StockFetcher Forums · General Discussion · 10 Steps to Retire a Millionaire<< 1 2 3 >>Post Follow-up
rharmelink
81 posts
msg #68810
Ignore rharmelink
10/26/2008 5:07:05 PM

>> For the record all my IRA's have been in cash well before the start of this year.

Well Done! Was that based on a specified exit criteria? What entry conditions are you looking for?

> The most popular argument is that if you try to time the market you'll miss out on the large gains at the start of bull markets.
> My two cents on that is, why don't they ever talk about the other side of that argument? What if you had missed out on the
> humongous losses of all the bear markets?

I agree it is a lame reason.

> From the studies that I've seen, avoiding the bear is more advantageous for your portfolio than missing the bull.

I've done such studies myself. And, yes, from what I've seen avoiding the worst down days is much better than losing out on missing the best up days. However -- they do tend to come pretty close to each other. If anything, it would appear volatile times are best to ignore. Certainly, better on the nerves!

=========================================================================================

To me, the KEY for market timing would be to be long on the few up days and short on the few down days. That would make you more than anything. But even something like the "tried and true" Halloween effect isn't all that impressive -- but it did do very well this year and in 2000-2002.

But -- the whole point of "Buy and Hold" is that it is a no-effort method. And I doubt you could find a 45-year time period where the amount returned by T-bills or other such "safe" investments outperformed the market. Even with a number of 30-40% declines in that 45 years. But, hindsight is safe.

One of the better long-term methods I've seen is DecisionMoose ( http://www.decisionmoose.com ). Performs well, and with only a few transactions each year. Unfortunately, Black Box.

maxreturn
745 posts
msg #68811
Ignore maxreturn
modified
10/26/2008 7:20:30 PM

Slotmarket, you're absolutely correct. My 401-k money has been out of equity mutual funds since last October. At that time I warned other people in my office to lighten up on their exposure but they ignored my advice. Why did I do this? I could cite any number of technical reasons but the main reason is price had moved up nearly 5 years into a MAJOR resistance area...the 2000 highs. How far did price drop from the Oct 2000 highs...nearly 750 s&p points. Now pull up a quarterly chart. When the low of the Oct/2000 bar was taken out this was a pretty solid signal of a prolonged downtrend. A quarterly high was not taken out DECISIVELY again until the March/2003 high was taken out. Now look at when the Dec/2007 quarterly low was taken out. The S&P is now trading at 876.77 nearly a year later. This is not rocket science folks. Very simple, consult the longer term charts before executing your trade and you'll save yourself a lot of grief and get the kind of clarity that the noise of lower time frame charts cannot provide. Yet I'm amazed at how many times I've illustrated the power of using longer time frame charts in other posts but have gotten very little feedback. Oh well, can't say I didn't warn you.

FuriousThug
256 posts
msg #68815
Ignore FuriousThug
10/27/2008 1:35:59 AM

Beyond the whole "missing the best days" theory, there are other problems I find in the buy-and-hold strategy. (Okay, if you're Joe Blow who just socks away money every year and doesn't have the time or the inclination to pay attention, buy and hold is likely the best approach...but I'm not sure there are any of those on this site...).

To begin with, you have to understand who the buy-and-hold proponents are: financial advisors. Of course, their interest is to have you 100% invested 100% of the time...that's how they're paid. Hence, the market soothsayings we've all heard before (e.g., missing the best days, etc.).

Cash seems to be a dirty word to investors. It doesn't keep up with inflation and, over the long run, becomes worth less and less. I have trouble reconciling this idea when a $100,000 portfolio is turned into cash in July and by October, had it been left as is or even rebalanced, would be worth $60,000. Sorry, but the value of cash isn't deteriorating THAT fast. On top of this, how long will it now take your portfolio to claw back to its original $100,000? A year? Two years? Five years? Now you can start criticizing the cash, because you've just spent years rebuilding capital you lost to the "opportunity cost" of your money.

Risk: Contrary to popular belief, buy-and-hold is THE riskiest investing method there is. The reason? You are 100% exposed to risk 100% of the time. Every day you are OUT of the market reduces your risk exposure. Leslie Masonson in "All About Market Timing" (McGraw Hill, 2004) writes "It is true no one can predict the market's future course. That does not mean that you just give up and keep your money invested 100 percent of the time, when you know with 100 percent certainty that bear markets will occur and take away a major percentage or all of your profits every three or four years."

I've spent the past year crash-coursing myself on investing and trading. Probably the most important lesson I've learned that appears to apply equally to both is in capital preservation. Why would I focus on honing my trading skills to preserve and build capital but completely ignore the same when it came to long-term investing?

FT

chetron
2,817 posts
msg #68817
Ignore chetron
10/27/2008 6:41:26 AM

DON'T YOU JUST LOVE THAT NEW CHARLES SWHAAB COMMERCIAL, " THAT'S JUST THE WAY IT GOES, YOU JUST HAVE TO ACCEPT IT AND WAIT IT OUT". ROTFLMAO.



TheRumpledOne
6,358 posts
msg #68819
Ignore TheRumpledOne
10/27/2008 9:23:04 AM

maxreturn
10/26/2008 7:20:30 PM

Very simple, consult the longer term charts before executing your trade and you'll save yourself a lot of grief and get the kind of clarity that the noise of lower time frame charts cannot provide. Yet I'm amazed at how many times I've illustrated the power of using longer time frame charts in other posts but have gotten very little feedback. Oh well, can't say I didn't warn you.

================================================================================

Price is the SAME ON ALL TIME PERIODS!!

If you are NOT looking at a 1 - Tick chart then you are looking at an INTERPRETATION of what price is doing!!

There is no NOISE!! Where do you think the longer time period charts get there data?

Price from date/time X compared to price at date/time Y is the same no matter if it is a 1 minute, 1 hour, 1 day, 1 week, 1 month or 1 year chart.

There is no "magic" time frame.

Looking at a longer time period just means you are looking at more data in the same amount of chart area.

DO NOT BE FOOLED!








maxreturn
745 posts
msg #68821
Ignore maxreturn
modified
10/27/2008 9:41:33 AM

TRO, let me ask you a question. Let's assume for the moment that you are a swing trader focusing on moves of several days - several weeks off the daily charts. Let's say in October, 2007 you got a buy signal which occurred right near the highs established in 2000. Do you think it would have been valuable to know that in fact you were approaching such historical highs? How would you have known that without consulting a longer term chart? Would you have taken that buy signal knowing it would likely fail? Let me ask you another question. Have you actually compared a monthly or quarterly chart to a daily chart from the time frame of 10/07 - 10/08? You tell me which time frame looks more noisy? If you were a swing trader trading off the daily or even weekly charts you would have known to focus primarily on short opportunities due to the price action on the longer time frame charts. I think I understand why you don't see the value of this because of your trading style. But not everyone trades in the time frame or the style that you do.

rharmelink
81 posts
msg #68841
Ignore rharmelink
10/27/2008 8:08:38 PM

> To begin with, you have to understand who the buy-and-hold proponents are: financial advisors.
> Of course, their interest is to have you 100% invested 100% of the time...that's how they're paid.

I would disagree strongly. They make more money having you TRADING than with buy-and-hold.

> Contrary to popular belief, buy-and-hold is THE riskiest investing method there is. The reason?
> You are 100% exposed to risk 100% of the time. Every day you are OUT of the market reduces
> your risk exposure.

If I recall correctly -- in comparing the long-term returns of a number of different types of investments for one of his books, James P. O'Shaughnessy concluded that the biggest risk was not taking the risk. It's easy to reduce risk. The key is to balance risk and return.

Take a look at the long term charts -- many 30-40% declines in the past are now just minor blips on the chart.

http://stockcharts.com/charts/historical/Print/djia1900print.html

And that chart is just for the index, so it excludes dividends.

FuriousThug
256 posts
msg #68844
Ignore FuriousThug
10/28/2008 2:54:37 AM

rharmelink
- Ignore rharmelink 10/27/2008 8:08:38 PM


I would disagree strongly. They make more money having you TRADING than with buy-and-hold.

If I recall correctly -- in comparing the long-term returns of a number of different types of investments for one of his books, James P. O'Shaughnessy concluded that the biggest risk was not taking the risk. It's easy to reduce risk. The key is to balance risk and return.

_____________________
I think we agree, actually (hence my caveat at the beginning about how buy-and-hold is, indeed, the best option for Joe Average).

However, by investing more time and more effort than Joe Average, I'm expecting better returns than Joe Average...is all I'm saying.

I heard a great malapropism today: "Don't just do something...Stand there!" It was in the context of an investor who'd gone 100% cash at the end of 2007. The point was, you don't HAVE to always be doing something. In my case, going to cash in July (and with the addition of inverse ETFs, you technically can maintain your 100%-O'Shaughnessy gestalt if you like), means I have above-average returns...compared to any index and even at measly money-market rates.

There have been a number of interesting timing tests just with simple MAs (long above the MA, in cash below the MA...or short depending on your risk tolerance). Robert Colby's test of the DJI from 1900 to 2001 tested MAs between 1 day and 385 days...and every single one of them beat buy-and-hold. The shortest lengths fared the best (obviously, as the signals are a lot quicker...though you'd incur a lot of trading costs as well). In the intermediate term, a 66-day SMA was 31 times better than B&H.
Of the long term lengths, a 126-dma was 2022.54 percent more profitable than B&H. (!!) And only 21% of the trades were profitable over the 102-year time frame, as the wins averaged out to be about 5 or 6 times greater than the losses. Average number of days for each trade's length was 42.

Just one more example: John Murphy of Stockcharts.com did a 50-dma Nasdaq Composite Index test.
"In the 30 years from 1972 to 2002 a 'buy-and-hold' strategy reaped a gain of 1,105% in the Nasdaq. A simple timing strategy of selling whenever the Nasdaq fell under its 50-dma (and re-entering when it rose back above it) reaped a profit of 13,794%. In the 10 years from 1993 to 2002, a 'buy-and-hold' strategy yielded a Nasdaq profit of 93%. By utilizing the 'sell discipline' of the 50-day average, that Nasdaq profit jumped to 280%."

It's easy to get whipsawed on shorter-term timing, and unless you establish some sort of stop loss on longer term timing strategies you can end up giving back a lot of your profits before getting the crossover signal...but, hey, do we not aspire to do better than Joe Average?


rharmelink
81 posts
msg #68871
Ignore rharmelink
10/28/2008 9:17:36 PM

Sigh. Another set of "systems" for me to look at. Invariably, I notice one of two things:

-- It rarely works on any other equity or index
-- If you vary the number of days up or down a bit, you can get radically different results

Either of those scream "data mining" result to me.

Hmmm. I'm not seeing the results you mention at all. I just looked at the DIA ETF:

Year B&H SMA5 SMA10 SMA66 SMA126
All 1.3128 1.4219 1.3251 1.0168 1.2554
1998 1.1938 1.0424 1.0400 0.9985 0.9827
1999 1.2410 1.2126 1.0513 1.0242 1.0297
2000 0.9607 0.9312 1.0002 1.1908 1.1985
2001 0.9613 0.9699 0.9316 0.9617 1.1230
2002 0.8697 1.0334 1.0213 0.9653 1.0241
2003 1.2452 1.0623 1.1590 1.0215 1.0297
2004 1.0474 0.9620 0.9696 1.0546 1.0480
2005 1.0303 1.0391 1.0433 1.0856 1.1041
2006 1.1704 1.0913 1.1116 1.0531 1.0383
2007 1.0722 0.9144 1.0123 1.0658 1.0650
2008 0.6543 1.1374 0.9654 0.6852 0.6831

Those are factors, so 1.3128 means 31.28% return overall. I don't see moving averages consistently beating B&H.

Year B&H SMA5 SMA10 SMA66 SMA126
All 0.5896 2.0712 1.5647 0.3840 0.4866
1999 1.7886 1.3913 1.2834 1.1242 1.0000
2000 0.5673 0.9436 1.1989 0.6158 0.7844
2001 0.7724 1.0049 0.8889 1.0454 0.7720
2002 0.6315 0.8596 0.8792 0.6201 0.7666
2003 1.4373 1.2295 1.3273 1.1250 1.1242
2004 1.0949 1.0642 0.9933 1.0263 1.1460
2005 1.0475 0.9767 0.9652 1.0192 1.0791
2006 1.0487 1.1483 1.1719 1.0362 0.9935
2007 1.1678 1.1079 1.1318 1.1472 1.1876
2008 0.5901 1.1235 0.7709 0.6117 0.6391

I can think of three reasons for the different results:

-- I'm not doing the calculations correctly
-- Dividend-adjusted data acts differently
-- Opening prices give different results than closing prices

This is the formula I'm using in EXCEL (cell K5, copied down):

=IF(ROW()-ROW(K$4)>K$3,IF(ISNUMBER($C7),IF(AVERAGE(OFFSET($F5,0,0,-K$3,1))>=$F5,$C7/$C6,1),1),1)

K$3 contains the moving average interval to use
C$6 is tomorrow's opening price
C$7 is the following day's opening price
$F5 is today's closing price
Data sorted in ascending order by date


rharmelink
81 posts
msg #68873
Ignore rharmelink
10/28/2008 9:54:09 PM

Oops -- second table was QQQQ.

StockFetcher Forums · General Discussion · 10 Steps to Retire a Millionaire<< 1 2 3 >>Post Follow-up

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