Official Shiny Things thread Episode V, The Empire Strikes Back

[revhappy]

Coming to Shiny Things thread after a long time. I expected to see discussions around ETFs and asset allocation. But there people are talkign about M2, Crypto and Options, what is happening here

 

[Shiny Things]

Coming to Shiny Things thread after a long time. I expected to see discussions around ETFs and asset allocation. But there people are talkign about M2, Crypto and Options, what is happening here

Ehh—things go into fashion, things go out of fashion. The good news is I still get a lot of folks reaching out to me saying "hey, I've been using your method for a couple of years now and it's working great!".

 

[Shiny Things]

In the earlier example below. Would you know in what circumstances should someone just exercise the put option (or auto exercise when it expire)? And in what circumstances would I sell the put contract (which I believe should be of a higher value) and earn the difference?

This is getting into university-homework territory, but you'd early-exercise an equity put when the time value of being able to invest the cash exceeds the time value remaining in the option. If you did that, you'd want to also buy back the call option so that you don't have a random short call floating around in your portfolio.

And you wouldn't sell the put option, though? The entire point of buying a collar is to hedge your underlying stock position, and if you sell the put option, suddenly you no longer have your hedge.

 

[revhappy]

Ehh—things go into fashion, things go out of fashion. The good news is I still get a lot of folks reaching out to me saying "hey, I've been using your method for a couple of years now and it's working great!".

Absolutely, I am planning to move back to India next year after living in Singapore for 15 years and I owe a big part of my financial independence and early retirement to you, because the whole journey started from this thread and I discovered passive index investing. Along the way, I gave up, did lot of mistakes, but eventually got back on track.

My networth is now about 50X of my India annual expenses + another small 5X allocated for one of things like like daughter's education. I have built up the stomach muscle to hold a high equity allocation(60%) now which was absolutely necessary if I had to have any chance at FIRE. Thanks again!

 

[DevilPlate]

Ehh—things go into fashion, things go out of fashion. The good news is I still get a lot of folks reaching out to me saying "hey, I've been using your method for a couple of years now and it's working great!".

Well if we goes into 10-20years secular bear market from here…..

 

[Listopad]

Ehh—things go into fashion, things go out of fashion. The good news is I still get a lot of folks reaching out to me saying "hey, I've been using your method for a couple of years now and it's working great!".

What are your thoughts on Dimensional world equity fund , versus the likes of VWRA ? Do you see value in allocating a portion ?

 

[snowblaze]

This is getting into university-homework territory, but you'd early-exercise an equity put when the time value of being able to invest the cash exceeds the time value remaining in the option. If you did that, you'd want to also buy back the call option so that you don't have a random short call floating around in your portfolio.

And you wouldn't sell the put option, though? The entire point of buying a collar is to hedge your underlying stock position, and if you sell the put option, suddenly you no longer have your hedge.

I see. I understand now. The objective of a collar is to hedge, and not to make money off the put option.
thank you!

 

[Shiny Things]

Absolutely, I am planning to move back to India next year after living in Singapore for 15 years and I owe a big part of my financial independence and early retirement to you, because the whole journey started from this thread and I discovered passive index investing.

Hey, I'm really glad to hear that! Congrats on making the move back, too - you've absolutely earned it.

Well if we goes into 10-20years secular bear market from here…..

If we go into a 10-to-20-year secular bear market from here, bonds are going to do fantastically well; ask anyone who was long Japanese government bonds from any time since the peak in 1989! That's why the strategy allocates to bonds.

What are your thoughts on Dimensional world equity fund , versus the likes of VWRA ? Do you see value in allocating a portion ?

Nah. I've banged on about this before, but Dimensional's schtick is just "index with a value tilt", and I don't think the value factor really works any more.

 

[funkypunk]

I just read something surprising : over 30 years gold has actually out performed sp500 (dividend reinvested) ?

Wasn't expecting gold to outperform over a 30 year period , or is there something inaccurate?

 

[BBCWatcher]

I just read something surprising : over 30 years gold has actually out performed sp500 (dividend reinvested) ?
Wasn't expecting gold to outperform over a 30 year period , or is there something inaccurate?

Let's take a look...

Gold Prices (USD per troy ounce, approx.)
August, 1994: $386
August, 2024: $2,500 (+548%)

S&P 500 Index (excluding dividends)
August 15, 1994: $461.23
August 15, 2024: $5,543.22 (+1,102%)

....Nope. Even without including reinvested dividends the S&P 500 Index has hugely outperformed gold over this time interval.

 

[funkypunk]

Yup great I thought that was the case , thanks!

I did see though last 20year was a lot closer , again much more than I expected.

 

[Shiny Things]

I did see though last 20year was a lot closer , again much more than I expected.

The 20yr lookback is definitely closer, though it's a little skewed toward gold, because 2004 was right near the start of gold's decade-long rip higher from 300 to 2000. 10- and 30-year lookbacks don't look nearly as good.

SPXTR (or SP500TR, at Yahoo Finance) is the SPX Total Return Index (which includes reinvested dividends), so you get a fair picture of the relative performance against gold (which doesn't pay dividends*).

SPXTR, end August 2004: 1629.83
SPXTR on Friday: 12132.48 (about a 7.5x)

Gold, end August 2004: $409/oz
Gold today: $2507/oz (about a 6x)

* there's technically a gold lending market, so you could get some yield from the shiny yellow rock if you wanted, but ETFs don't do this... and last I checked the yield on gold was basically zero anyway.

 

[BBCWatcher]

SPXTR (or SP500TR, at Yahoo Finance) is the SPX Total Return Index (which includes reinvested dividends), so you get a fair picture of the relative performance against gold (which doesn't pay dividends*).

I don’t think the SPX Total Return Index works due to dividend tax. If CSPX pricing data goes back far enough then that works (for residents of Singapore who aren’t U.S. persons), but I know it doesn’t go back 30 years.

 

[Shiny Things]

I don’t think the SPX Total Return Index works due to dividend tax. If CSPX pricing data goes back far enough then that works (for residents of Singapore who aren’t U.S. persons), but I know it doesn’t go back 30 years.

Yeah, it doesn't work exactly, but it's close enough for government work. The SPX div yield has been sub-2-percent since 1996ish, so if you lop off half a percent from the annual returns of the SPXTR you'll be in the ballpark for a 20-year horizon.

Anyone got a Bloomberg?

 

[RedsYWNA]

Good to see you back Shiny Things! Can I ask for your thoughts on investing in SPXS (LN) vs CSPX?

Personally I think the risk of default is rather remote, vs the potential withholding gains but just like to seek another opinion. Thanks

 

[Shiny Things]

Good to see you back Shiny Things! Can I ask for your thoughts on investing in SPXS (LN) vs CSPX?

Personally I think the risk of default is rather remote, vs the potential withholding gains but just like to seek another opinion. Thanks

OK, this took me a second to figure out. This is a real blast from the past. Long and short of it - I would never own swap-based ETFs like SPXS.

Both of these are S&P 500 index-tracking ETFs, but they get their exposure in very different ways. CSPX is a normal "physical-replication" ETF, that works by just owning the stocks in the S&P 500, which is what you'd do if you wanted to replicate the S&P 500.

SPXS, and other "swap-based" ETFs, get their exposure by not owning the stocks in the S&P 500. They own a bunch of random stocks, and then a "total-return swap"—a derivative contract with a bank that swaps the returns of that bunch of random stocks for the return of the S&P 500. (For example, SPXS owns mostly US stocks, but also a lump of Chinese, Swiss, and Swedish stocks.)

Normally, this works fine - owners of SPXS get the return of the S&P 500, give or take a little extra. Where it falls over is: what if the swap counterparty goes bankrupt? Instead of having "a bunch of stocks plus a total-return swap", you now have "a bunch of random Chinese, Swiss, and Swedish stocks", which is not what you thought you owned!

You might think "nah that doesn't happen", but it does. In 2008 (and even in 2011, if memory serves), a lot of swap-based ETFs started trading wildly away from where they "should" trade, because they had swaps with counterparties that were suddenly looking shaky. Folks who owned physical-replication ETFs were fine.

Anyway, long and short of it, I think swap-based ETFs are a terrible idea, because they break down in very unexpected ways when markets are stressed. And when markets are squirrelly, that's the last thing you need.

 

[RuiQi_91]

Hello, the current simple strategy for beginners is to allocate (110 - age) into stocks, with the remainder in bonds. For the stock portion, we are advised to split it 50/50 between STI and VWRA, with the reasoning being that it protects us against volatility. However, since VWRA has historically provided higher returns and investing over a period of 2-3 decades makes us less vulnerable to short-term volatility, I’m wondering if it’s okay to invest everything in VWRA instead?

I'm not trying to be overly ambitious and ignore the risks. I was just curious about it after reading through the thread here.

 

[highsulphur]

Hello, the current simple strategy for beginners is to allocate (110 - age) into stocks, with the remainder in bonds. For the stock portion, we are advised to split it 50/50 between STI and VWRA, with the reasoning being that it protects us against volatility. However, since VWRA has historically provided higher returns and investing over a period of 2-3 decades makes us less vulnerable to short-term volatility, I’m wondering if it’s okay to invest everything in VWRA instead?

I'm not trying to be overly ambitious and ignore the risks. I was just curious about it after reading through the thread here.

i would say it is ok to totally ignore STI although for me it still forms about 1/3 of my equities with 2/3 in IWDA/ISAC. There is solution that fits all. The key issue is to be disciplined in DCA regularly into the broad equity ETF that you chose

 

[Meemoosaa]

Hi everyone, I have some VWRA for a number of years which I believed is of accumulating dividends in nature. While I have a slight understanding of what that means I suspect I may not be getting the full picture yet.

I'm wondering how and where can I check the actual dividends that are being allocated to me ? I've combed through the IBKR app and even looked up online instructions but the dividend report always turns up empty.

While accumulating dividends means those dividends are reinvested back into the stock, isn't there a way to track what amount those dividends are at all ? Thanks in advance.

 

[BBCWatcher]

While accumulating dividends means those dividends are reinvested back into the stock, isn't there a way to track what amount those dividends are at all ? Thanks in advance.

You can look at the fund manager's reports, for example this one.