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Krystof Huang  

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  • Why I'm Selling Oil Stocks [View article]
    Rougement, this is a thought-provoking article. Surely you give hope that rises in US gasoline prices may not be as sudden or extreme as some people say. Indeed it seems clear to me from their actions that everyone from Washington to Saudi Arabia will do everything they can to ease the transition. However, I am just an average Joe on this subject but here are my thoughts.

    1. I live in the USA, so my concern is for USA prices. As Davewmart points out above, the USA is not the world, but one of may oil buyers.
    2. You fail to discuss the impact of the value of the US dollar, and the hard fact that Europeans have for decades been paying almost twice as much as in the USA for gasoline. Why? Evidently just because the US dollar is the reserve currency, which is eroding. I.e. even if the universal "value" of oil does not skyrocket, still maybe the US dollar falls we pay more, period...?
    3. I am new to RSI usage, but so far find it referenced mainly for 15-20 day periods. You say EOG has an RSI about 67, but give no time frame. However I can only get up to a 66 reading for EOG by going to 3, 5 or 10 years. Which do you use? Is this a widely-accepted usage, or just your personal take? Either way, more power to you. But I just need to know what you are talking about in order to make apples-to-apples comparisons in checking what you are talking about, which I am doing now.

    Basically I agree with you. As an investor, oil is overpriced, there are simply better values to be had. However, not as overpriced as silver and gold, and more of an essential commodity. Meanwhile as a human creature, not an investor, it makes basic sense to keep perhaps 10% of portfolio in each such commodity, buying the least-overvalued companies in that commodity. Therefore I hedge myself against the eventuality that just in case I am paying $6 per gallon at the pump next year, I am covered for it.

    My current target is about 6% in lithium, 1% in platinum, 3% in SLW silver, 1% in gold-related, and at least 1% in each other energy source and basic commodity, if I can find an unusual value. Except I have decided not to do uranium because more than a few people are going to die horribly from it, one way or another, eventually. Currently looking seriously at CAM and will be studying the others you reference here.

    Two weeks ago I over-bought with about 20% portfolio into lithium and platinum because they were such an obvious value. I made out well and now am returning to target. Or maybe next year. And eventually will come a time to sell even the silver. But not just yet, so long as every crazy on every block is pumping it skyward.
    Apr 6, 2011. 01:30 AM | 3 Likes Like |Link to Comment
  • Which VIX Spike Could Kill XIV? Here Are The Numbers. [View article]
    This is an excellent article and comments as well for refining anyone's perspective on XIV/SVXY.

    In my small opinion, Mr. Stockplaza has the right idea in "going small and hanging tough" on XIV/SVXY--but not in letting it all ride. His goal is $10M. It would be a shame to get to $9M and then lose everything. At the very least, divide the allocation between PHDG, ZIV and SVXY. (Not XIV which has the same custodian as ZIV.) And maybe be satisfied with a mere $5M.

    I recently launched a not-quite-so-aggressive autotrading system which I call Ezekiel Wheel: 1/4 SVXY, 1/4 ZIV, 1/4 favorite equity ETF, 1/2 PHDG. (Thus using 25% margin.)

    Please note that the current 5-year gain for ZIV and XIV are virtually equal--and might remain equal if there is a 2011-level downturn about every 5 years. Which is a reasonable expectation. Also, even if XIV/SVXY makes substantially more than ZIV--the combination of SVXY and ZIV will also make substantially more than ZIV and be much safer.

    No gain is safe until put in a safe place. However--just as a cool place can feel warm when coming in from a very cold place--systematically moving gain from an "unsafe" to a "less unsafe" place can have surprising results.

    Based on this observation, I created the Ezekiel Wheel strategy. Like the gears on a multi-speed bicycle, each investment is like a "wheel" with a very different "circumference" or volatility level. Each "wheel" does best under different market conditions. Under extreme conditions, trailing Stops also can shut down all positions except the 50% PHDG. Thus potentially eliminating margin and creating yet another behavior pattern.

    Quoting Matthew Henry's classic commentary on Ezekiel 1:15-25: "Sometimes one spoke of the wheel is uppermost, sometimes another; but the motion of the wheel on its own axletree is regular and steady. We need not despond in adversity; the wheels are turning round and will raise us in due time, while those who presume in prosperity know not how soon they may be cast down."

    However, please note that Ezekiel Wheel will still have severe ups-and-downs. Stops and reentries also need to be maintained correctly. For the average do-it-yourself investor, I caution against using more than 15% ZIV and against any do-it-yourself XIV or SVXY.

    Note that ZIV took about twice as long as the S&P 500 to recover from the 2011 downturn and XIV took about twice as long as ZIV. SVXY is also a slippery product to Option. Options create leverage. SVXY out-of-box is already like a leveraged product. Even if you are highly skilled with Options, I would not suggest focusing Options directly on SVXY. Instead, perhaps consider combining out-of-box ZIV and SVXY with a diversity of Options strategies that are somewhat equivalent to ZIV, SVXY and PHDG.
    Sep 25, 2014. 12:55 AM | 2 Likes Like |Link to Comment
  • Best And Less Long-Short Funds, 2013 [View article]
    October 2013 Updates.

    * I have removed CHEP from my list. Mainly because after adding PHDG / VQT the high-stability feature of CHEP is not needed. CHEP probably will do very well in the long term--but can go nowhere for years at a time. It is just not necessary to be so patient when my other listings can add up to consistent year-by-year performance.

    * I have added GOBAX and TGTRX to my list. These are global bond funds, not long-short, and overall do not do as well as the others on my list. However they perform extremely well compared to bond funds and have shown extremely mild downturns even during 2008. Good for stabilizing portfolio and for diversifying away from the usual long-short methods. However like long-short funds, GOBAX and TGTRX achieve their high gains by using some derivatives and some junk bonds. So they are equally safe as long-short funds but should not be confused with ultra-safe US Treasury bonds. Also these are two funds using essentially one same strategy. So I would not put more than 1/20 of portfolio in each.
    Oct 14, 2013. 06:08 PM | 2 Likes Like |Link to Comment
  • PHDG And VQT: Positive Returns In Bull And Bear Markets [View article]
    Thank you Ypa for the super-excellent pick. I have just placed 5% of portfolio in PHDG and 5% in VQT. I avoid ETNs and also avoid having more than 5% in any one system. So I might phase-out VQT as PHDG becomes more proven and as I gradually build up other forms of diversity. Meanwhile however, it seems clear that these instruments are not sector-reliant, seldom lose much, and will tend to go up if the market significantly goes down. This article was brought to my attention in response to my latest article: "Best & Less Long-Short Funds 2013."
    Jun 21, 2013. 02:37 PM | 2 Likes Like |Link to Comment
  • 90% Of Green Energy Stocks Will Go Bankrupt... So Buy The Sector? [View article]
    * Good point: a lot of investors are biased pro-green just because it's the right thing to do. Don't do that if you can't afford it.

    * Ignored point: some states have solar subsidy programs that make local solar farms a sure-win investment, also support regional self-reliance which in turn supports national stability.

    * Ignored point: every argument for ignoring alternative energy hinges on the assumption that the USA has plenty of gas, coal and oil for the next 50 years, some say 100 years. What about after? These people just don't care about the next generation, period.

    What amazes me is that even the same people who say "hoard more gold" are saying "drill more oil."

    This ubiquitous drill-baby-drill bias clearly demonstrates the power of fashion, greed and ideology to overcome reason. While it makes some sense to burn gas or coal, oil is uniquely critical to chemistry, plastics and military defense. The last thing we should be doing with oil is burning it. Even in pure financial terms, tomorrow's oil is worth far more than today's dollars. And however superlative our extraction technology may be today, it will surely be twice as efficient in 50 years. Every drop of native oil that we burn is incredibly stupid, and I can hardly respect the economic sense of anyone who does not see this.

    Jobs-jobs-jobs? Sure this is the political priority, because very few people have the sense of investors. The ancient Hawaiians trapped fish, ate fish and lived well. The McCormick Reaper was invented in the 19th century. One farmer feeds 5,000. The computer multiplied productivity yet again. And yet somehow--here in century 21--we simply must drill more oil to get enough jobs...? Where does it end? Nowhere obviously until the human race starts exploring for brains half as much as exploring for gold and oil and stops living like stray cats.

    There is every reason for everyone even China to care about America because it is a bastion of economic stability. However if we cared about this country half as much as those who made the Alaska and Louisiana purchases, we would be buying up foreign drilling rights, while locking up our native oil reserves for 50 years. China is doing the buying and planning, we are doing little more than squandering while whining that the squandering is never enough--led on of course by oil companies and their narrowly dedicated investors.
    Apr 20, 2013. 11:35 PM | 2 Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Thank you, Mr. Harwood. It looks like my eyeball estimates were close. I said -80% for ZIV and -90% for XIV/SVXY. I was just speaking loosely when I said 2008. The so-called 2008 recession was actually 2008-09 for equities and apparently 2007-08 for these inverse-VIXens.

    Yes, it is interesting that the VIXens fall much faster and rebound much more slowly than equities. I believe that a Call-buy routine on equity ETFs can be fundamentally superior--in terms of similar gains plus slower downturns and faster rebounds.

    Also, as your writings mention, the inverse-VIXens do not correlate directly with VIX. For example, if in 2011 I had bought SVXY as soon as VIX went above 14--originally I supposed that I was sure to show a profit as VIX inevitably fell back below 14. Then studying the history, I saw that this was not so.

    However, ZIV and XIV/SVXY can use Stop orders much more efficiently than Call-buying. And unlike Call-buying which requires expertise in overcoming the premiums--the successful use of VIXens does not require special attention to contango, backwardation or anything else.

    Indeed, the fact that VIXens fall quickly and rebound slowly makes simple trend-following more efficient. However, this advantage is likely to be negated by the extreme volatility for XIV/SVXY, which behaves very much like an inverse equity ETF: a trend is often over before it begins. For XIV/SVXY, following a trend will usually put you on the wrong side of the trend. And it is even more dangerous to counter-trend or "buy more when losing." This may inevitably cause you to lose your shirt when, as in 2007 and 2011, a downtrend is unusually sustained.

    Therefore--as Mr. Harwood and others mention above--a "constant dollar" approach may be the best we can do with XIV/SVXY. However, although trend-following will be extremely frustrating in the short term, it will work somewhat for XIV/SVXY in the long term--and will work much more consistently (or "less inconsistently") for ZIV. This is another reason that I suggest only ZIV for the average investor.

    However, I make an exception in saying that any corporate bond allocation might be replaced with 10% ZIV, 10% SVXY, 80% TIPS (short-term or ideally a ladder). In this case, it is definitely best to combine ZIV and SVXY. Firstly you might only lose 10% if either custodian implodes. Secondly there are often times when one of them is doing very well and the other is sluggish. Thirdly you need not flinch in adding more to such a small amount of SVXY when it needs it the most--thus converting volatility into gains. This "constant percentage" approach is a variation of the "constant dollar" while also enabling constant growth.

    Ironically, any financial adviser who suggests 10% XIV + 10% SVXY + 80% TIPS for a low-risk client is at-risk of lawsuits or losing his license if XIV and SVXY implode. Even though this only costs -20%--and even if it has already added several times that to the portfolio. Whereas the adviser who dishes out 100% corporate bonds and dividend stocks will be defended by convention--even if 2008 happens again, except major underwriters are not bailed out and his client loses -100%.
    Sep 29, 2014. 11:42 PM | 1 Like Like |Link to Comment
  • Why I'm A Passive Investor (And You Should Be Too) [View article]
    Thank you Larry Swedroe for this thoughtful article whereby we might discuss our self-labeling as investors.
    I call myself an ETF investor, for more-or-less the same reasons that Larry Swedroe calls himself a passive investor. However I suspect that I am more passive because I do not see the point of actively making a distinction. I might be mistaken because I am too passive to verify this--but it is my impression that many if not most ETFs calling themselves "actively managed" are actually following a "Mechanical Investing" methodology to the same degree as those calling themselves "passively managed." As pointed out by Larry Swedroe, there are ETFs that follow the equivalent of an Index even when there is no Index. What is the equivalent of an Index? I am not active enough to bother to decide.
    There also seems some bugaboo about relying on past performance. And every time I hear this, they always end up relying on past performance. What else is there besides religious-like beliefs? Theoretically, Europe and China have equal or greater growth potential as the US S&P. So I started out thinking I should invest in EZU and EEM. However several years ago I decided they were clearly not rebounding with the same energy. Avoid. And I was very very right. I still think EEM may surge ahead of the S&P eventually. But I realize that for several decades it is not likely to be nearly as sound an investment. My studies of performance have educated and refined my investment religion and vice-versa. I do not think it is logical to separate the two.
    My religion says that solar power is here to stay, as well as a feel-good investment, and that if we use ETFs we can't do too badly. (TAN) follows the MAC Global Solar Energy Index. Then I took a look at TAN's performance! Every preconception that I had about nonleveraged ETFs being automatically safer than individual stocks was totally blown away. I still cling to my religion but now I am more wary.
    Conversely, the Solactive Guru Holdings Index ( picks the best-performing stocks of the best-performing hedge fund managers. The very definition of active management in spite of being an Index--and from a pool of the most over-rated stock-pickers on the planet to boot. Nonetheless GURU works great and I am willing to bet 10% of portfolio that it keeps on doing so.
    P.S. PHDG/VQT are is listed as "actively managed." But I happen to understand it is the very opposite in actual fact. PHDG/VQT follow the VEQTOR index that has proven since 2004 systematically to gain about half as much as the S&P most times, meanwhile as in 2008 and 2011 to go up in value during severe downturns. Unless derivatives collapse, I am quite sure this will be consistent and am betting another 2/10 on this. If PHDG/VQT were not derivative-reliant and if derivatives were not proven in 2008 to be at risk of collapse from the bank failures, then I would invest 4/10 in PHDG/VQT on margin. Read this study by SA contributor Fred Piard:
    Feb 11, 2014. 09:32 AM | 1 Like Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Thank you for the encouragement, Fred. Starting in January 2014, VQT and PHDG are likely to have starring roles in my series of articles about long-short mutual funds and hedge funds. However, Jonathan Selsick seems to have created a do-it-yourself VEQTOR, and therefore has the most important contribution.

    After thinking for another week, I feel the need to clarify the following.

    * The economy today would be much stronger if, during 2008, a few bankers became homeless while a few million ordinary investors had golden parachutes. VEQTOR could have done this. If millions of people had used VEQTOR to hedge their portofolios, their ability to continue paying for mortgages, stocks and consumer goods--or their ability to remain retired instead of to compete for jobs--could have dramatically bolstered the economy, the stock market, jobs, "life, the universe, and everything."
    * However, during a recession, both VQT and PHDG are predominantly derivative.
    * Derivatives cannot collapse in a bull market, and properly used, are not more risky than equities.
    * However, derivatives are not less-risky than equities. Using derivatives to insure equities is like one farmer insuring another against crop failure.
    * Therefore, VEQTOR is analogous to a wooden fire escape. It will probably be safe. Nonetheless, it is unnecessary and irresponsible to make it out of wood.
    * Derivative-buying for insuring equities is a decades-old standard tradition. Because derivatives are efficient and 2008 had not happened.
    * Derivatives might have collapsed in 2008 if not for the federal bailouts of banks. And it is debatable that anything significant is being done to prevent 2008 from happening again. And the first derivatives that might be allowed to collapse would be those that are equivalent to short-selling--a traditional scapegoat.
    * I.e. it is unlikely for derivatives to collapse. But if they do, the disaster will make 2008 look minor. And if they do, a non-derivative VEQTOR-alternative could safe the nation if not the world from chaos. And there is no rhyme or reason for remaining derivative-reliant with hedge positions.
    * Therefore, I hope that the type of research done by Jonathan Selsick may result in a non-derivative alternative to VEQTOR. (If anyone might like my collaboration on such a project, feel free to "send message.")
    Dec 25, 2013. 01:53 PM | 1 Like 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, 2013. 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.)

    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 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. (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, 2013. 09:25 AM | 1 Like Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Re the use of margin, it seems to me that Fred is cleverly implying, imagine if you invested in the S&P but eliminated all major losses? Then during the rebound period of 2009-2012, instead of merely breaking even, you would have gained 100%. VQT/PHDG achieves the neutralize-major-loss portion of this scenario--but does not achieve equal-to-S&P gains during the rebound period. So, Fred has implied, possibly we might use margin to increase VQT/PHDG until it at least equals the S&P during both bear and bull markets.

    Also, if trading fees are negligible, you can improve gains by rebalancing VQT/PHDG and SPY (or any favorite index fund) quarterly instead of annually. If you work this out on a spreadsheet, you might discover that you no longer feel any need to accept any margin risk whatsoever.

    The repercussions of a collapse of derivatives would be unimaginable, and for that reason is unlikely to happen, and if it happens is unlikely to be much worse than the collapse of non-derivative investments. However there just might be a selective collapse that just might affect VQT/PHDG. Nobody really knows.

    In my opinion, even if VQT/PHDG do someday cause me to lose half my money, they are likely to enable me to double my money long before then. However by the same token, why borrow money, if I can soon increase my own money to the same level, simply by rebalancing quarterly?

    As a rule, I suggest never to invest more than 20% of net worth in any single fund, and more ideally to keep single investments down to 5% of net worth. However, if your investment income is small in comparison to salary income, investing heavily in VQT/PHDG might be less risky than never having significant savings, and also is far less risky than making unhedged investments in index funds, as many people do. VQT/PHDG will maybe lose seriously in the next serious recession. With unhedged index investing, there is no maybe about the losing. However once again, I would be cautious about adding margin risk on top of investing heavily in VQT/PHDG.
    Nov 10, 2013. 05:37 PM | 1 Like Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    I am glad that Loop2080 brought attention to SPLV. This is an interesting consideration. By itself, SPLV is certainly not equivalent to PHDG + SPY. The "best case scenario" for SPLV in another 2008-level crash is that it will "maybe" lose a bit less than the S&P-500. Meanwhile PHDG almost certainly goes up during a 2008-level crash. So with a 50-50 mix of PHDG + SPY you can expect to experience only 1/2 to 1/4 of the maximum drawdown (MDD).

    In my opinion, "volatility measurements" such as Sharpe, Sortino or standard deviation can be useful for initial screening, and some are better than others, but in the final analysis all are deceptive. Do we really care if an investment occasionally drops -50% for one hour while we are sleeping? No. What we really care about is how badly an investment might drop during the next 2008-level crash. When records do not go back that far, I look at the 2011 MDD (in relation to about -20% for the S&P).

    On the other hand, PHDG + SPLV seems a very serious consideration. Performance-wise, if you simply replace SPY with SPLV, you probably have nothing to lose except volatility. I also like the fact that SPLV does not use any derivatives.

    However, SPHD seems even better, based on the "Low Volatility High Dividend Index" SP5LVHD. Firstly, the emphasis on dividends offers a more concrete hedge against losses. Secondly, the net 5-year performance for SP5LVHD seems to be flying steadily higher than the S&P 500 as well as beating the high-performance high-volatility S&P 600. In comparison, the SPLV index (SP5LVI) seems always to equal the S&P 500 in the long run. (The official information page at enables instant 5-year comparisons: )
    Nov 10, 2013. 04:05 PM | 1 Like Like |Link to Comment
  • 5 Common 'Junk' Bond Investing Mistakes [View article]
    This is a valuable article for explaining the problems of junk bond trading which is sometimes over-touted. And I also appreciate Money Madam countering with her pro-bond experience.

    Philosophically, I believe that stock markets should not exist. Bonds are sufficient for economic development and, unlike stocks, bonds do not necessitate a vicious cycle of inflation. Inflation is invisible taxation which causes anyone who does not invest to be robbed blind. Bonds also do not repeatedly destabilize the planet with stock market crashes. The stock market is an inane slow-motion pyramid scheme which should be limited to Las Vegas tournaments.

    Millions of people believe they are doing something against corporate feudalism by "Occupying Wall Street" or recycling soda cans. All of this would become inconsequential compared to the following measure: a slight increase in the long-term tax rate for equities coupled with an equal decrease for taxes on corporate bonds. There is not much hope for civilization unless some nation someday phases-out the stock market and phases-in corporate bonds.

    Meanwhile however, except perhaps for a few aficionados such as Money Madam, corporate bonds are in-between US Treasuries and long-short equity systems in gain potential. In addition, corporate bonds are not nearly as safe as US Treasuries and also do not exhibit market-inverse behavior. US Treasuries are an effective hedge against the stock market, while corporate bonds are not.

    Therefore, instead of investing in any corporate bonds whatsoever, I would say simply adjust your ratio of equities to US Treasuries. The higher risk of equities can also effectively be moderated by allocating 1/3 of equities to the two new VIX-based hedging ETPs that will gain in both up and down markets.

    Nonetheless, I certainly would encourage some small fiddling with High Yield corporate bonds--which might pay off someday. The caveats explained in this article are sure to be helpful.
    Nov 3, 2013. 11:04 AM | 1 Like Like |Link to Comment
  • Are VQT And PHDG Investments Or Hedging Tools? [View article]
    Mr. Piard, this is an excellent addition to your work which introduced me to these excellent ETPs. These are now my own #1 suggestions, including references to your website.

    On television a few weeks ago, a so-called expert suggested that people who only have $5,000 should put half of it in the stock market and keep half of it out due to the prevailing uncertainty. My suggestion is, on the contrary, there is no need to hold out. If you only have $500 to $3,500, perhaps consider putting it all on PHDG. If you have $3,500 to $5,000, then consider putting the minimum requirement of $2,500 into the leading available long-short fund MFADX, and the remainder in PHDG.

    Long-short funds generally lose about half as much as the S&P during S&P downturns, while PHDG/VQT generally go up during S&P downturns. Also, most long-short funds do not make any more than PHDG/VQT during bull runs. However, there are a few long-shorts that will do much better than PHDG/VQT in the long term. So, a scaredy-cat investor might do a 1:1 ratio of long-only ETFs to PHDG/VQT. Or a 2:1 ratio of long-short mutual funds to PHDG/VQT.

    * As Mr. Piard's studies have clarified, PHDG and VQT are not always successful. Sometimes they can lose significantly.
    * Most long-short funds are terrible performers. My current top picks in order of priority are: PHDG, MFADX, DGQIX, GOBAX, SCNAX, ARLSX, RLSFX, VQT, BPRRX, TGTRX. (GOBAX and TGTRX are not long-short, but are high-performance bond funds such as lost very little in 2008.)
    * PHDG is usually only 15% derivative, VQT is 100% derivative. Therefore I give priority to PHDG.

    All long-short funds utilize derivatives for hedging, which in theory might have collapsed in 2008 if there were no bailouts for major banks. However derivatives have never failed so far and in theory it is impossible for derivatives to fail during a bull market. And if derivatives collapse, nobody can predict which ones. And if derivatives collapse, every non-derivative investment on the planet will probably lose -75% anyway.

    So I would not be paranoid about adding derivative risk at the expense of adding volatility risk. And I would invest in both PHDG and VQT for risk diversification, although perhaps with a 2:1 ratio.

    Perhaps Mr. Piard can eventually look into the following. VQT seems entirely underwritten by Barclay's of London. Who is underwriting the derivatives used by PHDG? And how about studying the index protocol, and contacting PHDG's management, to ask what percentage of PHDG might become derivative-reliant during a 2008-level bear market? Nonetheless during a 2008-level crash, there is also the mismanagement risk which partially--although not entirely--caused losses for investors in some Lehman Brothers funds.

    In short, in any case, investors with more than $100,000 might want to consider a maximum of 1/20 of portfolio per fund--to consider some non-derivative trend-trading--and a non-ETF US Treasury ladder including TIPS.

    However for investors with less than $50,000, it may be necessary to build up their savings--and any investment risk may be much less significant in proportion to salary income--especially the obscure risk of derivative collapse. Therefore for the small investor, I would suggest considering strong emphasis on PHDG and half as much again in VQT.
    Oct 29, 2013. 11:13 AM | 1 Like Like |Link to Comment
  • Best And Less Long-Short Funds, 2013 [View article]
    Thank you for everything TriniIndi. In addition to making me aware of PHDG / VQT, it is nice to have your vote of confidence added to mine and also the extra backtest data. You also have inspired me to mention some needed follow-ups to this article:

    1. After more research, later I may encourage everyone to invest 1% to 5% portfolio in CHEP, which is the only good ETF listed as long-short--but is in danger of closure due to lack of interest.

    2. Investigation of all low-volatility ETPs whether or not they are listed as long-short.

    3. Discussion of the pros and cons of "protective puts" and similar derivatives on which all good long-short funds probably depend.

    The fact is, if your portfolio is small in relation to income, you may need high market exposure to build up. And this is why thousands of elderly people were trapped into a lose-lose situation during 2008, and consequently are now trapped in poverty and stress.

    But people are funny. The moment that someone says that something includes risks, they will herd back to whatever most people are doing, even if that is far more risky. Therefore I did not see much point to discussing risks in this article.

    However, I would like to be clear about risks. Traditional index investing WILL lose a lot of money in a major recession. The best long-short mutual funds MIGHT lose the same amount of money. Because the difference depends on derivatives, for which there is a slight, theoretical and unprecented possibility that they might collapse.

    A "might lose" is far better than a "will lose." But it is still a "might." Therefore...

    a) If anybody tells me they have 60% of their money in the stock market, I have no qualms about suggesting that 60% should instead be in the best long-short funds.

    b) However it is more ideal to place 30% into the best long-short funds and 30% into long-short systems with no usage of derivatives. And this is not so easy. I am hopeful but do not expect to be able to suggest anything ready-made to fit that description until 2014.
    Jun 26, 2013. 02:40 PM | 1 Like Like |Link to Comment