# Inverse ETFs - good idea for the time being?



## Moneytoo (Mar 26, 2014)

"Yet a third option is to bet against the market, and there are ETFs that can help you do that. The most popular ones are the**Horizons Betapro S&P 500 Inverse ETF*(TSX: HIU) and the*Horizons Betapro S&P/TSX 60 Inverse ETF*(TSX: HIX)*, which allow you to bet against U.S. and Canadian stocks, respectively."

http://www.fool.ca/2014/04/11/canadas-warren-buffett-predicts-coming-pain-for-investors

Thinking to buy some for my Couch Potato Portfolio (to offset the dropping Index Funds) - would love to know if anybody's doing the same (or why it's not a good idea )


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## GoldStone (Mar 6, 2011)

Terrible idea. You will be paying fees to be long and fees to be short. That's two sets of fees to be market neutral. Go to cash if you have an urge to time the correction.


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## Moneytoo (Mar 26, 2014)

Would it be a good idea for a mostly cash account?


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## GoldStone (Mar 6, 2011)

You said you have a couch potato portfolio. It doesn't matter how it's spread across the accounts. It's one pot of money.


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## Moneytoo (Mar 26, 2014)

I have a couch potato portfolio in my RRSP account, but my husband has 100K+ cash in his - and doesn't want to buy anything at the moment because 1) the prices are too high and 2) believes there'll be a 10-20% correction.

We are both 45, so have 20+ years to invest before we'll need the money for retirement. I like risking, he doesn't


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## MRT (Apr 8, 2013)

seems like a risky and expensive (1.15% MER on HIU) choice to compliment a couch potato portfolio whose entire raison d'etre is to avoid this type of market timing, no?

if you think (since no one knows) there is an imminent and significant correction coming, wouldn't the more prudent bet be to stash that cash in a HISA until the drop, then add to your index funds at the lower prices? At least your 'bet' is then restricted to withholding the cash from being currently deployed in the CP portfolio.

Forgoing the interest earned in the HISA, while also paying the inverse ETF's fee, is a fair swing in *guaranteed* return on that cash...all for what amounts to a gamble. IMHO, not a great idea in the first place, but particularly not a good compliment to a CP portfolio, IMHO.


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## GoldStone (Mar 6, 2011)

Moneytoo said:


> I have a couch potato portfolio in my RRSP account, but my husband has 100K+ cash in his - and doesn't want to buy anything at the moment because 1) the prices are too high and 2) believes there'll be a 10-20% correction.


No matter how you slice and dice the accounts, it's a common pot of money that belongs to the family (just ask the divorce lawyers). It doesn't make sense to be long in your account and short in his account. The combined position is market neutral. 



Moneytoo said:


> We are both 45, so have 20+ years to invest before we'll need the money for retirement. I like risking, he doesn't


If he doesn't like "risking", inverse ETFs are definitely out.


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## Moneytoo (Mar 26, 2014)

MRT said:


> seems like a risky and expensive (1.15% MER on HIU) choice to compliment a couch potato portfolio whose entire raison d'etre is to avoid this type of market timing, no?
> 
> if you think (since no one knows) there is an imminent and significant correction coming, wouldn't the more prudent bet be to stash that cash in a HISA until the drop, then add to your index funds at the lower prices? At least your 'bet' is then restricted to withholding the cash from being currently deployed in the CP portfolio.
> 
> Forgoing the interest earned in the HISA, while also paying the inverse ETF's fee, is a fair swing in *guaranteed* return on that cash...all for what amounts to a gamble. IMHO, not a great idea in the first place, but particularly not a good compliment to a CP portfolio, IMHO.


I'll try to explain the reasoning (although I understand that it's flawed). I just learned about the Couch Potato strategy less than a month ago, and purchased TD Index Funds to give it a try. I don't want to sell them now (because they already fell below book value - plus I'll be paying an early redemption fee - and I do want to keep them long term). 

I have some extra cash that I can deposit into my RRSP now (was planning to use it to open a TFSA, but that can wait) And thought that buying Inverse ETFs for the short term (and then selling them and buying more Index Funds after the correction is over) would help me keep zero balance for now.

Yep, trying to time the market - a typical rookie mistake - but hard to resist the urge...


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## Moneytoo (Mar 26, 2014)

GoldStone said:


> If he doesn't like "risking", inverse ETFs are definitely out.


Yep, you're right - he said he's not ready to bet on his belief in market imminent correction, so he'd rather keep cash for now and buy a Couch Potato recommended ETFs "later". Still doesn't make sense to me, but I already rushed with my decision (by purchasing Index Funds a few weeks ago) - so maybe he's the smarter one 

Thank you for your advice!


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## james4beach (Nov 15, 2012)

No, this is a bad idea. These are day trading vehicles only. They are *not* meant to be used to take medium or long term positions against the index direction.

Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion. These vehicles are well known to have problems... it's complex

Don't hold them any longer than a few days.


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## Squash500 (May 16, 2009)

james4beach said:


> No, this is a bad idea. These are day trading vehicles only. They are *not* meant to be used to take medium or long term positions against the index direction.
> 
> Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion. These vehicles are well known to have problems... it's complex
> 
> Don't hold them any longer than a few days.


 Excellent post James.


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## Moneytoo (Mar 26, 2014)

james4beach said:


> Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion.


Oh well, maybe website where I read this article is called fool.ca for a reason - or I'm just not ready for their advice  Entered my email to "discover 1 top Canadian stock for 2014 and beyond!" (turned out to be Enbridge) - and got a letter in my Inbox soon after:

"...and today, you can become a Stock Advisor Canada member at a savings of 50%!

You'll get an entire year of our Stock Advisor Canada "Best Buy Now" picks from The Motley Fool's analyst team for just $149. Again, that's a savings of 50%!"

Thank you for the warning!


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## liquidfinance (Jan 28, 2011)

Motley Fool does have some good articles. 

Generally you will see a for and against. So one day you may see the article to consider an inverse ETF as a hedge. The next day you may get a compelling article as to why it is best avoided.

Like everything you can use the sites as a foundation for further research. Read the prospectus. Understand how it works and what you are paying for.


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## Moneytoo (Mar 26, 2014)

liquidfinance said:


> Generally you will see a for and against. So one day you may see the article to consider an inverse ETF as a hedge. The next day you may get a compelling article as to why it is best avoided.
> 
> Like everything you can use the sites as a foundation for further research.


Well, they mostly recommend (or advice against) individual stocks, which I'm not ready to buy just yet  But I did notice the descrepancies: in their "1 Top Stock" (Enbridge) article it says:

"*The dividend yield stands at 2.9%*--which might not seem terribly high--but look at the history of dividend increases, and you can see the trajectory."

But in another article Envridge is #3 out of "three less risky stocks" - with less dividend:

"And while they wait, *investors in Enbridge are also treated to a 2.75% dividend* that keeps creeping up annually."

google says it's 2.74... and I can't help it but start noticing "Welcome Fool | Log in" in the top right corner


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## GoldStone (Mar 6, 2011)

liquidfinance said:


> Motley Fool does have some good articles.


I find most of their articles to be on the shallow side. They churn them out to sell ads and pitch their subscriptions. Quantity over quality.

Morgan Housel is the only Fool author who I find worth reading:
http://www.fool.com/author/1611/index.aspx


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## Squash500 (May 16, 2009)

MT IMHO with regards to finance, you're going to find that if you ask 1000 different financial people what to invest in, you're going to basically get 1000 different opinions--LOL.

MT I would highly recommend you read this book. It's really helped me.

http://www.goodreads.com/book/show/13104016-count-on-yourself


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## Moneytoo (Mar 26, 2014)

Squash500 said:


> MT I would highly recommend you read this book. It's really helped me.
> 
> http://www.goodreads.com/book/show/13104016-count-on-yourself


Read a sample. Too many personal details, as for my taste - and if I wanted to read someone else's life story, it'd have to be more interesting than that 

"For me it was three strikes and you're out with advisers. At that point I resolved to count on myself."

For me it was one strike... lol


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## warp (Sep 4, 2010)

james4beach said:


> No, this is a bad idea. These are day trading vehicles only. They are *not* meant to be used to take medium or long term positions against the index direction.
> 
> Any article or advisor suggesting someone uses these to do anything other than day trading is being negligent, in my opinion. These vehicles are well known to have problems... it's complex
> 
> Don't hold them any longer than a few days.


This is absolutely correct.

These "inverse" ETF's are NOT to be held for any length of time. They DO NOT mirror the movements of an index if it indeed goes down. You are not alone, many people made this assumption when they first came out, only to find they lost money on them even as markets tanked.

This is because they are "re-set" every day. As James said...they should be used ONLY for very short term trading.....

Beware...which brings up another very valid point...if you do not understand something, you should not be investing your hard earned money in it.


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## Moneytoo (Mar 26, 2014)

warp said:


> Beware...which brings up another very valid point...if you do not understand something, you should not be investing your hard earned money in it.


Thank you - and thanks to all who recommended People Trust's 3% TFSA (I read all current and some older threads, and saw it mentioned quite a few times) Discussed it with my husband, agreed to open (and max out) his TFSA account with them - and keep it as a short-term thingy (in case we need the money within 5 years)

And I'll save some more (and learn some more) before opening mine (with TD Waterhouse, where our RRSPs are) later this year - and hopefully will have a better idea what to buy then (mine will be a riskier long-term solution)

In the meantime, if correction happens, I'll just buy some more TD Index Funds in my RRSP - as this is what rebalancing should be about, I hear it now 

Thanks to all!


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## Squash500 (May 16, 2009)

warp said:


> This is absolutely correct.
> 
> These "inverse" ETF's are NOT to be held for any length of time. They DO NOT mirror the movements of an index if it indeed goes down. You are not alone, many people made this assumption when they first came out, only to find they lost money on them even as markets tanked.
> 
> ...


 These inverse ETFS are only good if the [email protected] 500 goes down (for example) three days in a row. Then you can make some good money. You would then sell your position sometime during the third down day.


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## Pluto (Sep 12, 2013)

Moneytoo said:


> Yep, trying to time the market - a typical rookie mistake - but hard to resist the urge...


The real rookie mistake would be something like shorting the market in March 2009. At least you are in the ball park by considering the idea when the market is overvalued, so you are far ahead of the real rookies. Too, I'd like to point out that everyone who buys stocks does so on the belief that they will go up, and no one buys if they think stocks will go down, so everyone who buys is implicitly timing the market - even if they say they are not. You are just working on being more precise, compared to the average buyer, and there is nothing wrong with that. That's not a rookie mistake, that's smart. 


Did you consider shorting it on paper (IE. not with real money) and keep a diary of your reasoning. For instance you might try, on paper, a different vehicle, such as puts on index etf's. 

Its too early to short in my view, as there is no confirmed downtrend. The up trend is merely stalled for the time being, and no one knows if it will resume upward after this wee sell off. I suspect that when the major indexes fall below their 270 day ma, a significant down trend will follow. That cross below the ma is a better time to go short. 

Although the S&P went up over 30% last year, making everyone happy, its earnings went up less than 1%. Its floating on air, and a common sign of the air coming out, is a fall below the 270 day ma, but it could be some months or even a year before that happens. In the meantime, the future returns on stocks are low, so why not stay in cash until the projected returns are higher?


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## Moneytoo (Mar 26, 2014)

Pluto said:


> *Its too early to short in my view, as there is no confirmed downtrend. *The up trend is merely stalled for the time being, and no one knows if it will resume upward after this wee sell off. I suspect that when the major indexes fall below their 270 day ma, a significant down trend will follow. That cross below the ma is a better time to go short.


Read the same opinion last night: 

This is not the start of a market correction

"He believes that a correction of 10 per cent to 15 per cent is coming - but probably not until the fall, when the U.S. Federal Reserve ends its bond-buying program and investors start to anticipate the first interest-rate hike."

So looks like I have some more time to read and learn... thank you for your points!


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## james4beach (Nov 15, 2012)

Pluto said:


> I'd like to point out that everyone who buys stocks does so on the belief that they will go up, and no one buys if they think stocks will go down, so everyone who buys is implicitly timing the market - even if they say they are not. You are just working on being more precise, compared to the average buyer, and there is nothing wrong with that. That's not a rookie mistake, that's smart


Pluto these are wise observations. And you're right, people are timing the market all the time while pretending that they aren't. I've been an active market speculator in the past who goes both long and short and the way I see it, we're all speculators... the guy who uses a stock-heavy couch potato portfolio, for example, is betting on a perpetual bull market.

I don't have any problem with someone who believes that stocks will go down. But I have a problem with the inverse ETFs in general. These are not good vehicles for taking long term bets on stock declines. They fail to track long term movements because they're not designed to do this.

As far as I know, there are only 3 viable ways to make a long-term bet on declining stocks
1. Stay heavy in cash/bonds/GICs
2. Short an index ETF outright
3. Buy a long duration put option on index ETF

I'm also bearish on stocks, and I choose method #1 which I think is the lowest risk way to make this bet.


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## jcgd (Oct 30, 2011)

Moneytoo said:


> Read the same opinion last night:
> 
> This is not the start of a market correction
> 
> ...


Is it really likely that the correction would start when it is expected? I mean, nothing else happens when it is expected, usually just about the opposite. A correction happening in the fall when the bond buying stops is exactly when logic would dictate a correction would begin. In my experience, the market is a few steps ahead of logic. Look at this forum during 2010-2011. In my opinion the majority of the members thought there was too much risk to be invested. Fast forward two years and nobody could believe the returns of the last few years, mainly in the US market. Now that the economy is following the market, improving, and most people are getting comfortable again I would expect the market to do much worse over the next while. 

I'm not calling a correction or dive, but from what I observe it seems like most of us here, myself included, are exactly those mom and pop investors we all talk about. 90% of our 'contrarian' talk is likely the exact thing you want to be contrary to with your investing. 

I'm sure I'm going to get hit with rotten fruit after this post, but it's just my opinion.


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## Squash500 (May 16, 2009)

james4beach said:


> Pluto these are wise observations. And you're right, people are timing the market all the time while pretending that they aren't. I've been an active market speculator in the past who goes both long and short and the way I see it, we're all speculators... the guy who uses a stock-heavy couch potato portfolio, for example, is betting on a perpetual bull market.
> 
> I don't have any problem with someone who believes that stocks will go down. But I have a problem with the inverse ETFs in general. These are not good vehicles for taking long term bets on stock declines. They fail to track long term movements because they're not designed to do this.
> 
> ...


James IMHO the Horizon ETFS are viable if you can somehow get the path correct. I really dislike GICS in a non-registered account.


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## Squash500 (May 16, 2009)

Pluto said:


> The real rookie mistake would be something like shorting the market in March 2009. At least you are in the ball park by considering the idea when the market is overvalued, so you are far ahead of the real rookies. Too, I'd like to point out that everyone who buys stocks does so on the belief that they will go up, and no one buys if they think stocks will go down, so everyone who buys is implicitly timing the market - even if they say they are not. You are just working on being more precise, compared to the average buyer, and there is nothing wrong with that. That's not a rookie mistake, that's smart.
> 
> 
> Did you consider shorting it on paper (IE. not with real money) and keep a diary of your reasoning. For instance you might try, on paper, a different vehicle, such as puts on index etf's.
> ...


 This all sounds good on paper, however you could be totally wrong. IMHO paper trading is totally different then putting real money on the line.


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## james4beach (Nov 15, 2012)

Squash500 said:


> James IMHO the Horizon ETFS are viable if you can somehow get the path correct. I really dislike GICS in a non-registered account.


The path correct? I don't understand what you mean

I agree that interest-paying instruments aren't so great in non-registered. When I'm buying fixed income for my non-registered account I try to buy bonds with very low coupons (_not_ zero coupons, since those require special treatment). When you have low coupon bonds, like say a government 1.0% coupon bond, you're paying minimal tax on interest


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## Moneytoo (Mar 26, 2014)

jcgd said:


> 90% of our 'contrarian' talk is likely the exact thing you want to be contrary to with your investing.


Well, I liked the idea (and seeming simplicity) of Inverse ETFs, and if they worked the way I thought they should - I'd probably buy them just for the heck of it  But I have no clue what shorts and puts are - so would have to do some learning before trying them out... or deciding not to 

Since neither me nor my husband have ever purchased individual stocks (we bought our first ETFs last week! Only MFs and TD Index Funds before that), we decided to pick a few - and buy them if the price goes down.

He chose Apple - and entered a Buy order with top price limit of $450 till the end of the month (maybe will up the price if the order doesn't go through) I wanted to buy Valener [VNR] for the dividends, but now looking at TransCanada [TPR] - trying to figure out the difference between their 4 preferred shares (and how to buy them...)

So we're not in the same league as most of you here - at least not yet - so bound to repeat some of your past mistakes - learning as we go


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## Squash500 (May 16, 2009)

james4beach said:


> The path correct? I don't understand what you mean
> 
> I agree that interest-paying instruments aren't so great in non-registered. When I'm buying fixed income for my non-registered account I try to buy bonds with very low coupons (_not_ zero coupons, since those require special treatment). When you have low coupon bonds, like say a government 1.0% coupon bond, you're paying minimal tax on interest


 Hi James. I totally admit that the Horizon ETF prospectus is very complicated. What I mean by path is that you somehow get the direction (or correct path) of the market or commodity that your trading correct for at least a couple of days in a row. If you do this, then you can make some money.

Like I mentioned as an example up thread, if the HSD goes down for two or three straight days then you'll make money.

http://www.horizonsetfs.com/pub/en/etfs/?etf=HSD&tab=overview

Put another way. The HSD is a 200% leveraged ETF. Therefore the [email protected] 500 just has to go down for two or three days in a row, in order for a day trader to make some quick money.

Also with the Horizons ETF's you don't even need a margin account to short the market.


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## Pluto (Sep 12, 2013)

Moneytoo said:


> Read the same opinion last night:
> 
> This is not the start of a market correction
> 
> ...


Your are welcome. Be wary of opinions, mine too. Institutional money managers have the buying/selling power to move the markets up or down. So when one attempts to predict a serious market decline, one is predicting when these money managers will sell in earnest. But they might not even know when they are going to sell in earnest, so if they don't know, how could anyone else? We can only get an approximation of when, in advance, by looking at the same indicators they look at. The main ones are 1. US unemployment - it is usually below 6% before the market crashes, and 2. Fed Interest rate increases. However, these are not infallible in terms of pinpoint accuracy of when. Low unemployment will embolden the Fed to raise rates. But the Fed doesn't even know with precision when they will become emboldened, so how could we? 

The thing I have the most faith in right now is: 1. overvalued market and 2. Major US indexes fall below their 270 day ma. We have condition 1, but not 2. I don't have a strong opinion about when 2. will happen: maybe two weeks, maybe a year. How could I know, if the institutional money managers don't? And how could the money managers know, if the Fed doesn't know? 

Because of this lack of knowing, the way we will find out is by watching the market action. Down days or weeks above the 270 day ma, is just corrections. Falling below the 270 day ma is highly likely to be a serious down trend. I don't know when the latter will happen, but when it does, I plan to be prepared.


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## Pluto (Sep 12, 2013)

Squash500 said:


> This all sounds good on paper, however you could be totally wrong. IMHO paper trading is totally different then putting real money on the line.


Well, if someone who describes them selves as a rookie decides to commit money on such a thing, that's their business. But I'm not going to encourage them until they have more experience. Keeping a diary of thoughts on market direction, then reviewing it, is a way to learn and hone their skills. If you want to encourage them to commit money to a bad idea, instead of testing it on paper, that's your business. 

You note that I could be totally wrong. Therefore, what? If you are a perfectionist that rejects everything that isn't infallible, what's the alternative? 

You implying that there is an infallible approach? If you are, what is it? I believe no one is infallible, so I don't chase infallibility. Its a phantom. I think in terms of probabilities. One thing that means is, I don't reject an approach that is wrong in a minority of cases. But presently, I am unaware of any historical example of an overvalued market that didn't crash after the indexes fell through the 270 day ma. So I believe that if I follow that approach, the odds are in my favour. 

If you have a positive contribution, such as a way to enhance the reliability of my approach, I'm all ears. If you reject everything that *could be wrong* you will reject everything. And if you reject everything, you are left with nothing. Is nothing satisfactory? To me it isn't. So I have to go with an approach that is fallible, but puts the odds in my favour.


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## Pluto (Sep 12, 2013)

james4beach said:


> Pluto these are wise observations. And you're right, people are timing the market all the time while pretending that they aren't. I've been an active market speculator in the past who goes both long and short and the way I see it, we're all speculators... the guy who uses a stock-heavy couch potato portfolio, for example, is betting on a perpetual bull market.
> 
> I don't have any problem with someone who believes that stocks will go down. But I have a problem with the inverse ETFs in general. These are not good vehicles for taking long term bets on stock declines. They fail to track long term movements because they're not designed to do this.
> 
> ...


Seems right to me. Even those who dollar cost average index funds are implicitly agreeing that one should buy less when markets are high, and buy more when markets are low. That's a form of market timing. Since they are already implicitly market timing, it makes sense, for those who are inclined, to seek ways to enhance it. (Underlying my interest in "market timing" is value. I'm not interested in timing every little wiggle. I'm interested in the big moves.)


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## Squash500 (May 16, 2009)

Pluto said:


> Well, if someone who describes them selves as a rookie decides to commit money on such a thing, that's their business. But I'm not going to encourage them until they have more experience. Keeping a diary of thoughts on market direction, then reviewing it, is a way to learn and hone their skills. If you want to encourage them to commit money to a bad idea, instead of testing it on paper, that's your business.
> 
> You note that I could be totally wrong. Therefore, what? If you are a perfectionist that rejects everything that isn't infallible, what's the alternative?
> 
> ...


 I don't mean to be disrespectful, however IMHO paper trading is a waste of time. You need to have "some skin in the game" even if it's just a couple of thousand dollars. As usual, just my opinion.

I also think this 270 day Moving average opinion is a bunch of mumbo jumbo. If everyone had your opinion , then their would be no need for an options market etc.

What really convinced me that short term returns in the market are totally random, is when a famous hedge fund manager (John Paulson) made a totally wrong prediction on Gold last year. A guy like JP, had all the resources at his disposal and still got things totally wrong.


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## Pluto (Sep 12, 2013)

Squash500 said:


> I don't mean to be disrespectful, however IMHO paper trading is a waste of time. You need to have "some skin in the game" even if it's just a couple of thousand dollars. As usual, just my opinion.
> 
> I also think this 270 day Moving average opinion is a bunch of mumbo jumbo. If everyone had your opinion , then their would be no need for an options market etc.
> 
> What really convinced me that short term returns in the market are totally random, is when a famous hedge fund manager (John Paulson) made a totally wrong prediction on Gold last year. A guy like JP, had all the resources at his disposal and still got things totally wrong.


So testing ideas doesn't work for you. Your assumption is it won't, therefore, be of use to anyone. I don't buy your assumption. I believe people should try out things for themselves so they get experience and can decide for themselves what works for them. 

There is no inherent need for options markets. They are secondary to the real deal, namely, quality thriving businesses. 

But your main point, as far as I can see, seems to be: Paulson made a wrong call on gold, therefore, the 270 day ma used with stocks is mumbo jumbo. I don't get the connection. There is a big void between your observations and your conclusions. 

The 270 day/54 week ma isn't just opinion, as it has been extensively back tested and published. But it isn't necessary for everyone to use it. I don't care if others use it or not. I give my perspective for those who are interested. I don't try to convince people who are not interested. 

OK, so you have decided that short term returns are totally random. So now, what is your strategy? How are you going to deal with the randomness? (Incidentally, moving averages have been used to address apparently random market action.) What do you mean by "short term". A day, a month, a year? Several years? or what? I've invited you to say something proactive, but you avoid it. I don't find it constructive to take pot shots and not offer any proactive alternative. 

There was a guy in the 70's who had a terrible time with hand picking gold and commodities. At one point he threw a half dozen darts at the commodities tables. He bought them all, and then immediately sold the ones that went down, and kept the ones that went up. that's how he dealt with randomness. However, there is the problem of when to well the ones that went up? Gee, maybe a cross below a carefully chosen moving average would work. 

Anyway, I find you to be negative, convoluted, and not at all proactive.


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## liquidfinance (Jan 28, 2011)

The big downside of paper trading is that it removes the emotion. This is probably the investors biggest enemy.


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## Moneytoo (Mar 26, 2014)

Thank you all! Sorry, got swamped with work, finally came home and read through the latest comments... 

With regards to Inverse ETFs - I already agreed that it was a bad idea (and thank you for explaining why!) 

As for paper trading... Depends on personality I guess. I almost doubled our downpayment money back in the 90's (turned 30K into 55K in less than a year and a half). My financial advisor back then advised me not to do it, my husband was having anxiety attacks when the stock went down right before the payment was due (but the house got delayed - and the prices went up again right before the new date) I knew almost nothing back then - and had no fear - and reeeeaaalllyyyy wanted the upgrades (oh the bleached hardwood floors! ) And wasn't even a bit surprised when everything worked out - because I had no doubts it would. 

But when I tried to repeat the same results first on paper, then with real money few years later - I got mediocre results. Wrote it off to "the beginners luck" and just lost interest - until now, when I'm trying to do it "the right way" (as I don't have that fearless drive anymore... Kinda miss it, but "whatever works" - reading, learning and analyzing is also interesting


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## Squash500 (May 16, 2009)

Pluto said:


> So testing ideas doesn't work for you. Your assumption is it won't, therefore, be of use to anyone. I don't buy your assumption. I believe people should try out things for themselves so they get experience and can decide for themselves what works for them.
> 
> There is no inherent need for options markets. They are secondary to the real deal, namely, quality thriving businesses.
> 
> ...


Pluto I don't feel like getting in a long involved debate---LOL. The 270 day US Index MA is just an opinion. A lot of investors don't even know what technical analysis is. Or if they do know what it is, don't believe in it.

IMHO there is a need for the options market. The options market helps to keep the whole stock market efficient. If every investor believed in "your" 270 MA US Index theory then every investor would take the same side of the trade, and the options market or "shorting" the market wouldn't even be necessary.

However, the options market especially in the US Index ([email protected]) is massive. Therefore obviously a lot of traders or investors don't believe in the 270 day US Index MA.


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## Squash500 (May 16, 2009)

liquidfinance said:


> The big downside of paper trading is that it removes the emotion. This is probably the investors biggest enemy.


 I 100% agree with you LF.


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## Pluto (Sep 12, 2013)

Squash500 said:


> Pluto I don't feel like getting in a long involved debate---LOL. The 270 day MA is just an opinion. A lot of investors don't even know what technical analysis is. Or if they do know what it is, don't believe in it.
> 
> IMHO there is a need for the options market. The options market helps to keep the whole stock market efficient. If every investor believed in "your" 270 MA theory then every investor would take the same side of the trade, and the options market or "shorting" the market wouldn't even be necessary.
> 
> ...


Just to clarify your views and ask you to describe your strategy. 
You are making more than last year. Wonderful. How are you doing that? What is your strategy? Is it one where if everyone did it, you would all be on the same side of the trade? I guess so. But you are against strategies where if everyone did it, every investor would be on the same side of the trade. So I guess you are against your own strategy. Yes?


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## Squash500 (May 16, 2009)

Pluto said:


> Just to clarify your views and ask you to describe your strategy.
> You are making more than last year. Wonderful. How are you doing that? What is your strategy? Is it one where if everyone did it, you would all be on the same side of the trade? I guess so. But you are against strategies where if everyone did it, every investor would be on the same side of the trade. So I guess you are against your own strategy. Yes?


 I've stated my strategy many times on CMF. I own fairly big positions in XTR, CPD, XDV, XRE, and CBO in my non-registered account. XTR, and CPD especially have done a lot better then last year. However they could go down tomorrow for all I know.

I buy these ETFS in my non-registered account, mainly for the monthly income as I'm semi-retired. If everyone did my strategy we would all be on the same side of the trade.


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## james4beach (Nov 15, 2012)

Moneytoo said:


> I almost doubled our downpayment money back in the 90's (turned 30K into 55K in less than a year and a half). My financial advisor back then advised me not to do it, my husband was having anxiety attacks when the stock went down right before the payment was due (but the house got delayed - and the prices went up again right before the new date) I knew almost nothing back then - and had no fear - and reeeeaaalllyyyy wanted the upgrades (oh the bleached hardwood floors! ) And wasn't even a bit surprised when everything worked out - because I had no doubts it would.


I think your financial advisor gave you sensible advice but I don't know the whole story around it

It's great that you almost doubled your money but I think the activity you described is gambling. Most speculation activity is, after all, gambling. This is not inherently a bad thing.

I do think you got lucky. Nothing wrong with that either. But I think it's important to realize that these are inherently risky activities and you can't guarantee yourself a good outcome, even if you're careful and use the best techniques, etc.

Personally I think it's important to recognize that a lot of what we do in markets comes down to gambling. If you gambled in the past and made money, it doesn't mean this will always be the outcome. You could do everything right and still lose money, or even get wiped out. It's important to realize you're gambling because this affects how much money you're willing to expose to loss

I only do market speculation with spare money that I can stand to lose. I would never advise using vital/critical money for things like short-term trading or even purchasing individual stocks.


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## Moneytoo (Mar 26, 2014)

james4beach said:


> I think your financial advisor gave you sensible advice but I don't know the whole story around it
> 
> It's great that you almost doubled your money but I think the activity you described is gambling. Most speculation activity is, after all, gambling. This is not inherently a bad thing.
> 
> ...


Oh I got burned later - well, just a little bit, but enough to make me want to learn  My financial advisor eventually became too busy to talk to me, so his Associate was helping me manage my daughter's RESP. At one of our yearly meetings in mid 2000s he recommended "a sure bet US company" (that was making oil heaters - "Do you know how many old houses never switched to gas and keep using oil? Millions!") that was supposedly paying handsome dividends.

I read a half-page summary - and told him to invest all available cash, 5K at the moment, in it. He invested 3K. Every month I saw it paying something (ROC as I understand now) while the price was going down. At about 1.6K the company disappeared from the monthly statement.

I called in to find out what happened - and the Admin Assistant (both advisors were unreachable) told me that the company went down, so that's it, no more payments. So I learned my lesson, told myself that I should be grateful that he invested 3K, not 5K - and forgot about it (other investments were doing fine)

A month or so later I got a letter from TD Waterhouse informing me that my financial advisor, his associate and admin assistant "are no longer there". And I'm happy with self-directed RRSP accounts - especially now that my husband overcame his fear of investing and we do it together...


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## Pluto (Sep 12, 2013)

Squash500 said:


> I've stated my strategy many times on CMF. I own fairly big positions in XTR, CPD, XDV, XRE, and CBO in my non-registered account. XTR, and CPD especially have done a lot better then last year. However they could go down tomorrow for all I know.
> 
> I buy these ETFS in my non-registered account, mainly for the monthly income as I'm semi-retired. If everyone did my strategy we would all be on the same side of the trade.


I was wondering what your strategy was. I could be mistaken, but it seems based on previous comments, you subscribe to the efficient market hypothesis - a random walk down wall street perspective. And you seem to, I assume, use a buy and hold strategy. Nothing wrong with that. 

I don't subscribe totally to the efficient market hypothesis. It's only partly true. Some or all of the stuff you hold took a hit about the middle of last year all at the same time, as did bonds. It is plain as day that the hit is not random. It has to do with what investors think about what the economic environment will do to valuations - ie it will devalue your holdings, so they are devalued in advance of what investors think will happen, namely, a rise in rates. It is part of a cycle that repeats itself over and over. Apparently you have come to believe that it is all random, and you want to convince the world of your perspective. 

I accept the fact that not everyone shares my perspective. I have no plans to try and convince them. I write my perspective for people who are interested. If people don't know about moving averages, and they are interested, they will find out. If they are not interested, they won't. Doesn't bother me either way. But it seems to bother you as evidenced by your hostility and inane criticisms. It isn't clear to me what that hostility is about. You have some anger about something, and you direct it to me, even though I have nothing to do with it. 
Did that Paulson guy inspire you to make a big bet on gold, and then you got creamed? Then you look for someone to blame, and I happen to be a handy target? If it is something like that, take some responsibility for you own decisions and leave me out of it.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> I accept the fact that not everyone shares my perspective. I have no plans to try and convince them. I write my perspective for people who are interested. If people don't know about moving averages, and they are interested, they will find out. If they are not interested, they won't.


What do you think about this "sign":

Successful traders often profit by doing the opposite of what the investment crowd is doing. So we use the VIX as a contrary indicator. There's a well-known saying on Wall Street that goes... "When the VIX is high, it's time to buy. And when the VIX is low, it's time to go."


(I'm not planning to use it as a decision-making tool - just curious )


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## Squash500 (May 16, 2009)

Pluto said:


> I was wondering what your strategy was. I could be mistaken, but it seems based on previous comments, you subscribe to the efficient market hypothesis - a random walk down wall street perspective. And you seem to, I assume, use a buy and hold strategy. Nothing wrong with that.
> 
> I don't subscribe totally to the efficient market hypothesis. It's only partly true. Some or all of the stuff you hold took a hit about the middle of last year all at the same time, as did bonds. It is plain as day that the hit is not random. It has to do with what investors think about what the economic environment will do to valuations - ie it will devalue your holdings, so they are devalued in advance of what investors think will happen, namely, a rise in rates. It is part of a cycle that repeats itself over and over. Apparently you have come to believe that it is all random, and you want to convince the world of your perspective.
> 
> ...


 Hi Pluto. IMHO your a bit too sensitive. I'm just interested in learning as much as I can about finance, and trying to make some money in the process. Your not a target at all. I just don't agree with your opinion on the 270 day US Index MA. That doesn't mean that your not entitled to post your perspective on CMF, which of course you are. 

A lot of posters on CMF thought I was an "idiot" for buying XTR in the first place--LOL. I didn't let it bother me in the least. I probably was an "idiot" for buying XTR. However, with that being said, I'm not selling my XTR position so fast. I just basically care about making money.

As far as John Paulson is concerned, I just found it interesting that a hedge fund manager with a personal net worth of $12 Billion can make such a bad call on Gold last year. JP probably has some of the top analysts in the world working for him, as well as all the most advanced technology etc. Yet he still was very wrong on his big bet on Gold. 

My point is that if a prestigious financial legend like JP can screw up, then I don't feel so bad when I make a lot of financial mistakes myself.


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## james4beach (Nov 15, 2012)

I don't think you're an idiot for buying XTR, I just wanted everyone to know that XTR is heavily exposed to some risky assets (namely junk bonds) because this isn't obvious from the way XTR is marketed.

It turns out that junk bonds have done great these last few years. So XTR has done great. If we get a bear market one day and if equities and/or junk bonds do badly, and the two have a high correlation by the way, then XTR could drop a lot.


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## andrewf (Mar 1, 2010)

XTR is preying on retail investors' irrational preference for yield. Someone should create an index fund that pays out a 10% yield (mostly RoC of course)... I'm sure it would be very popular.


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## HaroldCrump (Jun 10, 2009)

andrewf said:


> Someone should create an index fund that pays out a 10% yield


_Someone _did.
_Someone _is in prison for 150 years.


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## andrewf (Mar 1, 2010)

He didn't go to jail for the yield, it was for fabricating the NAV.


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## Pluto (Sep 12, 2013)

Squash500 said:


> Hi Pluto. IMHO your a bit too sensitive. I'm just interested in learning as much as I can about finance, and trying to make some money in the process. Your not a target at all. I just don't agree with your opinion on the 270 day US Index MA. That doesn't mean that your not entitled to post your perspective on CMF, which of course you are.
> 
> A lot of posters on CMF thought I was an "idiot" for buying XTR in the first place--LOL. I didn't let it bother me in the least. I probably was an "idiot" for buying XTR. However, with that being said, I'm not selling my XTR position so fast. I just basically care about making money.
> 
> ...


I appreciate a well thought out proactive critique, and not some superficial sand bagging. My lack of tolerance for the latter has nothing to do with sensitivity. 

Paulson's bad call, despite his resources, doesn't mean market moves are random. In every crash since the 20's and beyond there has always been some banker or other imagined financial genius like Paulson, backing, supporting, promoting some flawed investment scheme. After the crash the supposed geniuses get exposed as delusional, and/or criminals. Then excuses are hauled out to deflect away from the real reason of the crash. Your "its random" view is just one of many excuses to distract attention away from the real cause, namely, irrational, delusional, euphoric, manic, and sometimes criminal, thinking that marks, and approximates the top. When someone is in the grip of euphoric thinking, the resources they have at their disposal are useless. Euphoric financial thinkers are like drunk drivers and the resources available, such as a steering wheel, brakes, and a nicely paved road, are useless. 

Euphoric thinking goes hand in hand with an overvalued market. And that's where we are now in US and Canada - overvalued and euphoric. The only ones who don't see it are the euphoric. The euphoric have been busy rationalizing why all the air propping up stocks isn't air. The only thing that has tempered it recently is the bio and other tech stocks getting hammered. Now the euphoric have to rethink their views. It's like the drunk driver who becomes vaguely aware they are randomly weaving into the oncoming lane. Gee, maybe they should pull over. 

The 270 ma is a final reality check for the euphoric in an over valued market. You cross the line, you might want to think about pulling over. But I don't care if you don't believe it, what I care about is a thoughtful critique, and not a superficial sandbagging. I also care about new people who come here seeking feedback. Euphoric times are apparently attractive to new investors, often because they hear from friends and relatives about all the money that's been made recently. Naively, the new start wanting to get on the band wagon - right when the party is wrapping up. Much better to get in at the next beginning.


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## Squash500 (May 16, 2009)

andrewf said:


> XTR is preying on retail investors' irrational preference for yield. Someone should create an index fund that pays out a 10% yield (mostly RoC of course)... I'm sure it would be very popular.


 Andrew I'm quite a risk averse investor. IMHO, the XTR is a much better alternative then a 1 year GIC. In 2013, XTR paid out some capital gains, some eligible dividends, some foreign non-business income, and some other income in addition to ROC.

Andrew what investments do you personally invest in?


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## Squash500 (May 16, 2009)

Pluto said:


> I appreciate a well thought out proactive critique, and not some superficial sand bagging. My lack of tolerance for the latter has nothing to do with sensitivity.
> 
> Paulson's bad call, despite his resources, doesn't mean market moves are random. In every crash since the 20's and beyond there has always been some banker or other imagined financial genius like Paulson, backing, supporting, promoting some flawed investment scheme. After the crash the supposed geniuses get exposed as delusional, and/or criminals. Then excuses are hauled out to deflect away from the real reason of the crash. Your "its random" view is just one of many excuses to distract attention away from the real cause, namely, irrational, delusional, euphoric, manic, and sometimes criminal, thinking that marks, and approximates the top. When someone is in the grip of euphoric thinking, the resources they have at their disposal are useless. Euphoric financial thinkers are like drunk drivers and the resources available, such as a steering wheel, brakes, and a nicely paved road, are useless.
> 
> ...


Excellent response Pluto. However who really knows for sure when the party is wrapping up? IMHO, you have to get into the market at some point if you want to make any money at all. Personally, the days of me investing in 1 year GIC's in my non-registered account are officially over--LOL.

Again your just stating a lot of fancy opinions, that could be right or could be wrong? Your obviously a very intelligent poster. However sometimes intelligence doesn't equate to making money in the market.


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## andrewf (Mar 1, 2010)

Squash500 said:


> Andrew I'm quite a risk averse investor. IMHO, the XTR is a much better alternative then a 1 year GIC. In 2013, XTR paid out some capital gains, some eligible dividends, some foreign non-business income, and some other income in addition to ROC.
> 
> Andrew what investments do you personally invest in?


You can't compare XTR to a GIC. XTR is essentially a balanced equity fund that happens to pay out of a lot of cash. It's not a fraud or anything, I just think that the marketing is somewhat misleading. Many people seem to think it is safe, which it is not.

XIU, too, has a higher yield than a one year GIC.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> I also care about new people who come here seeking feedback.


And it's appreciated! I surely learned on this forum (and in this thread) more in a week than in a bunch of financial blogs in a month! And knowing that people share their opinions not because they try to sell you something adds credibility to their warnings and advices


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## Pluto (Sep 12, 2013)

Moneytoo said:


> What do you think about this "sign":
> 
> Successful traders often profit by doing the opposite of what the investment crowd is doing. So we use the VIX as a contrary indicator. There's a well-known saying on Wall Street that goes... "When the VIX is high, it's time to buy. And when the VIX is low, it's time to go."
> 
> ...


Yes, go opposite to the crowd. But the Volatility index is an unreliable gauge of what the crowd is doing. 
The best indicator is value. If the market is over valued, stay away, as all the easy money has already been made, and grief will follow. 
The market is over valued right now. The party is ending. A definition of overvalued is the value of all the stocks in the US is greater than US GNP (or GDP.)

The crowd is in the market big time right now, so to be opposite, stay away. You will know when the crowd is leaving - it will decline a lot faster than it went up, and wise gray haired pros on TV will tell you not to catch a falling knife. Then check valuations. If fair value, or undervalued, it is safe to buy quality stocks. Then, enjoy the ride up to the next crash. When the market crashes, if you have no fear, that is a big plus. When the market has gone up for years, is over valued, and investors are happy, and you have fear, that is a big plus.


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## Moneytoo (Mar 26, 2014)

Pluto said:


> Then check valuations. If fair value, or undervalued, it is safe to buy quality stocks. Then, enjoy the ride up to the next crash.


We've been short-listing some quality stocks and adding them to the Watch List. Since we both work full time (and sometimes just don't have the time or the energy to check the markets every day), we're trying this approach with just a few stocks: decide on the price that we're willing to pay (for example, $450 for Apple and $25 for BA), enter a limit price Buy order (they're valid for a month with TD Waterhouse's WebBroker), if the prices drop and the order(s) go through - great, if not - rinse and repeat in a month. So we might not buy at the bottom - or not at all - and maybe will have to change the strategy later - but at least we're learning to pick the stocks together 

And I'm keeping the Couch Potato portfolio in my RRSP - for now...


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## Pluto (Sep 12, 2013)

Squash500 said:


> Excellent response Pluto. However who really knows for sure when the party is wrapping up? IMHO, you have to get into the market at some point if you want to make any money at all. Personally, the days of me investing in 1 year GIC's in my non-registered account are officially over--LOL.
> 
> Again your just stating a lot of fancy opinions, that could be right or could be wrong? Your obviously a very intelligent poster. However sometimes intelligence doesn't equate to making money in the market.


This is how you know: 
Watch US data. They are the dog, we are the tail. 
1. Are US stocks over valued? That is, is the value of all US stocks greater than the value of US GNP or GDP. Answer: Yes. A crash invariable follows. 
2. A good economy is bad for stocks. A good economy is US unemployment is less than 6%. We are getting there fast. Markets top when unemployment is low. 
3. People say, well markets can be over valued for a long time. True. That's where the moving average comes in. If they stay invested in an overvalued market, a fall in the indexes below the 270 day MA is their last good chance to get out, if they want to preserve capital. If they are buy and hold investors, and they are happy with that, its a moot point. 

If you don't believe me on those points, you'll have to do your own reading and independent evaluation. In order for you to know if it is just fancy opinion, you have to do your own work. For instance, get historical US unemployment figures. I think you will see that Unemployment is highest, when the markets are at their lows, and vice versa. People want to make money on stocks, and that means they want stocks that go up. Stocks are poised to go up big time, when the economy is bad. The economy was very bad, and stocks were poised to go up years ago, in 2009. Now the economy is approaching good,and that means the party is ending. Double check what I say. Look at the stock charts in 2009, and compare it to unemployment data. 

I'm not a market timer, I'm a value investor. I buy quality undervalued stocks during plunges. If I sell, I sell some years later when the market is overvalued. Then I wait for the next crash, and buy again. 

I'm not trying to tell you to sell. If you are going to hold, and you want to make addition money, get a margin account. Then when the inevitable crash comes, and your statements say you have a paper loss of 30 to 40 % buy more of what you already have on margin. Then get off margin in 1 to 2 years. At that point you will have more shares and more income. 

Intelligence doesn't equate to making money in the market. The perceived geniuses are before the fall. After the fall, they are the object of derision and sometimes hate, just like your Paulson guy. Before the fall, the worry warts, like me, are discounted and disbelieved. Part of the problem is, over valued markets can stay that way for a long time, so the worry warts look foolish until after the fall.


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## Squash500 (May 16, 2009)

Pluto said:


> This is how you know:
> Watch US data. They are the dog, we are the tail.
> 1. Are US stocks over valued? That is, is the value of all US stocks greater than the value of US GNP or GDP. Answer: Yes. A crash invariable follows.
> 2. A good economy is bad for stocks. A good economy is US unemployment is less than 6%. We are getting there fast. Markets top when unemployment is low.
> ...


Excellent post Pluto. I'm going to do some more research on the 270 day MA's on both the US and Canadian Indexes. Your posts do make a lot of sense.


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## Squash500 (May 16, 2009)

andrewf said:


> You can't compare XTR to a GIC. XTR is essentially a balanced equity fund that happens to pay out of a lot of cash. It's not a fraud or anything, I just think that the marketing is somewhat misleading. Many people seem to think it is safe, which it is not.
> 
> XIU, too, has a higher yield than a one year GIC.


Andrew I totally realize that the XTR is not safe. On June 24,2013, the XTR was only trading at 11.63. I was starting to panic. The only reason I didn't sell the XTR at its low point was because I was still getting a monthly income from the XTR. As of April 15, 2014, the XTR is now trading at 12.30. My average cost on the XTR is approx. 12.40.

I totally realize that the XTR, is quite a volatile ETF. I did however, buy some XTR when it was trading at lower prices in December, 2013. That helped to lower my average XTR cost to 12.40. I take all my XTR distributions in cash, so I believe I'm still ahead of the game as far as the XTR is concerned.

I started buying the XTR for the first time in June 2012, and it's been a roller coaster since then--LOL. I agree with you, that many people who buy the XTR, think it's safer then it really is. However, I know the ETF's that make up the XTR, and I'm still willing to take the risk of holding onto my XTR position.


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## Moneytoo (Mar 26, 2014)

andrewf said:


> Someone should create an index fund that pays out a 10% yield (mostly RoC of course)... I'm sure it would be very popular.


Got this Buy recommendation from Investors Alley this morning lol:

"*The Cushing Royalty and Income Fund (NYSE: SRF) *currently yields 10.8% with most, if not all of the dividends paid expected to be classified as non-dividend distributions, return of capital."

http://www.investorsalley.com/mc14/04-16/feature.html


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## andrewf (Mar 1, 2010)

I guess every good idea has already been taken.


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