| ETF leveraged investments, over time, suffer the | | | | $1000 to start: up $1200, down $960, // up 1152, |
| inherent inequality between the same percent up, | | | | down 922, // up 1106, down 885, // up 1062, |
| and then down, relentlessly eroding the value. | | | | down 849, // up 1019, down 815, // up 978, |
| Every retailer knows this lesson. Let's simplify the | | | | down 783, // up 939, down 751, // up 902, down |
| idea. | | | | 721, // up 866, down 693, // up 831, down 665, |
| On a $1000-ticket item a 40% mark-up moves | | | | / up 798, down 638, // up 766, down 613, // |
| the price to $1400, yet when later put on sale a | | | | up735, down 588, // up 706, down 565, // etc. |
| 40% discount moves the price to $840. An equal | | | | Just 14 up and down cycles, ending on $565 |
| percent up and down yet the retailer is at a $160 | | | | $1000 = 56.5 % remaining or a 43.5% loss. Of |
| loss on his original $1000. Many a small business | | | | course an even 20% up and 20% down, |
| has folded because of not attending to this | | | | repeating, will never happen. But, this proves that |
| mathematical truth in their financial planning. | | | | Down is the Prevailing Trend of every double and |
| Over and over, this, in principle, is what is | | | | triple ETF. |
| happening. With doubled and tripled percent | | | | Sometimes the underlying market index or sector |
| moves, this disparity is greatly magnified. So we, | | | | goes up more than one day, or down more than |
| in my amateur's opinion, must treat all double and | | | | one day, yet any stock chart can let you count |
| triple ETF's as if we are paying a premium on a | | | | the number of zigs and zags up and down. Please |
| wasting asset, because for all practical purposes it | | | | notice that with this the volume is also irrelevant. |
| is decaying, somewhat like an option would decay. | | | | A small volume day moves the percent up or |
| This happens regardless of whether this is a | | | | down as easily as a large volume day. Multiple |
| double up ETF or double down ETF, a triple up | | | | days up, then multiple days down does slow this |
| ETF or a triple down ETF, because the effect | | | | trend down some, yet over two or three months |
| comes from the function of mathematics, not | | | | it does happen. |
| what market item is being measured. However, | | | | $1000 down 50% is $500, yet for $500 to |
| the daily frequency of computing the new value | | | | become $1000 again it needs to go back up |
| does matter. | | | | 100%. |
| Want proof? Below is 20%, oscillating, to | | | | Sometimes if the item goes up 20% and down |
| demonstrate what would happen to a small | | | | 10% and up 20% and down 10% of course you |
| investor. The same thing is happening, yet less | | | | do gain, but it is like bucking the tide. Like in Las |
| obviously, when the up and down percents are | | | | Vegas, the odds are relentlessly with the house. |
| lesser and inconsistent. | | | | The designers of these instruments, in my opinion, |
| By back checking your date of purchase with the | | | | in all likelihood knew this going in. |
| underlying price of the market item/bundle being | | | | These high leveraged ETFs were never meant to |
| tracked, and comparing to your dollar value now - | | | | be for investing, they are for short term trading |
| when it touches that same price point, you can | | | | only, for the reason I just demonstrated. Do the |
| witness the erosion in value of the ETF. A huge | | | | math. Math can disprove an obvious conclusion |
| up day can of course show a good gain, yet the | | | | assumed even by many investment advisors. |
| erosion sets in again. | | | | When I finally did, I realized the importance of |
| The bigger the percent swing, the faster the | | | | sharing my hard earned knowlege. |
| dollar-value erodes. A triple erodes even faster | | | | I made the costly mistake of thinking I could hold |
| than a double, a double faster than a single. So in | | | | them long term. Now I understand that the longer |
| a sense the triple exacts a higher premium. Notice | | | | I wait, the further in the distance my break-even |
| that at 20% - $1000 up and down is a $40 loss, | | | | point is likely to move. I will start fresh, with a |
| where at 40% - $1000 up and down was a $160 | | | | clearer understanding of how these products |
| loss. 20% doubled is 40%, $40 doubled is $80, | | | | move. |
| yet the loss on 40% up and down is $160, or 4 | | | | Do treat these ETF's like some pros, like Jim |
| times the loss ($40 x 4). That gives a rough | | | | Cramer, are now counseling, as short term |
| sense of the mathematical impact on triple versus | | | | trading tools. Take your profits sooner rather |
| double ETFs. | | | | than later. Then, at a better entry point, get back |
| (my example is rounded for reporting | | | | in and do it again. Mathematically, these are |
| convenience) | | | | definitely NOT long term investment instruments. |
| $1000 invested goes 20% up ($1000 base times | | | | Yet, you can make sweet money with them. So |
| 1.2 [120%] )then goes 20% down (new base | | | | be aware. & Tell a friend. |
| times .8 [80%] ) repeating: | | | | |