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

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

Post by Kbg » Sun Dec 11, 2016 10:57 pm

Highly likely I will pull the trigger on a rebalance tomorrow...but I thought I'd throw some real numbers out there to give folks a sense of the volatility and leverage variation possible. Looking at TNA (actually I posted my portfolio incorrectly. I split the stock portion between SPXL and TNA 50/50 for the stock allocation of 16.67%). TNA was essentially flat from Jan 15 to Jul 16...but check these numbers out through 12/09/16.

01/08/15 Open TNA
02/11/16 Open TNA

IWM 19.54%/TNA 37.00% - 1.89x leverage
IWM 47.56%/TNA 192.57% - 4.04x leverage

My best open position is a batch of XIV @ +190.67% bought on 2/11/16
My worst open position is a batch of UGLD @ -29.06% bought on 1/8/15

Since beginning in Jan 2014
My best closed position returned 56.20% (XIV)
My worst closed position returned -19.97% (TMF)

As an extra special treat to the dedicated readers of this thread I figured out my max DD which happened from Feb 1 15 to the end of the year...16.14% Max DD. I have 30.3% more money in this account than when I began net of all costs. By way of comparison, 100% SPY has returned 30.83% with a 13.01% max DD and a standard PP has returned 12.16% with a 7.65% max DD annually rebalanced. The latter figures do not include trading and account costs. So for me the performance of the portfolio is a smidge less than 2.5x leverage.

Biggest lesson learned thus far...suck it up and rebalance even if it makes you want to puke.

Trigger pulled (update)
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TrickPony
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Re: 20% annual returns over 40 years...interested?

Post by TrickPony » Thu Dec 15, 2016 1:02 pm

"These are the times that try men's souls." I think Thomas Paine must have been thinking about the gold position of the 3X portfolio.
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Thu Dec 15, 2016 2:06 pm

TrickPony wrote:"These are the times that try men's souls." I think Thomas Paine must have been thinking about the gold position of the 3X portfolio.
Yup it can. Who knows what will happen in 2017 but I was super glad I held my nose and rebalanced at band limits last year. Bought a bunch of ugly (UGLD) early and sold it high mid year. Rinse and repeat would be nice. Indeed that trip is pretty much what made 2016 a good year. I suspect there is more gold pain to come this go round, but what do I know?

Remember: We never, ever do this portfolio if we like to fixate on single asset classes. Our bet is on the PP mix continuing to work and taking advantage of the non-intuitive compounding math behind the leveraged versions of highly volatile PP components.
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sat Dec 31, 2016 9:11 am

For a 100K portfolio...

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 12/31/15 through the close on 12/30/16

2.5x = 10.83%/-24.89%DD (Quarterly rebalance...12.10/-22.53%DD)

2x = 7.48%/-15.84%DD (Quarterly rebalance...14.61/-12.97%DD)

1.5x = 4.14%/-10.87%DD (Quarterly rebalance...6.08/-7.87%DD)

1x = 5.53%/-8.05%DD

Personal mix = 26.43/-10.28% DD

S&P 500 TR: 11.26%/-9.91% DD (SPY 12%/-10.32%DD)

Comment: Going back it appears I didn't post a November update. My apologies. If you go back to the August update it will be pretty clear the back half of the year was not super pleasant for this portfolio. The high point for my personal port was on 9/7/16 where it hit 36.90% and went down to 22.82% by 12/01/16 before recovering. However, this year's performance is HUGELY instructive in terms of portfolio management. If you will note, my performance is about triple the 2x version. Some of this is because it was a monster year for XIV but the large majority was due to rebalancing at timely points in the year. I rebalanced the port's main elements on Feb 11, Jul 1 and Dec 12. XIV rebalances happened in Feb, Mar, Aug and Dec...Feb was a buy and all the rest were sells. Just straight quarterly rebalancing helped all of the ports by quite a bit.

When I first started this port I had a big debate with myself on whether to do quarterly, annual or band rebalancing and decided to go with bands and some judgement. But I don't over think it. My rebalancing thought process goes like this: Question 1: Has a band been hit. If no, do nothing. If yes, time to look at rebalancing. Question 2: Has the cratering asset "appeared" to stabilize or is it still spiraling down in a ball of flame. If stabilized, pull the trigger. If spiraling, wait. Question #1 is FAR more important and has FAR more weight in my decision.

I will leave it up to the reading public as to whether or not this port beat the S&P 500 this year. The pessimist would go with 2x not rebalanced and say no, the optimist would go with the quarterly rebalance and say yes. For me, I'm going with a crushed it. :)

But by way of full disclosure and to illustrate my port's "tracking error" vs. SPY.

2014: +.56%
2015: - 10.24%
2016: + 14.43%

Over the three year period I'm beating the SPY by a whopping .8% (30.07 vs. 29.27). Yeah, that's lots of work for barely beating B&H of an index fund. On the positive side, the standard PP with ETFs is up 12.74% over that same time period. For those paying attention that is 2.360282574568289x leverage. However, on the negative side going with a 2x version since 2014 has NOT delivered 2x performance at all but HAS delivered 2x the max DD if you are just annually rebalancing. In sum, this port requires paying some attention to/active management and rebalancing is a must. I'm looking for our first bear market since I started anyway to see if I'm going to stick with this for multiple (more) years. If we do OK during a bear, I'm in for the long haul. If not, we have to ask ourselves if it is possible for mere mortals to beat a no-brainer no effort B&H of a cheap index fund. Heck, even lots of hedge fund managers can't do it. Perhaps we are too overconfident? My hope is February's PP vs. the S&P 500 is what we can expect in a bear...S&P 500 down 10% 2x PP up 9% in the space of 1.5 months.

Well gang...that's the 2016 wrap up. Most likely I'm going to move to a quarterly update next year with perhaps an additional post here and there if I think there is something going on that is worth commenting on for teaching purposes.

May 2017 bring you good fortune...kbg
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sat Dec 31, 2016 9:14 am

Oh yeah, one more important point that merits its own separate post...compare the 2.5x and 2.0x versions with rebalancing...that is about as clear a picture as it gets as to why you MUST, MUST, MUST have a big wad of cash as part of this port.
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sat Dec 31, 2016 5:25 pm

Well I hadn't seen Craigr's big announcement until just now. Perhaps this will be the last post for this thread from me.

Best wishes to all in their future endeavors.
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Re: 20% annual returns over 40 years...interested?

Post by Mr Vacuum » Sat Dec 31, 2016 5:50 pm

This has been a fascinating thread. Thanks for all the ideas, backtests, and reports, Kbg.
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Sat Jan 14, 2017 10:29 am

Read Fred Piard's ETF article and study the data table. He does this monthly...good education for this style of investing.

http://seekingalpha.com/article/4036714 ... oard?ifp=0
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Re: 20% annual returns over 40 years...interested?

Post by clacy » Mon Jan 16, 2017 10:35 pm

Kbg wrote:Read Fred Piard's ETF article and study the data table. He does this monthly...good education for this style of investing.

http://seekingalpha.com/article/4036714 ... oard?ifp=0

Nice! Thanks for that
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Mon Jan 23, 2017 1:08 pm

Hey this will be fun to type: I'm outperforming the SPY this year by 600+% thus far. .67% to 4.74%. To have obtained these returns people had to eat their spinach, err I mean buy UGLD when it needed to be rebalanced into.
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Re: 20% annual returns over 40 years...interested?

Post by dragoncar » Mon Jan 23, 2017 5:46 pm

I did rebalance into gold/TLT but so far it's overall negative. Nice to beat the S&P over a 2 month period, but that can happen with almost any holding
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Re: 20% annual returns over 40 years...interested?

Post by Kbg » Mon Jan 23, 2017 7:16 pm

dragoncar wrote:I did rebalance into gold/TLT but so far it's overall negative. Nice to beat the S&P over a 2 month period, but that can happen with almost any holding
Apparently you missed my ;)
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