# HOU, just some quick info.



## Plastickmat (Feb 13, 2012)

Hey guys, 

Pretty new to investing although I try to get as much information its not that easy at 22 years old to fall onto the right path as much for reading and investing.

So here's my situation, I had about 12K total to invest back in 2009 (February), looked around and was ready to take a general leap onto the market, couldn't wait to get that stagnating money 'moving'.

Anyhow being canadian I knew I wanted to start with only canadian markets, and wanted something pretty volatile to take some greedy risks. Bought HOU and HNU (Also bought the TSX ETF which I sold with interesting profits)

The deal is that summer 2010 I should of sold HOU/HNU they both hit an interesting high, being as greedy and not needing the money right away I told myself, just wait in the long run it'll probably yield more...

So my question to you guys out here, since I bought the fund at 7$ 2 years ago or so and it hangs aoround 6.50, up or down these days, and me not really needing the money for maybe another 3-4 years anyway... is it safe for me to just expect it to eventually yeild an "OK" profit if I wait or am I looking for a SURE LOSS by waiting? BEcause so far I haven't really lost much, nor won it's pretty even even.

Thanks a lot! Please bear in mind I'm new to the forum, might not ask my questions the way I'm expected to, but any tips are welcome

Thanks guys!


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## andrewf (Mar 1, 2010)

HOU and HNU invest in futures contracts and as such, are subject to the effects of contango/backwardation. You should look up these terms and maybe do some reading around futures ETFs. Bottom line, contango is a situation where futures contracts are more expensive for months that are further in the future than those that are closer. This difference in cost can have a significant effect on the returns of the ETF, upwards of 10, 20 or 30% per year. Losses due to contango are not coming back. These are complex ETFs and you should definitely fully understand how they work before investing in them. Part of your loss on HNU was because the spot price of natural gas has declined, but I expect most of the loss was due to contango and compounding of daily returns.


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## gibor365 (Apr 1, 2011)

andrew, but not all future contract ETFs replicate the daily performance? for example DBA is also future contracts, but not "daily performance" . It replicating Deutsche Bank Liquid Commodity Index .
Is it correct?


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## andrewf (Mar 1, 2010)

Most futures ETFs rebalance daily (so the exposure matches the stated exposure). You'd have to read the prospectuses for those funds to be sure. DBA rebalances the various components of the fund once a year IIRC, so it may not have to rebalance daily.


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## Plastickmat (Feb 13, 2012)

I read all about the contango effect, the backwardation is actually when the contango effect will bring you positive income.

What I'm asking since I'm already 'VICTIM' of the contango effect, and have nearly lost 100% on HNU but only 5% on HOU (and HOU seems to go over in positive once in a while so that one isn't as worryful yet) am I better off waiting several years in hopes of getting a not too bad profit or is the risk of losing all BIGGER?

But most of my money is in HOU, so the 500$ I have in HNU could very well be lost but the 6K in HOU I'd like to know what to do with.


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## KaeJS (Sep 28, 2010)

I like HNU and HOU. I have traded them both before.

However, my advice would be to ditch the futures ETF's.

They are not buy and hold investments. They are for speculative plays, hedging, gambling, or trading.

If you're not trading or hedging, you shouldn't be buying them.


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## andrewf (Mar 1, 2010)

The money is gone. My advice would be to sell and cut your losses. These ETFs are really intended for short-term swing trades or day trading, not long-term buy and hold. It doesn't matter what you paid, what matters is your expectation of future returns. If you think oil is going to double in the next year or two, maybe HOU is a good idea to hold. I think you might be better off owning an oil producer.


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## fatcat (Nov 11, 2009)

andrewf said:


> The money is gone. My advice would be to sell and cut your losses. These ETFs are really intended for short-term swing trades or day trading, not long-term buy and hold. It doesn't matter what you paid, what matters is your expectation of future returns. If you think oil is going to double in the next year or two, maybe HOU is a good idea to hold. I think you might be better off owning an oil producer.


great advice ... sell and put the money in suncor or CLO or something


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## HaroldCrump (Jun 10, 2009)

These are one of the risks of DIY investing - picking the wrong investment product that you don't understand yet.
But no matter, we all make our fair share of mistakes.
You are richer by experience now.

Are you total paper losses the $500 at this time?
If so, I'd say eat the loss and move on.
It is a very, very small price to pay for education.

As for the $6K, you said your total portfolio is $12K?
So this represents 50% of your total portfolio?
If so, you should take some money off the table.
Sell some and reduce your exposure.

These products are not for beginners and some might say are not for even seasoned small, retail investors looking for a reasonable return with reasonable risk.
If you want to hold some for speculative purposes or to see if it comes back, it's fine, but sell some to reduce your exposure.


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## newbie (Dec 12, 2009)

Plastickmat said:


> Hey guys,
> 
> Pretty new to investing although I try to get as much information its not that easy at 22 years old to fall onto the right path as much for reading and investing.
> 
> ...


sorry to hear about your loss but nevertheless u learned your lesson the hard way.
those instruments are 2x leveraged etfs with massive erosion due to all the explanations from some members above.
HNU is the worst u could ever get into and as i write this , due to an immense glut in natural gas we ra trading prompt and prompt+1 months with a massive contango , when at this time of the year we should be trading in backwardation.
they track the nymex futures contracts except for UNG which actually holds the physical Ng contracts.
i believe Harold crump gave u the proper advice.
If u ever attempt to trade those instruments , remeber that they are supposed to be traded with futures contracts in mind.
if u dont understand the futures market , those instruments are not for ya.
GL

p.s reading harold's post one more time , i would take all my money out and learn how they work as andrew explained.


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## Plastickmat (Feb 13, 2012)

I understand the conservative nature of your answers, I agree to them.

What I'm trying to say is that when I bought it at 7$ back then, it dumped way under 4$ for like 3-4 months I believe, and I held through while I Was at like -3000 in gain, and it shot back up like a year later which I held again, but shouldn't have.

RIght now @HNU If I sell, I get 4$ So why not just leave it there and see if I can maybe get 50-60?

@ HOU > Right now I'm a -500 on the 6K just about. Which doesn't really get me nervous for now, I understand what your saying about the fact that its a SHORT TERM TRADE, I Get the CONTANGO effect, what I'm really just asking is, if I decided to hold it more, "COULD IT MOVE UPWARDS temporarily again" just enough for me to sell it? Because as I repeat the money is not something I need for a while more so if I can hold out a couple of years to get some profit off it, I would.

Thanks.


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## k66 (Feb 11, 2012)

Here's a simple exercise that is interesting to do...

Go to your favourite stock chart/view software/website - one that will allow comparisons between two or more stocks - and compare HOU and HOD (or any other Horizons Bull/Bear pair).

What you are looking for is where the two ETF's cross paths. As we all know, as the one goes up the other declines. If there were no fees associated with the fund, these cross-overs would always be at "0", but because there are actually very expensive fees on these types of leveraged funds, the crossing will now always occur in negative territory.

Here are HOU and HOD plotted via Google Finance - note the *never-increasing* trend in both.










Like posters said previously, these are short term plays... stay to long in the pot and you will get burned! I know, I did the same thing about 2 years ago!


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## HaroldCrump (Jun 10, 2009)

Plastickmat said:


> RIght now @HNU If I sell, I get 4$ So why not just leave it there and see if I can maybe get 50-60?


Because there is an opportunity cost to holding a position that is underwater for extended periods of time.
The opportunity cost can be huge.
How long are you willing to hold?
6 months? 1 year?
Are you convinced that during this period, you will not find _anything_ more worthwhile in the entire equity market?
Hard to believe.
If it takes 1 year for you to break even and then you sell, the net results is that you have lost because of opportunity cost.



> "COULD IT MOVE UPWARDS temporarily again" just enough for me to sell it?


Nobody knows.
You have to weight risks and benefits.
And manage your overall exposure.


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## andrewf (Mar 1, 2010)

It's not just fees, it's also the compounding of returns. If natural gas goes up 5% one day and down 5% the next, both bull and bear funds will end up worth less than where they started.

A lesson you have to learn as an investor is that in deciding whether to continue to hold an investment, what matters is what will happen in the future, not what has happened in the past--including what price you originally paid. These ETFs are highly likely to lose value over time. You can hold these forever and just watch them march to zero.


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## gibor365 (Apr 1, 2011)

andrewf said:


> It's not just fees, it's also the compounding of returns. If natural gas goes up 5% one day and down 5% the next, both bull and bear funds will end up worth less than where they started.
> 
> A lesson you have to learn as an investor is that in deciding whether to continue to hold an investment, what matters is what will happen in the future, not what has happened in the past--including what price you originally paid. These ETFs are highly likely to lose value over time. You can hold these forever and just watch them march to zero.


Just a stupid question....if most likely value over time will be lost, than why not to short them for good? Or you're not allowed?


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## andrewf (Mar 1, 2010)

Shorting is not a half bad idea. It is not risk free, though. You can partially hedge by shorting both the bull and bear, but you might need to rebalance regularly, which adds to the cost. To think about why this is risky, consider that if one fund increases by 200% over a year, the opposite fund would at most decrease by 100% (it can't go below zero), and likely only perhaps 80%.


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## HaroldCrump (Jun 10, 2009)

Further, if there is a violent move up in the unit price (because of a temporary market rally or crash, as the case may be), the brokerage could very well force you to cover your position.
With a 2x or 3x leveraged ETF, that is the worst possible outcome.


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## Plastickmat (Feb 13, 2012)

I see your points, quite interesting to consider.

One of you said that I might miss on oppertunities to invest in something more worthwhile while I sit here and wait for it to break even.

I know it sounds dumb but with college, everyday life hassles, watching my investments, and especially finding places to dump my money the right way aren't easy because they require to sit and read tons, and even with the knowledge you aquire, you still don't know where to start. I'm the adventurous type, risky type, I decided I'd put some money in because I figure we gotta get the machine going one day.

So as I said, since I have already 'Outheld' it for probably way too long according to most of your standards/opinion I've already hit some pretty disgusting lows and stomached them for about 2 years now. Having understood what you guys are saying I think the best decision would be to wait a little more and get rid of it as soon as I can either minimize losses or hope to make any sorts of money with it. Selling and getting a sure loss right now doesn't sound too appealing after a 2 year wait to lose.

For a student like me, looking for something medium risky that has a certain volatility to watch, where can I start looking? 
Thanks for all your inputs, I do take them all into consideration! (In other words, what types of markets are appealing to an investor like me? Apart from HOU and HNU right now I have the HJU fund (Emmerging Markets) and also recently bought for 1K of 'LE CHATEAU INC' which is doing quite badly but I'm positive the company will get their *** up one day.


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## newbie (Dec 12, 2009)

Plastickmat said:


> I understand the conservative nature of your answers, I agree to them.
> 
> What I'm trying to say is that when I bought it at 7$ back then, it dumped way under 4$ for like 3-4 months I believe, and I held through while I Was at like -3000 in gain, and it shot back up like a year later which I held again, but shouldn't have.
> 
> ...


Man 
you have no idea as to what a 2x leveraged ETF is.
there is enough posts here for you to make a decision.
this year HNU was trading at 10 bux after split and now is what 4.5 or so?
You absolutely don't understand what you are trading.
I trade 3x leveraged ETFS and this last time i traded i almost lost a substantial amount of money.
You just dont buy and hold those things.
i will leave it like that.
GL


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## gibor365 (Apr 1, 2011)

newbie, he perfectly understand it, but its difficult for many (kolel oti ) to sell and convert paper losses to real ones.


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## newbie (Dec 12, 2009)

gibor said:


> newbie, he perfectly understand it, but its difficult for many (kolel oti ) to sell and convert paper losses to real ones.


Gibor
Any mevin .
but if u dont know what u r doing u cut ur losses.
i enterd FAZ last year and that thing almost ate me alive .
i did not respect the market and it went bullish mode.
on my first tranche i almost sold at loss.then averaged down and got out.
i will not hesitate to sell at loss.
today i ate some losses trading NG , small but ate them.
why?
because that is the commodity i trade and i know by heart how it can destroy my position.
thats life.


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## gibor365 (Apr 1, 2011)

newbie said:


> Gibor
> Any mevin .
> but if u dont know what u r doing u cut ur losses.
> i enterd FAZ last year and that thing almost ate me alive .
> ...


again...ata 'ioter mikzoi....

I also did many mistakes...like experimenting with XIV...left some small position even though could've sell it b/e or even small gain... I wrongly assumed that when VIX will drop below 20 (and was pretty confident it will happened), XIV will be higher than I bought. And.... VIX under 20 for weeks and XIV not even close to $10


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## newbie (Dec 12, 2009)

gibor said:


> again...ata 'ioter mikzoi....
> 
> I also did many mistakes...like experimenting with XIV...left some small position even though could've sell it b/e or even small gain... I wrongly assumed that when VIX will drop below 20 (and was pretty confident it will happened), XIV will be higher than I bought. And.... VIX under 20 for weeks and XIV not even close to $10


ATA Tamid tzarich lehiot Miktzoi Ve meduiak.
U cant leave in lala land.
i lost money ( a lot) in the beggining , by " hoping" that it would come back.
cut the loss and move on.
start all over again.
never ever all in.
Echad tzarich ladat matai u lo menatzeach.
tishma, any tzarich larutz.
nedaber hacharcach.
Lehitraot


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## Andre112 (Apr 27, 2011)

Learning a lot from the thread. Thanks guys!


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## gibor365 (Apr 1, 2011)

Andre112 said:


> Learning a lot from the thread. Thanks guys!


...and you also learning Hebrew , but in translit version


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## HaroldCrump (Jun 10, 2009)

Plastickmat said:


> One of you said that I might miss on oppertunities to invest in something more worthwhile while I sit here and wait for it to break even.
> 
> I know it sounds dumb but with college, everyday life hassles, watching my investments, and especially finding places to dump my money the right way aren't easy because they require to sit and read tons, and even with the knowledge you aquire, you still don't know where to start. I'm the adventurous type, risky type, I decided I'd put some money in because I figure we gotta get the machine going one day.


OK, so in that case, these esoteric leveraged commodity futures ETF are even less suitable for you.

My suggestion would be to pick an industry or sector you are otherwise interested in, such as technology or energy or retail or financial, and study deeper into it.
Identify which are the main companies in that sector - in Canada and the US.
Study those companies.
What is the business model, how to they make money, what are the margins, what are the factors affecting their performance, how have they done in the last 3 years, etc.

Focus your time on learning about an industry sector and/or a small set of companies.

The companies need not be mega cap multi nationals, even smaller mid or small scale companies are fine too.

Take your time. The stock market will still be here when you are ready - or at least, we _think_ it will be here


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## newbie (Dec 12, 2009)

gibor said:


> ...and you also learning Hebrew , but in translit version


indeed


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## gibor365 (Apr 1, 2011)

HaroldCrump said:


> OK, so in that case, these esoteric leveraged commodity futures ETF are even less suitable for you.


In case OP doesn't want to spend too much time for selecting investment, he can:
1. go with coach potato index ETF portfolio
2. buy some dividend champions in difierent sectors that have increased dividends for 25+ years and have yield more than 3%, for example: MO, T, ABT or JNJ, PG, KO or PEP and so on


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