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Krystof Huang

 
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  • Trend-Trading SLYG Beats Leveraged ETFs [View article]
    P.S. CSD disqualified from my portfolio because a 6-year perspective shows it was very slow to rebound from 2008. Replaced with VCR consumer discretionary ETF.
    Dec 18 05:04 PM | Likes Like |Link to Comment
  • Trend-Trading SLYG Beats Leveraged ETFs [View article]
    * Dec 18, 2013: SLYG now seems feasible for trend-trading, but better trend-trading choices are available.

    Today, the spread on SLYG is only about 30¢ on a share price of about $174, less than 0.2%. That might be tolerable. However, probably the best small-cap ETF for trend-trading is VBK: over $3.5 million in assets, virtually non-existent spread, and performance levels about midway between SLYG and IJR (the standard non-optimized S&P 600 Small Cap ETF). http://bit.ly/1kVJGb5

    My current picks for trend-trading ETFs with high gain and low spread (during regular market hours): FDN (leading internet companies), XRT (S&P Retail Index), CSD (young spin-off companies), PKW (companies that self-invest), GURU (companies preferred by hedge funds), VBK (leading Small Cap companies).

    Trend-traders often focus on highly specialized industries or countries. However, with the above value-investing ETFs doing consistently much better than the S&P 500, I currently avoid the hassles, sudden pratfalls and moral ambiguities of highly specialized ETFs. Therefore avoiding ETFs for banking, real estate, energy, biotechnology, pharmaceuticals and health care.
    Dec 18 02:09 PM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    VEQTOR = CSLS plus free added hedging. And VEQTOR = VIX without long term losses.

    Thank you Fred, for assuring that perhaps I am not wasting too much space. I spent Thanksgiving studying some charts and consequently feel obliged to share the following.

    1. The 2-year performance of VQT during the current bull market is very equivalent to CSLS (Credit Suisse Long-Short Equity Index). However during an S&P downturn, VEQTOR goes up while CSLS goes down. This means that VEQTOR achieves its market-inverse upward spikes virtually cost-free relative to the average long-short system.
    finance.yahoo.com /echarts? s=^GSPC# symbol=^gspc; range=2y; compare=vqt+csls;

    2. I have viewed the 5-year charts of the index of every VIX ETF. Only two do not seem to have a seriously negative long-term expectation: XVZ (Dynamic VIX Index) and SVIX (Long-Short VIX Index). XVZ performs much like a mid-term pro-VIX index but without the huge long-term losses. http://bit.ly/19lrtSF (To see this comparison, select "5-year" and compare to "S&P 500" and to "S&P 500 VIX Mid-Term Index MCAP." You can also add several variations of VEQTOR.)

    I.e. if you want to bet precisely pro-VIX or anti-S&P, XVZ might be a good choice. However during bull runs, any XVZ combination will do more poorly than a VEQTOR combination. Because during bull runs, XVZ goes steadily downward, while VEQTOR goes steadily upward.
    Dec 12 11:45 PM | Likes Like |Link to Comment
  • 5 Common 'Junk' Bond Investing Mistakes [View article]
    Good point, Michael. The junk bond rage of the Milken era is also credited with fueling the tech bubble of the 90's, thereby indirectly causing a stock market bubble and inevitable crash. This all should be discussed.

    However, I am unclear whether blaming bonds for a market crash might be like blaming slaves for a slave rebellion?

    So long as stocks are vastly more significant than bonds, then the imprudent massive investing in bonds--or imprudent massive investing in derivatives--or in subprime mortgages--or in whatever by whatever means--will again and again cause a pop in an economy that is always in a bubble. By bubble I mean P/E ratios of 10 being "normal." Meaning the price of most stocks is generally about 1/10 reality and 9/10 hysteria.

    And by the way, how much money is there really in the world? What would happen if every billionaire and trillionaire clan converted their assets to cash? Would there be enough cash? Or would this have the same affect on the value of cash as suddenly doubling the supply of diamonds would have on the price of diamonds? I do not think that anybody has even thought about this, much less looked into it.

    And why do corporate executives climb over each other to make risky investments? Do you know the US banks are paying huge money to lawyers and lobbyists to "defang Dodd-Frank"? http://bit.ly/JcbzzS I.e. the US banks are fighting tooth-and-nail for the right to repeat the debacles that caused their massive bankruptcies in 2008. Their rationale: if US banks are not allowed to play high-stakes games with the money of depositors--then international banking conglomerates will steamroller right over the US Banks. And this is probably true, somewhat.

    Because again the stock market enables people and companies to create an unstable situation and walk away with billions after it crashes. It does not pay to build up an original Sears & Roebuck or original Mercedes Benz or other old-fashioned company or product that is built to last. Why work for 50 years to build something to last--when instead you can make billions more profits in 1 year by playing high stakes games--and the players themselves never pay for the ante?

    We are all looking superficially at the way things are, not the way they should be.

    Bonds are fundamentally based on what companies need and can afford to pay. Bonds should be relatively safe, even for the average Joe. But because of the supreme emphasis of society on the stock market, bond investors are forced to take high-risk situations. Because bond rates are much lower than they should be because so many companies get easy money by playing the stock market game--where you get billions of dollars by promising nothing except supposedly a "share" of a company that itself is 9/10 paper promises. If stocks were less accessible, companies would be forced to compete for higher bond rates. And consequently the average Joe would be better able to get good return on investment without entering a poker game. And the entire world would not be sucked into the poker game. And banks would not feel they have to play high-stakes games with derivatives. And with less stock investing, money itself would not have the same tendency to become worthless, thus costing money even for those why never buy stocks. Etc., etc.
    Dec 12 05:20 PM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    VEQTOR + trend-trading hybrid system:

    Before the end of this year, I hope to initiate a system which combines VEQTOR ETFs with trend-trading, thereby reducing VEQTOR from 50% to 25% of total system. I also intend to post the trend-trading signals on my instablog here, if people are interested. The results of trend-trading are much less predictable than for VEQTOR. If you want to be rather certain of aggressive and consistent gains, use only VEQTOR. However, if for example you are content with 10% of portfolio in VEQTOR, and do not wish to add more derivative exposure, then perhaps consider increasing the long-only ETFs while also doing some trend-trading.
    Nov 27 01:26 PM | Likes Like |Link to Comment
  • Contango In Futures-Based Commodity ETFs: A Real Profit Killer [View article]
    I recently developed a strategy for investing in oil prices, and was actually looking for a list of other investments with a contango problem to explore. However this article and the replies to it have inspired me instead to consider more deeply just how important oil contango is for many people. Gold is popular but nobody requires gold to run their car or heat their home. Meanwhile there are non-contangoed methods of investing in gold, for example putting some in a drawer. Therefore thanks to this article, I have suddenly decided somewhat to specialize for awhile in refining my strategies for investing in oil prices. Thank you.
    Nov 27 03:28 AM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    ""...if there is no distinct movement either to the upside or the downside, the product would underperform."" I think this is correct.

    Thank you Amateur-Investor for tolerating my over-wordiness. My understanding of the inner workings of VEQTOR is not as deep as Fred Piard's. However I just know that there is always a time at the beginning of any downturn during which any long-short system is going down. Also (as you imply) this is necessary because if hedging is triggered too often then net losses must result. Also consider this...

    a) The best-performing-by-far long-short fund for 2008-2012--RLSFX (now closed to new investors)--had a higher 2008-9 downturn than any of the other top-performers.

    b) In-between the rare times that reliance on VEQTOR causes a significant loss--meanwhile rebalancing with VEQTOR may have caused such high gains that you might not care.

    c) Also, if by chance VEQTOR ever causes you to lose -40% or so, it will most likely be under conditions in which most investors have lost -80% or so. Wealth is a relative term. "In the land of the blind the one-eyed man is king."

    A 50-50 combination of VEQTOR ETFs with high-gain long-only ETFs (such as GURU and PKW) seems a good idea for a secondary speculation account. Nonetheless, I would not suggest for anyone to consider more than 25% of total savings in VEQTOR (unless their portfolio is less than $10,000). And for mature portfolios perhaps only 10% should be in VEQTOR. Please consider that if creating a long-short system by combining VEQTOR 50-50 with long-only ETFs, then 25% in VEQTOR is actually 50% in a VEQTOR-based system. The other 50% should either be in US Treasuries or--if you want to be aggressive--in top-performing long-short mutual funds such as MFADX and DGQIX.

    By the way, although PHDG is safer because it uses less derivatives, I believe that 1/3 of a large VEQTOR allocation or for simplicity 1/2 of a small VEQTOR allocation should use VQT for risk diversification.
    Nov 27 02:35 AM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    P.S. A big question that I intend to look into later (if nobody else does) is whether or not the PHDG and VQT managers might be using institutional-grade VIX instruments that have less contango than VXX? If so then the VEQTOR protocol might not be anything special. If you can simply minimize contango then any sensible protocol can be effective for going long on VIX.
    Nov 20 11:17 PM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    I am skeptical that volatility changes are more effective than price changes for trend-trading signals. Volatility is often called the "fear factor" and assigned magical predictive properties. However VIX is mainly just what happens to puts when stocks fall--put-sellers are reluctant to lower their ask in step with falling prices, especially when panicky or trend-following put-buyers inevitably start flooding in. On the other hand, most price-trending systems do not work very well, whereas VEQTOR somehow does seem to be working. So someday when I have time, I would like to look into this and compare notes.

    Meanwhile, just like to say that PKW is a generalized value-investing system--and has been doing so much better than the S&P that when combined 50-50 with PHDG/VQT--the average will be higher than the S&P since the inception of VQT. So I am suggesting for the average non-trending investor simply get an ultra-low-fee trading account and rebalance annually between PHDG and PKW. (Or quarterly if the investment is sufficiently large.) This combination will likely have minimal downturns and do better than any long-short mutual fund, or most hedge funds.
    Nov 20 02:30 PM | Likes Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Jonathan, I think I see your point. Short-selling SPY is disadvantaged, but going long on VIX is also disadvantaged. So I am not sure about this but in theory, if VEQTOR works then the shorting of ETFs might work with the same mechanism. In addition, if you replace VIX with short-selling then you eliminate counterparty risk.

    Also as I think you will agree, mainly for clarification to readers...
    * Short-term TIPS ETFs are probably safer than cash or T-bills.
    * Going short on SPY is less disadvantaged than going long on SH.

    P.S. Sorry about the long posts (wish I could edit) but also would like to mention that I have decided against increasing the VEQTOR:SPY ratio. It makes more sense to increase the SPY:VEQTOR ratio to 3:1 or 4:1. This sufficiently cuts most downturns to 1/3 or 1/2--and SPY will outperform VEQTOR most of the time--so SPY or any favorite standard ETFs should be emphasized. The following have high volume and consistently outperform: XRT, QQQ, PKW, IJR.
    Nov 18 11:23 PM | Likes Like |Link to Comment
  • The Federal Reserve Is Monetizing A Staggering Amount Of U.S. Government Debt [View article]
    To Mr. Kramer,

    I suspect you know what you are talking about. I am a trader, not an economist. My working hypothesis is that the stock market has been in a bubble for 200 years. When the P/E ratio varies from 10 times a company's worth to 100 times a company's worth, what else are we supposed to call it? How about, "normal." Obviously, the only reason anyone ever buys a stock is the religious faith that some sucker is going to pay more later.

    A year ago today, this website and every financial website was peppered with tacky ads from Stansberry Research, warning that the US dollar was about to stop being the reserve currency, so get out of the US dollar markets and get into the Euro-based markets! The exact opposite happened. Not because Stansberry was essentially wrong about the US being weak, but because the Euro-based sector was more-weak.

    During the Reagan era, radicals like Ross Perot warned that the federal debt was headed for infinity. During the Reagan era, it was politically impossible to take up this message among both republicans and democrats. Today everyone is claiming this message, and holding up Ronald Reagan as their patron saint of deficit reduction.

    If not for people like Ross Perot and the Tea Party, deficit reduction might never have become fashionable. They serve a constructive purpose. They might even be correct that it is better to risk a government shutdown and bankruptcy today, rather than put the jar of poop on the shelf and allow it to ferment.

    However by the same token, how can we take them seriously about repealing Obamacare, when they only say repeal, repeal, they never say replace, replace? Sure Obamacare has problems. But the way to repeal it is to introduce a Republicare to replace it. Put up or shut up. Otherwise they are just people who want to break the speed limit and argue with the cop that the speeding sign was invalid.

    Now what is the essential argument of this Michael Snyder? He mainly just repeats this several times: ""The mere suggestion that the flow of easy money would start to slow down a little bit was enough to send the market into deep convulsions.""

    Isn't that self-contradictory? Snyder is saying that the stock market is substantially propped up by federal money. He fails to give us 3-dimensional facts and figures. Then he supports this by saying that a "suggestion" by the government affects the stock market. Oh, so is it the actual dollars that support the stock market, or is it the "belief" of investors that these dollars are doing something?

    I do not claim to understand economics. Snyder does but seems to be contradicting himself. So I was relieved to find another lawyer with what seems to be a more well-rounded perspective. Thank you.
    Nov 17 06:21 PM | 1 Like Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Looking into DeepValue's question caused me to learn more than expected.

    As briefly mentioned under "caveats" above, VEQTOR is not always successful. A serious long-term loss is unlikely--but never say never. What happened in 2008 was assumed to be impossible by most brokers who until then routinely advised buy-and-hold. Similarly, like all long-short systems, VEQTOR is vulnerable to the S&P whipsawing and/or consistently losing just less than will significantly trigger the hedge mechanism.

    The long-term graph on Fred Piard's website shows a gradual 2-year downturn for VEQTOR from 2004 to 2006. A 1:1 ratio with SPY probably would have caused about zero net gain. (Note. I mistakenly said above that VEQTOR was proven back to 2002 but its history only goes to 2004.)
    http://bit.ly/11UOLXc

    Much worse, from September 2007 to September 2008, and again from January to March of 2009, VEQTOR and the S&P both experienced net losses of about -20%. So if these two periods had happened without the intervening success periods, there could have been a net loss of -40% for any combination of VEQTOR and SPY.

    During the same 2007-2008 scenario, TLT gained about +10%. However during the 2009 scenario, TLT lost about -15%. So, additional hedging with US Treasuries is very prudent but does not always protect you either.

    Also, a 5-year setting with "compare to S&P" at SPindices.com currently gives an excellent view of the weakness of VEQTOR during a bull market. In spite of successfully capitalizing on the -20% S&P downturn in 2011, VEQTOR is significantly underperforming for 2009-2014. I.e. like most long-short systems, VEQTOR alone actually demands a 2008-level crash every 20 years or so in order to outperform the market.

    Consequently, for maximum return vs. risk, you might as well accept that there will be losses and should not attempt to hedge fully against pro-S&P losses. I would suggest to consider getting an ultra-low-cost or no-cost trading account and rebalancing quarterly to monthly between:

    2/4 high-performance high-volatility index ETFs such as IJR. http://bit.ly/VEB9mz (Or to reduce volatility consider SPHD but it cannot be traded frequently due to high spread.)
    2/12 PHDG
    1/12 VQT
    1/4 individually-bought US Treasury ladder with emphasis on TIPS
    Nov 17 09:25 AM | 1 Like Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Elliott Orsillo and Jonathan Selsick have touched on important VEQTOR issues that are both basic and potentially confusing. I am replying with a question mark (?) because I am not certain of all the nuances myself.

    1. The VEQTOR is called a "dynamic index" because it is not a simple combination of SPY and VXX. (?)

    As Fred Piard has mentioned, going long on VIX (=VXX) has a serious contango problem, causing an inevitably negative benefit/cost ratio. VEQTOR seems to have overcome this problem with daily adjustments based on a complex algorithm. I am not clear how this works. However, the proof of the pudding is that VEQTOR went up significantly in 2002 and 2008--and in 2011 when the S&P dropped -20%--and also does as well as the average long-short fund during bull markets. This is a very unique, very difficult and very invaluable achievement.

    After browsing the "methodology," I would consult a mathematics professor before attempting to DIY the VEQTOR. In addition, I am not yet clear about the exact instruments and trading costs, which might be unfeasible for individual investors.

    2. Nonetheless I heartily encourage Jonathan Selsick's initiatives to develop hedging methods that emphasize T-bills. Derivatives are the standard method for shorting the market--but if anything happens to the underwriters--while most people are losing their life savings--derivatives are far less likely to inspire popular support than scapegoating and lynch mobs. T-bills will receive the exact opposite in absolute political sympathy. Their only weakness is an inflationary recession. T-bill risk is largely (though not entirely) overcome by emphasizing TIPS.

    However... as a hedging mechanism, T-bills can fail to move inversely to the market for months at a stretch. Also, you need a lot of T-bills to hedge a little equities. This can possibly be done with margin or with short-puts on T-bill ETFs. However, the US government might someday be forced to delay its debt repayments. The holders of individually-bought TIPS can ride this out but the buyers of T-bill ETFs might need a lifetime to recover their losses. I.e. to use T-bills for hedging might compromise their value as safe havens. Moreover, I doubt that the most perfect timing and leveraging of T-bills can compare in net gains to using the same skills with a Veqtor-based system.

    Nonetheless, a good system utilizing T-bills is certainly invaluable. Everyone should consider allocating about 1/3 portfolio to individually-bought TIPS and T-bills so as to (a) earn guaranteed profits and also (b) hedge against equity losses and also (c) safeguard equity gains.
    Nov 17 01:13 AM | Likes Like |Link to Comment
  • Top Hedge Fund Guru Holdings In An ETF Wrapper [View article]
    Thank you for the fine pick. I am adding GURU to my favorites: PHDG, IJR, SPHD. PHDG is a hedging ETF. IJR and SPHD both consistently outperform the S&P 500 to the same degree--IJR with high volatility and SPHD with low volatility. GURU is also volatile but so far has consistently much better performance.

    Unfortunately, the spread on GURU seems totally outrageous. ALFA has a similar concept and a less outrageous spread but not the same level of performance. So, GURU seems worth a try but any trading would have to be very patiently and craftily done.
    Nov 15 11:25 PM | Likes Like |Link to Comment
  • Thinking Of Investing With A Hedge Fund? Consider These ETFs Instead [View article]
    Mr. Shaefer is doing well to warn people that the average hedge fund certainly is not what most people believe.

    However, I would like to point out that to condemn an entire group based on its average is an incomplete reasoning that is often used against mutual funds, against investing in general and against anything in general. Also, although past performance does not predict future performance, performance is a major criterion. When we condemn hedge funds based on lackluster performance, we are using that same criterion.

    The average mutual fund is terrible, the average hedge fund is terrible, and the average investment analyst is terrible.

    What is really different about hedge funds is not even mentioned in this article. This is that whereas mutual funds are considered expensive if their management costs are 2%--hedge funds are considered normal if they charge 20% profit-sharing on top of that 2%. I am starting a hedge fund myself, and was taken aback after calculating the effect of a 20% profit-sharing fee. The fact that hedge funds generally do about the same as index funds after paying such a fee actually speaks well of the skill of hedge fund managers. Ultimately however, this fee structure forces many hedge fund managers to take a boom-or-bust approach. I have decided to have 10% profit-sharing, of which 1/4 is donated to charity, and all of which may be waived if not well-justified by performance.

    Also, many institutions and individuals judge a hedge fund largely by how big it is. This basically guarantees that performance cannot be much better than a mutual fund--and basically erases the advantage of a hedge fund which is its smaller size and ability to make fast decisions in limited markets. Quoting Warren Buffett, "It's a huge structural advantage not to have a lot of money."

    Also, the minimum requirement for hedge fund investing is to have $1 million. However the minimum investment in most hedge funds is also $1 million, which makes no sense for this risk level unless you have at least $10 million and preferably $20 million. For this risk level, it only makes sense to make several relatively small investments and rebalance annually between them.

    Hedge fund investors--as well as mutual fund investors--should seek out funds that are below-average in size, below-average in fees and above-average in performance. And never put more than 10% of your eggs in one basket.

    However, I do agree with Mr. Shaefer that it is possible to use a simple ETF strategy to do much better than the average hedge fund and a lot more safely. Although my favorite combination would be PHDG, IJR, SPLV and SPHD.
    Nov 15 06:43 PM | Likes Like |Link to Comment
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