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May 2011

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25

Understanding ETF decay part 2: leverage reset decay

May 30, 2011 – Comments (2)

In my last post, we took a look at contango and backwardation and how they can affect the performance of an ETF or ETN.  In this one we will take a look at the other way that ETFs can decay over time.  This will focus on the leveraged, resetting ETFs like FAZ, FAS, TZA, TNA, and so forth.  This is actually a fair bit simpler than contango/backwardation.    [more]

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38

Understanding ETF/ETN decay part 1: Contango and Backwardation

May 29, 2011 – Comments (9)

Its widely realized that many ETFs and ETNs decay.  Fees may contribute to this, as may managers just sitting at a desk somewhere and hitting the bid or the ask on various things all day with no concern for the nickel in between.  After all, its not their money.   But there are two large fundamental causes for decay that outweigh these little things.  The first is the effect of contango/backwardation which affects many futures based ETFs and ETNs, primarily commodity and volatility types (USO, UNG, VXX, TVIX, etc.).  The second is the compounding/decay effect of daily, weekly, or monthly resetting of leverage on various leveraged ETFs.    [more]

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22

A date with the devil: peeking at VIX related ETFs and ETNs

May 27, 2011 – Comments (27)

Lets talk about a couple of those amazing, decaying, spiking, then decaying once again messes that are VIX related ETFs and ETNs.  It seems like every other article on seeking alpha has some hedge-fund-manager-wannabe recommending that people buy them.  Guys on Real Money Silver are long them.  Famous bloggers talk about them, they are considered by so, so many to be an "intelligent hedge".   After last summers fireworks, VXX has gained asort of following that just doesn't go away.  TVIX is like double-leveraged VXX, and I have seen this recommended here and there also.   [more]

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26

Why boxing is quite like investing

May 08, 2011 – Comments (9)

So a friend I have made over the last couple of years, and who has become one of my closest, was once an amateur boxing champion winning essentially all of his 60-odd fights by knockout as a heavyweight.  I've only known him for 2 years, but I have heard stories of fights outside of the ring and, despite him being about as mellow of a person as I have ever met, there are a couple of folks out and around who are leary of him.    [more]

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14

Random market thoughts + interior designers = bad

May 02, 2011 – Comments (2)

Its been a busy month or so since my last blog.  I bought a business (bar/grill) from a distressed seller (not due to the economy, due to a wife who apparently found out about some illicit behavior in the back room) for roughly 1.3x ebitda.  I don't know of any stock that cheap, and I do know a gentleman who is a friend, with a terrific work ethic, and experience owning a bar/grille (but no ability to attain a loan to buy one at the current time, as the banks are all but useless to the world around them).  So I bought it, and upon recouping the cost of buying he and I will be 50/50 partners.  It should be fun, its been in biz for 55 years.    [more]

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