An Obvious Way to Easily Beat the Market
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I was doing some research last week and something hit me like a ton of bricks.
And it reminded me of tennis (of course).
When I started teaching tennis, I read everything and watched everything on TV.
(Spoiler Alert: there are zero good books out there about learning to play tennis and I've found the YouTube offerings to be equally as effective. But I stopped looking for either a while ago.)
In my mind, I thought I was going to revolutionize how tennis was taught. I broke down every nuance and every inch of every stroke.
I gained a lot of knowledge and a lot of complexity.
And guess what? Complexity doesn't make my student hit the ball in any better.
So, over time, I learned that I could 5x my results by getting 10x more simple. If I let the intricate things (that may or may not work) go and focused on the important things (that always work), my students kept getting better and better.
Now, did I apply that knowledge to trading?
Nope.
I did thousands of hours of research into automated systems that ended up quite complex.
For example, if someone walked into my office and asked me what I was doing, what would be my response?
Nothing.
If the person asking was a beginner, there was no way I could explain what I was doing.
I could fix someone's forehand in five minutes using silverware at a restaurant (true story), but I couldn't explain my automated systems to a beginner if I had five days.
And you know what?
That's not good.
Sometimes the answer is the simple one right in front of our faces.
Actually, that's true most of the time.
So, here's the question:
How do we beat the market?
Is it through complex systems that might eventually fail and/or were over-optimized?
Or is it through a simple system that's guaranteed to beat the market?
Obviously, the second one.
And the answer itself is obvious, too.
First, we have to dumb it all the way down.
We're going to buy-and-hold.
I know, it's not my favorite thing either.
But if we were explaining it to our nine-year-old nephew or our ninety-year-old grandfather, we'd have to keep it super simple.
And now, the big reveal.
To beat the market...we just have to use leveraged ETFs.
If the market goes up, these go up more.
Therefore, if we buy-and-hold over any significant period of time, leveraged ETFs will win.
Every time.
As long as we wait long enough for the regular market to be profitable.
Is this true?
Let's take a look.
Going back 500 days, let's put together a portfolio that's equally weighted and only contains TQQQ and SPXL. No rebalancing (although we probably should). Rebalancing is too complicated.
Since 1/2/2024, here's the comparison of those two ETFs and the market (in the form of SPY):
Combining those two together produces a return of 48.65% overall. And the poor little SPY? Only 27.08%.
That, my friends, is a beating.
And of course it is. The ETFs will always do better than the market. But let's look at one more comparison.
Here's that portfolio since 2018. Remember 2018 had one of the stealthiest Bear Markets in history, and 2020 and 2022 were bad years, too.
Another beating.
$10k invested in the Obvious Portfolio in January 2018 would've turned into $41,000.
$10k invested in SPY would've turned into only $23,710.
So why doesn't everyone do it? A few reasons.
One, people don't like simple.
Two, people don't like that big drawdown. Which is funny. People say they're buy-and-hold and then are concerned about when they'll have to sell. You can't do both!
Three, "well-meaning" "experts" scare people away from an obvious way to do better.
But there's no way around it.
If we want more return, use ETFs that brings in more return.
It can't get more obvious than that.
