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Krystof Huang  

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  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    After several more months of thought and experience--I now feel obliged to summarize clearly just how much we owe to Mr. Harwood's research for pointing out just how dangerous as well as lucrative that inverse-VIX ETFs can be.

    * According to Mr. Harwood's research, ZIV and SVXY/XIV both would have lost about -90% during 2008--i.e. virtually everything.

    * Also--thanks to the "flash-crash" phenomenon--and to the increasing impact of less-regulated Asian markets operating on a 12-hour difference--it is possible that the next 2008-level recession could enfold overnight or within seconds.

    * Also, it is quite possible that sometime in the future, we will experience a 20-year period during which there is a minor 2011-level recession every few years and no huge bull runs. In such a case, ZIV and SVXY/XIV could repeatedly be losing severely and then struggling to break even.

    * Also--unlike equity-based ETFs--the value of derivative-based ETNs might evaporate completely due to the bankruptcy of a single underwriter or custodian. (Such as happened to Lehman in 2008 and could have happened to many more financial pillars if not for the 2008 bailouts.)

    * In any case, there will certainly be future times when--for years and perhaps decades at a time--in addition to suffering intermittent extreme losses, ZIV and SVXY/XIV will ultimately not outperform the best equity ETFs.

    * However, the flip side of this equation is that--if you can withstand the losses--then it is extremely likely that ZIV and SVXY/XIV investments will sooner-or-later perform at least as well as the best equity ETFs. I.e.--if you can withstand the losses--it is reasonable to hope for at-minimum the same as the best equity ETF in the long run--and of course possibly many times more.

    * Also, the success of ZIV and SVXY/XIV does not ultimately depend on the sale of computers or any product or the success of any company or nation or economic sector. The success of ZIV and SVXY/XIV is instead based on relentless mathematical probabilities similar to the advantage of a casino operating a roullette wheel.

    I.e. even if SPY eventually has a downfall from which it never recovers--and even though ZIV and SVXY/XIV are fundamentally tied to the performance of SPY--and yet in theory, ZIV and SVXY/XIV eventually will recover even if SPY does not recover. This would certainly take some time. Nonetheless, emotional stress is a significant part of investing. Inverse-VIX ETFs will create high levels of stress with their ups-and-downs. At the same time however, you also can have an unusually high level of confidence that "someday this investment will recover."

    In conclusion, in my opinion, the average investor in ZIV and SVXY/XIV should give foremost consideration to the following two suggestions:

    1. Always maintain Stop orders for inverse-VIX ETFs.

    With inverse-VIX ETFs, there is a high probability that Stop orders someday will save you from a high loss. In addition, the use of Stop orders can be seen as a type of trend-following. The tendency of inverse-VIX ETFs to "lose quickly and rebound slowly" makes them ideal candidates for trend-following.

    Usually, the problem with trend-following or Stop orders is that the best gains usually occur shortly after the worst losses. With ordinary equity investments, if you fail to reinvest promptly after losses, you could end up missing out on any significant gains.

    In contrast, with inverse-VIX ETFs, there will continue to be phenomenal gains whenever the market continues to do well at all. Therefore, you have proportionally much less to lose by closing your inverse-VIX ETFs whenever the market seems shaky.

    2. Do not invest very much in inverse-VIX ETFs.

    In my opinion, if only investing 5% of savings in ZIV and 5% in SVXY, then the benefits are probably much greater than the risks. There is then only a small amount at-risk and which is likely to add 100% of its value to a portfolio as it is rebalanced-down to 5% during gain periods. Also, as the portfolio is rebalanced-up to 5% during loss periods, this in turn makes rebounds faster and proportionally more lucrative.

    For simplicity and ease of management, my website currently suggests strategies which include 20% to 25% ZIV and does not mention XIV or SVXY. As stated before, I strongly believe that the average investor who does not totally understand inverse-VIX ETFs need not and should not consider XIV or SVXY.

    However, investing 20% to 25% in ANY combination of inverse-VIX ETFs--such as suggested on my website--assumes that the investor either has a very small amount of savings and a high need for growth--or that the investor will hold substantial savings outside of the strategy in US Treasury TIPS.

    Otherwise, investing a total of 20% to 25% of savings in any combination of inverse-VIX ETFs might be feasible but could become questionable for the risk-averse investor. And everyone certainly should think twice before investing any more than 20% to 25%. And to be most sure of staying within one's comfort level, keep SVXY/XIV down to 5% and the total down to 10%.
    Nov 30, 2014. 02:13 PM | Likes Like |Link to Comment
  • The Unintended Consequences Of Hedge Fund Fees [View article]
    Update: I have given up on the idea of operating small hedge funds. Instead I am building autotrading systems at Covestor and Collective2.

    However, most autotrading systems are designed to be high-risk and cannot be recommended--except perhaps for millionaries who want to take big risks with relatively small amounts of money.

    Nor is it necessary for anyone to use my autotrading systems. These are basically portfolios of high performance ETFs such as XRT, GURU, ZIV, SVXY and PHDG. In my opinion, simple combinations of these ETFs can make traditional mutual funds and hedge funds obsolete, as follows:

    * ETFs can follow indexes with well-established performance records
    * ETFs have well-regulated custodians
    * ETFs do not require entrusting large amounts of money with any single corporation or any single management.
    * In addition to hedging with a simple buy-and-hold on PHDG--which is 18% derivative--simply maintaining Stop orders on other ETFs might partially protect from a sudden stock market crash with no dependence on derivatives.

    After I have more live data as well as the time for some backtesting, I may post a Seeking Alpha article which describes how anyone can build do-it-yourself hedge funds using ETFs. Meanwhile, I simply suggest that anyone interested can surf Seeking Alpha for articles about the above-mentioned ETFs.
    Nov 25, 2014. 10:40 AM | Likes Like |Link to Comment
  • Which VIX Spike Could Kill XIV? Here Are The Numbers. [View article]
    p.s. I do not wish to leave the impression that I have endorsed holding 1/2 of account value in PHDG. I have decided that PHDG is not so perfect as to justify holding 50% of account, nor for holding 25% on-margin, even for a small-allocation high-gain strategy. The "Ezekiel Wheel" strategy mentioned above has been renamed "SN-GRO Gain/Risk Optimizer" and now consists of: 1/4 favorite equity ETF, 1/4 SVXY, 1/4 ZIV, 1/4 PHDG. (No margin.) Trailing Stop-sell orders are suggested for all except not PHDG.
    Oct 6, 2014. 05:48 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Just like to say that I have decided since everything is fallible, it is not a good idea to hold more than 25% of an account in PHDG. Based on the advice of friends, I have also changed the name of my "Ezekiel Wheel" strategy to "SN-GRO Gain/Risk Optimizer." So SN-GRO now holds: 1/4 favorite equity ETF, 1/4 SVXY, 1/4 ZIV, 1/4 PHDG. (No margin.)

    Also, although I am equally enthusiastic about PHDG/VQT as those who have endorsed it above--I would just like to clarify that:

    * PHDG/VQT does not always gain when other investments lose.
    * During severe S&P 500 downturns, PHDG/VQT has consistently gained very significantly--but only enough to make up for about half the losses of an equal value of a standard equity ETF.
    * The gains of PHDG/VQT during downturns will not much make up for the big losses of ZIV or SVXY. It is much more significant just to maintain trailing Stop-loss orders for ZIV or SVXY.

    A moderate amount of PHDG/VQT can be considered as equivalent to a cash or bond position because it seldom gains or loses much. In addition, PHDG/VQT is designed to pop up in value when the S&P 500 severely pops downward. PHDG/VQT is a uniquely win-win investment. In my opinion, PHDG/VQT should only be buy-and-held, not trend-traded.

    Also, if for example your other investments lose -50%, then for every $1 you do not lose, you can expect to gain $2 on the rebound. So PHDG/VQT might be considered a high-gain ETF because--even though its gains are moderate--it gains at a time when the gains are most valuable.

    Nonetheless, holding a lot of PHDG on-margin might not be a good idea. Non-margin PHDG will tend to reduce overall portfolio losses because it tends to lose less than other investments even when it loses. However with on-margin PHDG you lose the equivalency to holding a large cash position, and any losses in PHDG will be felt significantly. So adding trend-trading to a strategy seems to me preferable to holding on-margin PHDG,
    Oct 6, 2014. 05:21 PM | 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
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    P.S. After thinking more deeply thanks to Windwine--I must retract my doubts that XIV/SVXY could have rebounded more quickly than ZIV after 2008. Nonetheless, I still think that ZIV is far preferable for the average investor.

    Looking again at Mr. Harwood's simulations: it seems that in 2008 XIV/SVXY would have fallen about -90% and ZIV about -80%. This makes sense because these are both extreme-volatility products and 2008 was an extreme situation. Therefore as we approach the maximum possible loss for both (-100%) then there must be less difference in the degree of loss.

    Also, XIV/SVXY certainly has much higher gain potential during rebounds. Therefore--with both ZIV and XIV/SVXY losing similar amounts in 2008--it does make sense that after the extreme situation of 2008, XIV/SVXY would break even more quickly than ZIV.

    Nonetheless, we can also say that in spite of this, ZIV did not do much worse over the entire 2008-2014 crash-rebound cycle than XIV/SVXY. For both, if there is another 2008-level crash, we can only hope that the use of Stop orders and the rebalancing to a small allocation size are likely to minimize the damage and maximize the rebound gains.

    Therefore, ZIV and XIV/SVXY can be considered roughly equal during a 2008-level crash. Also, we do not know whether a 2008-level crash will happen again in our lifetimes. Whereas a 2011-level downturn is certain to happen repeatedly.

    Also--regardless of what trend-following method you use--you can expect trend-following to lessen the downturns for both ZIV and XIV/SVXY. However--regardless of what trend-following method you use--you can also expect frequently to rebuy on an upturn only to plummet severely the next day. And this will happen much more often and be much more severe for XIV/SVXY than for ZIV.

    Therefore, the ultimate score can only be one draw per dozens of wins in favor of ZIV, for ZIV vs. XIV/SVXY in terms of being less-scary for the average investor. Also, we might expect trend-following to lessen the severity of downturns which is the prime cause of underperformance for both products. If so, there seems little need to be concerned that ZIV might underperform.
    Sep 28, 2014. 08:30 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    Thank you for the in-depth insights, Windwine. I have noticed ZIV and XIV/SVXY behaving strangely over short periods. Now you imply that this can happen over long periods. In any case, they certainly behave very differently. Therefore there are benefits to mixing them for diversity.

    I manage two autotrading strategies. "C2-SOS," a security-focused strategy, holds 20% ZIV and 10% SVXY. "Ezekiel Wheel," a growth-focused strategy, uses 125% leverage as follows: 1/4 ZIV, 1/4 SVXY, 1/4 favorite equity ETF, 1/2 PHDG. (PHDG is the same as VQT except that PHDG normally holds only 18% derivatives. I learned about VQT thanks to Harwood, Piard and TriniIndi.)

    My latest strategies are based on the premise that every corporate investment should be considered high-risk--and that the most sure way to control risk is to minimize the amount at-risk.

    For example, instead of investing $10,000 in corporate bonds or annuities, I would prefer to combine $1,000 ZIV, $1,000 SVXY, $8,000 short-term TIPS. The total long-term performances may be similar. Meanwhile, only 20% of principal remains at-risk.

    In the next 2008-level recession, there may be no bailouts. And if Enron, Goldman Sachs, Lehman, AIG, General Motors, etc. etc. can go bankrupt, then the bonds and annuities of any so-called blue-chip corporation or underwriter also can go bankrupt. If you think such concerns are passé, google-up "the defanging of Dodd-Frank."

    Nonetheless, including only 10% to 20% ZIV in a portfolio is powerful enough to exceed the expectations of most investors. While on the other hand, ZIV is so volatile that suggesting ZIV to a less-than-savvy friend or neighbor places you at-risk of creating an unhappy camper. And there is no question that the downturns of SVXY will be two or three times worse than ZIV. So in a nutshell, so long as ZIV exists, there might not be much point in mentioning XIV/SVXY to the average investor.
    Sep 28, 2014. 05:50 PM | Likes Like |Link to Comment
  • How Does VelocityShares Daily Inverse VIX Short-Term ETN Work? [View article]
    I would just like to summarize what I have learned about ZIV and XIV thanks to Mr. Harwood's articles here and on his website, which is a key source for information on VIX products.

    The 2008 downturn for the S&P 500 lasted about 5-1/2 years: October 2007 to March 2013.

    Based on the chart above, XIV would have taken 6 years to break even from the 2008 crash: March 2007 to about March 2013. However, as I am about to explain, this could be misleading. (Unless perhaps I am misreading something myself.)

    Also based on Mr. Harwood's simulations, ZIV could have taken about 7 years to break even: March 2007 to about June 2014. The simulation only runs until September 2013. However, in the simulation, ZIV was at about -50% down from peak in November 2012. I then add the data from Finance.Yahoo.com that ZIV gained 100% from November 2012 to June 2014.
    http://bit.ly/1lmeDJh

    However, there might be some discrepancy. According to Finance.Yahoo.com, ZIV gained just over 200% from a valley on November 28, 2011 to the end of Mr. Harwood's graph in September 2013. Whereas Mr. Harwood's graph seems to show about 300% gain for ZIV: from a little more than 10 to a little more than 30.

    Also, if we start at the end of Mr. Harwood's graph on September 17, 2013--then ZIV seems to require about 50% to return to the 2007 peak. But Finance.Yahoo.com shows only about 40% gain from then to today (September 25, 2014).

    So, sometimes the live performance seems substantially higher and sometimes lower than the simulated performance. I especially question that, in the simulations, XIV seems to rebound more quickly than ZIV. (Assuming that I am reading the graphs correctly.)

    If ZIV and XIV are rebalanced quarterly with more stable assets, I think it is unfair to judge their post-crash resilience starting from a peak. The best live data we have is for the 2011 downturn. I start at a pre-peak valley for XIV on March 21, 2011. Note that this perspective is substantially biased in favor of XIV when compared to ZIV, and in favor of both of them when compared to the S&P 500. Although as I say, I think this is the most realistic perspective for a moderate and rebalanced allocation.

    From this 2011.03 perspective, a moderate and rebalanced ZIV allocation might not have had significantly more of a negative effect on a portfolio than SPY. Also, both ZIV and SPY almost broke even in as little as 7 months: on October 28, 2011. However, ZIV had a strong relapse immediately after. ZIV was not firmly rebounded until February 2012--taking about 11 months, about 1-1/2 times as long as SPY.

    Similarly, XIV briefly regained its 2011.03 value in March 2012--and dipped steeply immediately after. XIV was not firmly rebounded until July 2012--about 16 months. So XIV's 2011 downturn lasted about 2 times longer than SPY and 1-1/2 times longer than ZIV.

    Also, to be precise, starting everything from 3/21/2011: then in 2011 XIV dropped -61%, ZIV dropped -24%, SPY dropped -15%.

    I.e. in the "routine" downturn of 2011--such as we can expect to happen every 5 years or so--XIV's drawdown was about three times worse than for either ZIV or SPY. Also because of this drawdown, the current live 5-year gains for ZIV and XIV are virtually equal.

    Also note that--as Mr. Harwood has commented on his website--because ZIV and XIV are derivative-based, there might not be any "equity" value to survive a collapse of the manager or the primary underwriter. So there might be no rebound from a pillar-toppling 2008-level event. A permanent loss of -100% is possible. Such as presumably happened to some Lehman ETNs in 2008.

    In conclusion, I currently suggest that the average do-it-yourself investor do not invest more than 15% in ZIV, or perhaps 25% at most for small accounts--and perhaps should not bother with XIV at all. Also, be sure to maintain trailing Stops. I myself hold a bit of both ZIV and SVXY in my own strategies (not XIV to avoid repeating the same management as ZIV)--but manage them closely and this is not for everyone.
    Sep 26, 2014. 12:03 AM | 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
  • What Is The Best Gold ETF? [View article]
    My thanks to the author and commenters of this article who helped me to think about the pros and cons of various gold ETFs. After reading articles like this, eventually I wrote a 2014 article "10 Best Gold ETFs and Perspectives." A basic theme of my article is to argue that there is no one "best" gold ETF but that the "best" thing to do is to divide your gold allocation between pretty much all that you can find. I.e. the Titanic actually was the safest boat in the world. Nonetheless, some families still followed the tradition of not putting the entire family into the same boat. It was a good decision.
    http://seekingalpha.co...
    Aug 8, 2014. 10:26 PM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    Clarification about gold mining and silver.

    My article flatly discourages any investing in gold mining and silver--because this primarily makes losses worse during MAJOR stock market downturns as well as major gold downturns. However, there is a caveat to this. During MINOR stock market ups-and-downs, gold mining and silver can offer substantial hedging action. Or to be more precise, gold mining and silver related investments are among the few investments that do not closely follow the ups-and-downs of the S&P 500.

    If you have studied the mathematics of investing--the more "out of phase" that your investments are, the more that rebalancing between them will result in a total that substantially greater than the average, and the milder will be your total downturns. This is what is meant when we talk about "diversification."

    So, it is good to have good investments which follow a substantially different rhythm than most investments--and they are difficult to find. Gold mining and silver can fit into this category. And if you practice trend-trading, then you can be less concerned about the fact that the "usual" hedging action of gold mining and silver will stop working during a MAJOR stock market downturn.

    In other words, if you are proficient in trend-trading, then my suggested ban on gold mining and silver might not apply to you. I suspect there can be special benefits to a small amount of trended investments in gold mining and silver and I am now doing some of this myself.

    Nonetheless for the average investor, I still would suggest to avoid gold mining and silver.
    Aug 7, 2014. 02:36 PM | Likes Like |Link to Comment
  • How To Bet On IPOs And Spin-Offs With ETFs, And Choose The Best. [View article]
    I am pleased to find that Fred Piard has discussed both FPX and CSD in the same article.

    I am doing some follow-up research to confirm my newly adding FPX to my list of favorite ETFs. My standard for my favorites is consistently to outperform the S&P 500, and also not to be tied down to any particular market sector. Hence to avoid being affected by a sector meltdown.

    I disqualified CSD from my favorites list several months ago. I initially liked CSD's premise and performance. However, after studying a long-term performance graph similar to the one above--note that CSD fell harder than the S&P 500 in 2008--and also did not rise above the S&P until 2013. I.e. there will be times when we must wait years for CSD to pull above the average investment. In contrast, FPX rather consistently pulls ever-farther above the S&P.

    Others on my favorites list are GURU the 'top picks of top managers' fund and PKW the 'buyback achiever fund'. I am quite pleased with these two. However, I decided not to use PKW simply because it is from the same management group as PHDG which I am giving strong emphasis (thanks in large part to articles by Mr. Piard). This is a secondary precaution but if possible, I prefer not to emphasize any single management group.

    I also invest in XRT and VCR, two "retail sector" ETFs. These break my rule of not specializing in any market sector. However, after studying the long-term history of the S&P Retail Index, major retail indexes seem rather difficult to resist. I also believe we can consider major retail ETFs to be equivalent to non-specialized. Because whenever the general economy does well, people buy more at popular retail outlets. The "name recognition" factor also, in theory, would encourge investors to be more quick to investment in well-known retail companies. I believe this theory is well supported by the consistently top returns and rapid rebounds of retail indexes in every decade.

    Another over-average ETF protocol is simply to invest in the S&P 600. Of these, my favorite for performance plus liquidity is the "growth" variation VBK. However, VBK is not hugely better than the S&P 500. After experiencing the super-strong returns of XRT and GURU, I wanted another non-sectorized super-performer. I suspect I may have found this in FPX.

    I do not find FPX to be unusually volatile for a high-performance ETF. VBK is just as volatile and not nearly as high performing. I would suggest that people be less concerned about volatility than about variety. If we just include enough of a variety of ETF picks so that we do not invest more than 1/5 or ideally 1/10 per ETF, then FPX's level of volatility should be more of an expectation than a problem.
    Aug 2, 2014. 10:23 PM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    Thank you Blackberryman for the heads-up on OUNZ. This new London-held ETF today has a share price of $12.44 and a spread of only 1¢. Probably a viable alternative for people who do not trust GLD.

    Please note that I would not suggest more than 10% of account in gold for the average investor. My autotrading strategy SN-SOS--a long-short strategy designed to equal the average stock market gain while adding security measures--is currently lagging below the S&P 500 due primarily to holding 10% in gold which has fallen in value lately. (A live performance chart can be seen at SOS.collective2.com)

    I am confident that SN-SOS will catch up to the S&P. I also have a high-gain strategy holding 20% gold which is doing well. However, an experimental strategy SN-Gold holding 40% in gold has been causing a net loss during a time when investments should be doing well. SN-Gold attempted to achieve a long-short gold strategy by short-selling gold, gold mining and silver during downward trends. However, SN-Gold has turned out to be more of a headache than it is worth and will be discontinued.

    As I said in my article above, the best hedge for gold is simply to be invested in the stock market. If you want to make money in the stock market--and not merely to hedge your gold--then in my experience the gold should not be more than 10% to 20% per strategy. Also, if you want to hold more gold, it really makes the best sense to do so via gold coins + cash in safety deposit boxes as discussed above.

    Therefore, for US residents, the ETF lineup mentioned in my article works out nicely for holding up to 25% of account in bullion while not risking more than 5% per ETF. This provides 6 custodial diversifications: SGOL, PHYS, IAU, GTU, GLD, PPLT+PALL/SPPP. Only use 5 of these at one time. Every 2 months, close one and open another, so that no ETF is held for more than 10 months. Thus probably always qualifying for "ordinary" US tax rates on gold--the same rate that we pay on dividends, bonds and CD's.

    GLD and OUNZ are both London-held. I personally would not want two London locations. Also as just explained, there is no need for one more location. So I would suggest either not using OUNZ--or replacing GLD with OUNZ--or dividing one allocation between GLD+OUNZ.
    Jun 4, 2014. 05:27 PM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    In addition to the low-interest brokers with funky names--Interactive Brokers, Options House and for very large accounts Trade Monster--$5 per-trade fees might also be negotiated for large accounts at the highly secure TD Ameritrade. But I would definitely avoid Portfolio Margin at TD Ameritrade--its margin interest rates are only slightly below average. For non-corporate accounts, Merrill Edge offers "30 free trades monthly." It must be noted that Merrill Edge is owned by Bank of America which was a bankruptcy candidate in 2008. I have strong faith in Interactive Brokers and TD Ameritrade because they are evidently conservatively managed as well as being clear leaders in online trading. However, whether Merrill Edge might be more or less of a credit risk in the future than Options House or Trade Monster, I have not yet done sufficient research to have any opinion.
    May 24, 2014. 09:54 AM | Likes Like |Link to Comment
  • 10 Best Gold ETFs And Perspectives [View article]
    Clarification: one way to avoid sales taxes is obviously to hold all gold coins in a state with no sales taxes. Another way is to hold the coins is several different states with no "use tax" or if you and the person with whom you are buying-and-selling live in separate states which both have no "use tax." (Use taxes are explained here: http://bit.ly/S3bO4v ) That was what I meant by qualifying as "interstate commerce." Then as stated above, your gold gains and losses can qualify for "ordinary" US federal income tax rates if you buy-and-sell all coins within one year with a friend. There is no need to mail or move around the coins, if you just carefully document who-owns-what on CD-ROM's. But don't take my word for it--check this out every year with your tax preparer.
    May 24, 2014. 09:28 AM | Likes Like |Link to Comment
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