retired at 48 wrote:You have taken a thread I didn't start, and in which several other Forum members have joined in, and personalized it to me. Yes, I am an advocate of limited use of 200 day moving averages. But if I am viewed as a personal spokesman, then OK.
The thread is addressed to you and you have been the chief advocate of this market timing strategy for months. You have suggested that you would like to "teach" it at the next Bogleheads meeting. Thus, I think it's fair to address you directly.
Please note, however, that I am only attacking your market timing proposal, not you personally. As I said, I believe your intentions are good in your participation here. But I believe that your ideas are going to lead to disaster for many readers, which is why I'm trying to argue against them.
retired at 48 wrote:I have not done any backtesting...and the backtesting done is across a broad range of periods.
Nor did I suggest that you have. But, R48, either take responsibility for the analysis or don't. This morning you said:
retired at 48 wrote:There comes a time when the data and backtesting stands on its own. I submit we are there.
I suspect that neither you nor I have the expertise to do an adequate job (though my wife could certainly whip up the MatLab scripts, if I asked nicely enough). But you are citing backtesting work done by others, and I'm trying to explain why what I've seen so far has been thoroughly inadequate.
retired at 48 wrote:I have never used leverage in my life, or bought on margin.
This is, I believe, not the case. You may not have used margin, but a home equity loan (HELOC) is another form of leverage. In this
post in March, you said:
retired at 48 wrote:After home purchase, take out max HELOC possible, for two reasons. First,, like you said, it is a good emergency fund backup. Secondly, use it to fund your IRA's to the fullest. This may seem controversial, but will greatly payoff in long run....
I would further not invest IRA's, now, in bonds but rather an asset allocated equity portfolio. Then even at the low end of 7% return long term one is way ahead of HELOC's. I did this my whole career. In fact I have a large HELOC today, using it for tax space to convert my regular IRA's to Roth IRA's.
I think my arguments from March against using leverage (HELOCs) to buy equities look rather prescient 9 months later:
Dan Kohn wrote:retired at 48, you're suggesting that young investors use leverage to increase their returns. This works great, until it doesn't. Leverage increases your returns in good times, and creates the potential for bankruptcy in bad.
You don't need to use a HELOC; you can just buy stocks on margin. For the downside of that experience, read about our own market timer.
http://www.diehards.org/forum/viewtopic.php?t=11742
If you think it can't happen with home equity, you're wrong. We're facing a recession where your home could fall 20% in value, the market goes down, and you lose your job (even teachers). This means you could face a real risk of losing your home and having to declare bankruptcy, just so that you could try to juice your retirement returns.
And yes, retired at 48, I appreciate that leverage worked for you and that you were able to retire early. But your prime earning years also happened to coincide with the longest bull market in the history of the world. For an alternative view of the potential of leverage, take a look at Capital Decimation Partners:
http://krugman.blogs.nytimes.com/2008/0 ... -partners/
Admittedly, CDP has negative expected returns while your proposal probably has positive ones, but it's the tail of the distribution that kills you, not the mean.
I would strongly recommend against leverage except when used for a house. Even then, I would strongly encourage a 20% down payment.
retired at 48 wrote:My investment holdings, no stocks, all mutual funds, were perhaps held ten years in duration on average, hardly a market timer.... I will close by simply stating what I posted on another thread , "What did we learn from the 2008 downturn." And that is, if I had one do-over in my investing life, it would be paying more attention, not less, to the 200 day moving average as a tool in portfolio management.
Either you're advocating for 200 DMA or you're not. People can't "sort of" market time. The fact that you may not have done as much market timing when you were saving money as you are promoting now doesn't impact the reliability of your system.
I certainly hope your advice to new investors who have been burned by the market is not to evaluate the 200 DMA market timing signals and then to make "gut feel" decisions about whether to get back into the market or not. You've made hundreds of posts espousing a market timing system. Why stop now?
retired at 48 wrote:Similar disclaimers are made on this thread and any other more sophisticated thread. It's not for everyone.
That seems like a ridiculous cop out to me. If a 200 DMA strategy reliably beats buy and hold, why would you possibly suggest that every investor shouldn't use it? I've already shown that (whether it works or not) you could easily package the strategy up into a mutual fund that anyone's grandmother could buy. Why would you keep this luscious, forbidden fruit from investors who just want the same returns at lower risk?