I was reading a post on seekingalpha http://seekingalpha.com/article/78032-leveraged-etfs-buy-and-holders-beware-these-are-for-active-traders on leveraged ETFs and the issues with using them in a Buy and Hold strategy. It was tossing a lot of percentages about and I get dizzy when people talk about what happens when you drop 40% and have to gain xx% to get back to where you were.

I always like to do some simple math to see, if the thesis and methodology is correct. My analysis by taking the historical adjusted for splits and dividends showed it was directionally accurate. I didn't worry about absolute accuracy.

I am not so sure, financials are dead. They seem to have a way to keep making money, probably because everybody has to use them. I am less certain, if a bottom is in. There seems to be a water torture way to try to find a new set of problems.

I did a quick study on QQQQ, QLD, and QID to see some real cases.

I picked 5/19/2008 as the closing date and assumed purchases on three dates of an equal dollar amount. The first two dates were picked without paying attention to the market. The third was picked to assure the QQQQ's were high, to see, the effect of the QID's.

One issue with this study is leveraged ETF's are a new phenomena. I could have performed this with Rydex mutual funds and went back much farther.

Purchase 8/1/2006 a few weeks after the launch of QLD.
Gain 5/19/2008 QQQQ 37%, QLD 59%, QID -46%

If you were long QLD, you are much happier than long QQQQ. If you were long QID, you were out to lunch.

Purchase 7/31/2007 a year later.
Gain 5/19/2008 QQQQ 5%, QLD 1%, QID -16%

Spinning wheels, unless you were in the bearish QID.

Purchase 10/26/2007 chosen to have a fairly high QQQQ
Gain 5/19/2008 QQQQ -8%, QLD -20%, QID 9%

Only QID would have you happy and you would be much happier, if you had bailed from it on March 10, 2008. Gain 5/19/2008 QQQQ -23%, QLD -44%, QID 65%

This suggests, if you can play horseshoes with tops and bottoms, you can make yourself very happy with leveraged ETF's.

All these percentages are adjusted for dividend payouts. Yes, even leveraged ETF's may pay out dividends at times.


********** Switching Gears********

Leveraged funds have a couple of other characteristics. 1) They are
not an investment in equities, but in futures and other derivatives. Therefore, they do not always meet their 2x objective, even while in a trend and occasionally beat it. 2) On some of them the spreads and the intraday hysteria may make them significantly off their tracking index.


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All the usual disclosures apply, this is for education and not advice to trade or invest on. You are responsible for your own decisions.