Wednesday, December 31, 2008
Long time reader Stephen Drone pointed us to an article from Tim Middleton dated yesterday in which he plans to use double long ETFs because he expects a big move up in stocks. I don't think I have ever been a regular reader of his stuff and if I ever was I haven't been for ages.
Per the article he is putting 10% in the double long S&P 500 (SSO), 6.2% in the double long mid cap (MVV) and 6.2% in the double long small cap (SAA). His logic is "...That makes both stock and bond prices compelling right now. Ergo, I want to own a ton of both. And thanks to leveraged ETFs, I can." He mentions that sometimes these funds "misbehave" but that they would have done the trick over some period of time.
He may be right about the market or not in terms of direction but owning the double long funds may not work even if he is right. In 2007, which was an up year, SSO lagged the S&P 500 SPDR (SPY). The combination of up and down days will determine how a levered fund does over time and obviously there is no way to know ahead of time. That he makes the misbehave comment at all would seem to imply he knows that they may not capture the effect over a longer period of time yet he is buying them anyway.
I have picked on him a couple of time before (but it haven't mentioned him since May, 2006) for a couple of different things. Everyone gets some calls wrong so I won't rehash those but there have been a couple of instances where he made what seemed like huge sector bets with his ETF portfolio. Big sector bets are not a bad thing in and of themselves but I'm not positive he realizes he is making them. Here is a post of mine from September, 2005 about his Q3 2005 result in which I address this. I may have this all wrong about Middleton but it seems to me that if you are going to make a big sector bet in a portfolio you're writing about you might want to explain why. People often get hurt more from not knowing they have made a big bet than the big bet itself.
I need some reader help. The week after next I am speaking at an ETF conference put on by IndexUniverse in Boca Raton, FL. The picture above is where we are staying, the Boca Raton Resort (swanky, huh?). Joellyn is coming along and aside from Barney Fife and Thelma Lou go to Raleigh jokes we are wondering if there is anything to do in or near Boca Raton besides shopping and dining. Any help would be appreciated.
The second picture is from the Roady's Humanitarian Bowl played yesterday in Boise, ID. I don't know about you but I can't get enough blue turf football.
I was on CNBC yesterday afternoon. If you care, you can watch it here.
Lastly I'd like to wish everyone a Happy New Year. 2008 has been a rough one, very rough, for many people so hopefully 2009 can be better. On the topic of rough years I will recap 2008 for the portfolio in this weekend's video. If you have been with me for a while you probably have some sense of how things have gone (I've been quite lucky) but I'll try to dissect as best as can be done in ten minutes (the YouTube limit).