Summary Last 5 years: In daily forecasts, one of every 20 offered upside gains of 3 times the downside exposure, with promises delivered in 7-week holding periods. Average worst-case price drawdowns experienced of -5.6% were recovered from in every case but one, at a typical 178% CAGR. Forecast sell-price targets were subsequently reached every time, averaging +14.6% profits. Today’s Market-Maker [MM] hedging actions implied forecast of +16.4% upside has the same reward-to-risk proportions as these successes. No guarantees, just encouraging reassurances from many frequent actual experiences during varied market conditions across several years. ProShares UltraPro QQQ ETF (NASDAQ: TQQQ ) is the Winner Out of 40+ leveraged long ETFs and 400 other widely held and actively-traded ETFs, TQQQ offers the best demonstrated productive reward-to-risk performance. Here is how Yahoo Finance describes TQQQ: The investment seeks daily investment results, before fees and expenses, that correspond to three times (3x) the daily performance of the NASDAQ-100 Index ®. The fund invests in securities and derivatives that ProShares Advisors believes, in combination, should have similar daily return characteristics as three times (3x) the daily return of the index. The index, a modified market capitalization-weighted index, includes 100 of the largest non-financial domestic and international issues listed on the NASDAQ Stock Market. The fund is non-diversified. Here are relevant facts about TQQQ’s market capitalization and transaction behavior: (click to enlarge) As can be seen, TQQQ is a substantial, highly liquid, actively-traded Exchange Traded Fund. Despite Yahoo’s format description, any fund that tracks 100 of the largest non-financial domestic and international issues has strong diversification capabilities. Risk? What risk? Since we are claiming its “reward-to-risk performance” is superior, the determination of “reward” and the definition of “risk” are essential. Despite the prevailing professional investment delusion, price volatility is not risk. It may contain risk, but it also contains the reward prospect of potential upside price change gain. And risk is about harm or loss, not about unexpected happy surprises. The problem of using volatility as an excuse for the proper description of risk is that the proportion of harm, compared to the proportion of benefit, contained in volatility is neither static – unchanging over time – nor necessarily usually equally balanced between the two components. Yet the statistical procedure usually determining volatility assumes both errors. How much potential harm – risk – there is in committing capital to any investment is bound to be a function of both the current transfer price of the investment and the changing prospects for the ending transaction price that returns liquid capital to the investor. That whole pricing proposition is constantly subject to change, and cannot be adequately described by an historical measure of things now over and done with. Instead, most investment analysis spends an inordinate amount of time and effort in describing things that may cause the future price end of the transaction to be determined, and pays little attention to the near end. Resulting buyer-bias tends to excuse recent hikes in price because large upside potentials still appear possible, even likely. Seller-bias fears those recent hikes in price as unfounded and hazardous, given sellers’ appraisal of the future. That is what makes a market, but it cannot exist well in the near vacuum of a one-pair comparison, where the subjects are the perceived value of the investment compared to the investor’s perceived value of cash. What keeps a market functioning is multi-subject comparisons between currently committed investments and prospective alternative capital commitments. The cash alternative is a lazy worker in today’s economy, and that has little current prospect of changing. The competitive focus thus shifts to alternatives with differing reward-risk tradeoffs. What impacts the reward side of the risk vs. reward trade-off is that commodity we are all given for free, and as a result may often treat it carelessly. The commodity is TIME, which is always invested alongside of every capital commitment. Recognition of that investment is embedded in the measurement of investment progress, the RATE of return calculation. It is usually expressed as CAGR, compound annual growth rate, where time is an exponent in the calculation. That makes time a more muscular component in the equation, compared to all the other variables, which are linear to each other. But time is a power function. Any power function can be either a help or a hurt, and should be treated with respect. Each unit of capital can only perform its power leverage once in a unit of time, and if it fails to add to the progress of the investment towards the intended goal there has been a loss that may not be recognized in capital, but gets incorporated in the CAGR calculation. That deficiency is what maims most conventional buy & hold passive investment strategies, resulting in their delivering at best single-digit CAGRs while well-performed active investment strategies are delivering strong double-digit returns. The limitation of exploiting a high-volatility opportunistic active investment strategy comes back to the investor’s own risk tolerance limits. The investment opportunity that never encounters a holding temporarily priced below original cost is a rather rare event. The test in achieving a desired investment goal is whether, during the time required to produce the satisfactory (necessary) CAGR performance, the investment must encounter a price drawdown beyond the investor’s limits. If that happens, sensible risk-management disciplines require preventing further loss and the seeking of an alternative, improved means of liberated capital employment. So one effective way of describing risk is to determine the most likely worst-case exposure to intolerable price drawdown. Since the investor’s limits are an unknowable variable, but extreme price drawdowns can be determined at various balances of risk-vs.-reward forecasts, we take that approach and let investors be aware of those calculations, and use their own choice of personal limit-guided actions. What has been TQQQ’s risk-reward (our definitions) experience? Figure 1 pictures the evolution of market-maker forecasts of coming price ranges for TQQQ in its vertical lines. They are split by the then current market quote at the time of the forecast into upside and downside prospects. The balance between those daily expectations provides investment guidance as to timing of capital commitments. The top of the forecast range offers a reasonable sell target to be aimed at, within a reasonable holding period time limit. Figure 1 (used with permission) The days’ ranges in green highlight the instances where the upside opportunity is extreme and the downside exposure expectation is minimal. The trend of range forecasts gives a further indication of what may be coming. Our measure of that up-to-down balance, the Range Index [RI] tells what percent of the whole forecast range is between the bottom of the range and the current market quote. The row of data below the Block Trader Forecast [btf] picture identifies the current RI as 26, indicating three times as much upside potential as downside. The thumbnail picture at the bottom of Figure 1 shows where today’s RI is in the distribution of all daily forecasts of the last 5 years. In the data row between the pictures, the Sample Size provides a count of similar prior RIs – 65 being fairly numerous and reasonably frequent, more than 5% of the time or about once a month. When we apply our standard portfolio management discipline to the 65 prior forecasts for TQQQ like today’s, we find that they collectively earned an average gain of +14.6% in average holding periods of 34 market days, or about 7 weeks. And that includes the one experience in 65 that could not recover from the average worst-case price drawdowns of -5.6% to be at a loss at the end of our 3-month holding period limit. The 64 of 65 is what produces the Win Odds of 98 of 100. The true Reward-to-Risk calculation for TQQQ is a comparison of either the promise of the price-range forecast’s +16.4% upper end (which MM hedgers pay to be protected against if short) or the actually achieved +14.5% payoffs, net of loss, versus the encountered worst-case price drawdowns average of -5.6% while holding the investment at risk. These are both 3 to 1 measures in favor of the investor. We use the price drawdown condition as risk because that is the point in time where the investor is most likely to lose faith in his/her judgment and “throw in the towel” by selling the position at its worst possible point. Investors who are reassured by the experience of prior forecasts having high Win Odds of recovery have a strength of commitment not shared by risky choices that have experienced recoveries from drawdown trauma in only two out of three cases or “long-odds” situations even worse than a coin flip. Risk is an emotional dimension, not a statistical one based on a history of all possible experiences, whether invested in the subject or not. The investor’s behavior is key in the outcome, not that of a removed, quantitative analyst seeking some static norm. Conclusion TQQQ ranks better than all other ETFs currently, on the probability of earning a profit in the coming 3 months, in combination with the size of the payoff and its likelihood of having the committed capital freed up promptly for reinvestment in a new promising vehicle. Less than a dozen individual stocks are competitive with TQQQ on the same basis, and in today’s market environment the differences are slight.