Marc Gerstein - Seeking Alpha 'Marc Gerstein' Tag RSS Syndication from SeekingAlpha.com SeekingAlpha.com http://seekingalpha.com/author/marc-gerstein Beware of GAAP Again http://seekingalpha.com/article/166729-beware-of-gaap-again?source=feed 166729 When times are tough investors and members of the financial media love to bash analysts and corporate executives, especially when it comes to issues relating to accounting. After all, it's still less than a decade since some once-mighty corporations were brought low by accounting scandals. But please, please, please don't go overboard and assume that accountants are the ones who are always providing the most helpful information. Notwithstanding some occasional abuses (every profession has some bad apples), security analysis in general is honest work and can provide insights that are much more useful to investors. Unfortunately, however, it's GAAP that sometimes obscures economic reality.

Back in June 2009, I wrote about the problems with the way operating profit is reported, specifically, how this item can be heavily distorted by unusual gains and expenses. I showed why it's important for analysts to create an alternative measure of profits that provides a more useful basis for making assumptions about the future, a practice inspired directly from the most revered masters of security analysis: Graham and Dodd.

]]> Thu, 15 Oct 2009 10:57:33 -0400 Marc Gerstein When times are tough investors and members of the financial media love to bash analysts and corporate executives, especially when it comes to issues relating to accounting. After all, it's still less than a decade since some once-mighty corporations were brought low by accounting scandals. But please, please, please don't go overboard and assume that accountants are the ones who are always providing the most helpful information. Notwithstanding some occasional abuses (every profession has some bad apples), security analysis in general is honest work and can provide insights that are much more useful to investors. Unfortunately, however, it's GAAP that sometimes obscures economic reality.

Back in June 2009, I wrote about the problems with the way operating profit is reported, specifically, how this item can be heavily distorted by unusual gains and expenses. I showed why it's important for analysts to create an alternative measure of profits that provides a more useful basis for making assumptions about the future, a practice inspired directly from the most revered masters of security analysis: Graham and Dodd.


Complete Story »]]> DIA SPY Marc Gerstein Happy Anniversary... Sort of http://seekingalpha.com/article/166568-happy-anniversary-sort-of?source=feed 166568 It’s been about a year since the stock market fell off the cliff and every strategy seemed to go bad. Can we finally put that to rest and go back to modeling?

The late-2008 stock-market collapse was pretty bad, especially last October. We all know that. But even more frustrating, imagining that anything can be more frustrating than the vigor of the decline, was the way supposedly prudent strategies failed to help investors mitigate the collapse.

]]> Wed, 14 Oct 2009 17:17:12 -0400 Marc Gerstein It’s been about a year since the stock market fell off the cliff and every strategy seemed to go bad. Can we finally put that to rest and go back to modeling?

The late-2008 stock-market collapse was pretty bad, especially last October. We all know that. But even more frustrating, imagining that anything can be more frustrating than the vigor of the decline, was the way supposedly prudent strategies failed to help investors mitigate the collapse.


Complete Story »]]> IVV SPY Marc Gerstein Warren Buffett Portfolio: Going Beyond the Folksy Stereotypes to Find All-Star Stocks http://seekingalpha.com/article/153995-warren-buffett-portfolio-going-beyond-the-folksy-stereotypes-to-find-all-star-stocks?source=feed 153995 As all-star investors go, Warren Buffett is, perhaps, the most intriguing. Many of us think we know what he's all about: value, good company management, best-in-class companies that will be on top forever, etc. Actually, though, there can be wide gaps between the homespun folksy image that's been built around him and the modern reality, which in some ways, can look more like an aggressive hedge fund. But once we come to grips that no quantitative model can actually turn us into Buffett clones, we find that we can still use certain core Buffett philosophies to come up with an interesting model that, performance-wise, can hold its own in Omaha, New York, or even the moon.

Be careful about the Buffett image

]]> Wed, 05 Aug 2009 13:08:51 -0400 Marc Gerstein As all-star investors go, Warren Buffett is, perhaps, the most intriguing. Many of us think we know what he's all about: value, good company management, best-in-class companies that will be on top forever, etc. Actually, though, there can be wide gaps between the homespun folksy image that's been built around him and the modern reality, which in some ways, can look more like an aggressive hedge fund. But once we come to grips that no quantitative model can actually turn us into Buffett clones, we find that we can still use certain core Buffett philosophies to come up with an interesting model that, performance-wise, can hold its own in Omaha, New York, or even the moon.

Be careful about the Buffett image


Complete Story »]]> ADM APOG BRK.A GTLS HS HUM INT JEC JOSB LUFK OLN PTI SAY SCSC SNX TIE Marc Gerstein Ben Graham Portfolio: Snazzy Returns from a Vintage Strategy http://seekingalpha.com/article/152849-ben-graham-portfolio-snazzy-returns-from-a-vintage-strategy?source=feed 152849 When it comes to all-star investors, Ben Graham is iconic, being half the Graham-and-Dodd team widely credited with inventing fundamental stock analysis back in the 1930s. But don't think, for even a single minute, that his approach is quaint, old fashioned, or anything like that. The stocks now favored by the Portfolio123.com Graham model, depressed cyclicals and oilfield service firms, are not glamorous. But the performance record of this model shows returns that ought to be snazzy enough by anyone's standards.

Playing offense by playing defense

]]> Fri, 31 Jul 2009 09:16:10 -0400 Marc Gerstein When it comes to all-star investors, Ben Graham is iconic, being half the Graham-and-Dodd team widely credited with inventing fundamental stock analysis back in the 1930s. But don't think, for even a single minute, that his approach is quaint, old fashioned, or anything like that. The stocks now favored by the Portfolio123.com Graham model, depressed cyclicals and oilfield service firms, are not glamorous. But the performance record of this model shows returns that ought to be snazzy enough by anyone's standards.

Playing offense by playing defense


Complete Story »]]> APOG MKTAY OLN SPAR TDW Marc Gerstein Reverse Convertibles and 'EIPs' – Here’s The Point http://seekingalpha.com/article/144300-reverse-convertibles-and-eips-heres-the-point?source=feed 144300 For the uninitiated, a reverse convertible (or structured product) is a short-term debt instrument that usually pays an above-market rate of interest but contains a provision that could allow the borrower to repay principal, not in cash, but in stock. The shares usually aren’t the shares of the company that borrows the money. Citibank, for example, might issue a reverse convertible that could, under certain condition, be repaid in shares of, say, Apple. The equity repayment provision is usually activated by a decline in the price of the specified stock (20%or so, even if the decline is only temporary, with the details specified in the debt documentation).

In one of several reverse-convertibles articles featured recently on the Seeking Alpha home page, James Kwak asks: “What the hell is the point of this product?”

]]> Fri, 19 Jun 2009 18:51:17 -0400 Marc Gerstein For the uninitiated, a reverse convertible (or structured product) is a short-term debt instrument that usually pays an above-market rate of interest but contains a provision that could allow the borrower to repay principal, not in cash, but in stock. The shares usually aren’t the shares of the company that borrows the money. Citibank, for example, might issue a reverse convertible that could, under certain condition, be repaid in shares of, say, Apple. The equity repayment provision is usually activated by a decline in the price of the specified stock (20%or so, even if the decline is only temporary, with the details specified in the debt documentation).

In one of several reverse-convertibles articles featured recently on the Seeking Alpha home page, James Kwak asks: “What the hell is the point of this product?”


Complete Story »]]> Marc Gerstein Beware of GAAP http://seekingalpha.com/article/143116-beware-of-gaap?source=feed 143116 Watch out for GAAP (Generally Accepted Accounting Principles). It can diminish your investment performance. Seriously.

One of the worst things to come out of the early-decade Wall Street scandals was the tendency it fostered, among frightened investors and crusading journalists to mistrust the adjustments analysts make to reported financials. Now, with the economy moving or preparing to move out of recession, it especially important to put a lid on the politics of accounting and get serious about how one ought to be looking at the numbers.

]]> Mon, 15 Jun 2009 03:04:48 -0400 Marc Gerstein Watch out for GAAP (Generally Accepted Accounting Principles). It can diminish your investment performance. Seriously.

One of the worst things to come out of the early-decade Wall Street scandals was the tendency it fostered, among frightened investors and crusading journalists to mistrust the adjustments analysts make to reported financials. Now, with the economy moving or preparing to move out of recession, it especially important to put a lid on the politics of accounting and get serious about how one ought to be looking at the numbers.


Complete Story »]]> DIA QQQQ SPY Marc Gerstein Time to Show Some Love to the Sell-Side? http://seekingalpha.com/article/142719-time-to-show-some-love-to-the-sell-side?source=feed 142719 Back in my days at Reuters.com, when I felt feisty and wanted to generate some angry reader e-mails, I had a sure-fire formula: write an article extolling benefits of following sell-side analysts. That never failed to produce a deluge, regardless of what the performance numbers really showed.

Then came 2007-08, when every strategy, it seems, struggled - including those that involved use of analyst recommendations and/or earnings estimates.

]]> Thu, 11 Jun 2009 10:38:33 -0400 Marc Gerstein Back in my days at Reuters.com, when I felt feisty and wanted to generate some angry reader e-mails, I had a sure-fire formula: write an article extolling benefits of following sell-side analysts. That never failed to produce a deluge, regardless of what the performance numbers really showed.

Then came 2007-08, when every strategy, it seems, struggled - including those that involved use of analyst recommendations and/or earnings estimates.


Complete Story »]]> ARO CRR DCP DECK EME GCO INT PETM RDC ROST Marc Gerstein ETF Ideas from Mr. Market http://seekingalpha.com/article/142077-etf-ideas-from-mr-market?source=feed 142077 Do you like what’s hot or do you like what’s not? Put another way, are you a momentum player or are you a contrarian? Practitioners of technical analysis would phrase it like this: Do you prefer trending systems or those based on oscillators? Equity investors have long pondered such questions. But nowadays, with the ETF universe having become as large as it has, it becomes important here too.

Perhaps Mr. Market can help us decide which type of strategy we should pursue for a particular stock, or in the case of this article, ETF.

]]> Tue, 09 Jun 2009 03:22:04 -0400 Marc Gerstein Do you like what’s hot or do you like what’s not? Put another way, are you a momentum player or are you a contrarian? Practitioners of technical analysis would phrase it like this: Do you prefer trending systems or those based on oscillators? Equity investors have long pondered such questions. But nowadays, with the ETF universe having become as large as it has, it becomes important here too.

Perhaps Mr. Market can help us decide which type of strategy we should pursue for a particular stock, or in the case of this article, ETF.


Complete Story »]]> DSG GML IDX IWO JKK ONEQ SPY UGA USL USO Marc Gerstein GM Bankruptcy: Time for New-Era Auto Opportunities http://seekingalpha.com/article/140787-gm-bankruptcy-time-for-new-era-auto-opportunities?source=feed 140787 General Motors (GM) filed for bankruptcy. The sun is still shining. The air is still breathable, or at least no less so than yesterday. The water is still wet. The earth is not shaking. Our economy is still capitalist (true the U.S. will get a 60% stake in GM but seriously, anybody who has trouble distinguishing between Obama on the one hand and Marx, Engels, Lenin, Trotsky, Stalin, Mao, etc. on the other has bigger problems than the stock market to worry about). And by the way, the beat-up minivan I’m driving is not getting any younger.

]]> Tue, 02 Jun 2009 03:05:17 -0400 Marc Gerstein General Motors (GM) filed for bankruptcy. The sun is still shining. The air is still breathable, or at least no less so than yesterday. The water is still wet. The earth is not shaking. Our economy is still capitalist (true the U.S. will get a 60% stake in GM but seriously, anybody who has trouble distinguishing between Obama on the one hand and Marx, Engels, Lenin, Trotsky, Stalin, Mao, etc. on the other has bigger problems than the stock market to worry about). And by the way, the beat-up minivan I’m driving is not getting any younger.


Complete Story »]]> ALV DORM GMGMQ.PK GPC LKQX SUP Marc Gerstein Technology Retailing: Best Buy and... Radio Shack? http://seekingalpha.com/article/140315-technology-retailing-best-buy-and-radio-shack?source=feed 140315 Warren Buffett and Charlie Munger. Michael Jordan and Scotty Pippen. Babe Ruth and Lou Gherig. Bud Abbott and Lou Costello. Lucille Ball and Desi Arnaz. WalMart (WMT) and Target (TGT). Ralph Kramden and Ed Norton.

Do you notice how often success stories involve pairs? It’s not always necessary that both parties be equally proficient, though in many areas of life, it definitely helps. That’s especially so in the world of business, where we value choice, or in the language of antitrust jurisprudence, competition.

]]> Fri, 29 May 2009 13:42:54 -0400 Marc Gerstein Warren Buffett and Charlie Munger. Michael Jordan and Scotty Pippen. Babe Ruth and Lou Gherig. Bud Abbott and Lou Costello. Lucille Ball and Desi Arnaz. WalMart (WMT) and Target (TGT). Ralph Kramden and Ed Norton.

Do you notice how often success stories involve pairs? It’s not always necessary that both parties be equally proficient, though in many areas of life, it definitely helps. That’s especially so in the world of business, where we value choice, or in the language of antitrust jurisprudence, competition.


Complete Story »]]> AMZN BBY COST RSH WMT Marc Gerstein Hewlett-Packard's Silver Linings http://seekingalpha.com/article/139085-hewlett-packard-s-silver-linings?source=feed 139085 By now, it’s well known that Hewlett-Packard (HPQ) laid an egg Tuesday afternoon when it reported second-quarter numbers. It was bad enough to see EPS fall from $0.80 in the year-earlier period to $0.70 in the latest quarter. But adding to the gloom were the eye-catching declines in some key product categories (19% for PCs, 23% for printer supplies and sales, and 28% for the server and storage division) and management’s gloomy guidance for upcoming quarters. In response, the stock fell about 5 percent Wednesday and underperformed an already-weak market Thursday morning.

]]> Fri, 22 May 2009 04:38:43 -0400 Marc Gerstein By now, it’s well known that Hewlett-Packard (HPQ) laid an egg Tuesday afternoon when it reported second-quarter numbers. It was bad enough to see EPS fall from $0.80 in the year-earlier period to $0.70 in the latest quarter. But adding to the gloom were the eye-catching declines in some key product categories (19% for PCs, 23% for printer supplies and sales, and 28% for the server and storage division) and management’s gloomy guidance for upcoming quarters. In response, the stock fell about 5 percent Wednesday and underperformed an already-weak market Thursday morning.


Complete Story »]]> HPQ Marc Gerstein GE? Too Pedestrian for Me http://seekingalpha.com/article/138606-ge-too-pedestrian-for-me?source=feed 138606 It’s long been easy to tell favorable stories about General Electric (GE).

During the 1990s, this seemed to be everybody’s favorite stock given the cult of popularity surrounding former CEO Jack Welch. Successor Jeff Immelt has never garnered anything close to that degree of acclaim, but even he has some fans, as evidenced by the recently-released book Jeff Immelt and the New GE Way. (See also the accompanying Seeking Alpha article by author David Magee.)

]]> Wed, 20 May 2009 03:30:47 -0400 Marc Gerstein It’s long been easy to tell favorable stories about General Electric (GE).

During the 1990s, this seemed to be everybody’s favorite stock given the cult of popularity surrounding former CEO Jack Welch. Successor Jeff Immelt has never garnered anything close to that degree of acclaim, but even he has some fans, as evidenced by the recently-released book Jeff Immelt and the New GE Way. (See also the accompanying Seeking Alpha article by author David Magee.)


Complete Story »]]> GE Marc Gerstein Disagreeing with Rob Arnott: Past 40 Years Not Lost for Equity http://seekingalpha.com/article/136124-disagreeing-with-rob-arnott-past-40-years-not-lost-for-equity?source=feed 136124 In a study recently published in Journal of Indexes, Rob Arnott pretty much brushed stocks aside as having been useless over the past 40 years. He didn’t actually say “useless,” but it seems fair to take that message from his work. Consider the following pronouncement:

]]> Thu, 07 May 2009 10:46:50 -0400 Marc Gerstein In a study recently published in Journal of Indexes, Rob Arnott pretty much brushed stocks aside as having been useless over the past 40 years. He didn’t actually say “useless,” but it seems fair to take that message from his work. Consider the following pronouncement:


Complete Story »]]> DIA QQQQ SPY Marc Gerstein Banking: Will the New Be Better than the Old? http://seekingalpha.com/article/134217-banking-will-the-new-be-better-than-the-old?source=feed 134217 In a September 10, 2008 article, I presented a ranking system designed to identify more prudently-managed banks, and noted that for most years, it had not worked: Such stocks did not outperform those of the more aggressive institutions.

The model had, however, performed very well during the recent collapse, as risk-aversion became the new mantra.

]]> Thu, 30 Apr 2009 05:21:35 -0400 Marc Gerstein In a September 10, 2008 article, I presented a ranking system designed to identify more prudently-managed banks, and noted that for most years, it had not worked: Such stocks did not outperform those of the more aggressive institutions.

The model had, however, performed very well during the recent collapse, as risk-aversion became the new mantra.


Complete Story »]]> BAC C CMA FHN KBE PNC STI WFC XLF Marc Gerstein Rethinking How We Evaluate Fund Manager Performance http://seekingalpha.com/article/131923-rethinking-how-we-evaluate-fund-manager-performance?source=feed 131923 In a March 9, 2009 study, Eugene Fama and Kenneth French concluded that mutual fund managers, as a whole, stink (actually that’s my language, not theirs, but it does sum up their ultimate message). Although this particular study method had some new wrinkles, the grand conclusion is the same as what I’ve been hearing since I was a grad student in the late 1970s, and even back then, the topic was no longer new.

]]> Tue, 21 Apr 2009 03:31:38 -0400 Marc Gerstein In a March 9, 2009 study, Eugene Fama and Kenneth French concluded that mutual fund managers, as a whole, stink (actually that’s my language, not theirs, but it does sum up their ultimate message). Although this particular study method had some new wrinkles, the grand conclusion is the same as what I’ve been hearing since I was a grad student in the late 1970s, and even back then, the topic was no longer new.


Complete Story »]]> DIA IWM QQQQ SPY Marc Gerstein Building a Do-It-Yourself ETF Hedge Fund http://seekingalpha.com/article/131713-building-a-do-it-yourself-etf-hedge-fund?source=feed 131713 Even now, despite the recent financial calamities, hedge funds continue to occupy a special and sometimes romanticized place in the hearts of many investors. A recent article explored how use of short and ultra-short ETFs, together with the Portfolio123.com ETF screener and backtester, can help us create what most would assume to be the purest kind of hedge fund portfolio, the kind that uses long-short strategies in an effort to make money regardless of market conditions. Actually, though, the workaday hedge fund world is much broader than that, containing so much strategic variety that we might view hedge funds, collectively at least, as funds that are able to invest in almost any thing almost any time, allowing the fund manager to pursue "alpha" anywhere it may be found. The approach presented here will follow this latter approach.

Hedge fund Replication

]]> Mon, 20 Apr 2009 03:06:21 -0400 Marc Gerstein Even now, despite the recent financial calamities, hedge funds continue to occupy a special and sometimes romanticized place in the hearts of many investors. A recent article explored how use of short and ultra-short ETFs, together with the Portfolio123.com ETF screener and backtester, can help us create what most would assume to be the purest kind of hedge fund portfolio, the kind that uses long-short strategies in an effort to make money regardless of market conditions. Actually, though, the workaday hedge fund world is much broader than that, containing so much strategic variety that we might view hedge funds, collectively at least, as funds that are able to invest in almost any thing almost any time, allowing the fund manager to pursue "alpha" anywhere it may be found. The approach presented here will follow this latter approach.

Hedge fund Replication


Complete Story »]]> AGG BIL BIV BND BSV CSJ EDV EIS EMV EWP FXM FXY GBF GVI HAO IEF IEI IGV IJH IJR IJS ITE IWN IYM IYT LAG MBB PIN PLW QAI RFG RZV SHV SHY TLH TLT TUR UUP XLB XLY Marc Gerstein The Importance of Hedging Against Bad Earnings http://seekingalpha.com/article/130023-the-importance-of-hedging-against-bad-earnings?source=feed 130023 GDP, General Motors (GM), AIG, Employment data, Home construction, etc. Commentators are never at a loss for coming up with a variety of explanations for what the market does. But to me, it looks like it still boils down to earnings. And right now, that's still a very iffy thing. So besides just guessing, perhaps it would help to use a simple, easy to implement, hedge.

Here's a quote from Yahoo! Finance article on April 7, 2009 that tries to explain the -2% (so far) drop in the major indexes:

]]> Wed, 08 Apr 2009 04:03:27 -0400 Marc Gerstein GDP, General Motors (GM), AIG, Employment data, Home construction, etc. Commentators are never at a loss for coming up with a variety of explanations for what the market does. But to me, it looks like it still boils down to earnings. And right now, that's still a very iffy thing. So besides just guessing, perhaps it would help to use a simple, easy to implement, hedge.

Here's a quote from Yahoo! Finance article on April 7, 2009 that tries to explain the -2% (so far) drop in the major indexes:


Complete Story »]]> SPY Marc Gerstein Market Timing Unleashed, Using Leveraged ETFs http://seekingalpha.com/article/129828-market-timing-unleashed-using-leveraged-etfs?source=feed 129828 I’ve started to have some success with equity market timing and presented one such model on Seeking Alpha. So far, it’s been doing what I had hoped it would do. And now, the recent launch of ETF screening, ranking, and backtesting on Portfolio123 adds a whole new dimension to this endeavor, especially when I give some attention to the leveraged ETFs, which commentators love to trash. (“I thought you were supposed to double the market over a four week holding period – I closed my eyes when I got to your disclosures about the doubling being just a daily thing – but over the past month, you delivered only one and one half times the market’s return, so . . . Gotcha!”) As those who’ve seen my previous Seeking Alpha articles on leveraged ETFs know (click here, for example), I strongly disagree with the critics. Rather than playing silly “Gotcha!” games, I think it would be much more productive to learn how leveraged ETFs actually work, accept them as a new set of tools in the investor’s arsenal, and figure out how to use them, along with other tools, productively.

Market timing with stocks - great, but complex

]]> Tue, 07 Apr 2009 04:01:50 -0400 Marc Gerstein I’ve started to have some success with equity market timing and presented one such model on Seeking Alpha. So far, it’s been doing what I had hoped it would do. And now, the recent launch of ETF screening, ranking, and backtesting on Portfolio123 adds a whole new dimension to this endeavor, especially when I give some attention to the leveraged ETFs, which commentators love to trash. (“I thought you were supposed to double the market over a four week holding period – I closed my eyes when I got to your disclosures about the doubling being just a daily thing – but over the past month, you delivered only one and one half times the market’s return, so . . . Gotcha!”) As those who’ve seen my previous Seeking Alpha articles on leveraged ETFs know (click here, for example), I strongly disagree with the critics. Rather than playing silly “Gotcha!” games, I think it would be much more productive to learn how leveraged ETFs actually work, accept them as a new set of tools in the investor’s arsenal, and figure out how to use them, along with other tools, productively.

Market timing with stocks - great, but complex


Complete Story »]]> IEF SDS SH SHY SPY SSO XLP XLU XLV Marc Gerstein What Happens When You Hold Leveraged ETFs for More than One Day? http://seekingalpha.com/article/127744-what-happens-when-you-hold-leveraged-etfs-for-more-than-one-day?source=feed 127744 I had not previously considered a math textbook to be a dangerous instrument, but it's amazing how much confusion can result from a superficial reading of a chapter on compounding. We've seen scary stories about how investors bought leveraged short ETFs just before the market collapsed, expected to rejoice in their profits, but found instead, that the short ETFs actually went down in a bear market! Similarly, leveraged bull ETFs can fall when stock prices rise.

I’ve addressed this topic several times in the past. Today, I want to offer something new: specific data that presents a better rounded picture of what can happen if you hold a leveraged ETF for more than a day.

]]> Wed, 25 Mar 2009 06:52:43 -0400 Marc Gerstein I had not previously considered a math textbook to be a dangerous instrument, but it's amazing how much confusion can result from a superficial reading of a chapter on compounding. We've seen scary stories about how investors bought leveraged short ETFs just before the market collapsed, expected to rejoice in their profits, but found instead, that the short ETFs actually went down in a bear market! Similarly, leveraged bull ETFs can fall when stock prices rise.

I’ve addressed this topic several times in the past. Today, I want to offer something new: specific data that presents a better rounded picture of what can happen if you hold a leveraged ETF for more than a day.


Complete Story »]]> SDS SSO Marc Gerstein Leveraged ETFs: Intraday Pricing Trends http://seekingalpha.com/article/127238-leveraged-etfs-intraday-pricing-trends?source=feed 127238 As Seeking Alpha readers well know, leveraged ETFs have been vigorously attacked in the financial media. I think it’s unwarranted and have previously posted on Seeking Alpha articles addressing such topics as path-dependency, holding periods, and most recently, tracking error. The latter article indicated that tracking error is not really troublesome here. But that dealt with end-of-day prices. What about other portions of the day? Although leveraged ETF pricing seems to finish fine, how reasonable is the intraday journey from open to close?

Frankly, I started this experiment expecting to see some troublesome issues. Anecdotally, I had noticed that while tracking error seems reasonable based on closing prices, it did appear that daily open prices seemed more likely to be all over the place. But as I examined some data more systematically, it became apparent that I'd have to change my views. Open, high, and low prices can get erratic, but this seems to have nothing to do with leverage. I saw similar patterns for SPY, the penultimate traditional ETF.

]]> Sun, 22 Mar 2009 09:11:01 -0400 Marc Gerstein As Seeking Alpha readers well know, leveraged ETFs have been vigorously attacked in the financial media. I think it’s unwarranted and have previously posted on Seeking Alpha articles addressing such topics as path-dependency, holding periods, and most recently, tracking error. The latter article indicated that tracking error is not really troublesome here. But that dealt with end-of-day prices. What about other portions of the day? Although leveraged ETF pricing seems to finish fine, how reasonable is the intraday journey from open to close?

Frankly, I started this experiment expecting to see some troublesome issues. Anecdotally, I had noticed that while tracking error seems reasonable based on closing prices, it did appear that daily open prices seemed more likely to be all over the place. But as I examined some data more systematically, it became apparent that I'd have to change my views. Open, high, and low prices can get erratic, but this seems to have nothing to do with leverage. I saw similar patterns for SPY, the penultimate traditional ETF.


Complete Story »]]> IYF SDS SKF SPY SSO UYG Marc Gerstein