Arkad

Citigroup's Doomed IT Strategy

As an equity analyst at Citi I strongly suspect that the people who know how to fix the systems problems are no longer with the company. On an almost weekly basis there are problems with the system that uploads and updates financial models. IT people spend several hours trying to diagnose the problem and I lose several hours in productivity a week just with crazy IT problems.

Inverse and Leveraged ETFs: Use with Care

It really boils down to portfolio rebalancing strategies. The three basic formulaic portfolio rebalancing methods are:

Buy and hold,
Constant mix,
Constant proportion of portfolio insurance.

A buy and hold strategy would be where you take 50% margin at the outset and don't rebalance through to the end of your investment horizon. As your risky asset falls in value your daily margin percentage will increase and as your risky asset rises in value your margin percentage will decrease. Except for interest costs would obtain double your returns over your investment horizon.

In the case of leveraged ETF's they promise (and deliver) daily leverage of 2x. This is the constant mix strategy. This means that when stocks fall (and leverage increases) they have to deleverage, when stocks rise (and leverage decreases) they have to releverage. In other words: buy high, sell low. The constant mix strategy, although it smacks of illogic because you are buying high and selling low can be preferable in trending market (where the market is always moving the same direction between portfolio rebalancing) and can be implemented profitably if you rebalance your portfolio every 6 months or every year (because you are buying more of the security that will continue to rise or selling more of the security that will continue to fall). However, in the case of leverage ETFs where the portfolio is rebalanced on a daily basis you will only find brief periods where constant mix is preferable to buy and hold. Over the long-term you will get less with constant mix than you will with a buy and hold position.