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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Dr. Ipsofacto who wrote (44308)	9/11/2011 9:25:27 PM
From: Mr.Gogo	1 Recommendation Respond to of 78753

I think these two three time etfs have a lot of expenses and the value in them erodes over time. This is why I think it is not a good idea to keep them for a long time. Georgi

To: Dr. Ipsofacto who wrote (44308)	9/12/2011 12:34:37 AM
From: Jurgis Bekepuris	Respond to of 78753

What Mr. Gogo said. I think you can make a pretty good synthetic S&P500 2x yourself without using the SSO/UPRO if you think about it. There are couple problems: - Assuming S&P returns 0%, any levered fund will return less due to the leverage costs. - If you play around with scenarios - yeah, do it, it's enlightening - there are more scenarios where 2x loses more than 1x - Part of the issue is that with leverage you have unrecoverable permanent losses. I.e. if you're just levered, you pay the interest on the loan, you may have to sell part at the bottom due to margin calls (if you hold cash to cover margin calls, then that cash should be counted as part of your portfolio and your return is automatically lower). If you're levered through options, there's slippage, time decay, imperfect rollover, and so on. You might be able to do a bit better than S&P by levering up when it's "cheap" and unlevering when it's "expensive". But not sure how much that would add. Depends on how good you'd be at timing. ;)

To: Dr. Ipsofacto who wrote (44308)	9/12/2011 12:40:08 AM
From: geoffrey Wren	Read Replies (1) \| Respond to of 78753

I believe the 3x funds are only short term (e.g. a day) well-correlated to the indexes they track. Expenses are high and the correlation does not hold up even in the season-to-season time-frame. I do recall a study saying the best long-term investment approach was to be about 115% invested (meaning 15% into margin), but that always made me wonder. It would depend on the rate. Margin rates are so high relatively for your average investor. If the rate were low and you loaded up on dividend paying stocks it might make sense. I believe some closed end funds issue a slight amount of preferred shares that pay a fairly low coupon so as to get a little leverage. If I could borrow 20% of my portfolio value at 3%, I'd be tempted to do so. But I can't, so I sit tight. If you want to be aggressive, go 100% stocks, and load up on micro-cap value stocks. That's probably a 2 beta, so you'd do well so long as stocks did not go into a Japanese style long term doldrums.

To: Dr. Ipsofacto who wrote (44308)	9/12/2011 1:17:48 AM
From: Spekulatius	Read Replies (1) \| Respond to of 78753

re 2x or 3X levered index vehicles - it's not just the expenses that are killing these levered vehicles LT - it is the volatility that is doing it. By design these vehicles are buyers if stocks when stocks go up and sellers when stocks go down. They need to do this daily rebalancing to keep their leverage ratio on target. Now imaging you do this with your portfolio in a month like August 2011 - you will absolutely get killed in a zig-zag market. Personally, I would just margin the SPY 50% if I really feel compelled to add juice to my bet, or in a IRA (where you don't have margin) add some options. But who need juice after all, if the market can move 3%+ from day to day?