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Kiran Pande

 
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  • The Most Consistent Risk/Reward Speculation That I Have Ever Found [View article]
    ...death and taxes ;-)
    Dec 20, 2014. 08:32 PM | Likes Like |Link to Comment
  • The Most Consistent Risk/Reward Speculation That I Have Ever Found [View article]
    Scott,

    I'm a fan of the strategy, but it's not original and you haven't explained why it's occurring. I published an almost identical strategy in February and done enough digging to know that others discovered it before me. It has been an ongoing discussion.

    The decay occurs due to Brownian motion and ETF fees. Every ETF that tracks an underlying index with a leverage ratio over 1 or under 0 will be subjected to compounding error (or volatility decay). A simple backtest does not prove that this is the best use of the strategy (and does very little other than identify that it exists).

    Unless you illustrate what is causing the strategy to be successful (Brownian motion and fees), you are inducing naive investors to assume that shorting FAS+FAZ will always result in absurd returns, which is absolutely not true.

    - KP
    Dec 20, 2014. 12:18 AM | 7 Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    RVijay007,

    Interesting article but its assumptions are either unknown or false. Firstly, it attempts to quantify decay with a single number, which is already suspect, since decay is a relative concept. Second, it does not specify what interval is used in covering short positions. Both of these extremely important in any assessment and could easily cause a different conclusion. You can already tell that his assumptions differ from mine from the fact that the bottom chart shows the period after 2008 as a downward movement while mine shows it as convincingly upward.
    Feb 20, 2014. 07:49 PM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    johncworth,

    Take a look at the part of the conclusion where I presented an example of how a short pair actually mitigates losses compared to the underlying index, despite being 3x leveraged.

    "For example, if an underlying index incurs 5 consecutive days of 3% loss (which is far beyond what has ever occurred in recorded history, including the Great Depression), the index will incur a total loss of 14.13%, the 3x bear ETF will incur a total loss of 37.60%, and the 3x short pair will incur a total loss of only 8.13%. This isn't based on history; it's simple mathematics, or investor Jujitsu as I prefer to call it."

    The presence of an opposing levered position will serve to mitigate *MOST* of the losses in the event of a disastrous decline.

    Best of luck,
    - Kiran
    Feb 19, 2014. 02:02 AM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    convoluted,

    I have to admit my experience with options trading and more complex derivatives is not quite adequate for me to steer my article into that realm. However, it seems that simply shorting ETFs at regular intervals has the desired effect so "if it ain't broke, don't fix it."

    That being said, I think that options trading is beyond the understanding and capacity of most retail investors, whereas ETFs are highly accessible and intuitive (and also don't require a margin account). You may be right in saying that more profit or understanding can be gained by employing options rather than ETFs, but I think for the vast majority of investors, that benefit is dwarfed by the sheer knowledge required to execute such a strategy.

    Best of luck,
    - Kiran
    Feb 19, 2014. 01:58 AM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    ReligiousWacko,

    That certainly warrants more investigation. My knowledge of options is somewhat limited, but it would make sense that decay would be priced in (assuming investors are generally aware of its existence and effects).

    - Kiran
    Feb 19, 2014. 01:44 AM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    user 15601802,

    Thanks for doing your homework... I had not read this article, but found it very interesting. I'll point your attention to what is stated in the conclusion...

    "Leveraged ETFs can be held long term provided the market has enough return to overcome volatility drag. It usually does. For most markets in recent times the optimal leverage is about 2. But some markets and time frames will reward a leverage of up to 3. No markets will reward a leverage of 4."

    In other words, the effect will certainly occur, but the fact that markets statistically never move as they did in my theoretical illustrations (perpetually moving up and down by 2%), means that the leverage offered by the ETFs will reward consecutive positive movement in the underlying index more than volatility decay will punish it. Only if the underlying index fails to move decisively in a single direction will volatility decay become visually apparent, despite the fact that it is always occurring. Trading in short pairs serves to nearly cancel out the effects of these movements and leave only the returns from volatility decay.

    I think the underlying issue with the paper is that it is considering a different question than we are. We are considering what causes volatility decay, and he is considering whether volatility decay is damaging enough to shy away from leveraged ETFs, and I am inclined to agree with his conclusion.

    Best of luck,
    - Kiran
    Feb 19, 2014. 01:43 AM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    ReligiousWacko,

    It's tough to say where one would find shares of these to borrow, which suggests that options might be the better play, as some comments have suggested. I lack the resources to know where and how much it would cost to borrow these ETFs.

    - Kiran
    Feb 18, 2014. 09:15 PM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    gil129,

    Different rebalancing is done for certain of the graphs in the article. I believe I mentioned in each case how many days elapse before covering in each case. The theoretical graph rebalances every 10 days and the historical graphs assume rebalancing every 30 days.

    - Kiran
    Feb 18, 2014. 07:03 PM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    platonicbomb,

    I have actually tested it with a few pairs. It doesn't perform too well.

    - Kiran
    Feb 18, 2014. 09:03 AM | Likes Like |Link to Comment
  • Investor Jujitsu Part 1: The Volatility Dividend [View article]
    platonicbomb,

    It's less a matter of what direction the market moves and more a matter of how quickly in a single day or set of subsequent days it moves. The strategy relies on the underlying index backtracking upon itself repeatedly. You can see in the graphs that when the underlying index flounders around for a decent period of time, the short pair does extremely well. When the market moves very quickly and decisively, the short pair is relatively stagnant.

    Your understanding of the strategy is correct, other than that. Short positions must be repeatedly closed, otherwise marginal gains will start to taper off.

    Best of luck,
    - Kiran
    Feb 18, 2014. 09:03 AM | Likes Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Larry,

    This is a unique and valuable gem of wisdom that should be made into an inspirational poster to be hung on the walls of finance professionals, and certainly would have received my seal of approval for "Editor's Pick" if I happened to be one. I would never have guessed from your insightful, objective comments on my articles that this would be the subject of one of your publications.

    I am only 20 years old, but this article will stick with me. Too many retail investors are caught up in the tumult of convincing themselves that they can outperform the Ivy League professionals who have spent 16 hour days pursuing elusive returns. MDs certainly deserve special recognition for their ability to rise to the top of academic knowledge and serve humanity in one of the greatest ways possible, but the very purpose of passive investing vehicles like specialty ETFs is to allow these individuals to see attractive returns without sacrificing their time, which, in my humble opinion, is more valuable to society than any time spent by financial professionals in the first place.

    This article is perfectly timed in the days leading up to Valentine's Day, and should be taken to heart by every amateur investor out there. Time is the market's most valuable commodity.

    Happy Valentine's Day to you and yours,
    - Kiran Pande
    Feb 13, 2014. 02:07 AM | Likes Like |Link to Comment
  • How I Can Explain 96% Of Your Portfolio's Returns, Part 2 [View article]
    Michael,

    Couldn't have said it any better. I think commodities are a good place to start beyond the factors discussed here.

    - Kiran
    Feb 4, 2014. 11:55 AM | Likes Like |Link to Comment
  • How I Can Explain 96% Of Your Portfolio's Returns, Part 3 [View article]
    Joe,

    Some thought-provoking points you've brought up. I have to admit that I don't have adequate knowledge of measures beyond what I've seen Fama and French dissected. For that reason, as the author, I will refrain making definitive assessments beyond what I've discussed in the article. One of the largest problems faced by trying to model data with a regression model is that the ultimate goal is to achieve a balance between explanatory power and complexity. In other words, the goal is to explain as much of returns as possible without implicating too many factors.

    A very relevant discussion is whether these factors are predictable departures from market efficiency due to human irrationality (as I have suggested and supported) or simply ways in which the market achieves efficiency (as Fama and French advocate). In that sense, it comes down to the classic debate concerning how one views economics and the market in terms of efficiency/irrationality. It's a very loaded topic, to say the least.

    The points you brought up warrant further research and discussion. Thanks for reading.

    - Kiran
    Feb 3, 2014. 02:16 AM | 2 Likes Like |Link to Comment
  • How I Can Explain 96% Of Your Portfolio's Returns, Part 3 [View article]
    David,

    I really have very little knowledge of funds outside ETFs and CEFs, but I did in fact mean DFSVX. I found that one via the DFA website. DFFVX generally invests in both small and mid cap picks with value characteristics. DFSVX targets just companies in the smallest decile.

    - Kiran
    Feb 2, 2014. 03:26 PM | Likes Like |Link to Comment
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