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The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Stock Trading: try to reduce exposure to companies with CEOs who are on ketamine 24/7
 
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No Wave
Sep 18, 2005

HA! HA! NICE! WHAT A TOOL!
Theoretical question. Say you put 20% of your money in a 5x leveraged s&p 500 ETF and 80% in treasuries or something that pay 4%. And imagine for this theoretical example that this 80/20 distribution gets rebalanced every day. In what circumstances does this do worse than 100% S&P500 1x ETF?

* # ¿ Apr 20, 2024 15:02
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# ¿ May 22, 2024 11:41
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No Wave
Sep 18, 2005

HA! HA! NICE! WHAT A TOOL!

KYOON GRIFFEY JR posted:

You kind of invented a coward’s version of Taleb’s portfolio. All of your rebalances are taxable so tax drag will kill you.
It's not so much to avoid crashes >20%, it's more to get the "free" interest gains from the treasuries vs 100% S&P 500. But taxes making it unfeasible makes sense, too much buying and selling. Makes me wonder about whether it can be done in an IRA/401k though (but even then just the transaction costs will add up without a large principal).

No Wave fucked around with this message at 15:26 on Apr 20, 2024

* # ¿ Apr 20, 2024 15:23
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No Wave
Sep 18, 2005

HA! HA! NICE! WHAT A TOOL!

pmchem posted:

read the prospectus on leveraged ETFs. they're not actually straight "#x" the base index, that's just their target. the prospectus will have details like this from UPRO's prospectus (a 3x S&P etf):



so, there are many cases where your example would underperform the straight market, typically during somewhat (or very) volatile periods.
The results in general get weird over a longer than 1 day period because there's so much volatility in the principal, which is what the rebalancing was intended to address. As I understand it these leverage ETFs only deliver what they're meant to do over timeframes of one day (which is what they mean with that "not meant to be held" disclaimer). As an example if S&P goes up 10% day 1 then down 9% day 2 your principal in a normal account would be basically even, but in a 3x leveraged one you'd be down 5%. With rebalancing this effect should go away, but again it's a lot of activity for a small gain.

No Wave fucked around with this message at 16:50 on Apr 20, 2024

* # ¿ Apr 20, 2024 16:37
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The Something Awful Forums > Discussion > Ask/Tell > Business, Finance, and Careers > Stock Trading: try to reduce exposure to companies with CEOs who are on ketamine 24/7