Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Young and Older Folk Portfolio -- Ignore unavailable to you. Want to Upgrade?

To: SeeksQuality who wrote (5784)	6/30/2024 8:28:13 AM
From: SeeksQuality	3 Recommendations Recommended By eaglebear Fredbean jritz0 Read Replies (1) \| Respond to of 21937

Consider the six year period from 7/1/2006 through 6/30/2012. The market had some up years and down years over this period, but SPY moved higher by about 20% with dividends reinvested. Over that same period of time, SSO fell by 16.4%. I believe SSO successfully doubles the daily swings (less their expense ratio), so the sequence of returns shouldn't be important to this. In an extended sideways market with high volatility, the structure of the fund will underperform SPY, even if there are no years with a large drop involved. We haven't seen a "sideways" market any time recently, but I wouldn't be shocked if we were to end up in one. Check out VEUSX since inception, for example, or even over the post-GFC period. Some gains over time, but a lot more muted than what you've seen with the US markets over that same period. The combination of low/moderate gains and high volatility is a death sentence for a levered strategy like SSO, and those characteristics can persist for decades. Again, none of this has anything to do with fear or volatility. I'm intentionally NOT mentioning those aspects because I believe they have distracted you from the more fundamental issue. Even if we take as a given that markets move higher over long periods of time (Japan would beg to differ), there are certain structures in which SSO loses while SPY gains. If you replace "must head higher than SPY" with "usually head higher than SPY", then I would agree. But "must" is a strong word that is not warranted here.

To: SeeksQuality who wrote (5784)	6/30/2024 8:33:37 AM
From: chowder	2 Recommendations Recommended By jritz0 onlywords Read Replies (2) \| Respond to of 21937

Re: The construction of SSO means that "must" is too strong a word. Fair enough, then insert the word "should". In any event, I do know that SSO will not provide a loss greater than 10% below my cost basis because if it should do that, it's gone. If it can grow to where it's up 50%, 60% or more, then I "might" hold it in a market meltdown, or I might not. I placed it in a tax-deferred account so that I don't have to worry about capital gains tax should I trim or sell down the road if the position is profitable.