Back to the Simple, Dumb PP?

[Kbg]

Agree it is pretty amazing. And all of its qualities can be turned into a growth portfolio with intelligent use of leverage.

Hi Kbg,

I haven't had time to catch up on your posts regarding the leveraged PP.  Could you summarize a few basic things like how much extra CAGR could be expected from a leveraged PP, and how much extra checking/trading would be involved (weekly/monthly/quarterly?) ?  Thanks.

Right now the cagr is very close to a simple multiple of the PP For whatever leverage you are using because interest rates are low.  I am curious at what interest rate the leveraged PP starts to look real bad. 

I know personally there is a sort of double whammy possible when using margin-- if interest rates rise, your cost of borrowing goes up but you likely lose value in bonds as stocks so possibly you liquidate at terrible time

I don't use margin leverage. I use 3x ETFs. With regard to the ETF's, I would say the odds are quite high that the imputed interest will accrue to the owner of the ETF. One would need to dive into the prospectus to find that out. But normally, the risk free rate goes to the holder of a leveraged instrument. Sometimes exactly the opposite.

With regard to performance this year I leverage to 2x and the returns this year as of last night are 12.69% vs. 6.44% for a normal PP using the ETFs I post results on. Interestingly a 75% SHY and 8.33% 3xETF version is up 6.69%. Now here is something totally crazy and very non-intuitive. Since 2012 a normal PP has a CAGR of 5.79% with a 15.01% max drawdown.  The 75% SHY/8.33% 3x ETFs version has a CAGR of 3.95% and an 8.43% max drawdown. The 2x leverage version (50% SHY) is 7.10%/-16.54% since 2012.

See the VP thread for a long post on path dependency and start dates relative to performance...short version: leveraged return rates are path dependent so speculating about how things will turn out is quite useless. All we can say is a choppy market is going to suck and a trending one is going to be awesome.

Part of my strategy is to harvest the volatility. Now this could easily have gone the other way (over time it should help not hurt however), but I hit my rebalance bands during the Feb market swoon and rebalanced on 9 Feb. This rebalance as of two days ago bumped my personal returns to just slightly under 20% vs. 12.69%. If the stock market can continue to chugg along a little bit more I will likely hit another rebalance band.

[stuper1]

How often have you had to rebalance since 2012, or whenever you started?

[Kbg]

How often have you had to rebalance since 2012, or whenever you started?

I started in 2014 and rebalance annually. 2014 I was in in 2x ETFs but then liquidity got absolutely crappy in UBT and I liked the idea of upping the cash component so went to 3xs.  I should have rebalanced once out of cycle in 2015 but didn't pull the trigger due to fear and it hurt results. So this year I decided to just bite the bullet and do it in February which has worked out very nicely.  I'd love to do it again as summers tend to not be that great for stocks but I'm not to the rebalance band. My allocation is 16.67% per asset with rebalance bands at 8.33% and 25%. Currently stocks are at 23%. I do 8.33% to SPXL and 8.33% to TNA for the stock component.

So if you do the math I am at 2x a regular PP...CAGR/MaxDD performance for start dates as follows:

2012: 3.88/-7.95 vs 7.27/-16.55

2014: 5.74/-6.93 vs. 10.88/-16.55

However, this isn't all that great. a 50% SHY and 25% each to TMF and SPXL clocks the PP by 50% performance and drawdown...