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0 pointspaulpauper3y ago0 comments

It depends if you are getting new money or not. For a lump sum investment, depending on market cycles it's possible to structure the trade to optimize returns. If you assume that bear markets are every 6 years , there are certain simple integrals for computing this in which you input a certain starting capital and then a certain risk -free rate and then the capital is split between two assets like cash and stocks. When the bear market is triggered, you switch from cash to stock. [0]

But all you need is a bull market to 50-100x your money with 3x funds https://i.imgur.com/PF7XEaR.jpg

If 7/10 past decades are a bull market then odds are you will make good money.

Market neutral strategies are different though.

[0]

https://www.wolframalpha.com/input/?i=3000*%28%28integrate+1....

A calculation i ran to answer this problem shows that if you have $10k and split $3k of into cash that yields 3%/year and the $7k is put into TQQQ, which generates a long-term CAGR of 53%/year, approximates the actual returns of TQQQ .

So this turns the $10k into $1.5 million over 12 years, which is close to the actual result (100% or $10k invested in TQQQ at the start), assuming a crash happens every 8 years (modeled by exponential distribution and based on empirical evidence going back the past 100 years) and and then after TQQQ falls about 70% the $3k cash is then put into tqqq. After crashing, the above formula assumes that TQQQ races higher in order to maintain it's long-term CAGR, so buying the dip helps a lot.

So generally speaking, keeping 30% in cash/bonds equals the result of 100% fully invested if you buy the dip. The downside is if there is no crash you will lag.

There are various tweaks like above to improve risk adjusted returns. It's not that hard to do if you have a basic knowledge of calc and stats.

0 comments

tsimionescu3y ago

There are a lot of assumptions in this comment, and solid math based on faulty assumptions is not going to be a good long-term strategy.

The markets are not predictable based on past history. Whenever you have a model that shows they are, you are either cherry-picking or have been lucky. Even more, there are far too many external phenomena affecting the fortunes of an individual company to be able to reliably make the kinds of bets you are taking about.

> After crashing, the above formula assumes that TQQQ races higher in order to maintain it's long-term CAGR, so buying the dip helps a lot.

This is the funniest assumption by far. All (public for profit) companies try to "race higher" at all times. Sometimes they succeed, sometimes they stagnate, sometimes they crash. Right after a crash is when you have the highest chance of it never coming back up. The CAGR is a historical observation, not some kind of parameter of a forward-looking model.

quickthrower23y ago

I think COVID is enough to disprove this idea. That was the bear market that turned bull ... for some sectors but not others. I don't think the cycles are predictable enough to make more profit (on average) than a buy the index strategy.

The highly mathematical quants hired by trading firms are doing something pretty different. They are trying to find opportunities for profit wherever they exist using advanced techniques. It is much different to you or me casually using what seems like a "common sense" approach. Most people who say "of course it will..." find that the next quarter is the exception to their definite rule about how everything works.

nly3y ago

One of the funds you list is leveraged 3x. If the market drops 33% you're wiped out, get liquidated, and can never recover.

You've already made the assumption that you can detect the market bottom to select when to drop the $3K, which is ludicrous, and begs the question if you're know where the bottom is why not put the full $10K in then with maximum upward leverage.

paulpauperOP3y ago

that would require a 33% decline in a single day for the Nasdaq, which has never happened in the history of the stock market.

quickthrower23y ago

I think your strategy is making the fallacy that past performance is a guarantee of future performance. Using specifically picked events (e.g. 33% decline) and then assuming that the event not happening in the past makes it impossible to happen in the future.

Also how does TQQQ work. I don't know and I am happy to admit that. But I assume they need to do re-balancing shenanigans to keep the leverage at 3x, they have to pay interest on the leveraged money, and so on. So it is possible that the market takes a milder dip than 33% but you get stung on TQQQ - maybe not a wipeout but severely down and takes years to get back to break-even. Would like to hear from someone with knowledge of this.

If you have a long term alpha strategy - one that can beat the market every time - and it is as simple as buying an off the shelf instrument and topping it up. I would be surprised.

j / k navigate · click thread line to collapse

0 pointspaulpauper3y ago0 comments

But all you need is a bull market to 50-100x your money with 3x funds https://i.imgur.com/PF7XEaR.jpg

If 7/10 past decades are a bull market then odds are you will make good money.

Market neutral strategies are different though.

[0]

https://www.wolframalpha.com/input/?i=3000*%28%28integrate+1....

So generally speaking, keeping 30% in cash/bonds equals the result of 100% fully invested if you buy the dip. The downside is if there is no crash you will lag.

There are various tweaks like above to improve risk adjusted returns. It's not that hard to do if you have a basic knowledge of calc and stats.

0 comments

tsimionescu3y ago

There are a lot of assumptions in this comment, and solid math based on faulty assumptions is not going to be a good long-term strategy.

> After crashing, the above formula assumes that TQQQ races higher in order to maintain it's long-term CAGR, so buying the dip helps a lot.

quickthrower23y ago

nly3y ago

One of the funds you list is leveraged 3x. If the market drops 33% you're wiped out, get liquidated, and can never recover.

paulpauperOP3y ago

that would require a 33% decline in a single day for the Nasdaq, which has never happened in the history of the stock market.

quickthrower23y ago

If you have a long term alpha strategy - one that can beat the market every time - and it is as simple as buying an off the shelf instrument and topping it up. I would be surprised.

j / k navigate · click thread line to collapse