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RVAspeculator (28.01)

Ultrasuck = 99.20% ranking, 1074 points and 71% accuracy.

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April 05, 2009 – Comments (6) | RELATED TICKERS: SU , C , K

If you haven’t been following UltraSuck, all I did is short all of the ultra ETF’s (short and long) in equal proportion. 

You can see that profile here:
http://caps.fool.com/player/ultrasuck.aspx

I made sure I only red thumbed ultra shorts that had corresponding ultra longs that I could also red thumb.

Just short of 3 months and the portfolio is already at 1074 points, 71% accuracy and has an average pick score of +10.75.

Not too bad on a portfolio that is supposed to be “market neutral”.

I said in my post on March 1st that:
“If the S&P overtakes the level it was at on January 20th 2009, Ultrasuck will surely be in the 99th percentile as this same phenomenon will work in reverse  (in favor of Ultrasuck).”

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=153985&t=01001808419327792238

Quite a few folks doubted that this would be true but as of the close on Friday we are back to the level of January 20th  (842) and as you can see it has worked EXACTLY as expected.

The reason I am posting this now is I am starting to get bearish on the stock market again at these levels and I have been selling longs over the last week, trying to book all the profits I can before we roll back over.

I wanted to point out on how well this ETF decay experiment is working before the S&P gets back below today’s level and makes it LOOK LIKE it is underperforming again because of the way that CAPS scores.

Hopefully the UltraSuck portfolio has proven to you what a TERRIBLE investment these Ultra ETF’s (both long and short) really are…  I am sure most of you already knew this but UltraSuck should really hammer home the fact that these are DAY TRADING VEHICLES that should not be held for more than a week or two, tops! 

These ETF's are destroying more wealth than Jim Cramer and Abby Joseph Cohen combined!

PS:  It is going to be funny to me when both FAZ and FAS are trading for less than $5 at the same time.  Part of me wishes I would have only used the triple ultra’s as these guys are all heading to zero at a more amazing rate than the double ultra's are...

6 Comments – Post Your Own

#1) On April 05, 2009 at 6:17 PM, CapStockInvestor (24.56) wrote:

Ultra short/long funds use options to leverage. Options deminish value over time. There is a lot of fees for these ETFs because there's not enough volumn.

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#2) On April 05, 2009 at 7:03 PM, RVAspeculator (28.01) wrote:

I say a bunch of these are going to have to do reverse stock splits...   LOL

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#3) On April 05, 2009 at 8:55 PM, arboretum (27.64) wrote:

I've also been hosed by these funds. In addition to the volatility and time decay (which I was aware of before I started), people also need to beware of very nasty tax consequences.

I have failed in trying to come up with a way of making money out of their inevitable decline. Short selling them is somewhat foolhardy.

However, you're wrong that they are destroying wealth. They are merely transferring it, mostly from chumps with starter accounts that read drivel like much of that on this site to our old friends on Wall St. Or in my case to the IRS.

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#4) On April 06, 2009 at 8:39 AM, pj19 (< 20) wrote:

What are the tax consequences?

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#5) On April 06, 2009 at 9:26 AM, GraemesPSP (99.77) wrote:

Regarding the tax consequences, I got totally screwed by the ProShares ETF's.  The problem was actually due to someone not doing their job properly, normally these things are structured to only pay out minimum dividends.  However someone, who no doubt hasn't even lost their job, slipped up badly, and as a result they paid out *Unannounced* dividends of, in many cases, 50% or more of the share prices.  With about 10% of my portfolio at the time in these ETF's, and since I had to pay a withholding tax of 35%, I lost almost 4% of the value of my portfolio due to their screwup.  Not very happy at all about that.

 

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#6) On April 06, 2009 at 9:34 AM, GraemesPSP (99.77) wrote:

Regarding the Ultra ETF's, I am running a slightly different version of your hedge in my real life portfolio.  I am long the 1x Short ETF and short (half) the 2x (Ultrashort) ETF.  Because of the volatility decay (which is the main reason these underperform) this strategy makes a decent, almost risk free arbitrage.  The only caveat is you need to have a portfolio margining account and pay a low interest spread, since with only a normal 2x leverage margin or with a high interest rate spread you can't make enough from arbitrage for it to be profitable.

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