Market timers thread

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Chris42163
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Re: Market timers thread

Post by Chris42163 »

HomerJ wrote: Sun Mar 24, 2019 10:41 am
But this is looking backwards. 25 years ago, lows 20 was considered high, and over 25 was considered "extreme".

People following the same logic you are following DID get out of the market waiting for CAPE to return to "reasonable" levels. And they've waited a long time.

CAPE is has been super high for a long time, and you've now reset your expectations. Your new rules may work better than the old rules, but make no mistake, you've changed the rules. You have a whole new system you're following. You've thrown out the 80 years of data Shiller originally used, and you're making your decisions only on the past 30 years.
That's a really fair point, HomerJ. Yes, it apparently has increased over time. So, if I may "steel man" your argument: If I had attempted to use the same approach in the past, like in 1996, I would have arrived at a different conclusion for what would be extreme values for the Shiller P/E. If I'd acted in the same manner then, it would have been a losing proposition. Is that a fair summary of your position?
dkturner
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Re: Market timers thread

Post by dkturner »

HomerJ wrote: Sun Mar 24, 2019 10:41 am
Chris42163 wrote: Sun Mar 24, 2019 3:44 am
HomerJ wrote: Sat Mar 23, 2019 11:29 pm
Chris42163 wrote: Sat Mar 23, 2019 10:45 pm 40% cash or treasuries at the moment. I don't expect lows to be retested, nor any other particular outcome regarding stock price. I do however, expect valuations, as defined by the Schiller P/E and Buffet Indicator, to return to more reasonable levels within the next several years.
Why do you think they will return to "reasonable" levels within the next several years?

Shiller PE (CAPE) has been high for nearly 27 years. It did briefly return to "reasonable" levels in 2009, but the rest of the time it's been high.

What do you think is different about the next several years compared to the past 27 years?
I think 30+ is extreme and the low 20s is reasonable enough to run for a long, long time. 25 and lower is very high, but seems reasonable enough to stay invested. If you got out at 25, you missed a big part of this bull.
But this is looking backwards. 25 years ago, lows 20 was considered high, and over 25 was considered "extreme".

People following the same logic you are following DID get out of the market waiting for CAPE to return to "reasonable" levels. And they've waited a long time.

CAPE is has been super high for a long time, and you've now reset your expectations. Your new rules may work better than the old rules, but make no mistake, you've changed the rules. You have a whole new system you're following. You've thrown out the 80 years of data Shiller originally used, and you're making your decisions only on the past 30 years.
Homer, except for Jeremy Grantham most astute investors have long since picked up on the fact that the old CAPE rules of thumb are outdated, largely due to changes in valuation metrics over the years. GAAP aren’t what they were 25 years ago and these changes help explain why CAPE has remained so high for so long. The Federal Reserve’s eight year repression of interest rates also helped, by signaling that equity ownership was the place to be and the Fed would do anything to prevent another recession. Sometimes you have to go outside and smell the roses.
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goingup
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Re: Market timers thread

Post by goingup »

dkturner wrote: Sun Mar 24, 2019 12:48 pm
ronno2018 wrote: Sat Mar 23, 2019 10:52 pm If you want to time the market what the heck are you doing on this forum? :oops:
Good question. I had noticed that Jack Bogle rarely posted anything on these boards either. I guess his remarks, that there was nothing wrong with taking advantage of depressed equity prices to increase equity exposure by up to 15 percentage points (remember - he didn’t believe in periodic “rebalancing”), didn’t fit in with the sensibilities of many of the usual suspects around here.
dkturner--Of all the things that Jack Bogle wrote over the course of his long life, this is the nugget you've gleaned?! Here's a nice summary from the Wikipedia entry about Jack's investment philosophy:

Bogle argued for an approach to investing defined by simplicity and common sense. Below are his eight basic rules for investors:[15]

Select low-cost funds
Consider carefully the added costs of advice
Do not overrate past fund performance
Use past performance to determine consistency and risk
Beware of stars (as in, star mutual fund managers)
Beware of asset size
Don't own too many funds
Buy your fund portfolio – and hold it


You've really missed the message if you think what you quoted is anything more than a minor footnote in his body of work.
Carol88888
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Re: Market timers thread

Post by Carol88888 »

I really think the best returns come from holding the highest percentage of stocks that one can stomach and then just sit with it. Otherwise you will lose the compounding effect by paying taxes. Warren Buffett doesn't sell off large positions sometimes when they have reached full value (I am thinking of Coke in the late 90s) because he knows he will disrupt the compounding machine he has built up.

That said, I sold on Friday a little bit but I remain 92% invested. I consider this not exactly market timing since I want to switch out the 2 ETFs I was holding. But if pressed, I would say I do have a hunch on where the market is going and that is that there will be at least a 10% pullback before new highs are made.

If we make new highs from here then I guessed wrong. I should have waited to sell my 8% later on and gotten an even better price. But at least I didn't lose money doing what I did and because the amount is small it won't kill me either way. Big difference between what I did and going to 100% cash. I get the impression some people have been doing that and trying to call a top since 2015-2016.

It isn't that hard to get back into the market. You can draw up a plan that says "at a 10% pullback, 10% of the cash gets redeployed into equities; at a 20% decline, another 20% goes in; at 30% down from the top toss in the remainder." Use what parameters you want.
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HomerJ
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Re: Market timers thread

Post by HomerJ »

dkturner wrote: Sun Mar 24, 2019 1:14 pmHomer, except for Jeremy Grantham most astute investors have long since picked up on the fact that the old CAPE rules of thumb are outdated, largely due to changes in valuation metrics over the years. GAAP aren’t what they were 25 years ago and these changes help explain why CAPE has remained so high for so long. The Federal Reserve’s eight year repression of interest rates also helped, by signaling that equity ownership was the place to be and the Fed would do anything to prevent another recession. Sometimes you have to go outside and smell the roses.
Sure, absolutely.

Therefore CAPE failed as a prediction tool.

Because of "GAAP changes", and "Fed changes", etc., etc., etc., sure.. We know why it failed.. But it failed.

So why do people think CAPE can be used a prediction tool now?

Actually, even worse, why do people think CAPE, in the past (!!), worked?

That is what is crazy.. There are still websites and experts and posts here on Bogleheads talking about how great CAPE has worked in the past. That's only true if you use ex-facto data, if you change the model using data from the past, now the current model works. But you can't say it worked in the past.

It absolutely failed as a prediction tool since it was discovered, sure, because of x and y and z.

I'm not disputing x, y, and z.

I'm saying there are too many variables in economics to make any predictions based on one variable like P/E10. Who knows what x, y, and z will be over the next 30 years?

People need a Zen moment. Accept that you don't know what's going to happen. No one does. Economics is driven by human emotions and laws written by humans. There are no repeatable tests, no easy way to isolate variables.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
dkturner
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Re: Market timers thread

Post by dkturner »

goingup wrote: Sun Mar 24, 2019 1:21 pm
dkturner wrote: Sun Mar 24, 2019 12:48 pm
ronno2018 wrote: Sat Mar 23, 2019 10:52 pm If you want to time the market what the heck are you doing on this forum? :oops:
Good question. I had noticed that Jack Bogle rarely posted anything on these boards either. I guess his remarks, that there was nothing wrong with taking advantage of depressed equity prices to increase equity exposure by up to 15 percentage points (remember - he didn’t believe in periodic “rebalancing”), didn’t fit in with the sensibilities of many of the usual suspects around here.
dkturner--Of all the things that Jack Bogle wrote over the course of his long life, this is the nugget you've gleaned?! Here's a nice summary from the Wikipedia entry about Jack's investment philosophy:

Bogle argued for an approach to investing defined by simplicity and common sense. Below are his eight basic rules for investors:[15]

Select low-cost funds
Consider carefully the added costs of advice
Do not overrate past fund performance
Use past performance to determine consistency and risk
Beware of stars (as in, star mutual fund managers)
Beware of asset size
Don't own too many funds
Buy your fund portfolio – and hold it


You've really missed the message if you think what you quoted is anything more than a minor footnote in his body of work.
Mr. Bogle believed in a big tent. Charismatic leaders are like that. I also picked up on Jack’s ideas that he didn’t like the allocation of mortgage backed securities in the TBM index fund and he thought there were too many U.S Government securities in that fund. Incidentally, which of the principles listed above did my post violate? Only the one that Mr. Bogle made exceptions for. I was merely discussing the Fact that Mr. Bogle had no problem with varying one’s asset allocation at market extremes. Determining when markets are at extreme levels is a judgement call, like many other things in life. People who live a balanced life are no strangers to making judgement calls - many of them far more important than whether they should, or shouldn’t, increase their equity allocation based on their perceptions of relative valuations.
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Dialectical Investor
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Re: Market timers thread

Post by Dialectical Investor »

HomerJ wrote: Sun Mar 24, 2019 1:36 pm
Because of "GAAP changes", and "Fed changes", etc., etc., etc., sure.. We know why it failed.. But it failed.
I'm not a follower of CAPE, but I don't think the GAAP changes would be a failure of the model because the earnings inputs can be adjusted to account for the changes. If not precisely, then assumptions can be made, as with any model. That's more like user error--not model failure. That's unlike the Fed actions, which are not really quantifiable within the parameters of the model.
Thesaints
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Re: Market timers thread

Post by Thesaints »

revhappy wrote: Sat Mar 23, 2019 10:46 pm
Thesaints wrote: Sat Mar 23, 2019 10:37 pm You don't accept market timers who think stocks are gonna go much higher ?
If you think stocks are going much higher, then you are fully invested or overweight, so you are no different than the buy and hold crowd in the current circumstances.
I might leverage, but don't let my considerations dissuade you from whatever it is you are trying to achieve.
alex123711
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Re: Market timers thread

Post by alex123711 »

HomerJ wrote: Sun Mar 24, 2019 11:02 am
alex123711 wrote: Sun Mar 24, 2019 2:26 am I have been looking into this also and I believe the PE10 ratio is important - the average of the past 10 years earnings of the market divided by current price. Historically the average has been around 15, and over 15 leads to below average returns over the next 10 years, over 25 is negative returns. The market is currently at 30 I belive.
See, here's the thing. The "experts" keep changing the system. They keep using new data to update the model, which is fine, but then they claim that the model has always worked.

See, 30 years ago, they would have claimed that over 20 was super high, and always lead to very low or negative returns.

Look at the data they had in 1996. 20 was obviously high. Every time we broke 20, things went downhill soon after. And breaking 25 had only been seen once before, right before a world-wide Great Depression.

Image

Now, after 27 years of CAPE being above 20 pretty much continuously, they change the danger level to 25, and pretend like the model always said 25, and therefore you could have safely followed it in the 1990s and the 2000s. Any serious valuation followers in the 1990s started getting out of stocks in 1992, 8 years before the crash, missing out on 14% annual returns from 1992 to 2002.

That's crazy wrong. Not just a little bit wrong. The model clearly showed that stocks did poorly after crossing a CAPE of 20, and instead your money quadrupled in 8 years (by 2000), and even after the dot-com crash, you still had 3x what you invested 10 years ago.

And even the new rule of CAPE 25 being bad doesn't really work... CAPE was over 25 in 2004-2007, and all four of those years had very good 10-year returns, not just positive, but like 7%-9% 10-year returns.

Even 1996 and 1997 had solid 10-year returns (like 9%) and they were above 25.

So I'm not even sure why you can say above that above 25 leads to negative 10-year returns.

The original CAPE model stopped working almost immediately after it was discovered.
That's a good point, and I did look at that also, but I believe it is still a valid point to look at valuations, so I guess you have to make your own decision on what point you think it becomes overvalued? e.g would you still buy if the PE10 went to 50? Given the PE10 has only been this high on 2 other occasions (and crashed shortly after both times) you would have to agree that it the valuation is high.
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Re: Market timers thread

Post by acegolfer »

alex123711 wrote: Mon Mar 25, 2019 1:42 am That's a good point, and I did look at that also, but I believe it is still a valid point to look at valuations, so I guess you have to make your own decision on what point you think it becomes overvalued? e.g would you still buy if the PE10 went to 50? Given the PE10 has only been this high on 2 other occasions (and crashed shortly after both times) you would have to agree that it the valuation is high.
Not OP. If PE10 went to 50, then I'd sell. But the problem is PE10 doesn't jump from 20 to 50 overnight. It gradually changes. The real question is at what level will you sell? If you can't answer it, then valuations is practically not helpful.
dkturner
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Re: Market timers thread

Post by dkturner »

acegolfer wrote: Mon Mar 25, 2019 1:00 pm
alex123711 wrote: Mon Mar 25, 2019 1:42 am That's a good point, and I did look at that also, but I believe it is still a valid point to look at valuations, so I guess you have to make your own decision on what point you think it becomes overvalued? e.g would you still buy if the PE10 went to 50? Given the PE10 has only been this high on 2 other occasions (and crashed shortly after both times) you would have to agree that it the valuation is high.
Not OP. If PE10 went to 50, then I'd sell. But the problem is PE10 doesn't jump from 20 to 50 overnight. It gradually changes. The real question is at what level will you sell? If you can't answer it, then valuations is practically not helpful.
You use reasoned judgement when you think prices are too high. Maybe you’re judgement is right, maybe it isn’t. That’s what happens when you use your best judgement. What did you do when you chose your spouse? You used reasoned judgement. A majority of marriages work out. A sizeable minority don’t - and they can be very expensive. Does that mean we should avoid choosing a spouse because there’s no guarantee we will make the right move? We make reasoned judgements all of the time. Why should reducing an equity position when equity valuations are near historically high levels be any different?
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HomerJ
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Re: Market timers thread

Post by HomerJ »

dkturner wrote: Mon Mar 25, 2019 1:47 pm
acegolfer wrote: Mon Mar 25, 2019 1:00 pm
alex123711 wrote: Mon Mar 25, 2019 1:42 am That's a good point, and I did look at that also, but I believe it is still a valid point to look at valuations, so I guess you have to make your own decision on what point you think it becomes overvalued? e.g would you still buy if the PE10 went to 50? Given the PE10 has only been this high on 2 other occasions (and crashed shortly after both times) you would have to agree that it the valuation is high.
Not OP. If PE10 went to 50, then I'd sell. But the problem is PE10 doesn't jump from 20 to 50 overnight. It gradually changes. The real question is at what level will you sell? If you can't answer it, then valuations is practically not helpful.
You use reasoned judgement when you think prices are too high. Maybe you’re judgement is right, maybe it isn’t. That’s what happens when you use your best judgement. What did you do when you chose your spouse? You used reasoned judgement. A majority of marriages work out. A sizeable minority don’t - and they can be very expensive. Does that mean we should avoid choosing a spouse because there’s no guarantee we will make the right move? We make reasoned judgements all of the time. Why should reducing an equity position when equity valuations are near historically high levels be any different?
Reasoned judgement rarely works in market-timing.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
azanon
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Re: Market timers thread

Post by azanon »

revhappy wrote: Sat Mar 23, 2019 10:35 pm Creating this thread specifically for people who are trying to time the markets and are in significant cash levels and underweight on equities. We have many similar threads on this forum but we get crowded out by 'stay the course' passive voice.

So question: What is your plan? When do you plan to get back into equities?

I am expecting the Dec 2018 lows to retested as a minimum and SPY going below 200 within the next 3 years. I am in 90% cash and my plan is to start getting back into equities once SPY goes below 250.
Just wanted to make sure you're aware that the only "equities" that one could make a valuation argument on being expensive are the US. Foreign stocks range from historical average price to cheap (per pick your valuation metric). So I'm personally in "equities" because of that, but admit to being underweight US equities.
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Re: Market timers thread

Post by azanon »

HomerJ wrote: Sun Mar 24, 2019 11:02 amThe original CAPE model stopped working almost immediately after it was discovered.
From a global perspective (not overweighting US per market cap), CAPE worked quite fine up until at least 2014 (source: Mebane Faber's book: Global Value), and I would guess when he updates that book, nothing much has changed. Statistically speaking, what you described in your post was a pretty long description of an outlier (specifically the US's stock market the past 20 years or so, defying CAPE predictions). Using CAPE is a lot like buying a lottery ticket where you're the house. Even being the house, you do run some risk of losing.

A positive outcome isn't necessarily an endorsement of the strategy that was used to obtain it.

And are we really move the CAPE line all that much? Best fit line (mean) was maybe 14+ on the graph you posted. It's about 16.5 today (source: https://www.multpl.com/shiller-pe). 30+ CAPE is definitely well above the best fit mean line updated to present day.
inbox788
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Re: Market timers thread

Post by inbox788 »

revhappy wrote: Sat Mar 23, 2019 10:35 pm Creating this thread specifically for people who are trying to time the markets and are in significant cash levels and underweight on equities. We have many similar threads on this forum but we get crowded out by 'stay the course' passive voice.

So question: What is your plan? When do you plan to get back into equities?

I am expecting the Dec 2018 lows to retested as a minimum and SPY going below 200 within the next 3 years. I am in 90% cash and my plan is to start getting back into equities once SPY goes below 250.
You got out too early! It's the third year of the presidential term!
New research finds that this pattern’s historical track record can be traced to only a few years, specifically, the third year of the presidential four-year term.
Buy Equities in Winter and Sell in May in Pre-Election Years: Market Premiums and Political Uncertainty in the Presidential Cycle
https://papers.ssrn.com/sol3/papers.cfm ... id=2903067

Sell in May! Not good to sell every May, but it is this May. Last 3rd year was 2015 and would have been a good time to sell, while 2016, 2017, and 2018 were not as predicted.

viewtopic.php?t=217579

So let's see if this new research is correct this year and whether it continues to work out. Buy back in sometime after Labor Day. I suggest September 15, 2019.
staythecourse
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Re: Market timers thread

Post by staythecourse »

My big question for this crowd is what evidence do you have that you can perform better then the BHB and BSB stuy pension fund managers who performed negative alpha on their active management? I am assuming all market timers have read those seminal articles? If not, then one is even more naive then I would have thought.

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

Post by dkturner »

HomerJ wrote: Mon Mar 25, 2019 2:03 pm
dkturner wrote: Mon Mar 25, 2019 1:47 pm
acegolfer wrote: Mon Mar 25, 2019 1:00 pm
alex123711 wrote: Mon Mar 25, 2019 1:42 am That's a good point, and I did look at that also, but I believe it is still a valid point to look at valuations, so I guess you have to make your own decision on what point you think it becomes overvalued? e.g would you still buy if the PE10 went to 50? Given the PE10 has only been this high on 2 other occasions (and crashed shortly after both times) you would have to agree that it the valuation is high.
Not OP. If PE10 went to 50, then I'd sell. But the problem is PE10 doesn't jump from 20 to 50 overnight. It gradually changes. The real question is at what level will you sell? If you can't answer it, then valuations is practically not helpful.
You use reasoned judgement when you think prices are too high. Maybe you’re judgement is right, maybe it isn’t. That’s what happens when you use your best judgement. What did you do when you chose your spouse? You used reasoned judgement. A majority of marriages work out. A sizeable minority don’t - and they can be very expensive. Does that mean we should avoid choosing a spouse because there’s no guarantee we will make the right move? We make reasoned judgements all of the time. Why should reducing an equity position when equity valuations are near historically high levels be any different?
Reasoned judgement rarely works in market-timing.
Define “rarely”
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Re: Market timers thread

Post by willthrill81 »

ronno2018 wrote: Sat Mar 23, 2019 10:52 pm If you want to time the market what the heck are you doing on this forum? :oops:
This is a situation that reminds me of what Gamaliel said to the Sanhedrin.

If the market timers are wrong, then they will be shown to be so in the course of time, and you have no need to be concerned about them.

If the market timers are correct, then they will be shown to be so in the course of time, and it will be those who derided them who were actually wrong.

So I would advise that they be left alone. Anyone who reads this forum in earnest discovers quickly that market timing is ill advised in the Boglehead philosophy.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
Stratotanker
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Re: Market timers thread

Post by Stratotanker »

The only approach to market timing I employ is the one favored by Livesoft... Except, of course, I'm far more of an amateur than he is. Nevertheless, OP was not looking for advice/opinions whether market timing (vs. staying the course) was a good strategy. He was simply using this forum to exchange ideas with other market timers. I agree with willthrill81. Why continue arguing or try to dissuade him?
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Re: Market timers thread

Post by CyberGuy »

ronno2018 wrote: Sat Mar 23, 2019 10:52 pm If you want to time the market what the heck are you doing on this forum? :oops:
Let's make this thread interesting. Market timers, please post any buy and sell orders in this thread in real-time. Keep it up for a year...
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Re: Market timers thread

Post by willthrill81 »

CyberGuy wrote: Tue Mar 26, 2019 9:29 am
ronno2018 wrote: Sat Mar 23, 2019 10:52 pm If you want to time the market what the heck are you doing on this forum? :oops:
Let's make this thread interesting. Market timers, please post any buy and sell orders in this thread in real-time. Keep it up for a year...
A year would not be nearly long enough to draw any kind of meaningful conclusion. Anything can happen in a year, including gold trouncing stocks, short-term bonds trouncing everything else, active beating passive, etc.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Market timers thread

Post by acegolfer »

CyberGuy wrote: Tue Mar 26, 2019 9:29 am
ronno2018 wrote: Sat Mar 23, 2019 10:52 pm If you want to time the market what the heck are you doing on this forum? :oops:
Let's make this thread interesting. Market timers, please post any buy and sell orders in this thread in real-time. Keep it up for a year...
I hope market timers post in real time. But I doubt they will post anything. Every message claiming market timing works is ex-post.
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Re: Market timers thread

Post by CyclingDuo »

revhappy wrote: Sat Mar 23, 2019 10:35 pm Creating this thread specifically for people who are trying to time the markets and are in significant cash levels and underweight on equities. We have many similar threads on this forum but we get crowded out by 'stay the course' passive voice.

So question: What is your plan? When do you plan to get back into equities?

I am expecting the Dec 2018 lows to retested as a minimum and SPY going below 200 within the next 3 years. I am in 90% cash and my plan is to start getting back into equities once SPY goes below 250.
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Barsoom
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Re: Market timers thread

Post by Barsoom »

The only market timing that I'm interested in is trying to get out of equities in advance of a recession and getting back into equities at the bottom of the recession.

To do this, I'm tracking key indicators considered to be reliable leading indicators of a recession that would filter out most whipsaws. See the blog articles on this topic that I linked to in an earlier market timing thread for examples of these indicators (I've added more from other readings).

-B
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HomerJ
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Re: Market timers thread

Post by HomerJ »

Barsoom wrote: Tue Mar 26, 2019 10:11 amTo do this, I'm tracking key indicators considered to be reliable leading indicators of a recession that would filter out most whipsaws.
There is no such thing.

Let me explain how that works.

Looking at the past, people find "indicators" before each stock market crash and whipsaw. They post those as "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

I hope you see the pattern.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
staythecourse
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Re: Market timers thread

Post by staythecourse »

HomerJ wrote: Tue Mar 26, 2019 11:11 am
Barsoom wrote: Tue Mar 26, 2019 10:11 amTo do this, I'm tracking key indicators considered to be reliable leading indicators of a recession that would filter out most whipsaws.
There is no such thing.

Let me explain how that works.

Looking at the past, people find "indicators" before each stock market crash and whipsaw. They post those as "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

I hope you see the pattern.
Agreed.

Funny thing about the human brain is folks see the obvious when there are none and don't when it is staring you right in the face.

Good luck

p.s. Even if folks were successful in market timing they sure as heck were not using "key indicators". It isn't like Wall Street full of Yale, Princeton, and MIT math geeks using billion dollar computer equipment 24/7 forgot to try their algorithm using the main indicators. How naive is that?
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
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Re: Market timers thread

Post by willthrill81 »

Barsoom wrote: Tue Mar 26, 2019 10:11 am The only market timing that I'm interested in is trying to get out of equities in advance of a recession and getting back into equities at the bottom of the recession.
While I am a trend follower myself, I'm afraid that you won't achieve your goal. You might be able to sell equities before a recession begins; in fact, this is one of the goals of my own strategy. But buying back into equities at the bottom is nigh on impossible for any strategy, even a backtested one, to do reliably.

Might it be realistically possible to avoid the worst of the market's drawdowns going forward with such a strategy? Perhaps, but no one knows.

Will you achieve similar returns to buy-and-hold but with smaller drawdowns? Perhaps, but no one knows. It might go the other way.

"It's difficult to make predictions, especially about the future."
-Dutch proverb
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Market timers thread

Post by Barsoom »

Duplicate post.
Last edited by Barsoom on Tue Mar 26, 2019 12:33 pm, edited 1 time in total.
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Re: Market timers thread

Post by Barsoom »

willthrill81 wrote: Tue Mar 26, 2019 11:25 am
Barsoom wrote: Tue Mar 26, 2019 10:11 am The only market timing that I'm interested in is trying to get out of equities in advance of a recession and getting back into equities at the bottom of the recession.
While I am a trend follower myself, I'm afraid that you won't achieve your goal. You might be able to sell equities before a recession begins; in fact, this is one of the goals of my own strategy. But buying back into equities at the bottom is nigh on impossible for any strategy, even a backtested one, to do reliably.

Might it be realistically possible to avoid the worst of the market's drawdowns going forward with such a strategy? Perhaps, but no one knows.

Will you achieve similar returns to buy-and-hold but with smaller drawdowns? Perhaps, but no one knows. It might go the other way.

"It's difficult to make predictions, especially about the future."
-Dutch proverb
Maybe I shouldn't have been as precise to suggest "at the bottom." I'll take near the bottom, too, or shortly on the way back up.

If the market drops 40% and I don't get back in until 5% of that has recovered, I'll be happy.

-B
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Re: Market timers thread

Post by HomerJ »

Barsoom wrote: Tue Mar 26, 2019 12:31 pm Maybe I shouldn't have been as precise to suggest "at the bottom." I'll take near the bottom, too, or shortly on the way back up.

If the market drops 40% and I don't get back in until 5% of that has recovered, I'll be happy.

-B
It still doesn't work like that. Crashes and Recoveries are rarely a smooth V shape.
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Re: Market timers thread

Post by pward »

I want to be bearish... I really really do. It makes no sense for equities to go anywhere but down... however market tops don't happen when the popular opinion is that the top is in. They happen at the point of max bullishness. Seeing popularity growing for Bogleheads of all people growing bearish and trying to call market tops and market time... I'm starting to think that this may be similar to 1998 and we may be in line for an irrational exuberance blow off top over the next year or two. Just at the very moment when the market tricks the last of you into reinvesting your cash, at that very moment it will top and plummet.
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Re: Market timers thread

Post by willthrill81 »

Barsoom wrote: Tue Mar 26, 2019 12:33 pm
willthrill81 wrote: Tue Mar 26, 2019 11:25 am
Barsoom wrote: Tue Mar 26, 2019 10:11 am The only market timing that I'm interested in is trying to get out of equities in advance of a recession and getting back into equities at the bottom of the recession.
While I am a trend follower myself, I'm afraid that you won't achieve your goal. You might be able to sell equities before a recession begins; in fact, this is one of the goals of my own strategy. But buying back into equities at the bottom is nigh on impossible for any strategy, even a backtested one, to do reliably.

Might it be realistically possible to avoid the worst of the market's drawdowns going forward with such a strategy? Perhaps, but no one knows.

Will you achieve similar returns to buy-and-hold but with smaller drawdowns? Perhaps, but no one knows. It might go the other way.

"It's difficult to make predictions, especially about the future."
-Dutch proverb
Maybe I shouldn't have been as precise to suggest "at the bottom." I'll take near the bottom, too, or shortly on the way back up.

If the market drops 40% and I don't get back in until 5% of that has recovered, I'll be happy.

-B
Despite all of the comments about market timing 'not working', the 'ol reliable 200 day moving average has been in use by traders for decades (some argue centuries). It fared quite well through the turbulent 2000-2009 decade, although virtually any timing system should be expected to underperform buy-and-hold to some extent in a good market as we've mostly had since then.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Market timers thread

Post by DonIce »

pward wrote: Tue Mar 26, 2019 12:49 pm I want to be bearish... I really really do. It makes no sense for equities to go anywhere but down... however market tops don't happen when the popular opinion is that the top is in. They happen at the point of max bullishness. Seeing popularity growing for Bogleheads of all people growing bearish and trying to call market tops and market time... I'm starting to think that this may be similar to 1998 and we may be in line for an irrational exuberance blow off top over the next year or two. Just at the very moment when the market tricks the last of you into reinvesting your cash, at that very moment it will top and plummet.
I tend to agree. Markets have been climbing the "wall of worry" for years now. Millenials are still not invested in the stock market even now after coming of age during the 2008 recession. Most of my friends (I'm 32) don't even know that the stock market has done extraordinarily well since 2009 and keep 100% of their money in savings accounts (and we're talking people who earn well in the 6 figure range and save a big % of their salaries). For millenials as a whole, 52% of their savings is in cash and only 40% have any equity exposure at all. I predict the stock market will next collapse right around when millenials are finally fully invested in it (by fully I mean comparably to other generations).

When I hear some of my friends that have been 100% cash for their entire working lives starting to put big chunks into the markets, that's when I'll know the top is near.
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Re: Market timers thread

Post by acegolfer »

DonIce wrote: Tue Mar 26, 2019 1:31 pm I predict the stock market will next collapse right around when millenials are finally fully invested in it (by fully I mean comparably to other generations).

When I hear some of my friends that have been 100% cash for their entire working lives starting to put big chunks into the markets, that's when I'll know the top is near.
Any logical explanation behind this? Or was it a sarcasm/conspiracy?
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Re: Market timers thread

Post by DonIce »

acegolfer wrote: Tue Mar 26, 2019 1:40 pm Any logical explanation behind this? Or was it a sarcasm/conspiracy?
Markets have a long history of going up when people are worried and crashing when people are exuberant.

As for a logical explanation... as markets go up, people are afraid of missing out, and slowly as the "history" of them going up continues to build for year over year they forget about the crashes and put their money in. As long as new money is being put into the markets, demand outweighs supply and prices are bid up. By the time everyone is fully invested in the stock market, there is no more new money to put in, so supply and demand are more balanced, removing the upward pressure. Simultaneously, by this point, most everyone is over-allocated to stocks, usually far in excess of their actual risk tolerance. This unstable equilibrium is easily perturbed by any bad news or economic troubles which causes people to feel fear. As markets decline even modestly from their tops, it engenders panic in everyone who just recently invested (over-invested) and missed out on most of the gains over the prior years before they invested. They begin to take their money out in a panic. This selling leads to downward pressure (supply exceeds demand), pushing prices further down, causing more and more people to panic.

Prices re-stabilize again once the few people who kept their heads (and assets) during the decline recognize the discount buying opportunity that is available with the reduced prices, and start buying up equities at bargain basement prices. Most people won't touch the markets with a ten foot pole for years after a major crash, for them the emotional damage is still too fresh. From there, markets start to slowly rise again until all the people who panicked last time (or who are investing for the first time) are lulled into the markets again (5-15 years, typically). Repeat this cycle in perpetuity.

Meanwhile underlying it all is the trend of economic and productivity growth, which is responsible for the long term return of markets regardless of their short term swings.
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Re: Market timers thread

Post by aptget »

I can write that I am a market timer, but I am not in significant cash levels (I have zero cash) and I am not underweight in equities either. There are many other kinds of market timing than what the OP seems to be doing.
That's for sure! I am market timing with Vanguard Index funds. Of course, that is only in an effort to get down to my final two-fund portfolio.
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Re: Market timers thread

Post by Theoretical »

Something else that’s a factor is that market timing as talked about as a feeling, perception or “it can’t go lower/higher” is ultimately a completely discretionary form of investing that is extremely likely to underperform simply because of the amount of emotion involved, even if the signals were 100% reliable.

Because if you listen to traders, highs can beget highs and lows can get lower while you sink or stay out.

If anything, systematic trend following like Will does tends to buy highs and sell lows, which is extremely different than trying to buy on the dip or take profits. It’s also likely to produce a high number of small losses and a few outsized winners.
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Re: Market timers thread

Post by Barsoom »

HomerJ wrote: Tue Mar 26, 2019 11:11 am
Barsoom wrote: Tue Mar 26, 2019 10:11 amTo do this, I'm tracking key indicators considered to be reliable leading indicators of a recession that would filter out most whipsaws.
There is no such thing.

Let me explain how that works.

Looking at the past, people find "indicators" before each stock market crash and whipsaw. They post those as "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

I hope you see the pattern.

So, let's talk about this a little bit more.

When I say "key indicators," I'm not talking about technicals, per se.

For discussion's sake:
  • What is the value of knowing that the unemployment rate is increasing above it's trailing 12 month average?
  • What is the value of knowing that new weekly jobless claims is increasing at an accelerated rate?
  • What is the value of knowing that new weekly jobless claims topped 300,000?
  • What is the value of knowing that small business hiring sentiment is pessimistic?
  • What is the value of knowing that business temporary hires is contracting (temps being let go)?
  • What is the value of knowing that industry production YoY growth is negative?
  • What is the value of knowing that manufacturing capacity utilization is maxed out?
  • What is the value of knowing that manufacturing PMI sentiment at the front end of the supply chain is pessimistic?
  • What is the value of knowing that retails sales growth is declining?
-B
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Re: Market timers thread

Post by Hatch Batten »

I've posted my real-life equity/fixed allocation history before. I have a 10-year history of trades working out-of-sample off an asset allocation system developed in late 2008 and early 2009.

My tracking sheet is below. I compare my allocations with a 60/40 buy-and-hold portfolio. I use Dow price levels and treasury bond ETF returns as benchmark data for tracking purposes. Dow price levels don't include dividends, so CAGR is on the low side and should only be used to compare the two portfolio methods.

For a somewhat more complete picture, I'd need to track my specific allocations to funds for each period and compare those results to a suitable buy-and-hold benchmark.

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Re: Market timers thread

Post by corn18 »

Don't us passive index investors need market timers to grow? I say have at it!
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Re: Market timers thread

Post by AnonJohn »

livesoft wrote: Sun Mar 24, 2019 5:57 am
revhappy wrote: Sat Mar 23, 2019 10:35 pm Creating this thread specifically for people who are trying to time the markets and are in significant cash levels and underweight on equities.
I can write that I am a market timer, but I am not in significant cash levels (I have zero cash) and I am not underweight in equities either. There are many other kinds of market timing than what the OP seems to be doing.
I'm also a "market timer but not like this" person. A year ago I started moving to deleverage my mortgage (negative bond). My IPS says to do this over two years. So by next May I will have effectively gone from roughly 75/25 to 60/40. But really it's going from ~130% stocks, -30% bonds to ~95% stocks, 5% bonds and cash. Then I will go back to my original asset allocation (which will have changed a little due to age) by continuing to pay the mortgage (selling negative bonds, but keeping the ordinary ones). All in all this will take 10 years.

Why is this market timing? My motivation to change my IPS was twofold. First, I learned more from these forums and realized "negative bonds" was the better way to think about risk, so I revised my IPS. Second, the market run up meant that my portfolio was large enough to deleverage and still hold some non-zero amount of equities). I wanted to remove unneeded risk while "ahead". This is a form of market timing. I try to make my changes on "autopilot" -- slow, small, and smooth (adiabatic!) since I recognize that I can't predict the future.
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Re: Market timers thread

Post by Fallible »

OP, in reply to your comment a few days ago that Fed action "sort of told me this is opportunity to get out, before it falls even more," I asked what you meant by "sort of told." I haven't had a reply, but I think one is important on this "market timers thread" because it refers to how you are timing the market, what you are basing your timing on.

In other posts, you've referred to "expecting" future market movements, and to the need to "wait for the right levels, then from there, the returns could be decent. That is my interpretation."

So on what are you basing your expectations and interpretations of future market movements?
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
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Re: Market timers thread

Post by marcopolo »

Barsoom wrote: Wed Mar 27, 2019 8:25 am
HomerJ wrote: Tue Mar 26, 2019 11:11 am
Barsoom wrote: Tue Mar 26, 2019 10:11 amTo do this, I'm tracking key indicators considered to be reliable leading indicators of a recession that would filter out most whipsaws.
There is no such thing.

Let me explain how that works.

Looking at the past, people find "indicators" before each stock market crash and whipsaw. They post those as "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

Then the next crash or whipsaw is different.

So they add in the new data, and claim their new "indicators" are now considered "reliable", because it covered everything in the past.

I hope you see the pattern.

So, let's talk about this a little bit more.

When I say "key indicators," I'm not talking about technicals, per se.

For discussion's sake:
  • What is the value of knowing that the unemployment rate is increasing above it's trailing 12 month average?
  • What is the value of knowing that new weekly jobless claims is increasing at an accelerated rate?
  • What is the value of knowing that new weekly jobless claims topped 300,000?
  • What is the value of knowing that small business hiring sentiment is pessimistic?
  • What is the value of knowing that business temporary hires is contracting (temps being let go)?
  • What is the value of knowing that industry production YoY growth is negative?
  • What is the value of knowing that manufacturing capacity utilization is maxed out?
  • What is the value of knowing that manufacturing PMI sentiment at the front end of the supply chain is pessimistic?
  • What is the value of knowing that retails sales growth is declining?
-B
You don't think market participants are aware of these "indicators" as well and already priced them into current asset values?
Or do you believe you have some special ability to make smarter decisions based on them than the market?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Market timers thread

Post by David Jay »

DonIce wrote: Sun Mar 24, 2019 3:08 am
So going into the Dec crash, I was at my historically highest allocation and it scared the shit out of me to invest anymore.
Ok but if you got spooked last time that the market went down 20% (December) than why do you expect that next time it goes down 20% you'll be any less spooked?
And that, detective, is the right question (“I Robot” reference)
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Re: Market timers thread

Post by Barsoom »

marcopolo wrote: Wed Mar 27, 2019 12:56 pm You don't think market participants are aware of these "indicators" as well and already priced them into current asset values?
Or do you believe you have some special ability to make smarter decisions based on them than the market?
I'm not looking to time small movements, just to get ahead of a major correction.

The question is whether major corrections are surprises or if there are some leading indicators that suggest a downward move is on the horizon? For instance, if one sees a pessimistic sentiment forming at the head of the supply chain (say, China or Taiwan) that then spreads to Singapore or Korea, wouldn't that suggest that it's working its way to the United States?

If Taiwan PMI sentiment strongly correlates with USA manufacturing by a 6-month lag, wouldn't that suggest that a downturn is working its way towards the United States economy?

Ultimately, it comes down to whether a perfect storm of downward signals (based on local realities that haven't come here yet) actually results in a major correction or not. I think (from what I've read, because I'm still learning) that the trend followers would say that markets don't correct when theses signs aren't there, but they often correct when these signs are there.

-B
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Re: Market timers thread

Post by corn18 »

Were you able to predict and react to the 2 previous almost bear markets using your indicators?

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Re: Market timers thread

Post by Barsoom »

corn18 wrote: Wed Mar 27, 2019 2:35 pm Were you able to predict and react to the 2 previous almost bear markets using your indicators?
If this was directed to me, the answer is that I'm new to the markets. I'll be retiring soon and everything has been in my MegaCorp 401(k) until now. When I retire, I will combine my 401(k) with a lump sum pension and then build a diversified portfolio to generate income in my retirement.

However, the subject of trend following has my attention. I've been reading analyses on it and compiling a set of supposedly correlated leading indicators. The articles that back-tested these indicators are found in a linked post that I have up-thread, if you're interested in reading them.

-B
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Re: Market timers thread

Post by marcopolo »

Barsoom wrote: Wed Mar 27, 2019 2:24 pm
marcopolo wrote: Wed Mar 27, 2019 12:56 pm You don't think market participants are aware of these "indicators" as well and already priced them into current asset values?
Or do you believe you have some special ability to make smarter decisions based on them than the market?
I'm not looking to time small movements, just to get ahead of a major correction.

The question is whether major corrections are surprises or if there are some leading indicators that suggest a downward move is on the horizon? For instance, if one sees a pessimistic sentiment forming at the head of the supply chain (say, China or Taiwan) that then spreads to Singapore or Korea, wouldn't that suggest that it's working its way to the United States?

If Taiwan PMI sentiment strongly correlates with USA manufacturing by a 6-month lag, wouldn't that suggest that a downturn is working its way towards the United States economy?

Ultimately, it comes down to whether a perfect storm of downward signals (based on local realities that haven't come here yet) actually results in a major correction or not. I think (from what I've read, because I'm still learning) that the trend followers would say that markets don't correct when theses signs aren't there, but they often correct when these signs are there.

-B
It does sound so simple, doesn't it?
Don't you suppose all the smart people on wall street employing data analysts out of MIT for 6 figure salaries would have thought of this?

Wouldn't you expect at least some of them would have opened a few mutual funds that did this and soundly trounced the markets?

Where are all those funds?

Someone will come around and point MTUM, and I guess that is a fair point, but is that survivor bias or real structural over performance. As a counter example, I would point to GTAA run by Mebane Faber (one of the trend following "guru"). You can Google it to see how that turned out.
I am sure he is a really smart guy, why couldn't he make it work?

How will you ensure you will be MTUM rather than GTAA?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Market timers thread

Post by Barsoom »

marcopolo wrote: Wed Mar 27, 2019 3:35 pm It does sound so simple, doesn't it?
Don't you suppose all the smart people on wall street employing data analysts out of MIT for 6 figure salaries would have thought of this?

Wouldn't you expect at least some of them would have opened a few mutual funds that did this and soundly trounced the markets?

Where are all those funds?

Someone will come around and point MTUM, and I guess that is a fair point, but is that survivor bias or real structural over performance. As a counter example, I would point to GTAA run by Mebane Faber (one of the trend following "guru"). You can Google it to see how that turned out.
I am sure he is a really smart guy, why couldn't he make it work?

How will you ensure you will be MTUM rather than GTAA?
Because "all the smart people on wall street" represent such a small number of people overall who trade, that they don't really move the needle all by themselves?

I'm not saying I'm going to follow trends, but I'm curious to study them. And if I see a tsunami wave coming, who knows?

-B
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Re: Market timers thread

Post by marcopolo »

Barsoom wrote: Wed Mar 27, 2019 4:10 pm
marcopolo wrote: Wed Mar 27, 2019 3:35 pm It does sound so simple, doesn't it?
Don't you suppose all the smart people on wall street employing data analysts out of MIT for 6 figure salaries would have thought of this?

Wouldn't you expect at least some of them would have opened a few mutual funds that did this and soundly trounced the markets?

Where are all those funds?

Someone will come around and point MTUM, and I guess that is a fair point, but is that survivor bias or real structural over performance. As a counter example, I would point to GTAA run by Mebane Faber (one of the trend following "guru"). You can Google it to see how that turned out.
I am sure he is a really smart guy, why couldn't he make it work?

How will you ensure you will be MTUM rather than GTAA?
Because "all the smart people on wall street" represent such a small number of people overall who trade, that they don't really move the needle all by themselves?

I'm not saying I'm going to follow trends, but I'm curious to study them. And if I see a tsunami wave coming, who knows?

-B
OK. Good luck to you.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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