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.