6 ms·

The red flag that I see which tells me that this guy doesn't know what he's doing is his inclusion of a leveraged ETF into a long term (i.e. not day traded) por

The red flag that I see which tells me that this guy doesn't know what he's doing is his inclusion of a leveraged ETF into a long term (i.e. not day traded) portfolio. Leveraged ETFs are weird and they _do no_ return 2x over a long period of time. I'm not talking about their fees, I'm talking about the fundamentals of how they are put together. These funds attempt to give you 2x every day and they reset every day so that over the course of a week they have tried to double the index's returns 5 times over five separate days. They have not tried to double the index's return over the entire week. tl;dr Leveraged ETFs are for day-trading not buy and hold investing.

bhickey 16y ago
I came here to just post this. The author does not understand leveraged ETFs in the slightest, and sounds dangerous to boot. He begins by decrying the stock pickers, and then goes on to endorse ARM. Ahem?
- steadicat 16y ago
  Burton Malkiel (author of "A Random Walk Down Wall Street"), the guy who popularized index investing, doesn't condemn individual stock picking. He is fine with it, and he does it himself, provided you have a pool of safer investments in index funds to back you up in case you fail. Which is basically what I'm recommending. Reference: watch the video at http://finance.yahoo.com/tech-ticker/article/535789/Burton-Malkiel:-Markets-Arent-100%25-Efficient-But-You-Still-Cant-Beat-Em http://finance.yahoo.com/tech-ticker/article/535789/Burton-M...
  - tptacek 16y ago
    Malkiel says that picking a few stocks is fine as long as the core of your portfolio is indexed. The majority of your exposure to equities is in a single stock, and it's an extremely-hyped tech stock.
T-hawk 16y ago
It may be worth taking a quick trip into why the math of leveraged ETFs doesn't work. The fundamental problem is that they lose more on losses by the underlying investment than they gain on gains by the underlying investment. Suppose that the underlying investment starts priced at 100, jumps 25% on Monday to 125, then on Tuesday drops 20% back to 100.00. It ended as it began with no gain or loss. What did our 2x ETF do? It began at 100, ended Monday at 100 + 50% = 150.00, then ended Tuesday at 150.00 - 40% = 90. It lost a big chunk of value relative to its completely unchanged underlying investment.
- notahacker 16y ago
  In other words, the volatility of oil prices can kill your leveraged investment even if your long term bet on rising oil prices is correct
deleted 16y ago
[deleted]
steadicat 16y ago
Point taken. I switched my recommendation from UCO to DBO. (I kept the original text there so as not to invalidate your comment.)
- 3am 16y ago
  No! You don't get off so easily - you have publicly recommended an investment strategy that allocates 15% (15%!) to a vehicle that you didn't understand and was completely innappropriate. "switch your recommendation" ??? This is like suggesting a bank use memcached for transactional data, and when called on it, just casually walking it back and saying that maybe Oracle is more appropriate. It's fantastic that you are getting involved with planning your finances, but you have a lot to learn before giving advice. :EDIT - This may seem harsh, but I don't believe you have gone through the pain of giving someone investing advice and having it really substantially costing them. I have, and it's very painful. And it could have been worse for me because in that situation the person was young enough to recover and it wasn't a substantial amount of money. Imagine losing an older, retired person a substantial portion of their nest egg with bad advice and consigning them to a lower standard of living for the rest of their life. I have been investing my own money in stocks, funds, and to a small extent, options for about a decade. I participate of message boards, read books, and participate in stock picking competitions. I still don't feel qualified to give good financial advice. YMMV.
  - muhfuhkuh 16y ago
    Come on. We're all adults here. It's not like every Grandpa and Gramma on penny pensions would've taken the advice of Joe Random Blogger. We need to stop treating investing as if people who aren't professionally on a trading floor are basically handling spent fuel rods while rollerskating naked passed Mt. Vesuvius. It's putting money down on a hunch, however educated or ignorant or risky or safe. There is no sure thing. It's either "slow money" or "gambling". There's n+1 bloggers doling out endless advice on everything from where to buy a home to how to haggle for a car. No one is going to look at one data point and say "you know what? That random-ass person makes sense. I'm cleaning out my accounts right now putting it all on ARMH!" Also, "I still don't feel qualified to give good financial advice" is a bit disingenuous when you, in just a paragraph above it, said you used to. In other words, let's not obsess over the very things that Jim Cramer does with panic-button sound effects and sweaty, dancing evangelism on a nightly basis. It's all advice, we're all aware. Take it with a grain of salt, etc.

bhickey 16y ago

I came here to just post this. The author does not understand leveraged ETFs in the slightest, and sounds dangerous to boot. He begins by decrying the stock pickers, and then goes on to endorse ARM. Ahem?

steadicat 16y ago
Burton Malkiel (author of "A Random Walk Down Wall Street"), the guy who popularized index investing, doesn't condemn individual stock picking. He is fine with it, and he does it himself, provided you have a pool of safer investments in index funds to back you up in case you fail. Which is basically what I'm recommending. Reference: watch the video at http://finance.yahoo.com/tech-ticker/article/535789/Burton-Malkiel:-Markets-Arent-100%25-Efficient-But-You-Still-Cant-Beat-Em http://finance.yahoo.com/tech-ticker/article/535789/Burton-M...
- tptacek 16y ago
  Malkiel says that picking a few stocks is fine as long as the core of your portfolio is indexed. The majority of your exposure to equities is in a single stock, and it's an extremely-hyped tech stock.

T-hawk 16y ago

It may be worth taking a quick trip into why the math of leveraged ETFs doesn't work. The fundamental problem is that they lose more on losses by the underlying investment than they gain on gains by the underlying investment. Suppose that the underlying investment starts priced at 100, jumps 25% on Monday to 125, then on Tuesday drops 20% back to 100.00. It ended as it began with no gain or loss. What did our 2x ETF do? It began at 100, ended Monday at 100 + 50% = 150.00, then ended Tuesday at 150.00 - 40% = 90. It lost a big chunk of value relative to its completely unchanged underlying investment.

notahacker 16y ago
In other words, the volatility of oil prices can kill your leveraged investment even if your long term bet on rising oil prices is correct

deleted 16y ago

[deleted]

steadicat 16y ago

Point taken. I switched my recommendation from UCO to DBO. (I kept the original text there so as not to invalidate your comment.)

3am 16y ago
No! You don't get off so easily - you have publicly recommended an investment strategy that allocates 15% (15%!) to a vehicle that you didn't understand and was completely innappropriate. "switch your recommendation" ??? This is like suggesting a bank use memcached for transactional data, and when called on it, just casually walking it back and saying that maybe Oracle is more appropriate. It's fantastic that you are getting involved with planning your finances, but you have a lot to learn before giving advice. :EDIT - This may seem harsh, but I don't believe you have gone through the pain of giving someone investing advice and having it really substantially costing them. I have, and it's very painful. And it could have been worse for me because in that situation the person was young enough to recover and it wasn't a substantial amount of money. Imagine losing an older, retired person a substantial portion of their nest egg with bad advice and consigning them to a lower standard of living for the rest of their life. I have been investing my own money in stocks, funds, and to a small extent, options for about a decade. I participate of message boards, read books, and participate in stock picking competitions. I still don't feel qualified to give good financial advice. YMMV.
- muhfuhkuh 16y ago
  Come on. We're all adults here. It's not like every Grandpa and Gramma on penny pensions would've taken the advice of Joe Random Blogger. We need to stop treating investing as if people who aren't professionally on a trading floor are basically handling spent fuel rods while rollerskating naked passed Mt. Vesuvius. It's putting money down on a hunch, however educated or ignorant or risky or safe. There is no sure thing. It's either "slow money" or "gambling". There's n+1 bloggers doling out endless advice on everything from where to buy a home to how to haggle for a car. No one is going to look at one data point and say "you know what? That random-ass person makes sense. I'm cleaning out my accounts right now putting it all on ARMH!" Also, "I still don't feel qualified to give good financial advice" is a bit disingenuous when you, in just a paragraph above it, said you used to. In other words, let's not obsess over the very things that Jim Cramer does with panic-button sound effects and sweaty, dancing evangelism on a nightly basis. It's all advice, we're all aware. Take it with a grain of salt, etc.