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 » 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.
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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.
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Kbg
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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
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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
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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."
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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
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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.
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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.
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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.
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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. :)
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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.
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Kbg
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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.
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