Author Topic: 5 year bull market....are we due a cras...I mean correction?  (Read 17371 times)

sol

  • Walrus Stache
  • *******
  • Posts: 8492
  • Age: 42
  • Location: Pacific Northwest
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #50 on: March 05, 2015, 07:09:51 PM »
The question is not, "Is there a market timing strategy that can slightly beat buy and hold?"  The question is, "Is there a strategy that can do so and still come on top after short term capital gains and brokerage fees?"

It's even worse than that.  Because there ARE strategies that have beat a buy and hold portfolio in the past, and people are coming up with new ones every day based on backtesting against old data.  Then they program those strategies into high speed trading interchanges and let the supercomputers duke it out.  And yet they STILL can't beat the market going forward.  At least not for very long.

Just because something beats the historical record doesn't mean it will beat the future record.  In fact, the trading world is dominated by people who think they can find a slight short term edge.  You have to do better than they do, on average, to beat the buy and hold portfolio because all of those new strategies are what average out to next year's average market return that "buy and hold" is guaranteed to get.

WildJager

  • Bristles
  • ***
  • Posts: 439
  • Age: 33
    • Can't complain.
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #51 on: March 05, 2015, 08:36:05 PM »
The question is not, "Is there a market timing strategy that can slightly beat buy and hold?"  The question is, "Is there a strategy that can do so and still come on top after short term capital gains and brokerage fees?"

It's even worse than that.  Because there ARE strategies that have beat a buy and hold portfolio in the past, and people are coming up with new ones every day based on backtesting against old data.  Then they program those strategies into high speed trading interchanges and let the supercomputers duke it out.  And yet they STILL can't beat the market going forward.  At least not for very long.

Just because something beats the historical record doesn't mean it will beat the future record.  In fact, the trading world is dominated by people who think they can find a slight short term edge.  You have to do better than they do, on average, to beat the buy and hold portfolio because all of those new strategies are what average out to next year's average market return that "buy and hold" is guaranteed to get.

Well said, and that is an extremely important nuance.  The fact of the matter is, by the time you have figured out a winning strategy... so has everyone else.  Therefore, any strategy you employ inevitably loses to the market average.  Anyone out there to make a profit from you capitalizing on their advice will tell you otherwise, which is a the source of the rampant mis-information.  (If they really had a winning secret, why would they share it?  They would be better off just using the strategy themselves.)  The choice becomes thus:

1. Do you spend all of your free time capital following through with the next big theory that can beat the market on a slim basis percentage at the risk of losing to the average or do you

2. Say fuck it, ride the average market returns and focus on what you can control (higher savings, extra income) and go out and play Frisbee with your kids instead?

The difference in returns we all are dancing around are so minimal that it frankly becomes a life cost/benefit analysis.  I would maybe spend some extra time for an extra 100% return on investment.  For 1% like the aforementioned paper alluded to?  Forget it...

Numbers Man

  • Guest
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #52 on: March 06, 2015, 08:24:42 AM »
Bueller, Bueller, Bueller, Bueller?

https://www.youtube.com/watch?v=NP0mQeLWCCo

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1396
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #53 on: March 06, 2015, 04:23:01 PM »
Or the simpler and more effective option, invest now, and if the market crashes, keep investing.

+1


johnny847

  • Magnum Stache
  • ******
  • Posts: 3196
    • My Blog
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #54 on: March 06, 2015, 05:07:57 PM »
Whenever i see market timing discussions, I like to refer to these two articles:

What if you only invested at market peaks, before crashes? http://awealthofcommonsense.com/worlds-worst-market-timer/

So long as you didn't panic and sell, you'd do just fine. In fact, more than fine. Bob invested $184k (not inflation adjusted) over about 40 years, and ended up with $1.1 million.


And conversely, what if you only invested at market bottoms? Now here they assumed you invested within 17% of the market bottoms (assuming you can't time it perfectly). For the US markets, you would've actually done worse than just standard buy and hold. For the total world index, there was a difference of 0.07% CAGR. For Finland, the best case, you would have had a 2.66% better CAGR.

So you can certainly do better. But for most countries/regions, it's not the spectacularly better that I was expecting. I was expecting something like Peter Lynch's amazing 29% CAGR over 20 years at Fidelity.
Considering how hard it is to time the market, I don't think it's worth your trouble.

Otsog

  • 5 O'Clock Shadow
  • *
  • Posts: 99
  • Location: Nunavut, Canada
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #55 on: March 07, 2015, 11:39:30 AM »
Just a warning, I finally got money out of real estate and shoveled huge handfuls of it into the market, so it will 'correct' by 25-30% now and take 3-10 years to get back where it was, just like last time.  Sorry. 

I also washed my car, so you can thank me for the deluge of miserable sleet tomorrow.

Uh oh, I just did almost the exact same thing last week. You now know who to blame for the 2015 global financial crisis.

ChrisLansing

  • Bristles
  • ***
  • Posts: 342
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #56 on: March 07, 2015, 11:53:30 AM »
opic: 5 year bull market....are we due a cras...I mean correction?  (

I hope so.   I just started investing.   I have a 10 year horizon.   I'd really like to buy at lower prices.   

clarkfan1979

  • Handlebar Stache
  • *****
  • Posts: 1877
  • Age: 40
  • Location: Pueblo, CO
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #57 on: March 07, 2015, 12:25:25 PM »
I feel as though some housing markets are still undervalued from the housing crash. It seems as though the stock market has fully recovered. As a result, I am currently planning on another rental instead of putting extra cash into 401K.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #58 on: March 07, 2015, 01:10:16 PM »
I skimmed it, which is all I can really offer for a 70 page document you didn't even summarize.  I'll say this... nothing new is really offered.  Any slight gains (and I say slight... they self admitted their strategy provided a lesser return than buy and hold, but came out ahead because of compound gains being inflated from less volatility... I can't speak on that because I've never considered that before) are eventually whittled away via tax loss and brokerage fees from constantly buying and selling.  That's something that paper doesn't touch upon, but others have studied extensively.

The question is not, "Is there a market timing strategy that can slightly beat buy and hold?"  The question is, "Is there a strategy that can do so and still come on top after short term capital gains and brokerage fees?"

I didn't post that as an example of some market beating, money printing holy grail. I posted it as an example of a simple, easy to read white paper of objective market timing. The comment was that he had never seen any literature on market timing without it sounding like mumbo jumbo. Meb Faber and Gary Antonnacci write for the normal guy so it's much easier to understand.

As far as beating the market, IMO market timing is not about beating the market. It's more about risk management - avoiding bear markets. The outperformance (if any) comes from avoiding the downside and from using leverage on the upside. A lot of people will use market timing just to manage risk, they don't enjoy losing half their money in a bad bear market. Others use market timing in order to more safely use leverage or be in high beta/high growth/high PE stocks that are probably too risky to buy and hold for the long term.

hodedofome

  • Handlebar Stache
  • *****
  • Posts: 1211
  • Age: 39
  • Location: Texas
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #59 on: March 07, 2015, 01:14:28 PM »
I feel as though some housing markets are still undervalued from the housing crash. It seems as though the stock market has fully recovered. As a result, I am currently planning on another rental instead of putting extra cash into 401K.

Housing is undervalued or just haven't reached their peak from '06/'07? Major bubbles can take decades to recover losses. Look at gold/commodities in the early '80s, tech stocks from 2000, Japanese stocks and housing from 1990, etc. Stocks weren't terribly overvalued outside of financial/real estate in '07 which is partly why they've recovered so quickly. The bubble markets will take a very, very long time to fully recover.

Ferrisbueller

  • 5 O'Clock Shadow
  • *
  • Posts: 75
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #60 on: March 07, 2015, 03:28:58 PM »
Guys
Thanks for all the responses. Very reasoned and thought out.

I've decided to stay put in the mix of funds I'm in which are low cost, unconstrained, managed volatility unitised funds with a mix of cash,bonds, equities and alternatives which are doing what their supposed to be doing for me.

I'm putting around $3,750pm into my funds monthly and if there is a significant fall at least i'll have the $ cost averaging to look forward to.

I know the buy and hold strategy mathematically works - I just needed a sense check guys and the weight of views here has really helped.

Thanks all.




Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1536
  • Location: Canada
    • My Necronomicon of Badassity
Re: 5 year bull market....are we due a cras...I mean correction?
« Reply #61 on: March 11, 2015, 01:45:08 PM »

Does anyone think there is a correction due?


"I'm due for a win."  <-- What every gambling addict in the history of the world repeatedly told themselves.