HEDGEFUNDIE's excellent adventure Part II: The next journey

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

Post by skierincolorado »

000 wrote: Thu May 05, 2022 7:15 pm
skierincolorado wrote: Thu May 05, 2022 7:06 pm This isn't a momentum strategy. It's MPT. HFEA has sustained well since 1955. mHFEA even better. There more variance so you need to shift more conservative with age.
Backtests don't matter here because today's markets are not like 1955. The velocity with which things get incorporated into these markets is different. Liquidity and index funds also make it easier to hit the "sell everything" button, which many algos do.

To be clear I doubt this is the end of HFEA. More like foreshadowing what the end will look like when the Fed can't reverse course on QT.
As long as stocks and bonds return > the borrowing rate and have a correlation < 1.000000000, this strategy (or a variation of it) will make sense. Higher volatility could mean less leverage is more optimal. But broadly speaking taking some level of leverage with stocks and bonds is always going to increase CAGR. Maybe not all the way to 3x.

Markets have done all sorts of crazy things since 1955. Including bonds and stocks dropping a lot at the same time. There is also a fundamental relationship between volatility and returns which can be arbitraged if it swings too far one way or the other.

This latest drop barely shows up at all on a log graph of HFEA since 1955.
Last edited by skierincolorado on Thu May 05, 2022 8:03 pm, edited 6 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by willthrill81 »

langlands wrote: Thu May 05, 2022 7:38 pm
willthrill81 wrote: Thu May 05, 2022 7:11 pm
000 wrote: Thu May 05, 2022 7:07 pm
willthrill81 wrote: Thu May 05, 2022 6:51 pm That could easily happen now. -90% isn't outside the realm of realistic possibility.
I'd like to think TMF is close to its bottom as I have a small holding in that fund. The bigger concern is UPRO (or TQQQ) as recession is now on the horizon and momentum in stocks is drying up. I could still see one last parabolic run to ethereal ATHs, though, perhaps if the market gets whiff of the idea that recession means hikes are cancelled.
If inflation doesn't get under control and the Fed is forced to ramp up rates, TMF could go much lower. And yes, UPRO could easily plummet from here.
Agreed, both TMF and UPRO could easily go much lower (even 80%+). 3x leverage is no joke. Looking at TMF or UPRO price level, or in general the price level of any derivative product can be very misleading. Here the underlying assets/parameters (which have economic meaning), namely the long term interest rate and the SPY, are what matter. If long term interest rate doubles and SPY drops 50%, HFEA is completely toast. Not likely, but certainly not outside the realm of possibility.
Plus, an 80% drawdown requires doubling your money twice to get back to where you started. That could be a really tough hurdle, one that might take a long time to achieve.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

skierincolorado wrote: Thu May 05, 2022 7:43 pm As long as stocks and bonds return > the borrowing rate and have a correlation < 1.000000000, this strategy (or a variation of it) will make sense. Higher volatility could mean less leverage is more optimal. But broadly speaking taking some level of leverage with stocks and bonds is always going to increase CAGR. Maybe not all the way to 3x.

Markets have done all sorts of crazy things since 1955. Including bonds and stocks dropping a lot at the same time. There is also a fundamental relationship between volatility and returns which can be arbitraged if it swings too far one way or the other.

This latest drop barely shows up at all on a log graph of HFEA since 1955.
Well, the condition in your first sentence may be where the problem is, say if Volcker 2.0 raises the FFR to 20%.

One potential risk here that does not show in backtest is the kind of tightening that may be necessary to defend a dollar not backed by gold or oil.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 8:28 pm One potential risk here that does not show in backtest is the kind of tightening that may be necessary to defend a dollar not backed by gold or oil.
? The forex peeps are massively buying USD because apparently they don't care about our inflation - they're only after the higher interest rates.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Marseille07 wrote: Thu May 05, 2022 8:29 pm ? The forex peeps are massively buying USD because apparently they don't care about our inflation - they're only after the higher interest rates.
My post was not a short term prediction.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 8:31 pm
Marseille07 wrote: Thu May 05, 2022 8:29 pm ? The forex peeps are massively buying USD because apparently they don't care about our inflation - they're only after the higher interest rates.
My post was not a short term prediction.
Neither was mine? If USD massively gains during a hiking cycle we just entered, USD is safe for at least another decade.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Marseille07 wrote: Thu May 05, 2022 8:32 pm Neither was mine? If USD massively gains during a hiking cycle we just entered, USD is safe for at least another decade.
What the "forex peeps" are doing with USD right now does not logically lead to your latter conclusion.

Inflation and deflation are two sides of the same coin. Policy error can take us to one, then the other.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by jjj_22 »

seajay wrote: Sat Aug 28, 2021 7:05 pm
mrspock wrote: Sat Aug 28, 2021 5:45 am
investor.was.here wrote: Tue Aug 24, 2021 4:26 am So, hypothetical game. You wake up tomorrow and the Fed announces that they've changed their mind about inflation being transient. Instead, they announce that they're going to aggressively raise interest rates to stave it off. You look at your hedgefundie portfolio and wonder. What do you do next?
There is a precisely zero percent chance this will happen.

Inflation and zero percent interest rates is exactly what the fed wants for the next few years at least -- they have publicly stated this multiple times (investors & bond holders ignore this to their own peril). The massive debt created over the last number of years is to be monetized away on the backs of bond holders -- retiring $1.1T in debt per year @ 4% inflation or $858B per year @ 3% inflation (think about that.... imagine what tax rates would need to be to make up the difference in a 1-2% inflation environment, politically untenable). Raising rates would cripple the government in both dimensions needed for this to happen: interest payments & reduction of debt in real terms.

There just isn't any realistic scenario where they aren't going to let inflation do its thing. The US treasury & fed have collectively made a faustian bargain with all this debt, it must now play out.
Not so 100% sure myself. More often the opposite to what you expect actually occurs.
Sometime it’s fun to read back through this thread. From August of ‘21.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

jjj_22 wrote: Thu May 05, 2022 9:59 pm Sometime it’s fun to read back through this thread. From August of ‘21.
He's still at it:

viewtopic.php?p=6660511#p6660511
Last edited by 000 on Thu May 05, 2022 10:53 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 10:08 pm
jjj_22 wrote: Thu May 05, 2022 9:59 pm Sometime it’s fun to read back through this thread. From August of ‘21.
viewtopic.php?p=6660511#p6660511
I think this question still stands today:
Open question:
1. Why aren't bond holders demanding higher interest rates?
Although I think the answer is simply it takes some time for the yields to rise.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Marseille07 wrote: Thu May 05, 2022 10:18 pm
000 wrote: Thu May 05, 2022 10:08 pm
jjj_22 wrote: Thu May 05, 2022 9:59 pm Sometime it’s fun to read back through this thread. From August of ‘21.
viewtopic.php?p=6660511#p6660511
I think this question still stands today:
Open question:
1. Why aren't bond holders demanding higher interest rates?
Although I think the answer is simply it takes some time for the yields to rise.
I gave my answer in that thread.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 10:51 pm
Marseille07 wrote: Thu May 05, 2022 10:18 pm
000 wrote: Thu May 05, 2022 10:08 pm
jjj_22 wrote: Thu May 05, 2022 9:59 pm Sometime it’s fun to read back through this thread. From August of ‘21.
viewtopic.php?p=6660511#p6660511
I think this question still stands today:
Open question:
1. Why aren't bond holders demanding higher interest rates?
Although I think the answer is simply it takes some time for the yields to rise.
I gave my answer in that thread.
Oh right, I got confused because the thread title looked different than the free fall thread.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Marseille07 wrote: Thu May 05, 2022 10:53 pm Oh right, I got confused because the thread title looked different than the free fall thread.
But the question - and possible answers - is relevant to HFEAers too.

To your thought it does take time for these things to happen.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 10:55 pm But the question - and possible answers - is relevant to HFEAers too.

To your thought it does take time for these things to happen.
It does impact the Bogleheads too. The elephant in the room is that we might be in a regime where holding stocks / bonds is a terrible idea, and we might have to construct our portfolios differently.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Marseille07 wrote: Thu May 05, 2022 10:57 pm It does impact the Bogleheads too. The elephant in the room is that we might be in a regime where holding stocks / bonds is a terrible idea, and we might have to construct our portfolios differently.
Yes. What were you thinking instead?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

000 wrote: Thu May 05, 2022 8:28 pm
skierincolorado wrote: Thu May 05, 2022 7:43 pm As long as stocks and bonds return > the borrowing rate and have a correlation < 1.000000000, this strategy (or a variation of it) will make sense. Higher volatility could mean less leverage is more optimal. But broadly speaking taking some level of leverage with stocks and bonds is always going to increase CAGR. Maybe not all the way to 3x.

Markets have done all sorts of crazy things since 1955. Including bonds and stocks dropping a lot at the same time. There is also a fundamental relationship between volatility and returns which can be arbitraged if it swings too far one way or the other.

This latest drop barely shows up at all on a log graph of HFEA since 1955.
Well, the condition in your first sentence may be where the problem is, say if Volcker 2.0 raises the FFR to 20%.

One potential risk here that does not show in backtest is the kind of tightening that may be necessary to defend a dollar not backed by gold or oil.
But this is exactly the scenario that is covered by a 1955 backtest. FFR *did* go to 20% and stocks fell, but HFEA, and especially a mHFEA using ITT, still recover and do well, although the time horizon has to be quite long for regular HFEA.
Last edited by skierincolorado on Thu May 05, 2022 11:06 pm, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 11:01 pm
Marseille07 wrote: Thu May 05, 2022 10:57 pm It does impact the Bogleheads too. The elephant in the room is that we might be in a regime where holding stocks / bonds is a terrible idea, and we might have to construct our portfolios differently.
Yes. What were you thinking instead?
Just saying - I don't see this possibility being discussed often, presumably because we just had a four-decade-long bond bull run since 1982.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Marseille07 wrote: Thu May 05, 2022 10:18 pm
000 wrote: Thu May 05, 2022 10:08 pm
jjj_22 wrote: Thu May 05, 2022 9:59 pm Sometime it’s fun to read back through this thread. From August of ‘21.
viewtopic.php?p=6660511#p6660511
I think this question still stands today:
Open question:
1. Why aren't bond holders demanding higher interest rates?
Although I think the answer is simply it takes some time for the yields to rise.
That's an entirely unsatisfying answer to me. The only way I could see that happening is if all the other market participants were stupid.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

skierincolorado wrote: Thu May 05, 2022 11:06 pm That's an entirely unsatisfying answer to me. The only way I could see that happening is if all the other market participants were stupid.
Not sure what kind of response you're looking for. You already know my call on the Ten by EOY.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

skierincolorado wrote: Thu May 05, 2022 11:01 pm But this is exactly the scenario that is covered by a 1955 backtest. FFR *did* go to 20%, but HFEA, and especially a mHFEA using ITT, still recover and do well, although the time horizon has to be quite long for regular HFEA.
My apologies. I think my two sentences in that post do not have much to do with each other. To clarify, the first was an observation about your premise of stock/bonds having returns than the borrow rate. The second was about an unprecedented hiking situation, i.e. where more aggressive QT than worked last round is required, possibly due to lack of a black gold ballast.

We talk a lot about rates as the rates trade has been big now for awhile, but we also need good business results for public corporations. Looking at post-WWII or even post-Civil War US is a bit of a right side case.

Curious: has the HFEA been tested in other countries or the global portfolio?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

Marseille07 wrote: Thu May 05, 2022 11:05 pm Just saying - I don't see this possibility being discussed often, presumably because we just had a four-decade-long bond bull run since 1982.
Well, there's real estate but that is also a rates trade. There's shiny metals. I hold precious metals miners and other commodity producers.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Marseille07 »

000 wrote: Thu May 05, 2022 11:11 pm
Marseille07 wrote: Thu May 05, 2022 11:05 pm Just saying - I don't see this possibility being discussed often, presumably because we just had a four-decade-long bond bull run since 1982.
Well, there's real estate but that is also a rates trade. There's shiny metals. I hold precious metals miners and other commodity producers.
I'm going the other way by not holding bonds. Basically all-in equities plus some cash.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

000 wrote: Thu May 05, 2022 11:09 pm
skierincolorado wrote: Thu May 05, 2022 11:01 pm But this is exactly the scenario that is covered by a 1955 backtest. FFR *did* go to 20%, but HFEA, and especially a mHFEA using ITT, still recover and do well, although the time horizon has to be quite long for regular HFEA.
My apologies. I think my two sentences in that post do not have much to do with each other. To clarify, the first was an observation about your premise of stock/bonds having returns than the borrow rate. The second was about an unprecedented hiking situation, i.e. where more aggressive QT than worked last round is required, possibly due to lack of a black gold ballast.

We talk a lot about rates as the rates trade has been big now for awhile, but we also need good business results for public corporations. Looking at post-WWII or even post-Civil War US is a bit of a right side case.

Curious: has the HFEA been tested in other countries or the global portfolio?
I only have intl bond data since 1985. Since then, borrowing in USD to invest in total intl stock and bond version of HFEA has greatly outperformed an unlevered position in international equities or domstic equities. CAGR is 12.9% and total return is 4x intl TSM.

I have intl equities since 1970. 165% intl equities + 135% domoestic ITT, outperforms international equities by 10x with a CAGR of 13.8%. Despite holding a large position in ITT through the 70s and 80s. The total return is 4x domestic TSM.

So yes, the international version of this outperforms TSM. Even if you hold lower return more volatile international equities + domestic bonds through the 70s and 80s, it still returns more.

Take the worst of both. Intl equities, domestic bonds in the 70s and 80s, and it still trounces TSM. Diversification and MPT are very powerful.
Last edited by skierincolorado on Thu May 05, 2022 11:45 pm, edited 5 times in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

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

Post by langlands »

000 wrote: Thu May 05, 2022 11:01 pm
Marseille07 wrote: Thu May 05, 2022 10:57 pm It does impact the Bogleheads too. The elephant in the room is that we might be in a regime where holding stocks / bonds is a terrible idea, and we might have to construct our portfolios differently.
Yes. What were you thinking instead?
Personally, I'm quite interested in an asset class that is not often discussed on this forum.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by 000 »

langlands wrote: Thu May 05, 2022 11:43 pm Personally, I'm quite interested in an asset class that is not often discussed on this forum.
Ah, I figured you might be the type interested in artwork. :mrgreen:
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by langlands »

000 wrote: Thu May 05, 2022 11:48 pm
langlands wrote: Thu May 05, 2022 11:43 pm Personally, I'm quite interested in an asset class that is not often discussed on this forum.
Ah, I figured you might be the type interested in artwork. :mrgreen:
Indeed, in particular badly drawn or cartoonish artwork.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by bgf »

Can a mod please clean this thread up? It has spiraled out of control at this point. It’s now just page after page of a few different posters, who don’t invest in the strategy, and have just started using the thread as a diary for their own half-cocked ideas and feelings on a day in day out basis.

Can a mod not delete this garbage?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Booglie »

bgf wrote: Fri May 06, 2022 7:50 am Can a mod please clean this thread up? It has spiraled out of control at this point. It’s now just page after page of a few different posters, who don’t invest in the strategy, and have just started using the thread as a diary for their own half-cocked ideas and feelings on a day in day out basis.

Can a mod not delete this garbage?
This topic has 249 pages, so can I suggest instead that all replies from now on from people that are not related to the post will be deleted?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LadyGeek »

Please stay on-topic, which is the investing portfolio as defined in the original thread: HEDGEFUNDIE's excellent adventure [risk parity strategy using 3x leveraged ETFs] (now locked).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BayoMoon »

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

Post by privatefarmer »

the 30 year yield was at 3% in December 2008, same place it is now. Since then, a 55/45 unlevered allocation has returned 10% CAGR, pretty good. obviously a levered version of that would’ve done pretty dang well.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hiddenpower »

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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BayoMoon »

hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
reading the boglehead threads back in 2008, people had the same doubt. "the fundamental assumptions of the strategy became threatened". people were absolutely defeated. they weren't even fearful. they just gave up. they were done. they went past fear and just were defeated.

bogleheads always wanna say "stay the course" until "the course" has a road bump. what's the point in saying "stay the course" if every time any downturn happens people will worry that their investments are no longer fundamentally sound?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hiddenpower »

BayoMoon wrote: Fri May 06, 2022 12:11 pm
hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
reading the boglehead threads back in 2008, people had the same doubt. "the fundamental assumptions of the strategy became threatened". people were absolutely defeated. they weren't even fearful. they just gave up. they were done. they went past fear and just were defeated.

bogleheads always wanna say "stay the course" until "the course" has a road bump. what's the point in saying "stay the course" if every time any downturn happens people will worry that their investments are no longer fundamentally sound?
Did you see the 1970s chart? This isn't some made up unforeseen thing, it's a historical event that could repeat once again (which lead to decades of underperformance). I'm sure many in this strat or those interested in it are keeping tabs on this
BayoMoon
Posts: 47
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by BayoMoon »

hiddenpower wrote: Fri May 06, 2022 12:13 pm
BayoMoon wrote: Fri May 06, 2022 12:11 pm
hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
reading the boglehead threads back in 2008, people had the same doubt. "the fundamental assumptions of the strategy became threatened". people were absolutely defeated. they weren't even fearful. they just gave up. they were done. they went past fear and just were defeated.

bogleheads always wanna say "stay the course" until "the course" has a road bump. what's the point in saying "stay the course" if every time any downturn happens people will worry that their investments are no longer fundamentally sound?
Did you see the 1970s chart? This isn't some made up unforeseen thing, it's a historical event that could repeat once again (which lead to decades of underperformance). I'm sure many in this strat or those interested in it are keeping tabs on this
Bogleheads: "stay the course! ignore the FUD! DCA!"

also Bogleheads: "OH MY GOD NOOOO THERES SO MUCH FUD AND I DONT WANNA STAY THE COURSE ANYMORE"

pretty fallacious if you ask me
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
er999
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by er999 »

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.
The difference is that buy and hold for broad index funds has decades of experience and academic support that it will work. Leveraged funds don’t and we hear the scary stuff about how bad this strategy is from other posters on bogleheads and even the fund’s prospectus say don’t hold for longer than 1 day. That’s one reason why this thread is so long.

The absolute dollar amount I invested is large but the percentage of my portfolio is less than 10% so I will be okay if it goes to zero but will sure feel stupid about losing that money in a few months.
I’m planning on keeping the allocation but the uncertainty is why I’m reading this thread regularly and checking tmf and upro prices regularly.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LeverageWBeverage »

skierincolorado wrote: Fri May 06, 2022 12:50 pm
hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
You've said this dozens of time and its all written down here forever. But why is it your mission to just park in this thread and just try to get people to move over to mHFEA thread several times a page.. page after page.. forever?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by hiddenpower »

skierincolorado wrote: Fri May 06, 2022 12:50 pm
hiddenpower wrote: Fri May 06, 2022 11:53 am If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
HEDGEFUNDIE also made the assumption that we wouldn't see inflation like the 70s and he believed rates would continue to stay low (this is the big question right now).
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

LeverageWBeverage wrote: Fri May 06, 2022 12:55 pm
skierincolorado wrote: Fri May 06, 2022 12:50 pm
hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
You've said this dozens of time and its all written down here forever. But why is it your mission to just park in this thread and just try to get people to move over to mHFEA thread several times a page.. page after page.. forever?
The main point was responding to the many posters recently saying hfea is broken and that the fundamental assumptions are wrong. I don't agree with that. But I'm also not going to say that and not point out the things that can be improved. It's all related. I don't care what thread the discussion takes place in. I've never tried to get people to move over.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

hiddenpower wrote: Fri May 06, 2022 1:16 pm
skierincolorado wrote: Fri May 06, 2022 12:50 pm
hiddenpower wrote: Fri May 06, 2022 11:53 am If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
HEDGEFUNDIE also made the assumption that we wouldn't see inflation like the 70s and he believed rates would continue to stay low (this is the big question right now).
Yeah he kind of did, which is necessary for the massive outperformance, but not necessary for more modest outperformance. You just need bonds to return more than the cost of borrowing and a correlation with equities less than 1.
fidream
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by fidream »

skierincolorado wrote: Thu May 05, 2022 5:21 pm
fidream wrote: Thu May 05, 2022 5:18 pm
skierincolorado wrote: Thu May 05, 2022 3:01 pm
treetop576 wrote: Thu May 05, 2022 2:51 pm Is anyone in taxable considering harvesting some of their TMF losses and buying UPRO with the balance at some point? I can't believe there isn't another version of TMF to harvest losses against.
People use edv to harvest losses. It's not the same but sorta close. Tyd or tya might work too. Or just switch to tyd or tya permanently to reduce bond exposure

55 UPRO 45 TYD starting in 1955 didn't get passed by HFEA until 2011. That's a long time to wait (56 years) for all that extra bond risk to pay off.
So would 55 UPRO / 45 TYD be your recommendation for someone that doesn't want to mess with futures (or may not have the capital)? Also which is better, TYD or TYA? Which is more tax efficient?
Maybe someone who is actually doing this can chime in. The other concern is the bid ask spread and liquidity and small size of the funds.

I wouldn't recommend that to most working people under 50 because fixed leverage is not consistent with lifecycle investing. For someone in phase I, a fixed 65/35 upro/tyd makes sense to me. In phase II, you really need a way to increase leverage in a downturn and decrease it as you get wealthier. So like if 45/25/30 upro/tyd/vti..... but then you have to be diligent about selling vti to buy upro during a downturn. You don't need to just maintain a fixed aa... you need to increase the upro % to be consistent with lifecycle investing. You would want to end back up at 65% upro if the market dropped significantly.

It's far more important to get the lifecycle angle right than having the perfect ratio or type of bonds.

But yeah I'd consider 55/45 upro/tyd an improvement over hfea...said that back six months ago in this thread too.
Do you believe it would be wise to be 55/45 upro/tyd even after the severe drawdown of 55/45 upro/tmf? I'm wondering if it makes sense to sell the remaining tmf that has a return of -51% at this point in my portfolio for tyd. This might be sunk-cost fallacy, but shouldn't I hold tmf now so I have hopes of recovering?
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by LadyGeek »

skierincolorado wrote: Fri May 06, 2022 2:46 pm
LeverageWBeverage wrote: Fri May 06, 2022 12:55 pm ...You've said this dozens of time and its all written down here forever. But why is it your mission to just park in this thread and just try to get people to move over to mHFEA thread several times a page.. page after page.. forever?
The main point was responding to the many posters recently saying hfea is broken and that the fundamental assumptions are wrong. I don't agree with that. But I'm also not going to say that and not point out the things that can be improved. It's all related. I don't care what thread the discussion takes place in. I've never tried to get people to move over.
I do. Each discussion must be focused on a single topic (or very few topics). Otherwise, the quality of the discussion goes downhill and becomes unproductive. The goal of a moderator is to keep that discussion on-track. That is true anywhere discussions take place - not just in internet forums. (Moderators also ensure discussions remain civil.)

The discussion needs to stay focused on the topic at-hand. It's why I say "Please stay on-topic", which applies here. Going down a different path is not productive. Feel free to start a new thread and link to the new discussion from here.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

LadyGeek wrote: Fri May 06, 2022 4:11 pm
skierincolorado wrote: Fri May 06, 2022 2:46 pm
LeverageWBeverage wrote: Fri May 06, 2022 12:55 pm ...You've said this dozens of time and its all written down here forever. But why is it your mission to just park in this thread and just try to get people to move over to mHFEA thread several times a page.. page after page.. forever?
The main point was responding to the many posters recently saying hfea is broken and that the fundamental assumptions are wrong. I don't agree with that. But I'm also not going to say that and not point out the things that can be improved. It's all related. I don't care what thread the discussion takes place in. I've never tried to get people to move over.
I do. Each discussion must be focused on a single topic (or very few topics). Otherwise, the quality of the discussion goes downhill and becomes unproductive. The goal of a moderator is to keep that discussion on-track. That is true anywhere discussions take place - not just in internet forums. (Moderators also ensure discussions remain civil.)

The discussion needs to stay focused on the topic at-hand. It's why I say "Please stay on-topic", which applies here. Going down a different path is not productive. Feel free to start a new thread and link to the new discussion from here.
I agree. My point is that discussing the pros and cons of very closely related strategy has significant overlap. Details specific to each strategy I have tried to discuss in the appropriate thread. It would be unfortunate if every thread became an echo chamber.
Last edited by skierincolorado on Sat May 07, 2022 1:37 am, edited 1 time in total.
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

fidream wrote: Fri May 06, 2022 3:50 pm
skierincolorado wrote: Thu May 05, 2022 5:21 pm
fidream wrote: Thu May 05, 2022 5:18 pm
skierincolorado wrote: Thu May 05, 2022 3:01 pm
treetop576 wrote: Thu May 05, 2022 2:51 pm Is anyone in taxable considering harvesting some of their TMF losses and buying UPRO with the balance at some point? I can't believe there isn't another version of TMF to harvest losses against.
People use edv to harvest losses. It's not the same but sorta close. Tyd or tya might work too. Or just switch to tyd or tya permanently to reduce bond exposure

55 UPRO 45 TYD starting in 1955 didn't get passed by HFEA until 2011. That's a long time to wait (56 years) for all that extra bond risk to pay off.
So would 55 UPRO / 45 TYD be your recommendation for someone that doesn't want to mess with futures (or may not have the capital)? Also which is better, TYD or TYA? Which is more tax efficient?
Maybe someone who is actually doing this can chime in. The other concern is the bid ask spread and liquidity and small size of the funds.

I wouldn't recommend that to most working people under 50 because fixed leverage is not consistent with lifecycle investing. For someone in phase I, a fixed 65/35 upro/tyd makes sense to me. In phase II, you really need a way to increase leverage in a downturn and decrease it as you get wealthier. So like if 45/25/30 upro/tyd/vti..... but then you have to be diligent about selling vti to buy upro during a downturn. You don't need to just maintain a fixed aa... you need to increase the upro % to be consistent with lifecycle investing. You would want to end back up at 65% upro if the market dropped significantly.

It's far more important to get the lifecycle angle right than having the perfect ratio or type of bonds.

But yeah I'd consider 55/45 upro/tyd an improvement over hfea...said that back six months ago in this thread too.
Do you believe it would be wise to be 55/45 upro/tyd even after the severe drawdown of 55/45 upro/tmf? I'm wondering if it makes sense to sell the remaining tmf that has a return of -51% at this point in my portfolio for tyd. This might be sunk-cost fallacy, but shouldn't I hold tmf now so I have hopes of recovering?
I agree this is sunk cost fallacy. If your fundamental understanding of the assets has changed, your portfolio should reflect that. Nobody should get into anything they don't have a strong understanding of. Which is why leverage is not a good choice for most people.
Last edited by skierincolorado on Fri May 06, 2022 5:15 pm, edited 2 times in total.
breeze
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by breeze »

hiddenpower wrote: Fri May 06, 2022 1:16 pm
skierincolorado wrote: Fri May 06, 2022 12:50 pm
hiddenpower wrote: Fri May 06, 2022 11:53 am If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
HEDGEFUNDIE also made the assumption that we wouldn't see inflation like the 70s and he believed rates would continue to stay low (this is the big question right now).
I really like PFIX for the peace of mind it offers if something like a 1970's-style inflation happened.

https://www.convexitymaven.com/wp-conte ... isited.pdf

The ETF price with a 300bps treasury interest increase is modeled at increasing from $40-> ~$175 (from 0 at the start of feb when this was published). I am not sophisticated enough to guess at what the ETF price would be with a 1100bps increase.

The fact sheet and interviews with simplify recommend an allocation of 5% to hedge interest rate risk. I assume something like 10-15% may be needed with HFEA to make a meaningful difference.
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Afrofreak
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Afrofreak »

er999 wrote: Fri May 06, 2022 12:54 pm
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.
The difference is that buy and hold for broad index funds has decades of experience and academic support that it will work. Leveraged funds don’t and we hear the scary stuff about how bad this strategy is from other posters on bogleheads and even the fund’s prospectus say don’t hold for longer than 1 day. That’s one reason why this thread is so long.

The absolute dollar amount I invested is large but the percentage of my portfolio is less than 10% so I will be okay if it goes to zero but will sure feel stupid about losing that money in a few months.
I’m planning on keeping the allocation but the uncertainty is why I’m reading this thread regularly and checking tmf and upro prices regularly.
Your argument doesn't make much sense. Fundamentally, what is the difference between a portfolio consisting of UPRO/TMF and SPY/TLT? Leverage, that's it. What rules apply to one also apply to the other and vice versa. The fund's prospectus about not holding for a day is in reference to volatility drag... except volatility drag also applies to non-leveraged ETFs, just not nearly as severely. Should non-leveraged ETFs also not be held for longer than a day because they also experience drag? If I have a portfolio consisting of 33% UPRO and the rest cash, should I be treating it any differently than 100% SPY? Your exposure is the exact same. Leverage is a spectrum and the rules don't suddenly get turned on their heads when you go past 1.
skierincolorado
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by skierincolorado »

Afrofreak wrote: Fri May 06, 2022 6:37 pm
er999 wrote: Fri May 06, 2022 12:54 pm
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.
The difference is that buy and hold for broad index funds has decades of experience and academic support that it will work. Leveraged funds don’t and we hear the scary stuff about how bad this strategy is from other posters on bogleheads and even the fund’s prospectus say don’t hold for longer than 1 day. That’s one reason why this thread is so long.

The absolute dollar amount I invested is large but the percentage of my portfolio is less than 10% so I will be okay if it goes to zero but will sure feel stupid about losing that money in a few months.
I’m planning on keeping the allocation but the uncertainty is why I’m reading this thread regularly and checking tmf and upro prices regularly.
Your argument doesn't make much sense. Fundamentally, what is the difference between a portfolio consisting of UPRO/TMF and SPY/TLT? Leverage, that's it. What rules apply to one also apply to the other and vice versa. The fund's prospectus about not holding for a day is in reference to volatility drag... except volatility drag also applies to non-leveraged ETFs, just not nearly as severely. Should non-leveraged ETFs also not be held for longer than a day because they also experience drag? If I have a portfolio consisting of 33% UPRO and the rest cash, should I be treating it any differently than 100% SPY? Your exposure is the exact same. Leverage is a spectrum and the rules don't suddenly get turned on their heads when you go past 1.
Very good explanation. The one thing I will say is that if someone doesn't understand how this all works solidly they shouldn't be in these funds. 33% upro 67% cash is only the same as spy if you rebalance very frequently. It seems like there are lots of people in this thread who bought 10% into hfea, but then don't rebalance when hfea falls to much less than 10% of their portfolio. That amounts to taking more risk when the market is high and less risk when it is down, which is prime for volatility decay and likely to fair poorly. Highly leveraging one part of your portfolio makes it very susceptible to volatility decay. Which is why risk and portfolio construction needs to be looked at holistically and not with arbitrary buckets that are cutoff from each other. People that don't understand this shouldn't be in this at all and are bound to be disappointed when one part of their portfolio is down 70% or 90% and takes a decade or more to recover.

An extreme example would be leveraging 1% of my portfolio 10x. Due to volatility decay the 10x is likely to go down and go to zero (unless i constantly rebalance back to that 1% at 10x). Whereas leveraging my whole portfolio 1% is very likely to enhance returns long term.
Dry-Drink
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Re: HEDGEFUNDIE's excellent adventure Part II: The next journey

Post by Dry-Drink »

LeverageWBeverage wrote: Fri May 06, 2022 12:55 pm
skierincolorado wrote: Fri May 06, 2022 12:50 pm
hiddenpower wrote: Fri May 06, 2022 11:53 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
If the fundamental assumptions of the strategy become threatened, it is worthy of discussion. It's much harder to recover if the drawdown hits 90% or say yields somehow go up to 10% etc, whereas with VTI you can almost certainly just HODL through any storm and recover in a couple years. i.e. leverage is a bit more timing sensitive although this form of it is supposed to be non-timing sensitive under most conditions.
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.
You've said this dozens of time and its all written down here forever. But why is it your mission to just park in this thread and just try to get people to move over to mHFEA thread several times a page.. page after page.. forever?
Yeah, I agree. Discussions of "HF but using ITTs, less in bonds, and considering lifecycle investing" should probably just be kept at:

Modified versions of HFEA with ITT and Futures / Lifecycle Investing with Modern Portfolio Theory
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