HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by bgf »

I think it was determined that it takes more like 50-55% UPRO and cash to equal SPY due to ER and volatility.
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rascott
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by rascott »

Back when this started, there were a lot of warning signs that this party that worked well for 40 years couldn't last forever. Once we got to the point of the 10 yr Treasury at sub 0.7%.... writing should have been on the wall. Artificially low rates via a Fed massive balance sheet expansion was never backtested.
Booglie
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Booglie »

BayoMoon wrote: Fri May 06, 2022 11:21 am You know, it's hilarious that bogleheads constantly repeat the "just DCA and chill", mantra but don't do it for HFEA. I understand there's leverage which is a whole can of worms but regular VTI/VT has its own cans of worms that bogleheads just go "eh who cares, just DCA and chill", but yet for HFEA they're debating on whether or not it's still worth it due to what, a couple few bad months? Seriously now, I thought we were better than this. "this time is different!!" Yeah, thats what they always say. a true boglehead would just DCA into VTI/VT/HFEA and buy more.

I don't even quite understand the concerns. either HFEA is your play money and you don't care either way, or it's up to your risk tolerance and is 90-100% of your portfolio.

sounds like some people bit off more than they could chew with HFEA and a couple bad few months. I don't really feel any fear.

You'd be a lot happier once you filter out the noise and just live your life. Literally just follow your own advice yall! just DCA and chill! just take the graph and zoom out! just turn off the TV/news/spooky bond FUD! go outside for a walk!

that's what bogleheads say every time people are down and hopefully with HFEA it is no different. this is all just noise and in the long run you'll be fine. :sharebeer :sharebeer cheers
I'm not a Blogehead, but my personal experience is that we are not under normal conditions.

Under normal conditions, this portfolio would have a more tolerable drawdown, since leveraged treasuries would balance out the drawdowns in leveraged S&P / Nasdaq.

However, together with a drop in the S&P and a technical bear market in the Nasdaq (which is down around 23%), we are facing the largest drawdown in history in treasuries as well when in the market-to-market pricing, which caught many people by off-guard. What we are facing is a very rare, almost theoretical risk. But surprise!, the risk is now real.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Escapevelocity »

rascott wrote: Sat May 07, 2022 7:58 am Back when this started, there were a lot of warning signs that this party that worked well for 40 years couldn't last forever. Once we got to the point of the 10 yr Treasury at sub 0.7%.... writing should have been on the wall. Artificially low rates via a Fed massive balance sheet expansion was never backtested.
Good point. There comes a point that an investment such as TMF is just inherently poor based on market conditions and shouldn’t be held for any reason other than a desire to lose money.
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

Booglie wrote: Sat May 07, 2022 8:24 am
BayoMoon wrote: Fri May 06, 2022 11:21 am You know, it's hilarious that bogleheads constantly repeat the "just DCA and chill", mantra but don't do it for HFEA. I understand there's leverage which is a whole can of worms but regular VTI/VT has its own cans of worms that bogleheads just go "eh who cares, just DCA and chill", but yet for HFEA they're debating on whether or not it's still worth it due to what, a couple few bad months? Seriously now, I thought we were better than this. "this time is different!!" Yeah, thats what they always say. a true boglehead would just DCA into VTI/VT/HFEA and buy more.

I don't even quite understand the concerns. either HFEA is your play money and you don't care either way, or it's up to your risk tolerance and is 90-100% of your portfolio.

sounds like some people bit off more than they could chew with HFEA and a couple bad few months. I don't really feel any fear.

You'd be a lot happier once you filter out the noise and just live your life. Literally just follow your own advice yall! just DCA and chill! just take the graph and zoom out! just turn off the TV/news/spooky bond FUD! go outside for a walk!

that's what bogleheads say every time people are down and hopefully with HFEA it is no different. this is all just noise and in the long run you'll be fine. :sharebeer :sharebeer cheers
I'm not a Blogehead, but my personal experience is that we are not under normal conditions.

Under normal conditions, this portfolio would have a more tolerable drawdown, since leveraged treasuries would balance out the drawdowns in leveraged S&P / Nasdaq.

However, together with a drop in the S&P and a technical bear market in the Nasdaq (which is down around 23%), we are facing the largest drawdown in history in treasuries as well when in the market-to-market pricing, which caught many people by off-guard. What we are facing is a very rare, almost theoretical risk. But surprise!, the risk is now real.
So then wouldn’t this be by definition the BEST time to now own HFEA?? Treasuries and equities both discounted… not predicting the future, but it seems like if you liked this strategy after both treasuries and equities had a huge run up in 2020 you should love it with everything now on sale.
Centurion
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Trying to understand in which scenario still holding TMF could be an advantage. I am not very knowledgeable concerning bonds so sorry in advance if I talk nonsense.

Currently the FED target rate is 0,75% - 1%. By what the FED hinted at we will reach 3% by the end of the year. By rule of thumb that scenario would mean the NAV value of a bond ETF with a duration of 20 years should roughly drop by 40% percent until year end correct? Of course some of it might be already priced in but still holding TMF will suffer that loss x3 due to leverage.

Am I correct here? If yes what scenario would have to play out in which holding the bond portion of HFEA in TMF instead of STT or cash is worthwile? Maybe the FED backtracking on planned rate hikes? Or a huge stock market crash with corresponding flight to bonds?
Last edited by Centurion on Sat May 07, 2022 10:34 am, edited 1 time in total.
Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

Centurion wrote: Sat May 07, 2022 10:25 am Trying to understand in which scenario still holding TMF could be an advantage. I am not very knowledgeable concerning bonds so sorry in advance if I talk nonsense.

Currently the FED target rate is 0,75% - 1%. By what the FED hinted at we will reach 3% by the end of the year. By rule of thumb that scenario would mean the NAV value of a bond ETF with a duration of 20 years should roughly drop by 40% percent until year end correct? Of course some of it might be already priced in but still holding TMF will suffer that loss x3 due to leverage.

Am I correct here? If yes what scenario would have to play out in which holding TMF would make sense? Maybe the FED backtracking on planned rate hikes? Or a huge stock market crash with corresponding flight to bonds? I have a hard time thinking of a scenario where one could profit from holding TMF instead of STT or cash for the next 6-12 months...
You're not correct, since TMF is based on longer-term yields not the FF rate. The Ten is already 3.14% as of this writing and no one knows where the Ten will be by EOY.

I personally see the Ten hitting 4% by EOY but there are lots of posters here who disagree with my view.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Centurion wrote: Sat May 07, 2022 10:25 am Trying to understand in which scenario still holding TMF could be an advantage. I am not very knowledgeable concerning bonds so sorry in advance if I talk nonsense.

Currently the FED target rate is 0,75% - 1%. By what the FED hinted at we will reach 3% by the end of the year. By rule of thumb that scenario would mean the NAV value of a bond ETF with a duration of 20 years should roughly drop by 40% percent until year end correct? Of course some of it might be already priced in but still holding TMF will suffer that loss x3 due to leverage.

Am I correct here? If yes what scenario would have to play out in which holding TMF would make sense? Maybe the FED backtracking on planned rate hikes? Or a huge stock market crash with corresponding flight to bonds? I have a hard time thinking of a scenario where one could profit from holding TMF instead of STT or cash for the next 6-12 months...
Everybody else knows everything you just said and would have sold their bonds if it worked that way and driven up the yields already. Which actually is what happened. 5 year bond yields went up more than 2% in the months before the Fed's first hike as inflation data came in and it became clear that instead of hiking once in 2022 they would hike 8 or 9 quarter point hikes. It's priced in. Who knows maybe inflation will get worse or not improve as expected and they will hike to 4% by mid 2023. Or maybe it is effective or we get a recession and some of the hikes never happen and bond prices go up. Who knows.
Centurion
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

Marseille07 wrote: Sat May 07, 2022 10:33 am
Centurion wrote: Sat May 07, 2022 10:25 am Trying to understand in which scenario still holding TMF could be an advantage. I am not very knowledgeable concerning bonds so sorry in advance if I talk nonsense.

Currently the FED target rate is 0,75% - 1%. By what the FED hinted at we will reach 3% by the end of the year. By rule of thumb that scenario would mean the NAV value of a bond ETF with a duration of 20 years should roughly drop by 40% percent until year end correct? Of course some of it might be already priced in but still holding TMF will suffer that loss x3 due to leverage.

Am I correct here? If yes what scenario would have to play out in which holding TMF would make sense? Maybe the FED backtracking on planned rate hikes? Or a huge stock market crash with corresponding flight to bonds? I have a hard time thinking of a scenario where one could profit from holding TMF instead of STT or cash for the next 6-12 months...
You're not correct, since TMF is based on longer-term yields not the FF rate. The Ten is already 3.14% as of this writing and no one knows where the Ten will be by EOY.

I personally see the Ten hitting 4% by EOY but there are lots of posters here who disagree with my view.
That's correct but if we do not assume a severe inversion of the yield curve the longer term yield should also increase by a similar amount as the FF rate doesn't it?
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

rascott wrote: Sat May 07, 2022 7:58 am Back when this started, there were a lot of warning signs that this party that worked well for 40 years couldn't last forever. Once we got to the point of the 10 yr Treasury at sub 0.7%.... writing should have been on the wall. Artificially low rates via a Fed massive balance sheet expansion was never backtested.
Rates rising from 3% to 20% was backtested. This is nothing.
Marseille07
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

Centurion wrote: Sat May 07, 2022 10:37 am That's correct but if we do not assume a severe inversion of the yield curve the longer term yield should also increase by a similar amount as the FF rate doesn't it?
That's what I think. But as I said, some posters are calling for a flat curve (FF rate 3%, the Ten 3%). My point is, how TMF behaves isn't as straightforward as the FF rate rising.
Centurion
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Centurion »

skierincolorado wrote: Sat May 07, 2022 10:36 am
Centurion wrote: Sat May 07, 2022 10:25 am Trying to understand in which scenario still holding TMF could be an advantage. I am not very knowledgeable concerning bonds so sorry in advance if I talk nonsense.

Currently the FED target rate is 0,75% - 1%. By what the FED hinted at we will reach 3% by the end of the year. By rule of thumb that scenario would mean the NAV value of a bond ETF with a duration of 20 years should roughly drop by 40% percent until year end correct? Of course some of it might be already priced in but still holding TMF will suffer that loss x3 due to leverage.

Am I correct here? If yes what scenario would have to play out in which holding TMF would make sense? Maybe the FED backtracking on planned rate hikes? Or a huge stock market crash with corresponding flight to bonds? I have a hard time thinking of a scenario where one could profit from holding TMF instead of STT or cash for the next 6-12 months...
Everybody else knows everything you just said and would have sold their bonds if it worked that way and driven up the yields already. Which actually is what happened. 5 year bond yields went up more than 2% in the months before the Fed's first hike as inflation data came in and it became clear that instead of hiking once in 2022 they would hike 8 or 9 quarter point hikes. It's priced in. Who knows maybe inflation will get worse or not improve as expected and they will hike to 4% by mid 2023. Or maybe it is effective or we get a recession and some of the hikes never happen and bond prices go up. Who knows.
Fair point! :thumbsup
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

privatefarmer wrote: Sat May 07, 2022 10:13 am So then wouldn’t this be by definition the BEST time to now own HFEA?? Treasuries and equities both discounted… not predicting the future, but it seems like if you liked this strategy after both treasuries and equities had a huge run up in 2020 you should love it with everything now on sale.
Finally someone says it. If all of y'all just used this as a lottery ticket... buy another one. Think about it, if this actually gets as bad as the Volcker era, nobody is expecting the Fed rate or yields to stay at those elevated levels forever. The economy would collapse, unemployment would be sky high (antithetical to the Fed's mandate) and we would be in a perpetual recession. The one and only reason why the Fed feels compelled to raise rates into restrictive territory is to combat inflation. Once that has fizzled, it is almost guaranteed that we will go right back to our sub 3% neutral rates.

The argument put forth is that we've been in a 40-year long bond bull run and we can't bank on it continuing in the future. Here is your chance to revert the clock back to day 1. We can be fairly certain how this will pan out.

We knew exactly what was going to happen if inflation got out of control. Treasuries have behaved exactly as expected. Nothing about the core tenets of the portfolio have changed. I can only speak for myself here but I do not regret my decision of going all-in in TQQQ/TMF and borrowing money on top of that whatsoever. Yes, it is going to hurt in the short run and I am currently paying off that debt because my HELOC rate is getting too high for me to be comfortable with investing it. I knew that there was a chance that this could happen and did it anyways. I went into this knowing that I would be better off restarting this adventure over and over again until we hit the jackpot and then periodically taking money off the table than playing it safe, hedging my bets and only giving it one go.

The research is sound, the strategy is sound, our timing was just rather unfortunate. So try again.
Last edited by Afrofreak on Sat May 07, 2022 12:08 pm, edited 3 times in total.
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privatefarmer
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by privatefarmer »

Afrofreak wrote: Sat May 07, 2022 11:51 am
privatefarmer wrote: Sat May 07, 2022 10:13 am So then wouldn’t this be by definition the BEST time to now own HFEA?? Treasuries and equities both discounted… not predicting the future, but it seems like if you liked this strategy after both treasuries and equities had a huge run up in 2020 you should love it with everything now on sale.
Finally someone says it. If all of y'all just used this as a lottery ticket... buy another one. Think about it, if this actually gets as bad as the Volcker era, nobody is expecting the Fed rate or yields to stay at those elevated levels forever. The economy would collapse, unemployment would be sky high (antithetical to the Fed's mandate) and we would be in a perpetual recession. The one and only reason why the Fed feels compelled to raise rates into restrictive territory is to combat inflation. Once that has fizzled, it is almost guaranteed that we will go right back to our sub 3% neutral rates.

The argument put forth is that we've been in a 40-year long bond bull run and we can't bank on it continuing in the future. Here is your chance to revert the clock back to day 1. We can be fairly certain how this will pan out. The research is sound, the strategy is sound, our timing was just rather unfortunate. So try again.
Yeah. Only difference with me is that I don’t see it as a “lottery ticket”, I see leveraged risk parity as a sound investment strategy and have entire portfolio in a variant of HFEA. I’m down 50% and it hurts but I also am very optimistic about future returns of this strategy. Long term treasuries have never had a drawdown this bad (going back to inception data on PV, which I believe goes to 1975). Think about that. I am probably the worst market timer on the planet and wouldn’t try to predict future, but it just seems to me that LTTs can only fall so far and they’re already down ~35%!!… and if you look at the historical chart of long term yields they can fall FAST just as they can rise fast. A year from now things may look a heck of a lot different but who knows. But look at the 3, 5-year returns of this strategy. Even after this terrible drawdown you’d still have done pretty dang well had you got in several years ago.
Last edited by privatefarmer on Sat May 07, 2022 12:16 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

privatefarmer wrote: Sat May 07, 2022 12:01 pm Yeah. Only difference with me is that I don’t see it as a “lottery ticket”, I see leveraged risk parity as a sound investment strategy and have entire portfolio in a variant of HFEA. I’m down 50% and it hurts but I also am very optimistic about future returns of this strategy. Long term treasuries have never had a drawdown this bad (going back to inception data on PV, which I believe goes to 1975). Think about that. I am probably the worst market timer on the planet and wouldn’t try to predict future, but it just seems to me that LTTs can only fall so far and they’re already down nearly 20%… and if you look at the historical chart of long term yields they can fall FAST just as they can rise fast. A year from now things may look a heck of a lot different but who knows. But look at the 3, 5-year returns of this strategy. Even after this terrible drawdown you’d still have done pretty dang well had you got in several years ago.
Completely agree. Just edited my first reply to provide more clarity on my investing philosophy.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Booglie »

privatefarmer wrote: Sat May 07, 2022 10:13 am
Booglie wrote: Sat May 07, 2022 8:24 am
BayoMoon wrote: Fri May 06, 2022 11:21 am You know, it's hilarious that bogleheads constantly repeat the "just DCA and chill", mantra but don't do it for HFEA. I understand there's leverage which is a whole can of worms but regular VTI/VT has its own cans of worms that bogleheads just go "eh who cares, just DCA and chill", but yet for HFEA they're debating on whether or not it's still worth it due to what, a couple few bad months? Seriously now, I thought we were better than this. "this time is different!!" Yeah, thats what they always say. a true boglehead would just DCA into VTI/VT/HFEA and buy more.

I don't even quite understand the concerns. either HFEA is your play money and you don't care either way, or it's up to your risk tolerance and is 90-100% of your portfolio.

sounds like some people bit off more than they could chew with HFEA and a couple bad few months. I don't really feel any fear.

You'd be a lot happier once you filter out the noise and just live your life. Literally just follow your own advice yall! just DCA and chill! just take the graph and zoom out! just turn off the TV/news/spooky bond FUD! go outside for a walk!

that's what bogleheads say every time people are down and hopefully with HFEA it is no different. this is all just noise and in the long run you'll be fine. :sharebeer :sharebeer cheers
I'm not a Blogehead, but my personal experience is that we are not under normal conditions.

Under normal conditions, this portfolio would have a more tolerable drawdown, since leveraged treasuries would balance out the drawdowns in leveraged S&P / Nasdaq.

However, together with a drop in the S&P and a technical bear market in the Nasdaq (which is down around 23%), we are facing the largest drawdown in history in treasuries as well when in the market-to-market pricing, which caught many people by off-guard. What we are facing is a very rare, almost theoretical risk. But surprise!, the risk is now real.
So then wouldn’t this be by definition the BEST time to now own HFEA?? Treasuries and equities both discounted… not predicting the future, but it seems like if you liked this strategy after both treasuries and equities had a huge run up in 2020 you should love it with everything now on sale.
Bonds don't follow the same pricing rules stocks do. They're called FIXED INCOME for a reason: you always know how much you will receive in the end, at least to a degree (with post-fixed bonds, there is an unknown variable, e.g, inflation, but at least one part of your income is pre-determined).

When bonds drop in price, it merely means that the yield curve of NEW bonds is increasing. But if you hold your bond until maturity, depending on the economic context, it may make perfect sense to hold it. Assuming that bonds are discounted because market-to-market pricing fell 15%-20% is a dangerous mistake.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LadyGeek »

The wiki has some background info: Bond pricing

The "Price / Yield curve" section shows the math behind this inverse relationship.
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Dry-Drink
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Dry-Drink »

Afrofreak wrote: Sat May 07, 2022 11:51 am I do not regret my decision of going all-in in TQQQ/TMF and borrowing money on top of that whatsoever. Yes, it is going to hurt in the short run and I am currently paying off that debt because my HELOC rate is getting too high for me to be comfortable with investing it. I knew that there was a chance that this could happen and did it anyways. I went into this knowing that I would be better off restarting this adventure over and over again until we hit the jackpot
Lmao imagine Jack Bogle seeing this comment in bogleheads.org.
BayoMoon wrote: Fri Mar 11, 2022 4:05 pm am I being crazy for being excited?
.
.
Maybe I'm just ignorant but I liked TMF at 26 ... so I *LOVE* TMF at 20 !!!!!
Srs question: How much does TMF have to drop before you entertain the possibility you brought up and say "OK yeah I was just ignorant to like it at 26"?

I don't mean it as a dig, I'm actually just curious.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hilink73 »

Afrofreak wrote: Sat May 07, 2022 11:51 am [...]
So try again.
Yeah, I''m back to where I've started. 100k->180k->100k.
Maybe I shouldn't have checked my portfolio tonight... but there it goes.
Next rebalancing June 1st, I presume.

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

Post by Afrofreak »

Dry-Drink wrote: Sat May 07, 2022 5:09 pm
Afrofreak wrote: Sat May 07, 2022 11:51 am I do not regret my decision of going all-in in TQQQ/TMF and borrowing money on top of that whatsoever. Yes, it is going to hurt in the short run and I am currently paying off that debt because my HELOC rate is getting too high for me to be comfortable with investing it. I knew that there was a chance that this could happen and did it anyways. I went into this knowing that I would be better off restarting this adventure over and over again until we hit the jackpot
Lmao imagine Jack Bogle seeing this comment in bogleheads.org.
He'd probably have me crucified. Oh well, times have changed old man. I can respect what he has done for the investing community but he isn't the be-all, end-all.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by er999 »

Afrofreak wrote: Sat May 07, 2022 11:51 am
privatefarmer wrote: Sat May 07, 2022 10:13 am So then wouldn’t this be by definition the BEST time to now own HFEA?? Treasuries and equities both discounted… not predicting the future, but it seems like if you liked this strategy after both treasuries and equities had a huge run up in 2020 you should love it with everything now on sale.
Finally someone says it. If all of y'all just used this as a lottery ticket... buy another one. Think about it, if this actually gets as bad as the Volcker era, nobody is expecting the Fed rate or yields to stay at those elevated levels forever. The economy would collapse, unemployment would be sky high (antithetical to the Fed's mandate) and we would be in a perpetual recession. The one and only reason why the Fed feels compelled to raise rates into restrictive territory is to combat inflation. Once that has fizzled, it is almost guaranteed that we will go right back to our sub 3% neutral rates.
Agreed that if it was a good idea 6 months ago it's an even better idea with current valuations. However I'm not sure that lump sum is the way to go as I can easily see both UPRO or TMF dropping another 50% or more. Last week TQQQ dropped 15% in a day. Personally I'm keeping my UPRO/TMF lottery ticket as is without rebalancing into my main portfolio or adding any new money to it. I'm also buying a small amount of TQQQ (~$400 every 2 weeks) in addition and will rebalance into some TMF in the future (or possibly cash, still thinking about it) on a quarterly basis if it ever makes any money. That's only if the balance becomes significant relative to new contributions where you need a hedge (if the portfolio is small the new contributions already are sort of like a hedge where you buy more after a decline).

I'm still thinking about what the best hedge is -- look at Warren Buffet's bond comments linked on another thread that he doesn't like long term bonds and only buys short term treasurys as T bills and keeps 20% of his assets in that. Perhaps this 2nd TQQQ only portfolio is better with a 20% cash/ t bill hedge if it ever makes any money instead of relying on TMF in case long term bonds end up failing. If they end up working as a hedge as promised my standard HFEA portfolio will work long term.
Last edited by er999 on Sat May 07, 2022 7:19 pm, edited 1 time in total.
perfectuncertainty
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by perfectuncertainty »

Afrofreak wrote: Sat May 07, 2022 6:36 pm
Dry-Drink wrote: Sat May 07, 2022 5:09 pm
Afrofreak wrote: Sat May 07, 2022 11:51 am I do not regret my decision of going all-in in TQQQ/TMF and borrowing money on top of that whatsoever. Yes, it is going to hurt in the short run and I am currently paying off that debt because my HELOC rate is getting too high for me to be comfortable with investing it. I knew that there was a chance that this could happen and did it anyways. I went into this knowing that I would be better off restarting this adventure over and over again until we hit the jackpot
Lmao imagine Jack Bogle seeing this comment in bogleheads.org.
He'd probably have me crucified. Oh well, times have changed old man. I can respect what he has done for the investing community but he isn't the be-all, end-all.
This guy was wicked smart. Most interesting thread on BH (IMO): A different approach to asset allocation

Persistence is not good when something is flawed or carries Sequence of Returns Risks (SORR). SORR did the guy in and IMMO HFEA might be facing a SORR scenario.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by er999 »

perfectuncertainty wrote: Sat May 07, 2022 7:18 pm
Afrofreak wrote: Sat May 07, 2022 6:36 pm
Dry-Drink wrote: Sat May 07, 2022 5:09 pm
Afrofreak wrote: Sat May 07, 2022 11:51 am I do not regret my decision of going all-in in TQQQ/TMF and borrowing money on top of that whatsoever. Yes, it is going to hurt in the short run and I am currently paying off that debt because my HELOC rate is getting too high for me to be comfortable with investing it. I knew that there was a chance that this could happen and did it anyways. I went into this knowing that I would be better off restarting this adventure over and over again until we hit the jackpot
Lmao imagine Jack Bogle seeing this comment in bogleheads.org.
He'd probably have me crucified. Oh well, times have changed old man. I can respect what he has done for the investing community but he isn't the be-all, end-all.
This guy was wicked smart. Most interesting thread on BH (IMO): A different approach to asset allocation

Persistence is not good when something is flawed or carries Sequence of Returns Risks (SORR). SORR did the guy in and IMMO HFEA might be facing a SORR scenario.
Good thing about HFEA is worst case it goes to zero, unlike markettimer who was left with a bunch of debt.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by investor.was.here »

Gecko10x wrote: Thu Apr 21, 2022 1:54 pm
investor.was.here wrote: Thu Apr 21, 2022 1:19 pm Options for tax loss harvesting? I'm in UPRO / TYD currently on M1Finance.
You could move from TYD to EDV or ZROZ. Roughly the same volatility.

Couple weeks ago I asked M1 about adding TYA, but they declined. I think daily volume is not high enough.
I asked about TYA as well. Frankly, I compared IBKR mid-market buy of NTSX vs M1Finance and it was .5% higher. I can see why they're picky.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Scaramanga007 »

I'm contemplating doing a 60/40 UPRO/TYD to basically 3x the traditional 60/40 portfolio. This would be in my Roth IRA, rebalancing quarterly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ToBeOrNot »

skierincolorado wrote: Fri May 06, 2022 12:50 pm
The fundamental broad assumptions of the strategy are 1) bonds and stocks have returns greater than the cost of borrowing 2) bonds and stocks have a correlation less than 1.0000000000. 3) the combined portfolio has low enough volatility to lever to 3x and/or you make contributions from income that reduce the risk of volatility decay

I don't see any evidence presented in this thread that those assumptions have changed. In the mHFEA thread we have questioned #1 somewhat. Specifically whether bonds have returns greater than the cost of borrowing or a correlation with equities negative enough to justify returns near the cost of borrowing.

If you get into the specifics, it assumes 55/45 is the best ratio, the LTT are preferable to ITT or another asset, and that LETF with fixed leverage are good implementations. I disagree with all three of those points and I think I have presented good reasons, but I still believe the 3 broad fundamental assumption that are essential to all levered Modern Portfolio Theory strategies. 55/45 is too bond heavy. ITT are historically and theoretically better than LTT due to their lower risk, higher risk-adjusted returns, and deeper market. And fixed leverage is not appropriate for most investors, except the phase I investors looking for very high fixed leverage. And implementing HFEA as only a portion of one's portfolio or as a lottery ticket can be very problematic.
One key aspect of the original post was keeping HFEA limited to 10% of your total portfolio. That was the mitigation for the whole thing blowing up. It was always acknowledged that a stagflationary period was very dangerous to the strategy, and HF outlined why he believed that wasn't possible. Given this year, higher correlations between UPRO/TMF and rising interest rates have shown that full stagflation isn't required for serious draw downs.

But, why do you think limiting portfolio allocation to HFEA is problematic?

My own thoughts on that question are that you may end up with higher correlations in the rest of your portfolio and end up with more risk than possibly anticipated if you aren't careful.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Marseille07 wrote: Sat May 07, 2022 10:33 am I personally see the Ten hitting 4% by EOY but there are lots of posters here who disagree with my view.
I suspect that you'll be right or really close.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

willthrill81 wrote: Sat May 07, 2022 9:20 pm
Marseille07 wrote: Sat May 07, 2022 10:33 am I personally see the Ten hitting 4% by EOY but there are lots of posters here who disagree with my view.
I suspect that you'll be right or really close.
I actually think 4% is on the conservative side but I digress :D. Not only the FF rate will be around 3% by EOY, we have QT starting in June.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

ToBeOrNot wrote: Sat May 07, 2022 9:14 pm

One key aspect of the original post was keeping HFEA limited to 10% of your total portfolio. That was the mitigation for the whole thing blowing up. It was always acknowledged that a stagflationary period was very dangerous to the strategy, and HF outlined why he believed that wasn't possible. Given this year, higher correlations between UPRO/TMF and rising interest rates have shown that full stagflation isn't required for serious draw downs.

But, why do you think limiting portfolio allocation to HFEA is problematic?

My own thoughts on that question are that you may end up with higher correlations in the rest of your portfolio and end up with more risk than possibly anticipated if you aren't careful.
I should be more specific. It's problematic if you do not rebalance to keep it at 10%. If you treat it as a separate portfolio you have one portfolio that is 3x leveraged, and one portfolio that is not leveraged. That is mathematically guaranteed to have worse returns and larger drawdowns than just leveraging the whole portfolio 1.2x. If you rebalance to keep HFEA as 10% of your portfolio, that is effectiely what you have (one portfolio that is 1.2x) which is good.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

willthrill81 wrote: Sat May 07, 2022 10:52 pm I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
It's hard to say. Given how volatile this thing is, annual rebalancing is likely too few (imagine 2008 where UPRO went -97%). Monthly or quarterly seems prudent though.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ToBeOrNot »

willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
Go back and reread the first HFEA page. Quarterly rebalancing is crucial to the strategy. Some found that monthly rebalancing with inverse volatility weighting had a slight CAGR advantage. That was based on the original 40/60 UPRO/TMF strategy. It is the rebalancing of two volatile uncorrelated assets that produces the returns.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Semantics »

HFEA has 1.65x exposure to SPY, and long term treasury yields are just slightly higher than they were at the start of 2019. HFEA's annualized return and volatility since 2019 are just slightly worse than 1.65x that of SPY. Funny how that works.

I'll go out on a limb here and say that if LTT yields end up at around 3.2% some years from now, HFEA's annualized returns between now and then will be roughly 1.65x that of SPY.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ScubaHogg »

willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
I don’t want to dig through all the pages, but I think rebalancing quarterly is where hedgefundie, et al, landed as far as a strategy
“Conventional Treasury rates are risk free only in the sense that they guarantee nominal principal. But their real rate of return is uncertain until after the fact.” -Risk Less and Prosper
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

ScubaHogg wrote: Sun May 08, 2022 2:16 pm
willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
I don’t want to dig through all the pages, but I think rebalancing quarterly is where hedgefundie, et al, landed as far as a strategy
I think many pages up, somebody showed that monthly, quarterly, or annual rebalancing have roughly identical results. There was also an advantage for quarterly rebalancing at the precise calendar quarter ends, which I think most commenters believed was a random artifact.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by comeinvest »

Dry-Drink wrote: Mon May 02, 2022 4:25 pm
skierincolorado wrote: Mon May 02, 2022 4:03 pm
Dry-Drink wrote: Mon May 02, 2022 3:51 pm
Afrofreak wrote: Mon May 02, 2022 3:35 pm
Dry-Drink wrote: Mon May 02, 2022 1:55 pm
Me neither, every time I put in bonds and stocks into an optimizer since March 2020, my assumed sharpe ratio of bonds was so low that, despite being uncorrelated to stocks and having some positive return over cash, my optimizer would allocate negligible amounts to bonds. I read this thread a bit and saw many posters bringing up that same point in the past.



I suspect many people leveraged bonds because it looked pretty good historically and handwaved their hands as to whether it would actually be good going forward. Or maybe they had much more optimistic assumptions about bonds than myself.



Weren't you the poster calling out 3% 10Y by May FOMC? If so, that was actually freakily correct lmao.
Are you saying your dataset was from March 2020 to present and you're wondering why the recommended allocation to TMF was so low? You... you can't be serious?
I'm saying that when I stood in March 2020, looked at the 10Y (0.75%), added some for roll yield, used a cash rate of 0% and plugged that into an optimizer along with expected stock returns, my optimizer would put zero in LT Bonds. And that's already an optimistic assumption as it assumed the risk-free rate stayed pegged at zero. I've periodically re-done that exercise with updated assumptions, never getting the optimizer to put anything in bonds.

For that reason, I'm also saying those who did invest in LT Bonds in that time period, must've been doing it based heavily on backtests.
Not on backtests. On different predictions for stock and bond returns. I also assume bonds return about .7% above the risk free rate. Actually I assume a bit lower like .5%. Stocks 4 or 5%.

Current rfr is around .3% so I would enter .8% for bonds. 4.5-5.5 for stock.


Seems like you probably just assume much higher for stocks than I do. Stock returns are rarely 10% above the rfr.
I generally assume about 5.0 for stocks (although back in March 2020, I probably did assume more), but I'll use your numbers because I recall this was decently robust.

0.5%/13% for LT bonds, 4.5%/17% for stocks, 0 correlation between them. Assuming 0.2% financing over RFR, the highest CAGR is 168% stocks/18% LT bonds. Those are usually the results I get, trivial amounts in bonds, basically just leveraged stocks (which is what I use).

You probably just assume negative enough correlations to get some reasonable allocations? If the correlation isn't negative (or is trivially negative), I don't really get anything special in bonds. Even if it's decently negative (-0.2 or lower), the portfolios aren't even that different in Sharpe to just leveraged stocks.

What am I missing?
I think your optimizer may be too pessimistic, because correlations tend to become more negative during large, i.e. macro-economically induced stock market downturns.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by SCraw »

This has been fun. I started in 2019, added more (inc a tonne this Jan) until it was >10% of my portfolio. Checked my account, cost basis $560k, peak ~$660k iirc, now $390k. I didn't rebalance so I'm 70% UPRO. I'll add more over the next few years, starting with a bunch of TMF tomorrow, ahead of CPI day.
skierincolorado wrote: Sat May 07, 2022 10:38 am
rascott wrote: Sat May 07, 2022 7:58 am Back when this started, there were a lot of warning signs that this party that worked well for 40 years couldn't last forever. Once we got to the point of the 10 yr Treasury at sub 0.7%.... writing should have been on the wall. Artificially low rates via a Fed massive balance sheet expansion was never backtested.
Rates rising from 3% to 20% was backtested. This is nothing.
Guesstimating here, but a 30y bond issued at a 0.5% coupon would lose 49.2pts if its yield rose to 3%. A 30y bond issued at 3% would lose that if its yield rose to 7%.

The magic of convexity!
Last edited by SCraw on Thu Apr 13, 2023 6:05 am, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

comeinvest wrote: Sun May 08, 2022 11:13 pm
ScubaHogg wrote: Sun May 08, 2022 2:16 pm
willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
I don’t want to dig through all the pages, but I think rebalancing quarterly is where hedgefundie, et al, landed as far as a strategy
I think many pages up, somebody showed that monthly, quarterly, or annual rebalancing have roughly identical results. There was also an advantage for quarterly rebalancing at the precise calendar quarter ends, which I think most commenters believed was a random artifact.
The overall returns may be similar with the different rebalancing periods, but the dispersion in returns tightens up as the rebalancing period shortens (i.e., returns are more consistent over all possible five-year periods in the history). In other words, overall portfolio volatility tends to be higher as the rebalancing period increases. Using 10 or 15 percent bands also would have worked pretty well, if one is comfortable following the portfolio.

Detailed tests suggest that there is a smile effect with the day of rebalancing, with the worse results near the middle of the quarter/month and better results away from the middle. One explanation is that treasury auctions always occur within a week or so of the middle of a month, and the auction may cause a transient pricing distortion that affects the rebalance. The smile is a smallish statistical effect, probably small compared to timing luck during any individual rebalance, and mainly shows up as a statistical bias accumulating over many rebalances.

If you could rebalance daily without significant slippage, you would get an additional bonus return from taking advantage of negative correlations on a daily basis. Basically a statistical sell high/buy low. It's not at all clear how practical that would be, because slippage during trades drags down the portfolio. One might be especially tempted during periods of high volatility, with wide swings over a few days, but slippage is also much larger in such periods.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 »

willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
Rebalancing quarterly was core to the strategy and, if one as rebalancing on calendar quarters (1/1, 4/1, 7/1, 10/1) they rebalanced at almost the exact peak of TMF and very bottom of UPRO on 4/1/20 of the COVID crash and made most of their gains that way.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

Jags4186 wrote: Mon May 09, 2022 8:20 am
willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
Rebalancing quarterly was core to the strategy and, if one as rebalancing on calendar quarters (1/1, 4/1, 7/1, 10/1) they rebalanced at almost the exact peak of TMF and very bottom of UPRO on 4/1/20 of the COVID crash and made most of their gains that way.
I understand rebalancing more often than annually, but what's wrong with rebalancing monthly on a theoretical basis?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Jags4186 »

willthrill81 wrote: Mon May 09, 2022 8:27 am
Jags4186 wrote: Mon May 09, 2022 8:20 am
willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.
I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
Rebalancing quarterly was core to the strategy and, if one as rebalancing on calendar quarters (1/1, 4/1, 7/1, 10/1) they rebalanced at almost the exact peak of TMF and very bottom of UPRO on 4/1/20 of the COVID crash and made most of their gains that way.
I understand rebalancing more often than annually, but what's wrong with rebalancing monthly on a theoretical basis?
There's nothing wrong with monthly rebalancing other than longer rebalance intervals have higher expected returns than shorter ones. I believe HF ran backtests and found that quarterly performed best hence why he went with it.

From a non-financial analyst point of view, it seems that you make your money when there are runs with leveraged ETFs, and a month may not be long enough to fully capture or avoid rebalancing into those runs.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by OohLaLa »

Good news! Reinforcements have arrived: just bought $1500 worth of TYD.
Heeeey, Big Spendaahhh! :mrgreen: :mrgreen: :mrgreen:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by VTI »

It’s finally time to go all-in HFEA, isn’t it?
Also available as an Admiral™ Shares mutual fund.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

willthrill81 wrote: Mon May 09, 2022 8:27 am
Jags4186 wrote: Mon May 09, 2022 8:20 am
willthrill81 wrote: Sat May 07, 2022 10:52 pm
Marseille07 wrote: Sat May 07, 2022 10:50 pm
willthrill81 wrote: Sat May 07, 2022 10:06 pm Just for kicks, I analyzed the performance of 55% UPRO and 45% TMF since February of 2019, the month when HFEA was first posted. Through the end of April of this year, the S&P 500 averaged 1.27% higher annualized returns and had FAR lower volatility and maximum drawdown.
You forgot to rebalance quarterly.

I didn't recall that being part of the strategy. Rebalancing quarterly resulted in much higher returns, but rebalancing monthly resulted in returns between annual and quarterly rebalancing. I smell a fluke, and I don't mean fish.
Rebalancing quarterly was core to the strategy and, if one as rebalancing on calendar quarters (1/1, 4/1, 7/1, 10/1) they rebalanced at almost the exact peak of TMF and very bottom of UPRO on 4/1/20 of the COVID crash and made most of their gains that way.
I understand rebalancing more often than annually, but what's wrong with rebalancing monthly on a theoretical basis?
I think monthly is fine or better. I would not rely too heavily on backtests to determine rebalance. They can be very dependent on a few lucky rebalances. The results are highly sensitive.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

willthrill81 wrote: Mon May 09, 2022 8:27 am I understand rebalancing more often than annually, but what's wrong with rebalancing monthly on a theoretical basis?
In taxable accounts? Increased tax drag relative to quarterly rebalancing. In tax-advantaged accounts? See Hydromod's post above.

At present, I rebalance quarterly for simplicity's sake. I prefer to touch my portfolio as infrequently as possible while maintaining the same strategy across accounts. Of course, I also enjoy profiting from potential statistical effects and minimizing tax drag, but that's just icing on the cake.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by cos »

Hydromod wrote: Mon May 09, 2022 8:04 am If you could rebalance daily without significant slippage, you would get an additional bonus return from taking advantage of negative correlations on a daily basis. Basically a statistical sell high/buy low. It's not at all clear how practical that would be, because slippage during trades drags down the portfolio. One might be especially tempted during periods of high volatility, with wide swings over a few days, but slippage is also much larger in such periods.
Does slippage tend to be higher with buys or sells? Or is it just about even?

Would there be any advantage to investing a monthly paycheck in daily increments into the lagging asset over the course of the following month rather than all at once immediately upon receipt, or are the benefits of one-sided daily rebalancing generally outweighed by those of remaining fully invested at all times?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by ChinchillaWhiplash »

Bump. Deadline to enter your comments is today!
ChinchillaWhiplash wrote: Thu Apr 28, 2022 11:45 am Just got this notice as a prospectus supplement. Could be a big problem going forward for those using leveraged products.

“RISKS OF GOVERNMENT REGULATION
The following is a letter from ProShare Advisors. It is not part of the Trust’s Prospectus or Statement of Additional Information and is not a communication from the Trust.
The Financial Industry Regulatory Authority (“FINRA”) issued a notice on March 8, 2022 seeking comment on measures that could prevent or restrict investors from buying a broad range of public securities designated as “complex products”—which could include the leveraged and inverse funds offered by ProShares. The ultimate impact, if any, of these measures remains unclear. However, if regulations are adopted, they could, among other things, prevent or restrict investors’ ability to buy the funds.”

There is a website that allows public comments. “ Submit an official public comment to regulators at LetEveryoneInvest.com/ProShares by the May 9 deadline, telling them you oppose limitations on your investments.”

I personally feel like we have enough regulations already. Read up on this as it could be a major headache in the making.

Bump. Deadline to enter your comments to stop the FINRA action is today!
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Hydromod »

cos wrote: Mon May 09, 2022 11:30 am
Hydromod wrote: Mon May 09, 2022 8:04 am If you could rebalance daily without significant slippage, you would get an additional bonus return from taking advantage of negative correlations on a daily basis. Basically a statistical sell high/buy low. It's not at all clear how practical that would be, because slippage during trades drags down the portfolio. One might be especially tempted during periods of high volatility, with wide swings over a few days, but slippage is also much larger in such periods.
Does slippage tend to be higher with buys or sells? Or is it just about even?

Would there be any advantage to investing a monthly paycheck in daily increments into the lagging asset over the course of the following month rather than all at once immediately upon receipt, or are the benefits of one-sided daily rebalancing generally outweighed by those of remaining fully invested at all times?
If I understand correctly, you lose half of the spread between bid and ask, regardless of whether you buy or sell. But I'm no expert, and I'd be glad to be corrected.

The way I look at it, at the point you invest some cash, you have two portfolios: (i) the existing and (ii) the new, which after a year or two should be much smaller than the existing. Your new investment has no effect on the existing until you rebalance, then it merges into one. Until you are rebalanced, the new portfolio can be treated independently. Presumably the new portfolio will merge within a few weeks or months, so this is short-term tactical decision. The three main strategies are (i) go after the highest expected return (100% UPRO), (ii) go after minimizing rebalancing slippage to the extent possible by trying to move the overall portfolio towards your target, or (iii) invest at the allocation that you've decided is the best for your portfolio. In all cases, you'll adjust when rebalancing.

You have the same decision if you were to do daily increments, except that you would expect that for about 2/3 of the months you would be better off investing as soon as you have cash available. If you are contributing over many months, it sounds like a statistical win to pop it in ASAP.

I really think returns on the small contribution over this short period will work out being noise that doesn't significantly affect overall portfolio performance. Whatever you are comfortable with should be fine if you have a sound plan for the overall portfolio.
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