Any advice

Investing Strategies Retirement Investing
#31

That is one misconception seen here frequently, beating the S&P500. What if your goal is to decrease volatility? Or through off enough dividends to cover needs and wants?

While the S&P500 is an easy measuring stick, it might not be the right measuring stick for your goals at the time.

If you wish to reduce volatility, lower your equity allocation. Moving to individual stocks to lower volatility is just trading one risk (volatility) for another (the permanent death of a part of your portfolio a la Lucent, Worldcom, Enron etc).

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#32

No more detrimental than individual stock. All involve risk and the potential to go to zero - yet a leveraged holding of a major index is highly unlikely to go to zero.

Just have to have the time horizon to hold it.

I thought conventional wisdom was NOT to hold these things long term?
Something about the daily reset?

It could be a wild ride. Chart from start of 2020 to now:

https://stockcharts.com/freecharts/perf.php?VTI,VXUS,BND,BRK…

-74% to +116%

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#33

I thought conventional wisdom was NOT to hold these things long term?

Yep, but sometimes being unconventional can be very profitable.

It could be a wild ride.

Heh, you’re not kidding - but then one should be willing to get out of a leveraged position in much the same way you are willing to get out of a stock.

I had existed my leveraged positions before Covid hit - I no longer recall why. I got back in at numerous points starting on 6/16/2020. That first purchase is up 85% in less than two years - even after losing 25% YTD. NASDAQ of course is up roughly half that. At some point, I will likely get out again - and then get back in again.

#34

No more detrimental than individual stock. All involve risk and the potential to go to zero - yet a leveraged holding of a major index is highly unlikely to go to zero.

Just have to have the time horizon to hold it.

Actually Hawkins that might not be true. They reset daily. It’s not like holding an index of volatile stocks, which would be I think what you are looking for.

https://www.investopedia.com/articles/investing/121515/why-3…

Andy

#35

Actually Hawkins that might not be true. They reset daily.

Your link is broken.

https://www.investopedia.com/articles/investing/121515/why-3…

I agree with much of the article but it is unnecessarily fear mongering on some points, to wit:

Triple-leveraged (3x) exchange traded funds (ETFs) come with considerable risk and are not appropriate for long-term investing.

Says who? I think bitcoin and gold are terrible investments but there a lot of people that have made a lot of money on such investments. You won’t find me speculating in such but I don’t fear “betting” on a an index of companies that make stuff increasing in value over time.

Since they maintain a fixed level of leverage, 3x ETFs eventually face complete collapse if the underlying index declines more than 33% on a single day.

Has the S&P 500 or the NASDAQ EVER lost that much on a single day (the answer is no)? Should I really be so afraid of such a situation that I entirely avoid an investment opportunity?

Even if none of these potential disasters occur, 3x ETFs have high fees that add up to significant losses in the long run

While they do indeed have fees, that does not necessarily mean that it will be losses, much less significant losses, in the long run. They make that claim under a false assumption that the index never goes up. Again, I am sitting on gains, net of fees, far in excess of the NASDAQ. I’ve been in and out of QLD for at least a decade (all my QLD posts):

https://www.fool.com/search/solr.aspx?q=hawkwin+qld&sort…

And my first QLD post:
https://discussion.fool.com/options-market-making-a-prediction-3…

I occasionally sell some covered calls on my various positions. One positions, QLD (2x the NASDAQ), is one of my favorites.

This morning, it is trading around 58.49. The July 66 is selling for $126.

That means that if I sell a call, QLD would have to sell for 66 or over between now and expiration for me to not to have my option expire out of the money. It would have to sell for over 67.26 for me to actually not maximize return over the same period.

What that says to me is that the professional traders are making a decent bet that QLD will go up by about 15% in just a little over four months - which means they think the NASDAQ will go up just under half as much over the same time period. That seems to be a bit surprising to me - and a good call to sell. If the professional traders are right, I lock in at least a 15% gain in a little over four months plus the $126.

If I am right and the traders are wrong, I still yield 2% from the call over the same period.

Are the professional traders suggesting a strong and atypical summer? I am by no means an option expert - which is why I only dabble in covered calls and not the more exotic option strategies - but somebody is spending a lot of money at prices both below and above 66 buying up these calls so somebody with a lot more money than I seems to think so.

As much as I like being right, I am actually hopeful that the professional traders are more right than I am on this one.

BTW, QLD was up 21% from 3/6/13 to 7/23/13. My call was exercised. I only made 17% instead of 21. shrug

Anyway, back to the original link.

I really like this next one:

Volatility in a leveraged fund can quickly lead to losses for an investor. Those looking for real-world examples of this phenomenon need look no further than the performance of the S&P 500 and associated 3x ETFs during the first half of 2020.

OK… So… what happened during the last half of 2020? Oh ya, that is right, 3x etfs crushed the market. TQQQ was up 109% in 2020. Made me wish I had owned it instead of my measly 2x etf.

I don’t want volatile stocks; actually, I don’t any MORE volatile stocks. I have enough of those. With leveraged ETFs, I want to bet that the market is going to go up in the future (generally a safe “long term” bet) and I am willing to pay a fee to get 2x or 3x of what an established index fund would do when I think the future looks bright. When it doesn’t, I get out and move back into non-leveraged indexes, until things again change.

Hawkwin
Long term (whatever that means) investor in leveraged etfs.

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#36

Want to beat the S&P? By something like UPRO - up 261% vs the S&P up 86% over the last five years.

Want to beat the NASDAQ? Buy something like QLD - up 390% vs the NASDAQ up 128% over the last five years.

If you have a really strong stomach, you could even do TQQQ, up 484% over the last five years, even after being down 40% YTD.

As of today, YTD returns:
SP500: Down 7.4%
NASDAQ: Down 11.2%
UPRO: Down 20.2%
QLD: Down 23.9%

Leveraged funds can lose money in a flat market: If the market goes down 2% and up 2.04%, it’s back at 0. The doubled fund goes down 4% and up 4.08%, for a net of .099917 or a loss of .08%…over time that adds up.

Don’t forget that this thread started with OP saying “I am 13.5% down. For me this is huge.”

It is REALLY easy to beat the market

How long have you been beating the market in leveraged funds? Did the period include 2008-2009? Experiencing a full cycle would be more telling than having a method that only ever saw the nearly continuous up market and generation-low interest rates.

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#37

How do you see the S&P hedging against inflation? Since it is made up of individual stocks, does not buying some subset of individual stocks accomplish the same thing? Or is there something special about the S&P that I’m missing?

My comment is in reference to a posting suggesting alternatives may be better.

The S&P 500 is taken as our reference for equity investing. The usual finding is that equities give better returns than say bonds and fixed incomes over time. Equities give the best chance of keeping up with inflation.

Others like real estate or antiques, art, or you name it can also work, but for most of us equities are easiest (especially for people posting on TMF).

#38

Don’t forget that this thread started with OP saying “I am 13.5% down. For me this is huge.”

Clearly we are off on a tangent. The OP wasn’t focused on beating the market.

How long have you been beating the market in leveraged funds?

Good question. At least 9 years off and on. I don’t have access to statements older than the last seven years but it would not surprise me if it dates back to 2009 or 2010. I changed jobs in October of 2008 and rolled a 401k to an IRA. That was the first time I had enough cash that I felt it made since to start picking my own stocks - and that included index investing.

Did the period include 2008-2009?

I don’t honestly recall, but let’s assume it did…

As I stated previously, I have used QLD (2x the NASDAQ) extensively over the last decade or more - but much like any other stock investment, I have occasionally sold it when I thought it was either too expensive or the market conditions did not warrant it.

Let’s assume I held it the entire time:

https://www.morningstar.com/etfs/arcx/qld/performance

If I had purchase QLD on 1/1/2008 and held it through today, $10,000 would have grown to $275,000.

By contrast, if I had purchased the NASDAQ 100, it would have grown to $76,000.

Next?

Heck, I would have been far better off to put my entire 401k into QLD in 2008 and left it the heck alone. I certainly did not do quite as well market timing QLD or with my other stock picks. My $100k+ 401k did not grow to 2.75MM like QLD would have.

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#39

Thanks for the information Hawkin.

Andy

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#40

Heck, I would have been far better off to put my entire 401k into QLD in 2008 and left it the heck alone. I certainly did not do quite as well market timing QLD or with my other stock picks. My $100k+ 401k did not grow to 2.75MM like QLD would have.

I’m sorry I missed Renaissance Technologies flagship Medallion Fund. A $100 investment in 1988 was worth almost $400 million by 2018.

Famed Medallion Fund “Stretches . . . Explanation to the Limit,” Professor Claims
https://www.institutionalinvestor.com/article/b1k2fymby99nj0…

intercst

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#41

Let’s assume I held it the entire time:

https://www.morningstar.com/etfs/arcx/qld/performance

If I had purchase QLD on 1/1/2008 and held it through today, $10,000 would have grown to $275,000.

By contrast, if I had purchased the NASDAQ 100, it would have grown to $76,000.

Next?

(warning: Cherry picking ahead)

And had you bought just 2 months earlier, You would have 30% less - $189,000. An impressive profit to be sure, but substantially less.

And how about the journey?

About 16 months after that purchase:
QQQ = $4,700
QLD = $1,700

I guess everyone’s barfing down here, but some more than others, yes?

About 38 months after that purchase:
QQQ = $10,000 (breakeven)
QLD = $7,000

About 53 months after that purchase:
QQQ = $12,500
QLD = $10,000 (breakeven)

It took just over 5 years for QLD to match & overtake QQQ at $16,000.

My takeaways are:

  • Entry point matters bigly
  • Know how well you can stomach volatility
  • It helps to have time on your side
5 Likes
#42

Like Hawkin said the best time to buy is when the Nasdaq has had a big drop (20 percent or more) like it just did recently.

Andy

#43

“I’m sorry I missed Renaissance Technologies flagship Medallion Fund. A $100 investment in 1988 was worth almost $400 million by 2018.”

That is staggering !
Never a negative return year, kind of sounds like that Bernie guy, lol.

If our government wasn’t bought and paid for by the .1%ers, adding a penny or a nickel
tax onto every high frequency trader transaction could bring in some revenue. They could add
that tax to every trade, even small time chumps like me, wouldn’t bother me at all.
As they say in the mafia movies, one crook to another, let the government
“wet their beak”, a small tribute that is the cost of doing business.

#44

Answering 2 replies with 1 post…

…but keeping up with the S&P 500 is one of the best ways to retain your buying power and keep up with inflation.

Or buy individual stocks that grow their dividends faster than inflation. My current portfolio has an average of 8% dividend growth. Up until this year was way ahead of inflation.

If you wish to reduce volatility, lower your equity allocation.

Or you could be low beta stocks, those that have less volatility than the index. Usually utilities and the like. I haven’t calculated the beta of my portfolio but rarely do I by things with significant volatility.

JLC

#45

If you pick a good company, you can do it with one. Pretty easily. I own COST. I just ran the comparison. At 5 years COST is slaughtering the S&P. If I do “max”, it’s even more dramatic.

https://www.google.com/search?q=cost%20vs%20S%26P500#wptab=s…

It’s not a barn-burner, rocket to the moon. It’s just a juggernaut. Pretty consistently beating market year after year. After a while, it becomes a very substantial beat. It’s not sexy. It doesn’t match some investors’ returns (e.g TMF’s Saul). But quality wins out.

(Apologies that this link doesn’t go to the comparison, it just goes to the S&P…but you can enter “COST”, and select “5 yr”, and see for yourself.)

I’ve owned COST for at least a decade now. I’m not advising a strategy of putting all your money in one stock (I don’t do that either). Just making the point that identifying a quality company and letting it ride will outperform most fund managers most of the time.

In fact, it was after I read a Peter Lynch book that I bought COST. Lynch said that you should visit the business if you can. Well, I was a Costco member. So I paid attention to the business instead of my shopping list for one visit. The parking lot was jammed. It was a huge lot, and people were cruising trying to grab a space as others were leaving. The oversized carts of the shoppers leaving the store were overflowing. The huge warehouse was jammed with carts as people picked up everything from big screens to toilet paper. All the registers were open, and there were lines four or five deep on every one of them. So I looked up their 10K and 10Q, saw the numbers, and bought stock.

So that is my advice. Look at the business. Look at the numbers. Don’t let short-terms swings scare you. Don’t try to hit a home run. Invest in quality, and 20 years later you’ll be happy you did. Not necessarily COST. That’s just my example of what I did. I can’t know what the future holds for COST, but so far their numbers have not moved me to sell a single share. I’m sure there are many more companies out there like that. If I were a coffee drinker I probably would have gotten into SBUX when my broker recommended** it (back in '94, I think). But I wasn’t, so I never really “saw” the traffic at the stores, and never bothered beyond that. I’d be up A LOT if I had bought in '94.

And, no, that advice isn’t original. I got that from guys like Peter Lynch.

1poorguy (now “dabbles” in some more speculative stuff, and has a portion of his portfolio in “Saul stocks”; but most of his port is still in boring quality)

**The broker my company used for ESPP had a habit of sending out messages with some “analysis” recommending companies. I didn’t have a person that was “my broker”, it was just the brokerage house my company used. I later opened up my own brokerage account at a discount broker, and only used the other account for ESPP (since I had no choice in that).

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#46

Or buy individual stocks that grow their dividends faster than inflation. My current portfolio has an average of 8% dividend growth. Up until this year was way ahead of inflation.

That’s great. What are some good stocks that will be increasing the dividend greater than inflation over the next 10 years? Without excessive risk that the company will implode. Let me see…it’s 1980 and General Motors looks good. So does Lucent Technologies. IBM is always solid. And Lehman Brothers is a “rock” in the financial world. And don’t forget Westinghouse (“you can be sure if it’s Westinghouse”) and General Electric. I’ll just load up on today’s equivalent of those and live off the dividends for the rest of my life!

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#47

If you pick a good company, you can do it with one. Pretty easily.

Sounds easy! It’s 1985 and AT&T is breaking up. I think I’ll buy Lucent Technologies, because people are going to be buying phones and phone systems big time! I’m set for life now!

#48

Obviously you have to watch the numbers. Think I mentioned that…

For your example, I got pricing in the 90s. So…if you had Lucent in 1996 at $45, you could have sold it in early 1999 for $110. I didn’t follow Lucent, and don’t know what turmoil was going on. If I owned the stock, I would have.

For COST, I follow the company. So far, the numbers are good. If that changes, I would sell.

Unless your point is that an individual stock is not “buy and forget”. You can do that with an index, but it is extremely hazardous for an individual stock. The point I was addressing is that it is pretty easy to beat the market. Maybe not like Saul, but you can beat it by a several percent just choosing (and watching!!) a few quality companies.

And I added the caveat that I wouldn’t recommend owning one stock, nor do I do it.

#49

Sounds easy! It’s 1985 and AT&T is breaking up. I think I’ll buy Lucent Technologies, because people are going to be buying phones and phone systems big time! I’m set for life now!

The parameter was to pick a good company. Lucent was losing marketshare to Northern Telecom because the technology was going from analog to digital.

Andy

#50

Don’t forget that this thread started with OP saying “I am 13.5% down. For me this is huge.”

Clearly we are off on a tangent. The OP wasn’t focused on beating the market.

I don’t think it’s a tangent at all–OP wanted some suggestions, and is clearly rattled by losing 13.5%, so it’s probably not going to be a good substitute to have a higher-possible-upside alternative that has a much higher possible downside that requires one to hold onto or lose big. Or if it’s a tangent, it’s one that the board would be interested in.

How long have you been beating the market in leveraged funds?

Good question. At least 9 years off and on. I don’t have access to statements older than the last seven years but it would not surprise me if it dates back to 2009 or 2010. I changed jobs in October of 2008 and rolled a 401k to an IRA. That was the first time I had enough cash that I felt it made since to start picking my own stocks - and that included index investing.

I checked UPRO to see what its loss was 12/2/2007 to 3/1/2009, and it didn’t show up in yahoo.finance.com in that time period, so maybe it wasn’t available. Same with TQQQ. They both appear to start in 2009/2010. QLD lost 80.53% in that time '07 - '09 period. Yikes!