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Old 09-11-2014, 07:14 PM   #1

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Buy and Hold Approach to ES

Hi guys,

I am relatively new to futures but am wondering why no one considers futures for longer term investment. I am going to propose an idea that in my mind seems like a good method for a solid 13 to 15% return a year on average using ES, I would appreciate it if more knowledgeable members could cirque it, perhaps I am missing something very obvious. Thanks in advance.


Suppose I have 100k.

Scenario one: I invest the entire 100k in an S&P 500 index like VOO, and on average I achieve a return of 10% per year without accounting for inflation. Overall I would pay $50 dollars management fee a year (.05% of 100k)

Scenario two: I purchase one ES future which currently gives exposure to 100k of S&P 500. As I receive no dividends, average return in a year would be 8%.

Le'ts say in order to purchase the ES future I put 30k into my account. I then put 10k into a savings account with the bank which I can use to top up margin if required (I live in NZ so can get 4.5% interest on this account).

I then put 40k into a conservative mutual fund which allows access to funds within one week (we have one in NZ which has averaged 14% return since inception in March 2010 with very low volatility but lets assume its average return is 8%). This is a further 30k which can be accessed very quickly to top up margin.

The remaining 20k is put into VOO at an average return of 10% a year.

The total return on this 100k would be:

8k from ES (as exposure to 100k worth of S&P)
450 from bank interest
3,200 from mutual fund
2,000 from VOO

This results in a return of 13650 on an investment of 100k or 13.65% per year.

You could just continue rolling over your ES contract which would cost around 64 dollars a year (16 dollars each rollover).

If you started at a bad time (i.e. just before a recession) you may need to top up your margin account but over the long term this seems like a solid strategy to wealth.

In terms of my circumstances, I am young with a lot of disposable income that can be saved, so this slight level of leverage will not be a problem (its only 1.7 leverage). The leverage could even be increased to x2 as this is considered the optimum level over the long term: Here is an article on the subject - http://ddnum.com/articles/leveragedETFs.php

Anyway is there something I am missing which would not make this a viable strategy? Thanks
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Old 01-12-2016, 11:55 AM   #2

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Re: Buy and Hold Approach to ES

The flaw...well, to me there's multiple errors or things that I would do differently.

The biggest issue about doing long horizon trading in futures, is that just because you have a bigger margin of error, you still have to be extremely sharp on your technical analysis. So do not think that because you're going into the contract with the intention to let it sit and it'll at one point be profitable. That's extremely nave.

The current bull market, starting from after the 07-09 recession is f.r sure on it's second half. If you don't know the wave count that we're working on right now, you're going to get your ass chewed apart by just letting a contract ride. Sure, you can keep adding more funds, if you think that's a wise investment. The ESmini is only $50 a point though, so if you don't mind be 1000pts. in the negative possibly then go ahead.

The smartest thing for you to do is to get a firm understanding of the Eliott Wave Principle and trade the wave reversals, the major ones.
Or, what I'm in the process of doing for a friend is putting a large amount in an ETF because you can enter on both sides of the market, but it's "safer" to the people that look at the market like my friend, and like I think you might.
With the ETF you could invest the whole 100k and enter on only the major wave reversals and easily get back $30-$50k/year. It will also depend on the Index and the valuation....

You need to know that because the market is in it's second half of it's 5 wave structure, the end of year earnings for all the indexes are going to start being bad, so any BUY/long position, overall is going to be a bad investment. You need to also have a thorough understanding of the time cycles that're at work right now and how that plays into the wave structure...

You have a lot of work to do, if you want to make a wise purchase.
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