Poking holes in TQQQ

I've seen this ETF floating around this board for a bit now, and after looking at it back to '99 (using QQQ *3 daily returns as a proxy for the days before it actually existed), I'm now becoming a believer.  To the skeptics, if this thing can survive 3 of the worst crashes in history, what are the real downsides assuming you personally never have to sell?  Could you theoretically see a run on the ETF even if on paper it's not bankrupt that would force it to go bankrupt? Is counterparty risk a significant factor that was somehow not an issue in the 2020 crash?  What other risks am I not seeing that make this a terrible investment?

WSO Elite Modeling Package

  • 6 courses to mastery: Excel, Financial Statement, LBO, M&A, Valuation and DCF
  • Elite instructors from top BB investment banks and private equity megafunds
  • Includes Company DB + Video Library Access (1 year)

Comments (46)

  • Analyst 1 in IB - Gen
Sep 17, 2021 - 9:11am

Don't bother asking here. You're going to get the same old asshats telling you why it's a "bad" idea because misery loves company. Won't be working when I'm 50 and aching I can fucking guarantee that unlike these guys. Rather live on my feet than die on my knees. It's not even fucking crypto or something.

If it all crashes immensely, you'll have to worry more about stocking up on guns and ammo than fiat currency. Live a little people, you're only here once I can promise you that.

Sep 17, 2021 - 9:21am

As someone who directly works in this space and understands the leverage decay etc I use this instrument. The only downside is the crazy volatility. I've said this about leverage in other posts, it's a different beast when you have this position moving 10%+ daily in your PA like it was through the covid crash. 

  • Analyst 2 in ER
Sep 17, 2021 - 9:30am

I've been all in on it and will continue to be. Not checking it until I get another bonus and then I'll put all of that in too. I'm not good at picking stocks and I don't reasonably think anyone else can be without the resources and capital backing of a hedge fund - just my opinion. I'd rather be a rich middle aged man with the possibility of losing it all than someone who has to budget out every year of retirement. 

Learn More

300+ video lessons across 6 modeling courses taught by elite practitioners at the top investment banks and private equity funds -- Excel Modeling -- Financial Statement Modeling -- M&A Modeling -- LBO Modeling -- DCF and Valuation Modeling -- ALL INCLUDED + 2 Huge Bonuses.

Learn more
  • Intern in IB - Gen
Sep 17, 2021 - 10:10am

TQQQ by itself is great, I invest in it. However, chucking your money into the fund and forgetting about it isn't the best strategy. Look at 2020. Despite surviving, the fund itself was running into severe liquidity issues and there was a very real risk equityholders would be left holding the bag.

I've looked into this combo thoroughly on Reddit and I believe having a split (60/40, 50/50, whatever) with TMF that you DCA quarterly is the best choice to pursue. Running extensive backtests, you can see that this actually surpasses an only-TQQQ portfolio, reason being that TMF will spike when TQQQ crashes and when TQQQ crashes, it goes down deep and despite its insane ability to run, it takes a long time to recover

Happy investing

  • Intern in IB - Gen
Sep 17, 2021 - 10:24am

There's a toggle that lets you play around with quarterly, semi-annual, etc, DCA in most legit back-testers.

For all the small but important stuff like capturing taxes, expense of the fund, I can't find it right now but there was an extensive backrest done from 1985 that captured all of it (obv cap gains is looking rough for a few years now but we're all young rn) that said something like ~29% IRR if DCA quarterly at a 55/45 split and optimizing DCA (impossible in real life but still fun, was nearly 37% IRR. 37!!!!

I'll try and find it right now but tldr is DCA

Most Helpful
  • Associate 1 in IB - Restr
Sep 17, 2021 - 11:25am

I agree with you mostly. The UPRO-TMF/TQQQ-TMF parity strategy is great in theory as it essentially offers leverage on market returns with a built in downside hedge. Sharpe ratio when backtesting on these strategies over the past 20+ years is outstanding. The Achilles heel in this play however is interest rate risk. When you back test through the 70's and 80's when rates were 15%+, it just gets dragged down. Not saying that this is at all likely again with the Fed's absolute disdain for raising rates and the economy's crippling addiction to cheap credit, but just something to consider. 

I'm doing pure-play TQQQ just because idgaf about drawdowns and I'm in it for the long haul. I figure I have at least 15-20 years to just plow cash into it and see what happens before I truly have to worry if things go south. Some people risk it all and start a business when they're young, this is my "big risk" if you want to call it that. Cheers fellas

  • Intern in IB - Gen
Sep 17, 2021 - 1:25pm

I agree with you as well... meant to mention the sharpe ratio stuff as well. I'm not an economist but what the fuck even performed well when rates were that high? I would just buy that lol

Sep 19, 2021 - 9:40pm

are you worried tech is priced to perfection and rates have hit bedrock? 

path less traveled

  • Intern in IB - Gen
Sep 17, 2021 - 1:29pm

lol you put so much enthusiasm into it I wanted to see how much pushback you can take. I've put all of my NW in it since 2017 but am still evaluating critiques, etc

  • Research Analyst in HF - Other
Sep 17, 2021 - 8:59pm

Cost basis of $1.3m. I can see the skepticism but not really cuz it's not that much money I put in relative to what people have/make on WSO. Why would I waste this much time fucking with everyone and trolling, I'm trying very hard to actively evangelize because if I get you all on board then my position goes up up up (assuming you guys tell your friends & fam and so forth).

Sep 21, 2021 - 4:22pm

Just think about from the perspective of a stochastic process.  If the underlying process (stock movement) has a positive drift term, then the expectation is that the volatility drag won't have a negative impact, and may even have a positive impact depending on the true drift term.  

Sep 18, 2021 - 11:37am

I like the UPRO+TMF risk parity idea, but prefer futures over those ETFs. They don't have the issues with fees or volatility drag, and I believe there are now perpetual futures that you don't have to roll and pay tax on.

  • Analyst 2 in ER
Sep 20, 2021 - 12:10am

I can buy eminis through my TD ameritrade account. Just have to get approval

Sep 21, 2021 - 4:32pm

I worked for a bit in commodity risk management on a rotation, and I don't think I could comfortably invest in futures directly unless I were super wealthy.  Since you are such a small player, I would think the counter party risk goes through the roof since your counter party knows you probably don't have the funds to go after them in court especially in a down market (I'd be surprised if TD or whoever would pay your legal fees to sue the opposite end of the contract, not 100% sure on this though), also margin calls at the brokers discretion could screw you bad in a down market if they raised capital requirements.  Also, I imagine you would have to constantly monitor your leverage ratio as the market moves.  Seems like you're just exchanging a minor constant risk for a potentially bankrupting risk in a down market on top of adding headache to constantly maintaining your desired leverage.  

Sep 21, 2021 - 7:07pm

You have a point about them raising the maintenance requirement during a crash, it happened last year. It's normally pretty low though (IB gives 8%), and you can keep the cash way above that level anyway. It's also true that the large contract sizes are harder to rebalance, unless you are super rich.

  • Analyst 1 in IB - Gen
Sep 21, 2021 - 4:05pm

Nostrum inventore vero omnis recusandae. Quia beatae in est. Voluptatibus aliquid qui mollitia tempora velit.

Dolorem et qui rerum consectetur. Ut est maiores iure quasi hic est harum adipisci. Aliquam est quo et. Ex aut officia nostrum dolor dolorem asperiores. Numquam voluptas eos facilis non reprehenderit. Quis dolores officia dolorem consequuntur qui sed commodi.

Sep 21, 2021 - 11:31pm

Fugit veniam doloribus corporis ab esse aut. Vitae amet atque quibusdam nesciunt consequatur. Rerum possimus expedita consequatur vel.

Rerum suscipit ratione et nemo praesentium laborum. Esse molestiae aspernatur vitae est sed. Similique aut aut culpa placeat et.

Qui consectetur hic expedita repudiandae dolore. Voluptate vel et et eum nulla aut. Minus aut ea iusto et aliquid quisquam ipsam. Eius qui consectetur sed.

Est commodi nihil id odio deleniti consequatur. Minus neque deserunt ut nobis. Quae dolorem distinctio fugit suscipit quisquam sit. Iste ipsam debitis rem asperiores est accusamus. Aliquam et non aliquam.

Oct 15, 2021 - 10:51am

Sapiente omnis omnis impedit ab nulla veritatis iusto voluptatum. Corrupti vitae nostrum numquam mollitia. Velit ipsum corporis culpa et quasi. Non ut cupiditate accusantium tenetur provident. Aliquid eius ut consequatur assumenda.

Est blanditiis cumque neque harum repellendus iste nostrum. Quaerat corporis nihil cumque fugiat doloremque. Cumque esse consectetur explicabo id ea magni.

Ut eius rerum sed odit beatae optio recusandae. Ad repellat reprehenderit esse suscipit nesciunt inventore. Aut provident consequatur quo facilis esse nostrum. Reiciendis optio nihil eligendi officia. Ut minus eligendi rem accusamus aliquam blanditiis. Perferendis at provident possimus nostrum temporibus non distinctio possimus.

Dolorum aut qui expedita voluptatem. Enim et et at et fugit. Aut et vitae consequatur molestias optio eligendi animi. Nam fuga vel quia.

Start Discussion

Total Avg Compensation

October 2021 Investment Banking

  • Director/MD (10) $853
  • Vice President (39) $363
  • Associates (229) $233
  • 2nd Year Analyst (139) $155
  • 3rd+ Year Analyst (32) $149
  • Intern/Summer Associate (104) $143
  • 1st Year Analyst (504) $135
  • Intern/Summer Analyst (387) $83