Investment — Part 4 — Experiments

This article is part of a series on investment strategies:
Part 1 | Part 2 | Part 3 | Part 4 | Part 5

I am continuously running experiments of different investment strategies and tools. In the interest of transparency, I will show failures as well as successes, so you can get a feel for what strategies you can possibly avoid wasting money on. All experiments shown used real money. I also frequently back-test strategies before investing with real money. This page will be updated as new data comes in and new experiments are added.

Sections: (each section is ordered new-old)
1. HIRS Accounts (newly updated)
2. Individual Stocks
3. ETFs
4. Leveraged ETFS
5. Inverse-Leveraged ETFs (newly updated)
6. Crypto
7. Options

Last updated: JAN 19, 2022

Executive Summary and Conclusions

1. There are not any good HIRS accounts currently. Holding cash is a losing proposition, but it is necessary as both a safety net and to have liquidity to invest in severe bear-markets. I am looking for a HIRS option with 2% interest with no cap on the deposit amount, but have yet to find one. See below for alternative options.
2. Single-stocks are risky, and have resulted in excellent gains and severe losses for me. They are only worth doing when you can afford to lose the money, and you feel the opportunity is unique, and there are no ETF options available.
3. I have had zero failures from (tech) ETFs. These are a no-brainer investment solution that beat the returns of many higher-risk strategies. Low-risk and low-return are not synonymous.
4. Leveraged ETF experiments turned out well across the board. All annualized returns have been over 100%. The most recent experiment with shorter-term buy-sell cycles (of 2–3 weeks) produced great results and I am doubling-down on bigger investments and variations on the existing strategy currently. The longer-term term holds of a year or more also turned out very well. See my newer article on LETFs for updated results on my investing experiments in this area.
5. Inverse-leveraged ETF (i.e. hedge/put) experiments are much longer-term (since they rely on huge market drops and black-swan events) and I have no clear results yet. One of my option trades was a ‘put’ (betting stock will go down) which had a 3000% return, but it was pure luck on the timing. Long-term I’d like to simultaneously hold investments that profit if the market goes up, and also investments that profit if the market goes down, so that I profit either way.
6. Crypto turned out net-positive in my experiments, but there were 4 years of it looking like it was a complete waste of my money. The eventual 100%+ gains weren’t good enough when annualized, and the risk level was too high. There are much safer investment options than crypto. That said, ETH and BTC have stabilized and become accepted enough that I am considering using a BLSH strategy on them soon.
7. Options are extremely risky, even for stocks you understand, mostly because of the time limit on becoming correct. After some experiments I am steering clear of these for now, as they aren’t predictable or reliable in most cases.

HIRS Accounts

High-interest rate savings accounts offer you a way to store money and earn high interest rates when it is waiting for an investment opportunity.

• Alternative: Security-backed Line of Credit (SBL)
  An alternative to keeping cash is to take out an equity-backed loan using a long-term investment such as VGT as collateral. In this scenario you have cash available while still getting returns from the investment. You might pay 3% interest on the loan while earning 20% interest on the main investment.
• Alternative: Stake Your Crypto
  A (higher-risk) alternative to keeping US Dollars, is to convert it into a crypto such as ETH. I am currently staking my ETH2 at a 4.5% APR on CoinBase, which is better than any savings account out there and serves as an emergency fund if there is a stock market crash. Word of caution: currently it is not liquid, but it should be soon.
• Yotta
  Result: PARTIAL SUCCESS — 0.74% currently. This is an app-based bank account that leverages human psychological weaknesses towards gambling, to reward customers for investing. The app claimed to be giving me 49.56% APY when I first started using it, but the algorithm uses current winnings to extrapolate for the rest of the year, which is not certain. The more you put in savings, the more “chances to win” you get (mostly capped at 10k now), and your deposited funds are never at risk. Their APY feedback is very difficult to interpret, and after 5 months it has stabilized at around .5%. The “winnings” they provide are very small and more of a psychological gimmick than a superior bank account option. However, given the dismal state of most HIRS accounts currently, this is actually the current winner.
• Robinhood
  Result: PARTIAL SUCCESS — 0.08% APY currently, was 1.2%. This should be >2% to be HIRS. Robinhood gives access to a margin (borrowed money at 2.5% APY) which is a nice perk.
• Chase “Premier Savings”
  Result: FAIL — Was around 2.0% APY and as of this writing is at 0.1%.
• E-Trade
  Result: FAIL — Was 1.8% APY, now lower.
• T-Mobile Money
  Result: FAIL — Was 4.0% APY for the first 3k, and 1% for anything additional. They used to require a monthly deposit to get this, but they now require 10 transactions/mo on their debit card which makes it pointless to use because you’re losing credit card points. Also your emergency fund should be greater than 3k, and their login process is unusable and unreliable.

Yotta tracks a yearly annualized APY at the top of the summary screen.

Individual Stocks

Individual stocks let you own shares in one company. If that company goes out of business or has problems, then your shares can devalue rapidly.

• Open Door(OPEN) — NOV 2021-Present
  Result: IN PROGRESS… — Opendoor has a business goal of making the complex and slow house selling (and buying) process more digital and simple. Any company that has usability and reducing pain points as its primary goal should get a lot of attention. The real estate sales market has been in need of disruption for a long time. As of this writing, OPEN is 45% down from historical high, and the stock is depressed due to largely unrelated problems at Zillow. So it seems like a good time invest, but only time will tell.
• Joby Aviation (JOBY) — JUL 2021-Present
  Result: IN PROGRESS… — Travel and transportation has always been a mainstay of human civilization. Commercial airlines have a terrible user experience, and so do airports with their hub-infrastructure and non-existent last-mile solutions. The entire model is broken. A Boeing 747 is basically a cattle truck, which is why rich people opt for small private jets which are private, comfortable and have no lines. There is a huge opportunity for disruption and improvement of the airline industry. eVTOLs are the likely technology that will replace large airplanes, and JOBY is in the lead currently. Business plan: Take what the rich already love, make it affordable, sell to the masses. Note that JOBY is funded via a SPAC which has literally nothing restricting how it invests, which makes it higher risk. (I am also eyeing MOTO in this category.)

Total percent return shown.

• Lyft Ride-sharing (LYFT ) — APR 2019-Present
  Result: FAIL — Ride sharing was a great disruption of the taxi industry, which had fundamental UX issues, and was structured for the benefit of the owner of the taxi, and not the customer (much like the airline industry is now.) Uber looked good until they sold off all their R+D efforts planning for the future. Lyft got unlucky with Covid, but they never became as competitive as Uber, and failed to become international. I plan to exit my Lyft investment once I can get a 10% return on it after the market bounces back a bit more.

Total percent return shown.

• Canadian pot stocks (ACB) — DEC 2018-SEP 2021
  Result: EPIC FAIL — Conclusion: I invested when pot stocks were being hyped, the company had serious problems delivering, then did a 12–1 reverse split. I sold at $6.74, which was down around 90%. Don’t invest in technologies you don’t understand. Also, use ETFs to distribute risk instead of buying individual companies with poor leadership that can sink the company.

ACB: Total % down for entire investment period.

• Tesla (TSLA) — SEP 2018-Present
  Result: EPIC SUCCESS — Conclusion: One success (i.e. a Unicorn) out of a group of failures can wash out other losses. TSLA was risky, but there were no ETFs for electric cars available (concept to new), and TSLA was leading in multiple sectors (electric transportation, batteries, automated driving, AI). There are more reliable ways to earn good money, but having a few “irons in the fire” similar to this is not a bad way to spend excess capital.

Total percent return shown.

ETFs

Exchange Traded Funds are basically index funds that (until recently) were completely automated and use algorithms/AI to decide on stock purchases based on preset rules. More recently some of them are actively traded (e.g. ARKK), but they are basically a large group of stocks packaged together under one stock ticker. This makes them inherently more stable and quite easy to use.

• ARKX — MAR 2021-Present
  Result: IN PROGRESS…

Total percent return shown.

• ARKK — MAY 2021-Present
  Result: IN PROGRESS…

Total percent return shown.

• VGT — OCT 2017-Present
  Result: SUCCESS — VGT is diversified across a large pool of leading tech companies. Betting against it is betting against the success of the entire new-technology sector for the future. It increases year over year because of both an increasing demand for new types of tech, but also general growth in the market and world population. VGT has a very low expense ratio. It is a great long term investment and it’s cousin QQQ is just as good. I advise this as a starting point for friends trying to make their first long-term investment.

VGT ETF: Consistent 20%+ returns year over year with zero effort.

Leveraged ETFs

For current testing results of strategies using LETFs, see my newer article on this topic.

Leveraged ETFs take the dollar you put in and borrow another $2–3 from a bank and invest that as well (as well as using other forms of leverage such as options contracts). You pay a premium for the service and for the loan, which is automatically incorporated into the stock price you see. It’s similar to buying a house with a down payment and a mortgage (loan), and then selling the house after it has appreciated, or refinancing it regularly. The years of test results below (both back-tested and using real money) have conclusively demonstrated that the idea that leveraged ETFs can’t be held long-term is a complete myth.

• Leveraged ETF Portfolio BLSH Strategy — Dec 2021-Present
  If your goal is to have regular passive income from stocks (meaning exited not open/theoretical returns), then it is important to have your eggs in several baskets at the same time. This means that whichever ETF happens to randomly be in an optimal state, you can still have the opportunity to open or close the position on a regular basis across the portfolio.
  I am currently in the process of moving all of my back-testing from ZipLine to QuantConnect. Consequently I am taking the rare step of simultaneously testing new algorithms both using real cash and back-testing simultaneously (living life dangerously). I also have a third validation strategy via a charting tool dashboard on ThinkOrSwim, which enables visual verification of buy and sell thresholds.
  Goal: Strategy that distributes risk amongst leveraged ETFs, producing average of 10k profit every 2 weeks, primarily using trading based on drawdown levels.
  Results: TBD
• SOXL — MAY 2020-OCT 2021
  Result: EPIC SUCCESS — I have been developing trading algorithms focusing on SOXL for several years. Results have been very positive and it is now one of my primary trading strategies. I have an optimistic view on Leveraged ETFs, despite all the FUD around the topic.
  Update: Back-testing of a buy-low-sell-high (BLSH) strategy heavily relying on ‘drawdown’ values, produced the below chart. On 6/29/2021 I implemented the strategy via RobinHood using real funds and tested it for 122 days. At the end I had $51,091.87 in profit, with a gross monthly return of $12,563/mo. Put differently this was a 50.79% profit for the test period (annualized: 151.97%). This test involved 6 buy-sell cycles with an average hold time of 2–3 weeks. I ended the test, not because it was doing poorly, but because I saw opportunities for improvements that would invalidate the current test, due to changing the algorithm in mid-test. This algorithm is optimized around getting regular returns (at least once a month) as a passive income stream. While this works very well, it is equally acceptable to simply buy during a bear-market and hold until it has completed a large gain (which if held for over a year results in less taxes as well.) I am continuing to use this strategy while exploring some alternatives that may perform better while also decreasing risk.

2-year back test results.

• TQQQ — OCT 2018-Present
  Result: SUCCESS — TQQQ has treated me well when using a buy-low-sell-high(BLSH) strategy with hold times of 3–16 mos. I started initial experiments with TQQQ in OCT 2018, and only stopped them recently when I switched to SOXL. Investments occurred in multiple cycles, but one of them sold for 165% profit in about 4 months (3/15/2020 — 7/20/2020). Another cycle produced a 232% return (Annualized: 557%). None of these investments have produced less than a 20% return, and most were much higher.

Inverse ETFs

Inverse ETFs are similar to selling a stock short, in that the ETF is betting that a group of stocks will go DOWN in value. Instead of buying put options on a group of stocks, you can just buy the inverse ETF and see if it goes up in value when the relevant target market is going down.

• SRTY — NOV 2020-JAN 2022
  Result: EPIC FAIL— The stock market is cyclical, and it has very bad days. These happen regularly, but not predictably. There are strategies for preparing for ‘black swan’ events. Ideally one would simultaneously hold investments that profit if the market goes up, and also investments that profit if the market goes down. Then whichever way the market goes, you can cash out and re-invest. SRTY is an inverse-leveraged ETF, which means it borrows money to extend your investment, and it also bets that the stock market will go down. It tends to spike in value during major disasters (see below). Previously I was down over 60% in value and the ETF performed a 5:1 reverse-split after purchase, which reduced my shares. The market seemed “high and over-valued” when I purchased it, and it has only risen to new heights since then. It is possible I have lost a lot of money, but the theory is still sound that you should hold this type of investment until a large market drop happens (which hasn’t happened).
  As of Jan 2022 I closed the investment with a 58% loss. Two reverse splits happened during the 14 months I held the investment. During that year there wasn’t a “large” bear market, so it is possible that the strategy is sound and I’m just not giving it enough time to play out. However, every reverse-split reduces the number of shares, and even if I get a 100–200% return after another year, the annualized return isn’t great. There could still be a workable strategy here, but betting against the stock market is hard to do since it inevitably goes up (see Part 1). I rarely sell at a loss (I just wait till it turns around), but I felt the experiment had run its course and there were better things to do with the remaining money.

Total percent return shown. Ignore the confusing green, this is a loss.

Crypto

Crypto-currencies are block-chain based decentralized monetary storage and transfer systems. Much like every national currency, cryptos are dependent on whether the users of the system believe that it has value or not. They are in a very early tumultuous stage with high degrees of fraud, and are still trying to determine their eventual form and purpose.

• ETH
  Result: SUCCESS — I am up at least 100% on my ETH, but there was a period of about 4 years where I thought I had lost all of it. Annualized, that is ~25% / year, which I could have earned with less stress and risk by putting it in VGT. This covered my losses in my other crypto investments and 75% of my total crypto portfolio was in ETH. I never owned any BitCoin due to ideological/design reasons. I still think ETH or something like it will be the backbone of a future world digital currency.
• DOGE
  Result: SUCCESS — I got lucky and put some money(not enough unfortunately) in DOGE as a joke. I cashed out a little too early but still got a 300% gain. This was pure luck. If I had been a little more greedy and waited, it would have been an extra 15k in my pocket, but timing the market is impossible in this way.
• Misc Tokens
  Result: FAIL — Most of my other currencies and tokens have lost a lot of value, and the transfer rates to move or convert them can be more than the cost of the currency I own. I view these as a loss at this point, but they will sit there in case they happen to pop at some point, since there’s nothing else do with them.

Options

An option is a contract saying that you think a stock will reach a certain value (either up or down) by a certain date. If it doesn’t become true within the correct time frame (actually well in advance of the end date) it becomes gradually worthless. Options are very close to gambling, with much higher risk levels than many other forms of investing.

• LYFT Call — FEB 2021
  Result: FAIL — I bet that LYFT would go up when it was a bit down. It only needed to go up $0.10 which seemed imminent. It did happen, but not fast enough for the contract window, and I had to sell at a loss.
• VOO Put — FEB 2020
  Result: EPIC SUCCESS — At the time, the stock market seemed very over-valued. I purchased a VOO Put that said it would drop 20%. Within a few weeks, this occurred, and the put value went up 3000% percent, and I cached out with about 6k profit. In retrospect, this was very lucky. My other bets with puts on market drops have failed, usually due to inaccurate timing. I now believe these bets aren’t regularly repeatable, have too much risk, and the same amount of money can be made in easier ways.

VOO Option: I got lucky predicting a market drop.