This man can predict when bubbles burst: time to time the market?

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steve321
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This man can predict when bubbles burst: time to time the market?

Post by steve321 » Tue Nov 06, 2018 11:55 am

Contrary to Fama's postulate that bubbles do not exist because of EMH, Didier Sornette shows that they do, and he apparently can predict when they burst (in this video he says he predicted the time the stock market crashed in China):
https://www.ted.com/talks/didier_sornet ... anguage=en

Unlike many people who appear in the media with this kind of claims and who are clearly frauds, Sornette is a Professor at ETH in Zurich, which is one of the top universities in Europe (at least I hope so as I am spending a fortune on my daughter's education at ETH, though not under Sornette) and is respected by people like NN Taleb.
So why not time the market based on his predictions? Isn't the Bogleheads philosophy and belief in EMH, just like medieval philosophy, superseded by reason and scientific inquiry, as shown in Sornette's work?
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Re: This man can predict when bubbles burst: time to time the market?

Post by oldcomputerguy » Tue Nov 06, 2018 11:57 am

Feel free to do so. Come back in ten or twenty years ears and let us know how you did.
It’s taken me a lot of years, but I’ve come around to this: If you’re dumb, surround yourself with smart people. And if you’re smart, surround yourself with smart people who disagree with you.

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Re: This man can predict when bubbles burst: time to time the market?

Post by onourway » Tue Nov 06, 2018 11:59 am

Many people get famous for predicting a major market event. Once.

I'm not aware of anyone who has remained famous for predicting major market events repeatedly.

The major problem is that you can be right that the bubble should burst. But it can take years for reality to catch up with you.

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Re: This man can predict when bubbles burst: time to time the market?

Post by willthrill81 » Tue Nov 06, 2018 12:05 pm

onourway wrote:
Tue Nov 06, 2018 11:59 am
Many people get famous for predicting a major market event. Once.
Bingo. Being 1 for 1, 2 for 2, even 3 for 3 isn't a big deal. Being 26 for 26 is a different story.

Remember that a broken clock is right twice a day. Over at Zerohedge, they've predicted 18 of the last two recessions.
onourway wrote:
Tue Nov 06, 2018 11:59 am
The major problem is that you can be right that the bubble should burst. But it can take years for reality to catch up with you.
This reminds me of Alan Greenspan's famous 'irrational exuberance' talk back in 1996. He was sort of right, but his timeline was four years off, and even during the financial crisis of 2008-2009, the market never returned to 1996's levels.

Even though I'm a trend follower, I don't follow guru's predictions. My system is 100% rules-based and entirely based on objective data.
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Re: This man can predict when bubbles burst: time to time the market?

Post by columbia » Tue Nov 06, 2018 12:06 pm

Paul Merriman - who maintains a market timing slice in his personal portfolio - stated things pretty well: market timing reduces your exposure to risk, but will also likely lower your long term returns.

My thought is that also can be achieved simply by having a lower stock exposure.

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Re: This man can predict when bubbles burst: time to time the market?

Post by UpperNwGuy » Tue Nov 06, 2018 12:12 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
So why not time the market based on his predictions? Isn't the Bogleheads philosophy and belief in EMH, just like medieval philosophy, superseded by reason and scientific inquiry, as shown in Sornette's work?
Reason and scientific inquiry? I think that's a stretch. I'll stick with my three fund portfolio of index funds.

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Re: This man can predict when bubbles burst: time to time the market?

Post by willthrill81 » Tue Nov 06, 2018 12:15 pm

columbia wrote:
Tue Nov 06, 2018 12:06 pm
Paul Merriman - who maintains a market timing slice in his personal portfolio - stated things pretty well: market timing reduces your exposure to risk, but will also likely lower your long term returns.
Actually, Merriman believes that market timing can reduce downside risk without reducing long-term returns. He maintains that in the nearly 40 years he's been doing this that his timing returns have been roughly equivalent to buy-and-hold.
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Re: This man can predict when bubbles burst: time to time the market?

Post by steve321 » Tue Nov 06, 2018 12:20 pm

willthrill81 wrote:
Tue Nov 06, 2018 12:15 pm
columbia wrote:
Tue Nov 06, 2018 12:06 pm
Paul Merriman - who maintains a market timing slice in his personal portfolio - stated things pretty well: market timing reduces your exposure to risk, but will also likely lower your long term returns.
Actually, Merriman believes that market timing can reduce downside risk without reducing long-term returns. He maintains that in the nearly 40 years he's been doing this that his timing returns have been roughly equivalent to buy-and-hold.
Yeah but you're talking of someone who uses a pretty a crude timing indicator compared to Professor Sornette of ETH Zurich. It's a bit like comparing a plumber to a rocket scientist IMO. By using the Professor's sophisticated calculations one should be able to beat the market, not just have similar results.
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Re: This man can predict when bubbles burst: time to time the market?

Post by willthrill81 » Tue Nov 06, 2018 12:22 pm

steve321 wrote:
Tue Nov 06, 2018 12:20 pm
willthrill81 wrote:
Tue Nov 06, 2018 12:15 pm
columbia wrote:
Tue Nov 06, 2018 12:06 pm
Paul Merriman - who maintains a market timing slice in his personal portfolio - stated things pretty well: market timing reduces your exposure to risk, but will also likely lower your long term returns.
Actually, Merriman believes that market timing can reduce downside risk without reducing long-term returns. He maintains that in the nearly 40 years he's been doing this that his timing returns have been roughly equivalent to buy-and-hold.
Yeah but you're talking of someone who uses a pretty a crude timing indicator compared to Professor Sornette of ETH Zurich. It's a bit like comparing a plumber to a rocket scientist IMO. By using the Professor's sophisticated calculations one should be able to beat the market, not just have similar results.
Would you provide the details on Sornette's methods?
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Re: This man can predict when bubbles burst: time to time the market?

Post by nisiprius » Tue Nov 06, 2018 12:24 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
...Isn't the Bogleheads philosophy and belief in EMH, just like medieval philosophy, superseded by reason and scientific inquiry, as shown in Sornette's work?...
1) Please review the Bogleheads investment philosophy, which I hope you've looked at, and tell me where you see either "EMH" or "efficient market" in it. The only place I see "efficient" is in the context of "tax-efficient placement."

2) Bogle has never claimed that investing is a science. In fact, he has said in so many words that it isn't. Personally, I distrust anybody who says that it is, other than in the sense of "a social science."

Image

3) There have been people claiming that they can forecast bubbles and crashes for a century or more. Please state in words precisely what your investment strategy is, other than "don't be a Boglehead." If your strategy is "choose a guru and follow the guru's recommendations," tell me how to choose a guru. Because you can always find gurus, including credible academics, who say that we are in a bubble and others who say that we are not.

4) Everybody remembers that Jeane Dixon predicted Kennedy's assassination--more correctly, that "he would be assassinated or die in office, though not necessarily in his first term" and forgets that she had previously predicted that Kennedy would lose the election. The same is true of other people who are said to have "called" market crashes. If he says he predicted a crash in China, one must ask: how many countries was he making forecasts about, what was the full list of country forecasts, and how well did he do on all the others.
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Re: This man can predict when bubbles burst: time to time the market?

Post by jbranx » Tue Nov 06, 2018 1:09 pm

I haven't had time to fully study his methodology, but I see from his Wikipedia page that he also is into earthquake forecasting etc. Reminds me of the late Joe Granville, a famous newsletter publisher who thrived and drove markets down on some days with bearish forecasts in the seventies thru the nineties. A period, by the way, that included some of the largest gains in market history. At the height of his fame, he started forecasting earthquakes.

Undoubtedly, markets are complex adaptive systems and the Mandelbrots and Talebs and the Santa Fe Institute and Hyman Minsky and this Swiss guy may give us insights into markets that improve on academic theory, but so far we don't have any evidence that these insights lead to market alpha in actual portfolios.

Market timing involves being right twice--when to get in and when to get out. It takes a few decades of performance before one can statistically confirm skill vs. luck. And during that period, the likelihood that the "secret sauce" will be discovered and rendered null is very high. No one can see around the next street corner. All this conjecture violates the 11th Commandment: "God doesn't like high margins and persistent alpha." Or so it seems.

Here's more on this guy's expertise beyond just bubble identification:

" With his long-time collaborator Dr. Guy Ouillon, Sornette has been leading a research group on the “Physics of earthquakes” over the last 25 years."

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Re: This man can predict when bubbles burst: time to time the market?

Post by understandingJH » Tue Nov 06, 2018 1:11 pm

nisiprius wrote:
Tue Nov 06, 2018 12:24 pm
one must ask: how many countries was he making forecasts about, what was the full list of country forecasts, and how well did he do on all the others.
Not a country forecast, but assuming the same method was used back in June/July 2013, he predicted that Tesla was in a bubble:

Image


And notice that the stock continued to grow over time and never crashed relative to the bubble prediction.

Image

On the website it says: "Without judging the value of Tesla’s technology, innovation and management, it is a textbook example of a bubble."

Maybe the stock is in a bubble that just hasn't popped in 5 years? Maybe those other variables he's ignoring are lurking variables? What is the precision and recall of his predictions? Any AUC graphs for the method verses random guessing?

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Re: This man can predict when bubbles burst: time to time the market?

Post by smackboy1 » Tue Nov 06, 2018 1:28 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
So why not time the market based on his predictions?
Hypothetically let's say there are 100 people participating in a coin flip prediction elimination tournament. After 6 rounds of competition there is 1 lone winner who has correctly predicted the coin flip 6 times in a row. It turns out he has a PhD in Numismatic Agitation. Should anybody place any faith in his ability to predict a 7th coin flip beyond 50% random chance?

With a large number of guessers, it is entirely possible that a few will have accurately predicted every result by pure random chance.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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Re: This man can predict when bubbles burst: time to time the market?

Post by WonderingDope » Tue Nov 06, 2018 2:01 pm

Assuming Steve321 is sincere in his questions (I am beginning to have doubts), I would like to ask him:

What are your goals and why are you spending so much time and effort trying to find someone who can tell you how to "beat the markets?" Is the historical market return not good enough to make it where you want to go? Do you honestly not believe it when all of the good people of this forum tell you that beating the market is a very difficult thing to do and inevitably requires taking on more risk to do so?

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Re: This man can predict when bubbles burst: time to time the market?

Post by greg24 » Tue Nov 06, 2018 2:03 pm

Should the clickbait title be changed to "This man THINKS he can predict..."?

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Re: This man can predict when bubbles burst: time to time the market?

Post by ivk5 » Tue Nov 06, 2018 2:05 pm

Perhaps the same expert can find a model that will predict # of deaths from venomous spiders. https://en.m.wikipedia.org/wiki/Multipl ... ns_problem

Good history here of posts that are provocative but perhaps not actionable or really inquiry-oriented.

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Re: This man can predict when bubbles burst: time to time the market?

Post by Jags4186 » Tue Nov 06, 2018 2:14 pm

You have to ask yourself this question: If someone has discovered how to time the market why would they not keep this strategy secret, borrow all the money they possibly could, and be moving in and out of the market becoming fabulously wealthy? Instead they go on the news/write an article/talk in a podcast about how they have discovered the secret market MOJO.

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Re: This man can predict when bubbles burst: time to time the market?

Post by UpperNwGuy » Tue Nov 06, 2018 2:32 pm

WonderingDope wrote:
Tue Nov 06, 2018 2:01 pm
Assuming Steve321 is sincere in his questions (I am beginning to have doubts), I would like to ask him:

What are your goals and why are you spending so much time and effort trying to find someone who can tell you how to "beat the markets?" Is the historical market return not good enough to make it where you want to go? Do you honestly not believe it when all of the good people of this forum tell you that beating the market is a very difficult thing to do and inevitably requires taking on more risk to do so?
I would like to hear these answers, too. I have noticed that every few days Steve321 writes a new post advocating yet another unorthodox investment idea that he has read about online. He seems intent on finding a way to beat the market. My advice to him would be to stop reading online investment articles and focus on investment fundamentals.

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Re: This man can predict when bubbles burst: time to time the market?

Post by steve321 » Tue Nov 06, 2018 2:34 pm

Jags4186 wrote:
Tue Nov 06, 2018 2:14 pm
You have to ask yourself this question: If someone has discovered how to time the market why would they not keep this strategy secret, borrow all the money they possibly could, and be moving in and out of the market becoming fabulously wealthy? Instead they go on the news/write an article/talk in a podcast about how they have discovered the secret market MOJO.
I did ask myself. Of course I don't know the answer, but an explanation may be this: on Wikipedia it says he cofounded Capital Fund Management, a hedge fund managing many billions, but he left to work in academia. So it might be a kind of asceticism or purity, putting academic excellence above all else. That's one of the reasons I like him; he seems the opposite of people like asness who use their academic credentials to basically market their firm.
Last edited by steve321 on Tue Nov 06, 2018 2:47 pm, edited 1 time in total.
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Re: This man can predict when bubbles burst: time to time the market?

Post by steve321 » Tue Nov 06, 2018 2:36 pm

UpperNwGuy wrote:
Tue Nov 06, 2018 2:32 pm
WonderingDope wrote:
Tue Nov 06, 2018 2:01 pm
Assuming Steve321 is sincere in his questions (I am beginning to have doubts), I would like to ask him:

What are your goals and why are you spending so much time and effort trying to find someone who can tell you how to "beat the markets?" Is the historical market return not good enough to make it where you want to go? Do you honestly not believe it when all of the good people of this forum tell you that beating the market is a very difficult thing to do and inevitably requires taking on more risk to do so?
I would like to hear these answers, too. I have noticed that every few days Steve321 writes a new post advocating yet another unorthodox investment idea that he has read about online. He seems intent on finding a way to beat the market. My advice to him would be to stop reading online investment articles and focus on investment fundamentals.
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
Success does not bring happiness. In fact, happiness IS success. | 'There are only two tragedies in life: one is not getting what one wants, and the other is getting it.' Oscar Wilde

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Re: This man can predict when bubbles burst: time to time the market?

Post by ivk5 » Tue Nov 06, 2018 2:42 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. ... So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
This reflects great self-awareness. And also perhaps a bit of a blind spot.

Perhaps “serious methods of risk management” (whatever that means) is not the right discipline to be looking to for help with your anxiety and fear of (investment) loss.

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Re: This man can predict when bubbles burst: time to time the market?

Post by cinghiale » Tue Nov 06, 2018 2:44 pm

steve321 wrote,
Unlike many people who appear in the media with this kind of claims and who are clearly frauds, Sornette is a Professor at ETH in Zurich, which is one of the top universities in Europe (at least I hope so as I am spending a fortune on my daughter's education at ETH, though not under Sornette) and is respected by people like NN Taleb.
Three noteworthy points here from the OP. First, the prestige argument. This professor’s speculations are better than the speculations of others because he is connected with a “top” university. That leaves me wondering. I taught at a mid-tier US university for twenty years. Does that allow me to serve up mid-tier quality evaluations of stock market direction? Second, there’s a personal connection. If this professor’s system turns out to be ever-so-much hooey, does that diminish the OP’s daughter’s education and value of the neat pile of Swiss Francs spent on her tuition? Third, it appears that this person should be given more credence because Taleb respects him. Now, if Taleb invests with him and his system, that’s a whole different claim. Can we count how many writers and economists who are respected for their scholarship but whose track record of predictions falls far short of prescience?

And what bubble?

And who, for example, falls into the category of being a clear fraud?
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Re: This man can predict when bubbles burst: time to time the market?

Post by greg24 » Tue Nov 06, 2018 2:51 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
Reducing the equity side of your asset allocation seems like a more prudent way to minimize losses.

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Re: This man can predict when bubbles burst: time to time the market?

Post by ICH » Tue Nov 06, 2018 2:53 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
UpperNwGuy wrote:
Tue Nov 06, 2018 2:32 pm
WonderingDope wrote:
Tue Nov 06, 2018 2:01 pm
Assuming Steve321 is sincere in his questions (I am beginning to have doubts), I would like to ask him:

What are your goals and why are you spending so much time and effort trying to find someone who can tell you how to "beat the markets?" Is the historical market return not good enough to make it where you want to go? Do you honestly not believe it when all of the good people of this forum tell you that beating the market is a very difficult thing to do and inevitably requires taking on more risk to do so?
I would like to hear these answers, too. I have noticed that every few days Steve321 writes a new post advocating yet another unorthodox investment idea that he has read about online. He seems intent on finding a way to beat the market. My advice to him would be to stop reading online investment articles and focus on investment fundamentals.
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
Click on getting started and take it from there: https://www.bogleheads.org/wiki/Main_Page

Else medication. It will be cheaper than following the media gurus.

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Re: This man can predict when bubbles burst: time to time the market?

Post by columbia » Tue Nov 06, 2018 3:01 pm

willthrill81 wrote:
Tue Nov 06, 2018 12:15 pm
columbia wrote:
Tue Nov 06, 2018 12:06 pm
Paul Merriman - who maintains a market timing slice in his personal portfolio - stated things pretty well: market timing reduces your exposure to risk, but will also likely lower your long term returns.
Actually, Merriman believes that market timing can reduce downside risk without reducing long-term returns. He maintains that in the nearly 40 years he's been doing this that his timing returns have been roughly equivalent to buy-and-hold.
Article from his own website; perhaps he’s stated otherwise, elsewhere...

Why Market Timing Doesn’t Work
https://paulmerriman.com/why-market-timing-doesnt-work/

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Re: This man can predict when bubbles burst: time to time the market?

Post by protagonist » Tue Nov 06, 2018 3:25 pm

jbranx wrote:
Tue Nov 06, 2018 1:09 pm
I haven't had time to fully study his methodology, but I see from his Wikipedia page that he also is into earthquake forecasting etc.
If I wasn't initially skeptical, I sure am now.

Given the difference between what causes a financial bubble to pop and what causes an earthquake, such claims raise the same hairs on my head as Dr. so and so's magic elixir that not only cures cancer but also relieves back pain and makes you more attractive to women.
Last edited by protagonist on Tue Nov 06, 2018 3:50 pm, edited 2 times in total.

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Re: This man can predict when bubbles burst: time to time the market?

Post by ryman554 » Tue Nov 06, 2018 3:30 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
The irony is that, by searching for ways to "beat the market" or "not suffer from downsides", you are almost assuredly guaranteeing yourself to suffer from the very thing you are trying to avoid.

You would do well to use an investment advisor -- one that doesn't rip you off, that is -- to buffer you from your investments and yourself.

Or, in lieu of that, stick everything you have in a target date fund, and make future contributions go in there automatically, and then forget about the password/account and only look at it again in 20 years. You may be pleasantly surprised.

The point is, if you want your money to grow, you have to go on autopilot and ignore everything else. Pick up a good hobby instead.

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Re: This man can predict when bubbles burst: time to time the market?

Post by flyingaway » Tue Nov 06, 2018 3:33 pm

If everyone believes in him, and gets out of the market at the same time, then the market will burst, for sure.

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Re: This man can predict when bubbles burst: time to time the market?

Post by protagonist » Tue Nov 06, 2018 3:44 pm

In The Book of Predictions by David Wallechinsky et al, published in 1981 (one of my favorite books...), Andrew Greeley, Professor of Sociology at the Univ. of Arizona, predicted that by 1990:
"The Communist government of the Soviet Union will be overthrown...likely by a social democratic faction within the party. Some of the constituent republics (the Ukraine, for example) will obtain authentic separate status. The Soviet colonies in Eastern Europe will then go the same route."

I'm like whoa. I'm so like whoa. How did he see that coming?????

BUT....then he goes on to predict that by 1990, OPEC will be destroyed, perhaps by force of arms. Pope John Paul II will convene an ecumenical council with full participation open to some non-Catholic groups. The Republican party will be replaced as one of the US's two major political parties.

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Re: This man can predict when bubbles burst: time to time the market?

Post by delamer » Tue Nov 06, 2018 4:33 pm

steve321 wrote:
Tue Nov 06, 2018 2:34 pm
Jags4186 wrote:
Tue Nov 06, 2018 2:14 pm
You have to ask yourself this question: If someone has discovered how to time the market why would they not keep this strategy secret, borrow all the money they possibly could, and be moving in and out of the market becoming fabulously wealthy? Instead they go on the news/write an article/talk in a podcast about how they have discovered the secret market MOJO.
I did ask myself. Of course I don't know the answer, but an explanation may be this: on Wikipedia it says he cofounded Capital Fund Management, a hedge fund managing many billions, but he left to work in academia. So it might be a kind of asceticism or purity, putting academic excellence above all else. That's one of the reasons I like him; he seems the opposite of people like asness who use their academic credentials to basically market their firm.
I don’t buy it.

Academia is rife with politics and hassles.

Why not just work independently or finance his own think tank?

People who can successfully and consistently time the market should be fabulously wealthy.

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Re: This man can predict when bubbles burst: time to time the market?

Post by iamlucky13 » Tue Nov 06, 2018 4:38 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
So why not time the market based on his predictions? Isn't the Bogleheads philosophy and belief in EMH, just like medieval philosophy, superseded by reason and scientific inquiry, as shown in Sornette's work?
No. The efficient market hypothesis is called a hypothesis for a reason. It also is not generally interpreted as a rigorous rule, but rather a tendency of the market to use information available to reduce inefficiencies in the market.

If Professor Sornette has identified information that is consistently applicable to the valuation of equities, then it is in fact consistent with the efficient market hypothesis to utilize that information, rather than to consider it to supersede the EMH.

If true, than the average investor arguably has less ability to pursue that efficiency than the market as a whole, and still should expect to be better off with low cost, passive strategies.

One thing contributors to scientific inquiry do to demonstrate the accuracy of their hypothesis is to test them and publish the results. In doing so, it is often necessary to control for possible biases or preconceived expectations of results.

Has Sornette tested his method in any other way than to see if it was capable of predicting specific previously observed results? In the Ted talk, he seems to only discuss specific recessions, not evaluate the rate of success of predicting certain types of recessions, much less all recessions.

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Re: This man can predict when bubbles burst: time to time the market?

Post by iamlucky13 » Tue Nov 06, 2018 4:52 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
That's certainly understandable. The potential for losses is indeed quite large, and that can rightfully be stressful.

It seems to me you're digging into some fairly complex attempts to address those risks. Many very brilliant people have been trying for decades to do the same. I would suggest being very careful about assuming any given current researcher has suddenly found the silver bullet.

More importantly, I would make sure that before you pursue new and complex methods of controlling risk, you have first implemented time tested and simple methods of controlling risk, starting with learning about asset allocation and how it affects your potential losses in a market correction. For example, I sometimes use the tables Paul Merriman keeps updated on his site showing the performance of different investment mixes over the past 4+ decades to see how that affects historical average returns and the magnitude of the worst drawdowns.

Start simple and add complexity as you have the opportunity to learn in detail what a more complex strategy might gain you and any risks it may introduce, rather than the other way around.

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Re: This man can predict when bubbles burst: time to time the market?

Post by Fallible » Tue Nov 06, 2018 4:56 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
UpperNwGuy wrote:
Tue Nov 06, 2018 2:32 pm
WonderingDope wrote:
Tue Nov 06, 2018 2:01 pm
Assuming Steve321 is sincere in his questions (I am beginning to have doubts), I would like to ask him:

What are your goals and why are you spending so much time and effort trying to find someone who can tell you how to "beat the markets?" Is the historical market return not good enough to make it where you want to go? Do you honestly not believe it when all of the good people of this forum tell you that beating the market is a very difficult thing to do and inevitably requires taking on more risk to do so?
I would like to hear these answers, too. I have noticed that every few days Steve321 writes a new post advocating yet another unorthodox investment idea that he has read about online. He seems intent on finding a way to beat the market. My advice to him would be to stop reading online investment articles and focus on investment fundamentals.
I suffer from anxiety and I am afraid of huge losses in my investments. ... So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
OP, you really didn't need to tell us you have market anxieties and fears; your opening post reveals them everywhere.

Assuming you are serious about it all, do you see the irony here? You are on a forum that shows investors how to manage market fears and anxieties using common sense, simplicity, self-discipliine, and emotional control. The question you should be asking is not about riskier alternatives such as market prediction and timing. You should be asking yourself why you are not following the advice that has worked for millions of investors.
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Re: This man can predict when bubbles burst: time to time the market?

Post by Mr.BB » Tue Nov 06, 2018 5:09 pm

The key to market timing is that you have to get both ends of the equation right. Even if you got out at the peak, you still have to get back in at the bottom....hard to do both.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Re: This man can predict when bubbles burst: time to time the market?

Post by TSR » Tue Nov 06, 2018 5:15 pm

You might (re)watch The Big Short. Christian Bale's character, Michael Burry, is depicted as the "hero" for having predicted the real-estate bubble and hedging big on it, thus making billions. But there's another way to watch the film: he waits around for years for the crash he thought would happen much earlier, and it almost destroys him. He gets sued, investors try to pull out, his company could easily have gone bankrupt. In truth, his hero status in real life was the product of luck as much as it was of skill. If he'd gone bankrupt and taken a lot of investors' money with him, nobody would care that he was "right" about the housing market -- he'd be the villain because of his vanity. His story proves the maxim that "the market can stay irrational longer than you can stay solvent." That is, just because you can predict that something ought to happen doesn't mean it will happen in time for you to use it.

The anxiety that you describe will not be relieved by making highly precise bets on the timing of markets. Again, watch that movie and look at his anxiety. I'm no doctor, but I'd say that a less aggressive asset allocation and the discipline to not watch markets would be your best cure.

Best of luck!

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Re: This man can predict when bubbles burst: time to time the market?

Post by assyadh » Tue Nov 06, 2018 5:16 pm

The funny thing is that Sornette in French means nonsense.

http://context.reverso.net/translation/ ... /sornettes

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Re: This man can predict when bubbles burst: time to time the market?

Post by dh » Tue Nov 06, 2018 5:32 pm

iamlucky13 wrote:
Tue Nov 06, 2018 4:52 pm
steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
That's certainly understandable. The potential for losses is indeed quite large, and that can rightfully be stressful.
Steve, You have found a great group to manage your anxieties around finance. Personally, trying to find a guru who can divine the future of stock markets would generate great anxiety in me. I have found that people on this site have provided a very steady eddie (stay the course) perspective to managing money. Follow the Boglehead wikis, write an IPS, find the level of equity exposure that allows you to sleep soundly at night is key. There are bigger things in this world than investing. This group of people have helped me understand that and to determine an asset allocation that works for me. Good luck my friend!

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Re: This man can predict when bubbles burst: time to time the market?

Post by KlangFool » Tue Nov 06, 2018 5:49 pm

OP,

I prepared for a market crash plus unemployment lasting 5 years. It could happen at any time. But, it won't matter to me. So, why do you need to rely on any prediction when you can be prepared instead?

KlangFool

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Re: This man can predict when bubbles burst: time to time the market?

Post by siamond » Tue Nov 06, 2018 7:45 pm

Amusingly enough, the researcher (Didier Sornette) has a rather unfortunate last name. "Sornette" in French basically means (in a light-mannered way) silly bullshit. Google Translate says it translates as 'fiddlestick', which taught me a cool new word in English... :happy

edgeagg
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Re: This man can predict when bubbles burst: time to time the market?

Post by edgeagg » Tue Nov 06, 2018 8:10 pm

Well, his prior work seems to be on earthquake prediction. Not exactly something that builds confidence in bubble prediction. The site with their reports is here

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Re: This man can predict when bubbles burst: time to time the market?

Post by JoMoney » Tue Nov 06, 2018 8:26 pm

FWIW, even if you "know" something is priced unsustainably high, profiting from that information is a different matter.
As far as market timing goes, one thing is certain, in aggregate on a dollar-weighted basis, for one portfolio to garner something extra it has to be matched by one that lost... and the difference can be time-sensitive, sometimes market timers win, sometimes over a different/longer period buy and hold wins.
steve321 wrote:
Tue Nov 06, 2018 11:55 am
... Isn't the Bogleheads philosophy and belief in EMH...
You are mistaken if you think Boglehead's as a group all believe in EMH, or that EMH is a necessity for broad-market low-cost indexing to be an ideal strategy for most investors.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: This man can predict when bubbles burst: time to time the market?

Post by Taylor Larimore » Tue Nov 06, 2018 8:42 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
Contrary to Fama's postulate that bubbles do not exist because of EMH, Didier Sornette shows that they do, and he apparently can predict when they burst (in this video he says he predicted the time the stock market crashed in China):
https://www.ted.com/talks/didier_sornet ... anguage=en

Unlike many people who appear in the media with this kind of claims and who are clearly frauds, Sornette is a Professor at ETH in Zurich, which is one of the top universities in Europe (at least I hope so as I am spending a fortune on my daughter's education at ETH, though not under Sornette) and is respected by people like NN Taleb.
So why not time the market based on his predictions? Isn't the Bogleheads philosophy and belief in EMH, just like medieval philosophy, superseded by reason and scientific inquiry, as shown in Sornette's work?
Steve321:

You would be wise to forget "market-timing." Read this:

Market Timing Quotes

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: This man can predict when bubbles burst: time to time the market?

Post by HomerJ » Tue Nov 06, 2018 8:46 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
Contrary to Fama's postulate that bubbles do not exist because of EMH, Didier Sornette shows that they do, and he apparently can predict when they burst (in this video he says he predicted the time the stock market crashed in China):
https://www.ted.com/talks/didier_sornet ... anguage=en

Unlike many people who appear in the media with this kind of claims and who are clearly frauds, Sornette is a Professor at ETH in Zurich, which is one of the top universities in Europe (at least I hope so as I am spending a fortune on my daughter's education at ETH, though not under Sornette) and is respected by people like NN Taleb.
So why not time the market based on his predictions? Isn't the Bogleheads philosophy and belief in EMH, just like medieval philosophy, superseded by reason and scientific inquiry, as shown in Sornette's work?
It's like you don't read ANYTHING here.
The J stands for Jay

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Re: This man can predict when bubbles burst: time to time the market?

Post by columbia » Tue Nov 06, 2018 8:47 pm

"There is an overwhelming body of evidence to support the view that believing in the ability of market timers is the equivalent of believing astrologers can predict the future." (Larry Swedroe, author and advisor)

:D

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Re: This man can predict when bubbles burst: time to time the market?

Post by HomerJ » Tue Nov 06, 2018 8:50 pm

steve321 wrote:
Tue Nov 06, 2018 12:20 pm
By using the Professor's sophisticated calculations one should be able to beat the market, not just have similar results.
I'll state it once more... Stop trying to "beat the market".

The market has a 10% long-term historical return. This INCLUDES the crashes. Index funds, over the long-run, have beaten more than 80% of active funds.

"The Professor" can't predict the future. No one can. Just buy and hold, stay the course, and you'll very likely beat 80% of people who are trying to "beat the market" by just "getting the market".

"Getting the market" is easy. "Beating the market" is hard.
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Re: This man can predict when bubbles burst: time to time the market?

Post by dwickenh » Tue Nov 06, 2018 8:51 pm

KlangFool wrote:
Tue Nov 06, 2018 5:49 pm
OP,

I prepared for a market crash plus unemployment lasting 5 years. It could happen at any time. But, it won't matter to me. So, why do you need to rely on any prediction when you can be prepared instead?

KlangFool
This!!! +1
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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HomerJ
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Re: This man can predict when bubbles burst: time to time the market?

Post by HomerJ » Tue Nov 06, 2018 8:56 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
What is your current asset allocation?

I too, am afraid of huge losses in my investments. So I'm currently 50/50 stocks bonds.

I did my best to ignore the noise from the last little correction during the month of October.

On Nov 1st, I updated my spreadsheet, and I was down 3.2% from October 1st. That's not bad at all, after all the doom and gloom talk I heard accidentally on TV, on the radio, or here. Looks like my 50/50 protected me pretty well.
The J stands for Jay

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Re: This man can predict when bubbles burst: time to time the market?

Post by arcticpineapplecorp. » Tue Nov 06, 2018 9:02 pm

steve321 wrote:
Tue Nov 06, 2018 2:36 pm
I suffer from anxiety and I am afraid of huge losses in my investments. Taleb shows that extreme events are possible and losses in the stock market can be much higher than the bell curve predicts. So I am looking for ways to manage my anxiety in this, including by researching serious methods of risk management.
I'm sorry to hear about your anxiety. There are really only a few ways to deal with that (with regards to fear of losses):
1. treatment (medicine/therapy)
2. reduce the amount of risky assets (stocks/real estate)/increase less risky assets or "riskless assets" (bonds/cash)
3. experience
4. tune out the noise of the day and focus on the long term goal you're seeking to achieve
5. hire a fee only fiduciary certified financial planner and let him/her do financial planning for you. There's no shame in knowing your limitations. Actually, that's the smart thing to do. Realize what you're not good at and hire someone else to do it for you.

there may be some others, but that's what comes to mind at the moment

Two things though:
1. At some point I believe everyone has to come to terms with the fact that life equals risk. We take all sorts of risks each and every moment. Yet for most of us, that doesn't stop us from living. When it comes to money, everyone should realize that no matter where you put it, you're taking risk. Under the mattress (theft/fire/inflation), in a bank (inflation), bond (credit/inflation/interest rate), stock (market risk) and so on. So there's really no way to avoid risk but rather there are ways to manage risk and/or manage your response to risk. Market timing will not help you with this, unfortunately, because as Mr.BB put it, you have to get it right twice (when to get out, and when to get back in). Unless you've amassed enough to live on the rest of your life after doing this cycle once, you've got to repeat that getting out and getting in the market at the right time again and again and again for the rest of your life.

I haven't watched the ted talk yet, but I'm not expecting to learn anything. If the presenter knew how to do this perfectly he'd be running a hedge fund. He wouldn't be sharing his secrets for free with you and me.

2. One final thought is that if you get out of the market now for fear of an impending crash but don't have enough to retire so you'll have to get back in, when would that be? Of course you'd need to get in at the very bottom of the market (right at or after the crash), right? How likely do you think you'll be to invest the money you took out of the market now back in to the market after the market's fallen 30% or more? Did you invest during 2000-2002 or 2008-2009? If you did, did you honestly feel great about continuing to invest in stocks at that time? Did you have any bonds? If so, did you sell bonds to buy stocks at those times? If not, then I don't think your going to be able to implement the necessary market timing. In which case I'd remind you that it's time in the market, not timing the market that matters. If you have fear now when the market's done well, do you honestly believe you won't have fear when there's massive pessimism and the market's crashed?

Please read this article by Larry Swedroe titled "Better to face the correction". It shows how more money is lost anticipating crashes than in the crashes themselves. And it explains why (one reason is people are out of the market on the best days because often the best days follow the worst days:

https://www.etf.com/sections/index-inve ... nopaging=1
also read this:
https://www.businessinsider.com/investo ... ts-2014-10
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: This man can predict when bubbles burst: time to time the market?

Post by HomerJ » Tue Nov 06, 2018 9:10 pm

Here's a prediction he made in Dec 2002

https://www.eurekalert.org/pub_releases ... 121402.php
The U.S. stock market is not yet on the verge of recovery," Sornette said. "The bear market that started in July-August 2000 still has a long way to go."

Sornette and Zhou predict the Standard & Poor's 500 (currently above 900) will begin dropping by the second quarter of 2003 and will fall to approximately 700 in the first half of 2004.

The U.S. stock market since 1996 has shown a "remarkable similarity" with Japan's Nikkei index from 1985 to 1992, which may reflect deeper similarities between the fundamentals of the two economies, Sornette and Zhou argue. The S&P 500 has not yet entered a "second phase" of decline, as the Nikkei index did some two-and-a half years into its steep decline.

"Our theory is tailored to identify anomalies, bubbles and their end," Sornette said.
Market did drop all the way to 800 in March 2003, but anyone waiting for it to hit 700 based on Sornette's rather assertive prediction totally missed out. The market headed up from 800 and by Jan 2004, it was in the 1100s.

Buying the market the day Sornette posted this "doom and gloom" article would have made you 10% a year over the past 16 years.

Weird, that's the historical long-term average. Which you would have gotten if you completely ignored PhD "experts" like Sornette.
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Re: This man can predict when bubbles burst: time to time the market?

Post by Hyoga » Tue Nov 06, 2018 11:05 pm

steve321 wrote:
Tue Nov 06, 2018 11:55 am
Contrary to Fama's postulate that bubbles do not exist because of EMH, Didier Sornette [...]
Didier who?
https://dictionnaire.reverso.net/franca ... s/sornette
よろしくお願いします

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