I have daily closing values for the Latin America 40 Index dating back to October 2001. This data has helped me to realize jsut how much LBJ can rise. I wanted to analyze older data but I don't even know whether it is available. However, I was able to access monthly closing values for the MSCI Latin America Index dating back to 1988. (The annual returns for the MSCI Latin America Index have been very similar to those of the Latin America 40 Index since 2001, so I am going to assume that the returns would have also been similar dating back to 1988.)
This is a listing of annual returns for the MSCI Latin America Index between 1988 and 2010:
Between 1988 and 2010, the total return of the MSCI Latin America Index was 9,419.6%, an annualized gain of 21.9% per year. However, as one can see from the returns shown above, the average return during years during which the MSCI Latin America Index rose is value was much higher than 21.9%.
A 3x ETF would have soared in value during the following time periods: (a) 1988-1989 (the MSCI Index gained 180%), (b) 1991-1993 (the MSCI Index gained 335.8%), (c) 1996-1997 (the MSCI Index gained 60.87%); (d) 1999 (the MSCI Index gained 58.89%); (e) 2003-2007 (the MSCI Index gained 688%); and (f)2009-2010 (the MSCI Index gained 134.59%).
A 3x ETF would have also crashed during these time periods: (a) 1998 (the MSCI Index lost 35.108%); (b) 2000-2002 (the MSCI Index lost 35.55%); and (c) 2008 )the MSCI Index lost 51.28%).
A 3x ETF tracking the MSCI Latin America Index would probably have lost 90% or more of its value during each of the crash periods listed above. However, a 3x ETF tracking the same Index would have provided massive returns possibly in excess of 1000%. The period between 2003 and 2007 might have generated returns in excess of 5000%.
I am going to keep investing in LBJ waiting for the next bull market phase in Latin American equities. I have no doubt that this will eventually happen.
Looking at just the year end movement of the MSCI Index can be very misleading. The 3X counterpart can look very different depending on the path the Index took to get there. As an example, let’s say the Index starts at $10 and ends the year at $13, that’s a 30% increase. But let’s say it got there in 2 different paths (using a 4 day year for simplicity and rounding numbers):
Day 0: $10
Day 1: down 10% to $9
Day 2: down 10% to $8
Day 3: down 20% to $6
Day 5: up 100% to $13
Day 0: $10
Day 1: up 10% to 11
Day 2: up 10% to $12
Day 3: up 20% to $14
Day 5: down 10% to $13
Now look at the 3X results, assuming LBJ started at $10 also:
Day 0: $10
Day 1: down 30% to $7
Day 2: down 30% to $5
Day 3: down 60% to $2
Day 5: up 300% to $8
Day 0: $10
Day 1: up 30% to 13
Day 2 up 30% to $17
Day 3 up 60% to $27
Day 5 down 30% to $19
So what is your evaluation of how to trade/invest in LBJ?? I see your numbers and agree with your point. Lots of volatility, lots of risk if holding long unless you have some hedge.
I see this position as more for day trades or for holding periods less than 30 days. Take your gains and wait for the position to come back to support and buy again.
One strategy is to purchase equal dollar amounts of LBJ at the end of every month for the first year and then re-balance each monthly purchase to the original investment value exactly 12 months later.
For example, purchase $10k of LBJ on 3/31/11 and re-balance that position on 3/31/12 by either buying or selling shares so that the value of the position of 3/31/12 is $10k. Do the same thing for February, January, April, etc.
Yes, LBJ is very volatile and can quickly drop 20% or more in a matter of mere days. LBJ would have lost about 97% of its value during 2008 if it had been in existence at the time and tracked exactly 3x the daily movements of the Latin America 40 Index. However, LBJ also has the ability to rise very quickly as well. Even if some of the 12-month positions lose value, many more will gain value. If you implement this strategy for a sufficient;y long period of time, you can make a substantial amount of money over time.
I reread one of your earlier post regarding your strategy, not for the faint of heart but I see the merits. Especially if you monitor your position closely. That 2yr chart comparison is revealing.
Good luck to you. Traders say the concept of "averaging down" is a way to lose all of your money. They never add to losing positions, never. LBJ is a trading vehicle, not designed to be held for longer periods of time, six months would be considered a long period of time. Good luck with your theory.
I am not some foolish trader who thinks he can look at a chart and tell you where the price of LBJ is going based on trading volume or some b.s. like that. I am telling you that LBJ will trend higher at some point and anyone who has established a position in LBJ will make some serious cash. The key to making money on LBJ is to make periodic investments. Anyone who thinks he is going to purchase shares of LBJ one time and then sell a couple months later at a much higher price is taking a big risk. In my opinion, the key is to spread investments over time.