How to lose 80% in an investment…

I recently shared this on the Deep Value ETF Investors Facebook group and I thought is was worth sharing here also:

How to lose 80% in an investment… Thank you to E.G. for prompting the thought to examine some of our investing failures. Back in 2013 & 2014 I was frequently trading between UWTI (Bull) & DWTI (Bear) (3x leveraged oil futures ETNs). I thought I was smart because I was making lots of money. Oil was pretty steady between $80 to $110/barrel. So I’d buy DWTI when oil prices went up and sell it as oil prices went down. And I’d buy UWTI when oil prices dropped and sell it when oil went back up. I thought “this is so easy, why doesn’t everyone do this?” Then, later in the 2nd half of 2014 oil prices fell big time and I continued to buy UWTI every 5% drop in oil (or 15% drop in UWTI). Eventually I sank over $30k into this ETN from 2014 through 2016. Towards the end of 2016, it started to look like I might make it out of this horrible investment with a small loss or maybe even break-even. But, no! Credit Suisse decided to close these ETNs and I was forced to close my position with an approximate 80% loss in Nov 2016. I went looking for some records to show this, but Scottrade has since been bought out by TDA, so I only have one record showing my last transaction with UWTI. That transaction is attached but it only represents a portion of my loss because I was doing the same thing in another account. All told, I lost over $25k trading UWTI. Not looking for pity, just sharing my experience so that hopefully somebody learns from my mistakes. Stay diversified friends and by all means either don’t use leverage or use it with extreme caution. Micah

Best Long-Term Performance Trading – Leveraged Equity ETFs 1.1

Before I introduce the data on this group of ETFs, I need to point out the fact that leveraged ETFs are designed as trading vehicles and not long-term investments. If you want to know the dangers of these products you need to ‘Google’ this phrase: “leveraged ETF risk”. You will be inundated with article after article with headlines such as:

“Why Leveraged ETFs Are Not a Long-Term Bet”
“Why That Leveraged ETF Is A Bad Idea”
“Why Leveraged ETFs Are Horrible Investments”
“Leveraged ETFs: Why Investors Should Beware”
“Run, Don’t Walk, From Leveraged ETFs”

This sounds scary, right? Well, if you don’t know what you are doing, or you don’t have a strong stomach for volatility, then yes, you should stay away from leveraged ETFs altogether. But, if after reading all the horror stories about leveraged Exchange Traded Products, including my own horror story, you still feel compelled to purchase these investment vehicles, then this article is for you.

As I stated above, you can find many articles that condemn and warn people about using leveraged ETFs. But, if you search long enough and hard enough, you can find articles written by academics that support the use of leverage with mathematics instead of emotion.

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