That's enough for me in 2019

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Carol88888
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Re: That's enough for me in 2019

Post by Carol88888 » Mon Apr 29, 2019 2:02 pm

Still short?

Dudley
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Re: That's enough for me in 2019

Post by Dudley » Mon Apr 29, 2019 2:17 pm

MT put the short in at QQQ=185 and its currently at ~191 so only 3% down. I doubt MT would be perturbed by that.
MT mentioned this position is largely a hedge so I guess the market going up makes him more secure in his job remuneration.

H-Town
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Re: That's enough for me in 2019

Post by H-Town » Mon Apr 29, 2019 2:40 pm

Carol88888 wrote:
Mon Apr 29, 2019 2:02 pm
Still short?
Double or nothing. Go big or go home.

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dogagility
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Re: That's enough for me in 2019

Post by dogagility » Mon Apr 29, 2019 4:22 pm

Carol88888 wrote:
Mon Apr 29, 2019 2:02 pm
Still short?
6' :D
Taking "risk" since 1995.

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market timer
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Re: That's enough for me in 2019

Post by market timer » Mon Apr 29, 2019 8:40 pm

Dudley wrote:
Mon Apr 29, 2019 2:17 pm
MT put the short in at QQQ=185 and its currently at ~191 so only 3% down. I doubt MT would be perturbed by that.
MT mentioned this position is largely a hedge so I guess the market going up makes him more secure in his job remuneration.
All true and QQQs are down ~1% after hours (at 189.4) thanks to Google. Despite the market seeming to climb ever higher, day after day, I'm not in the red by much.

Dudley
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Re: That's enough for me in 2019

Post by Dudley » Thu May 09, 2019 3:20 pm

QQQ back at ~185.

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market timer
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Re: That's enough for me in 2019

Post by market timer » Mon May 13, 2019 9:09 pm

Out of most of the QQQ short at ~179 today. Added a small position (8%) to int'l equities. Used the rally in 5-year Treasuries (to under 2.2% yield) to hedge duration on my investment grade bond fund.

New allocation:
10% gold
5% silver
15% crude oil and oil majors
10% long term bonds
-8% US equities
8% int'l lequities
60% cash and duration-hedged intermediate term investment grade bonds

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baconavocado
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Re: That's enough for me in 2019

Post by baconavocado » Mon May 13, 2019 9:23 pm

market timer wrote:
Mon May 13, 2019 9:09 pm
Out of most of the QQQ short at ~179 today. Added a small position (8%) to int'l equities. Used the rally in 5-year Treasuries (to under 2.2% yield) to hedge duration on my investment grade bond fund.

New allocation:
10% gold
5% silver
15% crude oil and oil majors
10% long term bonds
-8% US equities
8% int'l lequities
60% cash and duration-hedged intermediate term investment grade bonds
Man, I remember when I was in my 30s and I thought I knew where the market was going by reading the news. Those were the days . . .

Dudley
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Re: That's enough for me in 2019

Post by Dudley » Tue May 14, 2019 10:47 am

market timer wrote:
Mon May 13, 2019 9:09 pm
Out of most of the QQQ short at ~179 today
Why ? What, in your perception, changed ?

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market timer
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Re: That's enough for me in 2019

Post by market timer » Tue May 14, 2019 11:34 am

Dudley wrote:
Tue May 14, 2019 10:47 am
market timer wrote:
Mon May 13, 2019 9:09 pm
Out of most of the QQQ short at ~179 today
Why ? What, in your perception, changed ?
With my long run asset allocation, I try to achieve a feeling of indifference with respect to price movements. This doesn't necessarily mean a 100% cash allocation. I could own some equities and not care about price movements if, say, I viewed a selloff as an opportunity to invest more at better risk/return.

I rationalized the small short position I entered into in March as a risk reduction trade. Really, it was mostly speculative, and I was hoping to profit from a decline in share prices. I realized this much more clearly as the market was declining. After the decline happened, I adjusted to my current position where I feel less invested in the direction of the market.

My view remains that bonds and stocks are not likely to offer attractive returns from these levels. However, I'm content to express this view through a conservative allocation, rather than an outright short.

Dudley
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Re: That's enough for me in 2019

Post by Dudley » Wed May 15, 2019 7:57 am

market timer wrote:
Mon May 13, 2019 9:09 pm
With my long run asset allocation, I try to achieve a feeling of indifference with respect to price movements.
Then what is your rationale for holding 30% in gold + precious metals (which I imagine could be volatile) ?

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Re: That's enough for me in 2019

Post by market timer » Wed May 15, 2019 8:14 am

Dudley wrote:
Wed May 15, 2019 7:57 am
market timer wrote:
Mon May 13, 2019 9:09 pm
With my long run asset allocation, I try to achieve a feeling of indifference with respect to price movements.
Then what is your rationale for holding 30% in gold + precious metals (which I imagine could be volatile) ?
I have 15% in precious metals and another 15% in long-dated oil futures and oil majors. The purpose of these investments is to preserve purchasing power over long periods of time. You could say, why not hold long duration TIPS instead? There are three reasons:

1. Taxation: With precious metals, I can defer taxes until I sell, ideally realizing capital gains during early retirement, rather than earning interest during peak earning years.

2. Currency agnostic: Unclear whether I'll retire in the US, Asia, or Europe.

3. Skepticism of monetary policy: Most of the world's monetary systems are less than a couple generations old, and are clearly generating unsustainable debt trajectories. There's a Chinese proverb that wealth doesn't pass three generations, which might be relevant here. I'm not betting everything on a collapse, but I'm prepared for that scenario.

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Re: That's enough for me in 2019

Post by HEDGEFUNDIE » Wed May 15, 2019 1:18 pm

market timer wrote:
Wed May 15, 2019 8:14 am
Dudley wrote:
Wed May 15, 2019 7:57 am
market timer wrote:
Mon May 13, 2019 9:09 pm
With my long run asset allocation, I try to achieve a feeling of indifference with respect to price movements.
Then what is your rationale for holding 30% in gold + precious metals (which I imagine could be volatile) ?
I have 15% in precious metals and another 15% in long-dated oil futures and oil majors. The purpose of these investments is to preserve purchasing power over long periods of time. You could say, why not hold long duration TIPS instead? There are three reasons:

1. Taxation: With precious metals, I can defer taxes until I sell, ideally realizing capital gains during early retirement, rather than earning interest during peak earning years.

2. Currency agnostic: Unclear whether I'll retire in the US, Asia, or Europe.

3. Skepticism of monetary policy: Most of the world's monetary systems are less than a couple generations old, and are clearly generating unsustainable debt trajectories. There's a Chinese proverb that wealth doesn't pass three generations, which might be relevant here. I'm not betting everything on a collapse, but I'm prepared for that scenario.
If the global monetary system fails, economic growth will plummet along with demand for oil.

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Re: That's enough for me in 2019

Post by market timer » Wed May 15, 2019 7:17 pm

HEDGEFUNDIE wrote:
Wed May 15, 2019 1:18 pm
If the global monetary system fails, economic growth will plummet along with demand for oil.
The last time there was a breakdown of western monetary systems, 1971, it was followed by a period of skyrocketing commodity prices and slowing economic growth. It's not an investment outlook, just something I'd like to be hedged against.

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Re: That's enough for me in 2019

Post by revhappy » Fri May 31, 2019 6:48 am

OP must be really smiling right now :)
How many people believe markets will see a new high this year? Just one month back most people were happy predicting SPX at 3000. Now, we have no China deal and we have a trade war with Mexico.

OP, what is your target for SPX for this year? I am predicting SPX would be 2500 or lower. I am selling cash secured SPY 260 PUTs for Dec 2019 though,

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Re: That's enough for me in 2019

Post by market timer » Fri May 31, 2019 9:35 pm

revhappy wrote:
Fri May 31, 2019 6:48 am
OP must be really smiling right now :)
How many people believe markets will see a new high this year? Just one month back most people were happy predicting SPX at 3000. Now, we have no China deal and we have a trade war with Mexico.

OP, what is your target for SPX for this year? I am predicting SPX would be 2500 or lower. I am selling cash secured SPY 260 PUTs for Dec 2019 though,
Not smiling, mostly fearful of what the bond market knows that equities do not. Yields have absolutely collapsed in the past 7 months. The US 10-year was at 3.23% in October, now at 2.12%. The German 10-year yield just hit an all-time low of -0.21%.

I don't do predictions, just reactions. Used the recent rally in long term Treasuries to exit that position today and buy equities. Now have 10% net equity exposure.

Your idea of entering the market gradually with the short puts makes sense to me, strike price is a reasonable target. I'll start to do the same when VIX gets to the mid 20s (now 19).

HEDGEFUNDIE
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Re: That's enough for me in 2019

Post by HEDGEFUNDIE » Fri May 31, 2019 9:54 pm

market timer wrote:
Fri May 31, 2019 9:35 pm
revhappy wrote:
Fri May 31, 2019 6:48 am
OP must be really smiling right now :)
How many people believe markets will see a new high this year? Just one month back most people were happy predicting SPX at 3000. Now, we have no China deal and we have a trade war with Mexico.

OP, what is your target for SPX for this year? I am predicting SPX would be 2500 or lower. I am selling cash secured SPY 260 PUTs for Dec 2019 though,
Not smiling, mostly fearful of what the bond market knows that equities do not. Yields have absolutely collapsed in the past 7 months. The US 10-year was at 3.23% in October, now at 2.12%. The German 10-year yield just hit an all-time low of -0.21%.

I don't do predictions, just reactions. Used the recent rally in long term Treasuries to exit that position today and buy equities. Now have 10% net equity exposure.

Your idea of entering the market gradually with the short puts makes sense to me, strike price is a reasonable target. I'll start to do the same when VIX gets to the mid 20s (now 19).
Why would you buy equities when the bond market “knows something”?

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Re: That's enough for me in 2019

Post by market timer » Fri May 31, 2019 10:08 pm

HEDGEFUNDIE wrote:
Fri May 31, 2019 9:54 pm
Why would you buy equities when the bond market “knows something”?
The view I express is through my position, not the action of buying and selling. This is something I didn't really appreciate for years. With a 10% allocation to equities, I'm still unusually conservative. The fact I moved 10% from long term Treasuries to equities just means I'm less conservative than I was yesterday.

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Re: That's enough for me in 2019

Post by HEDGEFUNDIE » Fri May 31, 2019 10:13 pm

market timer wrote:
Fri May 31, 2019 10:08 pm
HEDGEFUNDIE wrote:
Fri May 31, 2019 9:54 pm
Why would you buy equities when the bond market “knows something”?
The view I express is through my position, not the action of buying and selling. This is something I didn't really appreciate for years. With a 10% allocation to equities, I'm still unusually conservative. The fact I moved 10% from long term Treasuries to equities just means I'm less conservative than I was yesterday.
So you think we’re closer to the bottom now...

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market timer
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Re: That's enough for me in 2019

Post by market timer » Fri May 31, 2019 10:41 pm

HEDGEFUNDIE wrote:
Fri May 31, 2019 10:13 pm
market timer wrote:
Fri May 31, 2019 10:08 pm
HEDGEFUNDIE wrote:
Fri May 31, 2019 9:54 pm
Why would you buy equities when the bond market “knows something”?
The view I express is through my position, not the action of buying and selling. This is something I didn't really appreciate for years. With a 10% allocation to equities, I'm still unusually conservative. The fact I moved 10% from long term Treasuries to equities just means I'm less conservative than I was yesterday.
So you think we’re closer to the bottom now...
I'd think of it more in terms of risk/return. Equities are slightly more attractive relative to Treasuries than they were a few weeks ago. Have no idea how far the current downturn will take the market.

revhappy
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Re: That's enough for me in 2019

Post by revhappy » Fri May 31, 2019 11:42 pm

market timer wrote:
Fri May 31, 2019 9:35 pm
revhappy wrote:
Fri May 31, 2019 6:48 am
OP must be really smiling right now :)
How many people believe markets will see a new high this year? Just one month back most people were happy predicting SPX at 3000. Now, we have no China deal and we have a trade war with Mexico.

OP, what is your target for SPX for this year? I am predicting SPX would be 2500 or lower. I am selling cash secured SPY 260 PUTs for Dec 2019 though,
Not smiling, mostly fearful of what the bond market knows that equities do not. Yields have absolutely collapsed in the past 7 months. The US 10-year was at 3.23% in October, now at 2.12%. The German 10-year yield just hit an all-time low of -0.21%.

I don't do predictions, just reactions. Used the recent rally in long term Treasuries to exit that position today and buy equities. Now have 10% net equity exposure.

Your idea of entering the market gradually with the short puts makes sense to me, strike price is a reasonable target. I'll start to do the same when VIX gets to the mid 20s (now 19).
Thanks!

minimalistmarc
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Re: That's enough for me in 2019

Post by minimalistmarc » Sat Jun 01, 2019 3:13 am

Is this what they mean by “dumb money”. Why does dumb money always have to justify itself with long drawn out conversations that pretend to be logical/evidenced but instead are purely speculative/opinion based?

DOI: I used to be exactly like market timer. Most people are not fortunate enough to start their investment journey as bogleheads (I’m guessing).

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gmaynardkrebs
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Re: That's enough for me in 2019

Post by gmaynardkrebs » Sat Jun 01, 2019 7:10 am

minimalistmarc wrote:
Sat Jun 01, 2019 3:13 am
Is this what they mean by “dumb money”. Why does dumb money always have to justify itself with long drawn out conversations that pretend to be logical/evidenced but instead are purely speculative/opinion based?
I wish I could be as "dumb" as Market Timer. I invest passively (for the most part) because I'd be the first to get fleeced if I traded actively, because I don't know enough to swim with the sharks. But, I have no doubt that the smart money really is smart.

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305pelusa
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Re: That's enough for me in 2019

Post by 305pelusa » Sat Jun 01, 2019 7:25 am

minimalistmarc wrote:
Sat Jun 01, 2019 3:13 am
Is this what they mean by “dumb money”. Why does dumb money always have to justify itself with long drawn out conversations that pretend to be logical/evidenced but instead are purely speculative/opinion based?

DOI: I used to be exactly like market timer. Most people are not fortunate enough to start their investment journey as bogleheads (I’m guessing).
His reasoning is perfectly logical. That form of rebalancing by utilizing assumptions of forward expected returns is,IMO, what rebalancing should be like.

Is it arbitrary? Does it carry idiosyncracies? It does. But so does picking some set percentages of equities/bonds. And people are fine with that.

@Market Timer: How do you incorporate forward-looking yields in this process? What are some of the equations you use to make these decisions? About the only thing I use is the Samuelson "optional equity percentage" based on volatility, equity risk premium and RRA. But I want to hear more about your personal method if you don't mind sharing. Thanks.

minimalistmarc
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Re: That's enough for me in 2019

Post by minimalistmarc » Sat Jun 01, 2019 7:41 am

gmaynardkrebs wrote:
Sat Jun 01, 2019 7:10 am
minimalistmarc wrote:
Sat Jun 01, 2019 3:13 am
Is this what they mean by “dumb money”. Why does dumb money always have to justify itself with long drawn out conversations that pretend to be logical/evidenced but instead are purely speculative/opinion based?
I wish I could be as "dumb" as Market Timer. I invest passively (for the most part) because I'd be the first to get fleeced if I traded actively, because I don't know enough to swim with the sharks. But, I have no doubt that the smart money really is smart.
Strange wish

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Re: That's enough for me in 2019

Post by market timer » Mon Jun 03, 2019 8:31 pm

305pelusa wrote:
Sat Jun 01, 2019 7:25 am
@Market Timer: How do you incorporate forward-looking yields in this process? What are some of the equations you use to make these decisions? About the only thing I use is the Samuelson "optional equity percentage" based on volatility, equity risk premium and RRA. But I want to hear more about your personal method if you don't mind sharing. Thanks.
What I originally set out to do here is to give an example of someone who is near the finish line, looked around at the elevated valuations today, and decided to wait for better opportunities. My goal is to reach a point where I can cover the basics (housing, medical, food, transportation), get my kids through college without loans, and have another $2K/month for things like vacations and gifts. These are very concrete goals, as opposed to something like trying to maximize a Sharpe ratio for a portfolio.

The asset allocation decision is driven largely by liability matching and complementing my labor income. For example, the CPI has beta of 0.15 with respect to oil, so I own 15% oil. I view precious metals as similar to long term inflation adjusted bonds with 0% coupon, as well as a hedge against the long run risk of monetary crisis (a reasonable expectation over the next 40 years). TIPS would certainly have a place in this portfolio if they weren't so tax inefficient and more attractively priced. I believe long term TIPS yields have a floor around 0%, as there is the risk at that level of spiraling commodity inflation, as more people like me would opt to hoard commodities, rather than settle for guaranteed 0% real return.

I'm investing with worst-case scenarios in mind, both for the economy and myself professionally (think, getting laid off in 2008). Part of the reason it is so easy to find work and get high compensation today is that venture capitalists are funding money-losing startups because attractive investments are hard to find. If financial conditions tighten, that would likely be a better time to invest than today. In the meantime, I'll opportunistically take positions, e.g., adding equities, credit risk, and short vol in Dec 2018, but will mostly preserve liquidity.

Carol88888
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Re: That's enough for me in 2019

Post by Carol88888 » Tue Jun 04, 2019 3:08 pm

You say you don't try to predict conditions but rather move in response to them. Hypothetically, if the S&P got back to the December lows would you be increasing your 10% equity position or would you need to see something more?

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Re: That's enough for me in 2019

Post by market timer » Tue Jun 04, 2019 7:52 pm

Carol88888 wrote:
Tue Jun 04, 2019 3:08 pm
You say you don't try to predict conditions but rather move in response to them. Hypothetically, if the S&P got back to the December lows would you be increasing your 10% equity position or would you need to see something more?
Definitely. I was 70% equities at the low in Dec. It's not just valuations, but things like volatility and credit spreads inform my decision. The VIX exceeded 35 in December and HY credit spreads moved up 200bps, from 316 to 535. Felt a bit like a panic where cooler heads could step in and provide some stability to the market. That's where I feel most comfortable, but you need to have dry powder at the lows to do this.

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dmcmahon
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Re: That's enough for me in 2019

Post by dmcmahon » Thu Jun 06, 2019 12:15 am

I’ve feared a return of the 1970s bear for the past 20 years. The problem is that it hasn’t seemed actionable. Also, it hasn’t happened yet, so I’m glad I used a BH style investment strategy instead of playing that hunch.
Unless you can stockpile physical commodities, you have the constant tax drag of mark to market capital gains / losses on futures positions. That leaves physical metal and real estate as the only viable options, the latter requiring a lot of work as REITs aren’t pure plays due to management risks and embedded leverage. TIPS held in my tax deferred accounts are my best thought, and these are capped too low by contribution limits.
At the absurd rates bonds have yielded over the last 10 years, there’s no question I’m losing ground to taxflation, and can look forward to more in future,

protagonist
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Re: That's enough for me in 2019

Post by protagonist » Thu Jun 06, 2019 1:12 am

cherijoh wrote:
Sat Mar 16, 2019 11:00 am


But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks.
Can you?

What is the probability of a major market crash (50% decline or more) within the next 10 years? 20 years? 50 years? What is the probability of it recovering during your lifetime?
What was the probability in 2009 of the market recovering within two years? At that time, what was the probability of a prolonged recession, a depression, stagflation, runaway inflation? (I recall experts predicting all four possibilities). What was the probability , when the market bottomed out at around 6500, of it continuing to decline to 3250 or lower? What was the probability in 2009 of it nearly quadrupling to 26000 or higher by 2019 ??

What is the probability that the market will continue to grow in real terms over the next 10 years? 50 years? 100 years? 1000 years?

What is the probability that the USA will be the major world economy in 2050? 2100? 3000?

What is the expected risk of nuclear war within the next decade? Within the next century?

Please provide the math for any one of these calculations.

cherijoh
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Re: That's enough for me in 2019

Post by cherijoh » Thu Jun 06, 2019 7:09 am

protagonist wrote:
Thu Jun 06, 2019 1:12 am
cherijoh wrote:
Sat Mar 16, 2019 11:00 am


But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks.
Can you?

What is the probability of a major market crash (50% decline or more) within the next 10 years? 20 years? 50 years? What is the probability of it recovering during your lifetime?
What was the probability in 2009 of the market recovering within two years? At that time, what was the probability of a prolonged recession, a depression, stagflation, runaway inflation? (I recall experts predicting all four possibilities). What was the probability , when the market bottomed out at around 6500, of it continuing to decline to 3250 or lower? What was the probability in 2009 of it nearly quadrupling to 26000 or higher by 2019 ??

What is the probability that the market will continue to grow in real terms over the next 10 years? 50 years? 100 years? 1000 years?

What is the probability that the USA will be the major world economy in 2050? 2100? 3000?

What is the expected risk of nuclear war within the next decade? Within the next century?

Please provide the math for any one of these calculations.
You didn't quote enough of my post to identify what I said originally and I'm not searching through 15-pages of responses for me to find it. :oops:

But I know what I meant wasn't the probability over x years because as you say there is no way to evaluate that.

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Re: That's enough for me in 2019

Post by protagonist » Thu Jun 06, 2019 10:32 am

cherijoh wrote:
Thu Jun 06, 2019 7:09 am
protagonist wrote:
Thu Jun 06, 2019 1:12 am
cherijoh wrote:
Sat Mar 16, 2019 11:00 am


But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks.
Can you?

What is the probability of a major market crash (50% decline or more) within the next 10 years? 20 years? 50 years? What is the probability of it recovering during your lifetime?
What was the probability in 2009 of the market recovering within two years? At that time, what was the probability of a prolonged recession, a depression, stagflation, runaway inflation? (I recall experts predicting all four possibilities). What was the probability , when the market bottomed out at around 6500, of it continuing to decline to 3250 or lower? What was the probability in 2009 of it nearly quadrupling to 26000 or higher by 2019 ??

What is the probability that the market will continue to grow in real terms over the next 10 years? 50 years? 100 years? 1000 years?

What is the probability that the USA will be the major world economy in 2050? 2100? 3000?

What is the expected risk of nuclear war within the next decade? Within the next century?

Please provide the math for any one of these calculations.
You didn't quote enough of my post to identify what I said originally and I'm not searching through 15-pages of responses for me to find it. :oops:

But I know what I meant wasn't the probability over x years because as you say there is no way to evaluate that.
You are right. I apologize if that came off as snarky. It was not my intent. I, too, won't search through 15 pages of responses. *smile*
From my recollection your original post you mentioned the use of monte carlo simulations and past performance as a means of , effectively. evaluating a strategy for a long-term plan. I was merely trying to point out the limitations of that approach.

clip651
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Re: That's enough for me in 2019

Post by clip651 » Thu Jun 06, 2019 11:14 am

cherijoh wrote:
Thu Jun 06, 2019 7:09 am
I'm not searching through 15-pages of responses for me to find it.
protagonist wrote:
Thu Jun 06, 2019 10:32 am
I, too, won't search through 15 pages of responses. *smile*
Just a side note that may come in handy for other threads ... if you click the little bitty arrow next to the "username wrote" at the top of any quoted posted, that will take you to the original post if you want to see the whole thing. :D

protagonist
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Re: That's enough for me in 2019

Post by protagonist » Thu Jun 06, 2019 11:23 am

clip651 wrote:
Thu Jun 06, 2019 11:14 am
cherijoh wrote:
Thu Jun 06, 2019 7:09 am
I'm not searching through 15-pages of responses for me to find it.
protagonist wrote:
Thu Jun 06, 2019 10:32 am
I, too, won't search through 15 pages of responses. *smile*
Just a side note that may come in handy for other threads ... if you click the little bitty arrow next to the "username wrote" at the top of any quoted posted, that will take you to the original post if you want to see the whole thing. :D
Thanks!

cherijoh
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Re: That's enough for me in 2019

Post by cherijoh » Thu Jun 06, 2019 5:25 pm

protagonist wrote:
Thu Jun 06, 2019 1:12 am
cherijoh wrote:
Sat Mar 16, 2019 11:00 am


But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks.
Can you?

What is the probability of a major market crash (50% decline or more) within the next 10 years? 20 years? 50 years? What is the probability of it recovering during your lifetime?
What was the probability in 2009 of the market recovering within two years? At that time, what was the probability of a prolonged recession, a depression, stagflation, runaway inflation? (I recall experts predicting all four possibilities). What was the probability , when the market bottomed out at around 6500, of it continuing to decline to 3250 or lower? What was the probability in 2009 of it nearly quadrupling to 26000 or higher by 2019 ??

What is the probability that the market will continue to grow in real terms over the next 10 years? 50 years? 100 years? 1000 years?

What is the probability that the USA will be the major world economy in 2050? 2100? 3000?

What is the expected risk of nuclear war within the next decade? Within the next century?

Please provide the math for any one of these calculations.
Here's my original quote - please note the 2 highlighted segments and then read my explanation below.:
cherijoh wrote:
Sat Mar 16, 2019 11:00 am
Don't confuse results with strategy. You can never predict a priori the results of a particular course of action on an individual implementing that course of action.

But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks. Insurance companies do this all the time when evaluating how much to charge customers. It is all a matter of having access to sufficient data.

It would be tough to figure out all the combinations and permutations of market timing where you are getting into and out of the market multiple times. But you could definitely use a sophisticated retirement calculator (with Monte Carlo simulation or historical returns) to compare going 100% to cash and staying there vs. keeping a sensible AA and staying the course for various retirement withdrawal rates.
After rereading what I wrote and your response to it, I think it boils down to what I meant by "expected" vs. what you assumed I meant. No doubt I could have been more explicit and not assumed that people would automatically understand that I was talking about using historical probabilities when I mentioned insurance companies using this technique to set their rates.

I meant "expected" in a strict statistical sense which means that you have mathematically defined some relationship based on past data. This is where I think things went off the rails. Statistically, if you can quantify the historical probabilities of various outcomes to an event and assign a cost or value to each potential outcome, you can calculate an "expected" overall cost or value. Insurance companies use the number and size of past claims from customers similar to you to figure out how much to charge you and still make a profit. You can also use this technique to compare different strategies and choose the one with the better expected outcome. (See an example below).

Somehow you morphed my post into me saying that I could predict the probability of a market crash within a specific time frame. Which is why I was at a total loss to answer your post based simply on your response. :shock:

This "expected return" may not be at all similar to the actual results, but it is your best point estimate for some future result based on available data. In fact that was one of my central points in terms of not confusing a good (or bad) outcome with a good (or bad) strategy. A good strategy should have a good expected result - otherwise why are you using that strategy? But in terms of actual results a good strategy could have disappointing results (a diversified portfolio during a period of low stock market returns) and a bad strategy could yield good results (e.g., investing your entire portfolio in a single stock just before it took off like a rocket). You have no way of knowing in advance when the stock market is going to fall off a cliff or when a particular stock will shoot up dramatically (absent insider knowledge). But lots of time you can gain interesting insight on the most likely outcome (from a statistical standpoint) by looking at past results.

As a specific example of how you might apply this technique, let's say you are 30 and plan to retire at 60. You want to determine which approach is more likely to give you the bigger starting nest egg for your retirement - staying at 100% stocks until you hit 45 and then switching to 60/40 or being at 80/20 the entire time. Since you have to make your decision now and you don't get a do-over how do you decide? My point was you could use real sequential return data or a MC simulation for each scenario (assuming the same starting balance and same amount of additional contributions) and then compare the histogram profiles of the ending portfolio values to address questions like:
  • Which approach gives you the higher "expected" return?
  • What is the difference in average ending balance?
  • What is the range of balances at the 25% and 75% percentile (i.e., middle 50% of time) for each approach?
  • What % of the simulations resulted in a ending balance of at least X (i.e. how likely is each scenario going to get me to my goal for nest egg size)

protagonist
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Re: That's enough for me in 2019

Post by protagonist » Thu Jun 06, 2019 8:40 pm

cherijoh wrote:
Thu Jun 06, 2019 5:25 pm
protagonist wrote:
Thu Jun 06, 2019 1:12 am
cherijoh wrote:
Sat Mar 16, 2019 11:00 am


But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks.
Can you?

What is the probability of a major market crash (50% decline or more) within the next 10 years? 20 years? 50 years? What is the probability of it recovering during your lifetime?
What was the probability in 2009 of the market recovering within two years? At that time, what was the probability of a prolonged recession, a depression, stagflation, runaway inflation? (I recall experts predicting all four possibilities). What was the probability , when the market bottomed out at around 6500, of it continuing to decline to 3250 or lower? What was the probability in 2009 of it nearly quadrupling to 26000 or higher by 2019 ??

What is the probability that the market will continue to grow in real terms over the next 10 years? 50 years? 100 years? 1000 years?

What is the probability that the USA will be the major world economy in 2050? 2100? 3000?

What is the expected risk of nuclear war within the next decade? Within the next century?

Please provide the math for any one of these calculations.
Here's my original quote - please note the 2 highlighted segments and then read my explanation below.:
cherijoh wrote:
Sat Mar 16, 2019 11:00 am
Don't confuse results with strategy. You can never predict a priori the results of a particular course of action on an individual implementing that course of action.

But you can often use probability and expected returns to evaluate whether a particular strategy makes sense based on the associated risks. Insurance companies do this all the time when evaluating how much to charge customers. It is all a matter of having access to sufficient data.

It would be tough to figure out all the combinations and permutations of market timing where you are getting into and out of the market multiple times. But you could definitely use a sophisticated retirement calculator (with Monte Carlo simulation or historical returns) to compare going 100% to cash and staying there vs. keeping a sensible AA and staying the course for various retirement withdrawal rates.
After rereading what I wrote and your response to it, I think it boils down to what I meant by "expected" vs. what you assumed I meant. No doubt I could have been more explicit and not assumed that people would automatically understand that I was talking about using historical probabilities when I mentioned insurance companies using this technique to set their rates.

I meant "expected" in a strict statistical sense which means that you have mathematically defined some relationship based on past data. This is where I think things went off the rails. Statistically, if you can quantify the historical probabilities of various outcomes to an event and assign a cost or value to each potential outcome, you can calculate an "expected" overall cost or value. Insurance companies use the number and size of past claims from customers similar to you to figure out how much to charge you and still make a profit. You can also use this technique to compare different strategies and choose the one with the better expected outcome. (See an example below).

Somehow you morphed my post into me saying that I could predict the probability of a market crash within a specific time frame. Which is why I was at a total loss to answer your post based simply on your response. :shock:

This "expected return" may not be at all similar to the actual results, but it is your best point estimate for some future result based on available data. In fact that was one of my central points in terms of not confusing a good (or bad) outcome with a good (or bad) strategy. A good strategy should have a good expected result - otherwise why are you using that strategy? But in terms of actual results a good strategy could have disappointing results (a diversified portfolio during a period of low stock market returns) and a bad strategy could yield good results (e.g., investing your entire portfolio in a single stock just before it took off like a rocket). You have no way of knowing in advance when the stock market is going to fall off a cliff or when a particular stock will shoot up dramatically (absent insider knowledge). But lots of time you can gain interesting insight on the most likely outcome (from a statistical standpoint) by looking at past results.

As a specific example of how you might apply this technique, let's say you are 30 and plan to retire at 60. You want to determine which approach is more likely to give you the bigger starting nest egg for your retirement - staying at 100% stocks until you hit 45 and then switching to 60/40 or being at 80/20 the entire time. Since you have to make your decision now and you don't get a do-over how do you decide? My point was you could use real sequential return data or a MC simulation for each scenario (assuming the same starting balance and same amount of additional contributions) and then compare the histogram profiles of the ending portfolio values to address questions like:
  • Which approach gives you the higher "expected" return?
  • What is the difference in average ending balance?
  • What is the range of balances at the 25% and 75% percentile (i.e., middle 50% of time) for each approach?
  • What % of the simulations resulted in a ending balance of at least X (i.e. how likely is each scenario going to get me to my goal for nest egg size)
Yes, I agree....I think that is all fine, in terms of providing some kind of framework for choosing a plan, so long as it does not give people a false sense of security, which I think is the danger of Monte Carlo simulations based on such limited data as, say, 90 years worth of returns. My guess is that the world will look so different in 2050 or 2060 or whatever that modeling the future today is pretty irrelevant. Or maybe not, but who knows? That said, we all have to choose a plan and stick to it, don't we?

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dmcmahon
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Re: That's enough for me in 2019

Post by dmcmahon » Wed Jul 03, 2019 8:23 pm

market timer wrote:
Mon May 13, 2019 9:09 pm
Out of most of the QQQ short at ~179 today. Added a small position (8%) to int'l equities. Used the rally in 5-year Treasuries (to under 2.2% yield) to hedge duration on my investment grade bond fund.

New allocation:
10% gold
5% silver
15% crude oil and oil majors
10% long term bonds
-8% US equities
8% int'l lequities
60% cash and duration-hedged intermediate term investment grade bonds
That long/short in equities corresponds with my instincts over the last year or two, but I’m glad I never acted on it.

mikeyzito22
Posts: 217
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Re: That's enough for me in 2019

Post by mikeyzito22 » Sat Jul 06, 2019 11:29 pm

market timer wrote:
Mon Jun 03, 2019 8:31 pm
305pelusa wrote:
Sat Jun 01, 2019 7:25 am
@Market Timer: How do you incorporate forward-looking yields in this process? What are some of the equations you use to make these decisions? About the only thing I use is the Samuelson "optional equity percentage" based on volatility, equity risk premium and RRA. But I want to hear more about your personal method if you don't mind sharing. Thanks.
What I originally set out to do here is to give an example of someone who is near the finish line, looked around at the elevated valuations today, and decided to wait for better opportunities. My goal is to reach a point where I can cover the basics (housing, medical, food, transportation), get my kids through college without loans, and have another $2K/month for things like vacations and gifts. These are very concrete goals, as opposed to something like trying to maximize a Sharpe ratio for a portfolio.

The asset allocation decision is driven largely by liability matching and complementing my labor income. For example, the CPI has beta of 0.15 with respect to oil, so I own 15% oil. I view precious metals as similar to long term inflation adjusted bonds with 0% coupon, as well as a hedge against the long run risk of monetary crisis (a reasonable expectation over the next 40 years). TIPS would certainly have a place in this portfolio if they weren't so tax inefficient and more attractively priced. I believe long term TIPS yields have a floor around 0%, as there is the risk at that level of spiraling commodity inflation, as more people like me would opt to hoard commodities, rather than settle for guaranteed 0% real return.

I'm investing with worst-case scenarios in mind, both for the economy and myself professionally (think, getting laid off in 2008). Part of the reason it is so easy to find work and get high compensation today is that venture capitalists are funding money-losing startups because attractive investments are hard to find. If financial conditions tighten, that would likely be a better time to invest than today. In the meantime, I'll opportunistically take positions, e.g., adding equities, credit risk, and short vol in Dec 2018, but will mostly preserve liquidity.
Jesus! This is the third time you talk about TIPS. Just go buy some already and stop talking about it.

Nowizard
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Re: That's enough for me in 2019

Post by Nowizard » Sun Jul 07, 2019 8:34 am

These threads are always interesting. I suspect that there are younger investors who may be more prone to market time, momentum invest, chase returns, etc. At least that is what I did with great success while younger, all due to using what was then reflective of investment "knowledge" and beginning investment experience. Could be projecting from personal experience, but early success, whether from blind luck or logic continues to affect investing confidence and willingness to take risk.

Tim

Bastiat
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Re: That's enough for me in 2019

Post by Bastiat » Mon Jul 08, 2019 12:03 am

revhappy wrote:
Fri May 31, 2019 6:48 am
OP must be really smiling right now :)
How many people believe markets will see a new high this year? Just one month back most people were happy predicting SPX at 3000. Now, we have no China deal and we have a trade war with Mexico.

OP, what is your target for SPX for this year? I am predicting SPX would be 2500 or lower. I am selling cash secured SPY 260 PUTs for Dec 2019 though,
Should have asked how many people believe markets will see a new high in less than three weeks. >D

This post was literally one day before the market reversed course.

A month from now we could be back to doom and gloom. Point is, no one knows.

sf_tech_saver
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Re: That's enough for me in 2019

Post by sf_tech_saver » Mon Jul 08, 2019 12:25 am

What is so satisfying about Shakespeare: the drama arrives-- as you would expect.

What is brutal about markets: Maybe there will be drama, or maybe a decade will glide by....

Markets don't care about our attention spans, but we are taught by everything else in our life which revolves around them.
VTI is a modern marvel

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market timer
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Re: That's enough for me in 2019

Post by market timer » Mon Aug 05, 2019 8:09 pm

Haven't updated since mid-May. Used the downturn in late May / early June to rotate from long term bonds to equities (mostly int'l). Used today's equity selloff and bond rally to do more of the same. Now have essentially locked in 30-year borrowing rates of 2.24% to buy int'l equities.

New allocation (+change since mid-May):
22% precious metals (+7%)
13% crude oil and oil majors (-2%)
-38% long term bonds (-48%)
10% US equities (+18%)
33% int'l equities (+25%)
60% cash (flat)

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whodidntante
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Re: That's enough for me in 2019

Post by whodidntante » Mon Aug 05, 2019 9:33 pm

What is the "cash" invested in, market timer? I have to ask because it's probably a fancy answer. :beer

Startled Cat
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Re: That's enough for me in 2019

Post by Startled Cat » Tue Aug 06, 2019 12:40 am

What mechanism do you use to short long-term bonds, and how is it that the effective borrowing rate is so low? My understanding was that the government can borrow at treasury rates, but other entities generally can't because they are considered riskier counterparties. I thought that futures and options had financing costs built in to the pricing to account for this risk premium.

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dogagility
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Re: That's enough for me in 2019

Post by dogagility » Tue Aug 06, 2019 4:22 am

market timer wrote:
Mon Aug 05, 2019 8:09 pm
Haven't updated since mid-May. Used the downturn in late May / early June to rotate from long term bonds to equities (mostly int'l). Used today's equity selloff and bond rally to do more of the same. Now have essentially locked in 30-year borrowing rates of 2.24% to buy int'l equities.

New allocation (+change since mid-May):
22% precious metals (+7%)
13% crude oil and oil majors (-2%)
-38% long term bonds (-48%)
10% US equities (+18%)
33% int'l equities (+25%)
60% cash (flat)
Interesting. What is now your investment total return over different time horizons compared to a Boglehead strategy (buy and hold; three fund portfolio; annual rebalancing) with a similar risk profile? For the community, it would be beneficial if you posted the comparative returns too. Thanks in advance.
Taking "risk" since 1995.

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market timer
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Re: That's enough for me in 2019

Post by market timer » Tue Aug 06, 2019 7:14 am

whodidntante wrote:
Mon Aug 05, 2019 9:33 pm
What is the "cash" invested in, market timer? I have to ask because it's probably a fancy answer. :beer
I described my cash allocation here: viewtopic.php?f=10&t=275865&start=350#p4453462

Also included in cash are things like I bonds and duration-hedged EE bonds. I own $130K in EE bonds that partially offsets my short position long term Treasury futures. EE bond + short future = cash.

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Re: That's enough for me in 2019

Post by market timer » Tue Aug 06, 2019 7:24 am

Startled Cat wrote:
Tue Aug 06, 2019 12:40 am
What mechanism do you use to short long-term bonds, and how is it that the effective borrowing rate is so low? My understanding was that the government can borrow at treasury rates, but other entities generally can't because they are considered riskier counterparties. I thought that futures and options had financing costs built in to the pricing to account for this risk premium.
I use futures, specifically September 2019 ultra T-bond futures. When you short futures, you must post collateral and agree that your broker can liquidate your position moves against you and your collateral is no longer sufficient (a margin call). This gets rid of almost all the credit risk. On the other hand, it's not like I'm issuing bonds and can invest the money any way I like for the next 30 years. I have to maintain adequate collateral in case interest rates decline, which is part of the reason for the large cash position.

As for how this works in practice, imagine you short $x of 30-year bond futures and go long $x of equity futures. On a day-to-day basis, this position will fluctuate in value the same as if you had borrowed $x at a fixed rate for 30 years to buy equities. If you truly wanted to replicate the behavior of a 30-year bond, you'd decrease the duration over time and move to shorter duration bond futures.

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Re: That's enough for me in 2019

Post by market timer » Tue Aug 06, 2019 7:42 am

dogagility wrote:
Tue Aug 06, 2019 4:22 am
Interesting. What is now your investment total return over different time horizons compared to a Boglehead strategy (buy and hold; three fund portfolio; annual rebalancing) with a similar risk profile? For the community, it would be beneficial if you posted the comparative returns too. Thanks in advance.
For me, it is really not a contest or about maximizing returns. Risk is not a scalar, it has many dimensions and we are more sensitive to different dimensions at different stages of life. I don't track returns, it just causes stress and fear of missing out.

Snowjob
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Re: That's enough for me in 2019

Post by Snowjob » Tue Aug 06, 2019 8:37 am

market timer wrote:
Mon Aug 05, 2019 8:09 pm
Haven't updated since mid-May. Used the downturn in late May / early June to rotate from long term bonds to equities (mostly int'l). Used today's equity selloff and bond rally to do more of the same. Now have essentially locked in 30-year borrowing rates of 2.24% to buy int'l equities.

New allocation (+change since mid-May):
22% precious metals (+7%)
13% crude oil and oil majors (-2%)
-38% long term bonds (-48%)
10% US equities (+18%)
33% int'l equities (+25%)
60% cash (flat)
Interesting.

How much do you need to post (or expect to post given fluctuations) to maintain the short position and what qualifies as collateral? I assume the requirement must be generous in order to justify the leverage considering your large cash position in aggregate?

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market timer
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Re: That's enough for me in 2019

Post by market timer » Tue Aug 06, 2019 9:05 am

Snowjob wrote:
Tue Aug 06, 2019 8:37 am
How much do you need to post (or expect to post given fluctuations) to maintain the short position and what qualifies as collateral? I assume the requirement must be generous in order to justify the leverage considering your large cash position in aggregate?
An ultra bond has a notional value of $185K. Collateral must be in cash and is pretty low compared to the notional value and volatility. You only need to post ~$3500 as collateral. It's the day-to-day volatility that requires a larger buffer. To get a sense of the volatility, the YTD range of the ultra contract has been $157-187K. I have a target cash buffer that I maintain to compensate for overnight volatility and have a second buffer kept in a money market account where I sweep excess cash. If the second buffer is exhausted, the third buffer is a short term bond ETF.

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