Patience to Invest

BITO instead of Bitcoin!

February 13, 2023 by Patience to Invest, posted in Uncategorized

I am buying BITO instead of Bitcoin – in certain scenarios! I have about $2,000 in a Roth IRA that is unallocated. These funds are located in an account at Interactive Brokers (IB). Though IB does allow for cryptocurrency trading it doesn’t allow for it inside a Roth IRA. I obviously don’t want to withdraw the funds from my IRA to then buy Bitcoin because of the tax consequences. Of course, if I was preparing to evade a tyrannical government or something real Bitcoin may be beneficial to buy by withdrawing the funds early.

So far BITO a fund that uses Bitcoin futures to track the Bitcoin prices has performed very well. Sure it is down drastically since it started, but it is matching the price of Bitcoin very well as you can see in the image below or so it seems.

Bitcoin Scenario

Let’s just imagine that Bitcoin does crazy good and it does achieve a market cap equal to gold’s current (not future) market cap. That would equate to a Bitcoin price of about $300,000. If that were to happen then a $2,000 investment in Bitcoin now would grow to about $27,878. If I held that in true bitcoin with no annual fee etc. I would likely have to pay capital gains tax on a roughly $25,878 gain if I ever want to spend it. That could easily lead to a tax bill of about $5,175. So my $2,000 would grow into only about $22,700 in spendable money.

Fake Bitcoin Scenario

So far BITO has been in existence since October, 19th, 2021 and has a return of -67.70% compared to Bitcoins -66.46%. If you do the match this actual equates to about a 2.81% annualized drag on BITO that doesn’t exist if you hold actual BTC. Let’s take the case of the BITO investment in a Roth IRA and assume it takes about 20 years for Bitcoin to grow to a price of $300,000.

If Bitcoin goes to $300,000 over the next 20 years that is an annualized growth rate of 14.07%. However, if you hold something like BITO that means you also have an approximately 2.81% annual drag resulting in only about 11.3% growth per year. So a $2,000 investment would only grow to about $16,899 in a Roth IRA even with zero tax. That is much lower than the investment in actual Bitcoin held outside of an IRA. Also, if Bitcoin fails there is no chance in the Roth IRA to write off the loses. Taxes matter, but so do fund fees and expenses!

When does the Roth Win?

The Roth might win if an investor is utilizing an active strategy such as buying during uptrends and selling during downtrends. In those methods the investor would have to pay considerable taxes assuming there were gains outside an IRA. This is why I do intend to buy BITO within the Roth. Of course, if IB makes actual Bitcoin available inside the Roth I will likely switch to it or an ETF with less drag. I plan to use this investment as an active allocation and focus my buy and hold efforts outside of a Roth IRA.

Whatever investments you do, you must consider the taxes, expense ratios, and investment duration when considering what is actually the best option. If you want to see how I manage my own Roth IRA please view the information below. Until next time!

bito-effective-cost calculations Download

See my Brokerage Accounts

In addition to this blog you can follow my live brokerage accounts anytime. The three links below will take you to a third-party website called collective2 where I record and publish my personal trading decisions. If you have questions let me know!

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

This is not investment advice. This website is designed to talk about investments but it is not designed to give you personalized investment advice. This site is generic and should not be used as the basis for any investment decisions. This is for entertainment and educational purposes only.

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Sick of Losing Money

February 8, 2023 by Patience to Invest, posted in Uncategorized

I am really sick of losing money as an investor. It is terrible. It has been a horrendous 14 months or so. Unfortunately, when I look at historical data my interpretation is that sticking with the set of algorithms I have now is my best bet at long term high growth. Obviously, I anything could happen. It is tempting to switch to some set of metrics that would have had a good return over the last 14 months. However, most things I test that would have a good return over the last 14 months do not have good returns over the last 14 years etc.

So all I want to acknowledge today is that it really hasn’t been fun these last 14 months. However, by my analysis that is just a part of how these things do work. If I want something that works over the course of many years I can’t just switch to something that happened to work last year etc.

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

TopChasing

February 6, 2023March 3, 2023 by Patience to Invest, posted in strategy of the week

This week the strategy of the week was TopChasing which if I am going to be honest is highly suspicious to me. The total return at the time of the email was 474.8%. However, the vast majority of that growth occurred with trades that were purely hypothetical.

For more resent trades on this strategy you can see that they were copied in real brokerage accounts because you can find these little orange symbols as shown below.

Live Brokerage Account Trades

Not Live Brokerage Account Trades

If you go further back in the trade record of this strategy TopChasing you can see that the trades that occurred in the months that had the massive growth were not based on live trades. Furthermore the trades that took place to get these massive returns tended to focus on one or two stocks and involved doubling down into very concentrated positions. That may make sense as a part of your overall strategy. However, I would certainly not subscribe to this strategy and expect these returns to continue. Notice how the most profitable trade as shown below was not based on live trading and involved a great deal of doubling down which can often lead to catastrophe.

Recent Performance is Marketing

When someone promotes performance over such a short period be very cautious.

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

1950s Leveraged Bond ETFs!

February 3, 2023 by Patience to Invest, posted in Uncategorized

In some recent work I have been attempting to better model how a leveraged ETF might have performed back in the 1950s and beyond. Most leveraged bond ETFs like TYD didn’t start until around 2009 as far as I am aware. Now obviously no matter what happened in the bast that isn’t indicative of what will happen in the future. However, I do find it helpful to use history as a teacher.

IEF Recreation

The first step was to mimic IEF. This is more difficult in my opinion than mimicking the S&P 500 since I wanted to use inputs that would go really far back into the future such as the 10 year treasury yield. Unfortunately, this fund is made up of a blend of 7-10 year treasuries. Regardless we can see that simply by taking the 10 year treasury yield and doing the proper bond calculations we can get a curve that is very close to the actual performance of IEF with dividends reinvested. I used the dividend adjusted values from tradingview.com for my inputs.

TYD Recreation

TYD is essentially a daily 3X version of IEF. It was started later, but we can see that for this particular period we can get a pretty close match simply by assuming no fees except for assuming a drag equal to 1 times the federal funds rate at that time.

Fee = 1X Federal Funds Rate

Fee = 2X Federal Funds Rate

Fee = 3X Federal Funds Rate

Best Way to Mimick TYD

To the best of my ability to tell the best way to mimic TYD for backtesting purposes is to assume a drag/expense of about 1X the federal funds rate at the time. It is hard to say for sure if this is accurate, but over this period it certainly gives the closest match to actual TYD. I don’t know exactly how leveraged ETFs are able to keep the costs this low, but so far it seems that they are. Part of me wonders if it could be offsetting swaps with short ETFs. For the most part you are then just matching investors and charging a small fee. I will continue to investigate what they are doing internally, but as of now this is a positive sign to see these funds doing so well at managing costs. It is certainly possible that this method only works in the period I have to compare to and that in other periods it is a terrible model. Regardless, I think it is interesting.

Full History Synthetic TYD

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Synthetic UPRO and SSO

February 2, 2023 by Patience to Invest, posted in Uncategorized

In an effort to better model how higher rates may affect leveraged ETFs and their ability to obtain low cost leverage I have been doing some backtesting for periods before and after the inception of SSO and UPRO. I have done this before, but am using a different method. Rather than assuming a roughly fixed cost for leveraged ETFs to obtain financing I am using the Federal Funds Rate plus a buffer. I imagine this would be a better simulation for environments with different borrowing costs. The method of calculation holds up very well over the periods that UPRO and SSO actually existed.

Synthetic UPRO (3X S&P 500 ETF)

Synthetic SSO (2X S&P 500 ETF)

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Leveraged ETFs and Financing Costs

January 28, 2023January 28, 2023 by Patience to Invest, posted in Uncategorized

I have been having this discussion about how much rising interest rates will change the ability of leveraged ETFs to track their target benchmarks etc. Below is a chart summarizing some of the results.

In blue we have a curve showing the actual ADJ closing prices for UPRO.
Green shows starting with the closing price of UPRO on the first day. Then follows the growth of the SPY ADJ close returns for each day multiplied by 3 with no additional costs subtracted.
Orange shows the same as green but includes a consistent fee that was needed for the period to have the orange curve end with the same ending price as UPRO ADJ actual. The annual fee needed was 2.46033450515858%
Black uses the same format but instead of the fee needed to match it uses 2 x the cost implied for leverage using futures prices and the current S&P 500 dividend.
Red uses 2X EFFR as the fee.
The interest rates and dividend rate of S&P 500 are also graphed for reference.

So far it seems as though for my purposes neither method shows a large difference in results except over long period of course. However, for the sake of backtesting during the ultra high interest rates the Fed reached in the 70s/80s a method such as the EFFR could be useful since the futures data doesn’t go back as far.

You can see the data I used here.

leverage-drag-change-with-fed-funds-rate Download

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

It’s Dead Jim…

January 17, 2023January 17, 2023 by Patience to Invest, posted in Uncategorized

Have you ever hear someone say something along the lines of “XYZ investment is dead/broken” only to see that investment/strategy recover shortly after. After the terrible returns of the stock and bond markets combined this last year I have seen numerous people act as though a balanced portfolio or investing in a mix of stocks and bonds is broken – as though you would be throwing money in a fire if you ever tried that again.

This is a natural reaction to drawdowns. It is painful to lose money. However, as a long-term investor I see it quite a bit differently. Just as a portfolio of stocks can drop in value then recover later a portfolio that is a mix of stocks and bonds can drop and recover later. There is no reason to abandon an investment or strategy simply because it is down in price. It should only be abandoned if the decline in price is a symptom of a true lasting problem. It works the same in reverse too. For example, if GameStop stock rockets up in price but the company’s actual sales and profit don’t increase then it is a fickle price move. It may be a big move, but it is without good reason. Likewise a drop in value that isn’t tied to a permanent problem will likely recover. Just as GameStop stock price has recovered back towards it’s business fundamentals.

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

Lazy Trader

January 12, 2023 by Patience to Invest, posted in Uncategorized

This morning I set my alarm for 7:15 local time because I wanted to be up in time to watch how the market moved in reaction to the CPI report. First, I have to apologize to my wife because I hit snooze an unloving amount of times. Then I woke up and saw the market had responded positively. I could feel my emotions get a little lift. Then as time progress the market dropped and I felt like I had really missed out as TMF was down while SVIX was up. I had swapped these just the other day making it much more frustrating. I then went to my office to get some work done. I did a bit of work then went to setup a tab to stream a video game I play called Overwatch 2. I did this just because there is a little in game reward for streaming the game.

I then proceeded to also play Overwatch 2 for about 5 hours or so – on and off while working. I probably only did about 3 hours of solid work so far today and about 5 hours of Overwatch. Now the work I did wasn’t trading. It was backend paperwork, taxes, clients, etc. I mostly only trade once a day except for some paper trading accounts and some goofing around money.

Anyways, despite being down about 1% this morning. After ignoring it and stepping away, I think it was better for my stress and the day ended up about 3% – as of now. In fact as of now TMF is doing a bit better than SVIX.

It is easy to let up days make you too happy and down days make you too sad. The truth is I want to do better about not letting it affect my mood. Regardless it is nice to win a day especially after such a hard year in 2022.

See my Brokerage Accounts

Retirement Account #1:Patience is a Virtue

Retirement Account #2: My Roth IRA

Paper Trading Account #3: Leverage and Patience

Disclaimer

The owner of PatienceToInvest.com is also a trade leader on Collective2.com. We may receive compensation by promoting some collective2 strategies over others.

Investing is risky and can result in the loss of all your capital and even more than your original capital in some cases.

CPI SPOT ON

January 12, 2023 by Patience to Invest, posted in Uncategorized

Today the CPI report was mostly spot on with expectations. So what did the market do? It went up, then down, then up, then down, and who knows what it will do next. Even if you could know the CPI report ahead of time I think it is unlikely that you would be able to really beat the market. As traders we must remember that even if you know the news – which you don’t – you don’t always know the reaction. Obviously, knowing all news early could help some – especially for surprise events like volpocalypse. If you fool yourself into thinking you know what the news will be, don’t fool yourself into thinking you know what the reaction will be.

Ethereum Touches 200 Day SMA

January 11, 2023 by Patience to Invest, posted in Uncategorized

Today Ethereum touched its 200 day moving average. The 200 day and 50 day SMA are also currently in a slight uptrend. Obviously, anything could happen. However, if we get a bar close above the 200 day SMA I believe this would be a piece of evidence for some bullish movement.