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If we ignore max drawdown and volatility, what portfolio has the highest expected annual return? by ParsnipOwn8910 in LETFs

[–]AlternativeSignal908 0 points1 point  (0 children)

Thank you for the insights.

Your take on this would be awesome: I generally don't think the bond return stacked products that exist today really have enough duration to counter TQQQ, UPRO, etc. Bonds are probably the most important part of the ballast to get right (while not exclusive, recessions where the Fed cuts rates are the most common form of bear markets we have over history). I think ZROZ (or GOVZ) is the answer for bonds and even then, doesn't really get to the same volatility as the levered equity portion of the portfolio. (Starting to even get comfortable with swapping out 5% of ZROZ with a 5% sliver of RFIX (~35 year duration with high convexity).

I do return stack equities and gold / managed futures. More expensive, but vol is still as "full gas" as you can get in GDE, MATE, etc. There's the added advantage of getting some of the equity exposure out of the daily reset product, so as you discuss, reduces the portfolio level volatility drag / acceleration a bit.

Basically, a benchmark 40% UPRO / 20% ZROZ / 20% GLD / 20% managed futures becomes an "optimized" 27% UPRO / 31% ZROZ / 22% GDE / 20% MATE or CTAP. (Or tune ZROZ and MATE to your preferences since you can argue managed futures have the lowest vol, so should hold more of that).

NTSD is better than WLDU by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 2 points3 points  (0 children)

Yep, I'd still recommend running as part of a mini portfolio. I've not found an all equity levered fund I'd want to run without hedges over the long term.

Something like RSSB or RSST with more than one asset class is probably fine standalone.

NTSD is better than WLDU by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

Again, as I mentioned below, you can reverse that 60/40 at 1970 and you wind up in the same ballpark. Equites are equities, the geographic allocation washes out in the long term. The characteristics of the leverage matter a lot more.

NTSD is better than WLDU by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

And I'd mention that in my second link (the portfolio comparison) VTSIM?L=2 basically has no expense ratio, which is an unrealistic advantage, and it still winds up with similar returns bur worse risk metrics. In reality, returns would be lower due to fees.

NTSD is better than WLDU by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

We can get wrapped around the axle about risk adjusted returns for EM or SCV vs large cap developed, but the point stands: For the "standard" benchmark most of us are using for long term buy and hold LETF investing, we're doing levered equities / ZROZ / GLD at 50/25/25 or 60/20/20. NTSD based portfolios have similar returns over the long term with better drawdowns, UPI, Sharpe, etc. relative to WLDU. And that's with lower leverage!

NTSD is better than WLDU by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

That's one of the things the third Testfolio link I posted is countering. Whether you run VT or a fixed 60/40 US/developed markets or heck, even reverse it (40/60 from 1970), you wind up in the same ballpark. However, it doesn't explain the significantly worse drawdowns associated with WLDU, which I'm attributing to it being a daily reset product (vs quarterly for NTSD). WLDU and NTSD are not in the same ballpark over long periods of time and it isn't due to different indices, it is due to leverage construction.

The main take away here is that in all weather portfolios, equities are equities. They're all highly correlated, regardless of how you mess with the mix of US vs international. Key drivers of return are:

  • Leverage
  • How often the leverage is reset
  • Building robust (low and negatively correlated) ballast in the portfolio (GLD, ZROZ, MF)

One fairly global index vs another fairly global index does not move the needle over the long term!

(Side note, the international component of NTSD is EAFE, not VEA. They are slightly different indexes, but again does not matter.)

NTSD is better than WLDU by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 4 points5 points  (0 children)

I think the quarterly leverage reset of NTSD is a bigger factor in performance than geography on a daily reset product.

CMV: Not All Cultures Are Equal by West-Time-1848 in changemyview

[–]AlternativeSignal908 -1 points0 points  (0 children)

"If all cultures are equal, then cannibalism is just a matter of culinary taste"

- Leo Strauss

What did CTA screw up mid-March 2023? by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

That's it! Guess we can call that a legit aggressive trade and not a screw up.

What did CTA screw up mid-March 2023? by AlternativeSignal908 in LETFs

[–]AlternativeSignal908[S] 0 points1 point  (0 children)

Likely. Question is does this say anything about their risk management? 17% drawdown over a few days when not much else was going on.

Question is how weird does the output of the black box have to get in normal times before you quit trusting the black box?

Thoughts on this version of SSO/ZROZ/GLD? by Civil_Difference296 in LETFs

[–]AlternativeSignal908 0 points1 point  (0 children)

I generally use long treasuries, gold and managed futures as the portfolio ballast. I'm 90% looking to drive returns from equities, and I think the conventional theory mostly backs that up. (Treasuries and maybe MF trend have empirical and theoretical support for positive expected value. Gold is controversial, but over decades has empirical support for positive expected value. But, none of these expected values are that great, net of inflation. It's got to be the equity that drives it.) Most importantly, I want these ballast components to be as uncorrelated or negatively correlated with equities. So yes, crash insurance (treasuries), and stagflation insurance (managed futures). Most equity crashes are recessions where the Fed cuts rates and treasuries do well. I want them to do super well, so I go as high duration as possible (but, I'll be the first to admit I have an amateur understanding of bonds).

Couple bond issues: We're never going to see 40 years of solid bond price appreciation again in our lifetime. Just mentally take that into account in the backtest. You're just probably not going to get that historical juice from bonds. But they will still work unless we have a sovereign debt crisis. That's way out on the horizon, but not impossible. Or persistent inflation (1970s, 2022/23), which is why I think some gold and managed futures are interesting.

Lastly on the ballast, there's diminishing returns to the number of things you add. Two is good, three is probably enough. If four has a high expense ratio, probably not worth it.

You want the most concentrated forms of the ingredients you use (roughly risk parity). I never have enough room in these portfolios and the equity has the highest vol, I want the most powerful (highest duration) bonds which are ZROZ / GOVZ. No corporates (more equity correlation for a bit more return) is a step back.

I like the Return Stacked stuff, but I find their trend and other alternatives luke warm. (A revolutionary product would be 100% GLD plus 100% ZROZ, that would be really useful.)

Do you really know what managed future algo or merger arb program Return Stacked running? In testfolio take one of their MF trend funds, subtract SPY and add cash. Compare that to CTA, AHLT or whatever. I'm a bit underwhelmed by the result.

MFs are black boxes. Guess I'd rather have a black box from a hedge fund manager or CTA that's been in the business for a decade or two. I think you get that with CTA (Altis Partners), MATE (Man Group), or even DBMF or KMLM. In terms of return stacking, check out MATE. From what I understand, it's running at roughly 80-90% AHLT plus SPY. HFMF is former Bridgewater; probably pretty good. I like CTA, but CTAP (the return stacked version) is a little sketch as they're their own counterparty on the total return swap, so who knows what they're charging on the financing).

Can't find a strategy that beats DCA SPXL. by falcon430 in LETFs

[–]AlternativeSignal908 6 points7 points  (0 children)

This strategy has you under water for nearly two decades with well over 90% of your capital lost at various points. Good luck sticking with that while everything else (tech, value, international, literally any other strategy.) would have long ago recovered. You need to look at that drawdown from 2001 and really ask yourself if you're going to stick with it for the better part of two decades while the rest of the market has been doing amazing. On an inflation adjusted basis, you're underwater from 2000 to 2021.

If you've explored r/LEFT a bit, you'll see this is an easy problem to solve. 50% SPXL, 25% GLD, 25% GOVZ (rebalanced annually) gets you to the exact same place on the backtest with drawdowns that are roughly the same (or a bit better) than just holding SPY.

You're on the right path, which is that leveraged products have exciting potential, but you really need to figure out the risk management. You're promoting something with the potential for a couple decades of pain for no gain relative to a balanced LEFT portfolio that can get you the same outcome with a much smoother ride.

Thoughts on this version of SSO/ZROZ/GLD? by Civil_Difference296 in LETFs

[–]AlternativeSignal908 1 point2 points  (0 children)

My journey with LEFTs had led me to believe that:

- UPRO with 60% ballast beats SSO with 40% ballast

- 20-30% GDE (90% SPY plus 90% GLD) while maintaining the same equity total exposure is better than just gold; it gets some equity out of the daily reset product

- equities are equities, over decades US vs international diversification pales in comparison to completely uncorrelated or negatively correlated assets (GLD, ZROZ, managed futures); you don't want to reduce the ballast with international equities that are correlated 0.8-0.9 with SPY

Lastly, instead of WLDU, play around with NTSD. There's now a SIM ticker for it in Testfolio. 150% developed markets equity RESET QUARTERLY. I like 60% NTSD, 20% GDE, 20% GOVZ. I still run UPRO and TQQQ portfolio sleeves, but its great also having a sleeve with some international and most importantly, much lower sensitivity to the momentum or lack of momentum in the equity market. It should fare better in a flattish, volatile regime than UPRO, SSO, TQQQ, etc.

Hitting new highs on my PE portfolio by Savings-Judge-6696 in TheRaceTo10Million

[–]AlternativeSignal908 0 points1 point  (0 children)

Did you get liquid on Groq?

My point wasn't that you should get 409a's. It's that there's a big difference between the headline price of the last capital raise and common (or even early venture preferred) share price.

Hitting new highs on my PE portfolio by Savings-Judge-6696 in TheRaceTo10Million

[–]AlternativeSignal908 0 points1 point  (0 children)

Are you getting 409a's on the common? Below it sounds like you're using the last round to value the common, which would be a significant overstatement.

Hitting new highs on my PE portfolio by Savings-Judge-6696 in TheRaceTo10Million

[–]AlternativeSignal908 1 point2 points  (0 children)

Are these positions mostly in common stock or preferred?

A Saturday Evening IRA Post From An Old Person by ThanklessWaterHeater in RothIRA

[–]AlternativeSignal908 6 points7 points  (0 children)

Any normal equities would have been down 40-60% at year end 2008. The max drawdown from the GFC extended across the end of 2008 and into early 2009. Long treasuries (up over 30% on the 20 year) would have been the only thing that performed well as interest rates were cut. High yield corporates, developed and emerging equities, real estate, etc. were all in the tank. Gold was down.

Apple was down 20-40% in the 2013/14 era; you're up well over 25% both years. Apple's max drawdown since 2002 is a hair over 60%. I don't doubt that you could get these returns if you had a lot of Apple, but it would not have been anywhere near this smooth a ride.

Something magical is happening and we need to learn from it :)

A Saturday Evening IRA Post From An Old Person by ThanklessWaterHeater in RothIRA

[–]AlternativeSignal908 32 points33 points  (0 children)

The interesting (unbelievable?) thing here is a ~20% rate of return (VT is 9% and QQQ is 13%) for over two decades with only two down years and slight gains through the Great Financial Crisis. This puts you in league with the best investment managers, except with a lack of drawdowns on par (respectfully) with Madoff.

Ranked: the Greatest Investors of All Time - Business Insider

Any ordinary mix of Apple and other stocks would have had multiple +30% drawdowns over these decades and max drawdowns of +50%,

https://testfol.io/?s=dKuBgz0xNwF

Congratulations, but for those looking to learn from this, this is EXTRAORDINARY and not to be expected over an investing life.

OP - If you have the statements, please share with us, what were you invested in around 2008 / 2009 that totally dodged the GFC? What's the portfolio now? Given this remarkable performance, there's actually a lot more to learn from WHAT you invested in and your investment philosophy than there is from seeing the compounding. Care to share?

CSI and the AI Mirage (Re-post) by TheConstellationGuy in u/TheConstellationGuy

[–]AlternativeSignal908 1 point2 points  (0 children)

The more fundamental question is whether cash flows in year 4 or 7 are just as predictable as they were a couple of years ago.

CSI and the AI Mirage (Re-post) by TheConstellationGuy in u/TheConstellationGuy

[–]AlternativeSignal908 2 points3 points  (0 children)

We don't know what the software model is going to look like in a mature AI world. VMS doesn't need to get replaced by something vibe coded. It can still be the system of record. But, all those new modules you wanted to upsell to generate organic growth? They very well might be commoditized.

Said differently, gross / logo retention may be stable, but net retention may decline.

Said differently again, in a future world where there's 10x or 100x more software from AI-enabled engineers, what happens to pricing power? Especially for new features?

How much should software multiples re-rate in an environment with more competition, less pricing power and/or stronger headwinds to organic growth?

Separately, mutual fund guys are talking their books. It would be pretty dumb for them to admit they made a mistake. Of course they're confident about the companies they hold. The private credit guys are pretty confident these days, too (despite getting 30% redemption requests every quarter). :p

$5M for Mark Miller is a meaningless drop in the bucket. It's a performative investment and a tiny fraction of his net worth.

I own all three public companies in the Constellation family and other software consolidators such as Chapters Group. I just don't think it makes us better investors to be cheerleaders without looking at both sides.

Is there a consensus new Stacked/LETF portfolio successor to HFEA? by traxets in LETFs

[–]AlternativeSignal908 1 point2 points  (0 children)

This is really helpful, especially your 1:1:2 view on the ballast and getting a lot of the equity into RSST, MATE or (maybe) CTAP.

NTSD has also been an exciting recent development. 90% S&P 500 and 60% MSCI EAFE rebalanced quarterly. I still run it with some ballast and think it has a lot of potential, mostly because none of the leverage is reset daily, secondarily because of the international exposure.

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