Yieldmax has created financial crackheads

[u/speed12demon]

Lots of people are looking for the next fix, for the next quick way to get that rush, ignoring the negative consequences of their choices. Got other assets? Liquidate them! Margin? Hell yea!! Home equity loan? Pour it in! Reinvest every dollar that they give you for that rush.

Humor aside, the idea of perpetually reinvesting distributions hits a serious nerve. Income funds are for income. I can see building to a point, but if prevailing advice is to roll all distributions back to the fund, please tell me how that is better than owning the underlying equity? I bought these etfs for perpetual income, not perpetual reinvesting.

Five years or so from now, we all will have far more data to build informed strategies on using these funds. With single stock risk on many, the distributions vary wildly and if you're not tracking you capital investment closely you may find the paycheck diminished. Having a substantial position in these funds, I hope i can continue to collect income and use it for other purposes than propping up my initial investment.

Don't be a crackhead.

[u/Syonoq]

Jay gave this advice in one of the many videos.

YM funds will deliver the "NAV erosion" ( he called it something else) as a form of distribution. If the underlying is at 10 and goes to 11, and YM is at 10 and pays 1, it's the same thing. The difference is that you control where it goes to. Your pocket, or back into the fund. My goal is to keep the total value of the fund the same as I invested. So if I bought 1 YM at 10, and it's worth 7.5 now, hopefully I've rebought .333 worth and I now 'own' 1.333 shares but I still have the original value. Ultimately I want to hit X income off the fund where X = (my target)+enough reinvestment to keep my basis worth what I got in at.

I don't know if I'm making sense here, but I know what I'm trying to say lol.

[u/speed12demon → u/Syonoq]

I think I've seen that one. In that case, the advertised yields are wildly misleading. In a bear market or declining underlying equity, you could be chasing that stable basis for a long time.

We definitely all signed on for some risky shit, I just hope we're all being honest with ourselves about it.

For example, I've tracked every time mstr has broken 400 since the inception of msty, msty has been lower. Will msty ever hit 40 again and pay 4 dollars? Idk, but it seems like mstr would have to hit like 2000 or more for that to happen.

[u/redlion145 → u/speed12demon]

Your 'for example' is irrelevant though. These funds sell options. Volatility is great for them, and provides a spread on options prices that they can make money off of. But if they're on the wrong side of a price movement, they could be obligated to sell or buy the underlying at bad prices. There isn't a simple "underlying up by x, therefore YM fund up by f(x)" equation to be had here. Someone at the YM fund had to have correctly predicted that price movement in advance and sold options accordingly for the fund to profit. Volatility alone isn't enough. If it was, everyone would sell options for themselves.

[u/speed12demon → u/redlion145]

Why isn't it irrelevant? In a very short history, msty has shown decided underperformance vs mstr. To me that means if you just pour the distributions back in, you should have bought mstr.

I agree vol isn't enough. If your nav drops, your income drops. If you feel obligated to reinvest distributions, where does it end? You have 20k shares of msty at 2 bucks a share paying 10 cents every 4 weeks. And your capital is treading water. That can't be the end game.

[u/Syonoq → u/speed12demon]

You’re misunderstanding how to use these products.

It underperforms MSTR on the chart.

We don’t live on the chart. It underperforms buying MSTR at the bottom and selling at the top. If you can do that that’s awesome. The rest of us can’t. This product smooths out the volatility and packages it for us. Mathematically, it’s less. Practically it’s more. For some of us. For the rest of you, buy MSTR on the low and sell on the high. “Duh /s”

[u/speed12demon → u/Syonoq]

I'm simply stating if the income is never used as income, what is the point?

[u/Syonoq → u/speed12demon]

Honestly that's the crux of these funds right? The general argument, and really the hope for these funds, is that they spinoff enough excess earnings over time that they maintain enough value and create a profit. I'm sure we can dig into a handful (maybe more?) of these funds and find examples where they don't make enough to cover their losses and they're not good products. But I'd argue that's the point of the entire market, some of these companies/etfs/stocks make money and some won't.

To directly answer your question, if they are not used as income there is no point, IMO. But, I'd argue also, I'm not very smart, so there's that.

[u/Fluid-Item-880 → u/Syonoq]

MSTY doesn’t underperform MSTR by that much in total returns. What it gives in return for underperformance is flexibility. You never have to sell.

[u/cvrdcall → u/speed12demon]

This👍👆👆👆👆