Inverse TSM Fund

[SmallPotatoes]

Do any of the inverse TSM etf's or funds have a place in the PP?  It seems that the principle is similar to gold or LTT; when stock are suffering these assets do well.  I'm just wondering if, for instance, you could do 20% TSM and 5% 2x inverse TSM or something, and rebalance within. 

I know that 2xPP and leveraged PP's have been talked about here before, but what about just shorting The Market and taking advantage of it on down days?

Thoughts?

[dualstow]

Sounds like strictly variable portfolio fun.

[SmallPotatoes]

Sounds like strictly variable portfolio fun.

Indeed. I guess it does.

Would a mod' kindly move/merge this to the VP section?

Since this is VP territory now, is it possible to create an inverse PP?

[rickb]

Do any of the inverse TSM etf's or funds have a place in the PP?  It seems that the principle is similar to gold or LTT; when stock are suffering these assets do well.  I'm just wondering if, for instance, you could do 20% TSM and 5% 2x inverse TSM or something, and rebalance within. 

I know that 2xPP and leveraged PP's have been talked about here before, but what about just shorting The Market and taking advantage of it on down days?

Thoughts?

The long term trend for all of the PP assets is up, not down, so permanently shorting any of them is not a good idea.  There's a huge difference between rebalancing among assets that are all increasing in the long term, but not very well correlated, versus assets that simply act in opposition.  Theoretically a 20% TSM and 5% 2x inverse TSM mix should act like 10% TSM and 15% buffer ("buffer" not "cash" since it would not be paying any interest).

If you're looking to reduce the volatility of the PP, increase the cash allocation and reduce the others proportionately - e.g. 40/20/20/20, or 50/16.7/16.7/16.7, or even 70/10/10/10.  Surprisingly, even a 70/10/10/10 portfolio rebalanced annually from 1972 through 2008 (using craigr's numbers had a CAGR of 8.56% (4.83% std deviation) - as opposed to the 25/25/25/25's CAGR of 9.79% (8.42% std deviation).  Although this may not sound very different, it makes $100,000 turn into $2.09M instead of $3.17M over this time period while only reducing the 1994 loss from 2.5% to 1.36% (although it does turn the 1981 3.9% loss into a 9.8% gain).

[clacy]

Leveraged ETF's overall tend to underperform the asset classes they track.  Leveraged inverse ETF's are even worse.  Not to mention that you are fighting the steady rise of asset prices.  Imagine if you had invested in an inverse Dow ETF back when the Dow was trading at 800 in the early 80's?