Memo to those who have won the game: it's time to quit playing

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czeckers
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Re: Memo to those who have won the game: it's time to quit playing

Post by czeckers » Mon Jan 08, 2018 12:26 pm

This post emphasizes for me why it's important to have a well defined plan such as annual rebalancing on such and such date. One can agonize over these decisions indefinitely. Should I buy more, should I sell, change my AA???

Have a reasonable plan and stick with it. The more people monkey with things, the more they are likely to mess them up.
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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 12:46 pm

livesoft wrote:
Mon Jan 08, 2018 8:36 am
packer16 wrote:
Mon Jan 08, 2018 8:18 am
I would be interested in what evidence you have that rules based market timing works. All I have seen evidence that it does not. A Damodaran has done a good piece on this as well as friend of mine at Austin Value Capital. Their conclusion, it is impossible to develop a rules-based system to get in and out of stocks that is better than staying 100% invested in stocks.
I agree with the above, however, most portfolios at bogleheads.org are not 100% invested in stocks. This thread is evidence that people cannot be 100% invested in stocks and also evidence that even if they are invested S% in stocks where 35 < S < 75, that sometimes they cannot maintain that value of S for whatever reason.

So given the foibles of human character and all the behavioral flaws we see every day on this forum is there a different rules-based market timing system to help those normal investors that does not require them to be 100% invested in stocks? :twisted:

Furthermore, it seems that increasing one's allocation to stocks and keeping it there is the best rules-based market timing system.
Meb Faber has done a lot of research into trend following and shown that, historically, simple rules have greatly reduced downside risk.

I'll give a very simple example. Most would agree that the 200 day moving average is the most widely used timing indicator and has had documented use for at least the last 50 years. This is approximately equal to a 10 month moving average. The decision rule used is simple: you invest 100% into TSM when it is above the 10 month moving average and move 100% into TBM otherwise. You can trade either at the next closing day or based on the end of month price, which means that you trade no more than once per month. Over long-term periods, the results are similar, so many favor trading at the end of month price.

In =5&timingUnits[0]=2&timingWeights[0]=100&timingUnits[1]=2&timingWeights[1]=0&timingUnits[2]=2&timingWeights[2]=0&timingUnits[3]=2&timingWeights[3]=0&timingUnits[4]=2&timingWeights[4]=0&volatilityPeriodUnit=2&volatilityPeriodWeight=0&symbol1=VTSMX&allocation1_1=100]this this example, I'll use VTSMX and VBMFX due to data availability (1993-2017). Using buy-and-hold, TSM returned 9.62%, had a std. dev. of 14.52%, and a max drawdown of -50.89%; Sharpe was .54. Using the above timing model, the return was 11.85%, with a std. dev. of 10.30%, a max drawdown of -17.57%, and a Sharpe of .93. I'll be the first to point out that the higher returns are largely due to there being two substantial bear markets in this period, which the timing approach largely avoided.

Why then do so relatively few investors or managers use this approach? There are many potential reasons, but I believe the most compelling is that during bull markets, virtually every timing model will underperform buy-and-hold. This is evident within the 24 year period above. From 1994-1999, buy-and-hold returned 21.88%, while the timing model returned 17.11%; both had the same max drawdown of -17.57%. Similarly, from 2009-2017, buy-and-hold returned 15.38%, while the timing model returned 12.29%; similar drawdowns were experienced by both (-17.84% for buy-and-hold and -16.57% for timing). Many investors are not willing to hold to a system that underperforms a simple buy-and-hold approach for the better part of a decade (or more), waiting to be 'vindicated' in a bear market. But in a period of poor buy-and-hold performance, timing can really shine. For instance, from 2000-2009, buy-and-hold of TSM returned -.27% with a max drawdown of -50.89%, while the timing model returned 8.61% with a max drawdown of -13.78%

This 'fear of missing out' is very real, and even some of those who have used trend following for many years don't want to allocate 100% of their portfolios to the approach. Both Meb Faber and Paul Merriman apply buy-and-hold to 50% of their portfolio and 50% to trend following. I view this as a similar approach to those who think that small cap value will outperform TSM over the long-term, but allocate only a portion of their portfolio to SCV.

Precisely how well this approach or any other timing approach will work going forward is unknown to me or anyone else. But it has done a good job at minimizing downside risk (not just in the above time period or with these tickers) in the past, and I'm personally fine with lagging behind buy-and-hold during bull markets if I have some downside risk protection in bear markets. Even then, I know that this is not a panacea for downside risk either since markets could plunge faster than the timing model could react. But I'm fine with that. This strategy isn't for everyone, but I believe that it's appropriate for me.

That being said, I don't think that many of the adherents of buy-and-hold are as well-informed of the risks they are taking on. People talk about stocks dropping by 50%, which they certainly can, but during the Great Depression, a 'moderate' 60/40 portfolio had a maximum drawdown of -62%. I really wonder how many 'casual' investors could sit through that without panicking. It might not ever happen again, but it could be even worse in the future. We just don't know.
Last edited by willthrill81 on Mon Jan 08, 2018 12:50 pm, edited 1 time in total.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Sandtrap
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Re: Memo to those who have won the game: it's time to quit playing

Post by Sandtrap » Mon Jan 08, 2018 12:50 pm

Dandy wrote:
Mon Jan 08, 2018 12:22 pm
There's a "bigger" game than strategizing one's portfolio to last through retirement.
If one has an opportunity to be benevolent, then it's time to "pay it forward".
Decent point. But don't forget that there is also a point of not subjecting your heirs to need to help you financially in your old age. So, as most things a balance is called for -- my emphasis is making sure my heirs don't have to help us financially and a secondary goal is to leave them money. Actually, am gifting them money now, when they seem to need it most, rather than have them wait until they are near retirement. For those who "have enough" both goals may be attainable.
Absolutely true.
Always put on one's oxygen mask before helping another during flight turbulence and impending doom.
j :D

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Re: Memo to those who have won the game: it's time to quit playing

Post by aj76er » Mon Jan 08, 2018 1:14 pm

visualguy wrote:
Mon Jan 08, 2018 3:55 am
aj76er wrote:
Mon Jan 08, 2018 12:12 am
visualguy wrote:
Sun Jan 07, 2018 4:36 pm

Not having children can actually be a very serious problem in old age unless you have some other relatives that you can trust at that point - maybe nieces and nephews if you have a relationship with them.
Under this situation, then one can pay 75bps (or perhaps a little more, depending on AUM) for a financial advisor to manage one's assets and make timely distributions during one's final years of life. Don't let blind adherence to dogma trump common sense. If one is too old to manage their portfolio, and there is no family that can be trusted, then paying a small advisory fee is well worth it.
How easy is it to find someone you can trust to manage your assets, especially when they know that you have no one to protect your interest?

Also, it's not just a money issue. You almost inevitably need an advocate in old age, and it's hard to imagine who other than family or maybe a really close friend (rare) would do that.

There was a thread here a while ago on this topic, and it was pretty depressing... Lots of issues with abuse of conservatorship/guardianship. Terrifying stuff.
You mean how hard is it to find an FA that doesn't commit outright theft and/or fraud? I would assume it's not that hard to find, but definitely need to do due diligence. Also as previous poster said, annuitizing the majority of one's assets could make sense.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle

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Re: Memo to those who have won the game: it's time to quit playing

Post by WhiteMaxima » Mon Jan 08, 2018 1:41 pm

if you believe investment is a zero sum game like casino, then stop playing if you won. If you believe investment is to invest into a business with growing potential, you should re-invest. The answer is clear.

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Re: Memo to those who have won the game: it's time to quit playing

Post by marcopolo » Mon Jan 08, 2018 3:41 pm

It is not so much the various arguments about CAPE, changes to GAAP earnings, long time drift upwards, etc. that make me think we may be nearing the top, but it is the fact that i am starting to notice more posts like this one: viewtopic.php?f=1&t=237289#p3708720.

When people who have been too scared to get into the market since 2009 start thinking its time to get back in, I start thinking it might be time to take some money off the table. But, i only do so to the extent required to maintain my pre-defined AA and glide path.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Memo to those who have won the game: it's time to quit playing

Post by HomerJ » Mon Jan 08, 2018 3:58 pm

willthrill81 wrote:
Sun Jan 07, 2018 11:46 pm
CULater wrote:
Sun Jan 07, 2018 8:49 pm
I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched.
Historically, when CAPE was above 20, the next 10 year's returns varied between -1.38% and 12.07%, as shown in the table below, but most of the returns were between 1% and 7%. Given that we're at the second highest levels of CAPE in history, I think that we should not count on double-digit returns for U.S. equities over the next ten years. Anything could happen, but to the extent that the future looks anything like the past, it seems very unlikely. In only 3 of the 42 year ten year periods (1900-2012) were returns 10% or higher after the starting CAPE was 20 or higher. That's only 7% of the time.
I bet those 3 periods were in the past 25-30 years right?

For 25-30 years, the model has not conformed with the previous 75 years. I think it's fairly reasonable to wonder if maybe, just maybe, the model has a flaw.

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Re: Memo to those who have won the game: it's time to quit playing

Post by Arabesque » Mon Jan 08, 2018 4:00 pm

It's not so easy to quit playing!

I am a lurker who registered this morning so that thank all the wonderful bogleheads who are leading me into retirement. On my 66th birthday in July, my allocation was 80/20, but then I discovered bogleheads. This and a series of events and realizations over the last 6 months have pushed it to 60/30/10. Then this particular thread helped me realize that I have won the game and really could go to a more age appropriate allocation.

As I wrote above, I registered this morning so that I could thank you, but then decided that I should change my allocation first. I just can't do it. I changed all the future contributions from work to be 50/50. And I have almost sold some of my Apple (which I bought before the iPhone and have allowed to overrun my portfolio), but I just can't hit the sell button.

When you've played for a long time, it's hard to quit.

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Re: Memo to those who have won the game: it's time to quit playing

Post by letsgobobby » Mon Jan 08, 2018 4:03 pm

Willthrill, it's not even the 62% drawdown which would be hardest on folks, difficult as that would be. It's the twenty or thirty year round trip with a zero real return. Very few investors are mentally prepared for that possibility.

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Mon Jan 08, 2018 4:03 pm

HomerJ wrote:
Mon Jan 08, 2018 3:58 pm
willthrill81 wrote:
Sun Jan 07, 2018 11:46 pm
CULater wrote:
Sun Jan 07, 2018 8:49 pm
I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched.
Historically, when CAPE was above 20, the next 10 year's returns varied between -1.38% and 12.07%, as shown in the table below, but most of the returns were between 1% and 7%. Given that we're at the second highest levels of CAPE in history, I think that we should not count on double-digit returns for U.S. equities over the next ten years. Anything could happen, but to the extent that the future looks anything like the past, it seems very unlikely. In only 3 of the 42 year ten year periods (1900-2012) were returns 10% or higher after the starting CAPE was 20 or higher. That's only 7% of the time.
I bet those 3 periods were in the past 25-30 years right?

For 25-30 years, the model has not conformed with the previous 75 years. I think it's fairly reasonable to wonder if maybe, just maybe, the model has a flaw.
No model is a perfect predictor. We're talking about probabilities here. What odds do you need to stand pat with what you have in the pot?
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by WhiteMaxima » Mon Jan 08, 2018 4:06 pm

W Buffet has won the game long time ago but he is till playing the game. How to explain?

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Re: Memo to those who have won the game: it's time to quit playing

Post by marcopolo » Mon Jan 08, 2018 4:15 pm

HomerJ wrote:
Mon Jan 08, 2018 3:58 pm
willthrill81 wrote:
Sun Jan 07, 2018 11:46 pm
CULater wrote:
Sun Jan 07, 2018 8:49 pm
I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched.
Historically, when CAPE was above 20, the next 10 year's returns varied between -1.38% and 12.07%, as shown in the table below, but most of the returns were between 1% and 7%. Given that we're at the second highest levels of CAPE in history, I think that we should not count on double-digit returns for U.S. equities over the next ten years. Anything could happen, but to the extent that the future looks anything like the past, it seems very unlikely. In only 3 of the 42 year ten year periods (1900-2012) were returns 10% or higher after the starting CAPE was 20 or higher. That's only 7% of the time.
I bet those 3 periods were in the past 25-30 years right?

For 25-30 years, the model has not conformed with the previous 75 years. I think it's fairly reasonable to wonder if maybe, just maybe, the model has a flaw.
Not only that, the data referenced above stops in 2012 (maybe 2011). Somewhat different picture if you include more recent data.
I posted the following in the other thread discussing CAPE fears:
I think that table maybe only includes data thru 2011. CAPE10 has been >20 since Oct 2011. We had >15% return in 2012 (S&P 500). But, we don't see that reflected in the table.

Not sure why the table was limited to this range, since it is now 2018, and we have the data thru 2017.
In any case, we see that prior to 2011, not a single case where CAPE10 > 20 and return > 15%. In the 6 years since then (2012 - 2017), there have been 3 years (2012, 2013, and 2017) that meet that criteria, and another 2 that would fall in the 10-15% bin of your histogram. Not sure what to make of that, but it certainly muddies the water regarding making any statement about the predictive power of CAPE10 for any given years performance. Maybe it does better for longer horizons. But whether that continues to be true given the structural changes to how it is computed remains to be seen.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: Memo to those who have won the game: it's time to quit playing

Post by Doom&Gloom » Mon Jan 08, 2018 4:27 pm

marcopolo wrote:
Mon Jan 08, 2018 3:41 pm
It is not so much the various arguments about CAPE, changes to GAAP earnings, long time drift upwards, etc. that make me think we may be nearing the top, but it is the fact that i am starting to notice more posts like this one: viewtopic.php?f=1&t=237289#p3708720.

When people who have been too scared to get into the market since 2009 start thinking its time to get back in, I start thinking it might be time to take some money off the table. But, i only do so to the extent required to maintain my pre-defined AA and glide path.
I had the same thoughts. People who have sat out for ten years are starting to want in. People who have been invested >10 years are wondering if it is time to violate their plans to "stay the course" and take a bit more than planned off the table. Then toss in the recent bursts of cryptocurrency speculation. What's an investor to do? Thought provoking OP.
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
Different people are motivated by different things. Not everyone is looking to take the first (or even the second) exit after FI. Simple. Easy to understand.

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Re: Memo to those who have won the game: it's time to quit playing

Post by flyingaway » Mon Jan 08, 2018 5:05 pm

WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
He is a professional player. We are amateurs.

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Re: Memo to those who have won the game: it's time to quit playing

Post by WhiteMaxima » Mon Jan 08, 2018 5:08 pm

flyingaway wrote:
Mon Jan 08, 2018 5:05 pm
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
He is a professional player. We are amateurs.
then buy BRKA/B and let him play the game.

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Mon Jan 08, 2018 5:15 pm

WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
I don't think you've read Larry Swedroe's memo. Those who choose to stay in the game do so based on the Need, Willingness, or Ability to do so. Mr. Buffett has #2 and #3 but not #1. Some of us don't have #1, #2, or #3.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by AlmstRtrd » Mon Jan 08, 2018 5:45 pm

Here's Bernstein's article from the WSJ from 1/19/15

https://www.wsj.com/articles/how-to-tel ... 1421726456

Lots of good posts in this thread but I thought it made sense to at least post what Bernstein was recommending (and, no, it wasn't getting out of stocks completely).

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 5:45 pm

HomerJ wrote:
Mon Jan 08, 2018 3:58 pm
willthrill81 wrote:
Sun Jan 07, 2018 11:46 pm
CULater wrote:
Sun Jan 07, 2018 8:49 pm
I wouldn't get too hung up on trying to discount CAPE. That's just one example of many that ought be be telling folks that this market is stretched.
Historically, when CAPE was above 20, the next 10 year's returns varied between -1.38% and 12.07%, as shown in the table below, but most of the returns were between 1% and 7%. Given that we're at the second highest levels of CAPE in history, I think that we should not count on double-digit returns for U.S. equities over the next ten years. Anything could happen, but to the extent that the future looks anything like the past, it seems very unlikely. In only 3 of the 42 year ten year periods (1900-2012) were returns 10% or higher after the starting CAPE was 20 or higher. That's only 7% of the time.
I bet those 3 periods were in the past 25-30 years right?

For 25-30 years, the model has not conformed with the previous 75 years. I think it's fairly reasonable to wonder if maybe, just maybe, the model has a flaw.
That's a very fair point. Even in the historic record, CAPE was a far from perfect predictor, and it might be even less correlated with future returns going forward. We just don't know.

Still, I'm not aware of a single valuation metric that doesn't indicate that we aren't at least on the high side of normal. That means that in order for future returns to come close to their historic average, earnings growth will have to be very strong and the price/X ratio not drop much/any. That could very well happen.

That being said, if U.S. equities return 10% over the next decade, I'll be very happy. :beer But I'm prepared for that to not be the case as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 5:47 pm

marcopolo wrote:
Mon Jan 08, 2018 4:15 pm
Not only that, the data referenced above stops in 2012 (maybe 2011). Somewhat different picture if you include more recent data.
True. The blog post that contained that table is a few years old. CAPE may be 'broken', it might just take a long while to see at least some mean reversion, or maybe historically high valuations are the new norm. I don't know.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 5:54 pm

letsgobobby wrote:
Mon Jan 08, 2018 4:03 pm
Willthrill, it's not even the 62% drawdown which would be hardest on folks, difficult as that would be. It's the twenty or thirty year round trip with a zero real return. Very few investors are mentally prepared for that possibility.
The worst 20 year period for the market resulted in a real return of -.2%, which was then followed by a strong enough recovery to make a 4% plus inflation WR survive (barely). But yes, the number of investors who are really mentally prepared for that are close to zero. I really have my doubts as to how many 'buy-and-hold' investors could just watch their portfolio drop by nearly two-thirds and do nothing but keep selling their bonds to buy more stocks. After all, the reason that many go with a 60/40 AA is because they don't want intense volatility in the first place.

Good thing that there's a whole world out there to invest in and not just the U.S.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Memo to those who have won the game: it's time to quit playing

Post by drzzzzz » Mon Jan 08, 2018 6:04 pm

WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
It doesn't matter if you play or stop playing when you have his assets - money keeps coming in from dividends and capital gains. When you have so much, the portfolio can be 100% cash or 100% bonds or 100% stock.

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Re: Memo to those who have won the game: it's time to quit playing

Post by letsgobobby » Mon Jan 08, 2018 6:17 pm

willthrill81 wrote:
Mon Jan 08, 2018 5:54 pm
letsgobobby wrote:
Mon Jan 08, 2018 4:03 pm
Willthrill, it's not even the 62% drawdown which would be hardest on folks, difficult as that would be. It's the twenty or thirty year round trip with a zero real return. Very few investors are mentally prepared for that possibility.
The worst 20 year period for the market resulted in a real return of -.2%, which was then followed by a strong enough recovery to make a 4% plus inflation WR survive (barely). But yes, the number of investors who are really mentally prepared for that are close to zero. I really have my doubts as to how many 'buy-and-hold' investors could just watch their portfolio drop by nearly two-thirds and do nothing but keep selling their bonds to buy more stocks. After all, the reason that many go with a 60/40 AA is because they don't want intense volatility in the first place.

Good thing that there's a whole world out there to invest in and not just the U.S.
And many innternational markets have, for all practical purposes, gone to zero. The US is an unusual case.

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Mon Jan 08, 2018 6:23 pm

AlmstRtrd wrote:
Mon Jan 08, 2018 5:45 pm
Here's Bernstein's article from the WSJ from 1/19/15

https://www.wsj.com/articles/how-to-tel ... 1421726456

Lots of good posts in this thread but I thought it made sense to at least post what Bernstein was recommending (and, no, it wasn't getting out of stocks completely).
Dam! That's one of those websites where you have to register to read the article. And I really wanted to hear the good doctor some more.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by AlmstRtrd » Mon Jan 08, 2018 6:33 pm

CULater wrote:
Mon Jan 08, 2018 6:23 pm
AlmstRtrd wrote:
Mon Jan 08, 2018 5:45 pm
Here's Bernstein's article from the WSJ from 1/19/15

https://www.wsj.com/articles/how-to-tel ... 1421726456

Lots of good posts in this thread but I thought it made sense to at least post what Bernstein was recommending (and, no, it wasn't getting out of stocks completely).
Dam! That's one of those websites where you have to register to read the article. And I really wanted to hear the good doctor some more.
Sorry about that, CULater. Try this one:

http://static.ow.ly/docs/How%20to%20Tel ... J_30YC.pdf

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Mon Jan 08, 2018 6:35 pm

:thumbsup
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by itstoomuch » Mon Jan 08, 2018 6:38 pm

IMO, Bernstein, asked a rhetorical question, "Why ...?"
Apparently some think, its time to quit. Others can answer the opposing reply and still be legitimate.
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Re: Memo to those who have won the game: it's time to quit playing

Post by sergeant » Mon Jan 08, 2018 7:06 pm

WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
That has been answered in this thread. His money is going to the Gates Foundation. He is "playing" for future generations.
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Re: Memo to those who have won the game: it's time to quit playing

Post by packer16 » Mon Jan 08, 2018 8:02 pm

willthrill81 wrote:
Mon Jan 08, 2018 12:46 pm
livesoft wrote:
Mon Jan 08, 2018 8:36 am
packer16 wrote:
Mon Jan 08, 2018 8:18 am
I would be interested in what evidence you have that rules based market timing works. All I have seen evidence that it does not. A Damodaran has done a good piece on this as well as friend of mine at Austin Value Capital. Their conclusion, it is impossible to develop a rules-based system to get in and out of stocks that is better than staying 100% invested in stocks.
I agree with the above, however, most portfolios at bogleheads.org are not 100% invested in stocks. This thread is evidence that people cannot be 100% invested in stocks and also evidence that even if they are invested S% in stocks where 35 < S < 75, that sometimes they cannot maintain that value of S for whatever reason.

So given the foibles of human character and all the behavioral flaws we see every day on this forum is there a different rules-based market timing system to help those normal investors that does not require them to be 100% invested in stocks? :twisted:

Furthermore, it seems that increasing one's allocation to stocks and keeping it there is the best rules-based market timing system.
Meb Faber has done a lot of research into trend following and shown that, historically, simple rules have greatly reduced downside risk.

I'll give a very simple example. Most would agree that the 200 day moving average is the most widely used timing indicator and has had documented use for at least the last 50 years. This is approximately equal to a 10 month moving average. The decision rule used is simple: you invest 100% into TSM when it is above the 10 month moving average and move 100% into TBM otherwise. You can trade either at the next closing day or based on the end of month price, which means that you trade no more than once per month. Over long-term periods, the results are similar, so many favor trading at the end of month price.

In =5&timingUnits[0]=2&timingWeights[0]=100&timingUnits[1]=2&timingWeights[1]=0&timingUnits[2]=2&timingWeights[2]=0&timingUnits[3]=2&timingWeights[3]=0&timingUnits[4]=2&timingWeights[4]=0&volatilityPeriodUnit=2&volatilityPeriodWeight=0&symbol1=VTSMX&allocation1_1=100]this this example, I'll use VTSMX and VBMFX due to data availability (1993-2017). Using buy-and-hold, TSM returned 9.62%, had a std. dev. of 14.52%, and a max drawdown of -50.89%; Sharpe was .54. Using the above timing model, the return was 11.85%, with a std. dev. of 10.30%, a max drawdown of -17.57%, and a Sharpe of .93. I'll be the first to point out that the higher returns are largely due to there being two substantial bear markets in this period, which the timing approach largely avoided.

Why then do so relatively few investors or managers use this approach? There are many potential reasons, but I believe the most compelling is that during bull markets, virtually every timing model will underperform buy-and-hold. This is evident within the 24 year period above. From 1994-1999, buy-and-hold returned 21.88%, while the timing model returned 17.11%; both had the same max drawdown of -17.57%. Similarly, from 2009-2017, buy-and-hold returned 15.38%, while the timing model returned 12.29%; similar drawdowns were experienced by both (-17.84% for buy-and-hold and -16.57% for timing). Many investors are not willing to hold to a system that underperforms a simple buy-and-hold approach for the better part of a decade (or more), waiting to be 'vindicated' in a bear market. But in a period of poor buy-and-hold performance, timing can really shine. For instance, from 2000-2009, buy-and-hold of TSM returned -.27% with a max drawdown of -50.89%, while the timing model returned 8.61% with a max drawdown of -13.78%

This 'fear of missing out' is very real, and even some of those who have used trend following for many years don't want to allocate 100% of their portfolios to the approach. Both Meb Faber and Paul Merriman apply buy-and-hold to 50% of their portfolio and 50% to trend following. I view this as a similar approach to those who think that small cap value will outperform TSM over the long-term, but allocate only a portion of their portfolio to SCV.

Precisely how well this approach or any other timing approach will work going forward is unknown to me or anyone else. But it has done a good job at minimizing downside risk (not just in the above time period or with these tickers) in the past, and I'm personally fine with lagging behind buy-and-hold during bull markets if I have some downside risk protection in bear markets. Even then, I know that this is not a panacea for downside risk either since markets could plunge faster than the timing model could react. But I'm fine with that. This strategy isn't for everyone, but I believe that it's appropriate for me.

That being said, I don't think that many of the adherents of buy-and-hold are as well-informed of the risks they are taking on. People talk about stocks dropping by 50%, which they certainly can, but during the Great Depression, a 'moderate' 60/40 portfolio had a maximum drawdown of -62%. I really wonder how many 'casual' investors could sit through that without panicking. It might not ever happen again, but it could be even worse in the future. We just don't know.
As you point out, this approach doing better is based upon a sideways market. Will we have a sidewise market in the next 20 years? I do not know. Based upon the past, it is unlikely to last over 20 years. So although these are interesting observations, like IMO factors also, there use as an investment strategy is limited & can add risk to a portfolio rather than decrease it as is originally intended. There have numerous books about this type of strategy & Ben Graham himself had described it as a formula approach. However, in Graham's case the formula lagged buy & hold after years of working in a sideways market when the bull market of the 50s & 60s occurred. Due to this timing risk, IMO the prudent way to put together a portfolio is with a buy & hold approach rather than incurring the timing risk involved in these types of strategies.

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 8:13 pm

packer16 wrote:
Mon Jan 08, 2018 8:02 pm
As you point out, this approach doing better is based upon a sideways market. Will we have a sidewise market in the next 20 years? I do not know. Based upon the past, it is unlikely to last over 20 years. So although these are interesting observations, like IMO factors also, there use as an investment strategy is limited & can add risk to a portfolio rather than decrease it as is originally intended. There have numerous books about this type of strategy & Ben Graham himself had described it as a formula approach. However, in Graham's case the formula lagged buy & hold after years of working in a sideways market when the bull market of the 50s & 60s occurred. Due to this timing risk, IMO the prudent way to put together a portfolio is with a buy & hold approach rather than incurring the timing risk involved in these types of strategies.

Packer
I don't know that I would call the last 25 years of the U.S. stock market "sideways." VTSMX compounded at a respectable 8.32% annually over the period. Also, Faber and others have done research on much longer periods and shown that the long-term effect has been similar.

Also, this approach produced significantly higher returns than balanced portfolios like 60/40 even during the bull markets of the 1990s and 2009 until today. So if we're talking about comparing this to buy-and-hold, the most accurate comparison seems to me to be 100% stocks buy-and-hold. Yes, you might lag buy-and-hold 100% equities, but historically it seems that you would still be very likely to be far ahead of most balanced portfolios. If I could get the returns of a 90/10 portfolio with the downside risk of a 40/60 portfolio, for instance, I'd be all over it.

Other than the risk of poor investor behavior (e.g. bailing on the timing model and then encountering a deep bear market with buy-and-hold), what other risks do you see to this method?
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Re: Memo to those who have won the game: it's time to quit playing

Post by visualguy » Mon Jan 08, 2018 8:28 pm

AlmstRtrd wrote:
Mon Jan 08, 2018 5:45 pm
Here's Bernstein's article from the WSJ from 1/19/15

https://www.wsj.com/articles/how-to-tel ... 1421726456

Lots of good posts in this thread but I thought it made sense to at least post what Bernstein was recommending (and, no, it wasn't getting out of stocks completely).
Seems like quite the contrary - he recommends keeping a lot in stocks. Between 50% and 100% at the age of 65 depending on how many years of RLE (residual living expenses) you have even when you "won" the game.

Also, he doesn't make any mention of possible future big expenditures like health care and long term care in his definition of expenses for the purposes of deciding if you won the game, which I find strange.

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Re: Memo to those who have won the game: it's time to quit playing

Post by zengolf2011 » Mon Jan 08, 2018 8:36 pm

To me, quitting the game means going all-cash or annuities -- but all-cash intensifies inflation risk, and annuities carry other risks. I have great respect for Mr. Bernstein, and don't think he meant that one should abandon any equity position. We are in an unprecedented situation re. the combination of stock valuations, bond yields, and inflation rates, but there have been unprecedented situations many times before. I (72 y.o., healthy, and fairly well-fixed) choose to always stay within a band of 40-60% equities. Due to my stage of life and sequence of returns risk, I choose to be at the lower end of this equities band now and (hopefully) let my equities allocation rise over time. I believe future stock and bond valuations are both unpredictable, but recognize that bonds are much less volatile than stocks. Inflation rates are also unpredictable and can be very volatile.

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Mon Jan 08, 2018 10:08 pm

It seems to me that he takes a different tack in the WSJ article vs. his book "Ages of the Investor." In the former he seems to suggest it's OK to allocate to stocks in your distribution portfolio, and in the latter he argues that you should first establish a safe Liability Matching Portfolio and only invest in stocks optionally with whatever isn't required for the LMP. Wonder which approach he stands behind? WBern -- are you out there? What say you?
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Re: Memo to those who have won the game: it's time to quit playing

Post by flyingaway » Mon Jan 08, 2018 10:13 pm

If quitting means 0% equities and not quitting means 100% equities, then I am not doing either things.

Since November 2016, I have been moving from 85/15 to 70/30 and planning to move 1% to bonds when S&P500 rises 1% until I hit 60% equities or so. I have not been able to do that since the New Year as I was in Mexico on vacation spending money. I do not understand EXACTLY what you guys are arguing about. Clearing, "QUITTING PLAYING" just means less aggressive, compared to the same person last year. I agree with that. But getting out of the market entirely will never happen to me, unless I know for sure there will be a 10% drop tomorrow.

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Re: Memo to those who have won the game: it's time to quit playing

Post by packer16 » Mon Jan 08, 2018 10:40 pm

willthrill81 wrote:
Mon Jan 08, 2018 8:13 pm
packer16 wrote:
Mon Jan 08, 2018 8:02 pm
As you point out, this approach doing better is based upon a sideways market. Will we have a sidewise market in the next 20 years? I do not know. Based upon the past, it is unlikely to last over 20 years. So although these are interesting observations, like IMO factors also, there use as an investment strategy is limited & can add risk to a portfolio rather than decrease it as is originally intended. There have numerous books about this type of strategy & Ben Graham himself had described it as a formula approach. However, in Graham's case the formula lagged buy & hold after years of working in a sideways market when the bull market of the 50s & 60s occurred. Due to this timing risk, IMO the prudent way to put together a portfolio is with a buy & hold approach rather than incurring the timing risk involved in these types of strategies.

Packer
I don't know that I would call the last 25 years of the U.S. stock market "sideways." VTSMX compounded at a respectable 8.32% annually over the period. Also, Faber and others have done research on much longer periods and shown that the long-term effect has been similar.

Also, this approach produced significantly higher returns than balanced portfolios like 60/40 even during the bull markets of the 1990s and 2009 until today. So if we're talking about comparing this to buy-and-hold, the most accurate comparison seems to me to be 100% stocks buy-and-hold. Yes, you might lag buy-and-hold 100% equities, but historically it seems that you would still be very likely to be far ahead of most balanced portfolios. If I could get the returns of a 90/10 portfolio with the downside risk of a 40/60 portfolio, for instance, I'd be all over it.

Other than the risk of poor investor behavior (e.g. bailing on the timing model and then encountering a deep bear market with buy-and-hold), what other risks do you see to this method?
The biggest risk that it could be wrong (have negative variance) when you want to retire. Also these systems from historical observations have been around a long time and there is a reason the folks that have been in the market for long periods of time (like Graham and Damodaran) put little credence in them. Markets change & adapt so unless you have found something no else has observed or acted on then it is already priced in (except times of extreme stress). Jeremy Siegel in the latest version of stocks for the long-run has run a 200 MA market model for periods from 1886 to 2012 (see pg. 318 of 5th Edition). His results show that except for the period of the Great 20s bull market, the Great Depression & WWII (1926-1945), the MA system was inferior to buy & hold. Given the timing risk shown by this historical data, it much better bet to determine your risk tolerance and goal timing & then come up with an AA & stick with it.

There is also the issue of opportunity cost in an ever rising market (driven by economic forces that are expected to continue). Given the spread between bond and stock prices of 4 to 5% per year. Every year you are out of the market you are incurring an opportunity cost is 4 to 5% per year. Now if you are close to using your money you need to have a safe place for 4 to 5 year of expenses but beyond they opportunity costs climb above 20%, quite large IMO.

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Re: Memo to those who have won the game: it's time to quit playing

Post by willthrill81 » Mon Jan 08, 2018 11:39 pm

packer16 wrote:
Mon Jan 08, 2018 10:40 pm
willthrill81 wrote:
Mon Jan 08, 2018 8:13 pm
packer16 wrote:
Mon Jan 08, 2018 8:02 pm
As you point out, this approach doing better is based upon a sideways market. Will we have a sidewise market in the next 20 years? I do not know. Based upon the past, it is unlikely to last over 20 years. So although these are interesting observations, like IMO factors also, there use as an investment strategy is limited & can add risk to a portfolio rather than decrease it as is originally intended. There have numerous books about this type of strategy & Ben Graham himself had described it as a formula approach. However, in Graham's case the formula lagged buy & hold after years of working in a sideways market when the bull market of the 50s & 60s occurred. Due to this timing risk, IMO the prudent way to put together a portfolio is with a buy & hold approach rather than incurring the timing risk involved in these types of strategies.

Packer
I don't know that I would call the last 25 years of the U.S. stock market "sideways." VTSMX compounded at a respectable 8.32% annually over the period. Also, Faber and others have done research on much longer periods and shown that the long-term effect has been similar.

Also, this approach produced significantly higher returns than balanced portfolios like 60/40 even during the bull markets of the 1990s and 2009 until today. So if we're talking about comparing this to buy-and-hold, the most accurate comparison seems to me to be 100% stocks buy-and-hold. Yes, you might lag buy-and-hold 100% equities, but historically it seems that you would still be very likely to be far ahead of most balanced portfolios. If I could get the returns of a 90/10 portfolio with the downside risk of a 40/60 portfolio, for instance, I'd be all over it.

Other than the risk of poor investor behavior (e.g. bailing on the timing model and then encountering a deep bear market with buy-and-hold), what other risks do you see to this method?
The biggest risk that it could be wrong (have negative variance) when you want to retire. Also these systems from historical observations have been around a long time and there is a reason the folks that have been in the market for long periods of time (like Graham and Damodaran) put little credence in them. Markets change & adapt so unless you have found something no else has observed or acted on then it is already priced in (except times of extreme stress). Jeremy Siegel in the latest version of stocks for the long-run has run a 200 MA market model for periods from 1886 to 2012 (see pg. 318 of 5th Edition). His results show that except for the period of the Great 20s bull market, the Great Depression & WWII (1926-1945), the MA system was inferior to buy & hold. Given the timing risk shown by this historical data, it much better bet to determine your risk tolerance and goal timing & then come up with an AA & stick with it.
Since 1971, trading the S&P 500 based on the 200 DMA has produced nearly identical returns to buy-and-hold but with substantially less downside risk. If bonds were used instead of cash, then the strategy has slightly outperformed buy-and-hold. If this system really is inferior to buy-and-hold, you'd think that would have manifested itself over a 46 year period.

Again, all of the historic data I've seen indicates that the risk-adjusted returns of this and similar timing systems is superior to any buy-and-hold approach.

But the future could look very different, I'll admit.
packer16 wrote:
Mon Jan 08, 2018 10:40 pm
There is also the issue of opportunity cost in an ever rising market (driven by economic forces that are expected to continue). Given the spread between bond and stock prices of 4 to 5% per year. Every year you are out of the market you are incurring an opportunity cost is 4 to 5% per year. Now if you are close to using your money you need to have a safe place for 4 to 5 year of expenses but beyond they opportunity costs climb above 20%, quite large IMO.
You're assuming that stocks have the same return above and below the 200 DMA. That's not the case.

Image

The S&P 500 has had far higher returns when above its 200 DMA than below it and with less volatility. I personally have no interest in owning an asset that has returned only 2% but with a std. dev. of 22% over the last 50+ years.
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Re: Memo to those who have won the game: it's time to quit playing

Post by HomerJ » Tue Jan 09, 2018 12:32 am

CULater wrote:
Mon Jan 08, 2018 4:03 pm
No model is a perfect predictor. We're talking about probabilities here. What odds do you need to stand pat with what you have in the pot?
You don't know the probabilities. That's the point. You're trying to market time without knowing the probabilities or even the rules of the game (or even if the rules change every few decades).

"Stay the course" means standing pat all the time.

One thing we do know is that crashes do and will happen. So you better be prepared for them all the time since you're standing pat all the time.

It's really that simple. Pick an Asset Allocation that you can hold through thick and thin. Change it as your personal situation changes (you get closer to your number and/or closer to retirement). But you don't change it based on what you think the market will do next week.

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Tue Jan 09, 2018 1:32 am

There's nothing more on target than the quote from Warren Buffett upthread:
to make money they didn’t have and didn’t need, they risked what they did have and did need, and that’s foolish.
In my way of thinking, it's of critical importance that individuals make a determination of "what they have and what they need." At least make a stab at it. In order to make sensible investment plans and avoid being foolish, we need to have some sort of objective that is reasonable and well-reasoned. That doesn't mean it's perfect, one-and-done, and can never be changed. But it's a compass which one can use to make a rational determination of whether the risk they are taking with their nestegg falls into the above classification, or whether it is justified.

I just feel uncomfortable with the oft-repeated argument that "I don't know what I might need, so I'll keep on risking what I have and do need just in case." That's not a rational financial strategy to me. It's not a matter of how much risk you think you can tolerate and stand pat; it should first be a matter of how much risk you rationally need to take, and then your ability to take that level of risk and stand pat. You have to have an idea of where the line is between being foolish and taking necessary risk. Otherwise, you have no way of knowing who the fool is in the room. And if you don't know who it is, it's probably you.
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Re: Memo to those who have won the game: it's time to quit playing

Post by CurlyDave » Tue Jan 09, 2018 3:26 am

CULater wrote:
Sun Jan 07, 2018 7:33 pm
garlandwhizzer wrote:
Sun Jan 07, 2018 7:29 pm
By the numbers I have won the game but most of my portfolio is still in stocks. The underlying assumption here is that bonds have no risk. That is not always true. The two biggest risks for bonds are inflation and longevity risk, finding out in the 4th quarter of the game that you hadn't won it in the first place when you put all your eggs into low return assets. No one worries much about inflation now because it's been so low for so long. That fact has no predictive power about what inflation will be in 10 or 20 years. I lived and invested in the 1970s and 1980s and learned too well what it's like. In ever increasing and high inflation, bonds especially longer term bonds get killed in terms of real returns, the only kind that matters when you're in the withdrawal phase. Other risks can drastically change projections of future financial needs: divorces, remarriages, accidents, fires, floods, disability, lawsuits, dementia requiring round the clock care for years, strokes that do the same thing, children who run into financial disasters and need financial help, etc.. The list goes on and on. I don't believe that anyone today can accurately anticipate how much money they'll need to live the lifestyle they're accustomed to over the next 20+ years. If you're seventy you have a good chance of living for 20 years of more if you're in good health. For these reasons, I do not anticipate ever lowering my equity allocation below 50%. Volatility doesn't bother me much. I've been through it many times before. I do not panic sell. The prospect of running out of money, on the other hand, scares me a lot.

Garland Whizzer
Garland - have you heard of TIPS? I understand that they are bonds that have very low inflation risk. That's what Bernstein recommends.
I don't know about Garland, but I have certainly heard of TIPS. I disagree that they have very low inflation risk. There are two reasons for this:

(1) The "income" from TIPS is taxed, even the amount that is supposedly inflation compensation. Even as a a retired old geezer, I am in a ~40% tax bracket when I add up state and federal. The practical meaning of that is I am guaranteed to lose 40% of the "inflation protection" of TIPS.

(2) What I am going to call "practical inflation" is different and much higher than the government calculated inflation. This is not some wild conspiracy theory, just a consequence of the way they calculate inflation. Let me give you an example. In 1967 I bought a new car -- the price was $2700 for a nice convertible Mustang. It lasted about 5 years and then I traded it in with close to 100k miles. 50 years later, in 2017 I bought a different new car, a little more suited to my age and current lifestyle, but comparably priced to a new convertible Mustang today. It cost $41,000. Now to me, practical inflation tells me that the price of cars went up by (41,000/2700) = 15.18 times. This is roughly 5.6% per year over 50 years.

But, the boys and girls who calculate inflation for the government are going to say "wait a minute", that 2017 car has a lot more whiz-bang safety features, all kinds of new gadgets, and to top it off, it will probably last 250,000 miles. So, its real cost didn't go up by 15 times, it only went up 3 or 4 times so inflation in car prices was only 2.5%. And this is true -- if I am a statistician for the government calculating CPI, an economist, or writer on retirement issues. But if I am just a retired old geezer who wants to drive to the shopping mall, the fool car cost 15 times what it did in 1967. And, the potential extra life doesn't really do me any good -- I am going to trade it in in 5 years on an even more grossly expensive one because they will be self driving by then.

So, there is a substantial difference between CPI and "practical inflation" which always tilts CPI toward being lower than what my bank account experiences.

IMHO, inflation is a much bigger danger than a market crash, and the tools we use to measure it always underestimate. This means that if I declare that I have won the game and decide to sit on the sidelines, I am in grave danger of losing the game. And, perversely enough, by the time I find out I have transitioned from being a winner to being a loser it is too late for me to do anything about it.

Our investable assets are 100% in equities and brick and mortar real estate, even at 72. Although DW and I have pensions and SS which would cover our expenses if there were a serious disaster. It wouldn't be a lot of fun, but it would be possible.

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Re: Memo to those who have won the game: it's time to quit playing

Post by packer16 » Tue Jan 09, 2018 7:49 am

willthrill81 wrote:
Mon Jan 08, 2018 11:39 pm
packer16 wrote:
Mon Jan 08, 2018 10:40 pm
willthrill81 wrote:
Mon Jan 08, 2018 8:13 pm
packer16 wrote:
Mon Jan 08, 2018 8:02 pm
As you point out, this approach doing better is based upon a sideways market. Will we have a sidewise market in the next 20 years? I do not know. Based upon the past, it is unlikely to last over 20 years. So although these are interesting observations, like IMO factors also, there use as an investment strategy is limited & can add risk to a portfolio rather than decrease it as is originally intended. There have numerous books about this type of strategy & Ben Graham himself had described it as a formula approach. However, in Graham's case the formula lagged buy & hold after years of working in a sideways market when the bull market of the 50s & 60s occurred. Due to this timing risk, IMO the prudent way to put together a portfolio is with a buy & hold approach rather than incurring the timing risk involved in these types of strategies.

Packer
I don't know that I would call the last 25 years of the U.S. stock market "sideways." VTSMX compounded at a respectable 8.32% annually over the period. Also, Faber and others have done research on much longer periods and shown that the long-term effect has been similar.

Also, this approach produced significantly higher returns than balanced portfolios like 60/40 even during the bull markets of the 1990s and 2009 until today. So if we're talking about comparing this to buy-and-hold, the most accurate comparison seems to me to be 100% stocks buy-and-hold. Yes, you might lag buy-and-hold 100% equities, but historically it seems that you would still be very likely to be far ahead of most balanced portfolios. If I could get the returns of a 90/10 portfolio with the downside risk of a 40/60 portfolio, for instance, I'd be all over it.

Other than the risk of poor investor behavior (e.g. bailing on the timing model and then encountering a deep bear market with buy-and-hold), what other risks do you see to this method?
The biggest risk that it could be wrong (have negative variance) when you want to retire. Also these systems from historical observations have been around a long time and there is a reason the folks that have been in the market for long periods of time (like Graham and Damodaran) put little credence in them. Markets change & adapt so unless you have found something no else has observed or acted on then it is already priced in (except times of extreme stress). Jeremy Siegel in the latest version of stocks for the long-run has run a 200 MA market model for periods from 1886 to 2012 (see pg. 318 of 5th Edition). His results show that except for the period of the Great 20s bull market, the Great Depression & WWII (1926-1945), the MA system was inferior to buy & hold. Given the timing risk shown by this historical data, it much better bet to determine your risk tolerance and goal timing & then come up with an AA & stick with it.
Since 1971, trading the S&P 500 based on the 200 DMA has produced nearly identical returns to buy-and-hold but with substantially less downside risk. If bonds were used instead of cash, then the strategy has slightly outperformed buy-and-hold. If this system really is inferior to buy-and-hold, you'd think that would have manifested itself over a 46 year period.

Again, all of the historic data I've seen indicates that the risk-adjusted returns of this and similar timing systems is superior to any buy-and-hold approach.

But the future could look very different, I'll admit.
packer16 wrote:
Mon Jan 08, 2018 10:40 pm
There is also the issue of opportunity cost in an ever rising market (driven by economic forces that are expected to continue). Given the spread between bond and stock prices of 4 to 5% per year. Every year you are out of the market you are incurring an opportunity cost is 4 to 5% per year. Now if you are close to using your money you need to have a safe place for 4 to 5 year of expenses but beyond they opportunity costs climb above 20%, quite large IMO.
You're assuming that stocks have the same return above and below the 200 DMA. That's not the case.

Image

The S&P 500 has had far higher returns when above its 200 DMA than below it and with less volatility. I personally have no interest in owning an asset that has returned only 2% but with a std. dev. of 22% over the last 50+ years.
Did you notice the start and end dates for your first source? It begins at a market top & ends at a bottom. It would be interesting to see the rolling average over that same period & find out what % of the time B&H did better than the timing system. In terms of holding when stocks are below the MA it depends upon what return they are measuring (does it include dividends) over what period of time (how many years in the future) & what bonds are yielding. If bonds are yielding the same or lower it would be worth it to holding stocks. There also appears to be contrary evidence in J. Siegel's book as he has a test going back to 1886 & in every period except the Great Depression period, B&H is better & if you exclude the 1929 to 1932 period, B&H is better in all periods. Siegel includes all trading costs including capital gains taxes & on average the trading strategy shaves 2% off returns.

Packer
Buy cheap and something good might happen

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AtlasShrugged?
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Re: Memo to those who have won the game: it's time to quit playing

Post by AtlasShrugged? » Tue Jan 09, 2018 8:11 am

For 25-30 years, the model has not conformed with the previous 75 years. I think it's fairly reasonable to wonder if maybe, just maybe, the model has a flaw.
Homerj...an interesting, and thought provoking observation. Let me put forward an alternative for you to think about.

I don't think the model is flawed, per se. What I do think is that the model inputs have changed, and the surrounding circumstance has changed. For example, we measure GAAP differently now, in the light of financial regulatory changes. Even economic growth measurement technique has changed. Technology has affected investing in ways no one could have imagined. Is that a model failure? I would say no. Maybe what you are articulating is that the traditional models that have been used need to evolve to account for the changes that have occurred.

In my line of work, I constantly tell my clients: Look at your results in the context of everything else, to help explain what you are seeing. For some of my Baby Boomer clients, I have put it this way, "It really isn't all about you" [meaning, their business performance and results]. :wink:

As for the original topic of the thread....prudence and common sense dictates that if you are close to retirement, you really want to lock in your decumulation monies after a big market run up, no? To me, it is a phased kind of thing. Lock in 30 years of money needed for absolute survival. That is paramount. After that, it really becomes an exercise of what is 'must have' versus what is 'nice to have'.
“If you don't know, the thing to do is not to get scared, but to learn.”

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burt
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Re: Memo to those who have won the game: it's time to quit playing

Post by burt » Tue Jan 09, 2018 8:12 am

WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
Mr. Buffet could easily lose 50% of his assets due to a stock market "correction" and the impact to his standard of living would be zero.
I on the other hand.... being retired with modest savings, would have a significant impact to my standard of living.
30/70 stock/bond.

burt

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Re: Memo to those who have won the game: it's time to quit playing

Post by michaeljc70 » Tue Jan 09, 2018 9:31 am

Random Walker wrote:
Sun Jan 07, 2018 12:48 pm
Bastiat wrote:
Those who have won the game should be adjusting their allocation based on their IPS and their willingness, ability, and need to take risk - not whatever you or the CAPE says. I don't know if you think you're helping people by encouraging them to go online tomorrow and unthinkingly "get out" (in other words, to market time because of emotion), but you're not.
I think you are mistaken. The OP is not talking about in/out market timing. He is talking about one way substantial lasting change to the Investment Policy Statement based on the need, ability, willingness you refer to. Circumstances change, and the change in valuations over the last decade has changed many people’s circumstances significantly.

Dave
You didn't quote the part where he talks about the CAPE being really high....

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Re: Memo to those who have won the game: it's time to quit playing

Post by michaeljc70 » Tue Jan 09, 2018 9:35 am

Assuming you aren't making AA changed just due to perceived high valuations, are people worried abut moving money into bonds now? With rising interest rates it just doesn't seem like that it is an ideal time to do that either. I know, given enough time, you'll be fine, but the same thing can be said with stocks over the long haul.

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Re: Memo to those who have won the game: it's time to quit playing

Post by livesoft » Tue Jan 09, 2018 9:38 am

I am not worried about moving into bonds now myself.
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Re: Memo to those who have won the game: it's time to quit playing

Post by DrGoogle2017 » Tue Jan 09, 2018 10:25 am

CULater wrote:
Mon Jan 08, 2018 5:15 pm
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
I don't think you've read Larry Swedroe's memo. Those who choose to stay in the game do so based on the Need, Willingness, or Ability to do so. Mr. Buffett has #2 and #3 but not #1. Some of us don't have #1, #2, or #3.
Or put it another way, he can lose 99% of his wealth and still be ok.

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Re: Memo to those who have won the game: it's time to quit playing

Post by CULater » Tue Jan 09, 2018 10:37 am

DrGoogle2017 wrote:
Tue Jan 09, 2018 10:25 am
CULater wrote:
Mon Jan 08, 2018 5:15 pm
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
I don't think you've read Larry Swedroe's memo. Those who choose to stay in the game do so based on the Need, Willingness, or Ability to do so. Mr. Buffett has #2 and #3 but not #1. Some of us don't have #1, #2, or #3.
Or put it another way, he can lose 99% of his wealth and still be ok.
WB is 87. He's about to lose 100% of his wealth, but he won't be OK. But the one nice thing about growing old is that you no longer need a large portfolio. Death has a way of solving all your investment worries. :-(
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Memo to those who have won the game: it's time to quit playing

Post by dbr » Tue Jan 09, 2018 10:40 am

DrGoogle2017 wrote:
Tue Jan 09, 2018 10:25 am
CULater wrote:
Mon Jan 08, 2018 5:15 pm
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
I don't think you've read Larry Swedroe's memo. Those who choose to stay in the game do so based on the Need, Willingness, or Ability to do so. Mr. Buffett has #2 and #3 but not #1. Some of us don't have #1, #2, or #3.
Or put it another way, he can lose 99% of his wealth and still be ok.
Mr. Buffett also has need because his objective is to invest in the American economy and grow his wealth as much as possible. Well, anyway it seems evident that is part of his enterprise. He certainly shows no signs of placing a premium on "preserving" his wealth as opposed to growing it. Put differently, Mr. Buffett's profession, which he seems not to be abandoning soon is to "play the game."

Again I think the needed reminder is that Bernstein is just advising people who have a lot of investment in equities that doesn't need to be such a high allocation to meet their objectives that the risk is not worth it. If he had just said that instead of trying to attract attention by using a quip, there would be much less to discuss.

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Re: Memo to those who have won the game: it's time to quit playing

Post by DrGoogle2017 » Tue Jan 09, 2018 11:13 am

CULater wrote:
Tue Jan 09, 2018 10:37 am
DrGoogle2017 wrote:
Tue Jan 09, 2018 10:25 am
CULater wrote:
Mon Jan 08, 2018 5:15 pm
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
I don't think you've read Larry Swedroe's memo. Those who choose to stay in the game do so based on the Need, Willingness, or Ability to do so. Mr. Buffett has #2 and #3 but not #1. Some of us don't have #1, #2, or #3.
Or put it another way, he can lose 99% of his wealth and still be ok.
WB is 87. He's about to lose 100% of his wealth, but he won't be OK. But the one nice thing about growing old is that you no longer need a large portfolio. Death has a way of solving all your investment worries. :-(
There is a difference between 100% and 99%, I think he still has at least $10 million or he loses 99%.

DrGoogle2017
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Re: Memo to those who have won the game: it's time to quit playing

Post by DrGoogle2017 » Tue Jan 09, 2018 11:14 am

dbr wrote:
Tue Jan 09, 2018 10:40 am
DrGoogle2017 wrote:
Tue Jan 09, 2018 10:25 am
CULater wrote:
Mon Jan 08, 2018 5:15 pm
WhiteMaxima wrote:
Mon Jan 08, 2018 4:06 pm
W Buffet has won the game long time ago but he is till playing the game. How to explain?
I don't think you've read Larry Swedroe's memo. Those who choose to stay in the game do so based on the Need, Willingness, or Ability to do so. Mr. Buffett has #2 and #3 but not #1. Some of us don't have #1, #2, or #3.
Or put it another way, he can lose 99% of his wealth and still be ok.
Mr. Buffett also has need because his objective is to invest in the American economy and grow his wealth as much as possible. Well, anyway it seems evident that is part of his enterprise. He certainly shows no signs of placing a premium on "preserving" his wealth as opposed to growing it. Put differently, Mr. Buffett's profession, which he seems not to be abandoning soon is to "play the game."

Again I think the needed reminder is that Bernstein is just advising people who have a lot of investment in equities that doesn't need to be such a high allocation to meet their objectives that the risk is not worth it. If he had just said that instead of trying to attract attention by using a quip, there would be much less to discuss.
The stock market is his play pen, it keeps him young. It has nothing to do with money.

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Re: Memo to those who have won the game: it's time to quit playing

Post by steve roy » Tue Jan 09, 2018 12:35 pm

Call_Me_Op wrote:
Sun Jan 07, 2018 10:52 am
What does "stop playing" mean?
To me it means when you’re dead.

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