ProShares ETFs, Chapter Two - A Very Sad Read

I recently received a survey in my email from ProShares, a family of ETFs touting its registered trademark, "ETFs, Chapter Two®." The survey was aimed at its triple levered "index funds," which give you three times the exposure to the stock market, and its inverse triple levered index funds, which give you three times the exposure of betting against the stock market.

Since the stated purpose of this questionnaire was to educate, I thought I'd share my answers to the short survey and explain my answers.

Which best describes you?

Financial adviser - Technically I'm an adviser who writes and teaches.

Please rate how strongly you agree or disagree with the following statements:

I have followed news about leveraged and inverse funds over the past 12 months.

Strongly agree - I follow all indexing even if that indexing is through closet active funds that try to outsmart the market.

Leveraged and inverse funds can be valuable investment tools.

Strongly disagree - These funds have nothing to do with investing since investing only accepts more risk for a greater expected return. These funds increase risk and lower expected returns and are pure speculation, otherwise known as gambling.

I understand how leveraged and inverse funds work.

Strongly agree - They are designed to give you triple the thrill or pain of the market or the opposite of the market, with much higher costs. They work to give advisers tools to transfer money from the client to them at a much faster pace.

I understand how to use leveraged and inverse funds.

Strongly agree - Investors should never, ever use them.

Leveraged and inverse funds typically deliver the results they are designed to achieve.

Strongly disagree - While I'm happy to say I wasn't part of the design team, based on the marketing materials I've seen, these are unlikely to deliver positive results for investors.

Leveraged and inverse funds are typically not suitable for investors who plan to hold them for longer than one trading session.

Strongly agree - As mentioned, I don't think they are suitable for any investors. Is a holding period of more than one trading session considered long-term by ProShares?

There are effective ways to use leveraged and inverse funds for longer-term investment strategies.

Strongly disagree - Gambling isn't part of investing.

I understand how compounding can affect leveraged and inverse fund returns.

Strongly agree - The higher volatility from these securities compounds in such a way that illustrates the unfortunate math of being right half the time. The market can go nowhere and you will still lose a lot of money. These products fully harness what John C. Bogle calls the tyranny of compounding.

Intraday trading is the most effective way to use leveraged and inverse funds.

Strongly disagree - Intraday trading and leverage are both negatives. In this case, however, multiplying two negatives doesn't yield a positive.

Leveraged and inverse funds should be available to all financial professionals without restrictions by firms or regulators.

Strongly disagree - With the track record of professionals being so poor, giving us another vehicle to trick the market is a bit like taking financial advice from bailed out financial institutions.

Leveraged and inverse funds should be available directly to retail investors.

Strongly disagree - I'm all for choice, but there are exceptions. I wouldn't give guns to children.

Thank you for your time.

ProShares, you are quite welcome. It was my pleasure to educate you on the differences between gambling and investing.

My advice to readers

Equity investing is risky enough without leverage, without inverse investing, and especially without both. Higher risk for a lower expected return is the kind of thrill I go to Las Vegas for. At least I have fun in Vegas.

It's easy for someone to give you a sophisticated explanation of how you are going to make a bundle in the short-run. It's actually quite exciting. Unfortunately, the more excited you are about an "investment," the more likely it is that you are just gambling instead.

There are a lot of close calls when it comes to investing. This isn't one.

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