HesgeFundie, as in the name - “Hedge Funds” have been leveraging up for ever, that’s how Bridgewater became huge, leveraging up All Weather.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
HEDGEFUNDIE's excellent adventure Part II: The next journey
- randyharris
- Posts: 175
- Joined: Wed Mar 18, 2020 7:45 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I never did make it more than a few pages into this thread, but I see it is getting commented on again.
IMHO, now is a good time to start leveraging up. I started buying 3x leveraged S&P 500 and Nasdaq 100 once the S&P 500 got to around -20% and Nasdaq around -30%.
Very recently I feel like we hit a bottom. Not that new information can't come out and drive everything down more.
What made me feel like we were reaching a bottom was when I started to see small-cap nasdaq stocks finally catch a bid. Stocks like SoFi, and Palantir. They hit a bottom around May 24-25. Not that they have sky rocketed, but they did seem to finally hit their low points.
Anyway, I am gambling around $40k on etfs UPRO and TQQQ. Right now in my taxable accounts I have $870k in etf SCHD and the rest in UPRO and TQQQ, and cash.
In my Roth IRA I am using PSLDX to add leverage by owning 100% in S&P 500 and 100% in long term bonds. That fund has been getting wrecked with declines in equities and bonds at the same time. I look at it as a good thing as it may increase my long term returns.
IMHO, now is a good time to start leveraging up. I started buying 3x leveraged S&P 500 and Nasdaq 100 once the S&P 500 got to around -20% and Nasdaq around -30%.
Very recently I feel like we hit a bottom. Not that new information can't come out and drive everything down more.
What made me feel like we were reaching a bottom was when I started to see small-cap nasdaq stocks finally catch a bid. Stocks like SoFi, and Palantir. They hit a bottom around May 24-25. Not that they have sky rocketed, but they did seem to finally hit their low points.
Anyway, I am gambling around $40k on etfs UPRO and TQQQ. Right now in my taxable accounts I have $870k in etf SCHD and the rest in UPRO and TQQQ, and cash.
In my Roth IRA I am using PSLDX to add leverage by owning 100% in S&P 500 and 100% in long term bonds. That fund has been getting wrecked with declines in equities and bonds at the same time. I look at it as a good thing as it may increase my long term returns.
Retired in 2022 at the age of 46. Living off of dividends.
-
- Posts: 224
- Joined: Sat Apr 25, 2020 8:28 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Yes, but we're talking about using LETFs specifically, not just hedging as a hedgefund would.randyharris wrote: ↑Thu May 26, 2022 11:52 pmHesgeFundie, as in the name - “Hedge Funds” have been leveraging up for ever, that’s how Bridgewater became huge, leveraging up All Weather.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
And most hedgefunds these days tend to have net exposure to the market. But that's a discussion for another day.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
For much of this year TMF and UPRO were going down, but it seems to me like over the last 2-3 weeks TMF has been stepping in and doing it’s job when UPRO was going down. If you aren’t rebalancing with TMF I’d recommend it, even if you think we’ve hit bottom.jh wrote: ↑Fri May 27, 2022 12:07 am I never did make it more than a few pages into this thread, but I see it is getting commented on again.
IMHO, now is a good time to start leveraging up. I started buying 3x leveraged S&P 500 and Nasdaq 100 once the S&P 500 got to around -20% and Nasdaq around -30%.
Very recently I feel like we hit a bottom. Not that new information can't come out and drive everything down more.
What made me feel like we were reaching a bottom was when I started to see small-cap nasdaq stocks finally catch a bid. Stocks like SoFi, and Palantir. They hit a bottom around May 24-25. Not that they have sky rocketed, but they did seem to finally hit their low points.
Anyway, I am gambling around $40k on etfs UPRO and TQQQ. Right now in my taxable accounts I have $870k in etf SCHD and the rest in UPRO and TQQQ, and cash.
In my Roth IRA I am using PSLDX to add leverage by owning 100% in S&P 500 and 100% in long term bonds. That fund has been getting wrecked with declines in equities and bonds at the same time. I look at it as a good thing as it may increase my long term returns.
I also have PSLDX and NTSX.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
bgf wrote: ↑Fri May 27, 2022 6:36 amFor much of this year TMF and UPRO were going down, but it seems to me like over the last 2-3 weeks TMF has been stepping in and doing it’s job when UPRO was going down. If you aren’t rebalancing with TMF I’d recommend it, even if you think we’ve hit bottom.jh wrote: ↑Fri May 27, 2022 12:07 am I never did make it more than a few pages into this thread, but I see it is getting commented on again.
IMHO, now is a good time to start leveraging up. I started buying 3x leveraged S&P 500 and Nasdaq 100 once the S&P 500 got to around -20% and Nasdaq around -30%.
Very recently I feel like we hit a bottom. Not that new information can't come out and drive everything down more.
What made me feel like we were reaching a bottom was when I started to see small-cap nasdaq stocks finally catch a bid. Stocks like SoFi, and Palantir. They hit a bottom around May 24-25. Not that they have sky rocketed, but they did seem to finally hit their low points.
Anyway, I am gambling around $40k on etfs UPRO and TQQQ. Right now in my taxable accounts I have $870k in etf SCHD and the rest in UPRO and TQQQ, and cash.
In my Roth IRA I am using PSLDX to add leverage by owning 100% in S&P 500 and 100% in long term bonds. That fund has been getting wrecked with declines in equities and bonds at the same time. I look at it as a good thing as it may increase my long term returns.
I also have PSLDX and NTSX.
I don't actually own TMF. I own SCHD which is a dividend growth focused ETF which I use for generating income. It is my "bond fund" I guess. I am retiring this year and I will be living off of the income from SCHD.
Retired in 2022 at the age of 46. Living off of dividends.
-
- Posts: 1050
- Joined: Mon Jan 28, 2019 2:38 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
The basic idea of leveraging up a total market stock and bond portfolio has been in the economic literature for a long time. For example, you can see the standard textbook conclusion that, under a variety of simplified assumption, some investors should hold this kind of leveraged portfolio in Sharpe's 1964 capital asset pricing model (CAPM) paper. See page 433-435 and Figure 5. I would guess the idea is much older than that too.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
Global Market Portfolio + modest tilt towards volatility (80/20->60/40 as approach FI) + modest tilt away from exchange rate risk (80% global+20% U.S. stocks; currency-hedge bonds) + tax optimization
-
- Posts: 59
- Joined: Fri Jan 01, 2021 4:25 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
TQQQ up over 9% today. Lets go! UPRO almost 7%
-
- Posts: 224
- Joined: Sat Apr 25, 2020 8:28 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
That's fascinating.HootingSloth wrote: ↑Fri May 27, 2022 9:52 amThe basic idea of leveraging up a total market stock and bond portfolio has been in the economic literature for a long time. For example, you can see the standard textbook conclusion that, under a variety of simplified assumption, some investors should hold this kind of leveraged portfolio in Sharpe's 1964 capital asset pricing model (CAPM) paper. See page 433-435 and Figure 5. I would guess the idea is much older than that too.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
Jeez, there really was information asymmetry back then - I suppose most investors back then weren't reading research papers. I can't imagine stumbling onto a paper like that as a layman until the invention of the internet.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Library's and microfiche for those that wanted to research specific topics. Or just subscriptions to papers and magazines/journals for those that wanted to browse with general interests.
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
How does TMF play out historically if we do see deflation? Do all treasury funds usually act the same as crisis alpha STT, ITT and LTT? I.e. is levered ITT with matched duration to LTT about equal?
-
- Posts: 2377
- Joined: Sat Mar 21, 2020 10:56 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
If it's duration matched, historically you have seen a larger bump from ITT than LTT I think, simply because they are somewhat more volatile and have higher yield per unit of duration most of the time.hiddenpower wrote: ↑Sat May 28, 2022 12:08 pm How does TMF play out historically if we do see deflation? Do all treasury funds usually act the same as crisis alpha STT, ITT and LTT? I.e. is levered ITT with matched duration to LTT about equal?
This was certainly true in 2008. ITT returned 13% by the end of 2008, vs 8% for duration matched LTT + cash invested at cash savings rate. By the end of 2012 ITT had returned 34% vs 18% for duration matched LTT.
However, the higher volatility might mean you don't want to duration match. If you volatility and duration match it's going to be very similar.
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
In a deflationary regime/crisis, STT should beat ITT and LTT when levered to match the respective durations. In such a scenario, the performance would be: STT>ITT>LTT.hiddenpower wrote: ↑Sat May 28, 2022 12:08 pm How does TMF play out historically if we do see deflation? Do all treasury funds usually act the same as crisis alpha STT, ITT and LTT? I.e. is levered ITT with matched duration to LTT about equal?
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Did this outperformance have anything to do with rates mostly decreasing? As in would ITTs do worse in a rising rate environment compared to equal duration LTTs?skierincolorado wrote: ↑Sat May 28, 2022 2:46 pmThis was certainly true in 2008. ITT returned 13% by the end of 2008, vs 8% for duration matched LTT + cash invested at cash savings rate. By the end of 2012 ITT had returned 34% vs 18% for duration matched LTT.hiddenpower wrote: ↑Sat May 28, 2022 12:08 pm How does TMF play out historically if we do see deflation? Do all treasury funds usually act the same as crisis alpha STT, ITT and LTT? I.e. is levered ITT with matched duration to LTT about equal?
But they all tend to do "well" in a deflationary environment even if it's all been offset from rising rates and inflation?unemployed_pysicist wrote: ↑Sat May 28, 2022 2:50 pm In a deflationary regime/crisis, STT should beat ITT and LTT when levered to match the respective durations. In such a scenario, the performance would be: STT>ITT>LTT.
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
They all tend to do well in a deflationary environment, yes. Even in the inflationary 1970s, there was a significant bond rally following the 1973-1975 stagflation recession.
LTTs tend to do better than ITTs and STTs in a rising rate environment on a duration adjusted basis, like they did in 1994 and also this time.
LTTs tend to do better than ITTs and STTs in a rising rate environment on a duration adjusted basis, like they did in 1994 and also this time.
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Ok so it sounds to me now that duration is the most important thing on the bond side? I guess I don't quite get the hate for TMF then if you can just use less of it.unemployed_pysicist wrote: ↑Sat May 28, 2022 5:41 pm They all tend to do well in a deflationary environment, yes. Even in the inflationary 1970s, there was a significant bond rally following the 1973-1975 stagflation recession.
LTTs tend to do better than ITTs and STTs in a rising rate environment on a duration adjusted basis, like they did in 1994 and also this time.
-
- Posts: 2678
- Joined: Sun Sep 12, 2021 4:23 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
The insights from that paper have been included in standard college level finance textbooks for decades.DarkMatter731 wrote: ↑Sat May 28, 2022 5:07 amThat's fascinating.HootingSloth wrote: ↑Fri May 27, 2022 9:52 amThe basic idea of leveraging up a total market stock and bond portfolio has been in the economic literature for a long time. For example, you can see the standard textbook conclusion that, under a variety of simplified assumption, some investors should hold this kind of leveraged portfolio in Sharpe's 1964 capital asset pricing model (CAPM) paper. See page 433-435 and Figure 5. I would guess the idea is much older than that too.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
Jeez, there really was information asymmetry back then - I suppose most investors back then weren't reading research papers. I can't imagine stumbling onto a paper like that as a layman until the invention of the internet.
Only on Bogleheads do you find a bunch of engineering-types thinking they know all there is to know about investing just by reading Bogleheads and without taking any formal academic training. Wonder how they would feel about laymen doing the same in their fields?
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
As an engineer with no formal finance training who did indeed think that books taught me everything, the approach is the same. You start slow and patiently teach them where the theory breaks down.
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
They do. It’s called bootcamps. And some of them make excellent engineersCletusCaddy wrote: ↑Sun May 29, 2022 6:00 pmThe insights from that paper have been included in standard college level finance textbooks for decades.DarkMatter731 wrote: ↑Sat May 28, 2022 5:07 amThat's fascinating.HootingSloth wrote: ↑Fri May 27, 2022 9:52 amThe basic idea of leveraging up a total market stock and bond portfolio has been in the economic literature for a long time. For example, you can see the standard textbook conclusion that, under a variety of simplified assumption, some investors should hold this kind of leveraged portfolio in Sharpe's 1964 capital asset pricing model (CAPM) paper. See page 433-435 and Figure 5. I would guess the idea is much older than that too.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
Jeez, there really was information asymmetry back then - I suppose most investors back then weren't reading research papers. I can't imagine stumbling onto a paper like that as a layman until the invention of the internet.
Only on Bogleheads do you find a bunch of engineering-types thinking they know all there is to know about investing just by reading Bogleheads and without taking any formal academic training. Wonder how they would feel about laymen doing the same in their fields?
-
- Posts: 224
- Joined: Sat Apr 25, 2020 8:28 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
1) You misunderstood my point.CletusCaddy wrote: ↑Sun May 29, 2022 6:00 pmThe insights from that paper have been included in standard college level finance textbooks for decades.DarkMatter731 wrote: ↑Sat May 28, 2022 5:07 amThat's fascinating.HootingSloth wrote: ↑Fri May 27, 2022 9:52 amThe basic idea of leveraging up a total market stock and bond portfolio has been in the economic literature for a long time. For example, you can see the standard textbook conclusion that, under a variety of simplified assumption, some investors should hold this kind of leveraged portfolio in Sharpe's 1964 capital asset pricing model (CAPM) paper. See page 433-435 and Figure 5. I would guess the idea is much older than that too.DarkMatter731 wrote: ↑Thu May 26, 2022 8:51 pmI mean he definitely popularised it but it was around on the Quantopian forums for like a decade before he first made a thread on the forum.OohLaLa wrote: ↑Wed May 25, 2022 12:54 pm Sure, leveraging a standard portfolio has already been discussed a long time ago. Heck, even using LETFs is not brand new since 2019. We'd have to be in some deep denial, though, to state that these threads he started have not had a big impact on the popularity of this specific approach.
I know it's still a very niche strategy, but whenever you see more mainstream discussions of LETFs used like this (ex: on Reddit), you end up seeing Hedgefundie and Bogleheads pop up a lot.
He most definitely did not "create" it but simply got very knowledgeable Bogleheads interested and involved in peeking under the hood. I believe the long-winded debates and analysis here are part of its success. I sure know that these threads helped me learn a whole lot, and gave me more confidence to keep putting significant money into this.
And leveraging up stocks and bonds was talked about in the 1980s and 1990s in the economic literature + research papers I found.
Jeez, there really was information asymmetry back then - I suppose most investors back then weren't reading research papers. I can't imagine stumbling onto a paper like that as a layman until the invention of the internet.
Only on Bogleheads do you find a bunch of engineering-types thinking they know all there is to know about investing just by reading Bogleheads and without taking any formal academic training. Wonder how they would feel about laymen doing the same in their fields?
2) The average person would not be reading a financial textbook. A layman wouldn't be able to stumble upon it like today.
3) My degree was in Economics from a very good university.
4) I'm in my early 20s so I was just remarking at how the internet has helped me, a layman who took one finance module in college and that's it. I don't read financial textbooks in my spare time -> the firm I work at is paying for the CFA so I suppose I'll have to start studying for that.
Also, I'm not sure why you sound so aggrieved.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Please stay on-topic.
-
- Posts: 224
- Joined: Sat Apr 25, 2020 8:28 am
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Using Siamond's data I started writing some code to test out HFEA in the 70s. Did I do something gravely wrong because I'm getting completely different results from what's been floating around. In mine, HFEA is holding up with S&P500
Famous inflation backtest.
My backtest.
Famous inflation backtest.
My backtest.
- randyharris
- Posts: 175
- Joined: Wed Mar 18, 2020 7:45 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
@hiddenpower
fwiw, here's what I have from 1980 through today.
https://dualmomentumsystems.com/resourc ... 220602.pdf
fwiw, here's what I have from 1980 through today.
https://dualmomentumsystems.com/resourc ... 220602.pdf
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
This is a really cool deck. Any reason you haven't tested the 70s/80s with some of the simulated data going back that far on BH? I'm particularly interested in sanity checking this time period due to the current climate.randyharris wrote: ↑Thu Jun 02, 2022 7:55 pm @hiddenpower
fwiw, here's what I have from 1980 through today.
https://dualmomentumsystems.com/resourc ... 220602.pdf
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Nope, never gonna happen.DarkMatter731 wrote: ↑Mon May 30, 2022 6:12 amApologies.
On a side note, maybe TMF will finally start working as a hedge again one of these days...
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
What are the start and end dates in your chart? Is it possible to put into log plot?hiddenpower wrote: ↑Thu Jun 02, 2022 7:09 pm Using Siamond's data I started writing some code to test out HFEA in the 70s. Did I do something gravely wrong because I'm getting completely different results from what's been floating around. In mine, HFEA is holding up with S&P500
Famous inflation backtest.
My backtest.
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
- randyharris
- Posts: 175
- Joined: Wed Mar 18, 2020 7:45 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I use monthly data and don’t have it back before 1980hiddenpower wrote: ↑Fri Jun 03, 2022 9:36 amThis is a really cool deck. Any reason you haven't tested the 70s/80s with some of the simulated data going back that far on BH? I'm particularly interested in sanity checking this time period due to the current climate.randyharris wrote: ↑Thu Jun 02, 2022 7:55 pm @hiddenpower
fwiw, here's what I have from 1980 through today.
https://dualmomentumsystems.com/resourc ... 220602.pdf
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
It's normalized to whatever start date appears on the left in the viewport.unemployed_pysicist wrote: ↑Fri Jun 03, 2022 2:39 pmWhat are the start and end dates in your chart? Is it possible to put into log plot?hiddenpower wrote: ↑Thu Jun 02, 2022 7:09 pm Using Siamond's data I started writing some code to test out HFEA in the 70s. Did I do something gravely wrong because I'm getting completely different results from what's been floating around. In mine, HFEA is holding up with S&P500
OG backtest
logarithmic all-time
logarithmic same time-frame
Thanks if anyone can help! I imagine others have run this experiment
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
The UPRO and HFEA returns in these plots seem a bit large.hiddenpower wrote: ↑Fri Jun 03, 2022 3:23 pmIt's normalized to whatever start date appears on the left in the viewport.unemployed_pysicist wrote: ↑Fri Jun 03, 2022 2:39 pmWhat are the start and end dates in your chart? Is it possible to put into log plot?hiddenpower wrote: ↑Thu Jun 02, 2022 7:09 pm Using Siamond's data I started writing some code to test out HFEA in the 70s. Did I do something gravely wrong because I'm getting completely different results from what's been floating around. In mine, HFEA is holding up with S&P500
OG backtest
logarithmic all-time
logarithmic same time-frame
Thanks if anyone can help! I imagine others have run this experiment
*Also, is the "OG Backtest" shown above a HFEA portfolio, or just UPRO during that period? It looks like it might be UPRO by itself. I remember the 1955-1982 UPRO plot looking similar.
*Indeed, the "OG Backtest" plot is the HFEA portfolio, as discussed in more detail here:
viewtopic.php?t=272007&start=1050
I do not have the URPO/TMF sims, but here is a quick result using a monthly rolled 20 year OTR bond in place of a bond index (no rolldown yield is assumed). The leveraged portfolios are leveraged at 3 month treasury bills and rebalanced monthly with 165% SP500 and 135% 20 year bond, much like what you might do in Portfolio Visualizer. I included a portfolio that uses a rolled 5 year OTR note that is levered to the same modified duration as the 20 year bond for comparison. A simple linear interpolation is used for the rolldown yield.
I see both LTT and ITT style HFEA portfolios underperforming the SP for the 1955-1982 time period. Because all assets in this plot are leveraged at the 3 month Tbill rate with no additional financing spread and the rebalancing is monthly instead of daily, these results overstate the actual returns as compared to a true 55 UPRO/45 TMF simulation.
1965-1975 Looks absolutely miserable for the HFEA-style portfolios.
Hopefully someone can chime in with UPRO/TMF sim to offer a more direct comparison to your plots.
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Wasn't the original back test the 40/60 UPRO/TMF allocation? AFAIK no one's publicly tested 55/45 or 60/40 through back testing the 1970s-1980s. Also your backtest ends at 1974. AFAIK HFEA doesn't get really bad until 78+hiddenpower wrote: ↑Thu Jun 02, 2022 7:09 pm Using Siamond's data I started writing some code to test out HFEA in the 70s. Did I do something gravely wrong because I'm getting completely different results from what's been floating around. In mine, HFEA is holding up with S&P500
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Hello, first time poster desperately trying to figure out the true risk of this strategy. Could you do me a huge favor and run this same data comparison, but apply a monthly contribution equivalent to 2% of the principal? (i.e. begin with $100,000 and contribute $2000 monthly)unemployed_pysicist wrote: ↑Fri Jun 03, 2022 4:15 pm
I do not have the URPO/TMF sims, but here is a quick result using a monthly rolled 20 year OTR bond in place of a bond index (no rolldown yield is assumed). The leveraged portfolios are leveraged at 3 month treasury bills and rebalanced monthly with 165% SP500 and 135% 20 year bond, much like what you might do in Portfolio Visualizer. I included a portfolio that uses a rolled 5 year OTR note that is levered to the same modified duration as the 20 year bond for comparison. A simple linear interpolation is used for the rolldown yield.
I see both LTT and ITT style HFEA portfolios underperforming the SP for the 1955-1982 time period. Because all assets in this plot are leveraged at the 3 month Tbill rate with no additional financing spread and the rebalancing is monthly instead of daily, these results overstate the actual returns as compared to a true 55 UPRO/45 TMF simulation.
1965-1975 Looks absolutely miserable for the HFEA-style portfolios.
Hopefully someone can chime in with UPRO/TMF sim to offer a more direct comparison to your plots.
Apologies if a similar strategy was posted before, but even if you invested in URE (2x REIT) on August 1st 2008 right before the housing bubble, monthly contributions equal to 2% of initial principal would recover your principal in 1.5~ years. Continuing these contributions allows URE to catch up to and at least match VGSLX within 5 years: https://www.portfoliovisualizer.com/bac ... ymbol4=SPY
But REITs have unfavorable volatility for LETFs... if you do the same comparison using SSO (2x SP500) vs. SPY on August 2008, you recover your principal investment in 1~ year, match SPY's results in 2.5 years, and receive double SPY's returns by today's date as long as you keep contributing 2% of the initial principal monthly: https://www.portfoliovisualizer.com/bac ... ion4_2=100
For all the legitimate caution and concern surrounding 3x LETFs, the above examples make me believe that a modest, constant contribution makes 2x LETFs almost completely safe. I am looking to be convinced otherwise, and would be very grateful to see (or be linked to) an instance of simulated HFEA surviving a period as difficult as 2008 (or the 50s-70s) with a 2% principal monthly contribution.
Thank you.
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I was missing the inclusion LIBOR costs. By using this, everything aligned more. I tried out DCA-ing and that caused the underperformance to be less bad, but it is still susceptible to sequence of return risk. If the bad times happen 15 years in, DCA will have less impact relative to account size
Last edited by hiddenpower on Wed Jun 08, 2022 3:21 pm, edited 1 time in total.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
3x LETF's and this strategy could very well go for broke and you could end up with nothing. This is nowhere near "completely safe".LazyOverthinker wrote: ↑Wed Jun 08, 2022 5:40 am
Hello, first time poster desperately trying to figure out the true risk of this strategy.
For all the legitimate caution and concern surrounding 3x LETFs, the above examples make me believe that a modest, constant contribution makes 2x LETFs almost completely safe.
Not to mention the volatility of this strategy, seeing your value go from say $100k to $1k (90% crash) is totally expected. If this is all of your retirement money, and you see it all basically evaporate almost overnight, how will you handle that?
Most people can't handle that volatility, no matter what they say beforehand. If you didn't live through the last big crash(2008/9) then go back and read the many, many posts and experiences of investors panicking and selling out at the bottom. And that was from people that "only" lost 50% or so of their retirement savings. Imagine a 90% loss. I promise another big crash will happen, the question is not if, but when. It might start tomorrow, or it might be 20+ years from now.
I have some money in this adventure. If I lost the money I have in this adventure, it wouldn't affect me being able to put yummies in my tummy or have a safe warm place to sleep, even in retirement.
2X and 3X LETF's are not "almost completely safe" by any definition. That doesn't make them a terrible or even bad investment. But the risks exist and are real.
Whether rich or poor, a young woman should know how a bank account works, understand the composition of mortgages and bonds, and know the value of interest and how it accumulates. -Hetty Green
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Hi, thanks for your response. No investment is "literally" completely safe. By "almost" completely safe, I meant to imply that it's not that much riskier than the underlying asset itself (SPY). Also, $100K to $1K would be a 99% drawdown, not 90%, although I acknowledge that's possible for HFEA.
Check my PV links again - 100% SPY had a 42% drawdown, and SSO had 72% drawdown. However, if you contributed 2% of principal monthly, the drawdowns would have been 32.5% and 64.26% respectively. Assuming our hypothetical investor is in their 20s, has the risk tolerance for 100% stocks (or more via LifeCycle strategy), and has the human capital + emergency funds for living expenses, the functional risk (not being able to withdraw during downturns) seems comparable between SPY and SSO. Would you agree?
If I am not missing something in the above, I would still like to see how HFEA's worst drawdown periods are impacted by 2% principal contributions. If the only real risk is behavioral ("you might sell"), I am prepared to only put into HFEA a portion of my current income for at least 10~ years that I am okay with evaporating, especially if my above assumptions aren't missing something.
Thanks.
EDIT: My drawdown numbers were wrong, based on another test I ran
Check my PV links again - 100% SPY had a 42% drawdown, and SSO had 72% drawdown. However, if you contributed 2% of principal monthly, the drawdowns would have been 32.5% and 64.26% respectively. Assuming our hypothetical investor is in their 20s, has the risk tolerance for 100% stocks (or more via LifeCycle strategy), and has the human capital + emergency funds for living expenses, the functional risk (not being able to withdraw during downturns) seems comparable between SPY and SSO. Would you agree?
If I am not missing something in the above, I would still like to see how HFEA's worst drawdown periods are impacted by 2% principal contributions. If the only real risk is behavioral ("you might sell"), I am prepared to only put into HFEA a portion of my current income for at least 10~ years that I am okay with evaporating, especially if my above assumptions aren't missing something.
Thanks.
EDIT: My drawdown numbers were wrong, based on another test I ran
Last edited by LazyOverthinker on Wed Jun 08, 2022 2:59 pm, edited 1 time in total.
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Hi hiddenpower, you've got me curious. Did you DCA 2% of the initial principal monthly? How badly does it still underperform by? Great point that the fund is still affected by a just-before-withdrawal crash, but the same could be said about investing in TLT 20 years before retirement. Sometimes you have to stay invested a little longer than plannedhiddenpower wrote: ↑Wed Jun 08, 2022 6:15 am I was missing the inclusion LIBOR costs. By using this, everything aligned more. I tried out DCA-being and that caused the underperformance to be less bad, but it is still susceptible to sequence of return risk. If the bad times happen 15 years in, DCA will have less impact relative to account size
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I can make this comparison for you, but I must stress again that the plots are optimistic as compared to an actual 55 UPRO/45 TMF strategy.LazyOverthinker wrote: ↑Wed Jun 08, 2022 5:40 am
Hello, first time poster desperately trying to figure out the true risk of this strategy. Could you do me a huge favor and run this same data comparison, but apply a monthly contribution equivalent to 2% of the principal? (i.e. begin with $100,000 and contribute $2000 monthly)
Here is the first plot, redone by adding 2% of the starting portfolio value every month (start with $100,000 and contribute $2000 monthly.) Start date is 1955-January and end date is 1981-December.
And the second plot, adding 2% of the starting portfolio value every month from 1965-January to 1975-December:
The Sharpe ratio and standard deviation are not correct in both plots; it's like you are just adding $2000 every month for free. I did not bother to remove it from the plots or adjust the calculations properly for adding new contributions.
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Couple comparisons starting at a bad time (1968). $1k initial, $250 quarterly.
55/45 without DCA
55/45 with DCA
55/45 without DCA
55/45 with DCA
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Fascinating results, thank you! Over such a long period you would end up contributing 624% of the initial principal... so, $724,000 total principal by the end, only to seemingly match the initial $100K of the SP500 (it appears you did not also grant $2k a month to the SP500 in this sim - correct?). If this is accurate (and the SP500 data here did not receive monthly contributions), then I will take this warning to heart that a monthly contribution would not save HFEA's risk/return ratio through its doomsday scenario. I've read that this period is unique and won't happen with "post-Volcker" fed inflation-target policies, but I feel like I'd need a Bachelors in economics to understand the veracity of that claim. If anyone could direct me to a good book/documentary/article to start my research path about the post-Volcker fed's managed-economy policy, I'd be most grateful.unemployed_pysicist wrote: ↑Wed Jun 08, 2022 3:16 pmHere is the first plot, redone by adding 2% of the starting portfolio value every month (start with $100,000 and contribute $2000 monthly.) Start date is 1955-January and end date is 1981-December.LazyOverthinker wrote: ↑Wed Jun 08, 2022 5:40 am
Hello, first time poster desperately trying to figure out the true risk of this strategy. Could you do me a huge favor and run this same data comparison, but apply a monthly contribution equivalent to 2% of the principal? (i.e. begin with $100,000 and contribute $2000 monthly)
And the second plot, adding 2% of the starting portfolio value every month from 1965-January to 1975-December:
The Sharpe ratio and standard deviation are not correct in both plots; it's like you are just adding $2000 every month for free. I did not bother to remove it from the plots or adjust the calculations properly for adding new contributions.
Lastly, and I apologize for asking more of your time, can your simulation easily be re-run with 2x leverage instead? I'm deathly curious if a SSO/UBT portfolio would have dodged the worst effects of volatility decay. This paper gets passed around claiming that 2x leverage is often optimal, and I can't think of a better stress test than this data period http://ddnum.com/articles/leveragedETFs.php
If you were to run a sim comparing 2% contribution SSO/UBT vs. 2% contribution SP500, I think I would have every burning question answered at once.
Last edited by LazyOverthinker on Wed Jun 08, 2022 5:27 pm, edited 1 time in total.
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Wow, this really helps to illustrate that the strategy relies on the portfolio experiencing at least one, unanimously-agreed-upon bull-run. What an awful 25-year stretch to wait for one! Thank you for the graphshiddenpower wrote: ↑Wed Jun 08, 2022 3:28 pm Couple comparisons starting at a bad time (1968). $1k initial, $250 quarterly.
55/45 without DCA
55/45 with DCA
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
You labeled them backwards.hiddenpower wrote: ↑Wed Jun 08, 2022 3:28 pm Couple comparisons starting at a bad time (1968). $1k initial, $250 quarterly.
55/45 without DCA
55/45 with DCA
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
You are correct, I did not add $2k a month to the SP500. So after ~25 years, adding $2k/month to the HFEA-style portfolios had about the same growth as the lump sum $100,000 investment into the SP500.LazyOverthinker wrote: ↑Wed Jun 08, 2022 5:17 pm
Fascinating results, thank you! Over such a long period you would end up contributing 624% of the initial principal... so, $724,000 total principal by the end, only to seemingly match the initial $100K of the SP500 (it appears you did not also grant $2k a month to the SP500 in this sim - correct?). If this is accurate (and the SP500 data here did not receive monthly contributions), then I will take this warning to heart that a monthly contribution would not save HFEA's risk/return ratio through its doomsday scenario. I've read that this period is unique and won't happen with "post-Volcker" fed inflation-target policies, but I feel like I'd need a Bachelors in economics to understand the veracity of that claim. If anyone could direct me to a good book/documentary/article to start my research path about the post-Volcker fed's managed-economy policy, I'd be most grateful.
Lastly, and I apologize for asking more of your time, can your simulation easily be re-run with 2x leverage instead? I'm deathly curious if a SSO/UBT portfolio would have dodged the worst effects of volatility decay. This paper gets passed around claiming that 2x leverage is often optimal, and I can't think of a better stress test than this data period http://ddnum.com/articles/leveragedETFs.php
If you were to run a sim comparing 2% contribution SSO/UBT vs. 2% contribution SP500, I think I would have every burning question answered at once.
Here are the backtests over the same period, rerun with initial lump sum $100,000 and additional $2k/month contributions, monthly rebalance, leverage at the T bill rate, but at 2x leverage instead. As before, the Sharpe ratios for the HFEA-style plots here are not accurate.
1955-Jan to 1982-Dec:
1965-Jan to 1975-Dec:
Again, the performance of the HFEA-style portfolios show above is overstated as compared to actual 55 UPRO/45 TMF. It looks like hiddenpower's 55 UPRO/45 TMF simulated portfolio grows less than the portfolio plots I have shown due to higher cost of leverage and daily rebalance, as expected.
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
This has helped me so much, thank you! Seeing how much 3x LETFs can get crushed, along with seeing enough data sets where a 2x SP500 LETF like SSO simply matches the SP500's performance for many years, has convinced me that LETFs simply aren't the best vehicles for leverage. This last decade of smooth bull-run has been a disaster for realistically appraising LETFs...unemployed_pysicist wrote: ↑Thu Jun 09, 2022 3:15 pm
Here are the backtests over the same period, rerun with initial lump sum $100,000 and additional $2k/month contributions, monthly rebalance, leverage at the T bill rate, but at 2x leverage instead. As before, the Sharpe ratios for the HFEA-style plots here are not accurate.
1955-Jan to 1982-Dec:
1965-Jan to 1975-Dec:
Again, the performance of the HFEA-style portfolios show above is overstated as compared to actual 55 UPRO/45 TMF. It looks like hiddenpower's 55 UPRO/45 TMF simulated portfolio grows less than the portfolio plots I have shown due to higher cost of leverage and daily rebalance, as expected.
No matter how much I torture the data for SSO, ULPIX, and their risk-parity counterparts, it always ends up similar to this like this: https://www.portfoliovisualizer.com/bac ... bol4=CASHX
The 2x LETF portfolio always tracks the 1x versions until suddenly, voila, 2012 comes along and saves every LETF porfolio. Using ULPIX is a little unfair because its ER is almost double SSOs, but trust me that every SSO portfolio tracks 1x until 2012 magically saves it.
Personally, I've decided that a modified Golden Butterfly portfolio diversified 7-ways with 0.75x margin is much more appealing. I may or may not go forward with the margin, but it makes so much more sense than the complications of LETFs and approaches Efficient Frontier theory much better.
This has been so educational, thank you to all Boglehead contributors!
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
first off, you don't want to use rebalance annually, you need rebalance quarterlyLazyOverthinker wrote: ↑Fri Jun 10, 2022 7:12 pmThis has helped me so much, thank you! Seeing how much 3x LETFs can get crushed, along with seeing enough data sets where a 2x SP500 LETF like SSO simply matches the SP500's performance for many years, has convinced me that LETFs simply aren't the best vehicles for leverage. This last decade of smooth bull-run has been a disaster for realistically appraising LETFs...unemployed_pysicist wrote: ↑Thu Jun 09, 2022 3:15 pm
Here are the backtests over the same period, rerun with initial lump sum $100,000 and additional $2k/month contributions, monthly rebalance, leverage at the T bill rate, but at 2x leverage instead. As before, the Sharpe ratios for the HFEA-style plots here are not accurate.
1955-Jan to 1982-Dec:
1965-Jan to 1975-Dec:
Again, the performance of the HFEA-style portfolios show above is overstated as compared to actual 55 UPRO/45 TMF. It looks like hiddenpower's 55 UPRO/45 TMF simulated portfolio grows less than the portfolio plots I have shown due to higher cost of leverage and daily rebalance, as expected.
No matter how much I torture the data for SSO, ULPIX, and their risk-parity counterparts, it always ends up similar to this like this: https://www.portfoliovisualizer.com/bac ... bol4=CASHX
The 2x LETF portfolio always tracks the 1x versions until suddenly, voila, 2012 comes along and saves every LETF porfolio. Using ULPIX is a little unfair because its ER is almost double SSOs, but trust me that every SSO portfolio tracks 1x until 2012 magically saves it.
Personally, I've decided that a modified Golden Butterfly portfolio diversified 7-ways with 0.75x margin is much more appealing. I may or may not go forward with the margin, but it makes so much more sense than the complications of LETFs and approaches Efficient Frontier theory much better.
This has been so educational, thank you to all Boglehead contributors!
second off, you don't want to use the random ultrabull fund. you want to use VFINX with 200% leverage and 3% debt.
-
- Posts: 133
- Joined: Wed Jun 08, 2022 5:03 am
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
Acknowledged - I only use the ULPIX fund when I want real data on the dotcom bubble + 2008. I would often try to give it back some edge by being lenient elsewhere in the portfolio but... I acknowledge I'm not an advanced backtester. Although, 200% VFINX - 3% debt just sounds like margin to me, I believe LETFs are more complicated/risky than that.
- hiddenpower
- Posts: 564
- Joined: Tue Nov 17, 2020 11:24 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
My takeaway: timing matters.BayoMoon wrote: ↑Fri Jun 10, 2022 7:34 pmfirst off, you don't want to use rebalance annually, you need rebalance quarterlyLazyOverthinker wrote: ↑Fri Jun 10, 2022 7:12 pmThis has helped me so much, thank you! Seeing how much 3x LETFs can get crushed, along with seeing enough data sets where a 2x SP500 LETF like SSO simply matches the SP500's performance for many years, has convinced me that LETFs simply aren't the best vehicles for leverage. This last decade of smooth bull-run has been a disaster for realistically appraising LETFs...unemployed_pysicist wrote: ↑Thu Jun 09, 2022 3:15 pm
Here are the backtests over the same period, rerun with initial lump sum $100,000 and additional $2k/month contributions, monthly rebalance, leverage at the T bill rate, but at 2x leverage instead. As before, the Sharpe ratios for the HFEA-style plots here are not accurate.
1955-Jan to 1982-Dec:
1965-Jan to 1975-Dec:
Again, the performance of the HFEA-style portfolios show above is overstated as compared to actual 55 UPRO/45 TMF. It looks like hiddenpower's 55 UPRO/45 TMF simulated portfolio grows less than the portfolio plots I have shown due to higher cost of leverage and daily rebalance, as expected.
No matter how much I torture the data for SSO, ULPIX, and their risk-parity counterparts, it always ends up similar to this like this: https://www.portfoliovisualizer.com/bac ... bol4=CASHX
The 2x LETF portfolio always tracks the 1x versions until suddenly, voila, 2012 comes along and saves every LETF porfolio. Using ULPIX is a little unfair because its ER is almost double SSOs, but trust me that every SSO portfolio tracks 1x until 2012 magically saves it.
Personally, I've decided that a modified Golden Butterfly portfolio diversified 7-ways with 0.75x margin is much more appealing. I may or may not go forward with the margin, but it makes so much more sense than the complications of LETFs and approaches Efficient Frontier theory much better.
This has been so educational, thank you to all Boglehead contributors!
second off, you don't want to use the random ultrabull fund. you want to use VFINX with 200% leverage and 3% debt.
-
- Posts: 220
- Joined: Sat Oct 09, 2021 2:32 pm
- Location: Amsterdam
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
No problem. Your questions were straightforward to address with my existing backtesting script, so it was no trouble.
Cheers!
couldn't afford the h |
|
BUY BONDS |
WEAR DIAMONDS
-
- Posts: 3565
- Joined: Fri Aug 06, 2010 3:42 pm
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
How things have changed from the glory days of UPRO and TMF when huge excess returns were generated without significant risk. It looked like a sure and amazingly safe shortcut to great wealth. I guess that by now it's clear to all that leverage is a double edged sword. It can produce dramatic outperformance or dramatic underperformance. Prospectively predicting which one will occur in the near/intermediate term future is more a guess than a science. Backtesting their short histories as a guide to the future looked great until it didn't.
Anyone who uses leverage or margin loans for a sufficiently long time will at some point encounter their downside which usually happens at precisely the wrong time. I suppose there are a few highly skilled investors who can on balance succeed with leverage to produce long term outperformance in a risk adjusted manner. I learned the hard way in the tech bubble collapse that I am not one of them and have avoided it since. For most of us the market portfolio itself provides a sufficient fear/reward tradeoff without magnification.
Garland Whizzer
Anyone who uses leverage or margin loans for a sufficiently long time will at some point encounter their downside which usually happens at precisely the wrong time. I suppose there are a few highly skilled investors who can on balance succeed with leverage to produce long term outperformance in a risk adjusted manner. I learned the hard way in the tech bubble collapse that I am not one of them and have avoided it since. For most of us the market portfolio itself provides a sufficient fear/reward tradeoff without magnification.
Garland Whizzer
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
I'm more and more convinced that investing in leveraged funds really benefits from continual maintenance of the risk allocation rather than continual maintenance of the asset allocation. The difference is minimal during calm and trending markets but can be quite different in times of crisis or market regime changes.garlandwhizzer wrote: ↑Sat Jun 11, 2022 8:48 pm How things have changed from the glory days of UPRO and TMF when huge excess returns were generated without significant risk. It looked like a sure and amazingly safe shortcut to great wealth. I guess that by now it's clear to all that leverage is a double edged sword. It can produce dramatic outperformance or dramatic underperformance. Prospectively predicting which one will occur in the near/intermediate term future is more a guess than a science. Backtesting their short histories as a guide to the future looked great until it didn't.
Anyone who uses leverage or margin loans for a sufficiently long time will at some point encounter their downside which usually happens at precisely the wrong time. I suppose there are a few highly skilled investors who can on balance succeed with leverage to produce long term outperformance in a risk adjusted manner. I learned the hard way in the tech bubble collapse that I am not one of them and have avoided it since. For most of us the market portfolio itself provides a sufficient fear/reward tradeoff without magnification.
Garland Whizzer
Backtests show the benefit of adjusting asset allocations to maintain desired risk budgets during crashes, but for the last 40 years TMF alone was adequate for this purpose. The last few months have really opened my eyes to the utility of rotating between asset classes as a way to enhance diversification.
I suppose I'm thankful for the education...
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
This just doesn't hold up to scrutiny. Bogleheads trust passive indexes because historical data shows that they beat most alternative strategies over the long-term. Academics made the observation that leveraging passive index funds over a long-term outperform passive indexes based on the same data sets that validates the Boglehead viewpoint. Both statements can be true.garlandwhizzer wrote: ↑Sat Jun 11, 2022 8:48 pm How things have changed from the glory days of UPRO and TMF when huge excess returns were generated without significant risk. It looked like a sure and amazingly safe shortcut to great wealth. I guess that by now it's clear to all that leverage is a double edged sword. It can produce dramatic outperformance or dramatic underperformance. Prospectively predicting which one will occur in the near/intermediate term future is more a guess than a science. Backtesting their short histories as a guide to the future looked great until it didn't.
Anyone who uses leverage or margin loans for a sufficiently long time will at some point encounter their downside which usually happens at precisely the wrong time. I suppose there are a few highly skilled investors who can on balance succeed with leverage to produce long term outperformance in a risk adjusted manner. I learned the hard way in the tech bubble collapse that I am not one of them and have avoided it since. For most of us the market portfolio itself provides a sufficient fear/reward tradeoff without magnification.
Garland Whizzer
Literally anyone who has a mortgage AND stocks is using leverage to invest in the stock market. I would perhaps speculate that the entire market is defined by such leveraged approaches since there are millions of people with mortgages and 401ks. You might dislike HF's approach but leverage is ubiquitous and is the vehicle through which most people save enough to retire.
Re: HEDGEFUNDIE's excellent adventure Part II: The next journey
If the HEDGEFUNDIE chart in the first post of this thread were to be updated now, what total would it show?
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” |
― Susanna Clarke, Jonathan Strange & Mr Norrell