreme version of lifecycle investing. You can read the markettimer thread to find out what happened there. In the long run, if you have a good secure job, you can get away with doing lifecycle investing, but it's risky.

Have you considered using less leverage and doing something like Mototrojan's 43% UPRO / 57% EDV? Maybe throw a little gold in there for rebalancing against. Personally, I'm not crazy about the bond portion either, but I keep it there for the protection.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Wow - some really excellent answers here (especially Afrofreak). Thank you very much for the inspiring discussion and the reaffirmation. I am more convinced now than ever to stick with my 70/30 UPRO/TMF variant! :beer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by svdev »

Say I have a target allocation of 55% UPRO and 45% TMF, it drifts to 50/50, and I want to invest more before a rebalance. Afrofreak's argument is that the contribution should be the current allocation, 50/50. I'm still not quite clear on that. It seems like using my contribution to rebalance closer to 55/45 would make more sense. Is the reason that trying to approach 55/45 isn't rebalancing on a regular schedule, so it's basically market timing?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

svdev wrote: Thu Feb 03, 2022 11:39 am Say I have a target allocation of 55% UPRO and 45% TMF, it drifts to 50/50, and I want to invest more before a rebalance. Afrofreak's argument is that the contribution should be the current allocation, 50/50. I'm still not quite clear on that. It seems like using my contribution to rebalance closer to 55/45 would make more sense. Is the reason that trying to approach 55/45 isn't rebalancing on a regular schedule, so it's basically market timing?
We are talking about the short-term returns of a small fraction of the portfolio. It makes less difference with every succeeding contribution, and very little difference after the first year or two. In the few early contributions that may make a significant difference, timing luck is likely to be much more important than the strategy.

One can argue that contributing to the underweight will reduce rebalancing costs. One can argue that contributing 100% UPRO may have the largest expected returns. One can argue that backtesting using portfolio visualizer or other monthly methods is best represented by contributing at the current (drifted) allocation.

Whatever is most convenient for you makes the most sense.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by MatthewLM »

It's curious to see the outcome of my 3x S&P 500 simulation for the first time. I predicted historic returns of the S&P 500 using the FF 3-factor model, applied 3x daily return and subtracted interest based on an approximate 3M LIBOR. I'm not sure how it holds up against other simulations, and I've not tested it against real ETF data yet.

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

Post by Afrofreak »

svdev wrote: Thu Feb 03, 2022 11:39 am Say I have a target allocation of 55% UPRO and 45% TMF, it drifts to 50/50, and I want to invest more before a rebalance. Afrofreak's argument is that the contribution should be the current allocation, 50/50. I'm still not quite clear on that. It seems like using my contribution to rebalance closer to 55/45 would make more sense. Is the reason that trying to approach 55/45 isn't rebalancing on a regular schedule, so it's basically market timing?
You got it. If you're using the contribution to get back closer to 55/45 then you really aren't rebalancing quarterly. However small the differential may be, if you're going to make regular contributions, you might as well do it correctly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

MatthewLM wrote: Thu Feb 03, 2022 2:16 pm It's curious to see the outcome of my 3x S&P 500 simulation for the first time. I predicted historic returns of the S&P 500 using the FF 3-factor model, applied 3x daily return and subtracted interest based on an approximate 3M LIBOR. I'm not sure how it holds up against other simulations, and I've not tested it against real ETF data yet.

Image
DarkMatter said that 3x UPRO would've declined 97% in 2008 and your graph seems to reflect that so on first glance looks accurate.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by chrisdds98 »

Centurion wrote: Thu Feb 03, 2022 5:07 am I am writing as someone who is riding the HFEA for quite some time now and I am thinking of switching to 100% UPRO as I am not a big fan of TMF and think it will probably loose more money in short to mid term due to rising rates.

Besides high volatility (which does not faze me much as I am used to crypto and i am investing long term) is there any huge disadvantage / risk in doing so?

Of course I would buy more UPRO in case SP500 crashes (drawdown of more than 20% would be my rule of thumb) to recover faster...
you could use VGIT instead of TMF - shorter duration and non-leveraged. I was thinking something like 40%UPRO/60%SPD (SPX with puts)
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Afrofreak wrote: Thu Feb 03, 2022 3:37 pm
svdev wrote: Thu Feb 03, 2022 11:39 am Say I have a target allocation of 55% UPRO and 45% TMF, it drifts to 50/50, and I want to invest more before a rebalance. Afrofreak's argument is that the contribution should be the current allocation, 50/50. I'm still not quite clear on that. It seems like using my contribution to rebalance closer to 55/45 would make more sense. Is the reason that trying to approach 55/45 isn't rebalancing on a regular schedule, so it's basically market timing?
You got it. If you're using the contribution to get back closer to 55/45 then you really aren't rebalancing quarterly. However small the differential may be, if you're going to make regular contributions, you might as well do it correctly.
I disagree. I think contributions should be back to target. 55/45 is the best representation of our risk tolerance. If we drift from that our risk is lower or higher than intended. I realize that backtests show some slight benefit to quarterly rebalance vs monthly but I'm not convinced that is not just luck.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

skierincolorado wrote: Thu Feb 03, 2022 5:05 pm
Afrofreak wrote: Thu Feb 03, 2022 3:37 pm
svdev wrote: Thu Feb 03, 2022 11:39 am Say I have a target allocation of 55% UPRO and 45% TMF, it drifts to 50/50, and I want to invest more before a rebalance. Afrofreak's argument is that the contribution should be the current allocation, 50/50. I'm still not quite clear on that. It seems like using my contribution to rebalance closer to 55/45 would make more sense. Is the reason that trying to approach 55/45 isn't rebalancing on a regular schedule, so it's basically market timing?
You got it. If you're using the contribution to get back closer to 55/45 then you really aren't rebalancing quarterly. However small the differential may be, if you're going to make regular contributions, you might as well do it correctly.
I disagree. I think contributions should be back to target. 55/45 is the best representation of our risk tolerance. If we drift from that our risk is lower or higher than intended. I realize that backtests show some slight benefit to quarterly rebalance vs monthly but I'm not convinced that is not just luck.
Do you rebalance daily skier? And if not, what rebalancing schedule do you use?
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