All-in and chill?

It doesn’t make sense to go all-in on a high-leverage version of the Nasdaq index. Here’s why.

In 2010, an American man paid 10,000 bitcoin for two Papa John’s pizzas in the first-ever purchase with bitcoin. Today, those coins would have a market value of almost $650m. Did he overpay? Probably. But, as they say, hindsight is twenty-twenty.

A reader contacted 𝑉𝑎𝑙𝑢𝑎𝑏𝑙 about his colleague’s plan to put all of their money into ProShares UltraPro QQQ (TQQQ), a leveraged version of the Nasdaq 100 index of big American technology companies. The colleague reasoned that since the index has achieved a historical annual return of 40% per year since bankers launched it, they should do well as long as they don’t pull their money out during a drawdown.

But this reasoning didn’t sit well with our reader. He figured it wasn’t a smart move or sound logic but wasn’t sure why. So, should you go all-in on the TQQQ and refuse to sell during a drawdown? No. Apart from that strategy being an elaborate version of a martingale strategy—a betting system in which the gambler doubles his wager every …