20% annual returns over 40 years...interested?

A place to talk about speculative investing ideas for the optional Variable Portfolio

Moderator: Global Moderator

Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Mon Apr 24, 2017 8:38 am

Some where on the boards, I think in the VP section, is a live money leaps demo that is in year 3 or 4 but they only post at the end/beginning of the year when they roll.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sun Apr 30, 2017 9:09 am

2.5x means 250K equivalent/25% each to SHY, TMF, UGLD, and SPXL/25K SHY and 225K (75K x3) equivalent everything else

2x means 200K equivalent/16.667 each to the above and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

1.5x means 150K equivalent/8.333% each to the above and 75% to SHY/75K SHY and 75K (25K x3) equivalent everything else

1x means 100K/25% each to SHY, TLT, GLD, SPY

Purchase price was at the close 12/30/16 through the close on 4/28/17

2.5x = 11.95%/-6.63%DD (Quarterly rebalance...0/-0%DD)

2x = 8.12%/-4.70%DD (Quarterly rebalance...0/-0%DD)

1.5x = 4.29%/-2.61%DD (Quarterly rebalance...0/-0%DD)

1x = 4.36%/-2.24%DD

Personal mix = 10.42/-5.42% DD

SPY TR: 5.53%/-2.61% DD

Torture Port (SHY/XIV/TMF, 50/25/25) 12.16%/-3.78%
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Thu May 18, 2017 9:36 pm

Funny to read all the volatility posts on the board...and here we are in our 3x rocket and the whole thing was a big...meah.
clacy
Executive Member
Executive Member
Posts: 1128
Joined: Mon Mar 14, 2011 8:16 pm

Re: 20% annual returns over 40 years...interested?

Post by clacy » Fri May 19, 2017 9:45 am

Kbg wrote:Funny to read all the volatility posts on the board...and here we are in our 3x rocket and the whole thing was a big...meah.

Can you clarify your point? If you are saying that all the panic about the vol decay from leveraged ETF's was overblown, I would agree.

Certainly there are some horribly designed leveraged ETF's (some of the energy ETF's for example). But in a case like the PP, where you have 3 volatile assets that low correlation, the volatility actually can help you since you're constantly re-balancing into and out of assets.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Fri May 19, 2017 10:10 am

Much more simple comment, this portfolio barely moved this week.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Fri Jun 02, 2017 5:26 pm

2.5x means 250K equivalent/25% each to SHY, TMF, UGLD, and SPXL/25K SHY and 225K (75K x3) equivalent everything else

2x means 200K equivalent/16.667 each to the above and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

1.5x means 150K equivalent/8.333% each to the above and 75% to SHY/75K SHY and 75K (25K x3) equivalent everything else

1x means 100K/25% each to SHY, TLT, GLD, SPY

Purchase price was at the close 12/30/16 through the close on 6/2/17

2.5x = 19.68%/-6.63%DD (Quarterly rebalance...19.67/-6.64%DD)

2x = 13.24%/-4.70%DD (Quarterly rebalance...13.12/-4.73%DD)

1.5x = 6.85%/-2.63%DD (Quarterly rebalance..6.74/-2.65%DD)

1x = 6.92%/-2.24%DD

Personal mix = 12.06/-5.42% DD

SPY TR: 9.75%/-2.61% DD

Torture Port (SHY/XIV/TMF, 50/25/25) 22.27%/-5.20%
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sat Jul 01, 2017 2:37 pm

2.5x means 250K equivalent/25% each to SHY, TMF, UGLD, and SPXL/25K SHY and 225K (75K x3) equivalent everything else

2x means 200K equivalent/16.667 each to the above and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

1.5x means 150K equivalent/8.333% each to the above and 75% to SHY/75K SHY and 75K (25K x3) equivalent everything else

1x means 100K/25% each to SHY, TLT, GLD, SPY

Purchase price was at the close 12/30/16 through the close on 6/30/17

2.5x = 15.64%/-6.63%DD (Quarterly rebalance...15.92/-6.64%DD)

2x = 11.52%/-4.70%DD (Quarterly rebalance...10.67/-4.73%DD)

1.5x = 5.43%/-2.63%DD (Quarterly rebalance..5.49/-2.65%DD)

1x = 5.83%/-2.24%DD

Personal mix = 11.68/-5.42% DD

SPY TR: 9.17%/-2.61% DD

Torture Port (SHY/XIV/TMF, 50/25/25) 22.95%/-5.20%

Note: After some study/further review, I have switched to UPRO as the ETF of choice for the large cap leveraged ETF in my personal account. Rationale: Lower fees, liquidity just as good now. Of note, I am in the process of evaluating a switch to a less amped version of the Torture port vs. the leveraged PP. By all metrics it has done better than the leveraged PP...but we've been in a bull market since the VXX/XIV came on the scene. My basic planning assumption for this portfolio is that XIV will blow up at some point, so a 100% loss and the ability to roll with it must be an inherent aspect of the associated trading plan.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sun Jul 09, 2017 12:07 pm

If you are along for the ride with real money or just following for fun, this is a very good read.

http://ddnum.com/articles/leveragedETFs.php
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Thu Aug 10, 2017 7:38 pm

Down .9% today, would have been very slightly up but XIV was today's hammer in my version of the VPPP. A straight up 3x as mentioned would have been slightly north of positive...this is a good mix of assets and days like today demonstrate that.

On the downside it wasn't fun seeing my 500ish% profits on XIV get knocked down to 350ish% in a couple of days! :o

Repeat after me everyone: If I am doing this portfolio, I solemnly swear that I will never fixate on a single asset/ETF and that I will true and faithfully look only at the portfolio's overall results. So help me Harry.
Jeffreyalan
Full Member
Full Member
Posts: 83
Joined: Sat Sep 10, 2016 1:50 pm

Re: 20% annual returns over 40 years...interested?

Post by Jeffreyalan » Sun Aug 13, 2017 2:16 pm

Are there any compelling reasons to add a MidCap or Small Cap 3x ETF to this portfolio? Or does an S&P 500 3x suffice for the stock portion?
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Mon Aug 14, 2017 10:52 am

In my personal version I split UPRO and TNA 50/50. Compelling reasons...no.

Last time I checked, and it has been awhile, the 3x midcap ETFs had poor volume which is a good reason not to use.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Fri Aug 18, 2017 10:51 pm

2.5x means 250K equivalent/25% each to SHY, TMF, UGLD, and SPXL/25K SHY and 225K (75K x3) equivalent everything else

2x means 200K equivalent/16.667 each to the above and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

1.5x means 150K equivalent/8.333% each to the above and 75% to SHY/75K SHY and 75K (25K x3) equivalent everything else

1x means 100K/25% each to SHY, TLT, GLD, SPY

Purchase price was at the close 12/30/16 through the close on 8/18/17

2.5x = 20.10%/-6.85%DD (Quarterly rebalance...20.60/-6.64%DD)

2x = 13.58%/-4.85%DD (Quarterly rebalance...13.76/-4.73%DD)

1.5x = 7.11%/-2.63%DD (Quarterly rebalance...7.13/-2.65%DD)

1x = 7.42%/-2.24%DD

Personal mix = 12.40%/-4.94% DD

SPY TR: 9.76%/-2.61% DD

Torture Port (SHY/XIV/TMF, 50/25/25) 19.49%/-8.69%DD (Quarterly rebalance...20.44/-6.14%DD)

Notes: Random update cuz the market has been a little more interesting as of late. Not a stellar year, but not a bad one either. Volatility drag has definitely been eating our lunch a bit this year while rebalancing quarterly has harvested a wee bit of the churn. As I've written here and elsewhere rebalancing in my view is more about risk control and your target portfolio than performance. The torture port is a great example as the main difference in performance is due to taking some of those XIV profits off the table before the recent tanking. TNA was a nice hold last year but has been a party killer this year and explains why my personal mix isn't hanging with the standard 2x stats....that and XIV.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sat Sep 09, 2017 1:49 pm

New highs for all my friends!

I'm showing

9.75% for the 1x ETF version

22.28 for the 2x leveraged version
Jeffreyalan
Full Member
Full Member
Posts: 83
Joined: Sat Sep 10, 2016 1:50 pm

Re: 20% annual returns over 40 years...interested?

Post by Jeffreyalan » Mon Sep 11, 2017 8:14 am

I have had some "real money" in the 3x portfolio (with 5% XIV) for a few months and I am quite happy so far! Any thoughts as to how this compares to the Permanent Portfolio in a strong stock market downturn?

Jeffrey
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Mon Sep 11, 2017 11:07 am

The best way to simulate is to take a look at annual returns on https://www.portfoliovisualizer.com/ and multiply by 3 in a spreadsheet. It won't be exact but it should get you in the ball park so far as we can assume history is future. If you have a dose of XIV, add a bit of weight to your stock holdings and subtract from cash/wherever you take it from. I could do this for you, but better for you to get dirty with the numbers to build your own confidence/knowledge base or figure out it's not for you.

And realize intraday draw downs are going to be potentially quite a bit worse than the above will show. A good way to get an idea simply is look for a major bottom point historically and end the test there.

And of course we all know that 20-55% DD's are entirely possible in stocks and that if you multiply them by three you know ~how much your stock component is going to get whacked. Right? Everyone say: "Yes, kbg. You've told us repeatedly about this."
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Wed Sep 13, 2017 10:59 am

Mandatory reading if you have $$$ in this stuff. Comes out monthly.

https://seekingalpha.com/article/410607 ... -dashboard
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Mon Oct 02, 2017 10:00 pm

2.5x means 250K equivalent/25% each to SHY, TMF, UGLD, and SPXL/25K SHY and 225K (75K x3) equivalent everything else

2x means 200K equivalent/16.667 each to the above and 50% to SHY/50K SHY and 150K (50K x3) equivalent everything else

1.5x means 150K equivalent/8.333% each to the above and 75% to SHY/75K SHY and 75K (25K x3) equivalent everything else

1x means 100K/25% each to SHY, TLT, GLD, SPY

Purchase price was at the close 12/30/16 through the close on 10/2/17

2.5x = 18.36%/-6.85%DD (Quarterly rebalance...19.74/-6.64%DD)

2x = 12.48%/-4.85%DD (Quarterly rebalance...13.21/-4.73%DD)

1.5x = 6.60%/-2.63%DD (Quarterly rebalance...6.88/-2.65%DD)

1x = 7.01%/-2.24%DD

Personal mix = 16.32%/-5.42% DD

SPY TR: 13.62%/-2.61% DD

Torture Port (SHY/XIV/TMF, 50/25/25) 25.50%/-8.69%DD (Quarterly rebalance...25.03/-6.14%DD)

Comments: XIV and TNA puts me back in the outperform mode for the personal port...and the torture port continues to torture with its amazing returns. We've taken a pretty good volatility haircut this year...but we got just as we could/should expect. Worst drag is with UGLD where we've lost about 5% points, TMF +2% points, SPXL is pretty much dead on 3x leverage. Volatility drag is definitely the bummer side of this technique/3xETFs. However, as we are seeing there is nothing unexpected in the time I've been posting these updates. Vol hurts or helps solely based on whether we get a trend or not. Too bad we can't see the future. Rebalancing GLD (UGLD) at the 115 and 123 price levels (using GLD prices) would have given us a nice performance boost...all in hindsight. Unless things get interesting, will probably not do an update until the end of the year. At that point I'll ask to see a show of hands for continuing these posts. If I get 10+ I'll continue. If less, Dec 2017 will be it. As CraigR mentioned, after a while there just isn't much to say.
mukramesh
Executive Member
Executive Member
Posts: 165
Joined: Fri Sep 12, 2014 3:27 pm

Re: 20% annual returns over 40 years...interested?

Post by mukramesh » Wed Oct 04, 2017 12:29 pm

Please continue Kbg! I actually do follow this thread and am very interested in how your personal portfolio (with XIV) performs vs. the straight 2x leveraged PP.

Thank you again for your posts in this thread and on this forum. I've learned a lot by reading them.
bedraggled
Executive Member
Executive Member
Posts: 705
Joined: Sat Sep 13, 2014 4:20 am

Re: 20% annual returns over 40 years...interested?

Post by bedraggled » Wed Oct 04, 2017 4:36 pm

Please continue.

Your posts are a learning experience.

If you cease teaching this, I am adrift.

Thanks for all the work.
ILoveMoney
Full Member
Full Member
Posts: 80
Joined: Fri Jan 24, 2014 6:26 pm

Re: 20% annual returns over 40 years...interested?

Post by ILoveMoney » Wed Oct 04, 2017 9:23 pm

I also enjoy your posts Kbg! Please keep us posted. :)
Wonk
Executive Member
Executive Member
Posts: 473
Joined: Wed May 12, 2010 8:00 am

Re: 20% annual returns over 40 years...interested?

Post by Wonk » Wed Oct 18, 2017 9:37 am

Kbg wrote: Unless things get interesting, will probably not do an update until the end of the year. At that point I'll ask to see a show of hands for continuing these posts. If I get 10+ I'll continue. If less, Dec 2017 will be it. As CraigR mentioned, after a while there just isn't much to say.
First time back in a while for me--mainly because things have been operating as expected. Kbg your posts are always interesting and insightful. Please continue. I've been running real money in 3x for a while after a ton of research into this approach. I have no reservations about performance of the 3xPP. As mentioned it's operated perfectly for 12ish years. The main thing I think everyone needs to be aware of is counterparty risk. In a massive liquidity event there's a not insignificant chance of insolvency from a counterparty. No one knows what happens at that point so caveat emptor.

I think a way to mitigate risk is to hold 3x gold in physical & treasuries directly with the rest in 3x funds. So an example would be 15 SPXL/15 TMF /45 Physical Gold/25 STT @TD. Leverage is reduced below 2 but only 30% of this portfolio is subjected to counterparty risk. Real returns in this model have come in at 1.85x an unleveraged PP long term with predictable SD & MaxDD (about 10bps more than comparative unleveraged).

One thing I've come to appreciate is you need to be able to stomach volatility and have a real idea of when you're going to start sweating. If you can train yourself to handle large swings then you can start looking at juicing returns in various ways(3x, cashless, slice/dice equities). I've had a sizeable position in gold miners for 10 years so after 80% interim drawdowns the 3x funds volatility barely make me bat an eye anymore. But I'm still aware of the counterparty risk issue in 3x.

Looking ahead after the next market crisis once equity valuations readjust, I like the idea of migrating into a 3x golden butterfly approach (holding bullion and treasuries directly) along with income producing real estate as another diversifier. This assumes 3x funds are still around. Running something like this:

10% SPXL
10% TNA
10% TMF
30% Physical bullion
20% STT
20% Real Estate (high CAP rate property, directly held, no REIT)

Expected real returns are excellent, risk is mitigated and liquidity is high. Pair this approach with a successful small business and/or private equity and I doubt you can get risk adjusted returns much higher than that. Think of it as a modern day high speed Jakob Fugger approach with a hat tip to Harry Browne.
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: 20% annual returns over 40 years...interested?

Post by Kbg » Wed Oct 18, 2017 4:00 pm

On counterparty risk a small step is to use UPRO instead of SPXL which has the side benefits of being a cheaper ETF and marginally better performance as a result. Not as good would be to replace UGLD with DGP but which puts the port with three different providers.

Also, I don’t have serious concerns with swaps or futures on the three asset classes involved because of the assets themselves (ginormous scale) and the nature of the instruments themselves. More esoteric stuff may be in the mix but would be harder to obtain much scale vs. swaps/futures. This all presumes standard market risks even severe ones vs. comets, nukes, zombies.

If I had the resources I’d implement the entire thing with futures and cash.
modeljc
Executive Member
Executive Member
Posts: 271
Joined: Sat Feb 04, 2012 11:52 am

Re: 20% annual returns over 40 years...interested?

Post by modeljc » Wed Oct 18, 2017 5:10 pm

I still playing on Paper. Hope both KBG & Wonk will keep posting. Even if it is Annual or Quarterly.
modeljc
Executive Member
Executive Member
Posts: 271
Joined: Sat Feb 04, 2012 11:52 am

Re: 20% annual returns over 40 years...interested?

Post by modeljc » Wed Oct 18, 2017 5:33 pm

Wonk,

Like thinking forward also about a Golden Butterfly approach. If you want 20% invested in Real Estate and you want to be passive can you suggest a High cap approach not helded directly?
Mr Vacuum
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

Re: 20% annual returns over 40 years...interested?

Post by Mr Vacuum » Wed Oct 18, 2017 5:46 pm

I pulled my small VP after several months and realizing I couldn’t stomach the periods when the returns were like 2x HBPP and volatility was like 3x. I thought I could handle it but I couldn’t. No harm no foul, one less spreadsheet to track.

Huge respect to Kbg for breaking it all down so clearly and frankly. My eyes were opened to thinking I haven’t seen elsewhere. The idea of leveraging the old HB explanation of how the winners outrun the losers most of the time will stick with me.
Post Reply