Do Not Attempt to Forecast

Forecasters are no better than highly paid fortune tellers. Do not be deceived. Follow momentum and valuations. Fundamentals are important. Getting something cheap increases the chances of outperformance over time, and the level of capital gains. Charts indicate when the catalyst acts.

2017 has started well for all sectors except Asian bonds. I am holding fast to the theory that the momentum will carry us up to the second half of 2017. Beyond that, we could see a huge correction. Something more damaging than 2011 and 2015. Perhaps the bear will come.

I'm up 30% for the year. It's been a good 13 months for me. 

How to Treat Leveraged ETFs

I was disillusioned with Direxion and Velocity ETFs. They are leveraged 3x. Sometimes 4x. Look at RUSL, from 22 to 111 within 1 year. Vs RSX, from 11 to 22, which is 100% same period.

I realised that for leveraged etf, if you are right, you can make a lot. But if you are wrong, you can be down a lot more. It makes it very difficult to recover. That's why lots of leveraged ETFs got reverse stock splits. Because their prices collapsed by 90% - 95%.

Yet, it is illogical that I can make money in Funds and ETFs, but not in leveraged ETFs. Finally, I realised that the way to treat leveraged ETFs is to treat them like buying a call or put options. They have an expiry date and over time, they are worthless. It's more like warrants in fact because the expiry dates are usually 1 to 2 years. Leveraged ETFs usually do well if the trend is in its favour for a year or two. After that, it burns out when the trend turns and ends up lower than the start. Ultimately, they are worthless and the stocks reverse split several times. Warrants is similar. They have a shelf life of several years and thereafter worthless if below strike price

For sectors, I would cap it at 20%. For single stocks, 10% of portfolio. For leveraged ETFs, 3% of portfolio.

If my portfolio is 1m, I would cap energy sector at 200k. First State Global Resources for example. For single stock, e.g. Miyoshi, I'd cap it at 100k. For ERX, I would cap it at 30k and be prepared for it to expire worthless.