TQQQ and Inflation
Hey,
As we know many people on this forum use TQQQ to manage their personal wealth and now that we have true signs of a real inflationary cycle coming up do you think this strategy makes sense? How are firm teams approaching inflation?
As someone who's analyzed energy and works in energy their whole career. I know the value of cyclical industries and how O&G firms make money with inflationary cycles. That said looking at how much FCF the big tech giants produce I think they are no different than XOM 15-20 years ago.
Some pundits like cramer have said same. What are people seeing/agree?
bump
Interesting thought from your side and definitely should be top of mind on how to protect your asset against inflation.
Personally, I was shocked to see the other day that it seems that several people are using TQQQ as a “long-term investment” because these products are generally not built for this purpose for two key reasons:
(1) If the market goes sideways, the ETF's shares are destined to lose money due to volatility.
Simple example, the index is priced at 100.00 and loses 1% and subsequently 1.01% to bring the index back to 100.00.
If you use a triple-levered ETF, you go from 100.00 to 97.00 and back to 99.94 due to the daily reset of the leverage. The 6bps don’t seem a lot, but are generated within two days and losses like this add up if you hold the instrument in the long-term.
(2) Stock markets, unlike Real Estate and PE, have the disadvantage of daily mark-to-market, which can be disastrous in a downturn if you own a triple-levered ETF. On the onset of the COVID pandemic, the Nasdaq lost roughly 40% which for holders of TQQQ implied that the lost of 68% during the period (luckily the daily reset saved them from losing everything). But it is very hard to come back from losing 60-70% of your investment at any given time.
In my view, Real Estate is the best play for inflation simply due to the leverage effect. If you have only 20% and the real estate value appreciates 2% a year due to inflation, that has a 10% incremental return on your equity (leaving aside the interest on the debt which should be more than covered by the rental income).
agree. taking profits from LETFs and putting them into real estate is my angle. alternative is to roll xfer option gains into actual stock, rinse and repeat.
For those keeping score at home, it has now returned -68% since this post
1. There is no "luckily they were better off during the downturn", the very reason for daily reset is to not have to think about managing leverage (i.e. not going to 0 during a violent multiday/weeks downswing). You can only get wiped out is if the underlying drops 33% in a single day
2. The above is the reason you experience what you call "decay", you compound faster during big upswings AND crucially don't lose as much during big downswings BUT during sideways markets (i.e. if you plug in what people assume are average expected returns) you do not 3x the underlying over, say, a year. Yet over longer time horizons (10+ years) it has historically not been a drag at all, example: the 10 year return from TQQ is much higher than 3x the 10 year return from QQQ
2. The math you say on decay applies to 1x funds as well. There is absolutely nothing special about having a 1x portfolio, and LETFs are the only way a retail investor can access leverage cheaply and in a relatively hands off manner. The effect is magnified for a 3x portfolio of course.
3x LETF are on the aggressive side and I do not recommend holding them alone (use LETFs on other asset classes à la HFEA in conjunction), but they absolutely can be held longterm or be used in a well constructed portfolio. They are literally the only way you have to lever up in an intelligent manner
So when was the best time to buy TQQQ? Last week, before it dropped another 30%?
so what should i do with my tqqq? ugh
Buying 3x leveraged ETFs at the top of market and treating them as long-term investments... I hope no one who does that is managing money on behalf of LPs.
incredible that this post was less than 10 days from the top. im impressed
I should have used my wisdom to short. At least I did not lose any money on TQQQ.
Same here friend. Did not expect it all to speed up this fast.
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Can we update all comp discussions to be a on a net basis for those who "manage their personal wealth" with TQQQ?
Just here to say that if you want to make money and Cramer tells you to do something, do the exact opposite
How's everyone doing?
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