Is MPT and buy and hold DEAD?
It seems MPT is dead. The whole house burned to the foundation with everything perfectly correlated to go down 50% + in a perfect symphony of wealth destruction.
Or did most forget that a healthy dose of fixed income was a key part of MPT asset classes?model portfolio isnt dead, just busted. the firms still want you to peddle their great asset allocation models in mutual fund wrap accounts. the money managers win, and the firm wins. 2 out of 3 aint bad.
As your screen name indicates, you don’t understand the whole concept. The idea is returns of a large period of time vs. other possible outcomes. Of course I don’t expect a ‘daytradah’ to comprehend a time horizon that’s not measured in minutes.
SouthernBorker:
So your 50 year old growth clients are now 65 and your brilliant advice to buy and hold over the past 15 years with your MPT and Monte Carlo illustration delivered what? A break even at best? You and Bill Miller need to drink another beer and wash down that crow stuck in your throat.
In the long run we are all dead so yes it all works out that we wont need to access our money. Your magical answer to everything is just give it time....Wow that is DEEEEEP.
Appearantly You have no concept of point in time risk or "useful life' of an investment horizon.
You are probably telling your 65 year olds they can wait this out and it will all come back. Just hold on and close your eyes Millicent....You dont need the money right now anyway..... Its only a "temporary" unrealized loss.. AHaAahahahahahmm…break even? I think not.
Try 15 year annual average of 10.5% with single largest loss coming in 2008 @ -22%. Unfortunately, 17% of that was in Oct & Nov. Prior to '08, next largest loss was in 2002. That year we lost a whopping 0.8%. I doubt a daytradah can see the value of those returns--but we're pretty damn happy thus far...so are our clients that dont pay daytradah commissions... Regardless of what you might think--it DOES work....and quite well.Buy and hold worked perfectly fine from 1975-1999. That’s 24 years. Secular markets turn, and we don’t always know when that will be. Buy and hold is the clear winner in a Secular Bull. Buy and Hold kills you in a Secular Bear, even when there are Cyclical Bulls mixed in (i.e. 2002-2007 was a cyclical bull inside a secular bear - obviously just holding from 2000-2009 didn’t work well, unless you knew exactly when to “stay-holding”).
If you tried market timing and using absolute return strategies from 1975-1999, you would have far under-performed a simple buy-and hold strategy. The same can be said for 1942-1972. This is not my opinion, it is fact. It's not that either camp is wrong, it's that it's about what investing "era" you are working with.Certainly buy and hold has not worked overly well over the last few years, but then again we’re living in a culture where the media thinks ‘history’ is what we had for breakfast.
It would seem that NOW we are in a PERFECT environment to start building a portfolio of good quality stocks to buy and hold for a 5-10 year time frame. Just about everything is cheap, so now you just need to determine which ones are most likely to be survivors, which are most likely to maintain their dividend(since yields are so high) and which have the best potential to out perform.
Buy a little bit of the first one you find that fits that criteria, put it away on the shelf and then go back and start digging for the next one. Things are so cheap right now the hardest thing is figuring out what to buy first.
Of course, the strategists and so-called gurus won’t tell you that. They’re too busy arguing over what the market will do in the next 6 months, and whether you should have 25% or 50% gold in your portfolio.
The world is on sale people. Don’t miss it because you’re too busy trying to figure out which exotic trading strategy you want to deploy this week.
Hyman, you are correct. My problem is trying to get people to overcome their fear, and I’m telling people to let this thing do whatever it’s going to do, and then we’ll start to nibble. I’m now getting pushback on that. Loads of fear, which of course is what a buyer wants.
Will keep plugging.buy and hold works even through 95% of bear markets. it’s that once in a lifetime economic downturn that it doesn’t
stocks went down 87% from 1929 to 1932.
Ireland stock market is down 80% since it’s peak a couple years ago
Japan stock market is 81% lower than it’s peak in 1989
[quote=josephjones107]buy and hold works even through 95% of bear markets. it’s that once in a lifetime economic downturn that it doesn’t
stocks went down 87% from 1929 to 1932.
Ireland stock market is down 80% since it’s peak a couple years ago
Japan stock market is 81% lower than it’s peak in 1989
[/quote]
Yep. That horse is already out of the barn.
So what is your point?
this is the once in a lifetime economic downturn, we could see 2800 on the dow
My Dad, an old Air Force pilot, told me as a boy, many times, the old “when all about you are” etc… He really drilled that in my head. It seems to me that now is not the time for academic discussions of mpt. Common sense, and trying to give your gut instinct best common sense advice is the best thing we can do.
We know that this may be a long slog, get income on your stocks, buy highest quality balance sheets for debt and equity pieces. Average back in, etc..... Most of all, and I'm speaking to myself here, have the courage to face these clients with a look towards the future. We've all probably done a pretty good job avoiding a good bit of this massacre. Get back in the game. Get on offense, even if its just telling people that you will get them moving forward again, if only with baby steps at first. Common sense when dealing with people is usually a good place to start. They are scared, acknowledge that. They have good reason to be fearful. It aint pretty. But, in the end, Americans usually acknowledge and solve their problems, and historically, many of the worlds problems.So 1991 levels? Why not we’re already at 1997 levels!
[quote=iceco1d]Lets have a little fun with this…
For all of the "MPT is dead" and "Death of Beta-Centric Portfolio Mgmt" people...lets start a healthy discussing of why exactly you feel MPT is "dead" and/or doesn't otherwise work. Please be SPECIFIC about the pieces of MPT that you feel are incorrect, not applicable, and/or broken/damaged. Just curious. [/quote] In response to your question, I sorta feel like the guy after Hurricane Katrina who was asked to discuss specifically why the levees failed. I don't know why the levees failed, but I do know my house is under water. More specifically, it eems the correlation models failed spectacularly, especially when pricing mortgage risk. And it turned out that bonds and stocks CAN fall at the same time, along with every other asset class (except Treasuries). And I've read some stories that suggest the historical models that built these strategies didn't go back further than 20 or 30 years. ... I know my firm built portfolios to handle inflation risk, but discounted market risk. ... I could go on, but it seems there has been a massive failure of risk management, largely caused by people believing that we had solved the business cycle. And by people who leaned on MPT and other models.Alan Skrainka put out a great piece for us this morning. I’d get in trouble if I just copied and pasted the whole thing, so I’ll just pull some quotes.
First, he calls this time frame a black swan event. Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations. Simply put, you can't statistically predict everything that will ever happen. No matter how many times you crunch the numbers, sometimes things just go wrong. A poet once wrote "the best laid plans of mice and men oft go awry." Second, buy and hold does work, even after a time like this. Everyone's thinking about the Great Depression and the crash of 1929. NOBODY is thinking about 1933, 1934, 1935, or 1936. If you would have bought into the S&P with dividends reinvested 4/20/32, not at the bottom of the downturn but in the middle of it, your returns would have looked like this: 1 yr - -58.8% 3 yr - -4% 5 yr - +4.8% 10 yr - +.5% (there was a good sized bear in 1937) 20 yr - +7.7% So, you take the worst market we've ever seen and invest right smack in the middle of it and you averaged 7.7% over the next 20 years. If you would have held on for a few more those returns would have gone up pretty well because 1954 and 1955 were phenomenal years. Better than the 1990's. So, to my simple brain, buy and hold still works. MPT still works. Of course when you throw in human emotions, which are running really high right now, it might make you think that we need to reinvent the wheel. We don't. We just need to push on the gas so the wheel will start turning again.Spaceman, excellent post.
Spiff,
I don't disagree with anything you've put in your post. And it's all well and good but what about your 55-70 year olds that have had money invested are taking withdrawals or were going to start taking withdrawals as income. The numbers work extremely well if you have 20 years to invest and not take an income. Jones has always been good about touting that but I'm trying to manage portfolio' in the real world in real time. My people under 50 aren't worried one bit about this, it's my 55 and older crowd that are freaking out.1932 was the stock market bottom in the depresssion. It’s easy to use that year as a starting point to make your numbers look good
MPT has never worked because to much is charged in commissions a year to make it a viable strategy. It is nothing more then a scape goat, and gives branch managers a reason to say quit looking at what the market is doing an go prospect. You could effectively do it now with ETF’s especially adding into it reverse etfs but then you wouldnt make enough money to survive. The problem with the whole platform is FA’s cant effectively do their job for their clients and make a living. Best solution is to go with what has always worked fairly well, bear markets buy commodities and utility stocks and during the bull buy equity stocks and start phasing in fixed income.
This time is different, and part of being an FA is realizing the investment climate and reacting accordingly. When every asset class on planet earth is uniformly collapsing–including the very homes our clients are living in–you need to go to cash or, if you can, short ETF’s.
I resigned from Smith Barney on December 30th. I manage accounts on a fully discretionary basis, and in September went to cash. In October, I went short the market, and was immediately in violation of SB’s investment guidelines for GPM managers. In December, I was told to put my clients back into the market by 12/31, and that my failure to do so would be construed as my resignation from the firm.
Going down the halls during those lousy Oct-Dec months (I wasn’t there in Jan or Feb, but I’ll assume it’s the same) I would hear all the FA’s with all their talking points, cajoling clients not merely to wait it out, but to add more capital if at all possible. And every dollar that’s been added is now worth two thirds that.
In bull markets, everyone looks like a genius. Buy-and-holders, daytraders, dividend players, 130/30 strategies, alternatives–everyone. It’s easy to make money in the environment we’ve seen in the 25 years or so leading up to 2007. A good FA is one who saw the big picture, and acted. There’s a time to listen to what’s going on in the lives of our clients’, and in their companies and in their homes, instead of using every phone call from them as a chance to sell something else.
[quote=Spaceman Spiff]Alan Skrainka put out a great piece for us this morning. I’d get in trouble if I just copied and pasted the whole thing, so I’ll just pull some quotes.
First, he calls this time frame a black swan event. Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations. Simply put, you can't statistically predict everything that will ever happen. No matter how many times you crunch the numbers, sometimes things just go wrong. A poet once wrote "the best laid plans of mice and men oft go awry." [/quote] You can tell by that piece that Skrainka hasn't even read The Black Swan. I'm not sure I grasp all the essentials, but one of the things Taleb wrote was the highly improbable events happen all the time but humans have a limited capacity to factor them into our predictions.Nice post. Good points.This time is different, and part of being an FA is realizing the investment climate and reacting accordingly. When every asset class on planet earth is uniformly collapsing–including the very homes our clients are living in–you need to go to cash or, if you can, short ETF’s.
I resigned from Smith Barney on December 30th. I manage accounts on a fully discretionary basis, and in September went to cash. In October, I went short the market, and was immediately in violation of SB’s investment guidelines for GPM managers. In December, I was told to put my clients back into the market by 12/31, and that my failure to do so would be construed as my resignation from the firm.
Going down the halls during those lousy Oct-Dec months (I wasn’t there in Jan or Feb, but I’ll assume it’s the same) I would hear all the FA’s with all their talking points, cajoling clients not merely to wait it out, but to add more capital if at all possible. And every dollar that’s been added is now worth two thirds that.
In bull markets, everyone looks like a genius. Buy-and-holders, daytraders, dividend players, 130/30 strategies, alternatives–everyone. It’s easy to make money in the environment we’ve seen in the 25 years or so leading up to 2007. A good FA is one who saw the big picture, and acted. There’s a time to listen to what’s going on in the lives of our clients’, and in their companies and in their homes, instead of using every phone call from them as a chance to sell something else.
in the 20s leverage on stocks wiped people out.
today, our country has the leverage but it’s on homes
good financial advise is to keep leverage low
[quote=Spaceman Spiff]Alan Skrainka put out a great piece for us this morning. I’d get in trouble if I just copied and pasted the whole thing, so I’ll just pull some quotes.
First, he calls this time frame a black swan event. Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations. Simply put, you can't statistically predict everything that will ever happen. No matter how many times you crunch the numbers, sometimes things just go wrong. A poet once wrote "the best laid plans of mice and men oft go awry." Second, buy and hold does work, even after a time like this. Everyone's thinking about the Great Depression and the crash of 1929. NOBODY is thinking about 1933, 1934, 1935, or 1936. If you would have bought into the S&P with dividends reinvested 4/20/32, not at the bottom of the downturn but in the middle of it, your returns would have looked like this: 1 yr - -58.8% 3 yr - -4% 5 yr - +4.8% 10 yr - +.5% (there was a good sized bear in 1937) 20 yr - +7.7% So, you take the worst market we've ever seen and invest right smack in the middle of it and you averaged 7.7% over the next 20 years. If you would have held on for a few more those returns would have gone up pretty well because 1954 and 1955 were phenomenal years. Better than the 1990's. So, to my simple brain, buy and hold still works. MPT still works. Of course when you throw in human emotions, which are running really high right now, it might make you think that we need to reinvent the wheel. We don't. We just need to push on the gas so the wheel will start turning again. [/quote] Space, I have to sort of disagree on this one. Skrainka made valid points, but if I were to go to any of my clients (even the 40 year-olds) and tell them that in 20 years, they MAY have a shot at 7.7%, and that in 10 years, they MAY break even, I would have ACAT's coming out my behind. I realize the point that this is theoretically the "worst case" scenario, but keep in mind that many/most clients only recently made back their 2000-2002 losses. So there are lots of people out there with that 10-year break-even number NOW. To think they may have to wait another 20 years to make a reasonable equity return is just egg on their faces. So, the facts aren't wrong, I just don't like the message this sends. Personally, I think Skrainka is making up for his "hold-through-anything" strategy.This may be a point for a different thread, and of course hindsight is 20-20…but I wonder how unpredictable the “perfect storm” really was. I am no economist, but I read somewhere that at the height of the real estate boom house prices increasing almost 40% year over year, while the average income in America was only increasing it’s standard 3-4% (unless you were a mortgage broker, of course). That is clearly unsustainable…in this case, there isn’t a MPT that would work. I would argue that we (financial professionals), or at least the people we lean on for the nuts and bolts of the numbers, whose research we depend on, should have caught that. IMO, the lesson we should learn from the debacle is that financial professionals should have a more holistic approach and understanding of what we put our clients in, MPT’s be damned.
With the markets down close to 50%, why sell now? Isn’t that professing to have the ability to time the market? If you are confident in your conviction you can time the market, why didn’t you sell or short the market at 14,164?
What are your options if you do sell? Go to cash at 1.5%? And how the hell will you know when to get back in the market? After it's up 50%? I know I'm preaching to the choir here. Thanks to the 24 hour news, these swings are largely emotional. Emotions don't last, the value of highly skilled people and excellent business models do. MPT and BAH make sense 90% of the time. Those close to retirement that were 100% in equities didn't learn from all the examples past, apparently. StokEasy steps to financial success
1. Focus on having zero debt, including no mortgage
2. get 2 years of income in cash
3. your age should be the % invested in fixed income, rest in equities and some commodities
problem is most adivsors like to skip 1 & 2 b/c they don’t make any money on those
Jo Jones,
I'm not necessarily disagreeing with you on this but let's just say I'm a 40 year old teacher and my wife is a teacher and we have two kids. We both make $45,000 a year. We've been given zero financial help from parents. How would we not have a mortgage and how would we have saved up $90,000 just to be sitting in cash?in 11 years, if they had averaged 90k per year they’d have made over a million in income before taxes. They should be able to figure out a way to live in a way where there house is paid off and they have an emergency cushion.
[quote=Spaceman Spiff]Alan Skrainka put out a great piece for us this morning. I’d get in trouble if I just copied and pasted the whole thing, so I’ll just pull some quotes.
First, he calls this time frame a black swan event. Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations. Simply put, you can't statistically predict everything that will ever happen. No matter how many times you crunch the numbers, sometimes things just go wrong. A poet once wrote "the best laid plans of mice and men oft go awry." Second, buy and hold does work, even after a time like this. Everyone's thinking about the Great Depression and the crash of 1929. NOBODY is thinking about 1933, 1934, 1935, or 1936. If you would have bought into the S&P with dividends reinvested 4/20/32, not at the bottom of the downturn but in the middle of it, your returns would have looked like this: 1 yr - -58.8% 3 yr - -4% 5 yr - +4.8% 10 yr - +.5% (there was a good sized bear in 1937) 20 yr - +7.7% So, you take the worst market we've ever seen and invest right smack in the middle of it and you averaged 7.7% over the next 20 years. If you would have held on for a few more those returns would have gone up pretty well because 1954 and 1955 were phenomenal years. Better than the 1990's. So, to my simple brain, buy and hold still works. MPT still works. Of course when you throw in human emotions, which are running really high right now, it might make you think that we need to reinvent the wheel. We don't. We just need to push on the gas so the wheel will start turning again. [/quote] I think one of the problems in comparing past returns, has to do with were the country was... We were primarily manufacturing back then, then since that point in time the country has revolutionized(real word??) itself into what it is today... Financial Capital of the world, and creators of great ideas(electronics,medicine...etc)... Where else is there to go, when you reach the top??? I think those past returns were predicated on the idea that this country was always evolving improving itself... Second Point... Of course Alan is going to say that, he can't come out and say "Oh ummm by the way, that whole buy and hold thing that we thought worked... turns out it doesn't"... reminds me of what Greenspan said when he was interviewed..."My assumptions that were right for so long seemed to have been wrong" or something like that.. Third Point... technical analysis.. You can insert most funds, including index, and see when the price drops below the 200 day moving average, it's time to get out... worked in 2001 and 2008..and before that too...With the markets down close to 50%, why sell now? Isn’t that professing
to have the ability to time the market? If you are confident in your
conviction you can time the market, why didn’t you sell or short the
market at 14,164?
If you couldnt tell it was getting very bad at the beginning of 2008 and was going to get much worse, then you are just blind to functioning of the economy. You will never get every little up and down turn, but all it takes is going cash on half the portfolio even as early as mid 2008 to put your client in a much better situation. Know as fear sets in start buying into the market gradually increasing your positions as things get better. Its not an all or nothing deal, take a % out and add some back when levels look good. Its just a matter of sidestepping a few big corrections every decade or so, and on the other end you can't be greedy and try to get the maximum out of the market on the bull runs.
Don't buy. Rent. It's cheaper, you don't lose mobility, and you don't tie up all your wealth in a highly leveraged asset. Plus you don't have to pay a 5 percent commission to sell it.in 11 years, if they had averaged 90k per year they’d have made over a million in income before taxes. They should be able to figure out a way to live in a way where there house is paid off and they have an emergency cushion.
Jo Jones,
We'll agree to disagree on this but in 11 years at 90,000 a year is only $990,000, not over a million and you are assuming that the couple was at that amount from year one to year 11. There is a real world out there, you may not live in it but your clients do! I hope you aren't telling your clients that it's their fault they are in this mess because they're idiots! Back to the MPT dead or alive: The basic idea of MPT is diversification. For all the people that believe MPT is dead are you saying you don't believe in diversificaton?[quote=buyandhold][quote=Spaceman Spiff]Alan Skrainka put out a great piece for us this morning. I’d get in trouble if I just copied and pasted the whole thing, so I’ll just pull some quotes.
First, he calls this time frame a black swan event. Black swan, if you're like me and hadn't heard that term before, is a large impact, hard to predict, and rare event beyond the realm of normal expectations. Simply put, you can't statistically predict everything that will ever happen. No matter how many times you crunch the numbers, sometimes things just go wrong. A poet once wrote "the best laid plans of mice and men oft go awry." [/quote] You can tell by that piece that Skrainka hasn't even read The Black Swan. I'm not sure I grasp all the essentials, but one of the things Taleb wrote was the highly improbable events happen all the time but humans have a limited capacity to factor them into our predictions. [/quote] That was one of the quotes he used in the piece. I just didn't put it here.For all the people that believe MPT is dead are you saying you don’t believe in diversificaton?
* * * *
Sure I do. Right now we’re diversified in short positions across international, domestic, fixed income, commercial real estate, and financials. Also we’ve got a lot of cash. We’ve got an extremely well-diversified portfolio of short positions.
It’s a little more sarcastic than you were looking for, probably. But over the past year, MPT, well-diversified portfolios are down 60%. Where I live, that’s a failure of both theory and practice. MPT works in bull markets, because even during up markets you have sectors that fall apart. In deflationary bear markets, nothing works on the long side. The key to a good manager is knowing which kind of economic climate we’re really in.
But you’re diversified!
This is asolutely NOT true. I cannot understand why seasoned intelligent professionals continue to spout this BS. WEll diversified portfolios are NOT down 60%. Period. That is BULLsh*t! If yours are, you were not diversified. You did not do your research and you got lazy. Buying 4 fking american funds that are on a glossy brochure is NOT diversfication. Down 24-25% for all '08..up 5% this year. Do some GD research.
It’s a little more sarcastic than you were looking for, probably. But over the past year, MPT, well-diversified portfolios are down 60%. Where I live, that’s a failure of both theory and practice. MPT works in bull markets, because even during up markets you have sectors that fall apart. In deflationary bear markets, nothing works on the long side. The key to a good manager is knowing which kind of economic climate we’re really in.
Don't buy. Rent. It's cheaper, you don't lose mobility, and you don't tie up all your wealth in a highly leveraged asset. Plus you don't have to pay a 5 percent commission to sell it. [/quote][quote=josephjones107]in 11 years, if they had averaged 90k per year they’d have made over a million in income before taxes. They should be able to figure out a way to live in a way where there house is paid off and they have an emergency cushion.
....said the wise man AFTER the housing market went down 25-30% nationwide.
Tell ya what...I'll buy the house and you sign a lease and I'll rent it to you. I get the tax advantages and the equity, and you get the 'flexibility'.
Bodysurf:
You are getting at the heart of my point. MPT assumes temporary downturns it doesnt assume collapse and WEALTH DESTRUCTION. Can you say Nikkei. We are 25 years of no growth and counting....
30% of the wealth that was perceived to be in the market is now carbon molecules returned to the atmosphere in the form of smoke and ash. Buy and Hold is fantastic if you have a revolving 20 year time frame everytime we bear up. My main point is if you are 50 + years old and were advised to hold 70% stock because you identified yourself or your advisor told you that you were a "growth" investor, you are now looking at 50% loss for starters. I am cleaning up a shyt load of portfolios that had far too little fixed income and were far too aggressive. Any one posting that they know the market will come back in the next few years is simply expressing an opinion of HOPE. Hope doesnt buy groceries or take you on a cruise. You are more likely to live out the remainder of your retirment years with 1/2 the income you thought you could reasonably generate. If you are going from $5MM to $2.5MM not that big of a tragedy, but $1MM to $500k is serious and so on down the line. In short, the retirement you thought you had is TOAST. You can rationalize like this administration that we didnt really need all of that money anyway. All of your hardwork and overtime was just your greed and you needed a good spanking. The govt can do it better. Now you will be forced to rely on the govt and learn to love the way they provide for you.[quote=iceco1d]
70% equity and down 50% huh? Man, I've seen 100% equity portfolios that aren't down 50% yet...you must have some real studs running that money!
Personally, I don't have any 50 y/o's with 70% equity. Not because "I saw this coming" - it's just not necessary IMO. Finally, after 5 pages, not a single person has actually stepped up with anything to validate the claim that MPT doesn't work and/or is "dead." In fact, the only things that I've seen posted simply validate the fact that most of us don't even really know how to quantify what MPT actually says, let alone explain why your claim of "it's dead" is broken. I don't know where some of you are getting your numbers, but I don't have a single client that's down anywhere near 50%. And as for those you keep saying are "screwed" for retirement...I don't think I have a client over 45 that's even down 30%, let alone 50%. I'd say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008. Really. I just don't get it. [/quote] preach it, brother. can I get an amen?[quote=stocksandblondes][quote=iceco1d]
70% equity and down 50% huh? Man, I've seen 100% equity portfolios that aren't down 50% yet...you must have some real studs running that money!
Personally, I don't have any 50 y/o's with 70% equity. Not because "I saw this coming" - it's just not necessary IMO. Finally, after 5 pages, not a single person has actually stepped up with anything to validate the claim that MPT doesn't work and/or is "dead." In fact, the only things that I've seen posted simply validate the fact that most of us don't even really know how to quantify what MPT actually says, let alone explain why your claim of "it's dead" is broken. I don't know where some of you are getting your numbers, but I don't have a single client that's down anywhere near 50%. And as for those you keep saying are "screwed" for retirement...I don't think I have a client over 45 that's even down 30%, let alone 50%. I'd say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008. Really. I just don't get it. [/quote] preach it, brother. can I get an amen?[/quote]Sure. Amen.
[quote=daytradah]
Bodysurf:
You are getting at the heart of my point. MPT assumes temporary downturns it doesnt assume collapse and WEALTH DESTRUCTION. Can you say Nikkei. We are 25 years of no growth and counting...
Any one posting that they know the market will come back in the next few years is simply expressing an opinion of HOPE. Hope doesnt buy groceries or take you on a cruise. You are more likely to live out the remainder of your retirment years with 1/2 the income you thought you could reasonably generate. If you are going from $5MM to $2.5MM not that big of a tragedy, but $1MM to $500k is serious and so on down the line. In short, the retirement you thought you had is TOAST. You can rationalize like this administration that we didnt really need all of that money anyway. All of your hardwork and overtime was just your greed and you needed a good spanking. [/quote] 25 yrs of no growth?? Really? NONE? You are truly looking at some sh*t that I just dont see. I can pull hundreds of accts in a minute that have made some TREMENDOUS gains in alot less time than that. Heres my thoughts on this--and i HAVE said this to clients that wanted to go all cash--If you truly believe that this market i.e. this country is NOT gonna come back +/- a few years..Like it has EVERY TIME before...take your money, put it under your matress, and stock up on beans and bullets.cause we're all fked anyway. Any if YOU believe this--your in the wrong damn profession. Your not helping anyone. All we've EVER had is the hope that the future will be better than the past--why else would you get out of bed in the morning?[quote=iceco1d] Lets have a little fun with this…
For all of the “MPT is dead” and “Death of Beta-Centric Portfolio Mgmt” people…lets start a healthy discussing of why exactly you feel MPT is “dead” and/or doesn’t otherwise work. Please be SPECIFIC about the pieces of MPT that you feel are incorrect, not applicable, and/or broken/damaged.
Just curious. [/quote]
There are no transaction costs in buying and selling securities. There is no brokerage, no spread between bidding and asking prices. You pay no taxes of any kind and only “risk” plays a part in determining which securities an investor will buy.
An investor can take any position of any size in any security he wishes. No one can move the market and liquidity is infinite. You can buy a trillion dollars worth of stock in a small speculative mining stock or buy one cent worth of Berkshire Hathaway. Nothing stops you from taking positions of any size in any security.
The investor does not consider taxes when making investment decisions, and is indifferent to receiving dividends or capital gains.
Investors are rational and risk adverse. They are completely aware of all risk entailed in an investment and will take positions based on a determination of risk, demanding a higher return for accepting greater volatility.
High volatility does not give better results, nor does lower volatility give lesser results.
Investors, as a group, look at risk-return relationships over the same time horizon. A short term speculator and a long term investor have exactly the same motivations, time horizon and profit target. Regardless of who you are, you will always give an investment the same amount of time to work out and volatility will be your only concern.
Investors, as a group, have similar views on how they measure risk. All investors have the same information and will buy or sell based on an identical assessment of the investment and all expect the same thing from the investment. A seller will be motivated to sell only because another security has a level of volatility corresponding to their desired return. A buyer will make a purchase because this security has a level of risk corresponding to the return that he wants.
Investors seek to control risk only by the diversification of their holdings.
All assets, including human capital, can be bought and sold on the market.
Investors can lend or borrow at the 91-day T-bill rate - the risk-free rate - and can also sell short without restriction.
Politics and investor psychology have no effect on the markets.
Quit being so touchy, people. Godalmighty.
A lifestyle that emphasizes a balanced diet and exercise works over the long term too. And yet sometimes we still have to go to the hospital, and the doc says to quit running for awhile until you get better. So you claim to be down 25-30% last year, and up 5% THIS year, despite having the worst January in history. Let’s assume that’s even true; are you “staying the course”? Are you counseling your clients every day that this time is just like previous recessions? Because I have one question: what if it isn’t? The banking system isn’t functioning; asset prices are collapsing across the board; we’ve just elected the most Socialist government in American history, who controls two branches. Have you told your clients that we might be going into a market like the 1970’s, when we have stag-deflation for two years, followed by high inflation? What will you do then? What if we go into a really protracted downturn, akin to the early 1930’s or the 1890’s?
You asked me why I get up in the morning, and I’ll tell you. I’m bearish, I’ve been ferociously bearish since September of last year, when this credit cycle finally ended. I was a stay-the-course guy, a buy-and-hold guy until the second week in September, when I realized it wasn’t going to work. So our job now is to save as many as we can. I’ve been telling business owners and clients, “I seriously hope I’m wrong about these markets. And if I am, you’ll see it in your business, soon enough. Your receipts will be going up, your payrolls will expand, and your profits will be back where they were before. And we’ll miss the first 20% or so of the next bull market, which is a chance I’m willing to take.”
"But if I’m right, your account with me will be the only thing IN YOUR LIFE that’s working."
That’s why I get up in the morning. 99% of FA’s on planet earth go to work every day, just like you, and they believe their job is to keep clients in the worst markets, and clients wonder to themselves, “if he knows so much, why didn’t he see the train wreck coming in his own company’s stock?”
I’d say for clients between the age of 45 and 85, their returns range anywhere from -23% (ish) to +2% (ish) in 2008.
* * * * *
I'm curious as to what investments they have, that they're up 2% (ish) in 2008. It's got to be cash and CD's, and some Treasuries. Because corporate bonds, preferreds, utilities, stocks--are ALL down double digits in 2008.
[quote=daytradah]
30% of the wealth that was perceived to be in the market is now carbon molecules returned to the atmosphere in the form of smoke and ash. [/quote] Boy am I glad this new stimulus bill passed then. Perhpaps we shouldn't be all that upset about the carbon capture program that was a part of the bill. Now I understand why it was so important. No worries. Prez Obama's gonna fix everything. He's got a great plan.Bodysurf:
Posters are highly anxious because their books are cut in half and clients are not buying the 'stay the course' advice. They are now or will be leaving soon. 2008 was Shock and awe. 2009 =the Grindhouse which will cruelly provide false rallies and rangebound returns that destroy any vestige of patience left in 50 year old "growth" clients
You are correct about this administration. Obama is a hardcore ideologically committed leftist. He has declared war on business and has rolled out the class warfare banner. He is pursuing the REDISTRIBUTIVE policies he told us he would. When he talks about "REBUILDING" America stronger and better, its not what Reagan pursued.
Obamas "REBUILD" will be FRANCO style socialism that will erase decades of growth. It is seen by many that it is unpatriotic to conclude we have indeed reached the tipping point in Americas economic productive capacity but it will not be understood until most portfolios are down well beyone 50%. There are always things we can do, short term bonds, cash rich companies corp bonds, shorting the market, capturing dividends on select stocks......and then praying for the capital appreciation portion of the story to come back in a retirees useful lifetime which is within 36 months. We have an administration that is securing and successfully growing entitlement voters faster than productive voters in order to lock up the democratic powerbase for the next several elections. Barney Frank, Dodd, Schumer have successfully deflected their responsiblility for this debacle onto greedy business people who make more than $250000 per year. Everyone who owned stock funds that were in small cap, intl, large cap growth and value are down 50% plus. Anyone who denies it is fudging and pillow biting.this is no recession
Not being touchy--not a bit.
Just completely worn out from all the gloom and doom, the-sky-is-falling BS pumped out ervery friggin day. My point is still the same--if this time IS different, and the market goes to zero--we're all screwed and nothing we do matters anyway. If they needed the money we have in the market to live on right now, or w/in 2-3 yrs---it shouldnt have been in the market anyway, so they can afford to ride it out--and reap the rewards of DCA/systematic investing and dividend reinvestment. Inflation in 2 or 3 years? Shouldve been buying TIPS. Take a look at Frontier Managed futures Balanced fund. +28% for 2008. Up about 5% this year. Add 10% of that to a portfolio GREATLY reduces downside.The fallacy of the false choice. Markets don’t have to “go to zero”, and your clients who wonder if they should be in cash temporarily shouldn’t be confronted by a touchy FA who tells them instead to buy gold, shotguns, and canned goods.
Sometimes the sky is falling. Once every hundred years or so, the banking system falls apart, resulting in deflation everywhere. Every asset class gets wiped out. Maybe you're right--maybe all we need is a heavy dose of Obamanomics and a few more hearings and everyone will be excited to be lending again. Maybe the home price data put out half an hour ago is the last shoe to drop, and we're up--up-and-away from here in real estate markets. Maybe the annihilation we've seen in base commodities are a head-fake, and world demand is going to be picking up any day now. Maybe businesses are just itching to hire back millions of people they've just gotten through laying off, because they've got a big pile of new orders rollling in. Or maybe this is one of those events where prudent people sit back, and keep their powder dry, and absorb the big picture. Just because I'm short the market doesn't mean I'm short America, or I'm not a long-term optimist. I am. And when the smoke clears, my clients will be able to sift among the rubble, and buy whatever they want at fire sale prices. 40% short ETF's with out-of-the-money covered called; 35% long equities with deep-in-the-money covered calls with sell stops; 25% cash. And no phone calls from concerned clients--those ended back in September.Once every hundred years or so, the banking system falls apart, resulting in deflation everywhere.
You speak as if this has gone on for centuries. It happened in the 20s/30s and now. My market/banking history doesn't go back to the 1800s, but please tell me, after making a comment like this, that the banking system fell apart in the 1800s, 1700s, and 1600s and be specific for my own benefit.
[quote=Incredible Hulk] [quote=Bodysurf] Once every hundred years or so, the banking system falls apart, resulting in deflation everywhere.
[/quote]You speak as if this has gone on for centuries. It happened in the 20s/30s and now. My market/banking history doesn't go back to the 1800s, but please tell me, after making a comment like this, that the banking system fell apart in the 1800s, 1700s, and 1600s and be specific for my own benefit.[/quote] Not to speak for bodysurf, but there were at least five occasions in the 1800s when the banking/money system collapsed. The history of Europe is pretty much rife with money collapses. You really want to scare yourself, look what happened to Spain in the century after it imported so much gold from South America.
Google is your friend. As long as governments have been coining money, there have been booms and busts in the financial systems. And as long as governments have been able to print and borrow money denominated by the same currencies, the booms and busts have been that much more severe and protracted.
I’m not preaching the fall of the Roman Empire here. Just a severe retrenchment in the banking system, and a very harsh recession. And if you care to define a ‘depression’ as the worst recession anyone below the age of 85 can remember, that’s where we’re going.
When the S&L’s failed in 1988-1991, it precipitated a sharp and painful recession. Total losses to the banking system: $160 billion. That’s about what we’ve got in one company–AIG. Tack on Citi, Wachovia, Countrywide, Bear Stearns, Lehman, BAC, anyone who was in the vicinity of these CDO’s–you’ve got $2.5 trillion and climbing, every day. If we stopped going down right now, you’re looking at a collapse 15 times more severe than in 1991-2.
Plus, it’s happening worldwide. It’s worse in Europe than here. For you bulls, you’re running out of places to hang your hats.
MPT is a tool. In most markets, it works: it shiels the investor from losing everything as a result of having all his eggs in one basket. It rebalances periodically to take advantage of values created by falling prices in certain asset classes. But like all tools, it’s not appropriate at all times in all places. Our clients pay us to understand the big picture, and to move accordingly. Listen to them occasionally. “Mr. Jones, how’s your business doing? Oh really, you don’t remember it EVER being this bad?” Do that ten times a day for a few weeks across your entire book, and that might mean something.
[quote=Bodysurf]The fallacy of the false choice. Markets don’t have to “go to zero”, and your clients who wonder if they should be in cash temporarily shouldn’t be confronted by a touchy FA who tells them instead to buy gold, shotguns, and canned goods.
Sometimes the sky is falling. Once every hundred years or so, the banking system falls apart, resulting in deflation everywhere. Every asset class gets wiped out. Maybe you're right--maybe all we need is a heavy dose of Obamanomics and a few more hearings and everyone will be excited to be lending again. Maybe the home price data put out half an hour ago is the last shoe to drop, and we're up--up-and-away from here in real estate markets. Maybe the annihilation we've seen in base commodities are a head-fake, and world demand is going to be picking up any day now. Maybe businesses are just itching to hire back millions of people they've just gotten through laying off, because they've got a big pile of new orders rollling in. Or maybe this is one of those events where prudent people sit back, and keep their powder dry, and absorb the big picture. Just because I'm short the market doesn't mean I'm short America, or I'm not a long-term optimist. I am. And when the smoke clears, my clients will be able to sift among the rubble, and buy whatever they want at fire sale prices. 40% short ETF's with out-of-the-money covered called; 35% long equities with deep-in-the-money covered calls with sell stops; 25% cash. And no phone calls from concerned clients--those ended back in September.[/quote] I hear ya--I really do. Like I said--not being touchy. Any more than your being a pessimist. An the sh*t storm coming off of Pennsylvania Ave. scares the bejesus out of me personally----given the gun-toting, conservative southern heritage I was blessed with. However-- dont have the bennefit of fore-sight..not God, or nostradamous..gotta hope and pray what worked last decade-- and the one b/f that, and the one b/f that, and so on-- works again. If not--we're all just guessing. I could do that at home. So could you. At no charge.Yep--I agree. NOT what started the diuscussion though. You asked if MPT was dead. I presented my thought as to why it was not. It may be inappropriate at the moment. Hell, a nice fat variable annuity rider can weather this for years. Folks like the sound of a stream of income forever right about now.
Our clients pay us to understand the big picture, and to move accordingly. Listen to them occasionally. “Mr. Jones, how’s your business doing? Oh really, you don’t remember it EVER being this bad?” Do that ten times a day for a few weeks across your entire book, and that might mean something.
The biggest flaw in MPT is what’s happened lately. The idea that all one has to do is select a broad mix of non-correlated assets. Well, guess what? In times of the meltdowns we’ve seen in the past nine months, there’s no such thing as non-correlated assets. When you have the entire world economy predicated on the premise of easy lending and borrowing, and every asset on the planet dependent on that continuing, there’s no such thing as non-correlative assets. Harvard’s endowment is finding that out right now. As it happens, real estate in Dubai and Los Angeles ARE correlated; ditto for corporates in Topeka and Taiwan. The economy needs a healthy banking system, and we don’t have one.
I love VA’s, and came to realize that the only flaw in MY models was the possibility that insurers wouldn’t be around to pay the guarantees. Clients who have a statement that shows Pru or ING is contractually obligated to pay out $225,000 on a contract now worth $95,000, courtesy of quarter ratchets and daily compounding (in Pru’s case) might feel good for now, but without a market rebound, are all the insurers going to stand behind them?
I’m an active portfolio manager, with full discretion. Maybe that’s why we see the world through a different lens. I’m looking forward to the days I can go long again, and do what I do best, without having to be completely defensive. But that’s not going to be anytime soon.
And rebalancing is a feature of the mean-variance optimization technique employed by MPT practitioners. I have an MBA in finance, and am familiar with all the jargon these guys throw around. But considering I don’t have much regard for rebalancing, or MPT, it doesn’t affect my practice much.
I guess we go back to P/E, and Price to Book. Maybe Taleb was right and the Black Swan rules from here on out.
IndyEDJIMHO MPT’s goal is to identify an acceptable level of risk tolerance, and then find a portfolio with the maximum expected return for that level of risk, can’t see that ever going away.
Funny you should mention MPT practicioners and alcholics, I believe that there is a connection between MPT practicioners and alcoholism, especially if the market keeps going south. I know I'll be one of those.
Okay Icey–if MPT works for you, that’s fantastic. If your clients are happy, and you are, what’s there to complain about?
I honestly don’t understand your metaphor. Are you saying that you use MPT, but don’t rebalance? Or that rebalancing and MPT are mutually exclusive? Or that do use one and the other is just coincidental? Because I’ve had to sit in these silly Asset Allocation conferences in my wirehouse days, where the gospel of MPT and portfolio rebalancing was preached all day long. Thought it was stupid then, think it’s stupid now. But I’ve always been an active manager.
So different strokes for different folks, I guess.
Stoxandblondes:
You are having a blonde moment...Yes it is correct that the Nikkei has not shown any sustained growth for 20 years plus. It did what is known as a full technical retracement after going "VERT", and has flatlined ever since . . . . . just like our market as measured by the broad indexes went VERT and has imploded with a 50% crash that has not officially bottomed.
There are very real and striking technical parallels when you overlay the S&P or Nasdaq or Dow on top of the Nikkei chart.Isn't is spelled Icie? Been a while since I was in a 7-11.Okay Icey–if MPT works for you, that’s fantastic. If your clients are happy, and you are, what’s there to complain about?
I honestly don’t understand your metaphor. Are you saying that you use MPT, but don’t rebalance? Or that rebalancing and MPT are mutually exclusive? Or that do use one and the other is just coincidental? Because I’ve had to sit in these silly Asset Allocation conferences in my wirehouse days, where the gospel of MPT and portfolio rebalancing was preached all day long. Thought it was stupid then, think it’s stupid now. But I’ve always been an active manager.
So different strokes for different folks, I guess.
[quote=Bodysurf]The fallacy of the false choice. Markets don’t have to “go to zero”, and your clients who wonder if they should be in cash temporarily shouldn’t be confronted by a touchy FA who tells them instead to buy gold, shotguns, and canned goods.
Sometimes the sky is falling. Once every hundred years or so, the banking system falls apart, resulting in deflation everywhere. Every asset class gets wiped out. Maybe you're right--maybe all we need is a heavy dose of Obamanomics and a few more hearings and everyone will be excited to be lending again. Maybe the home price data put out half an hour ago is the last shoe to drop, and we're up--up-and-away from here in real estate markets. Maybe the annihilation we've seen in base commodities are a head-fake, and world demand is going to be picking up any day now. Maybe businesses are just itching to hire back millions of people they've just gotten through laying off, because they've got a big pile of new orders rollling in. Or maybe this is one of those events where prudent people sit back, and keep their powder dry, and absorb the big picture. Just because I'm short the market doesn't mean I'm short America, or I'm not a long-term optimist. I am. And when the smoke clears, my clients will be able to sift among the rubble, and buy whatever they want at fire sale prices. 40% short ETF's with out-of-the-money covered called; 35% long equities with deep-in-the-money covered calls with sell stops; 25% cash. And no phone calls from concerned clients--those ended back in September.[/quote]Well I will say that I respect your conviction, although I think you're absolutely wrong.
When a portfolio such as yours can be considered as rational by any measurable number of people, and the largest mutual fund in the country is a Fidelity money market fund(paying less than 1%), and the 10 yr Treasury is trading with a 2 handle, that's about as close to a bell the bulls are going to hear. (Oh - and sentiment indicators are at all time bearish records too.) But too many of them are hiding under their desks right now. That's fine...it takes a little time (and emotional distress and sideways trading) to put in a bottom. I'm gladly picking up bargains a little bit at a time.
The covered calls make some sense to me, and maybe even 10-20% in some short ETF's in the weakest sectors, but that's about as far as I'd go.
Why cant the government just insure the loans in the troubled CDO’s,CMO’s etc?
(or say insure to 70%)
bac,c etc balance sheet become so much stronger instantly.
s and p’s open limit up
government only pays on ACTUAL homeowner defaults.
simple. problem solved. confidence back
banks pay into insurance fund or something to pay tax payers back.
WTF am I missing?
The covered calls make some sense to me, and maybe even 10-20% in some
short ETF’s in the weakest sectors, but that’s about as far as I’d go.
* * * *
The short ETF’s are in the sectors I’m long equities. For example, for March expiry I’ve picked up a lot of Alcoa, Reliance Steel, AKS, and Freeport, all with covered calls written against them two strikes into the money. The premiums are really rich here, by the way. To anchor that, I’m long the SMN, double-inverse materials ETF with an out-of-the-money covered call, again with enormous premiums. So if the sector gets annihilated, I can still make it back on SMN. And if it rallies hard, I’ll forego the extra profits on the covered call positions, and see a big loss on SMN. Which is why on all of them I use trailing sell stops.
I hope I’m wrong too. Hopefully this will pass, soon. But I don’t think so. Our clients expect us to make money in good markets or bad, and to get creative if necessary. It’s the best I can do, for now, and lately that’s been pretty good after all.
[quote=CDO Squared] Why cant the government just insure the loans in the troubled CDO’s,CMO’s etc?
(or say insure to 70%)
bac,c etc balance sheet become so much stronger instantly.
s and p’s open limit up
government only pays on ACTUAL homeowner defaults.
simple. problem solved. confidence back
banks pay into insurance fund or something to pay tax payers back.
WTF am I missing? [/quote]
I must have been in a cloud of smoke the last few months. This is simple and brilliant. Kudos.
[quote=daytradah]
Stoxandblondes:
You are having a blonde moment...Yes it is correct that the Nikkei has not shown any sustained growth for 20 years plus. It did what is known as a full technical retracement after going "VERT", and has flatlined ever since . . . . . just like our market as measured by the broad indexes went VERT and has imploded with a 50% crash that has not officially bottomed.
There are very real and striking technical parallels when you overlay the S&P or Nasdaq or Dow on top of the Nikkei chart. [/quote] Give me an example of a US broad market index that is down 50%. Please.The Hooker index!
US broads going down 50% of the time!from market high:
% down
russell 3000 -52.65%
s&p 500 -52.55%
kbw bank index -77.90%
[quote=jkl1v1n6] The Hooker index!
US broads going down 50% of the time![/quote] Post of the day.Stoxandblondes....
You must be true blonde.....Do you have to get bent over on the casting couch yet again, before you see the reality of your 'staring role". My god, get the hell out of the advisory biz if you are having trouble locating broad market indexes that are down 50%
The DOW JONES is at 7000....How the hell do you measure that decline from the top...That looks like 50% to me and everyone else who failed 3rd grade math. And it is 100% when you look up from the bottom and want to make it back to the top. You are a doooofuss.But "there's a bull market in our future," says John Mauldin, president of Millennium Wave Advisors.
That's the good news.
The bad news is Mauldin, who selects active fund managers for his high net worth clients, says any 1990's-style bull market that rewards passive index funds and "buy and hold" investors is unlikely to arrive before for another five-to-six years.
In the interim, the investor and author of the Thoughts from the Frontline e-letter says investors should focus on:
Staying conservative and preserve capital for the "great opportunities" that will emerge when the dust settles. Be active with your portfolio and only buy stocks if you're both a good stock picker and an astute trader. Avoid index funds: "Buy and hold was always a bad idea," he says. Own some gold as a hedge: But he is not a gold bug or major dollar bear, as detailed here. Seek income in quality munis, corporate bonds and dividend paying stocks but (again) you have to be smart with your selection, or find a manager who is.As the name of his firm implies, Mauldin's market-timing work focuses on the market's "big" cycles - like 15-25 years - from bull (i.e. 1982-1999) to secular bear (2000-present). Price-to-earnings ratios are key to determining when the cycles switch, and Mauldin believes stocks are not "cheap" today based either on trailing 1- or 10-year P/Es, or by market-weighted P/Es as "Stocks for the Long Run" author Jeremy Siegel curiously argued in The WSJ this week.
Mauldin's baseline prediction is for "another leg down" this summer that takes major averages to new lows but sets the stage for a "1974-type bottom"; the key here is to recall the Dow bottomed in price in 1974 but then spent the next 8 years flip-flopping in a wide range around 1000, before beginning its historic rise to 10,000 (and beyond) in 1982
Bodysurf, forgive me i did not read the entire thread, i’ve been off the boards for a few days, so maybe i missed something but…
I agree with you that at the very least, the buy and hold approach, MPT all that sh*t is not exactly appropriate right now.
I’ve been moving from a managed money/asset allocation model to a “i manage the money” model, for some time now and am at a point where i have most of my clients out of the old model and putting their money in my hands (you know this as we’ve talked about it).
Here’s my question - whats your process for getting back to being invested so you dont miss the up?
So I’m with you.
Mauldin’s baseline prediction[/URL] is for “another leg down” this summer that takes major averages to new lows but sets the stage for a “1974-type bottom”; the key here is to recall the Dow bottomed in price in 1974 but then spent the next 8 years flip-flopping in a wide range around 1000, before beginning its historic rise to 10,000 (and beyond) in 1982
Mauldin's work is solid.
Here’s my question - whats your process for getting back to being invested so you dont miss the up?
* * * * *
I acknowledge that I’m going to miss the first 15% of the next bull market. That’s okay with me. I tell my clients that is already baked in to our portfolios, but that it’s better to miss the first 15% or so of the next bull market rally–which might last another 20 years–rather than miss the next 10-50% heading down.
It was funny, but after I left SB in December my clients were getting calls, telling them they’re crazy to be in cash and short ETF’s heading into the new year. Haven’t they ever heard of the January effect? Or the Santa Claus rally? Or the idea that the market rallies on tax issues, when companies match their 401k’s? And we had our worst January ever. And we’ve just finished one of our worst Feb’s ever.
You can be a hero by not trying to be a hero, IMHO.
Body - good answer
To state MPT is dead is the equivalent of saying “In Obamamerica the Laws of Supply and Demand have been repealed”.
What is MPT as encapsuated by the CAPM? Simply the recognition that the price of a security will be determined at the point where S=D, and the owners will be compensated for the risk of that particular security. (And portfolio risk can be diversified away if the total world market portfolio is held. The later is impossible to find, of course, and finding the combination of asset weights that min variance reqwuires a little calculas and a big computer). Buy and hold is an investment strategy and has nothing to do with MPT. The fact is that heretofore, every market timing / pick winners based on some crazy theory has failed to beat a B&H afrter fees and transaction costs. This is an empirical proposition only. If any broker type on this board claims to have extraordinary foresight and some secret 'model' he would NOT be a stock broker but managing a hedge fund.Its not about foresight, its recognizing a bear when its staring you in the face and reacting accordingly. I dont think anyone is saying to engage in swing trading, its just about recognizing the big picture. Capital Asset Pricing Model aside…
[quote=MinimumVariance]To state MPT is dead is the equivalent of saying “In Obamamerica the Laws of Supply and Demand have been repealed”.
What is MPT as encapsuated by the CAPM? Simply the recognition that the price of a security will be determined at the point where S=D, and the owners will be compensated for the risk of that particular security. (And portfolio risk can be diversified away if the total world market portfolio is held. The later is impossible to find, of course, and finding the combination of asset weights that min variance reqwuires a little calculas and a big computer). Buy and hold is an investment strategy and has nothing to do with MPT. The fact is that heretofore, every market timing / pick winners based on some crazy theory has failed to beat a B&H afrter fees and transaction costs. This is an empirical proposition only. If any broker type on this board claims to have extraordinary foresight and some secret 'model' he would NOT be a stock broker but managing a hedge fund.[/quote] If I send you a list of my prospects, will you call them and run this by them? It would help my business tremendously. I love competing against "buy and hope". I especially love the "If you miss the ten best days in the market...." pitch (EDJ is everywhere here).+1
I should read more carefully. Sorry.
It sure sounds like what he’s saying is that we cant look at the big picture and make tactical decisions. Minimum Variance … how about some clarification - in English, so dummies like me can understand.
We've seen a couple jumps in the market over the past few months, but here we sit at 7000. How do you know when the bull is really a bull and not just another short-lived bear market rally? I think you're playing with fire.Here’s my question - whats your process for getting back to being invested so you dont miss the up?
* * * * *
I acknowledge that I’m going to miss the first 15% of the next bull market. That’s okay with me. I tell my clients that is already baked in to our portfolios, but that it’s better to miss the first 15% or so of the next bull market rally–which might last another 20 years–rather than miss the next 10-50% heading down.
It was funny, but after I left SB in December my clients were getting calls, telling them they’re crazy to be in cash and short ETF’s heading into the new year. Haven’t they ever heard of the January effect? Or the Santa Claus rally? Or the idea that the market rallies on tax issues, when companies match their 401k’s? And we had our worst January ever. And we’ve just finished one of our worst Feb’s ever.
You can be a hero by not trying to be a hero, IMHO.
We've seen a couple jumps in the market over the past few months, but here we sit at 7000. How do you know when the bull is really a bull and not just another short-lived bear market rally? I think you're playing with fire.[/quote] I have a magic 8 ball. It says "Not quite yet".[quote=Bodysurf]Here’s my question - whats your process for getting back to being invested so you dont miss the up?
* * * * *
I acknowledge that I’m going to miss the first 15% of the next bull market. That’s okay with me. I tell my clients that is already baked in to our portfolios, but that it’s better to miss the first 15% or so of the next bull market rally–which might last another 20 years–rather than miss the next 10-50% heading down.
It was funny, but after I left SB in December my clients were getting calls, telling them they’re crazy to be in cash and short ETF’s heading into the new year. Haven’t they ever heard of the January effect? Or the Santa Claus rally? Or the idea that the market rallies on tax issues, when companies match their 401k’s? And we had our worst January ever. And we’ve just finished one of our worst Feb’s ever.
You can be a hero by not trying to be a hero, IMHO.
We’re all “playing with fire” when we invest our clients’ money based on future events and expectations. But my risk is much, much lower than that of almost any other advisor around.
How will I know it’s not just a bear rally, rather than the real thing? Because it’s not 2012 yet. These kind of markets right here will persist for the next few years. We can either adapt, or die from a thousand cuts.
I appreciate the insight. I just put 2012 on my calendar. Which month?We’re all “playing with fire” when we invest our clients’ money based on future events and expectations. But my risk is much, much lower than that of almost any other advisor around.
How will I know it’s not just a bear rally, rather than the real thing? Because it’s not 2012 yet. These kind of markets right here will persist for the next few years. We can either adapt, or die from a thousand cuts.
So let me see if I read this correctly. You are making a call based on future events or expectations.We’re all “playing with fire” when we invest our clients’ money based on future events and expectations. But my risk is much, much lower than that of almost any other advisor around.
How will I know it’s not just a bear rally, rather than the real thing? Because it’s not 2012 yet. These kind of markets right here will persist for the next few years. We can either adapt, or die from a thousand cuts.
Nope. Present ones.
Cool. The present is about as effective for predicting the future as the past is.
After all this time Ice you still do not get me. I believe risk should be embraced when it is rewarded. I believe risk should be avoided when the market penalizes it. I have no idea what the markets will look like in 3 years. What I do know is that right now, the market has a serious aversion to risk and that is how my clients are positioned. Simple supply and demand. I can fit this manner of doing business in nicely with the theory of effecient markets.
[quote=daytradah]
Stoxandblondes....
You must be true blonde.....Do you have to get bent over on the casting couch yet again, before you see the reality of your 'staring role". My god, get the hell out of the advisory biz if you are having trouble locating broad market indexes that are down 50%
The DOW JONES is at 7000....How the hell do you measure that decline from the top...That looks like 50% to me and everyone else who failed 3rd grade math. And it is 100% when you look up from the bottom and want to make it back to the top. You are a doooofuss.[/quote] hmm..just logged back on to see this horsehit...you really smoked me with that snappy fcking comeback. Hey c***sucker-go f*** yourself. What the f*** do you know about the "advisory" biz--daytradah? Youre the sh*thead talking 2 pages back about your damn acts down 50% last YEAR...stick to a specific time frame would ya? Nothing is down 50% last year except maybe some lame ass trading POS you put everyone in. Fking wannabe. You are a prick.Touchy.
Nah, not really.
Just hate a mfker talkin sh*t on a damn website for no good reason other than to compensate for pure mediocrity in real life.I’m a newbie, so I won’t pretend to know what the hell I’m talking about, but a lot of you seem to have some pretty decent insight. What do you guys make of Buffett’s normal mantra of “Be greedy when others are fearful…” during a time like this?
Also, what about all the propaganda that I'm being bombarded with by various wholesalers, funds, my firm, and other sources regarding the benefits of a buy and hold strategy? In particular, I read today that there have been only 3 times since 1926, where the S&P 500 average 10-year annual return was negative, including the 10-year period ending in 2008. I found it pretty compelling, but I'd like to run that through all of your B.S. meters. Then there's the "If you missed the X best trading days you'd be screwed..." line. What do you guys think of that one? I'm fully aware that everything I read is not necessarily objective but meant to pursuade me.Always think about the other side. I was told by my RL that I think too much. So you may want to reconsider asking too many questions and just sell everyone you meet something. But for the two things you asked, Buffet is correct to an extent. You can't just mindlessly buy when others are fearful of course. But fundamentally things are undervalued when others are fearful, that's how they became undervalued. On the next part, I really like this one. Our visiting vet harped on it and it is true. But the opposite is also true, for example, what if you missed the x worst days trading? Everything you read is meant to persuade you. Salesman selling to salesman selling to customers until you go indy.
[quote=JAXSON]
Salesman selling to salesman selling to customers ....
[/quote] Great way to put it. Great points. Jones tries to spin everything as a positive. So a 10 percent foreclosure rate becomes '90 percent of your neighbors are paying their mortgages on time.' After a while you don't believe anything. .... I don't necessarily think they are con artists, we just don't have many people here who understand markets and investing. Here we are, a year into an historical economic calamity and there has been no effort here to figure out what is going on.[quote=JAXSON]
But the opposite is also true, for example, what if you missed the x worst days trading? [/quote]
It's funny you mention that because the piece that I read addressed that side of the coin also, and I'm with EJ, so you probably got the same info I did. Basically, it calculated that a $1 million investment in the S&P 500 that somehow missed the worst 100 days in the market over the last 30 years would've grown into $1.4 billion. That's akin to saying that the entire investment was completely liquidated just prior to the three worst individual days every year (on average), and then completely reinvested the next day. Now, I don't know much, however I think I've got an above average B.S. meter by and large, but, as long as these statistics are actually true, it makes a pretty compelling argument in favor of buy and hold vs. attempting to time the market. Realistically, nobody knows what the market's going to do tomorrow or next month or next year. That would be like clairvoyance (sp?). This article further espouses how all the "gurus" and "pundits" are, in fact, not billionaires, which indicates that they probably aren't clairvoyant. I dunno....what do you guys think? Oh, as far as constantly taking the "glass half full" attitude on everything. Personally, I feel that that is a good way to look at life in general. Particularly during tough times. I like to think of myself as generally open-minded and at least half educated (although I admit to being opinionated on certain issues), so I always try to see things from every angle, but I also try to choose a positive outlook on things. The alternative kinda sucks! As far as selling to salesmen...you're exactly right, but that's pretty much sales management in a nutshell. Your salesmen have to buy into your products/services/strategies to be effective in transferring that buy-in to prospects. I don't know for sure, but I've got a feeling that indies are completely inundated with sales literature for everything they can sell. That's really no different...selling to the salesman. Every seminar sponsored by a wholesaler is one long sales pitch...selling to the salesman. There's really nothing wrong with it in my view. If the salesmen don't believe in the product, then they won't sell the product (at least not with integrity). JMHO.I don’t use B&H myself, but I don’t think there is any EVIDENCE that some crazy theory about the MACD line crossing the 200 day EWMA line has any validity at all. The CAPM describes what will prevail when markets are in equilibrium. Of course markets are never in full equilibrim as new info in available constantly, relative prices are changing somewhere for something, in the case of securities peoples risk aversion changes. However, eventually all markets will clear (which just means theres a price where some people who want something are satisified with its price as are the owners of that same thing).
B&H has nothing to do w/MPT itself. Some academics who adhere to MPT have gone on to empirically investigate different strategies. Up until the latest conflagration none of those studies have found something better than B&H san taxes / transaction costs as a stratgy. Arguing this matter at this point in time tho is like arguing with a guy selling equity linked annuities ["see how well they worked"! Course the insurnce company that guaranteed the returns is not bankrupt, but thats a different issue...] Please NOTE: B&H does NOT mean 'buy 100 stocks and put em in a safe deposit box. Open box at retirement". It means hold the market portfolio. The composition oif the market portfolio will CHANGE DAILY as its' components values change. Let me describe my B&H approach (which is not literally buy and hold). 1- Determine asset class desired exposures. To more closely approximate the total market portfolio I add a healthy does of 'alternative' assets. 2- Within asset classes determine sectors with a greater probablity to gain (or loss) relative to my BM. EG Fertilizer will beat Financials next qtr. (this takes the form of probablilty functions - I am __% optimistic that X will occur). 3- Decide whether you want to use active mgrs, single invetments, or indices. I use all three as I don't believe it's worth paying for active mgrs in LC stocks when all you get is beta. It may be worth paying for alpha though in markets that are less efficient (Korea, BioTech). Collect ten yers of returns on each of your selections, calcualte a bunch of statistics about each one, and the Cov matrix for all of them. Actually computers do this. 4- Optimize groups of selected assets with a Black-Litterman add-on to a Markozitz MVO (say 30 out of an investible universe of 300?) Depending on the risk preferences of the client will determine what goes into the universe. Think of each square in a hypotheticl 'global style box' as having three choices: agressive, moderate, and conservative (as measured by their respective Sharpe Ratios). 5- Buy the optiomal portfolio weights. [I might do this using 3,5,7,10 yr data.]. I carve out a 5% - 10% piece for tactical positions. I might use an options overlay on the whole thing. 6- Repeat every month by adding one data point (more recent) and subtradcting one (most distant). Re-visit performance estimates of sectors (this is called your 'view' of a particular segment). Compare transaction costs with expected gains, either change or wait till some threshold is reached where Bemefit > Costs. As you add new data, and has different sectors pricing relatives change you can emphasize a monentum or a reversion to the mean strategy strategy. Decide whether you'll allow short positions (I don't, but not doing so can be a significant cost in terms of future portfolio returns). THATS HOW I DO BUY AN HOLDMy B.S. meter just went off. I hope it’s not faulty.
I’ve said this before and it’s worth repeating…
Buy and hold clearly wins in a secular bull market. Put your money in anything from 82-99 and you destroy any type of market timing you could try (unless you are clarevoyant). Holding fixed income and alternatives simply reduces volatility and returns. Defensive investing (of varying types) will often beat B&H investing during a secular BEAR market. Obviously this depends on how good you aer, and relies on you executing properly. But fixed income, alternatives, gold & commodities, treasuries, cash, all will help actually reduce volatility while potentially increasing returns (since the equity returns over the course of an entire secular bear are generally nill or slightly positive or negative). Look at 2000-2009, the 70's, the 30's. Investment strategies are ENTIRELY reliant on what cycle you are investing in. Just look at an S&P or Dow chart from 82-99. Hell, even start in 1975. You could just buy the S&P 500, hold it for 20 years and be rich. It's almost impossible to time cyclical bulls and bears (which occur both during secular bulls and bears), since they are so short lived and often very sudden (look at 10/87 - that occured in the midst of the greatest secular bull market of all time). The problem is determining when a secular market shifts. You need to do some techincal analysis to determine this. It seems historically, secular bulls have ended and secular bears started when PE ratios hit excessive highs (i.e. 1999). And the secular bull doesn't return until PE's come back down to "normal" levels. Some would say we are approaching that point where PE's are again "normalized for the start of a secular bull. But the current bear may persist for some time due to the economic situation. At minimum, when reaching historically HIGH PE's, that is a sign to start taking money off the table, even if you may LEAVE some returns on the table for a while. Losses have a much bigger negative impact than do gains have a positive impact on long-term returns. This is due to the affect of compounding. Most analysis/charts, etc only look at the averages of the annual returns. This nullifies the compunding affect. Take some examples: $1,000 Year 1: -10% Year 2: +10% Average = 0 Real Return = -1% Year 1: -30% Year 2: +30% Average = 0 Real Return = -8% Year 1: 25% Year 2: -20% Average = 2.5% Real Return = 0I love the “ten best days” piece. Of course your returns would be worse if you take out the best days. This is not rocket science. What this piece of mutual fund propaganda does not tell you is when the ten best days happened. This past year really makes this point. Bull markets are marked by low volatility. Bear markets are marked by high volatility. Through the end of 2007, 8 of the 10 best days in the market happened during defined bear markets. The other two happened during the tech boom. The piece tells you that if you just missed those days your returns would be lower, what it doesn’t tell you that if you missed the month before and after the ten best days (including those best days), your returns are increased substantially. It is far more important to avoid losses than to catch every little upswing in the market.
[quote=MinimumVariance]I don’t use B&H myself, but I don’t think there is any EVIDENCE that some crazy theory about the MACD line crossing the 200 day EWMA line has any validity at all. The CAPM describes what will prevail when markets are in equilibrium. Of course markets are never in full equilibrim as new info in available constantly, relative prices are changing somewhere for something, in the case of securities peoples risk aversion changes. However, eventually all markets will clear (which just means theres a price where some people who want something are satisified with its price as are the owners of that same thing).
B&H has nothing to do w/MPT itself. Some academics who adhere to MPT have gone on to empirically investigate different strategies. Up until the latest conflagration none of those studies have found something better than B&H san taxes / transaction costs as a stratgy. Arguing this matter at this point in time tho is like arguing with a guy selling equity linked annuities ["see how well they worked"! Course the insurnce company that guaranteed the returns is not bankrupt, but thats a different issue...] Please NOTE: B&H does NOT mean 'buy 100 stocks and put em in a safe deposit box. Open box at retirement". It means hold the market portfolio. The composition oif the market portfolio will CHANGE DAILY as its' components values change. Let me describe my B&H approach (which is not literally buy and hold). 1- Determine asset class desired exposures. To more closely approximate the total market portfolio I add a healthy does of 'alternative' assets. 2- Within asset classes determine sectors with a greater probablity to gain (or loss) relative to my BM. EG Fertilizer will beat Financials next qtr. (this takes the form of probablilty functions - I am __% optimistic that X will occur). 3- Decide whether you want to use active mgrs, single invetments, or indices. I use all three as I don't believe it's worth paying for active mgrs in LC stocks when all you get is beta. It may be worth paying for alpha though in markets that are less efficient (Korea, BioTech). Collect ten yers of returns on each of your selections, calcualte a bunch of statistics about each one, and the Cov matrix for all of them. Actually computers do this. 4- Optimize groups of selected assets with a Black-Litterman add-on to a Markozitz MVO (say 30 out of an investible universe of 300?) Depending on the risk preferences of the client will determine what goes into the universe. Think of each square in a hypotheticl 'global style box' as having three choices: agressive, moderate, and conservative (as measured by their respective Sharpe Ratios). 5- Buy the optiomal portfolio weights. [I might do this using 3,5,7,10 yr data.]. I carve out a 5% - 10% piece for tactical positions. I might use an options overlay on the whole thing. 6- Repeat every month by adding one data point (more recent) and subtradcting one (most distant). Re-visit performance estimates of sectors (this is called your 'view' of a particular segment). Compare transaction costs with expected gains, either change or wait till some threshold is reached where Bemefit > Costs. As you add new data, and has different sectors pricing relatives change you can emphasize a monentum or a reversion to the mean strategy strategy. Decide whether you'll allow short positions (I don't, but not doing so can be a significant cost in terms of future portfolio returns). THATS HOW I DO BUY AN HOLD [/quote] Ice, I would think your alter ego's name would be Fireh0t or something clever like that.isn’t it ironic when our store goes on sale, people stampede to get out…but when we’re overpriced people throw money at us?
That's a very interesting point. I was wondering if you could tell me where I could find that information. Is it printed, on the web, or did you do the research yourself?I love the “ten best days” piece. Of course your returns would be worse if you take out the best days. This is not rocket science. What this piece of mutual fund propaganda does not tell you is when the ten best days happened. This past year really makes this point. Bull markets are marked by low volatility. Bear markets are marked by high volatility. Through the end of 2007, 8 of the 10 best days in the market happened during defined bear markets. The other two happened during the tech boom. The piece tells you that if you just missed those days your returns would be lower, what it doesn’t tell you that if you missed the month before and after the ten best days (including those best days), your returns are increased substantially. It is far more important to avoid losses than to catch every little upswing in the market.
That's a very interesting point. I was wondering if you could tell me where I could find that information. Is it printed, on the web, or did you do the research yourself?[/quote] Stock traders almanac, and some legwork on my part.[quote=Sam Houston]I love the “ten best days” piece. Of course your returns would be worse if you take out the best days. This is not rocket science. What this piece of mutual fund propaganda does not tell you is when the ten best days happened. This past year really makes this point. Bull markets are marked by low volatility. Bear markets are marked by high volatility. Through the end of 2007, 8 of the 10 best days in the market happened during defined bear markets. The other two happened during the tech boom. The piece tells you that if you just missed those days your returns would be lower, what it doesn’t tell you that if you missed the month before and after the ten best days (including those best days), your returns are increased substantially. It is far more important to avoid losses than to catch every little upswing in the market.
The piece tells you HOW MUCH LOWER your returns would be if you missed the ten best days. That's the point. And I can tell you EXACTLY when the ten best days were, they were IN those twenty years. That's the point, you don't have to know when they are coming, you just have to be invested the whole time. By definition, you will hit the bottom 10 worst days, but still have a good return. The only way to gaurantee you will miss the ten worst days is to be in cash for twenty years. Let me know how that works out for you. As for missing the month before and after the three best days, my crystal ball is broken. Can yours tell you in advance what months to be in, and what months to be out?I love the “ten best days” piece. Of course your returns would be worse if you take out the best days. This is not rocket science. What this piece of mutual fund propaganda does not tell you is when the ten best days happened. This past year really makes this point. Bull markets are marked by low volatility. Bear markets are marked by high volatility. Through the end of 2007, 8 of the 10 best days in the market happened during defined bear markets. The other two happened during the tech boom. The piece tells you that if you just missed those days your returns would be lower, what it doesn’t tell you that if you missed the month before and after the ten best days (including those best days), your returns are increased substantially. It is far more important to avoid losses than to catch every little upswing in the market.
The piece tells you HOW MUCH LOWER your returns would be if you missed the ten best days. Your returns would be lower if you miss the good days? Wow. I am glad a fund company pointed that out, I would have never figured it out on my own.That's the point. And I can tell you EXACTLY when the ten best days were, they were IN those twenty years. That's the point, you don't have to know when they are coming, you just have to be invested the whole time. More genius ramblings here. The biggest up days happen in BEAR markets smart guy. Might want to check out the VIX. I would rather miss these huge up days because the days surrounding them more than eliminate the gains. "You have to buy and hold Mr. Client because if you missed Nov 21, 2008, your portfolio would be down 60% instead of 55%. That would hurt your long term ability to retire and drink rum by the ocean. Look, I have this beautiful piece from AF that shows it. If it is in print, it must be true. Please ignore that AF and every other mutual fund company has a vested interest in keeping you invested." By definition, you will hit the bottom 10 worst days, but still have a good return. I could care less if I hit the best of the worst days. I will take risk when it is rewarded, and avoid risk when it is punished. The only way to gaurantee you will miss the ten worst days is to be in cash for twenty years. Let me know how that works out for you. Quite nicely, thanks for asking. I missed 11/21/2008 and all the other biggest up days this year for the most part. Funny how many of them were concentrated in Oct and Nov. Hmmm. As for missing the month before and after the three best days, my crystal ball is broken. Can yours tell you in advance what months to be in, and what months to be out? I don't own a crystal ball. I do have the ability to recognize a market in a negative trend sometime before you are down 55%. Lucky I guess.[/quote][quote=Sam Houston]I love the “ten best days” piece. Of course your returns would be worse if you take out the best days. This is not rocket science. What this piece of mutual fund propaganda does not tell you is when the ten best days happened. This past year really makes this point. Bull markets are marked by low volatility. Bear markets are marked by high volatility. Through the end of 2007, 8 of the 10 best days in the market happened during defined bear markets. The other two happened during the tech boom. The piece tells you that if you just missed those days your returns would be lower, what it doesn’t tell you that if you missed the month before and after the ten best days (including those best days), your returns are increased substantially. It is far more important to avoid losses than to catch every little upswing in the market.
What part was funny? I was trying to be serious.Agree or not…That’s pretty damn funny!
I have very few friends here, admin not included, but I think I like Sam more and more…All this bullsh*t literature and talking points put out by the fund co.'s, brokerages, talking heads on tv…all have a vested interest in the client staying fully invested…its a very large ponzi scheme…it seems everyday theres a new scam being uncovered. There’s a tremedous number of brokers, advisors, whatever who have no capacity to think for themselves. They’re always under pressure to meet goals or “dots” on a screen that they don’t have time to take a step back with eyes wide open. THey drink the koolaid without hesitation.
I still remember my buddy at Morgan who told me when I was getting the last of my clients, who listened, out of the market back around 9200 on the dow. He said his firm was saying the bottom was in and it will turn by October....hahaha...he's a principal on a team with 300mm under management...drinking the Morgan koolaid....watching his AUM drop like a rock, charging 1-1.5%...waiting on his "bonus" check from Morgan after they bought SB....just to stay in his seat...wtf....The piece tells you HOW MUCH LOWER your returns would be if you missed the ten best days. Your returns would be lower if you miss the good days? Wow. I am glad a fund company pointed that out, I would have never figured it out on my own.That's the point. And I can tell you EXACTLY when the ten best days were, they were IN those twenty years. That's the point, you don't have to know when they are coming, you just have to be invested the whole time. More genius ramblings here. The biggest up days happen in BEAR markets smart guy. Might want to check out the VIX. I would rather miss these huge up days because the days surrounding them more than eliminate the gains. "You have to buy and hold Mr. Client because if you missed Nov 21, 2008, your portfolio would be down 60% instead of 55%. That would hurt your long term ability to retire and drink rum by the ocean. Look, I have this beautiful piece from AF that shows it. If it is in print, it must be true. Please ignore that AF and every other mutual fund company has a vested interest in keeping you invested." By definition, you will hit the bottom 10 worst days, but still have a good return. I could care less if I hit the best of the worst days. I will take risk when it is rewarded, and avoid risk when it is punished. The only way to gaurantee you will miss the ten worst days is to be in cash for twenty years. Let me know how that works out for you. Quite nicely, thanks for asking. I missed 11/21/2008 and all the other biggest up days this year for the most part. Funny how many of them were concentrated in Oct and Nov. Hmmm. As for missing the month before and after the three best days, my crystal ball is broken. Can yours tell you in advance what months to be in, and what months to be out? I don't own a crystal ball. I do have the ability to recognize a market in a negative trend sometime before you are down 55%. Lucky I guess.[/quote] [/quote] Good luck to you, you're going to need it.[quote=now_indy][quote=Sam Houston]I love the “ten best days” piece. Of course your returns would be worse if you take out the best days. This is not rocket science. What this piece of mutual fund propaganda does not tell you is when the ten best days happened. This past year really makes this point. Bull markets are marked by low volatility. Bear markets are marked by high volatility. Through the end of 2007, 8 of the 10 best days in the market happened during defined bear markets. The other two happened during the tech boom. The piece tells you that if you just missed those days your returns would be lower, what it doesn’t tell you that if you missed the month before and after the ten best days (including those best days), your returns are increased substantially. It is far more important to avoid losses than to catch every little upswing in the market.
Luck has nothing to do with it. “Lucky” is just a label attached to others when they can do something you either can’t or won’t do. Turn off CNBC, look past your computer screen, and do what your clients are paying you to do. If you feel you are doing this, more power to you. But if you have the opinion that your way is the only way, that there is no way to improve your skill, then you have already lost the battle. This does not upset me in the least. I need as many “buy and hope” advisors as possible telling their clients the same regurgitated BS. It makes my job much easier.
Ice, in its simplest form, what determines the price of an equity?
If supply is higher than demand, do you want to be long or short?
It is not measured before hand. Think about it this way. Chart SPY and AGG. Normalize the prices and chart using % changes in value. Since price is accurately show supply and demand, do you think it is possible to see divergences in the two charts? I am not even saying one goes up while the other goes down, they may both be going down but at different rates. Now chart EAFE, EEM, Money Markets, DJIA, Stoxx, MSCI blah blah blah. Bull and bear markets feed on themselves. Bull markets end when every last person who is going to put in money has put it in. The supply of buyers has run out. Bear markets end when every last person who is going to get out is out. The supply of sellers is exhausted. Look at MF inflows and outflows to confirm. Record for inflows? Late summer of 07. Record of outflows? It was Oct 2000, just got broken in Dec 2008. You play the odds for your clients. I play the odds for my clients. We are just playing a different game. Supply and demand is measurable, and actionable. What I do is not right all the time. I do not need to be right all of the time. I just need to be right more than I am wrong.
Smart people (not me) got out of the market at 9200 because Lehman and AIG had failed, BAC and Citigroup were toppling and all they started hearing that their clients couldn’t get loans or buy cars. If you took your head out of the charts or stopped believing the smoke the wholesalers were blowing at us you could see that ‘this time it’s different.’ The day that Barney Frank went into a meeting with GWB and came out singing the same tune you knew the news was bad.
The last year pretty much blows up the whole ‘efficient markets’ theory. As advisors we need to get back to buying value and not getting caught up in bubbles. If you’re an index investor, you’re getting pulled along by the crowds, which means you’re an idiot. Just for the record, I would consider most managed funds to be index investments, too, since they are investing in the same stocks and following the same crowd.
Umm . . . if all our clients have to do is buy some ETF’s and Index Funds, what do they need us for?
Everyone’s a market timer. If you’re buying equities–or MF’s, or ETF’s–you believe they’re lower today than they will be in the future. But the idea that, knowing what you do now, you would have sat still while your clients’ accounts have gotten annihilated-- well, frankly, you’re either a liar or a fool.
And I’ll also say that if Roubini stayed FULLY invested during the course of all this–so is he. If someone tells you that in three days at 6:15 PM there will be a semi moving at 95 miles an hour drive past your house, and HE BELIEVES IT, then what could explain his going outside at 6:14:45 and pitching a lawn chair in the middle of the street?
That’s just silly. I’m no expert, but even I can see that.
First of all, nobody will tell you when the semi will be coming. Besides where's the gain in sitting in the middle of the street? You know the longer you sit there the more likely it is that you get run over. So why sit there at all? Maybe we should just all stay in cash forever and avoid the semi. It's a bad analogy and doesn't fit the scenario. Let's try a different one. How about poker. There's a saying in poker: "You can't win it if you ain't in it." It's pretty self-explanatory. Some players play aggressively. They usually either win big very quickly or lose big very quickly. Some players play conservatively. Their wins and losses come at a much slower rate. Generally, if you have a short time horizon, like in a poker tournament, you need to play aggressively in order to come out on top. If you're a cash game player and have all the time in the world, then you'll generally play much more conservatively to help ensure consistent wins. The problem for either scenario is...you NEVER know how the cards will play out until your money is on the line. When the cards piss all over you, it doesn't matter how you play you'll still lose (some more, some less). You just have to employ the best strategy for your specific situation. Of course, you COULD always get lucky.Roubini is an economist, a writer, a professor. He’s not an investor.
I could counter with Naseb Talem, who was invested entirely in treasuries and other hedging strategies, but again, that’s just as irrelevant. A doctor can tell you not to smoke while puffing on a Marlboro. It’s the advice that matters, not the actions. Roubini was right about calling the recession.
Well, as an investor he’s a fool if he stayed entirely in stocks while predicting the disaster that has unfolded.
What if you sat down with a client and said: ‘The banks are insolvent. We’re going into a severe recession, with a 30 percent chance of a long, L-shaped recession. But I advise you to remain in stocks, including these funds that are weighted with financials.’
It is true that if you are reccomending stocks, Roubini’s opinions over the last year would not be a major part of your pitch. Just sayin’
First of all, nobody will tell you when the semi will be coming.
Besides where’s the gain in sitting in the middle of the street? You
know the longer you sit there the more likely it is that you get run
over. So why sit there at all? Maybe we should just all stay in cash
forever and avoid the semi. It’s a bad analogy and doesn’t fit the
scenario.
* * * *
Yes it does. He wrote a piece that I keep in my desk drawer, back in February of 2008. He predicted the way this has all unfolded, from the housing bubble to the overlevered banks to the collapse of Wall Street to the massacre in the financials to the horrible recession we’re seeing now.
I don’t know how he invests, but if (1) he believed all those things were going to happen, then (2) invested a substantial portion of his net worth in assets that he knew would completely fall apart if he were right, then he’s a fool. Sorry. If you want to use a poker analogy, you don’t play a hand that you’re certain is going to lose. "Hmmm. I’ve got ten high. I’ll think I’ll go all in. Hey–you can’t win if you can’t play, right?"
Uh huh. Maybe instead of conjuring Roubini, you should have gone with Kenny Rogers. A simple song, that says a lot about poker. And investing.
I guess what I’m saying is that I listened to Roubini and Schiff and a handful of others, and after getting beaten up, went to cash in August, and started aggressively shorting in September. And he was a large part of the reason why I did so.
A little ironic, eh? That if it’s true what you say, my clients and I profited enormously from his advice? And he is down half, because he didn’t believe his own press releases? Godalmighty. Pete Rose had a problem, but he never bet that his teams would LOSE.
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