fjpenney

Buy-Write ETFs: Minimizing the Market's Angst

Warren Buffett once said that most investors prefer a 12% smooth return over a 15% lumpy return but he would take the latter. From an investor psychology point of view, buy-write ETF's may appeal to some investors on the basis that returns are supposed to be smoother.

From my experience, it takes a seasoned investor to accept the lumpiness of stock market returns and therefore there may be an acceptably large market for buy-write ETF's even though I have no interest in them.

Leveraged ETFs: A Value Destruction Trap?

I use QLD and am quite pleased with the results. Nobody buys and holds leveraged ETF's for extended periods of time. You have to use a timer or some other method to determine entry and exit points. Most people hold leveraged ETF's for less than a week but I have made money holding them for months but not years.

Leveraged ETF Winners and Losers in 2009

I like the guys at Bespoke but this article is of little value since those of us who use leveraged ETF's don't buy them at the beginning of the year and hold them. They are generally held for short periods of time and some us use timers to direct purchases and sales.

Dave Fry: Thoughts on Leveraged ETFs

With leveraged ETF's, from my experience the timing is of paramount importance. I base much of my US investments on QLD when I am long but choose PSQ (a 1X ETF) when short rather than QID. I have read countless commentary stating that the holding period for leveraged ETF's should only be a day or two. My experience, which is only with QLD, is much different. My typical holding period is 70 - 80 days and I am pleased with the results. That being said, leveraged ETF's aren't for everyone because the price swings are very wide and can be unsettling.

Sidelined Cash: Fuel for the Fire

If you look at the chart for IWM (iShares Russell 2000), as the market rallied over the past six days the volume has steadily declined. This is hardly evidence which would persuade one that the cash on the sidelines is ready to move back into US equity markets.

Thursday Outlook: Commodities, Global Markets

David:

Yesterday, your article that was posted before the market opened indicated that you expected a rally. After yesterday's sell-off, your article today indicates that you expected the sell-off. Are the two articles contradictory?

You are the most followed contributor here on SA and you deserve credit for that. If you wouldn't mind, I kindly ask that you explain what insight you hope investors are going to gain from all the charts and commentary. Do you hope to educate them on your expectations for the market's move the next day, the next week, the next month, ...?

Personally I think investors would hope that at the end of your posts you would offer an opinion of the market's future direction. That's easier said than done of course.

Wednesday Outlook: Commodities, Global Markets

The McClellan Oscillator peaked on July 23 and hit a low on September 02. As I understand David's discussion of the oscillator, the market should have peaked on July 23 and hit a low around September 02. In fact, the S&P 500 rose 4.2% from July 23 to September 02.

The again, the oscillator hit a high on September 17 and a low on October 02. Over the same time period, the S&P500 fell 3.9%.

I haven't studied the value of the McClellan Oscillator in depth and I do not use it in my own timer. Does anyone find the MO to be of much value?

Start Your Own Personal Hedge Fund (and Pay Yourself the 2 & 20)

The 130/30 strategy is often considered a smart maneuver. However, investors should bear in mind that one possible outcome of such a trade is that both legs go against you - you lose money on both the long position and the short position.

Fred

It's All in the Timing

Suzanne:

As a market timer, I fall into the third of your belief systems. Developing a successful market timer has taken me years of work but it has paid off in spades this past year. Even when you have a market timer that works very well, emotions can still have an impact. For example, if your timer is long and the market is falling, at some point you may feel like going to cash before you get a short signal. Sometimes you will be correct by going to cash but sometimes the market will rebound.

As a market timer, I recognize that there is a degree of randomness in the market. Like others, I have to accept this noise and not get excited by the fast talkers on CNBC who are obviously compelled to blurt out a number of trades every evening. By the way, when you make so darn many recommendations there will always be ones that worked out that you can brag about. You just have to hope that the audience has a short memory and forgets the recommendations that didn't work out.

I put one of my market timing systems on Collective2.com (qldandpsq.collective2.com) this past April and am pleased with the results thus far. In so doing, I have a live system that cannot be manipulated and the performance results are not the culmination of an optimized backtest.

Fred

Surprising Results for Market Timing Study

I have in my possession a number of academic studies on market timing and they are all quite useless to be honest. I use my own market timers and I can assure you that nobody in their right mind makes market timing decisions in a manner which is similar to that for which the academic studies are based upon. Some studies are based on a market timing decision being made at the beginning of every month and others are based on a market timing decision being made a the beginning of the every year. In all cases, the timing decision is held for a fixed period (i.e. one month or one year) regardless of what happens with the market.

Market timers are generally computed on the basis of end-of-day data not end-of-month or end-of-year data. To assume that market timers don't update their models on at least a daily basis is a fault of the academic studies that is so serious as to render them useless in my opinion.

Fred

Leveraged ETFs Are Still Attractive to Investors

Leveraged ETF's can be used quite successfully if you can match them with a timer. I use QLD along with my own timer and am very pleased with the results. Leveraged ETF's are not meant to be buy-and-hold (aka buy-and-forget-to-sell) instruments and I would think that most investors have read articles that demonstrate how poorly leveraged ETF's can perform.

Why Leveraged ETFs Are Bound to Deteriorate

There is no shortage of articles written about leveraged ETF decay but, as was noted by User 243258, the returns generated by leveraged ETF's are path dependent. Here in Canada, Horizons Beta Pro reps have made that point clear whenever they appeared before the media.

Lawrence:
You make an excellent point - if the decay is so certain, why not short the leveraged ETF's. I tried to short QLD through my Canadian broker but was advised that they didn't have any QLD and that it was very difficult for them to offer any of the US ETF's for shorting. I'd like to hear from others on this.

I use the leveraged ETF QLD (Proshares Ultra QQQ) in conjunction with my own timer and am pleased with the results. The volatility is definitely not for everyone.

Absurd Inverse and Leveraged ETF Product Whining (Updated)

Amen. I use 2X ETF's and inverse ETF's to beat buy-and-hold by a wide margin with a minimum of trades. Here in Canada, Horizon Beta Pro constantly reminds its market that the 2X ETF's are rebalanced daily and the return they generate is path dependent.

Double and Triple Leveraged ETFs: For Traders, Not Investors

If you can find or develop a suitable timer, there may be a place for 2X ETF's in your holdings. On my blog at www.etf2x.com I show the performance of my models based on going long with QLD and then switching to either cash, IEF, PSQ, QID or RWM. The average compound annual growth rate since August, 2006 is around 53%. The average time between signals for my timer is around 75 days. QLD is the only 2X bull ETF that I buy.

As for risk, all my models have lower Ulcer Indexes than buying and holding the market. However, the volatility (which is not how I measure risk) of leveraged ETF's isn't for everyone.

Fred

The Investment Circus: Why Mean-Ignorant Monkeys Beat Median-Jumping Clowns

Excellent article. I admire people who know that they don't know. As I told my subscribers "Recognition of ignorance is the first step towards acquisition of knowledge.".

CNBC isn't the only guilty party out there. Investors want answers so the various media outlets employ people who put forth answers. I get a kick out of the evening analysis of why the market moved the way it did that day. An honest person would answer "Damned if I know.". There are so many factors that influence the stock markets each day that is a display of ignorance to pretend that you know why the market moved.

For the most part, I don't select stocks any more. I use my timers and buy broad market ETF's. Fortunately, my timers got me out of the market in June, 2008. My portfolio beats most fund managers but I'll never be invited on CNBC because I know that I don't know!