The message board thread that caused ripples throughout the finance world

See original post and follow up discussion on /r/slatestarcodex here

The thread, HEDGEFUNDIE’s excellent adventure, on the message-board Bogleheads, has become a 150+ page (two part) forum thread with significant influence on the finance/investment world.

Some things to note: Bogleheads is a forum for nerds to discuss investing. A Boglehead refers to a fan of John C. Bogle, the founder of Vanguard, and the person credited with creating the index fund. Unsurprisingly, the message board primarily consists of people who are enthusiasts of index investing and in general, focus on more conservative, simple investment strategies.

The thread was created by a user named Hedgefundie, who I believe used to work at a hedge fund, but is otherwise, just a random member of the community. The purpose of the thread was for Hedgefundie to describe his proposed investment strategy: based on the idea of risk parity, investing in two 3X leveraged ETFs, one holding the S&P 500 index (UPRO) and the other holding long-term US treasury bonds (TMF).

In the first post, Hedgefundie explains his basis for doing this with lots of conceptual arguments and empirical data. I encourage you to read through it.

You can read someone else’s summary of the investment idea here:

The next 150+ pages are dedicated to the Boglehead community discussing the idea, doing analysis, compiling data and working together to improve upon it. More than one year later, based on all of the collective contributions made by user’s in the thread, there have been new modifications to the investment strategy and a bunch of conceptual breakthroughs. While the thread was created by one user, there are now tons of people on the forum (and elsewhere) doing their own variant of the “Hedgefundie” strategy.

The important takeaway from the thread is that a large amount of people think the investment idea is conceptually strong and likely to provide superior returns in the future than alternative investment strategies.

What started as an unassuming thread on a message board has now spread all over the internet. If you google “Hedgefundie’s excellent adventure” or “55% UPRO / 45% TMF”, you will see people discussing this investment strategy everywhere (often to significant praise). Of course, the investment strategy has now also been talked referenced by many “names” in the finance world and has received lots of publicity.

I make this thread for two reasons:

1) I am a big fan of forums and think this thread is a wonderful example of the importance forum’s have and how beneficial they can be. It’s so nice to see something that started on a forum spread so far (especially with real world impact).

2) To the extent lots of finance nerds find this to be a very interesting and potentially lucrative investment strategy, I thought it was worth exposing it to the SSC community – both for people who may find it conceptually interesting, and for the people who may incorporate be interested in incorporating the idea into their investment strategy.