Mad Old Leveraged Nutcase and his Nutty Systems

There is one barking mad old nutcase I keep coming across in the financial blogosphere who has a hornet in his underwear about leverage and the stock market.  He works by taking various “quantitative systems” devised by others and applying vast leverage to come up with fabulous “Roads to Riches”.

Like Candide he is on the search for Eldorado but sadly has not had the maturity to admit defeat and content himself with cultivating his garden.

Sometimes said nutcase relies on market timing to avoid catastrophic back tested drawdowns, sometimes he insists that you could invest in any stock in the market on any given day in their history and come out on top because “stocks go up”.

He does not seem to take any account of delisted stocks or the fact that a large percentage of all stocks which have ever existed have ended up next to worthless.

In any event, whatever madcap scheme he is talking about he will also spice it up with lashings of leverage.

Here is a chart the nutty old boy might like to ponder: A 3 times leveraged ETF proxy of the DJIA since 1900:

3xLevVAMI

3xDD

And here are the returns for the non-leveraged and leveraged versions of the time series.

Non Leveraged

1900-01-02 68.13
2016-04-15 17897.46
 CAGR 4.90%
 STD DEV 16.30%

3 x Leveraged

1900-01-02 100
2016-04-15 14783.96338
 CAGR 4.39%
 STD DEV 48.90%
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