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TQQQ: how to beat the market by disciplined leverage 來源: 價值投資者

(2025-05-02 04:04:30) 下一個

TQQQ: how to beat the market by disciplined leverage

 
 

In this article, I will show you a way to use leverage to generate extra return, or

alpha, to beat the market and  make extra money.  The key of this method are

two fold. First, the leverage is adjusted dynamically. That is, we will apply different

levels of leverage under different market conditions to maximize our return. The

second key is that the method will help us to stay disciplined. Discipline is

absolutely crucial for the use of leverage in the long run. As a result, the method

will help us generate consistent extra return on our money.

The dynamic adjustment is based on volatility, which is relatively easier to predict

than stock market returns. We will use the so-call VIX index, to measure the

volatility of the market.

And the idea is to leverage less when VIX increases. And vice versa, to leverage

more when the VIX decreases. As you can see from the blue curve.

In my portfolio, I just set the level of leverage to be inversely proportional to the

index. In practice, I also cap my maximum leverage at 25% as shown by the green

line. Of course, you can set a different maximum level that suite your own risk

tolerance level. The point is that you have to set a limit and you stay disciplined

within that limit. As already mentioned, discipline is absolutely crucial for the use

of leverage in the long run.

A diagram of a curveAI-generated content may be incorrect.

This idea of using more leverage when volatility is low has been thoroughly

discussed.

For example, you can see this following article. The title of the article is Alpha

Generation and Risk Smoothing using Managed Volatility.  And the authors is

Tony Cooper.  You can see discussions of the specifics of this idea and we won’

t further elaborated them here. Here, let’s just directly the results and how this

idea actually work.

A close-up of a documentAI-generated content may be incorrect.

A graph with a line and orange dotsAI-generated content may be incorrect.

This chart shows the performance of our leveraged model portfolio over 15 years

or so. The performance of the aggressive portfolio is shown by the blue line since

2006. And the performance of the overall market, the S and P 500 index, is shown

by the red line. As seen, the performance is compared during a 15-year period,

from 2006 to 2020 . And the leveraged portfolio outperformed the S and P 500

index most of the time. It really took off and began to dominate the S and P 500

index shortly after the 2008 great crash was over. In terms of dollar amounts, the

aggressive portfolio outperformed the overall market almost by more than 200%

in the past 15 years.

For readers interested in more details, the following YouTube video provides

more data and specifics:

https://www.youtube.com/watch?v=CJeppJCkBEs&t=11s

A graph showing the growth of a stock marketAI-generated content may be incorrect.

A pie chart with a number of stacksAI-generated content may be incorrect.

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