Author Topic: 90% passive / 10% active, looking for ideas  (Read 3474 times)

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
90% passive / 10% active, looking for ideas
« on: November 08, 2021, 09:54:24 AM »
Most of my assets are in index funds, the 90%.  But I'd like to speculate with the other 10%, somewhat like how I ran the experiment (more than tripled, market almost doubled).  Not to set the bar that high - performing 3% better than the S&P 500 is good.

I want to invest in 5 different ETFs, and I've already picked 3 of them.  I'd like to avoid individual stocks, although maybe I could put together a basket of stocks myself ($0/trade at Vanguard).  These will go in a Roth IRA, so taxation isn't a factor.

One of my picks is QQQ (Nasdaq 100).  Top holdings include Apple, Microsoft, Amazon, Google, Facebook.  The tech giants that are allowed borderline monopoly power, yet can still buy up rivals.  Tech got a big adoption boost in 2020, and I think continues growing faster than the market going forward.  The other two ideas I actually got from the forum, I can mention them if there's interest.

So I have 90% going passive, and then 5 ideas allocating 2% each.  What active investment picks (ETFs) do you suggest I look into?

FLBiker

  • Handlebar Stache
  • *****
  • Posts: 1444
  • Age: 45
  • Location: Canada
    • Chop Wood Carry FIRE
Re: 90% passive / 10% active, looking for ideas
« Reply #1 on: November 08, 2021, 10:45:55 AM »
Not sure if this counts as active, but I like the idea of AVUV.  I don't own any myself (I'm currently just adding Canadian equity to give me home country exposure) but I'm tempted.

v8rx7guy

  • Handlebar Stache
  • *****
  • Posts: 2458
  • Age: 36
  • Location: Bellingham, WA
Re: 90% passive / 10% active, looking for ideas
« Reply #2 on: November 08, 2021, 11:11:25 AM »
It may not provide enough variety for you, but AGTHX is my favorite actively managed fund.  Considered many-a-time switching all of my indexing to this fund... I'd have been better off if I'd chosen to, but never did pull the trigger.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3697
Re: 90% passive / 10% active, looking for ideas
« Reply #3 on: November 08, 2021, 11:34:06 AM »
Bank stocks have been cheap for a long time, and they still generally have PE's in the teens or single-digits. That's an anomaly in an era when everyone's piling into tech stocks with six-figure PEs and reaching for <2% yields on bonds.

The end of QE in 2022 is expected to cause the spread between long-term and short-term rates to increase from their currently flat levels. This will benefit banks, which borrow short-term to lend long-term. XLF or VFH are ETFs to play this trend, although you could be more adventurous and target specific banks like SFNC (PE: 12.66, yield 2.24%), LYG (PE: 7.45, yield 2.66%) or GS (PE: 6.72, yield 1.97%).

A longer-term gambit would be to write bearish spreads against TLT, in anticipation of repricing due to imminent rate hikes in the future. This would take guts, but may be a big opportunity for the rare trader who is both adventurous and patient.



« Last Edit: November 09, 2021, 07:21:11 AM by ChpBstrd »

Radagast

  • Handlebar Stache
  • *****
  • Posts: 2046
  • One Does Not Simply Work Into Mordor
Re: 90% passive / 10% active, looking for ideas
« Reply #4 on: November 08, 2021, 06:23:36 PM »
You like momentum. You can't decide. My vote: all of the above!

Choose your favorite diverse assortment of ETFs of funds. Every month, put 2% each into the fund which has done best over the past 1, 2, 4, 8, and 16 months.

Use ZROZ, SHY, SGOL, SLYV, SLYG, QQQ, SPYV, VEA, VWO, VSS, and any others you want. This way you will always be in the hottest thing, and the hotter it gets for longer the more you'll be in it.

PDXTabs

  • Magnum Stache
  • ******
  • Posts: 3653
  • Age: 38
  • Location: Portland, OR, USA
Re: 90% passive / 10% active, looking for ideas
« Reply #5 on: November 08, 2021, 06:33:58 PM »
I don't know if they qualify as active, but I own MOON and I'm interested in QQQJ.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #6 on: November 09, 2021, 01:10:45 AM »
Bank stocks have been cheap for a long time, and they still generally have PE's in the teens or single-digits. That's an anomaly in an era when everyone's piling into tech stocks with six-figure PEs and reaching for <2% yields on bonds.

The end of QE in 2022 is expected to cause the spread between long-term and short-term rates to increase from their currently flat levels. This will benefit banks, which borrow short-term to lend long-term. XLF or VFH an ETF to play this trend, although you could be more adventurous and target specific banks like SFNC (PE: 12.66, yield 2.24%), LYG (PE: 7.45, yield 2.66%) or GS (PE: 6.72, yield 1.97%).
I made a (expletive) ton of money with DPST, which is 3x bank stocks.  Right now Yahoo Finance claims +254.77% return in 12 months, which I believe.  I sold most of it already, and have 1% of my assets still in DPST.  I was planning to sell next year.  I'd like to avoid individual stocks, and unlimited risk investments like writing spreads.


You like momentum. You can't decide. My vote: all of the above!
I do like momentum, but I already tilt to momentum with MTUM.  I consider it a "factor tilt", in the same way others might like a small/value tilt.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #7 on: November 09, 2021, 01:20:53 AM »
Not sure if this counts as active, but I like the idea of AVUV.  I don't own any myself (I'm currently just adding Canadian equity to give me home country exposure) but I'm tempted.
Years ago when I tilted to small/value, my favorite was RZV, "pure value".  Over the past 12 months, RZV has beaten AVUV by about +10%.  I bought RZV in 2020 when it was beaten up, and sold earlier this year.
https://www.morningstar.com/etfs/arcx/avuv/performance
https://www.morningstar.com/etfs/arcx/rzv/performance


It may not provide enough variety for you, but AGTHX is my favorite actively managed fund.  Considered many-a-time switching all of my indexing to this fund... I'd have been better off if I'd chosen to, but never did pull the trigger.
What about that fund makes you want to invest in it?

Looking at AGTHX's top 10 holdings, I count about 29% in big tech companies, versus 44% for QQQ.  In 2020 QQQ did better, and YTD AGTHX did better.
https://finance.yahoo.com/quote/AGTHX/holdings?p=AGTHX
https://finance.yahoo.com/quote/QQQ/holdings?p=QQQ

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #8 on: November 09, 2021, 01:40:56 AM »
By the way, I'm not against going with an actively managed fund.

For example, I allocated 2% to PIMCO StocksPLUSģ Long Duration Fund (PSLDX), which I learned about from another poster on this forum.
https://forum.mrmoneymustache.com/investor-alley/psldx-pimco/

What really impressed me is losing just 33% in the 2008 crash, while the market crashed 37% that same year.  They came out ahead of the S&P 500 in 2020, and are ahead YTD.  I think they're careful with leverage, which is reassuring.
https://finance.yahoo.com/quote/PSLDX/performance?p=PSLDX

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3697
Re: 90% passive / 10% active, looking for ideas
« Reply #9 on: November 09, 2021, 07:30:41 AM »
Bank stocks have been cheap for a long time, and they still generally have PE's in the teens or single-digits. That's an anomaly in an era when everyone's piling into tech stocks with six-figure PEs and reaching for <2% yields on bonds.

The end of QE in 2022 is expected to cause the spread between long-term and short-term rates to increase from their currently flat levels. This will benefit banks, which borrow short-term to lend long-term. XLF or VFH an ETF to play this trend, although you could be more adventurous and target specific banks like SFNC (PE: 12.66, yield 2.24%), LYG (PE: 7.45, yield 2.66%) or GS (PE: 6.72, yield 1.97%).
I made a (expletive) ton of money with DPST, which is 3x bank stocks.  Right now Yahoo Finance claims +254.77% return in 12 months, which I believe.  I sold most of it already, and have 1% of my assets still in DPST.  I was planning to sell next year.  I'd like to avoid individual stocks, and unlimited risk investments like writing spreads.

I selected spreads for your situation because they are limited risk investments. It is only possible to lose the width of the spread, minus any credits or debits. In this way, one's speculative asset allocation has no risk of spilling over and requiring a bailout from other allocations! If one were to allow that, then one's "speculative" portion of the portfolio would effectively be a lot bigger than they think!

https://www.optionseducation.org/strategies/all-strategies/bear-call-spread-credit-call-spread
https://www.optionseducation.org/strategies/all-strategies/bull-call-spread-debit-call-spread
https://www.optionseducation.org/strategies/all-strategies/bull-put-spread-credit-put-spread
https://www.optionseducation.org/strategies/all-strategies/bear-put-spread

v8rx7guy

  • Handlebar Stache
  • *****
  • Posts: 2458
  • Age: 36
  • Location: Bellingham, WA
Re: 90% passive / 10% active, looking for ideas
« Reply #10 on: November 09, 2021, 02:12:54 PM »
Not sure if this counts as active, but I like the idea of AVUV.  I don't own any myself (I'm currently just adding Canadian equity to give me home country exposure) but I'm tempted.
Years ago when I tilted to small/value, my favorite was RZV, "pure value".  Over the past 12 months, RZV has beaten AVUV by about +10%.  I bought RZV in 2020 when it was beaten up, and sold earlier this year.
https://www.morningstar.com/etfs/arcx/avuv/performance
https://www.morningstar.com/etfs/arcx/rzv/performance


It may not provide enough variety for you, but AGTHX is my favorite actively managed fund.  Considered many-a-time switching all of my indexing to this fund... I'd have been better off if I'd chosen to, but never did pull the trigger.
What about that fund makes you want to invest in it?

Looking at AGTHX's top 10 holdings, I count about 29% in big tech companies, versus 44% for QQQ.  In 2020 QQQ did better, and YTD AGTHX did better.
https://finance.yahoo.com/quote/AGTHX/holdings?p=AGTHX
https://finance.yahoo.com/quote/QQQ/holdings?p=QQQ

I am simply impressed by AGTHX because it has been the best return in my 401K since I started paying actual attention to my 401K in 2015, so I watch it with interest because I chose VTSAX over AGTHX as that's what a good little MMM follower is supposed to do, because "you can't beat the market!!".  We don't have QQQ, so that one hasn't been on my radar screen.
« Last Edit: November 09, 2021, 02:14:42 PM by v8rx7guy »

BicycleB

  • Magnum Stache
  • ******
  • Posts: 3853
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: 90% passive / 10% active, looking for ideas
« Reply #11 on: November 09, 2021, 02:21:02 PM »
Pondering (ptf).

habanero

  • Handlebar Stache
  • *****
  • Posts: 1016
Re: 90% passive / 10% active, looking for ideas
« Reply #12 on: November 09, 2021, 03:15:58 PM »
Bank stocks have been cheap for a long time, and they still generally have PE's in the teens or single-digits. That's an anomaly in an era when everyone's piling into tech stocks with six-figure PEs and reaching for <2% yields on bonds.

FWIW for banks and financials it's generally more common to look at price / book than price / earnings.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #13 on: November 10, 2021, 07:29:37 AM »
Bank stocks have been cheap for a long time, and they still generally have PE's in the teens or single-digits. That's an anomaly in an era when everyone's piling into tech stocks with six-figure PEs and reaching for <2% yields on bonds.

The end of QE in 2022 is expected to cause the spread between long-term and short-term rates to increase from their currently flat levels. This will benefit banks, which borrow short-term to lend long-term. XLF or VFH an ETF to play this trend, although you could be more adventurous and target specific banks like SFNC (PE: 12.66, yield 2.24%), LYG (PE: 7.45, yield 2.66%) or GS (PE: 6.72, yield 1.97%).
I made a (expletive) ton of money with DPST, which is 3x bank stocks.  Right now Yahoo Finance claims +254.77% return in 12 months, which I believe.  I sold most of it already, and have 1% of my assets still in DPST.  I was planning to sell next year.  I'd like to avoid individual stocks, and unlimited risk investments like writing spreads.

I selected spreads for your situation because they are limited risk investments. It is only possible to lose the width of the spread, minus any credits or debits. In this way, one's speculative asset allocation has no risk of spilling over and requiring a bailout from other allocations! If one were to allow that, then one's "speculative" portion of the portfolio would effectively be a lot bigger than they think!

https://www.optionseducation.org/strategies/all-strategies/bear-call-spread-credit-call-spread
https://www.optionseducation.org/strategies/all-strategies/bull-call-spread-debit-call-spread
https://www.optionseducation.org/strategies/all-strategies/bull-put-spread-credit-put-spread
https://www.optionseducation.org/strategies/all-strategies/bear-put-spread
Thank you for correcting me, I was thinking of a straddle (selling a straddle).  Is there a way I can pick that approach once, without doing something several times a year?  An ETF that profits off investing in bull spreads?

To make spreads work, I would need to diversify.  A spread reduces the cost of the investment, and makes the decision easy... but it can still result in losing 100% of the net investment.  By "active" I don't mean me. :)  I was thinking of actively picking once, and then holding for a number of years.
« Last Edit: November 10, 2021, 07:31:30 AM by MustacheAndaHalf »

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #14 on: November 10, 2021, 07:38:19 AM »
Pondering (ptf).
While people don't normally reply to that, I need somewhere to mention another of my active picks, since the thread is still going.

I originally planned to invest 1% in each of 10 active investment ideas.  Then I realized I don't have that many ideas.  I also read a really interesting book by a combination former professor and hedge fund manager arguing that focused investments have better returns.  Active managers with 5 picks, it's claimed, do better than those with 25 picks.  There's a risk of survivorship bias - I didn't have their raw data to analyze.  But focusing on a few good ideas makes sense.

Another 2% is invested in crypto.  It's exclusively in Bitcoin (BTC) and Ethereum (ETH).  When the new Bitcoin futures ETF (BITO) opened, I split my Grayscale Bitcoin Trust (GBTC) allocation in two.  Now I'm watching to see which one "wins" over a number of months.  The expense ratios are significant - BITO costs 0.95%, and GBTC charges 2%.  Not cheap.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #15 on: November 10, 2021, 08:18:10 AM »
Not sure if this counts as active, but I like the idea of AVUV.  I don't own any myself (I'm currently just adding Canadian equity to give me home country exposure) but I'm tempted.
Years ago when I tilted to small/value, my favorite was RZV, "pure value".  Over the past 12 months, RZV has beaten AVUV by about +10%.  I bought RZV in 2020 when it was beaten up, and sold earlier this year.
https://www.morningstar.com/etfs/arcx/avuv/performance
https://www.morningstar.com/etfs/arcx/rzv/performance
It may not provide enough variety for you, but AGTHX is my favorite actively managed fund.  Considered many-a-time switching all of my indexing to this fund... I'd have been better off if I'd chosen to, but never did pull the trigger.
What about that fund makes you want to invest in it?

Looking at AGTHX's top 10 holdings, I count about 29% in big tech companies, versus 44% for QQQ.  In 2020 QQQ did better, and YTD AGTHX did better.
https://finance.yahoo.com/quote/AGTHX/holdings?p=AGTHX
https://finance.yahoo.com/quote/QQQ/holdings?p=QQQ
I am simply impressed by AGTHX because it has been the best return in my 401K since I started paying actual attention to my 401K in 2015, so I watch it with interest because I chose VTSAX over AGTHX as that's what a good little MMM follower is supposed to do, because "you can't beat the market!!".  We don't have QQQ, so that one hasn't been on my radar screen.
It's interesting to put AGTHX and VTI (total stock market) side by side, to see where their allocations differ by sector.
https://finance.yahoo.com/quote/AGTHX/holdings?p=AGTHX
https://finance.yahoo.com/quote/VTI/holdings?p=VTI

It's interesting to compare top holdings.  I was going to pick "top 5", but there was some overlap just past the top 5, so here's the top 7:

US stocks, VTI : AAPL, MSFT, AMZN, FB, GOOG, TSLA, BRK.B
active fund, AGTHX : MSFT, FB, TSLA, NFLX, AMZN, ?cash?, GOOG

?cash? is some private cash fund they use, without a stock symbol.  I wonder how it did during the decade spanning the 2008 crisis, from 2005 - 2014.  (Halfway between crashes: 2002 vs 2008, 2008 vs 2020).  Portfolio Visualizer shows pretty much the same CAGR 8.05% vs 8.12%.  2014-2021 is a different story, with AGTHX annually returning 16.42% versus 14.28% for VTI.

Yahoo Finance shows performance numbers for AGTHX going back to 1974!  Which is great news, because an investment fund in business 47 years has a long track record.  Vanguard's original S&P 500 fund is gone, merged into Admiral shares.  The furthest back I've found is SPY (SPDR S&P 500 ETF), back to 1994.  AGTHX has beaten the S&P 500 by 1.83%/year for the past 27 years.  That makes it more interesting.

I am curious how recently AGTHX grew to $307 billion AUM (according to Y-charts).  I've seen funds get a glut of cash and do badly as they struggle to find places to invest it all.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 2046
  • One Does Not Simply Work Into Mordor
Re: 90% passive / 10% active, looking for ideas
« Reply #16 on: November 10, 2021, 06:20:48 PM »
Here is a backtest of my proposed timing model using every fund ticker in this thread that could reasonably be extended back to the origin of IJS & IJT. Benchmarked against solo AGTHX. Well, not quite. I would have allowed QQQ, for example, to fill all five slots if it had the best performance on 1, 2, 4, 8, and 16 month look backs, whereas PV always includes five assets.  I would think my version would have done better, with stronger momentum. Either/or, really.

https://www.portfoliovisualizer.com/test-market-timing-model?s=y&coreSatellite=false&timingModel=4&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&periodicAdjustment=0&adjustmentAmount=0&inflationAdjusted=true&adjustmentPercentage=0.0&adjustmentFrequency=4&symbols=QQQ+XLF+VUSTX+IJS+IJT+IVE+VEIEX+VTMGX+VFISX+%5EGOLD+VINEX+AGTHX&singleAbsoluteMomentum=false&volatilityTarget=9.0&downsideVolatility=false&outOfMarketStartMonth=5&outOfMarketEndMonth=10&outOfMarketAssetType=1&movingAverageSignal=1&movingAverageType=1&multipleTimingPeriods=true&periodWeighting=2&windowSize=12&windowSizeInDays=105&movingAverageType2=1&windowSize2=10&windowSizeInDays2=105&excludePreviousMonth=false&normalizeReturns=false&volatilityWindowSize=0&volatilityWindowSizeInDays=0&assetsToHold=5&allocationWeights=1&riskControlType=0&riskWindowSize=10&riskWindowSizeInDays=0&stopLossMode=0&stopLossThreshold=2.0&stopLossAssetType=1&rebalancePeriod=1&separateSignalAsset=false&tradeExecution=0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&comparedAllocation=0&benchmark=-1&benchmarkSymbol=AGTHX&timingPeriods%5B0%5D=1&timingUnits%5B0%5D=2&timingWeights%5B0%5D=20&timingPeriods%5B1%5D=2&timingUnits%5B1%5D=2&timingWeights%5B1%5D=20&timingPeriods%5B2%5D=4&timingUnits%5B2%5D=2&timingWeights%5B2%5D=20&timingPeriods%5B3%5D=8&timingUnits%5B3%5D=2&timingWeights%5B3%5D=20&timingPeriods%5B4%5D=16&timingUnits%5B4%5D=2&timingWeights%5B4%5D=20&volatilityPeriodUnit=2&volatilityPeriodWeight=0

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #17 on: November 11, 2021, 04:49:08 AM »
Here is a backtest of my proposed timing model using every fund ticker in this thread that could reasonably be extended back to the origin of IJS & IJT. Benchmarked against solo AGTHX. Well, not quite. I would have allowed QQQ, for example, to fill all five slots if it had the best performance on 1, 2, 4, 8, and 16 month look backs, whereas PV always includes five assets.  I would think my version would have done better, with stronger momentum. Either/or, really.
Thanks for the introduction to portfolio visualizer's momentum simulator.  That's an interesting way to examine various momentum strategies.  It might have done all the work for me on my momentum experiment, where I started with Vanguard's sector ETFs.

Without pointing to my choices, can you defend including QQQ in your momentum screen?  Forget that I picked it, and look at the fund choices you made.  You picked small cap value and growth, large value ... and QQQ.  QQQ isn't part of the market, but does hold the big tech companies that have done extremely well for decades (12.9% since 2001).  Dropping QQQ in, just because it performed well, introduces a bias in your model.  Back in 2001, knowing that dot-com type companies would do best would be a difficult prediction - but from 2021, it's an easy prediction.

You included emerging markets, but no other international funds.  Emerging markets beat the S&P 500 over the past couple decades.  Developed markets, however, have trailed the S&P 500 by 3% since Dec 2001 (6.73% vs 9.80%).  It's interesting that you left out 40% of the world's markets that underperformed, but included 10% that outperformed.  It's another source of bias.

If you drop QQQ and VEIEX from your momentum model, it's performance no longer beats AGTHX.  It drops from 12.3% to 10.0% per year, below that of AGTHX. 

https://www.portfoliovisualizer.com/test-market-timing-model?s=y&coreSatellite=false&timingModel=4&timePeriod=2&startYear=1985&firstMonth=1&endYear=2021&lastMonth=12&calendarAligned=true&includeYTD=false&initialAmount=10000&periodicAdjustment=0&adjustmentAmount=0&inflationAdjusted=true&adjustmentPercentage=0.0&adjustmentFrequency=4&symbols=XLF+VUSTX+IJS+IJT+IVE+VTMGX+VFISX+%5EGOLD+VINEX+AGTHX&singleAbsoluteMomentum=false&volatilityTarget=9.0&downsideVolatility=false&outOfMarketStartMonth=5&outOfMarketEndMonth=10&outOfMarketAssetType=1&movingAverageSignal=1&movingAverageType=1&multipleTimingPeriods=true&periodWeighting=2&windowSize=12&windowSizeInDays=105&movingAverageType2=1&windowSize2=10&windowSizeInDays2=105&excludePreviousMonth=false&normalizeReturns=false&volatilityWindowSize=0&volatilityWindowSizeInDays=0&assetsToHold=5&allocationWeights=1&riskControlType=0&riskWindowSize=10&riskWindowSizeInDays=0&stopLossMode=0&stopLossThreshold=2.0&stopLossAssetType=1&rebalancePeriod=1&separateSignalAsset=false&tradeExecution=0&leverageType=0&leverageRatio=0.0&debtAmount=0&debtInterest=0.0&maintenanceMargin=25.0&leveragedBenchmark=false&comparedAllocation=0&benchmark=-1&benchmarkSymbol=AGTHX&timingPeriods%5B0%5D=1&timingUnits%5B0%5D=2&timingWeights%5B0%5D=20&timingPeriods%5B1%5D=2&timingUnits%5B1%5D=2&timingWeights%5B1%5D=20&timingPeriods%5B2%5D=4&timingUnits%5B2%5D=2&timingWeights%5B2%5D=20&timingPeriods%5B3%5D=8&timingUnits%5B3%5D=2&timingWeights%5B3%5D=20&timingPeriods%5B4%5D=16&timingUnits%5B4%5D=2&timingWeights%5B4%5D=20&volatilityPeriodUnit=2&volatilityPeriodWeight=0

That's before taxes - this momentum model seems to churn 100% of assets each year, so all of their gains are taxed short-term.  Someone might pay 24% tax on gains from momentum, but only 15% on gains from AGTHX.

On the helpful side to your model, including just the financial sector is bias, but in the other direction.  It hurts performance to include XLF, and if you drop that performance climbs to 10.5% per year.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #18 on: November 11, 2021, 05:04:54 AM »
I have a dislike for certain fund names because of studying low expense ratios.  When I see "Voya", I expect 1% fees.  American Funds The Growth Fund of America (AGTHX) gave me that same initial impression with their 0.64% expense ratio.

But I think it's growing on me, with the tilt to consumer cyclical and communication services instead of a tilt to tech.  I already have QQQ, so a non-tech active fund that has beaten the S&P 500 for a long time is appealing, and a bit diversifying.

So I think these are my 5 ideas with 2% each.  I've put them ordered by expense ratio ("fee"):

(1) QQQ, Nasdaq 100 ETF (0.20% fee).  Many sector ETFs split up the big tech companies, but QQQ holds them all.

(2) WCLD, Wisdom Tree Cloud Computing ETF (0.45% fee).  I should probably consider keeping one of QQQ or WCLD, because of the tech overlap between them.

(3) PDSLX, PIMCO StocksPLUS Long Duration Fund Institutional Class (0.61%).  This is an amazing combination of stocks, bonds and leverage.  Beating the S&P 500, but dropping less during 2008 and 2020 (their performance goes back to 2008).

(4) AGTHX, American Funds The Growth Fund of America (0.64% fee).  A track record back to 1974, beating the S&P 500 while not tilting to tech (now).  I'm leery of the name, but I think this could diversify my other picks.

(5) GBTC (2% fee) and various funds (BITO, ETHE) and direct holdings of BTC and ETH.  Crypto ETFs have high expense ratios, but allows me to hold crypto in a Roth IRA, with no tax on gains.  This is speculative and may collapse, but also has higher potential for tripling.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #19 on: November 11, 2021, 05:36:46 AM »
I'm now running some sanity checks, comparing the correlations between the funds I'm interested in, to find problems.

I'm forced to view shorter time frames with WCLD in the picture, which was only formed 2 years ago.  It's highest correlation is 0.75 to QQQ, which is better diversification than any stock tilt (small cap, international, emerging markets).  That's a pleasant surprise.

GBTC is about 5 years old, and has very little correlation with my other picks.  Roughly 0.17 is the highest correlation, so it passes in that regard.  Dropping GBTC from my correlations lets me go back to 2007.

PSLDX contains stocks and bonds.  Like WCLD, it has 0.79 correlation to the remaining assets.  Decent correlation, and I really like how 2008 went for them.

I actually left something out in the previous comparisons, because the two oldest funds are also the most correlated.  Going back 2 years with WCLD, or back to 2007 with PSLDX, the correlations between QQQ and AGTHX are very high.  Over 2 years, 0.97 and since 2007, a correlation of 0.95.  This is bad news, because it means AGTHX's current tech allocation is a bit deceptive.  They are tech heavy.

Looking at top 10 assets for QQQ and AGTHX, I see the problem.  AGTHX's has invested 36.6% of it's fund in those top 10 assets... and they have a 22.7% overlap with QQQ's top 10.  That's a huge overlap, and explains the 0.95 correlation.  One of these assets has to be kicked out.

I'm kicking out AGTHX.  While performance might favor QQQ by ~13% to ~11%, I hold 2x calls on QQQ (0.33%/year time value), so performance might be closer to ~26%.  AGTHX, being a mutual fund, has no options market.  I prefer the purer tech play of QQQ, so I'm keeping QQQ and keeping AGTHX out of my active picks.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1456
  • Age: 42
  • Location: Texas
Re: 90% passive / 10% active, looking for ideas
« Reply #20 on: November 11, 2021, 03:30:48 PM »
UPST, MQ, AMPL, HIMS, PYPL, FB, ROKU, PTON, BIGC, OPEN, BLND, TWLO, RNG, TDOC, AMZN.

Youíre welcome.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #21 on: November 12, 2021, 01:20:31 AM »
UPST, MQ, AMPL, HIMS, PYPL, FB, ROKU, PTON, BIGC, OPEN, BLND, TWLO, RNG, TDOC, AMZN.

Youíre welcome.
Thank you!  Although saying "You're welcome" in advance reminds me of the portrayal of Michael Burry in the Big Short.  My WCLD pick was inspired by your individual stock picks in cloud computing.  I wanted someone else to pick the stocks, since I don't feel comfortable knowing when to replace old entries with new ones.

Some questions about these picks:
(1) How many stocks do you change each year?
(2) SNOW is in WCLD, and I thought you held it before.  What did you see that caused you to drop it - or to exclude it now?
(3) Why Facebook (FB), aka Meta?

That list is surprisingly uncorrelated to my other picks.  I'll give my layperson analysis in a follow up post, since that's a long list of stock symbols.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #22 on: November 12, 2021, 05:15:45 AM »
I selected spreads for your situation because they are limited risk investments.
It took some searching to find ETFs that use derivatives as a key part of their objective, but Global X apparently likes creating ETFs (which unfortunately can reflect on their quality).

"Global X S&P 500 Collar 95-110 ETF" buys a put 5% below the S&P 500, and sells a call 10% above the ATM price.  There's another one for Nasdaq 100, both with a 0.60% expense ratio.
https://etfdb.com/etf/XCLR/#performance
https://etfdb.com/etf/QCLR/#performance


Many times I've looked at protective put options, and said they were too expensive.  But there's some ETFs that own the S&P 500 with protective puts (10% below current price).  ​I'm very curious how much they spend on put options, and if they compensate for the reduced exposure to the S&P 500 with derivatives.
https://etfdb.com/etf/XTR/#performance
https://etfdb.com/etf/QTR/#performance

For completeness, I also found a purely protective puts ETF, "TAIL".  It uses a small amount to buy protective puts, then invests most of it's money in intermediate term treasuries.  In the 3 years with full data (founded 2017), it's best year was 2020, earning +7% (S&P 500 +18%).  Worst year was 2019, -14% (S&P 500 +31%).
https://www.morningstar.com/etfs/bats/tail/performance
https://www.morningstar.com/etfs/arcx/voo/performance


Finally, Global X offers covered call ETFs.  Like this first one buys the S&P 500, then sells (unspecified) covered calls against that holding.
https://etfdb.com/etf/XYLG/#performance
https://etfdb.com/etf/XYLD/#performance
https://etfdb.com/etf/QYLG/#performance
https://etfdb.com/etf/QYLD/#performanc

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #23 on: November 12, 2021, 07:23:38 AM »
UPST, MQ, AMPL, HIMS, PYPL, FB, ROKU, PTON, BIGC, OPEN, BLND, TWLO, RNG, TDOC, AMZN.

@hodedofome - I looked at correlations between each of those and both QQQ and WCLD.  I looked at some brief information, and their price changes over 5 years (when available).  I've decided there's 6 I really want to buy, 3 I'm not sure what to do, and 5 more I don't plan on buying.  Could you help me understand the 3 where I'm on the fence?

My favorites, that I plan to buy:

Ringcentral(RNG) 5yr 10x, V-shaped recovery to May 2020 price
Amplitude(AMPL) Sept direct IPO, +50% slowly over 1.5 mo
OpenDoor Tech(OPEN) upswing, big market, market cap of Zillow
Roku (ROKU) spiked pre-pandemic; wait out post-Covid slide?
Blend Labs (BLND) July IPO, cloud banking, off 50% from IPO
Teledoc (TDOC) back to Feb 2020 price, expect more demand


Three companies where I may or may not buy them:

Twillo (TWLO) has been slowly declining over 12 months, in ups and downs.  Their 20 price/sales suggests they have room to drop further.  Why did they spike during Covid-19?  Are they worth 2.7x their pre-Covid price?

Peloton(PTON)... when I saw PTON on your list, I recalled hating it.  They have crashed to 1/3rd of their peak value, so maybe that dislike was correct.  Trying to take a fresh look, they have 4.1 price/sales, which impresses me.  Maybe they're oversold.  But they're up +87% since Feb 2020 ... is that justified?

[UPDATE: MQ is 0.94 correlated with GBTC, which is too highly correlated for me]
Marqeta (MQ) is a CNBC top 50 disruptor with JP Morgan and other clients.  That's impressive.  But they make credit cards... will they ($13B) actually have their own credit network competing with MasterCard ($345B)?  Maybe I need to separate their credit card making from their payment network, and dig in further.


And the 5 I don't plan on buying:

Upstart (UPST) 5x Lending Club(LC) cap, but LC 8x/yr.  Lose to LC?  okay correlation.
Bigcommerce (BIGC) Aug IPO, spike/drop, SaaS retail/not sticky?
PayPal (PYPL) 2x Covid spike, no moat, 1.6% of QQQ.  $237B ceiling
Hims & Hers Health(HIMS) spike then -67%, compete w/TDOC? empty/cute?
Amazon(AMZN) already 7.6% of QQQ, too much overlap.
« Last Edit: November 12, 2021, 07:34:09 AM by MustacheAndaHalf »

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3697
Re: 90% passive / 10% active, looking for ideas
« Reply #24 on: November 12, 2021, 11:39:56 AM »
I selected spreads for your situation because they are limited risk investments.
It took some searching to find ETFs that use derivatives as a key part of their objective, but Global X apparently likes creating ETFs (which unfortunately can reflect on their quality).

"Global X S&P 500 Collar 95-110 ETF" buys a put 5% below the S&P 500, and sells a call 10% above the ATM price.  There's another one for Nasdaq 100, both with a 0.60% expense ratio.
https://etfdb.com/etf/XCLR/#performance
https://etfdb.com/etf/QCLR/#performance


Many times I've looked at protective put options, and said they were too expensive.  But there's some ETFs that own the S&P 500 with protective puts (10% below current price).  ​I'm very curious how much they spend on put options, and if they compensate for the reduced exposure to the S&P 500 with derivatives.
https://etfdb.com/etf/XTR/#performance
https://etfdb.com/etf/QTR/#performance


When I think collars and protective puts, I'm looking for a solution to Sequence of Returns Risk (SORR), not a short-term trading strategy. The beef I have with every collar or protective put fund I've seen so far, is that they generally keep only 3 months of duration on their hedges. This is suboptimal hedging for a number of reasons:

Let's say a bear market begins that is destined to be as bad as 1929, 2000, or 2008. That is, the stock market will keep falling for over a year and end up over 40% down. As volatility spikes and put options get very expensive, our collar or protective put fund must keep rolling these expensive put options at rising prices every day to maintain their 3 month average duration. Profits from expiring puts are eaten up by the higher and higher prices of their replacements. It's like trying to buy flood insurance a day before a hurricane or canned goods the day after nuclear war. The long options become a bigger percentage of the funds' NAV, which is a way of selling stocks when they're low. Time decay - which is already proportionally highest for short-duration options - goes into high gear during episodes of volatility. Meanwhile, the average put option is being bought some distance down from today's closing price, and as stocks continue to fall the strike prices of the puts are rolled down, down, down, month after month. This allows for much greater than 5% or 10% losses per year (those are roughly the maximums per quarter -  a mere 5 or 6 quarters of those returns will probably cause your retirement to fail, and that's a typical bear market's duration). The 3-month puts smooth the downward line, for sure, but it is still possible for a big bear market to end a retirement and send a former FIRE'd person to Wal-Mart with resume in hand.

As I mentioned, time decay is proportionally higher for shorter-duration options. This means if I want to protect a stock position, it is actually much cheaper (in addition to more useful!) to buy protection in bulk. Consider today's theoretical prices of these S&P500 index puts at the 4600 strike, annualized as a percentage of the strike price:

Days Remaining     Price     Price as Annualized % of 4600
31                         47.25   12.09%
70                         95.80   10.86%
126                      154.50   9.73%
245                      254.45   8.24%
434                      368.25   6.73%
763                      509.05   5.29%
1862                    736.25   3.14%

The funds with 3 month timeframes are paying for options and experiencing time decay at the expensive end of that curve. I would prefer to buy the put with 763 days remaining, and maybe roll out of it when it only has 434 days remaining for a net loss of only (509.05-368.25=) $140.80 or a mere 3% of the amount protected (annualized cost: 3.4%). If the SHTF, I'd much rather be in the option with 2 years duration than have only 31 days of protection, because bear markets can last for multiple years. In that event, I would hold my put option until volatility got low enough to roll again or the option started to run out of time.

That's the cost to hedge with a protective put. We haven't even begun to lower the cost of hedging by doing a collar! With a cost of hedging that low, you can see why I have no bond allocation. But also, why pay a fund 0.6% to hedge in a costly way that won't provide my portfolio the protection it needs (the cost of the hedging is built into the "index", not the expense ratio!)? I'd be a lot more interested in a fund that uses at least a 1 year hedge duration and actively rolls during periods of low volatility and holds during periods of high volatility. In the absence of such a product, it's simple enough to DIY this strategy - which is maybe why there is no such product.


MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #25 on: November 12, 2021, 08:58:46 PM »
I selected spreads for your situation because they are limited risk investments.
Many times I've looked at protective put options, and said they were too expensive.  But there's some ETFs that own the S&P 500 with protective puts (10% below current price).  ​I'm very curious how much they spend on put options, and if they compensate for the reduced exposure to the S&P 500 with derivatives.
https://etfdb.com/etf/XTR/#performance
https://etfdb.com/etf/QTR/#performance
When I think collars and protective puts, I'm looking for a solution to Sequence of Returns Risk (SORR), not a short-term trading strategy. The beef I have with every collar or protective put fund I've seen so far, is that they generally keep only 3 months of duration on their hedges. This is suboptimal hedging for a number of reasons:
...
Consider today's theoretical prices of these S&P500 index puts at the 4600 strike, annualized as a percentage of the strike price:

Days Remaining     Price     Price as Annualized % of 4600
31                         47.25   12.09%
70                         95.80   10.86%
126                      154.50   9.73%
245                      254.45   8.24%
434                      368.25   6.73%
763                      509.05   5.29%
1862                    736.25   3.14%

The funds with 3 month timeframes are paying for options and experiencing time decay at the expensive end of that curve. I would prefer to buy the put with 763 days remaining, and maybe roll out of it when it only has 434 days remaining for a net loss of only (509.05-368.25=) $140.80 or a mere 3% of the amount protected (annualized cost: 3.4%).
What source do you use for options prices?  I've been calculating off Yahoo Finance data, but I'm open to switching.  Yahoo has higher prices for Dec 15 / Dec 17 puts at $4600 on ^SPX, and similarly for SPY (divide by 10).
https://finance.yahoo.com/quote/%5ESPX/options?date=1640908800&p=%5ESPX
https://finance.yahoo.com/quote/SPY/options?p=SPY&date=1639526400

Your point about 3 month options is spot on - I recall reading that multiple times when reading about those ETFs.  I usually calculate off Yahoo prices 1 year out, or Dec 2022 in this case.  To avoid stale prices, I use trades from Nov 12, which means either $4650 or $4400 puts expiring Dec 2022:
https://finance.yahoo.com/quote/SPX221118P04650000?p=SPX221118P04650000
https://finance.yahoo.com/quote/SPX221118P04400000?p=SPX221118P04400000

$4400 put, $285.40, -12.1% breaks even, 6.1% cost/index price ("time value")
$4650 put, $356.20, -8.3% breaks even, 7.6% cost/index price

The ^VIX is as low as it's been during the pandemic, so prices have come down.  But prices still trail off slowly: the two options are at 6.0% and 0.7% below the current ^SPX price ($4682.85), and the cost is only 1.5% apart.  I agree with your comparisons to insurance right before a hurricane, and have seen that in these markets.  Once options are spiking in value, so is the time value.

I asked your source of options prices so we can use the same data - but also, I might want to switch.  Yahoo Finance is convenient, but it's annoying they've cleared the bid-ask prices hours after the market closes.  If quotes are stale, I look to bid-ask prices.  So I'm very interested to know your data source.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3697
Re: 90% passive / 10% active, looking for ideas
« Reply #26 on: November 13, 2021, 08:18:33 PM »
I selected spreads for your situation because they are limited risk investments.
Many times I've looked at protective put options, and said they were too expensive.  But there's some ETFs that own the S&P 500 with protective puts (10% below current price).  ​I'm very curious how much they spend on put options, and if they compensate for the reduced exposure to the S&P 500 with derivatives.
https://etfdb.com/etf/XTR/#performance
https://etfdb.com/etf/QTR/#performance
When I think collars and protective puts, I'm looking for a solution to Sequence of Returns Risk (SORR), not a short-term trading strategy. The beef I have with every collar or protective put fund I've seen so far, is that they generally keep only 3 months of duration on their hedges. This is suboptimal hedging for a number of reasons:
...
Consider today's theoretical prices of these S&P500 index puts at the 4600 strike, annualized as a percentage of the strike price:

Days Remaining     Price     Price as Annualized % of 4600
31                         47.25   12.09%
70                         95.80   10.86%
126                      154.50   9.73%
245                      254.45   8.24%
434                      368.25   6.73%
763                      509.05   5.29%
1862                    736.25   3.14%

The funds with 3 month timeframes are paying for options and experiencing time decay at the expensive end of that curve. I would prefer to buy the put with 763 days remaining, and maybe roll out of it when it only has 434 days remaining for a net loss of only (509.05-368.25=) $140.80 or a mere 3% of the amount protected (annualized cost: 3.4%).
What source do you use for options prices?  I've been calculating off Yahoo Finance data, but I'm open to switching.  Yahoo has higher prices for Dec 15 / Dec 17 puts at $4600 on ^SPX, and similarly for SPY (divide by 10).
https://finance.yahoo.com/quote/%5ESPX/options?date=1640908800&p=%5ESPX
https://finance.yahoo.com/quote/SPY/options?p=SPY&date=1639526400

Your point about 3 month options is spot on - I recall reading that multiple times when reading about those ETFs.  I usually calculate off Yahoo prices 1 year out, or Dec 2022 in this case.  To avoid stale prices, I use trades from Nov 12, which means either $4650 or $4400 puts expiring Dec 2022:
https://finance.yahoo.com/quote/SPX221118P04650000?p=SPX221118P04650000
https://finance.yahoo.com/quote/SPX221118P04400000?p=SPX221118P04400000

$4400 put, $285.40, -12.1% breaks even, 6.1% cost/index price ("time value")
$4650 put, $356.20, -8.3% breaks even, 7.6% cost/index price

The ^VIX is as low as it's been during the pandemic, so prices have come down.  But prices still trail off slowly: the two options are at 6.0% and 0.7% below the current ^SPX price ($4682.85), and the cost is only 1.5% apart.  I agree with your comparisons to insurance right before a hurricane, and have seen that in these markets.  Once options are spiking in value, so is the time value.

I asked your source of options prices so we can use the same data - but also, I might want to switch.  Yahoo Finance is convenient, but it's annoying they've cleared the bid-ask prices hours after the market closes.  If quotes are stale, I look to bid-ask prices.  So I'm very interested to know your data source.

I used my brokerís theoretical price at the time I composed the post, which was while the market was open. This was equal to the mid price in all instances for these highly liquid options. Of course I was hand-composing while prices were moving so there might be some minor timing differences. The pattern holds in all stocks Iíve ever seen; protection is cheaper in bulk.

For my homemade annualized % statistic, I divided the price of the option by its strike price. Iím doing so because I want a single number that explains the cost of protecting money, and want to do apples-to-apples comparisons across strike prices and durations. The full potential loss is this number plus the percent that the stock would have to fall to hit the strike price. If I did option price / current stock price I would be pretending that the fall down to the strike price was no big deal.

Re: VIX, I will likely switch to a calls & cash strategy with extra-long durations if the VIX starts wandering below 15. This is the same risk profile as a protective put, except for dividends of course. Iím concerned that a couple of rate hikes this year could unexpectedly  burst any one of several bubbles going on - housing, US growth stocks, bonds, Chinese RE, crypto, etc. Iím still currently in almost full greed mode, trying to get over the FIRE pole vault before our currently favorable conditions change.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #27 on: November 17, 2021, 07:42:40 AM »
I've decided on how I'll allocate the active part of my portfolio.  I will keep PSLDX and QQQ as my actively picked ETFs.  And I will probably weight crypto more heavily, since it has a greater chance of changing by a multiple (possibly 0x, 3x, who knows).  Those are all selections I've mentioned previously.

I recently subscribed to a couple services (at discounts) from the Motley Fool, which I've been curious about for years.  I entered data for hundreds of their stocks, looking at ratings, performance after selection, company size, etc.  I'm impressed.  I also think their data is rather extensive - it would be very difficult to fake, and a user uproar would already have happened.  They include losing stock picks, suggesting they aren't hiding stock picks.

In my view, Motley Fool is a stock picker taking a buy & hold approach.  Some picks have remained since they started almost 20 years ago.  Unlike ETFs and mutual funds, individual investors can concentrate their stock picks (*).  I'm going to mix Motley Fool's picks and those I like from hodedofome together, allocating less per stock but buying many more stocks.


(*) "A fund is concentrated if it invests more than 25% of the value of its assets in any one industry. 2Section 13(a)(3) of the 1940 Act requires a fund to obtain shareholder approval to change its concentration policy."
https://www.sec.gov/divisions/investment/noaction/2013/blackrock071013-17d.htm#P19_1190

FrugalFukuoka

  • 5 O'Clock Shadow
  • *
  • Posts: 19
Re: 90% passive / 10% active, looking for ideas
« Reply #28 on: November 17, 2021, 08:05:28 PM »
How do you determine how much to allocate to each individual stock pick? Will you assign a fixed percentage and rebalance once in a while?

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #29 on: November 17, 2021, 08:25:55 PM »
How do you determine how much to allocate to each individual stock pick? Will you assign a fixed percentage and rebalance once in a while?
The S&P 500 never rebalances, it just adds and drops stocks.  That's the same approach Motley Fool has taken, and which I used in my experiment.  So after buying, I plan on never rebalancing.

While they recommend a fixed amount, there's a long-term flaw with that approach.  Portfolios grow over time, so a fixed amount becomes a smaller and smaller percentage.  To me, it makes more sense to allocate a fixed, very small percentage over time.  That way each new stock pick has the same chance to influence portfolio returns as the first picks.

Malcat

  • Walrus Stache
  • *******
  • Posts: 9478
Re: 90% passive / 10% active, looking for ideas
« Reply #30 on: November 18, 2021, 07:12:51 AM »
If I were to allocate 10% to active, I would be gambling in speculative moonshots.

There's a lot of interesting stuff going on in the mineral/energy sector at the moment around batteries. I would probably make some investments on that front based on the understanding I have about government policy priorities moving forward.

But I don't have 10% active, so I don't bother.

Radagast

  • Handlebar Stache
  • *****
  • Posts: 2046
  • One Does Not Simply Work Into Mordor
Re: 90% passive / 10% active, looking for ideas
« Reply #31 on: November 18, 2021, 11:06:38 PM »
Without pointing to my choices, can you defend including QQQ in your momentum screen?  Forget that I picked it, and look at the fund choices you made.  You picked small cap value and growth, large value ... and QQQ.  QQQ isn't part of the market, but does hold the big tech companies that have done extremely well for decades (12.9% since 2001).  Dropping QQQ in, just because it performed well, introduces a bias in your model.  Back in 2001, knowing that dot-com type companies would do best would be a difficult prediction - but from 2021, it's an easy prediction.

You included emerging markets, but no other international funds.  Emerging markets beat the S&P 500 over the past couple decades.  Developed markets, however, have trailed the S&P 500 by 3% since Dec 2001 (6.73% vs 9.80%).  It's interesting that you left out 40% of the world's markets that underperformed, but included 10% that outperformed.  It's another source of bias.

If you drop QQQ and VEIEX from your momentum model, it's performance no longer beats AGTHX.  It drops from 12.3% to 10.0% per year, below that of AGTHX. 
For the record:
- I only said QQQ because you said it. Otherwise I'd've chosen an S&P500 growth fund instead to check the 4 style corners.
- I included Vanguard developed markets index and VINEX, so you just didn't look very carefully.
- If I wanted the asset class with the strongest momentum, I'd try and include as many as I could to improve my odds, rather than just randomly removing some to try and prove a point.

Curiously, none of your criticisms are the big one I would have pointed out.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #32 on: November 19, 2021, 03:27:32 AM »
Without pointing to my choices, can you defend including QQQ in your momentum screen?  Forget that I picked it, and look at the fund choices you made.  You picked small cap value and growth, large value ... and QQQ.  QQQ isn't part of the market, but does hold the big tech companies that have done extremely well for decades (12.9% since 2001).  Dropping QQQ in, just because it performed well, introduces a bias in your model.  Back in 2001, knowing that dot-com type companies would do best would be a difficult prediction - but from 2021, it's an easy prediction.

You included emerging markets, but no other international funds.  Emerging markets beat the S&P 500 over the past couple decades.  Developed markets, however, have trailed the S&P 500 by 3% since Dec 2001 (6.73% vs 9.80%).  It's interesting that you left out 40% of the world's markets that underperformed, but included 10% that outperformed.  It's another source of bias.

If you drop QQQ and VEIEX from your momentum model, it's performance no longer beats AGTHX.  It drops from 12.3% to 10.0% per year, below that of AGTHX. 
For the record:
- I only said QQQ because you said it. Otherwise I'd've chosen an S&P500 growth fund instead to check the 4 style corners.
- I included Vanguard developed markets index and VINEX, so you just didn't look very carefully.
- If I wanted the asset class with the strongest momentum, I'd try and include as many as I could to improve my odds, rather than just randomly removing some to try and prove a point.

Curiously, none of your criticisms are the big one I would have pointed out.
My apologies, you did not randomly remove some ETFs.  Your momentum approach included VTMGX and VINEX, which track developed markets.

But I also pointed out that without QQQ, this momentum screen takes a big hit, falling to 11.0%/year.  That barely beats AGTHX's 10.8%/year, but falls far short of 12.9% from QQQ.  Adding back large/growth helps, but doesn't catch QQQ.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #33 on: November 19, 2021, 08:48:42 AM »
There's a lot of interesting stuff going on in the mineral/energy sector at the moment around batteries. I would probably make some investments on that front based on the understanding I have about government policy priorities moving forward.
As a wild speculation,  ETFs like LIT (Lithium and Battery Tech ETF) might have already paid off.  LIT went up 126.51% in 2020.  The danger is another string of years like 2011-2015, with losses every year except the +2% gain.
https://finance.yahoo.com/quote/LIT/performance?p=LIT

Malcat

  • Walrus Stache
  • *******
  • Posts: 9478
Re: 90% passive / 10% active, looking for ideas
« Reply #34 on: November 19, 2021, 10:44:05 AM »
There's a lot of interesting stuff going on in the mineral/energy sector at the moment around batteries. I would probably make some investments on that front based on the understanding I have about government policy priorities moving forward.
As a wild speculation,  ETFs like LIT (Lithium and Battery Tech ETF) might have already paid off.  LIT went up 126.51% in 2020.  The danger is another string of years like 2011-2015, with losses every year except the +2% gain.
https://finance.yahoo.com/quote/LIT/performance?p=LIT

If you want to go wild on speculation, then companies developing graphene tech would be my play.

I don't really speculate though.

effigy98

  • Pencil Stache
  • ****
  • Posts: 547
Re: 90% passive / 10% active, looking for ideas
« Reply #35 on: November 20, 2021, 08:14:02 PM »
This is better then 90/10 with more downside protection.

NTSX 94
VXX 6

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #36 on: November 20, 2021, 08:40:39 PM »
This is better then 90/10 with more downside protection.

NTSX 94
VXX 6
VXX with a short history and a losing record?  Losing 68% in 2019 while the S&P 500 gained 31.5%?

NTSX is another fund with a short history, so I can't see how their leverage performed in 2008.  I mentioned PSLDX earlier in this thread, which beat NTSX in both 2019 (by 20%) and 2020 (by 10%).  NTSX has no 2018 data, while PSLDX goes back to 2008 (when it beat the market).  A losing, short record isn't going to convince me to switch to NTSX.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #37 on: November 20, 2021, 08:48:41 PM »
If you want to go wild on speculation, then companies developing graphene tech would be my play.
Some of my active investment is in Bitcoin, which I consider very speculative.

I do check the ideas out, but this article from 2016 (updated in 2018) claims it's probably not time to invest.  In one example, a company mentioned the word "graphene" in a list, once, then never mentioned it again.  Maybe a theory that didn't pan out?
https://www.fool.com/investing/2016/12/08/should-you-invest-in-graphene-stocks.aspx

effigy98

  • Pencil Stache
  • ****
  • Posts: 547
Re: 90% passive / 10% active, looking for ideas
« Reply #38 on: November 20, 2021, 08:52:16 PM »
This is better then 90/10 with more downside protection.

NTSX 94
VXX 6
VXX with a short history and a losing record?  Losing 68% in 2019 while the S&P 500 gained 31.5%?

Do you have the same concern with your home owners or car insurance? It loses money every month!

Malcat

  • Walrus Stache
  • *******
  • Posts: 9478
Re: 90% passive / 10% active, looking for ideas
« Reply #39 on: November 20, 2021, 10:12:26 PM »
If you want to go wild on speculation, then companies developing graphene tech would be my play.
Some of my active investment is in Bitcoin, which I consider very speculative.

I do check the ideas out, but this article from 2016 (updated in 2018) claims it's probably not time to invest.  In one example, a company mentioned the word "graphene" in a list, once, then never mentioned it again.  Maybe a theory that didn't pan out?
https://www.fool.com/investing/2016/12/08/should-you-invest-in-graphene-stocks.aspx

My statement about graphene isn't coming out of nowhere.
Graphene tech would be a moonshot investment. It's prohibitively expensive to convert run of the mill graphene into battery grade graphene, but *if* someone figures out that rate limiting step, then the entire clean energy landscape dramatically changes.

I'm not saying it's a good investment, graphene batteries may never be affordable. But if the processing were to be worked out, then that would be an enormous moonshot because no batteries would run on rare minerals, we would be able to make far superior, far safer, feather light batteries out of frickin' pencil lead.

So yeah, if it were a sum I was willing to gamble and lose, I would bet on the *possible* but not necessarily probable moonshot of graphene tech.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #40 on: November 21, 2021, 01:29:06 AM »
This is better then 90/10 with more downside protection.

NTSX 94
VXX 6
VXX with a short history and a losing record?  Losing 68% in 2019 while the S&P 500 gained 31.5%?
Do you have the same concern with your home owners or car insurance? It loses money every month!
Do you understand the difference between investing and insurance?
Losing 100% of your money a year is not a benchmark investors use.

VXX has existed for 3 years.  If you invested $10,000 in VXX at the start of 2019, you would have $1,115 left, for a loss of 89%.
https://www.morningstar.com/etfs/bats/vxx/performance

If you instead bought Vanguard S&P 500 ETF in 2019, you would now have $19,684 (a gain of +97%).
https://www.morningstar.com/etfs/arcx/voo/performance

Some people should not be active investors.  If others are reading this thinking VXX is a good investment (89% loss), I'd suggest you go with passive indexing (+97%) instead.

BicycleB

  • Magnum Stache
  • ******
  • Posts: 3853
  • Location: Live Music Capital of the World
  • Older than the internet, but not wiser... yet
Re: 90% passive / 10% active, looking for ideas
« Reply #41 on: November 21, 2021, 04:01:15 PM »

VXX has existed for 3 years. 

I don't claim to know anything about this! Googling as a newbie, I discover VXX follows a more or less identical product that existed for the 10 previous years, also under the ticker VXX:

https://www.projectoption.com/vxx-explained/

If the time period is relevant, would adding the performance of the last 10 years be useful? (Imean, probably not.  Just pondering.)

Mostly just sharing in case other readers need the background like me. Um, I think I'll stop now - just here to learn, slow as that may be.


Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1792
  • Age: 49
  • Location: Houston TX
  • Devour your prey raptors!
    • Living Universe Foundation
Re: 90% passive / 10% active, looking for ideas
« Reply #42 on: November 21, 2021, 04:45:50 PM »

VXX has existed for 3 years. 

I don't claim to know anything about this! Googling as a newbie, I discover VXX follows a more or less identical product that existed for the 10 previous years, also under the ticker VXX:

https://www.projectoption.com/vxx-explained/

If the time period is relevant, would adding the performance of the last 10 years be useful? (Imean, probably not.  Just pondering.)

Mostly just sharing in case other readers need the background like me. Um, I think I'll stop now - just here to learn, slow as that may be.

VXX is an "ETN" (Exchange traded note).  As such it is ultimately a debt instrument with a maturity.  The original product matured and was replaced with a more or less identical product using the same ticker and later maturity.  Conceptually at least, it has existed since at least 2009, which was the first time I traded it.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #43 on: November 22, 2021, 01:23:36 AM »
VXX has existed for 3 years. 
I don't claim to know anything about this! Googling as a newbie, I discover VXX follows a more or less identical product that existed for the 10 previous years, also under the ticker VXX:

https://www.projectoption.com/vxx-explained/

If the time period is relevant, would adding the performance of the last 10 years be useful? (Imean, probably not.  Just pondering.)

Mostly just sharing in case other readers need the background like me. Um, I think I'll stop now - just here to learn, slow as that may be.
VXX is an "ETN" (Exchange traded note).  As such it is ultimately a debt instrument with a maturity.  The original product matured and was replaced with a more or less identical product using the same ticker and later maturity.  Conceptually at least, it has existed since at least 2009, which was the first time I traded it.
@Bicycle_B and @Financial.Velociraptor - is there historical ^VIX performance online, by year?  I don't want to download CBOE spreadsheets.

F.V - didn't you invest against the ^VIX?  I recall you had two things working for you, one of which was decay over time.


B_B, I suspect the historical data might be similar, based on your link.  I also didn't understand http://vixcentral.com/ charts, so I couldn't get performance from there.
"It's important to understand that from VXX's inception date to maturity date, the product underwent numerous reverse splits to keep the product's price from reaching $0."


It's more annoying to look at Yahoo historical prices, but I took a look.  VXX started 2020 near $60.  In the most volatile week, Mar 16-20, VXX stayed above $200 the whole week, and even hit $315.  With perfect timing, you could make 3x to 5x the investment.

Try that same maneuver in 2019, and you lose 40% holding from Jan to the Mar peak.  Someone holding from 2019 until that most volatile week in March could earn +50% ... but the more years you add to this investment, the worse it becomes.
https://finance.yahoo.com/quote/VXX/history

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3697
Re: 90% passive / 10% active, looking for ideas
« Reply #44 on: November 22, 2021, 06:56:28 AM »
This is better then 90/10 with more downside protection.

NTSX 94
VXX 6

Funny story: At the start of 2020, I held about 1,000 far-OTM call options on the VIX - something like the 29 strike, IIRC. I was experimenting with using them as a hedge and closely watching their movements as the markets zig zagged. After a while, I concluded that they were neither compensating me for risk as effectively as more direct options strategies such as protective puts and collars, nor were they falling fast enough to represent an opportunity. Plus, I was having trouble establishing how much of my long investments were being covered by protection from the VIX calls. I SOLD MY CALL OPTIONS ON THE VIX IN FEBRUARY 2020 FOR A LOSS. Had I held two more months, this investment of ~$1100 would have been worth enough to pay off my mortgage. Fun times.

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1792
  • Age: 49
  • Location: Houston TX
  • Devour your prey raptors!
    • Living Universe Foundation
Re: 90% passive / 10% active, looking for ideas
« Reply #45 on: November 22, 2021, 07:58:49 AM »

@Bicycle_B and @Financial.Velociraptor - is there historical ^VIX performance online, by year?  I don't want to download CBOE spreadsheets.

F.V - didn't you invest against the ^VIX?  I recall you had two things working for you, one of which was decay over time.

I'm not aware of a place to find it without a high dollar sub like bloomberg terminal. 

I bought puts on VXX and UVXY.  For the most part, it worked out really well. I got burned on UVXY when during a vol event, the underlying leverage was changed without warning from 2.0x to 1.5x.   Had to take a loss on those puts and stuck with the unleveraged VXX thereafter.   Basically, the contango ensures if you buy the longest dated LEAP put, it is damn near certain to be a winner if  you hold long enough.  The number one driver of my ER was VXX puts.  I bet big during the years I was still employed and often made hundreds of percent annualized returns.

I wouldn't play ^VIX direct.  That is a true 'random walk' to me.  VXX is inherently flawed and makes for a good short.

ChpBstrd

  • Magnum Stache
  • ******
  • Posts: 3697
Re: 90% passive / 10% active, looking for ideas
« Reply #46 on: November 22, 2021, 08:46:35 AM »

@Bicycle_B and @Financial.Velociraptor - is there historical ^VIX performance online, by year?  I don't want to download CBOE spreadsheets.

F.V - didn't you invest against the ^VIX?  I recall you had two things working for you, one of which was decay over time.

I'm not aware of a place to find it without a high dollar sub like bloomberg terminal. 

I bought puts on VXX and UVXY.  For the most part, it worked out really well. I got burned on UVXY when during a vol event, the underlying leverage was changed without warning from 2.0x to 1.5x.   Had to take a loss on those puts and stuck with the unleveraged VXX thereafter.   Basically, the contango ensures if you buy the longest dated LEAP put, it is damn near certain to be a winner if  you hold long enough.  The number one driver of my ER was VXX puts.  I bet big during the years I was still employed and often made hundreds of percent annualized returns.

I wouldn't play ^VIX direct.  That is a true 'random walk' to me.  VXX is inherently flawed and makes for a good short.

I've spent a few hours trying to figure out how to short VXX or UVXY, and go long ^VIX to create a hedged time decay position. The various ratios change so fast staying delta-neutral would be a full time job. It's also a bit apples-to-oranges because we're comparing an American-style option for VXX/UVXY with a European-style option for ^VIX.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #47 on: November 22, 2021, 09:13:39 AM »
Funny story: At the start of 2020, I held about 1,000 far-OTM call options on the VIX - something like the 29 strike ... I SOLD MY CALL OPTIONS ON THE VIX IN FEBRUARY 2020 FOR A LOSS.
Earlier this month I considered bragging about buying Macy's call options, because the returns were great.  But I forgot something... to my horror, I apparently sold 2/3rds of my Macy's calls in Nov/Dec 2020 for no gain.  This year, I sold more for hundreds of percent gains... and then Macy's shot from $20 to $30.  Sigh.

I don't mean to complain about doing insanely well last year, but it's interesting that the most missing money is from selling winners early, not selling at a loss.

So when I buy my active investments, I want to hold them for years.

MustacheAndaHalf

  • Magnum Stache
  • ******
  • Posts: 4467
Re: 90% passive / 10% active, looking for ideas
« Reply #48 on: November 22, 2021, 09:27:07 AM »
@Bicycle_B and @Financial.Velociraptor - is there historical ^VIX performance online, by year?  I don't want to download CBOE spreadsheets.

F.V - didn't you invest against the ^VIX?  I recall you had two things working for you, one of which was decay over time.

I'm not aware of a place to find it without a high dollar sub like bloomberg terminal. 

I bought puts on VXX and UVXY.  For the most part, it worked out really well. I got burned on UVXY when during a vol event, the underlying leverage was changed without warning from 2.0x to 1.5x.   Had to take a loss on those puts and stuck with the unleveraged VXX thereafter.   Basically, the contango ensures if you buy the longest dated LEAP put, it is damn near certain to be a winner if  you hold long enough.  The number one driver of my ER was VXX puts.  I bet big during the years I was still employed and often made hundreds of percent annualized returns.

I wouldn't play ^VIX direct.  That is a true 'random walk' to me.  VXX is inherently flawed and makes for a good short.
This is the most insane price graph I've ever seen.  If someone invested $1 billion USD in UVXY 10 years ago... they would have $15 left?
https://finance.yahoo.com/quote/UVXY/

Buying VXX puts would be a good distraction from my portfolio.  But you don't buy bearish put spreads... you buy puts.  Do you buy them out of the money, and wait?

Financial.Velociraptor

  • Handlebar Stache
  • *****
  • Posts: 1792
  • Age: 49
  • Location: Houston TX
  • Devour your prey raptors!
    • Living Universe Foundation
Re: 90% passive / 10% active, looking for ideas
« Reply #49 on: November 22, 2021, 09:34:50 AM »

Buying VXX puts would be a good distraction from my portfolio.  But you don't buy bearish put spreads... you buy puts.  Do you buy them out of the money, and wait?

When I used to buy them, I would get the longest dated LEAP available and go 1/3 out of the money.  There was usually a nice gain when it reached at the money.  Every now and then, you'll get a crazy spike where VXX doubles or more.  It can be along wait before it is in the green again.  With the market so frothy, I'm out of the trade until the next major recession.