Thoughts about Hedgefundie's adventure?

Hey everyone,

with the recent downwards trend did someone actually put the strategies into practice we talked about?

I am considering going on portfolio margin and slowly leverage up to max 2x buying each month as long as VT is under my average buying cost.

Can i ask you what you plant to do if: once you are at x2 and it keeps dropping?


2x leverage is not save for long term holding. Your margin call probability is quite high, but I guess it depends on the overall portfolio.

I went heavy on 3x ETF (biotech, China and internet stocks) in mid March during the first leg down.

These 3x ETF are down another 50-60% since I purchased these. Ouch!

I don’t think we are near the bottom yet but I am disciplining DCA only at pay-day and not much more than that given uncertainty on when the rebound.

Nerves of steel!

Disclosure: I have an additional cash reserve but don’t want to deploy it now. Maybe I am little afraid we are not out of the tunnel yet

Because of the way they are functioning: buying more derivatives when prices go up and selling them and the collateral when prices go down. If instead you would buy futures or went on margin, you would be somewhere around 0 in USD and probably in profit in CHF.

I have not sold them. I think you would be still down if you buy on margin.

Just to be clear. As an example:
A) I entered biotech 3x when the underlying index (XBI) lost already 50% from ATH
B) then index lost another 15-20%, which roughly means another 50% on a 3x ETF
C) so my 3x ETF is down 50%

If I would have got futures or bought XBI on margin at point in time A (above). I would be still down, wouldn’t I?

For reference, let’s check facts UPRO (3x S&P500)

  • if you invested in covid bottom, you would have made 7x your investment when reaching ATH again
  • after the recent decline upro is still higher than pre-covid, albeit close

Ok sorry, I thought you are talking about standard indices. Still I think constant leverage ETFs are less efficient than self made leverage solutions.

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On the other thought, I should look closer at 3x or maybe 2x leveraged ETFs.

they are a scam and not worth it.
The value of those token will decrease over longer time frames, please for your NV avoid.

I believe you right! But let me elaborate some more on my experience and how can be helpful to others.

a) 3x ETF to be used only for short periods of time. I agree over long periods the probability of this vehicle to never reach prior peak is very real. It’s math, it always takes longer to go back up then going down on % basis
b) 3x ETF move wildly. Does not matter how much you looked the graphs. Once you are in, it’s a wild roller coaster
c) attention to cost. 3x ETF are derivatives as IR increase so could costs

When I think we could these

  1. short period of time
  2. use for a small part of your NW
  3. have a plan on when to enter / exit
  4. use after a downturn
  5. don’t get greedy
  6. don’t use if you are risk adverse
  7. don’t use if you have a short investment horizon (less than 5-7y)
  8. don’t use if you don’t understand well finance and have traded for at least 10 years

I can’t say I mastered all of these elements but I am still learning and improving on the go

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