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  • Leveraged ETFs For The Long Term: Rockets To The Poorhouse? [View article]
    Thanks for the comment, and congrats on SSO, which I'm guessing has done well for you (I owned UYG for two years or so after the crisis, myself, and probably should never have sold it).

    The one thing I'd suggest caution on is the idea that returns will usually be 2x SPY. Your results might differ, but these simulations suggest that the median expected return isn't much above 1x SPY (with the mean somewhat higher). And, although the fund won't go to zero unless there's a one-day decline of ~50%, irrecoverable losses are possible. Still, buying at a good time, as you did, can lead to great results, and I agree that things like SSO can be held long-term (as long as they're treated as high-risk/high-return investments).
    Aug 1, 2013. 11:52 AM | Likes Like |Link to Comment
  • Leveraged ETFs For The Long Term: Rockets To The Poorhouse? [View article]
    Yes -- there was a ".5" in there at one time, but I guess I lost it somewhere. Thanks for pointing it out.
    Jul 29, 2013. 05:36 PM | Likes Like |Link to Comment
  • Leveraged ETFs For The Long Term: Rockets To The Poorhouse? [View article]
    Thanks, Glenn, I appreciate that. I actually just implemented this stuff in a few lines of (pretty sloppy) R. I'll send you the script.
    Jul 28, 2013. 03:43 PM | 1 Like Like |Link to Comment
  • Leveraged ETFs For The Long Term: Rockets To The Poorhouse? [View article]
    Cheers, Ted. I agree; a tendency to sell after losses, for example, could absolutely complicate things in the real world.
    Jul 28, 2013. 10:56 AM | 1 Like Like |Link to Comment
  • The Optics Of Selling Financial Information [View article]
    It's not Reuters that should be targeted, here; it's the university. The U of M is a major (and exceptionally wealthy) public university, not a market-research company. It had a responsibility to see that the results were disseminated fairly. Instead, it cut a shady deal and took a cut of the profits.
    Jul 10, 2013. 07:02 PM | 3 Likes Like |Link to Comment
  • Gold Can Do Very Well Without Fed Purchases: Have We Forgotten 2002 Through 2008? [View article]
    Hi, HI, thanks for the response. I'm not sure I see the strong connections you do between these issues and gold prices. The interest rate/inflation question is more complicated, but gold doesn't necessarily trade on government indebtedness, American national prestige, growth rates, or anything else you mention. (Anyway, the U.S. was in recession in the early 80s; despite the invention of Pong, it wasn't an era of rapid growth and optimism.)

    The important thing, here, is that we don't particularly need a similar backdrop. Every bubble is different. It's not as though investing in the dot com boom was safe because the macro environment was different than at the time of the South Seas bubble or the Cabbage Patch Kids mania.

    Anyway, best of luck with your investing and writing.
    Jul 10, 2013. 01:42 PM | Likes Like |Link to Comment
  • Gold Can Do Very Well Without Fed Purchases: Have We Forgotten 2002 Through 2008? [View article]
    Many people seem to take it for granted that gold will eventually shoot up again. The last decade has made gold seem like an exciting asset that does that sort of thing. But it's not. Historically, gold has been a very dull investment that grumbles along in narrow trading ranges for years and years and years.

    When the last gold bubble collapsed, the price fell over 50% in two years -- and then drifted lower for two decades. And gold's price at the peak of that bubble was, in real terms, remarkably close to what it reached in 2011.
    Jul 9, 2013. 04:50 PM | 2 Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    Thanks for an interesting article. It probably would have saved a lot of grief if you'd acknowledged that, in practice, default isn't the main risk facing holders of government debt.

    It also hasn't been that uncommon for nations with their own currencies to default. Not all sovereigns can borrow in their own currencies (a "sovereign bond" is usually a bond issued in a foreign one). If your debt is in USD, then printing your own currency helps only for as long as people will sell you USD for it. This was part of the Weimar experience -- reparations had to be paid in foreign currencies or in gold.

    (I do realize that you're thinking of countries like the UK, USA, and Japan, here, but it's worth bearing in mind that default remains a possibility for some others.)
    Jul 7, 2013. 01:44 PM | Likes Like |Link to Comment
  • Adventures With 'Free' Checking, Transatlantic Edition [View article]
    I agree that regulation's probably the way to go. This is one of those tangles industries occasionally get into that are just bad for everyone. If one bank began to charge for chequing up-front (I'm not suggesting that banks have a powerful instinct to be up-front about these things; it's a thought experiment) it would lose relative market share.

    One comparison might be APR interest rates. Expecting consumers to make sense of every lie anyone might care to tell them about the interest they'll pay is unreasonable, so advertisements are required to include a standardized annual rate. This makes companies compete on price instead of deceptiveness, makes marketing more useful to both consumers and advertisers, and prevents people from being ripped off (in one particular way, at least).

    I'd say that expecting consumers to watch their accounts like hawks in case their bank tries something funny is similarly unreasonable. And what a waste of collective effort that would be, anyway.
    Jul 2, 2013. 10:38 PM | 1 Like Like |Link to Comment
  • An All-In Bet On David Einhorn: Greenlight Capital Re [View article]
    Thanks for another excellent article, and for the explanations added in comments.

    I wonder whether the role of chance in past outperformance is being dismissed too casually. When there are thousands of funds (and many others that have closed up shop), some will outperform over periods of years. If you pick the one that's done best in the past, are you getting a team of geniuses who are going to outperform in future, or are you effectively deciding to copy the lottery number picks of someone who happens to have won in the past?

    (Outperformance over long periods does start to look like cleverness, but it may also be the result of a relatively small number of actual decisions. This might also be relevant to the question of why value investors dominate performance rankings: If they simply make a smaller number of trades than others -- buying and holding instead of trading in and out of many positions -- then they should have a much flatter distribution of possible outcomes. You'd then expect them to be overrepresented at both extremes.)

    I do realize that a big part of your case relies on a return to the usual price:BV ratio, and that you're not counting on 20% returns from Greenlight, so it's a very interesting idea either way.
    Jul 2, 2013. 06:50 PM | Likes Like |Link to Comment
  • Chart Of The Day, Fed-Tightening Edition [View article]
    Do we need to beware the nocebo effect? Some of the popular fears around QE may be groundless but not harmless.

    Agreed, though, a good article.
    Jun 30, 2013. 01:24 PM | 1 Like Like |Link to Comment
  • Beating A Dead Horse To Life [View article]
    Thank you for the lecture on illegal immigration, gambling, gun control, homicide, tobacco, and electric cars. I'm confident that it will help reduce the political content on this site.

    I'm not sure I was so far out of line. There was an ethical argument, of a sort, in the article, so it didn't seem unfair to take issue with it. Claiming that you can own tobacco companies and also disapprove of them struck me as an appalling hypocrisy. Buying shares makes you a part owner of the company, gives you a share in its profits, aligns your interests with its, and benefits it in other ways. The rationalizations offered later (and I'm still not sure whether they were serious, or just there to bulk out the I-am-giving-you-a-reme... thing the author was trying to insult me with) were unconvincing. Saying so may make me a troll. Luckily, I have the demeanour for it.
    Jun 29, 2013. 08:28 PM | Likes Like |Link to Comment
  • Beating A Dead Horse To Life [View article]
    Yes; this is a pretty comprehensive list of the things people usually tell themselves, served up with about the usual amount of sarcasm and condescension.

    Telling yourself that I must be an ignorant chump who doesn't know how stocks work -- was that a comfort?
    Jun 29, 2013. 09:28 AM | Likes Like |Link to Comment
  • Beating A Dead Horse To Life [View article]
    You "learned to segregate business from personal considerations"?

    There's nothing about investing that makes the principles you'd apply elsewhere irrelevant -- just inconvenient. If you abandon them to buy tobacco stocks, you probably shouldn't claim to have had them in the first place.
    Jun 28, 2013. 07:15 PM | 2 Likes Like |Link to Comment
  • 174 ETFs You Should Never Buy [View article]
    The order doesn't matter. Either way, you end up at 96 for the leveraged fund and 99 for the unleveraged. What matters is that you don't have the kind of net gain that will allow the leveraged fund to rise or break even.

    You do need gains, because if the underlying just bounces back and forth around its original price, a leveraged fund -- assuming it multiplies gains and losses in percentage terms -- will decline. If the index falls 10% and then rises 11.1% (or vice versa), it will end up back where it started. The leveraged fund, meanwhile, will lose 20% and then gain 22.2%. But it takes a 25% gain to offset a 20% loss, so it will actually lose ground.

    In a rising market, though, leveraged funds can do well for a long time. As I said above, compounding has allowed some to produce more than twice the returns of the underlying over periods of years. You just don't much want to be holding them in any other kind of market.
    Jun 28, 2013. 05:56 PM | Likes Like |Link to Comment