Quill, You're Losing Money on TLT, AGAIN

Investing Strategies Technical Trader's Sanctuary
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Quill,

You style yourself as a ‘swing trader’ who doesn’t need to pay attention to ‘fundamentals’, which you disparage as “funnymentals”. But you’re getting killed on your 778 share trade on TLT exactly because you don’t understand --and don’t want to understand-- the underlying fundamentals. So, let me lay them out for you.

TLT is a bet on interest-rates, specifically, interest-rates at the long end of the yield-curve. When interest-rates go up, as did they again Wednesday, then bond prices go down, as they are doing today. (E.g., the ‘long bond’ aka, the 30yr bond, is down about 92 beeps as I write.) TLT owns the long bond (and the 20yr). Ergo, if TLT’s underlying is suffering a loss, then TLT is suffering a loss, as are them who don’t understand what they are buying and betting on.

If it’s any comfort to you, you aren’t alone in making this trade. A boat-bulding friend who got into BitCoin when it was just $2,300 dollars and who made a ton of money on its parabolic rise was looking for his next big score and had decided he’d bet big on TLT, bigger even than your $82k bet, and this is a 20-something kid who had found a pot of gold. This was a couple months ago. He had tried to learn what he could about the bond market on his own. But he finally decided to cut to the chase and gave me a call. What he was proposed to do didn’t make a lick of sense of me. A couple of thou to test the idea? Sure, why not? But the several hundred thousand, or whatever it was he was wanting to bet? No way, Jose. So I walked him through the risks of the trade and made my usual pitch about proper position-sizing relative to one’s account and the downsides of a trade.

Betting on the direction of interest-rates is a fool’s errand. A far better investor than you’ll ever be is Peter Lynch, who used to put it this way. “If I spend 15 minutes a year thinking about the direction of interest-rates, I’ve wasted 15 minutes.” One could agree with him or disagree with him. But there are plenty of analysts far more savvy than either of us who say that, because inflation will be going higher, so will interest-rates, especially if the US defaults --once again-- on its debts, never mind the end-run around using the $US as a payment currency that is gaining increasing momentum in the non-aligned world.

So, what to do? #1, Sell into any rally and reduce that position to a more prudent size. #2, Avoid trying to trade things whose fundamentals you don’t understand.

Arindam

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the sole purpose of the TLT and the other group of stocks was for Divvies. Ray Dailo is no fool. Ray said build the list and let it ride for the next 10 years. Compounding is the secret.

Have your kid read and read the Simon Sez III rules.

What stock does this kid own at the present tyme.

Next I have mental note to sell TLT when it hits $103.07. If one posts a stop loss order the MM ( money market )boyz will drive the price down and pick it up and find another buyer.

We don’t advertise so as not to be noticed on the MM’s board.

In the mean time we wait patiently. So far I don’t see any loss.

Your right, I don’t understand a freaking thing about fundamentals nor do I care. I let the charts and our peers tell us what to do with there hard earned money.

It is more like riding their coat tails. These people must know more than us.

Stay tuned.

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TLT (1)
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Quill,

I’ll say the same thing to you that I said to Andy. “Thank you for not getting bent out of shape for my raking you over the coals.”

Again, I think your divivie program is the equivalent of trying to pick up nickels in front of an oncoming bulldozer. You might get away with it a time or two. But sooner or latter, the losses on your principal are going to overwhelm the income stream from dividends.

You live in NY, right? Therefore, you’re paying state income taxes on ordinary income. But US debt instruments are exempt from state income taxes, and the investment yield at last week’s auction of the 4-wk was 5.96%. That beats the crap out of TLT’s miserably low yield. That 5.96% beats the crap out of every SP500 “dividend aristocrat”.

Therefore, I’d say this. If you want to trade stocks and ETFs for their cap-gains, that makes sense, because you can be out of the positions on a mouse click. But if you’re carrying large positions --whose prices are fluctuating widely-- solely for the sake of whatever dividends they might pay --which are going to get cut as the economy continues to tank-- then you are accepting a lot of risk for peanut returns --at best-- and --more likely, you’re looking at probable losses.

As always, it’s your money to deploy as you see fit. Just don’t try to tell me it’s a good plan.

Arindam

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Quill,

Dalio isn’t a fool. But he is most definitely a fundamentalist, as anyone who has ever watched any of his interviews could conclude for themselves. So, if you’re invoking his name as reason to run your divvie program, but reject the reasons he’d give why it might once have been a good idea, but certainly isn’t so now that the fundamentals have changed so profoundly, where does that leave you?

Seriously, watch a couple of his recent interviews. He isn’t just saying that a recession is coming, but that it will be global, and that asset prices are going to crash. That means losses on stocks and ETFs that far outweigh their divs, which will be cut if even if some of those companies do survive.

Arindam

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