EPTLike Air Canada is the highest its been with the exception of the last 2.5 years, but no way their revenue will be that of 5 years ago a year from now. I like it though, because the government will feed them money so they won't go under, maybe if there is another drop from some panic. The US airlines are more tempting, but I know less about them. Boeing is the one I'll be looking at closely, think there could be a lot of opportunity there.
Trading/Investing Thread - Page 31
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FiWiFaKi
Canada9858 Posts
Like Air Canada is the highest its been with the exception of the last 2.5 years, but no way their revenue will be that of 5 years ago a year from now. I like it though, because the government will feed them money so they won't go under, maybe if there is another drop from some panic. The US airlines are more tempting, but I know less about them. Boeing is the one I'll be looking at closely, think there could be a lot of opportunity there. | ||
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FiWiFaKi
Canada9858 Posts
On April 30 2020 06:17 GoTuNk! wrote: Do you think it could dip again? It feels unreal the economy is imploding while the stock market goes up. It's future expectations, with the trend of how we managed everything, I think the cost hasn't been so high. There's lots of talk about airlines, restaurants, or just luxury goods, but not enough emphasis of all the work that is out of sight out of mind. There's still a lot going behind the scenes, and such a big part of the cost is the government debt level rather than the companies. We will pay for that in the future, but the multinationals won't feel it too much now. I have a 90% confidence that SP500 won't fall below 2500 in the next year, and a 90% confidence we will be above 3250 sometime in the next 2 years. Anyway, I pulled the trigger, 120k position in Suncor, leveraging myself way too much, but these are once in a decade opportunities... Want to be nicely off once those 1% max daily swings come back. On April 30 2020 06:16 GoTuNk! wrote: I'm glad I'm invested in real money, namely bitcoin, instead of the fiat USD or worthless commodities like oil. Bitcoin's halving is in 2 weeks, hoping for a big rally upwards. Not a fan of bitcoin and gold as a store of value. Hope it works out of course, but I don't like keeping my money in something that doesn't do anything. If you buy a semi truck, as long as people need something delivered, it will have value (unless technology can reduce production costs to insane levels) ... And in the meantime you can make revenue on your investment (ie holding shares of a company). The value of gold and bitcoin is when you think there's a real possibility of some structural change in society, like a communist government where we will lose rights to our belongings. Idk, from my father I've been hearing doomsday is here since 2013, the future of society isn't sexy imo, but short term things look ok. If that's the case, investments that produce wealth will outpace static investments like they always have over the long term. | ||
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ShoCkeyy
7815 Posts
On April 30 2020 07:27 FiWiFaKi wrote: Yeah, I was looking at airline stocks, and honestly don't feel comfortable buying any. The drops haven't been big enough to justify the reduction in the travel that will happen due to societal changes. I fully expect one of the big ones to go under/merger. Like Air Canada is the highest its been with the exception of the last 2.5 years, but no way their revenue will be that of 5 years ago a year from now. I like it though, because the government will feed them money so they won't go under, maybe if there is another drop from some panic. The US airlines are more tempting, but I know less about them. Boeing is the one I'll be looking at closely, think there could be a lot of opportunity there. This is where a nice $150 can go a long way using the good ole buy low sell high strategy on some of those cheap airline stocks that seem to get pumped daily now. | ||
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Acrofales
Spain17852 Posts
On April 30 2020 07:27 FiWiFaKi wrote: Yeah, I was looking at airline stocks, and honestly don't feel comfortable buying any. The drops haven't been big enough to justify the reduction in the travel that will happen due to societal changes. I fully expect one of the big ones to go under/merger. Like Air Canada is the highest its been with the exception of the last 2.5 years, but no way their revenue will be that of 5 years ago a year from now. I like it though, because the government will feed them money so they won't go under, maybe if there is another drop from some panic. The US airlines are more tempting, but I know less about them. Boeing is the one I'll be looking at closely, think there could be a lot of opportunity there. I think that's probably what people are gambling on; that airlines are too big to fail. The government will bail them out and they'll go back to as it was before in a year. Even if tourism and travel returns to its pre-corona levels (which I doubt), I highly doubt airlines will get out of government bailouts without serious concessions. The US I don't know about, but there's already talk in Europe about connecting airline bailouts to taxes on kerosene and other ways to equilibrate the market between air travel and ground travel, as well as force airlines into a more sustainable business model. For some of them the medicine may be worse than the disease, and they'll go out of business all the same. I mostly agree with legallord that this current rally doesn't feel right. Not quite sure what to do about it tho, as governments worldwide are doing their damndest to prevent shit from falling apart and there really is a lot of optimism surrounding lockdowns slowly ending. It'll be a few weeks or even months before reality sets in that this virus is here to stay and countries have to find a delicate balance between social distancing and a functioning social life and economy. | ||
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FiWiFaKi
Canada9858 Posts
On April 30 2020 07:41 Acrofales wrote: I think that's probably what people are gambling on; that airlines are too big to fail. The government will bail them out and they'll go back to as it was before in a year. Even if tourism and travel returns to its pre-corona levels (which I doubt), I highly doubt airlines will get out of government bailouts without serious concessions. The US I don't know about, but there's already talk in Europe about connecting airline bailouts to taxes on kerosene and other ways to equilibrate the market between air travel and ground travel, as well as force airlines into a more sustainable business model. For some of them the medicine may be worse than the disease, and they'll go out of business all the same. I mostly agree with legallord that this current rally doesn't feel right. Not quite sure what to do about it tho, as governments worldwide are doing their damndest to prevent shit from falling apart and there really is a lot of optimism surrounding lockdowns slowly ending. It'll be a few weeks or even months before reality sets in that this virus is here to stay and countries have to find a delicate balance between social distancing and a functioning social life and economy. I was referring mainly about Air Canada, as it's sort of Canada's airline and its shuffled between public and private ownership in the past. I definitely wouldn't take that gamble on any of the US airlines. All in all, I agree with you, airlines have just had more media attention on them, thought more people had get rich quick ideas with them, so they're a bit overbought. @ShoCkeyy How's that been working for you? I was skimming WSB and some guy alternated calls and puts daily on SPY, and went from $20k to $700k in around a month, when the market kept alternating 5% daily. He found the pattern, and rolled with it lol. | ||
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ShoCkeyy
7815 Posts
On April 30 2020 07:54 FiWiFaKi wrote: I was referring mainly about Air Canada, as it's sort of Canada's airline and its shuffled between public and private ownership in the past. I definitely wouldn't take that gamble on any of the US airlines. All in all, I agree with you, airlines have just had more media attention on them, thought more people had get rich quick ideas with them, so they're a bit overbought. @ShoCkeyy How's that been working for you? I was skimming WSB and some guy alternated calls and puts daily on SPY, and went from $20k to $700k in around a month, when the market kept alternating 5% daily. He found the pattern, and rolled with it lol. Well, I've made back the losses I had from earlier investments and then some more in like 5 days haha. | ||
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LegalLord
United Kingdom13775 Posts
On April 30 2020 07:41 Acrofales wrote: I mostly agree with legallord that this current rally doesn't feel right. Not quite sure what to do about it tho, as governments worldwide are doing their damndest to prevent shit from falling apart and there really is a lot of optimism surrounding lockdowns slowly ending. It'll be a few weeks or even months before reality sets in that this virus is here to stay and countries have to find a delicate balance between social distancing and a functioning social life and economy. It feels like, as the economy is in free-fall, the stock market is betting that the world's governments will provide enough stimulus to put everything back to the way it was before any of this happened. That's possible, but unlikely, and guaranteed to lead to something approximating hyperinflation. At which point I suppose stocks will be worth what they're priced at, but in less valuable currency. Nothing has actually failed yet. Companies like airliners and automakers should by all means be in dire straits right now, but it's too early for any of them to announce that they're on the verge of bankruptcy. Impossible to believe that it won't happen when we're sitting on 20 million newly unemployed in the US alone, but cash doesn't run out quite so quickly for even fairly insolvent companies. I expect such widespread trouble to play out over the next year or so, not on a timescale that's immediately useful for people who are looking to "buy the dip" on healthy companies in line for a quick recovery. The above in mind, I can't really justify buying assets right now. It all looks exciting, but I don't want to increase my position in a market that's being kept on ice and guaranteed to bleed out the moment it's "open" again. It was fragile before all of this. | ||
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Vivax
21803 Posts
On April 30 2020 08:19 LegalLord wrote: It feels like, as the economy is in free-fall, the stock market is betting that the world's governments will provide enough stimulus to put everything back to the way it was before any of this happened. That's possible, but unlikely, and guaranteed to lead to something approximating hyperinflation. At which point I suppose stocks will be worth what they're priced at, but in less valuable currency. Nothing has actually failed yet. Companies like airliners and automakers should by all means be in dire straits right now, but it's too early for any of them to announce that they're on the verge of bankruptcy. Impossible to believe that it won't happen when we're sitting on 20 million newly unemployed in the US alone, but cash doesn't run out quite so quickly for even fairly insolvent companies. I expect such widespread trouble to play out over the next year or so, not on a timescale that's immediately useful for people who are looking to "buy the dip" on healthy companies in line for a quick recovery. The above in mind, I can't really justify buying assets right now. It all looks exciting, but I don't want to increase my position in a market that's being kept on ice and guaranteed to bleed out the moment it's "open" again. It was fragile before all of this. Hyperinflation requires a deflationary bust first, otherwise there's no point printing money and handing it out freely while the suction from debt is still stronger than the money handed out. You're not wrong imo, but it's not the next thing ahead. I don't want to pretend I'm a super expert btw, but one man's liability is the other man's asset. In this case debt, and if money printing comes first the debt gets dumped leading to the same result. | ||
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LegalLord
United Kingdom13775 Posts
On April 30 2020 08:30 Vivax wrote: Hyperinflation requires a deflationary bust first, otherwise there's no point printing money and handing it out freely while the suction from debt is still stronger than the money handed out. You're not wrong imo, but it's not the next thing ahead. I don't want to pretend I'm a super expert btw, but one man's liability is the other man's asset. In this case debt, and if money printing comes first the debt gets dumped leading to the same result. I don't particularly expect hyperinflation, mind you - a garden variety severe recession is the most likely result of all this. But it's a definite limitation on the effectiveness of infinite bailout. Most of the money currently being pumped is short-term loan money rather than a more explicit money-print. If that turns into an infinitely-renewed short term loan, that's when I'd expect to see problems resembling hyperinflation, or one of the other ugly economic failures. We've already had years of hidden inflation via asset prices, though. Real estate and the stock market growth have far exceeded economic growth for a long time, and a bubble caused by loose monetary policy is to blame. It's not surprising that even looser monetary policy is helping said assets hold steady in times like this. | ||
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FiWiFaKi
Canada9858 Posts
Firstly, a larger percentage of the economy is public than earlier in history, and secondly we've had centralization of production over the last few decades, so a higher percentage of the market is in the 500 largest companies than earlier. Furthermore, taking the 2.x percentage USA gdp growth and comparing it to the roughly 4% entire public company growth in the USA over the last 20 years (assuming that percentage of public of the whole economy remained the same) still wouldn't hold because developing countries like China had a 6-7% gdp growth, and companies like Intel or McDonald's sell to all countries, so other countries getting wealthier raises their revenues more than what the US is able to do. At the end of the day, it all comes down to P/E, and how much debt is taken on to support that. P/E has increased from 13-16 (in the 50s to 00s) to the low 20s, but I think that has more to do with a more stable world. Less war, government coups, and annexing of territory. I think will become a new normal with stability in the world. Anyway, I don't see the argument that we're on the verge of collapse. | ||
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[UoN]Sentinel
United States11320 Posts
On April 30 2020 09:19 FiWiFaKi wrote: I think the stock market growth vs gdp growth not lining up to signal a correction is an argument that doesn't hold up well, especially when using the Sp500. Firstly, a larger percentage of the economy is public than earlier in history, and secondly we've had centralization of production over the last few decades, so a higher percentage of the market is in the 500 largest companies than earlier. Furthermore, taking the 2.x percentage USA gdp growth and comparing it to the roughly 4% entire public company growth in the USA over the last 20 years (assuming that percentage of public of the whole economy remained the same) still wouldn't hold because developing countries like China had a 6-7% gdp growth, and companies like Intel or McDonald's sell to all countries, so other countries getting wealthier raises their revenues more than what the US is able to do. At the end of the day, it all comes down to P/E, and how much debt is taken on to support that. P/E has increased from 13-16 (in the 50s to 00s) to the low 20s, but I think that has more to do with a more stable world. Less war, government coups, and annexing of territory. I think will become a new normal with stability in the world. Anyway, I don't see the argument that we're on the verge of collapse. I don't think that stability is here to stay. At its simplest, the argument for a Greater Recession (next depression?) is that boomers will retire and start pulling their capital to do so, and Gen X isn't nearly big enough to replace them. Less capital in the market necessitates contraction short of some government plunge protection trickery. 11111th post | ||
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FiWiFaKi
Canada9858 Posts
On April 30 2020 09:25 [UoN]Sentinel wrote: I don't think that stability is here to stay. At its simplest, the argument for a Greater Recession (next depression?) is that boomers will retire and start pulling their capital to do so, and Gen X isn't nearly big enough to replace them. Less capital in the market necessitates contraction short of some government plunge protection trickery. 11111th post We're talking a peak of 67% in 2000 down to 63% now, and around the world the female participation rate is increasing, and world population growth has been steady. I think a gigantic portion of US stock growth has simply been increasing population, which will slow eventually of course, but nothing that should cause a big recession. It's kind of why the 8% historic stock growth is viewed as a bit optimistic, and people estimate a bit lower now, which I agree with... But what's the alternative. Keeping your money in cash will get you zero, and long term companies that produce value will beat anything that's a store of value like gold. Otherwise it's just trying to time the market. At the moment I like the idea of highly leveraged in recessions, and slowly transition to zero leverage 100% stock portfolio as we get close to the all time peaks. | ||
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[UoN]Sentinel
United States11320 Posts
On April 30 2020 09:38 FiWiFaKi wrote: We're talking a peak of 67% in 2000 down to 63% now, and around the world the female participation rate is increasing, and world population growth has been steady. I think a gigantic portion of US stock growth has simply been increasing population, which will slow eventually of course, but nothing that should cause a big recession. It's kind of why the 8% historic stock growth is viewed as a bit optimistic, and people estimate a bit lower now, which I agree with... But what's the alternative. Keeping your money in cash will get you zero, and long term companies that produce value will beat anything that's a store of value like gold. Otherwise it's just trying to time the market. At the moment I like the idea of highly leveraged in recessions, and slowly transition to zero leverage 100% stock portfolio as we get close to the all time peaks. I agree with the last part but then you're treading into market timing territory again. SPX was at or near ATH for most of 2013-2020. I also don't have numbers on total wealth in front of me so I can't confirm or deny if female participation should blunt the effects of a larger generation retiring and a smaller generation becoming the capital-intensive one. Highly leveraged all the time on the other hand is a fantastic way to run a portfolio! | ||
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Vivax
21803 Posts
On April 30 2020 09:45 [UoN]Sentinel wrote: I agree with the last part but then you're treading into market timing territory again. SPX was at or near ATH for most of 2013-2020. I also don't have numbers on total wealth in front of me so I can't confirm or deny if female participation should blunt the effects of a larger generation retiring and a smaller generation becoming the capital-intensive one. Highly leveraged all the time on the other hand is a fantastic way to run a portfolio! If you have a broker you can trust to have contracts available during turmoil and not to frontrun you, maybe even yes. GL finding one. Fiwi here is underestimating gold. Just in march the paper market traded gold worth several decades of mining output, showing how bloated with fake supply the market is. It might just be a pet rock in reality, but its value comes from the demand by central banks. | ||
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FiWiFaKi
Canada9858 Posts
On April 30 2020 09:45 [UoN]Sentinel wrote: I agree with the last part but then you're treading into market timing territory again. SPX was at or near ATH for most of 2013-2020. I also don't have numbers on total wealth in front of me so I can't confirm or deny if female participation should blunt the effects of a larger generation retiring and a smaller generation becoming the capital-intensive one. Highly leveraged all the time on the other hand is a fantastic way to run a portfolio! For 2013-2020 I would not be leveraged almost ever lol, early 2019 maybe 1.3-1.4x, and maybe one of those other drops 1.25x. Right now I'm at about 2x, would've gone as high as 2.5-2.75x if I would have waited for the SP500 to go below 2300 (though my family would cover me up to a margin ratio of zero instead of the banks 0.3, and then another 30k on top of that) Anyway, for the US, I think the bad case scenario is that the next 10 years looks like the FTSE100 or TSX, don't think the structure can lead to something that Japan experienced. (I'm sure I'm coming off as a confident inexperienced bull because I haven't had any big losses yet, and because I am lol) | ||
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[UoN]Sentinel
United States11320 Posts
On April 30 2020 09:56 Vivax wrote: If you have a broker you can trust to have contracts available during turmoil and not to frontrun you, maybe even yes. GL finding one. Fiwi here is underestimating gold. Just in march the paper market traded gold worth several decades of mining output, showing how bloated with fake supply the market is. It might just be a pet rock in reality, but its value comes from the demand by central banks. Up to 3x I don't think you need to worry about the broker since you can just buy and hold various bull funds. I ripped a Bogleheads thread for the basic idea with UPRO/TMF but added UGLD and DRN into the mix. It's a deceptively simple thesis and it's essentially the logical extension of Fiwi's statement that cash will get you nowhere. A portfolio of 3x funds is -200% cash and 300% whatever your mix of assets is, for a sum of 100. Some guy did go further and actually trade futures to leverage himself up to 8x on the same principle, but I haven't done enough homework to figure out what the contingency plan is if everything goes to shit. With 3x ETF's the worst case scenario is that one of the funds goes under, and even then you're eligible to receive the underlying product as a substitute. UGLD is an ETN so with that one you could be screwed harder, but the rest are normal ETF's. On April 30 2020 10:00 FiWiFaKi wrote: (I'm sure I'm coming off as an inexperienced bull because I haven't had any big losses yet lol) As am I. But ultimately I've never seen any of that money IRL so it's not that big of a deal for me yet | ||
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FiWiFaKi
Canada9858 Posts
Daily rebalancing just add too many maintance and option premium fees in theory. Getting a 2.5% HELOC, 2-3% margin, and borrowing money from your contacts seems better. I've always lived like a peasant, haven't had the use for the money, so in my head it's just fun money where maximizing expected return is the goal, and volatility is a much smaller consideration than the average person (though end goal is money for retirement, but I don't tell myself that). I mean I still follow Kelly Criterion type stuff (wouldn't bet everything on a 51% coin toss, because even though that has the highest expected return, over 100 identical events it wouldn't lead the maximum earnings). In the link, he hedges his risk by assuming that treasuries and stocks are not correlated, or even more, that they're somewhat negatively correlated. I don't make any of those rationalities about the market. Mine is that people value two different investments with identical long term expected returns differently but different volatilities differently, which over the long term isn't logical (but depends on your investment horizon). So essentially my strategy is to borrow as much as I can from people who have a short term horizon, take on their volatility, and receive a premium from the market for doing so. My secondary play is thinking in some situations I can time the market (in some things you have deeper knowledge than the fund manager if it surrounds you on a daily basis, if I have to read articles to know, that's not something I know better than them). But this is a small aspect of it, and it would move my investment a couple percentage points up or down, and of course, very situational. A recent example is me having a good understanding of the semiconductor industry, knowing what TSMC was bringing to the table, AMD's numbers about Ryzen 3xxx, and trusting the gut. Financial news wouldn't have led that decision. I guess Mosaic Theory is the proper term for it... Small non-material non-public information that gets you to connect all the public dots in ways that wouldn't come naturally if you didn't have any prior knowledge of the company. | ||
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[UoN]Sentinel
United States11320 Posts
On April 30 2020 10:41 FiWiFaKi wrote: The thing I do differently is that avoid any sort of leveraged ETF's, actually any options or future contracts in general. Maybe illogical thinking but makes me feel like I'm in more control. Daily rebalancing just add too many maintance and option premium fees in theory. Getting a 2.5% HELOC, 2-3% margin, and borrowing money from your contacts seems better. I could recite how the funds are built with futures, swaps, etc. but the reality is my faith lies purely on all the backtests in that thread and the Green Line Go Up principle. I've always lived like a peasant, haven't had the use for the money, so in my head it's just fun money where maximizing expected return is the goal, and volatility is a much smaller consideration than the average person (though end goal is money for retirement, but I don't tell myself that). I mean I still follow Kelly Criterion type stuff (wouldn't bet everything on a 51% coin toss, because even though that has the highest expected return, over 100 identical events it wouldn't lead the maximum earnings). I think we agree here. In the link, he hedges his risk by assuming that treasuries and stocks are not correlated, or even more, that they're somewhat negatively correlated. I don't make any of those rationalities about the market. Mine is that people value two different investments with identical long term expected returns differently but different volatilities differently, which over the long term isn't logical (but depends on your investment horizon). So essentially my strategy is to borrow as much as I can from people who have a short term horizon, take on their volatility, and receive a premium from the market for doing so. I don't think we necessarily disagree here either. The 3x fund with its high vol from all the leverage would be such an example of a long term horizon investment, since in the short term it is possible that a lot of things fall out at once. Also anecdotal but TMF saved my ass in the past few months. I've made back most of my losses on the leveraged portfolio by selling it off and loading back up on UPRO/TQQQ. So in at least that one case they were negatively correlated. Of course TMF also went up because of the Fed cuts. My secondary play is thinking in some situations I can time the market (in some things you have deeper knowledge than the fund manager if it surrounds you on a daily basis, if I have to read articles to know, that's not something I know better than them). But this is a small aspect of it, and it would move my investment a couple percentage points up or down, and of course, very situational. A recent example is me having a good understanding of the semiconductor industry, knowing what TSMC was bringing to the table, AMD's numbers about Ryzen 3xxx, and trusting the gut. Financial news wouldn't have led that decision. I guess Mosaic Theory is the proper term for it... Small non-material non-public information that gets you to connect all the public dots in ways that wouldn't come naturally if you didn't have any prior knowledge of the company. I think people's ability to time The Market (tm) is underrated for the thing that you mentioned. A lot of the criticism for market timing assumes that your strategy should always be able to time the market as a whole to your advantage. But it's very likely that you will have that sporadic advantage. Sometimes it's just that you have a fresh pair of eyes that sees a big movement up/down, or lack of one, looks at your notes, and says "I don't see what the big deal is. Why is(n't) it moving?" | ||
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FiWiFaKi
Canada9858 Posts
The volatility drag on daily settlements will kill you. Say I have $100 and markets go up the first day by 10%, and I'm at $110. Then the next day they go down by 9.09090...% tomorrow, I'm at $100. Now repeat this 10x. Versus buying a 3x ETF, first day market goes up from $100 to $130. Now market drops 9.09090%, which is $35.45 drop of $130, so you're left with $96.55. This doesn't even include the higher than normal management fees, and as well the rate to just essentially borrow money. Each time you get this 2 day event happening you'll lose 3.45% (of course this is an extreme example). Happens 10x and you're at 70% of your original investment while I'm at 100%. Just compare the two peaks between Sept 2018 and April 2019 in the Sp500 and Tqqq, S&P is like 20 points higher, TQQQ is down from 71 to 67, it's a big deal. (Numbers are rough, just a quick google graph search haha). Versus choosing a leverage amount, say 3x and buying a stock for $100 ($300), tomorrow goes to $110 ($330), so leverage goes to 330/130 or 2.54x, and I can choose to buy more to get my leverage up to 3x,sell and end my position or keep it indefinitely and if it drops back to $100, my only loss is the interest I paid on borrowing the money (which you're doing with options too). Anyway, because you're constantly buying high and selling low during rebalancing, any volatility really hurts. The leveraged ETF forces you to eat that volatility daily, but if you borrow your own money and there's swings but you don't expect the market to go anywhere, then you can keep your leveraged investment at the expense of your leverage fluctuation a bit daily. Idk, it's like the simulated UPRO graphs show, sometimes you just lose 95%-98% from peak, and just gotta deal with it. I guess my view is to absorb the volatility when there's minor swings up or down, but if there's a massive bull run, I wouldn't be upping my margin to 3x daily, so the ETF would perform better than me in those cases... But when there's a drop and comes back in a year to the same point, I'd be ahead of the ETF. Actually it's not as bad as I thought when I started writing this message lol... The long term positive return just has to be higher than the volatility term, which it's been ok with (I'm sure there's some term and concept for it) . I guess my biggest gripe was losing the control over a sideways moving market, but really all I was doing is limiting my downside by absorbing dips by not selling, and also limiting my upside by not returning back to 3x or whatever when stock go up (higher price = less leveraged makes sense). Idk, now I'm confused. I feel like I should be able to do buy low, sell high, but I did mention a few posts ago that I wouldn't be leveraged during the all-time peaks after recession... Still, less control, and the cost for options premiums, management fees, and interest rate should theoretically be higher than just flat out borrowing money. | ||
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[UoN]Sentinel
United States11320 Posts
On April 30 2020 16:26 FiWiFaKi wrote: I don't have much to reply with because for most part I agree with you, but the more I look at the strategy, the less I like it. The volatility drag on daily settlements will kill you. Say I have $100 and markets go up the first day by 10%, and I'm at $110. Then the next day they go down by 9.09090...% tomorrow, I'm at $100. Now repeat this 10x. Versus buying a 3x ETF, first day market goes up from $100 to $130. Now market drops 9.09090%, which is $35.45 drop of $130, so you're left with $96.55. This doesn't even include the higher than normal management fees, and as well the rate to just essentially borrow money. Each time you get this 2 day event happening you'll lose 3.45% (of course this is an extreme example). Happens 10x and you're at 70% of your original investment while I'm at 100%. That's a good point. However if you're considering the cases where the market goes up 10% and down 9.09% on two days, you also have to consider the cases where on two days it goes up twice or down twice. Up 10% twice: SPY $121, UPRO $169 Up 10%, down 9.09%: SPY $100, UPRO $96.55 Down 9.09%, up 10%: SPY $100, UPRO $96.55 Down 9.09% twice: SPY $82.64, UPRO $52.89 Assuming all 4 events have equal probability, the EV of SPY is $100.91 and the EV of UPRO is $103.74. Not bad huh? Now that's a pretty ballsy assumption to make. A non-rigorous but maybe intuitive way of thinking about it is that you can split the probability distribution of the daily market return down the middle (so each half has 50% of happening), and then take the expected return of each half. You would expect the expected return of the top half to be greater in magnitude if you believed the market was trending up. If you want to be more pessimistic and assume the market goes sideways, with an equal likelihood of up X% and down X%, doing the above calculation you'd get the EV of both SPY and UPRO is $100 at the end. Just compare the two peaks between Sept 2018 and April 2019 in the Sp500 and Tqqq, S&P is like 20 points higher, TQQQ is down from 71 to 67, it's a big deal. (Numbers are rough, just a quick google graph search haha). Correct. It's only worth doing with rebalancing from a separate, preferably uncorrelated investment. Versus choosing a leverage amount, say 3x and buying a stock for $100 ($300), tomorrow goes to $110 ($330), so leverage goes to 330/130 or 2.54x, and I can choose to buy more to get my leverage up to 3x,sell and end my position or keep it indefinitely and if it drops back to $100, my only loss is the interest I paid on borrowing the money (which you're doing with options too). That's true. But I don't know if I personally could get a loan for 3x of my investment with a good rate. With UPRO, the cost of borrowing is 2.22*(1 month LIBOR + Spread) + 0.92 for the expense ratio. The spread isn't publicly available but it's less than 0.5% for UPRO and negative for TMF. Comes out to just over 3% interest annualized. In 2019 the average 1M rate was 2.22%, which would've translated to an effective interest rate of 6.36%. I might've been able to get a loan for less than that last year tbh. But 3% is hard to beat. Anyway, because you're constantly buying high and selling low during rebalancing, I thought it was the other way around. You sell off the overweight (expensive) leg and buy more of the underweight (cheap) one. Theoretically that's the only reason holding 3x funds are worth it, because with the incredible amount of volatility you're buying really low and selling really high. any volatility really hurts. The leveraged ETF forces you to eat that volatility daily, but if you borrow your own money and there's swings but you don't expect the market to go anywhere, then you can keep your leveraged investment at the expense of your leverage fluctuation a bit daily. Idk, it's like the simulated UPRO graphs show, sometimes you just lose 95%-98% from peak, and just gotta deal with it. Forget the other 3x funds - if you had half your stuff in cash and you bought in at that 98% drawdown, you would've picked up a huge number of shares on the bottom. Of course you would've slowly rebalanced them away on the way up, but you'd end up making a lot more than the graph suggests. I guess my view is to absorb the volatility when there's minor swings up or down, but if there's a massive bull run, I wouldn't be upping my margin to 3x daily, so the ETF would perform better than me in those cases... But when there's a drop and comes back in a year to the same point, I'd be ahead of the ETF. Actually it's not as bad as I thought when I started writing this message lol... The long term positive return just has to be higher than the volatility term, which it's been ok with (I'm sure there's some term and concept for it). There is but I forgot. I just scream alpha and beta at people until they figure out what I mean. I guess my biggest gripe was losing the control over a sideways moving market, but really all I was doing is limiting my downside by absorbing dips by not selling, and also limiting my upside by not returning back to 3x or whatever when stock go up (higher price = less leveraged makes sense). Idk, now I'm confused. I feel like I should be able to do buy low, sell high, but I did mention a few posts ago that I wouldn't be leveraged during the all-time peaks after recession... Still, less control, and the cost for options premiums, management fees, and interest rate should theoretically be higher than just flat out borrowing money. If you can get someone with a low interest rate, definitely. But on the flip side, the bull funds are run by institutions that can usually get a competitive rate if only for the fact that they're a reliable source of income for whatever swaps they're trading in order to make it happen. | ||
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Up 7%~ since buying in 2 months ago after the first dip.
