Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

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Vision
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Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Vision » Thu Sep 28, 2017 8:56 am

https://www.reddit.com/r/investing/comm ... hilosophy/

I like the analysis this person did and how he came to conclusion that Buy The Dip strategy actually works.

Yes, it is market timing, but he also posted cold, hard facts of how it outperformed SPY.

What would be your rebuttals to this argument?

livesoft
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by livesoft » Thu Sep 28, 2017 9:04 am

I am a proponent of good market timing. I buy when prices drop in a specified way and rebalance shortly thereafter*. There has been backtesting performed as shown in this thread where many similar backtests fail, but a few are actually quite good. The trick is to be emotionally ready to not do the "similar" ones and to do the ones that work. I think very few people can do that emotionally.

Also beware of outliers. That is, where one single trade can make or break the entire analysis. One needs to do some cross-validation.

In the end no one will believe you anyways, until you have a blog that has done it for at least 10 years and outperformed. Hence, my public blog with my trades published.

*Those are NOT the only times that I buy nor the only times that I rebalance.
Last edited by livesoft on Thu Sep 28, 2017 10:25 am, edited 1 time in total.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by alpenglow » Thu Sep 28, 2017 9:25 am

This post made me think, when was the last RBD?

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by in_reality » Thu Sep 28, 2017 9:34 am

I don't understand the analysis.

To buy on the dip, you need cash. Are they holding cash, selling treasuries or what?

They aren't just looking at the stock portion of their returns and ignoring the lowered returns from the cash/ fixed income part are they?

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Vision » Thu Sep 28, 2017 9:37 am

alpenglow wrote:
Thu Sep 28, 2017 9:25 am
This post made me think, when was the last RBD?
What is a RBD?

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by tigerdoc93 » Thu Sep 28, 2017 9:40 am

Really bad day

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by alpenglow » Thu Sep 28, 2017 9:42 am

Look what I've started.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by jhfenton » Thu Sep 28, 2017 9:48 am

alpenglow wrote:
Thu Sep 28, 2017 9:25 am
This post made me think, when was the last RBD?
A year ago, Friday, the 9th of September, 2016 was my last day my portfolio dropped more than 2% (2.41%). On Tuesday, September 13, 2016, it dropped another 1.77%. (It was up 0.73% the day in between.) Since then, there have been a couple of 1.3%-1.4% drops, but nothing RB.

Depending on your standards, the first day after the Brexit vote (June 24, 2016) might be the last one. My portfolio was down 4.86% on Friday and another 2.24% on Monday. (But two weeks later, my portfolio was back to all-time highs.)

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by financeidiot » Thu Sep 28, 2017 9:56 am

You're probably going to get the same set of rebuttals to every response about a market timing strategy that appears to work:
1. Past performance is not indicative of future performance. Models adjusted to fit backtested data are not guaranteed to fit future data.
2. Historical stock market data are limited. The OP seems to have backtested up to 40 years where market data are available. However, 40 years in the history of global economics is limited.
3. Transaction costs and taxes lower performance. The original poster was using a tax-free account in Canada to execute trades, this leads to better performance than if the strategy had taken place in a U.S. taxable account, performance would have been lower (but still good).
4. Effective strategies become less effective over time as more people discover and adopt them.
5. Non-passive strategies are psychologically difficult to execute. The OP has above average fortitude to stick to buying the dips. Most people cannot stay dedicated to a similar strategy.
6. Non-passive strategies are technically difficult to execute. This strategy appears more straightforward, but most people cannot execute complicated trading strategies.

The few big winners of investing in the future will be active traders, the many big losers will be active traders, the happy middle will be Bogleheads. There's always going to be some strategy that is better than passive investing, but most people will not be able to identity it, execute it, and abandon it when the time is right.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Texanbybirth » Thu Sep 28, 2017 10:11 am

in_reality wrote:
Thu Sep 28, 2017 9:34 am
I don't understand the analysis.

To buy on the dip, you need cash. Are they holding cash, selling treasuries or what?

They aren't just looking at the stock portion of their returns and ignoring the lowered returns from the cash/ fixed income part are they?
In replies to his post, the author states "I'm measuring [performance] based on the assumption that when I buy - I buy with the 100% of cash I currently have on hand (this being the balance after the last trade). So it's either all in, or all out."

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by livesoft » Thu Sep 28, 2017 10:12 am

alpenglow wrote:
Thu Sep 28, 2017 9:25 am
This post made me think, when was the last RBD?
The last RBD was Monday 9/25 and only for DGS. At the time it was noted here: viewtopic.php?p=3547515#p3547515

I remember that at least one other ETF had an RBD in 2017, but maybe I forgot about some others.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by rustymutt » Thu Sep 28, 2017 10:17 am

Who is Guy, and why should I listen to Guy? I've read the academics and they reached the conclusion along time before Guy. By the way, rebalancing is the same thing as buying on the dips. Sell high, buy low.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by barnaclebob » Thu Sep 28, 2017 10:20 am

All backtested strategies work...for the period that they were tested

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by livesoft » Thu Sep 28, 2017 10:24 am

jhfenton wrote:
Thu Sep 28, 2017 9:48 am
alpenglow wrote:
Thu Sep 28, 2017 9:25 am
This post made me think, when was the last RBD?
A year ago, Friday, the 9th of September, 2016 was my last day my portfolio dropped more than 2% (2.41%). ....
jhfenton is not describing bona fide RBDs as defined elsewhere on the forum.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by livesoft » Thu Sep 28, 2017 10:29 am

financeidiot wrote:
Thu Sep 28, 2017 9:56 am
You're probably going to get the same set of rebuttals to every response about a market timing strategy that appears to work:
...
All excellent points that I agree with. Thanks for summarizing.

Before one does any market timing, they had better make sure that their costs, fees, taxes are kept close to zero. Furthermore, they had better make sure that they can match the market performance to begin with. That is, they should practice and succeed at the rules professed here at bogleheads.org where folks routinely report zero transaction costs, low expense-ratio of .1% or less, and extremely tax-efficient investing.

That is, get the easy stuff right for a while before attempting the hard stuff.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by flyingaway » Thu Sep 28, 2017 10:34 am

I wish I could know what is coming is a dip or a pre-crash.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by goodenyou » Thu Sep 28, 2017 11:00 am

alpenglow wrote:
Thu Sep 28, 2017 9:25 am
This post made me think, when was the last RBD?
I had one yesterday. The kids, the dog and work.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by randomguy » Thu Sep 28, 2017 11:37 am

Vision wrote:
Thu Sep 28, 2017 8:56 am
https://www.reddit.com/r/investing/comm ... hilosophy/

I like the analysis this person did and how he came to conclusion that Buy The Dip strategy actually works.

Yes, it is market timing, but he also posted cold, hard facts of how it outperformed SPY.

What would be your rebuttals to this argument?

If I understand this guy,he isn't really buy the dips. It is buy the dips and sell the peaks which is 2x as hard:). He is alternating buying and selling based on some criteria which come from backtesting (i.e. why do you avoid the market after a 4% decline but not a 3.5%?...). I would have a lot more faith in those rules, if he ran the math on say 1985-2000 using the same rules and got similiar results.

The world is full of people pushing back tested plans that have had great results. Very few of them continue their outperformance. It makes everyone very hesitant about endorsing any of the schemes. Portfolio visualizer has some tools to play aorund with a couple of common schemes

Or for real fun think about how investing half your equities this way and half B&H would have worked out given the relatively low correlation between the 2. Even with only market level returns, you might be happy with this type of system.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by HomerJ » Thu Sep 28, 2017 11:42 am

barnaclebob wrote:
Thu Sep 28, 2017 10:20 am
All backtested strategies work...for the period that they were tested
Exactly. Every single "system" that has failed, at one point, back-tested perfectly.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by crake » Thu Sep 28, 2017 11:52 am

A couple of criticisms:
I don't aim to beat the market, but I do aim to outperform the market in bear and flat markets on average.
I don't have anything technical to comment on, but if someone makes a statement like this I don't tend to put much more weight into what they say afterwards.
We'll define the "dip" as RSI(2)<=15 and RSI(5)<=40 (obviously, these numbers aren't just random, they came from doing an analysis of the last 30 years of SPX performance).
This is the primary statement to focus on. Guy states that these numbers aren't just random and that they came from extensive analysis as if that is a good thing. What Guy is telling you is that he found a pattern by looking at the previous thirty years of data. Guy then used the pattern he found to devise a trading strategy and tested it on that very same data. Of course it worked.

This would be like analyzing weather patterns over the previous 30 years. You might find that it rained 5% more on Mondays. You then devise a strategy to always carry an umbrella on Mondays and backtest that against the same 30 years of weather data. Eureka, your strategy worked! According to this sophisticated analysis you predict that you are now more likely to have an umbrella on you if it is raining!
Next, we need to define when do we exit. Criteria 1 will be "overbought" condition of RSI(2)>=95 and RSI(5)>=85. However it might take months to get there, especially in the bear market, so we also need a Plan B. A lot of trend reversal and technical analysis based strategies rely on crossing EMA(8), so out plan B is exit when we cross below EMA(8). Let's also cap our gains at 10% per trade.
Next, we'll need to create some exceptions to the cases when the massive sell off occurs:
Don't enter a position for a at least a day after 4% or more daily decline
Stop loss of 5%.
The same criticism applies to this entire paragraph. How do you think Guy came up with any of those numbers? My guess is he had a spread sheet and just changed those numbers until he found optimal results.
If you go further and analyze the behavior of volatility and volume during the crashes you can time your entrance a bit better via additional conditions on Volume EMA and Volatility. I put the following condition: do not enter the trade is the Volume exceeds VolumeEMA by 35% and Volatility exceeds 10% at the same time. It brought the annualized return up to 14.59%, and decreased the largest drawdown from 27 to 21%. This was done after an observation that a lot of big dips (i.e. the ones where it goes much lower than our pre-set "dip" definition) start with the massive increase in volume. This condition makes sure we don't enter the trade in the first 1-2-3 days of the "big dip".
Guy worked particularly hard to ensure that his strategy would work against big dips. In the data Guy looked at there were only two big dips. Will the next big dip look like the previous two? Maybe the next big dip won't be proceeded by a period of high volume. Plus, you need to remember to market time correctly you need to be right twice.

Market timing does not work. There are people with PHD's and multi-million dollar computer clusters working 90 hours a week trying to figure out market beating strategies. The majority of them fail to beat their comparable index's. Some guy with Microsoft Excel and a Reddit account isn't about to do what they can't.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by garlandwhizzer » Thu Sep 28, 2017 12:37 pm

It is a relatively easy exercise in arithmetic to define the specific parameters of a trading strategy that would have optimized investment results over any given backtesting period. Whether or not those same parameters will work in similar fashion going forward is IMO uncertain. One wonders for example how the "Buy the Dip" strategy would have worked in the 1929 - 1932 phase of the Great Depression when the market lost 80% of its value in a series of serious declines intermixed with pseudo-recoveries.

Even if the strategy is perfect and works going forward with demonstrable success, sufficient assets will pour into it from professional money managers to overgraze its limited supply of alpha. Finding a way to beat the market on a consistent basis and continue to do so after the strategy is widely known is a very difficult task. Getting excellent market-beating returns on consistent basis is very hard to come by as the active management graveyard shows. Getting very good long term returns is, however, quite a simple and easy task using a buy-and-hold, low-cost 3 fund or factor-based approach.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by ThrustVectoring » Thu Sep 28, 2017 12:48 pm

Volatility isn't high enough compared to long-term returns for "Buy The Dip" to outperform buy-and-hold. Last time I saw the numbers getting run, the "right" asset allocation is something like 130% stock / -30% cash. You lose out because you have to sell the dip to maintain the right asset allocation, but that's made up for by capturing 130% of the rallies.

That all said, the biggest risk in investing is screwing up the execution. Don't try to buy the dip. Don't try fancy stuff with leverage and margin loans. If your risk tolerance can handle it and your timeframe is 20+ years, just go in 100% VTSAX or the like and forget about it.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by bottlecap » Thu Sep 28, 2017 12:53 pm

Is this a joke?

Of course buying on the dip works in hindsight.

Can you conceive of any issues in the real time execution?

JT

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Taylor Larimore » Thu Sep 28, 2017 12:56 pm

Vision wrote:
Thu Sep 28, 2017 8:56 am
https://www.reddit.com/r/investing/comm ... hilosophy/

I like the analysis this person did and how he came to conclusion that Buy The Dip strategy actually works.

Yes, it is market timing, but he also posted cold, hard facts of how it outperformed SPY.

What would be your rebuttals to this argument?
Vision:

There are thousands of mutual fund managers trying to beat their index benchmark. If the "buy the dip" strategy worked they would certainly use it.

I have never heard of any professional manager using this strategy successfully.

Best wishes.
Taylor
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by peterinjapan » Thu Sep 28, 2017 1:00 pm

Buying the dip is a fabulous strategy that guarantees high returns… Except for the current dip, which is a terrifying glimpse down a precipice.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Nate79 » Thu Sep 28, 2017 1:08 pm

Taylor Larimore wrote:
Thu Sep 28, 2017 12:56 pm
Vision wrote:
Thu Sep 28, 2017 8:56 am
https://www.reddit.com/r/investing/comm ... hilosophy/

I like the analysis this person did and how he came to conclusion that Buy The Dip strategy actually works.

Yes, it is market timing, but he also posted cold, hard facts of how it outperformed SPY.

What would be your rebuttals to this argument?
Vision:

There are thousands of mutual fund managers trying to beat their index benchmark. If the "buy the dip" strategy worked they would certainly use it.

I have never heard of any professional manager using this strategy successfully.

Best wishes.
Taylor
I would put it more bluntly. This is kindergarten level stuff. It has been discussed over and over, it is nothing new, and if it really worked even half brain dead fund manager would implement it.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Da5id » Thu Sep 28, 2017 1:13 pm

Nate79 wrote:
Thu Sep 28, 2017 1:08 pm
I would put it more bluntly. This is kindergarten level stuff. It has been discussed over and over, it is nothing new, and if it really worked even half brain dead fund manager would implement it.
Forget the Buy the Dip strategy. My strategy is to buy only Google (Alphabet) and Apple. Back testing proves the awesomeness of this approach. Diversification is for the birds.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by randomguy » Thu Sep 28, 2017 2:50 pm

Da5id wrote:
Thu Sep 28, 2017 1:13 pm
Nate79 wrote:
Thu Sep 28, 2017 1:08 pm
I would put it more bluntly. This is kindergarten level stuff. It has been discussed over and over, it is nothing new, and if it really worked even half brain dead fund manager would implement it.
Forget the Buy the Dip strategy. My strategy is to buy only Google (Alphabet) and Apple. Back testing proves the awesomeness of this approach. Diversification is for the birds.
I studied this strategy from 1980 to 2004 and it underperformed the S&P 500. No reason to expect it to do better from 2005- to 2017.:)

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by aqan » Thu Sep 28, 2017 4:22 pm

If I could get the historical data going back to 1930I'd like to see how the strategy does during a random 15 year period. Any idea where to get this data?

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by livesoft » Thu Sep 28, 2017 4:43 pm

I don't see how going with data back to 1930 would help one evaluate how it would help going forward from 2017. I am always skeptical of using very old data with imaginary costs and practically imaginary numbers and quite different laws and economy, then applying that to the here and now and the future.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by sergeant » Thu Sep 28, 2017 6:09 pm

livesoft wrote:
Thu Sep 28, 2017 9:04 am
I am a proponent of good market timing. I buy when prices drop in a specified way and rebalance shortly thereafter*. There has been backtesting performed as shown in this thread where many similar backtests fail, but a few are actually quite good. The trick is to be emotionally ready to not do the "similar" ones and to do the ones that work. I think very few people can do that emotionally.

Also beware of outliers. That is, where one single trade can make or break the entire analysis. One needs to do some cross-validation.

In the end no one will believe you anyways, until you have a blog that has done it for at least 10 years and outperformed. Hence, my public blog with my trades published.

*Those are NOT the only times that I buy nor the only times that I rebalance.
I can't find your blog. You're not listed in the wiki as a Boglehead blogger.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by k66 » Thu Sep 28, 2017 6:40 pm

livesoft wrote:
Thu Sep 28, 2017 4:43 pm
I don't see how going with data back to 1930 would help one evaluate how it would help going forward from 2017. I am always skeptical of using very old data with imaginary costs and practically imaginary numbers and quite different laws and economy, then applying that to the here and now and the future.
The only real usefulness that I perceive in historical data is that they were generated by a real market system. They are not the product of a fictitious statistical function and a random number generator.

You are absolutely correct though: not only is "the market" an extremely non-linear process, it is one which evolves over time. This leaves us doubting the applicability of the information learned from the past in the context of the present and the future.
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by randomguy » Thu Sep 28, 2017 7:28 pm

livesoft wrote:
Thu Sep 28, 2017 4:43 pm
I don't see how going with data back to 1930 would help one evaluate how it would help going forward from 2017. I am always skeptical of using very old data with imaginary costs and practically imaginary numbers and quite different laws and economy, then applying that to the here and now and the future.
Sure but how confident you are that data from say 2000-2017 would help you predict what is going to happen going forward either? Maybe that was an abnormal period where this scheme performed well but in "normal" markets it fails miserably. But ignore the 1930s. What about just the 90s and 80s. Why did the person with data from 1994 choose to start in 2000? Any chance it was because those years are the ones that give pretty much all the outperformance and starting in 2003 or 1995 didn't give the results the author is looking for?

This will get repeated forever but it is easy to come up with hindsight portfolios with insane performance (S&p 500 returns, 0% losses) by back testing over 30-40 year periods. Figuring out if you will get the same performance going forward though requires lots of leaps of faith.

There are hundreds of quants doing math just like this and several levels deeper in complexity. Some of them have had really good results (See Renaissance Technology). Most have struggled to beat the index. There are hundreds of these schemes being posted. In 10 years, a chunk of them will be talking about their great results. The other ones will be forgotten.

All that being said, I market time by reducing equity exposure after multiple years of market run ups.I am down from 100% in 2009 to about 70%. Don't really have the courage to go any lower.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by snarlyjack » Thu Sep 28, 2017 7:34 pm

I dca into my accounts every payday.
I don't care what the markets are doing (up, down, sideways).
I' am a long term buy & hold investor. It's time in the
markets not timing the markets...that's the big secret.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Taylor Larimore » Thu Sep 28, 2017 7:40 pm

snarlyjack wrote:
Thu Sep 28, 2017 7:34 pm
I dca into my accounts every payday.
I don't care what the markets are doing (up, down, sideways).
I' am a long term buy & hold investor. It's time in the
markets not timing the markets...that's the big secret.
snarlyjack:

I agree.

Best wishes.
Taylor
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by nedsaid » Thu Sep 28, 2017 7:45 pm

Vision wrote:
Thu Sep 28, 2017 8:56 am
https://www.reddit.com/r/investing/comm ... hilosophy/

I like the analysis this person did and how he came to conclusion that Buy The Dip strategy actually works.

Yes, it is market timing, but he also posted cold, hard facts of how it outperformed SPY.

What would be your rebuttals to this argument?
For further testing, I would take it down to the crystal ball lady and future test your strategy. Then we will know in advance it will work.
A fool and his money are good for business.

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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by livesoft » Thu Sep 28, 2017 8:07 pm

randomguy wrote:
Thu Sep 28, 2017 7:28 pm
Sure but how confident you are that data from say 2000-2017 would help you predict what is going to happen going forward either?
[...]

All that being said, I market time by reducing equity exposure after multiple years of market run ups.I am down from 100% in 2009 to about 70%. Don't really have the courage to go any lower.
I myself would make no predictions other than the stock market goes up over the long term -- otherwise why would we invest in the stock market in the first place?

On going lower with your asset allocation, I think it is a good idea to read this article about increasing one's asset allocation to equities in a glide path during retirement:
https://earlyretirementnow.com/2017/09/ ... lidepaths/
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by rocket354 » Thu Sep 28, 2017 8:12 pm

snarlyjack wrote:
Thu Sep 28, 2017 7:34 pm
I dca into my accounts every payday.
I don't care what the markets are doing (up, down, sideways).
I' am a long term buy & hold investor. It's time in the
markets not timing the markets...that's the big secret.
I definitely agree with your sentiment, but at the risk of sounding pedantic, I suspect you might be lump-summing into your account every payday. That is, unless you are actually breaking up the investable amount from your paycheck and depositing it in batches over time. Otherwise, you are investing as much as you can all at once, ie, lump-sum investing.

MarginalCost
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by MarginalCost » Thu Sep 28, 2017 8:36 pm

livesoft wrote:
Thu Sep 28, 2017 9:04 am
I am a proponent of good market timing. I buy when prices drop in a specified way and rebalance shortly thereafter*. There has been backtesting performed as shown in this thread where many similar backtests fail, but a few are actually quite good. The trick is to be emotionally ready to not do the "similar" ones and to do the ones that work. I think very few people can do that emotionally.

Also beware of outliers. That is, where one single trade can make or break the entire analysis. One needs to do some cross-validation.

In the end no one will believe you anyways, until you have a blog that has done it for at least 10 years and outperformed. Hence, my public blog with my trades published.

*Those are NOT the only times that I buy nor the only times that I rebalance.
Livesoft, where is this blog? I would love to see it

staythecourse
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by staythecourse » Thu Sep 28, 2017 8:39 pm

Thats easy... Where is the data that shows it has been done on a prospective basis? It is great to find any data that has been manipulated to prove what you want . I am not saying it CAN'T be done. I am saying it has NOT been done. There is a big difference between the two. Until it has been replicated on a prospective basis it is just another great idea. Not bad, but doesn't hold any value in my mind. The key to science is being able to REPLICATE the data using the same criteria. If it can't be done going forward then it is of no use to the reader.

That reminds me of the great idea Mr. Bogle had when he came out with his SP500 index. He kept track of every equity fund at the time of its conception so he could compare his index funds performance PROSPECTIVELY going forward.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

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bottlecap
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by bottlecap » Thu Sep 28, 2017 8:53 pm

rocket354 wrote:
Thu Sep 28, 2017 8:12 pm
snarlyjack wrote:
Thu Sep 28, 2017 7:34 pm
I dca into my accounts every payday.
I don't care what the markets are doing (up, down, sideways).
I' am a long term buy & hold investor. It's time in the
markets not timing the markets...that's the big secret.
I definitely agree with your sentiment, but at the risk of sounding pedantic, I suspect you might be lump-summing into your account every payday. That is, unless you are actually breaking up the investable amount from your paycheck and depositing it in batches over time. Otherwise, you are investing as much as you can all at once, ie, lump-sum investing.
"Risk"? Lol.

randomguy
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by randomguy » Thu Sep 28, 2017 8:58 pm

livesoft wrote:
Thu Sep 28, 2017 8:07 pm
randomguy wrote:
Thu Sep 28, 2017 7:28 pm
Sure but how confident you are that data from say 2000-2017 would help you predict what is going to happen going forward either?
[...]

All that being said, I market time by reducing equity exposure after multiple years of market run ups.I am down from 100% in 2009 to about 70%. Don't really have the courage to go any lower.
I myself would make no predictions other than the stock market goes up over the long term -- otherwise why would we invest in the stock market in the first place?

On going lower with your asset allocation, I think it is a good idea to read this article about increasing one's asset allocation to equities in a glide path during retirement:
https://earlyretirementnow.com/2017/09/ ... lidepaths/

I am not retired. And I am not planning on a 60 year retirement unless we get some serious life extension work:) I am not shocked that going up helps much given US stock history. Now if that is small sample size (i.e. how did the Japanese investor do going from 60-100% stocks between 1989 and 1999?) or not is up to you to decide. And there is always the emotional part where being 100% stocks starting in say 1981 was undoubtably a great choice. How the emotional pain of 2000-2 or 2008-9 would have affected you is hard to say. It is easy to say you have the extra money because of the risks you took on so you are still in a better spot but watching your networth drop from 10 million to 4 million would still be incredibly painful.

Vision
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by Vision » Fri Sep 29, 2017 12:39 am

More from that guy.
The common misconception of "you can't outperform the market" is simply false. You can. Furthermore, it's not all that difficult. Here are few ways in which you outperform the market:
Buy a leap option for 20% of your capital for 1 year out. Your exit points are: 1/2 of your position once you reach 100% profit, the rest runs to expiration (sell though, don't exercise).
Buy and hold 3x leveraged ETF for SPY. Outperforms the market over the last decade, two decades, etc. Yes I know they didn't exist couple decades ago but if they did exist they would outperform the market.
Of course you can very easily beat SPY during a bull market
I know, that's not the point though. Beating SPY in bull market is stupid easy and I wasn't after that. The two options above beat the market over a long term. Yes you lose more with 3x ETF during the recession but you recover much faster, especially if you have monthly contribution set up. Set the start date at 2007, 2000 (which theoretically is the worst time to start this) and you still outperform the market. If you set the start date few years before any recession you come ahead with a big margin.
The leap option is even simpler - your downside is limited to 20% of your portfolio. Your upside is theoretically unlimited, but usually no more than 20-30% of your entire portfolio. My "research" linked above was geared towards not beating the market but devising a strategy that would have lesser drawdown than the market during recessions. The fact that it outperformed the market is a nice bonus. Outperformance isn't so heavy to lead me to believe it will always happen, but it's convincing enough for me to work with the strategy.
My question is - why is he wrong? Obviously you guys are against market timing, but I'm just interested in the technicals, why would his method not work and what can go wrong and how high the chance is of it going wrong?

technovelist
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by technovelist » Fri Sep 29, 2017 5:06 am

I can always find a "good strategy" if I use backtesting to develop it.
That's why you shouldn't use backtesting to develop strategies.
It is good only for testing strategies that are developed with some theoretical basis.
In theory, theory and practice are identical. In practice, they often differ.

technovelist
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by technovelist » Fri Sep 29, 2017 5:08 am

Vision wrote:
Fri Sep 29, 2017 12:39 am
More from that guy.
The common misconception of "you can't outperform the market" is simply false. You can. Furthermore, it's not all that difficult. Here are few ways in which you outperform the market:
Buy a leap option for 20% of your capital for 1 year out. Your exit points are: 1/2 of your position once you reach 100% profit, the rest runs to expiration (sell though, don't exercise).
Buy and hold 3x leveraged ETF for SPY. Outperforms the market over the last decade, two decades, etc. Yes I know they didn't exist couple decades ago but if they did exist they would outperform the market.
Of course you can very easily beat SPY during a bull market
I know, that's not the point though. Beating SPY in bull market is stupid easy and I wasn't after that. The two options above beat the market over a long term. Yes you lose more with 3x ETF during the recession but you recover much faster, especially if you have monthly contribution set up. Set the start date at 2007, 2000 (which theoretically is the worst time to start this) and you still outperform the market. If you set the start date few years before any recession you come ahead with a big margin.
The leap option is even simpler - your downside is limited to 20% of your portfolio. Your upside is theoretically unlimited, but usually no more than 20-30% of your entire portfolio. My "research" linked above was geared towards not beating the market but devising a strategy that would have lesser drawdown than the market during recessions. The fact that it outperformed the market is a nice bonus. Outperformance isn't so heavy to lead me to believe it will always happen, but it's convincing enough for me to work with the strategy.
My question is - why is he wrong? Obviously you guys are against market timing, but I'm just interested in the technicals, why would his method not work and what can go wrong and how high the chance is of it going wrong?
The answer is the same as for any other "method to beat the market".
Namely, if it worked, then people would pile into it until they had moved the prices far enough that it wouldn't work.
In theory, theory and practice are identical. In practice, they often differ.

GoldenFinch
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by GoldenFinch » Fri Sep 29, 2017 6:56 am

livesoft wrote:
Thu Sep 28, 2017 10:29 am
financeidiot wrote:
Thu Sep 28, 2017 9:56 am
You're probably going to get the same set of rebuttals to every response about a market timing strategy that appears to work:
...
All excellent points that I agree with. Thanks for summarizing.

Before one does any market timing, they had better make sure that their costs, fees, taxes are kept close to zero. Furthermore, they had better make sure that they can match the market performance to begin with. That is, they should practice and succeed at the rules professed here at bogleheads.org where folks routinely report zero transaction costs, low expense-ratio of .1% or less, and extremely tax-efficient investing.

That is, get the easy stuff right for a while before attempting the hard stuff.
And if you get the easy stuff right you don't need to attempt the hard stuff!

(Unless you just want "More! More! More!" because you never have enough.)

The problem with the hard stuff is the increase in risk.

junior
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by junior » Fri Sep 29, 2017 7:31 am

The stock market is driven by psychology, and therefore doesn't follow natural laws like physics. The fact that a strategy worked in the past doesn't mean that it will continue to work the way that modeling gravity will let you know how the planets will continue to move around the sun. So this timing strategy isn't guaranteed to work in the future.

halfnine
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by halfnine » Fri Sep 29, 2017 7:40 am

Vision wrote:
Fri Sep 29, 2017 12:39 am
More from that guy.
The common misconception of "you can't outperform the market" is simply false. You can. Furthermore, it's not all that difficult. Here are few ways in which you outperform the market:
Buy a leap option for 20% of your capital for 1 year out. Your exit points are: 1/2 of your position once you reach 100% profit, the rest runs to expiration (sell though, don't exercise).
Buy and hold 3x leveraged ETF for SPY. Outperforms the market over the last decade, two decades, etc. Yes I know they didn't exist couple decades ago but if they did exist they would outperform the market.
Of course you can very easily beat SPY during a bull market
I know, that's not the point though. Beating SPY in bull market is stupid easy and I wasn't after that. The two options above beat the market over a long term. Yes you lose more with 3x ETF during the recession but you recover much faster, especially if you have monthly contribution set up. Set the start date at 2007, 2000 (which theoretically is the worst time to start this) and you still outperform the market. If you set the start date few years before any recession you come ahead with a big margin.
The leap option is even simpler - your downside is limited to 20% of your portfolio. Your upside is theoretically unlimited, but usually no more than 20-30% of your entire portfolio. My "research" linked above was geared towards not beating the market but devising a strategy that would have lesser drawdown than the market during recessions. The fact that it outperformed the market is a nice bonus. Outperformance isn't so heavy to lead me to believe it will always happen, but it's convincing enough for me to work with the strategy.
My question is - why is he wrong? Obviously you guys are against market timing, but I'm just interested in the technicals, why would his method not work and what can go wrong and how high the chance is of it going wrong?
I think the first test would be the pervasive test (one of many ideas of which I am indebted to Larry Swedroe). So does this strategy backtest across different countries and markets? That might be a quick way to figure out "why" and "how high the chance" for starters.

GoldenFinch
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Joined: Mon Nov 10, 2014 11:34 pm

Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by GoldenFinch » Fri Sep 29, 2017 7:41 am

junior wrote:
Fri Sep 29, 2017 7:31 am
The stock market is driven by psychology, and therefore doesn't follow natural laws like physics. The fact that a strategy worked in the past doesn't mean that it will continue to work the way that modeling gravity will let you know how the planets will continue to move around the sun. So this timing strategy isn't guaranteed to work in the future.
Well said. When I think about market timing the first thing that comes to mind is "behavioral errors." Another way to think about this is that every thing about the way the market works is fluid and not fixed. So there is an element of chance or luck when you "beat the market" which you can't control or predict. Just like gambling.

goingup
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Re: Guy proves that Buy The Dip strategy works (via backtests) any rebuttals?

Post by goingup » Fri Sep 29, 2017 8:28 am

bottlecap wrote:
Thu Sep 28, 2017 8:53 pm
rocket354 wrote:
Thu Sep 28, 2017 8:12 pm
snarlyjack wrote:
Thu Sep 28, 2017 7:34 pm
I dca into my accounts every payday.
I don't care what the markets are doing (up, down, sideways).
I' am a long term buy & hold investor. It's time in the
markets not timing the markets...that's the big secret.
I definitely agree with your sentiment, but at the risk of sounding pedantic, I suspect you might be lump-summing into your account every payday. That is, unless you are actually breaking up the investable amount from your paycheck and depositing it in batches over time. Otherwise, you are investing as much as you can all at once, ie, lump-sum investing.
"Risk"? Lol.
:wink: Well really contributing every pay period to a 401K is called periodic investing which is often conflated with dollar cost averaging. It's definitely not lump sum investing.

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