Thoughts on Leveraged ETFs - Short term vs Long Term

For some time now, I have been a vocal opponent of using double and triple leveraged ETFs as long term investments. ETFs are a great way to quickly invest in a theme or bet against a sector. The 2x and 3x ETF's have become one of the most popular kind, providing investors with an opportunity to theoretically capture 200% to 300% performance of underlying bet by using swaps, that SETTLE DAILY.

The reason the long term perfomance of these ETFs falls short of the intended results is attributed to the compounding, which results in tracking error. The DAILY COMPOUNDING is the achilles heel of these ETFs. A recent article in Seeking Alpha, makes similar points. There are several charts there that illustrate the point.

http://seekingalpha.com/article/132329-leveraged-etfs-beware-the-performance-conundrum

I hope that everyone really takes the time to read prospectus or at least understand why they make a lousy investment. You can spot on your thesis and still lose money because of longer term effects of performance decay. Additionally, 2X and 3X are volatility beasts. If you get your timing even slightly off, you may need to kick you out the trade (unless you have unlimited resources or have the stomach to sit on a 50%-70%+ losses). Use them as short term volatility bets only.