2009 May | WhereDoesAllMyMoneyGo.com

Indexes Don't Charge Trailers

Posted by Preet on May 31, 2009 | 0 comments

Quickie tonight: a lot of comparisons between active funds and their benchmarks are clouded by the inclusion of trailer fees (fees paid to the advisor) with actively managed mutual funds. The index performance obviously doesn’t include this. A more apples to apples comparison would be to compare the cap-weighted ETF performance that tracks a specific index versus the investment fund without trailer fees. Does this change the basic premise? No. Let’s look at some data and then do some simple mental math: 5 Year Annualized Numbers (to end of 2008, Equal Weighted Fund Returns) S&P/TSX outperformed the average Canadian Equity fund by 3.29% S&P 500 (CAD)...

A Lap Of The Blogs

Posted by Preet on May 29, 2009 | 6 comments

If you are new to WhereDoesAllMyMoneyGo.com, every Friday I run a post called “A Lap Of The Blogs” which provides links to articles I found interesting and think that others may want to read for themselves. I also include some commentary on what’s going on in my personal life and a weekly “racing video” since my former life was in the auto-racing industry. The name “Lap of the Blogs” is in reference to “A Lap Of The Gods” which is an old video series which chronicled on-board footage of the world’s greatest F1 drivers lapping various racetracks from around the world. Well my week in Vancouver is almost over, but the weather has been great and I...

The Equal Short Bull-Bear As The Ultimate Negative Correlator?

Posted by Preet on May 27, 2009 | 10 comments

Okay, first things first – I think I’ve officially lost my mind or made a simple formula error, but it’s late enough that my brain has turned to mush. I was toying again with the idea of the equal short paired leveraged ETF strategy (e.g. holding an equal short position on HXU/HXD for example). Reader Jordan Clark suggested I should back-test it and one thing led to another. Instead of dissecting it (because it will take some time), I’m going to throw out the results tonight and then discuss later… I started by downloading the daily data for the TSX Composite index. Pictured here: Next, I created a fictitious 2x Bull index, pictured...

Hard-To-Borrow Fees

Posted by Preet on May 26, 2009 | 11 comments

There may be a wrinkle for anyone crazy enough to short sell a leveraged ETF depending on which broker you use: the “hard to borrow” fee. This is a fee that is levied on top of any interest charged on borrowed securities (borrowed from inventory so that you can short them). For example, while Interactive Brokers will allow you to short FAS (Direxion Daily Financial 3x Bull Shares) and charge you 1.68% in interest, it will also levy a hard-to-borrow fee which as of May 25th, 2009 stood at 23.81%! Where does this magical fee come from? The rationale is that the prime broker has to spend a lot of time sourcing the stock to be shorted (they need to put it in...

Short Selling Doesn't Have to Have Infinite Loss Potential

Posted by Preet on May 25, 2009 | 6 comments

I often hear people mentioning that if you short a stock your potential loss is infinite. This is because the stock’s price is theoretically unlimited. When you short a stock (which is a bet that pays off when the stock goes down) you are basically trying to buy low, sell high, but you start by selling high first and buying it back low if/when the stock falls in price going forward. For example if stock XYZ is trading at $50/share and you think it is going to go down, you could short sell it at $50/share. If it then starts to trade at $40/share you could “cover” your short position by buying the stock for $40/share. If XYZ were to increase however, then...

A Lap Of The Blogs

Posted by Preet on May 21, 2009 | 7 comments

If you are new to WhereDoesAllMyMoneyGo.com, every Friday I run a post called “A Lap Of The Blogs” which provides links to articles I found interesting and think that others may want to read for themselves. I also include some commentary on what’s going on in my personal life and a weekly “racing video” since my former life was in the auto-racing industry. The name “Lap of the Blogs” is in reference to “A Lap Of The Gods” which is an old video series which chronicled on-board footage of the world’s greatest F1 drivers lapping various racetracks from around the world. If you don’t normally watch the weekly racing videos, you may want to check...

Make Money In A Volatile, Flat Market: Short Sell Leveraged ETFs

Posted by Preet on May 20, 2009 | 19 comments

I’ve been tossing this idea around on a few other blogs in passing so I thought I might as well post the mechanics and explanation of it here. First some background info to make sure we’re all on the same page: Flat Market – also could be called a sideways market. Normally the definition is a market in which prices change little, so I threw in an added caveat: a volatile flat market. This would imply prices change quite a bit from day to day, but overall the prices are relatively flat over longer periods of time (i.e. the market goes up for a stretch, down for the next, up again, down again, etc.). Leveraged ETFs – These are Exchange Traded Funds...