Make Money While Cruising - List

[Delfin]

Originally Posted by Certeza

Despite the numbers being thrown around here about Moore's program getting 50% annual returns. Their published data suggests that it is actually something more like 18-25% annual when calculated the right way. But there is no way to really tell without more info, which is my biggest complaint here.

I'm not going to get into much of a discussion on this, but this statement makes no sense whatsoever. Granting that there is only one professional here, you, I'll stipulate that at least I have no clue what you are talking about. I put $40k into an account for one of my kids or grandkids, and for every $40k I have on deposit, I withdraw on average at the end of the $35k to put into a college fund, leaving $40k in to continue to invest. If that is 18-25% annual rate of return when calculated "the right way", then fine, but it makes no sense to this amateur. For most of us, when you buy a $100,000 CD with a 5% yield, you expect to get $5,000 in interest the first year. If you want to compound it, the yield stays the same but is applied to a greater number, so perhaps that is what you are talking about, but that is not what the Moore theoretical returns graph shows. What you seem to be missing is that Moore's graph shows no compounding; in other words, as the year's pass, you don't keep multiplying how many spreads you trade as equity grows - you still just do one by one spreads. It just shows the accumulated equity you would have in the account without slippage if you made no annual withdrawals. So, you are mixing apples and oranges here, and perhaps unintentionally misleading people.

[Certeza]

Originally Posted by Delfin

I'm not going to get into much of a discussion on this, but this statement makes no sense whatsoever. Granting that there is only one professional here, you, I'll stipulate that at least I have no clue what you are talking about. I put $40k into an account for one of my kids or grandkids, and for every $40k I have on deposit, I withdraw on average at the end of the $35k to put into a college fund, leaving $40k in to continue to invest. If that is 18-25% annual rate of return when calculated "the right way", then fine, but it makes no sense to this amateur. For most of us, when you buy a $100,000 CD with a 5% yield, you expect to get $5,000 in interest the first year. If you want to compound it, the yield stays the same but is applied to a greater number, so perhaps that is what you are talking about, but that is not what the Moore theoretical returns graph shows. What you seem to be missing is that Moore's graph shows no compounding; in other words, as the year's pass, you don't keep multiplying how many spreads you trade as equity grows - you still just do one by one spreads. It just shows the accumulated equity you would have in the account without slippage if you made no annual withdrawals. So, you are mixing apples and oranges here, and perhaps unintentionally misleading people.

That is the whole point! It is Moore's graph that is misleading. Allow me to try to calculate it both ways. I'll even eliminate the flat period up until April 1994 when it looks like they were still figuring things out.

First compounding... You've said that initial margin can reach $35K. So let's assume $40K account in 1994. The last data point shows a total return of $816,767 on the equity curve. On a $40K account that is a 2,041% total return over 20 years. Annualized, that would be 16.5%. But their statement indicates that this doesn't include commissions or slippage, which you indicated is less than 10%. Let's call it 5%. So in the end we have roughly 15.75% annual returns if we assumed that the equity graph was compounding.

But you're saying that it isn't compounding, just a straight total profit and loss curve on 1x1 spreads. This illustrates my other point very well. If I remember you've stated that holding period is something like a few weeks to a month per trade. If a person had started trading any time around mid 2009 the equity curve shows a loss of around $58K in December of that year. That is unlikely on a $40K account. So how much would a $40K account have really lost during that period? Impossible to tell from the graph. You might argue that much of the $58K loss came from gains earlier in the year. But unless you were holding trades for 6-8 months at that time period, it is likely that at least $20K of those losses were real losses on initial account value. Similar thing happened in 1999. An account following their trades lost around $60K peak to trough, and at least $30K of that mathematically had to be real drawdown. A $20K loss on a $40K account is a staggering 50% loss, and $30K is 75%. What I'm telling you is that to a typical investor, 50-75% risk of loss should not be acceptable to get a measly 50-75% average return. If you're going to risk drawdowns up to 75%, you had better be averaging 200%+ annual to make it worth it.

So if it is the second method, it is no wonder they don't offer the program professionally. They could never attract savvy clients with an equity curve like that. But that is the point. These numbers would all be obvious if they would present their results according to the prescribed method. To do otherwise is misleading.

[Certeza]

To clarify... I didn't mean to state that a 50-75% annual return is "measly" by itself. It is a very good return. But in the context of a likely 75% occasional loss it is significantly lower than what you would need to get to be properly rewarded for such extreme risk.

[Delfin]

Originally Posted by Certeza

That is the whole point! It is Moore's graph that is misleading. Allow me to try to calculate it both ways. I'll even eliminate the flat period up until April 1994 when it looks like they were still figuring things out.

First compounding... You've said that initial margin can reach $35K. So let's assume $40K account in 1994. The last data point shows a total return of $816,767 on the equity curve. On a $40K account that is a 2,041% total return over 20 years. Annualized, that would be 16.5%. But their statement indicates that this doesn't include commissions or slippage, which you indicated is less than 10%. Let's call it 5%. So in the end we have roughly 15.75% annual returns if we assumed that the equity graph was compounding.

But you're saying that it isn't compounding, just a straight total profit and loss curve on 1x1 spreads. This illustrates my other point very well. If I remember you've stated that holding period is something like a few weeks to a month per trade. If a person had started trading any time around mid 2009 the equity curve shows a loss of around $58K in December of that year. That is unlikely on a $40K account. So how much would a $40K account have really lost during that period? Impossible to tell from the graph. You might argue that much of the $58K loss came from gains earlier in the year. But unless you were holding trades for 6-8 months at that time period, it is likely that at least $20K of those losses were real losses on initial account value. Similar thing happened in 1999. An account following their trades lost around $60K peak to trough, and at least $30K of that mathematically had to be real drawdown. A $20K loss on a $40K account is a staggering 50% loss, and $30K is 75%. What I'm telling you is that to a typical investor, 50-75% risk of loss should not be acceptable to get a measly 50-75% average return. If you're going to risk drawdowns up to 75%, you had better be averaging 200%+ annual to make it worth it.

So if it is the second method, it is no wonder they don't offer the program professionally. They could never attract savvy clients with an equity curve like that. But that is the point. These numbers would all be obvious if they would present their results according to the prescribed method. To do otherwise is misleading.

You continue to completely miss the point by filling the room with smoke. So please read this carefully as I don't see much point in further debating this simple calculation with you. Your rate of return of 16.5% presumes that the growth in equity remains at risk as your equity account grows. But that isn't what is happening. You can draw out your profit each year (as I do), and each year carry on with starting equity of $40k. True, on two years out of 20 you would have to pony up some more cash to handle the initial margin requirements which is why this isn't for everyone. Be that as it may, the correct calculation for Moore's return is this. If I invest $40,000 and trade 1 x 1 spreads and at year end I have $78,800 and then take out and spend $38,800 on diesel fuel and wine what is my return on investment? It is 97%. If I do the same thing the next year, the return is again 97%. Over the two years what is my return on investment? 97%. For those who don't want to think this through, go here: Free Online Return on Investment (ROI) Calculator and enter $40k to start, $78.8k for the amount returned and 365 days for the period and see what you get. Roll it back around 10% for slippage and fees, and you got what you got.

And yes, good point, if you were unfortunate to begin investing on Jan 1 of the one year out of 20 that you didn't finish up for the year or the only year out of 20 where the draw down from Jan 1 was significant before becoming positive for the year as a whole, you'd be bumming. That is why I only recommend this for people who won't jump off a cliff if they see a draw down, which can happen. But 90% of the time that doesn't happen, and 95% of the years, you make money. Some years a great deal - like 2012 which returned around $88,000 on margin reserve of $40,000; some years less.

Your continued misrepresentation of information in the guise of expertise is unfortunate.

[Certeza]

Originally Posted by Delfin

You continue to completely miss the point by filling the room with smoke. So please read this carefully as I don't see much point in further debating this simple calculation with you. Your rate of return of 16.5% presumes that the growth in equity remains at risk as your equity account grows. But that isn't what is happening. You can draw out your profit each year (as I do), and each year carry on with starting equity of $40k. True, on two years out of 20 you would have to pony up some more cash to handle the initial margin requirements which is why this isn't for everyone. Be that as it may, the correct calculation for Moore's return is this. If I invest $40,000 and trade 1 x 1 spreads and at year end I have $78,800 and then take out and spend $38,800 on diesel fuel and wine what is my return on investment? It is 97%. If I do the same thing the next year, the return is again 97%. Over the two years what is my return on investment? 97%. For those who don't want to think this through, go here: Free Online Return on Investment (ROI) Calculator and enter $40k to start, $78.8k for the amount returned and 365 days for the period and see what you get. Roll it back around 10% for slippage and fees, and you got what you got.

And yes, good point, if you were unfortunate to begin investing on Jan 1 of the one year out of 20 that you didn't finish up for the year or the only year out of 20 where the draw down from Jan 1 was significant before becoming positive for the year as a whole, you'd be bumming. That is why I only recommend this for people who won't jump off a cliff if they see a draw down, which can happen. But 90% of the time that doesn't happen, and 95% of the years, you make money. Some years a great deal - like 2012 which returned around $88,000 on margin reserve of $40,000; some years less.

Your continued misrepresentation of information in the guise of expertise is unfortunate.

Wow! Really? MY continued misrepresentation?!?

I presented the "compounding" version for demonstration that their ambiguous returns could be calculated two different ways, and then acknowledged that according to you (the more familiar person) compounding wasn't the case. Then presented it YOUR WAY which has average annual returns approaching 75%, but apparently correctly recognizes that in order to achieve those significant returns there are relatively frequent periods of HUGE drawdowns.

You obviously don't seem to want to acknowledge that the industry has performance reporting standards for a reason. So for anyone else following this. The reason is so that people aren't simply enamored by high returns without being provided a proper indication of the risk. If a program is claiming something like 75% annual returns, it is entirely possible, but the first order of business is to quantify the risk. In this specific case, we aren't talking about losses in the realm of 20-30%, which suck but most people can tolerate. As far as I can tell, we are talking about possible losses of 75% of account value. Frankly, that is an astounding figure. There are relatively few people in the world who could watch a $40K account drop to $10K and think it is acceptable.

Another industry standard is that we aren't allowed to ignore peak-to-valley losses. Defining an investment period from Jan to Dec is as arbitrary and saying that it goes from March to Feb. The trades are constantly revolving, you don't simply open a bunch on Jan 1 and close them on Dec 31. So if an investor was different than Delfin and decided to calculate from March to Feb instead, at some point in both 2008 and 2009 he would've had a >60% loss on his account.

The overall point for anyone else who cares at this point, is that fluctuations like this are considered to be insanely volatile. When we started this discussion, I suggested that for perspective most professionals like me start losing clients with anything above a 5-10% drawdown. Somehow at this point in this discussion it is being suggested that a possible 75% drawdown is acceptable and that somehow the investor is just supposed to grin and bear it.

Nevermind another inconvenient possibility. The program requires $40K to fully participate. So assume that I start an account with $40K and it gets off to a good start, but soon enough my account has a drawdown of $20K. How do I now participate when I don't have enough available margin to make the suggested trades? What happens there is that you wouldn't be able to take all the suggested trades, so your returns wouldn't even be close to the hypothetical returns in the graph.

I'm at a loss....

[frank_f]

Originally Posted by Certeza

Nevermind another inconvenient possibility. The program requires $40K to fully participate. So assume that I start an account with $40K and it gets off to a good start, but soon enough my account has a drawdown of $20K. How do I now participate when I don't have enough available margin to make the suggested trades? What happens there is that you wouldn't be able to take all the suggested trades, so your returns wouldn't even be close to the hypothetical returns in the graph.

I'm at a loss....

Me too.

Again coming from someone who is just starting to get a clue about this, please forgive me if I have this wrong, but isn't the rate of return overall on the graph the same? What I mean is, if its down 10%, its down 10% of $40,000 or 10% of $20,000 isn't it? The amount going into (or out of in this case) your account is way different but it's still a 10% loss, correct?

Wouldn't that mean that if I invested $20,000 and saw a 100% upswing, I would net $40,000 for the year. If I invested $40,000, I would have seen an $80,000 year end. Is that correct?

If so, wouldn't that also mean that I might not increase my net wealth as quickly but I would still have doubled what I put in, or am I missing something obvious?

Thanks

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[Certeza]

The problem is that Moore isn't stating % returns. It must be extrapolated from the graph. Now that it is clear what the graph is, I could convert it to the standard performance charts, but it would take a couple hours and isn't worth it.

In a nutshell, their program can double your money in a year, so if you started with $40,000 you'd have $80k ($40k profit) at year end. But at any given time you might look at your $40k account and it could be down to $10k. If you were only willing to risk 5-10% loss, then their recommendations will only achieve about 6-7% annual returns on average. Not really very impressive. There are a ton of programs out there that can more than double your money if you're willing to risk a virtual blow up in the account.

[frank_f]

Originally Posted by Certeza

The problem is that Moore isn't stating % returns. It must be extrapolated from the graph. Now that it is clear what the graph is, I could convert it to the standard performance charts, but it would take a couple hours and isn't worth it.

In a nutshell, their program can double your money in a year, but at any given time you might look at your $40k account and it could be down to $10k. If you were only willing to risk 5-10% loss, then their recommendations will only achieve about 6-7% annual returns on average. Not really very impressive.

I think I get it (please correct any fallacies I have here).

If you didn't want to risk losing more than 5-10%, you would sell at the first indication of a downturn and try to buy back in as soon as it started to move up rather than ride out the downturn.

The same would apply to going up as the higher the risk, the longer you might hold on instead of getting cold feet and bailing because you think it might drop but hasn't shown a downturn yet.

Is that what you're referring to as risk management?

[Delfin]

Originally Posted by frank_f

Me too.

Again coming from someone who is just starting to get a clue about this, please forgive me if I have this wrong, but isn't the rate of return overall on the graph the same? What I mean is, if its down 10%, its down 10% of $40,000 or 10% of $20,000 isn't it? The amount going into (or out of in this case) your account is way different but it's still a 10% loss, correct?

Wouldn't that mean that if I invested $20,000 and saw a 100% upswing, I would net $40,000 for the year. If I invested $40,000, I would have seen an $80,000 year end. Is that correct?

If so, wouldn't that also mean that I might not increase my net wealth as quickly but I would still have doubled what I put in, or am I missing something obvious?

Thanks

What the Moore graph shows is the accumulated equity over a period of time if you trade their recommended spreads. Because these are futures contracts, there is an amount of money required to be on deposit with the broker to cover volatility, and around $40k handles it with about a $20k buffer, but that changes a bit depending on the mix of spreads. The way I look at return on this activity, which is wrong based on Mr. Certeza's analysis, is that if I start with $40k, and at the end of the year have $80k, I've doubled my money, although I gather that is the wrong way to look at it. That said, I know of no other way to do the math, so I guess I'm stuck with it. Now, I can take out $40k from my $80k and spend it on diesel fuel, still have $40k and still trade the next year. Over the period of a few years, this is the level of return I will, and have seen.

You do have to be prepared for volatility, just as you are with any investment. Buy real estate, and it may go down in value before it hopefully goes up. Since buying real estate ties up your money for as long as you hold the property, if you bought a piece of land for $40k 20 years ago and sold it for $800k, you'd have a 16% rate of return over the hold period. But spreads are not land, you can take profit gains out and spend it, keeping your committed capital to $40k. Kind of like having your cake and eating it to. But that's just my simple approach to investing.

If you want to keep escalating the number of spread sets you invest in, then your committed capital will be greater. For example, if after the first year you thought to double your margin commitment and not spend your profit or invest it in something else, then after 19 years, you might have $1.5 million or so. If after the third year....well, you get the picture.

Now, you might be asking yourself at this point, why everyone doesn't do this if it works so well? I dunno, but one of the reasons might be that that they don't understand it, don't feel comfortable with it, and sometimes perhaps because they have investment professionals who explain to them why left is right. Beats me, but other than a very few people I know who have taken this up (and who tell me they have similar results), very few ever get to the point of actually doing it. And that's ok with me, because other than a general desire to see everyone prosper, I don't care one way or the other.

[Certeza]

Originally Posted by frank_f

I think I get it (please correct any fallacies I have here).



If you didn't want to risk losing more than 5-10%, you would sell at the first indication of a downturn and try to buy back in as soon as it started to move up rather than ride out the downturn.



The same would apply to going up as the higher the risk, the longer you might hold on instead of getting cold feet and bailing because you think it might drop but hasn't shown a downturn yet.



Is that what you're referring to as risk management?

Not quite. You can't alter their recommended trades by exiting them early or holding on late. That completely disregards the research and ruins the expected profitability of the trade.

The only way to follow the program and reduce risk is to trade the same size trades in a larger account. So if a $40k acct has a drawdown risk of $30k (75%) and you wanted to limit that to 5%, you'd need an account of $600k to accomplish that. Then you'd be getting an average $40k return on a $600k acct. that's a 6.66% return.

[Delfin]

Originally Posted by Certeza

The problem is that Moore isn't stating % returns. It must be extrapolated from the graph. Now that it is clear what the graph is, I could convert it to the standard performance charts, but it would take a couple hours and isn't worth it.

In a nutshell, their program can double your money in a year, so if you started with $40,000 you'd have $80k ($40k profit) at year end. But at any given time you might look at your $40k account and it could be down to $10k. If you were only willing to risk 5-10% loss, then their recommendations will only achieve about 6-7% annual returns on average. Not really very impressive. There are a ton of programs out there that can more than double your money if you're willing to risk a virtual blow up in the account.

If you wanted to limit volatility to a draw down of 5-6%, then you have no business investing in spreads. On that basis, you shouldn't invest in stocks, since a 10% correction is common. Or real estate. Or anything else I can think of other than a bond portfolio.

[Delfin]

Originally Posted by Certeza

Not quite. You can't alter their recommended trades by exiting them early or holding on late. That completely disregards the research and ruins the expected profitability of the trade.

The only way to follow the program and reduce risk is to trade the same size trades in a larger account. So if a $40k acct has a drawdown risk of $30k (75%) and you wanted to limit that to 5%, you'd need an account of $600k to accomplish that. Then you'd be getting an average $40k return on a $600k acct. that's a 6.66% return.

Or, if you put $1 million into the account, you would have an even more meager investment return. I guess the question is why anyone with a brain would do that, since all you need is around $40k committed, with maybe another $40k in reserve if you get run over for a few months. Which by the way, is about a 10% possibility. Certainly can happen, so a very good idea if you chose to go down the path of investing in spreads.

[Delfin]

Originally Posted by frank_f

I think I get it (please correct any fallacies I have here).

If you didn't want to risk losing more than 5-10%, you would sell at the first indication of a downturn and try to buy back in as soon as it started to move up rather than ride out the downturn.

The same would apply to going up as the higher the risk, the longer you might hold on instead of getting cold feet and bailing because you think it might drop but hasn't shown a downturn yet.

Is that what you're referring to as risk management?

Frank, some trades will work out, and some will not. Trading spreads is not for those who can't tolerate the potential of a draw down in equity, but as noted, I would say the same advice applies to virtually any other type of investment short of CDs or bonds. The question is, how much money do you have to commit, and do you have any reserves to draw on if things go bad for a period of time. Spread trading across all categories many time over the course of a year (Moore's method) yields consistent returns. However, depending on the luck of the draw, you may need backup margin if you happen to enter the cycle at a point where you see negative returns. If that isn't possible or comfortable, then don't do it.

[Certeza]

Originally Posted by Delfin

Now, you might be asking yourself at this point, why everyone doesn't do this if it works so well? I dunno, but one of the reasons might be that that they don't understand it, don't feel comfortable with it, and sometimes perhaps because they have investment professionals who explain to them why left is right. Beats me, but other than a very few people I know who have taken this up (and who tell me they have similar results), very few ever get to the point of actually doing it. And that's ok with me, because other than a general desire to see everyone prosper, I don't care one way or the other.

The reason should be obvious at this point. They correctly realize that the risk adjusted returns of this program are not impressive. Virtually nobody is willing to accept frequent 75% drawdowns in their acct. For example if someone did what you suggested above and reinvested gains and compounded the size of trades proportionately, they would frequently watch as their $1.5MM acct dropped to $500k and they waited for it to come back. Fluctuations like that give most people ulcers.