Efficient Markets, RIP

[smedleyb]

Explain again why I have to "prove" EMH is a bankrupt theory given its complete and utter failure to diffuse, predict, or quickly rectify the Tech and Housing bubbles?

Or why the critique of EMH I gave above on July 4 is just another example of me "avoiding your dozen or so invitations?"

The quote, BTW, is from Barry Ritholz from"The Big Picture" blog.  I had to trim it here and there to make it fit.   And I would happily provide you with a "moar" verb if I knew what that was exactly.   But then again, I've found when dialogue breaks down on anonymous message boards, grammatical and spelling slurs tend to fill the void.

[grantmeaname]

"EMH been thoroughly discredited" doesn't seem like an incomplete sentence to you? It's the only sentence quoted above that comment, so I don't know what you're confused about.

I didn't ask for proof, I asked you to support your argument.

[Mr Mark]

One problem I have with Smed's assertion is that EMH has nothing to do with asset allocation,. Asset allocation is not based on efficient market hypothesis except on a 50++ year horizon. It doesn't impact investment decisions.

[smedleyb]

One problem I have with Smed's assertion is that EMH has nothing to do with asset allocation,. Asset allocation is not based on efficient market hypothesis except on a 50++ year horizon. It doesn't impact investment decisions.

Odd, because I think asset allocation is the most critical element in any successful investment portfolio. 

I think my primary assertions revolves around a couple of points: arguing for the "uncanny" accuracy of technical analysis; attempting to show the usefulness of delimiting the history of the stock market into various bull and bear epochs; demonstrating that human psychology impacts markets and that this behavior (greed, irrationality) can be described and predicted (within degrees); the benefit of hard work, research, and education in cranking up investment returns over time (even if it means -- and for most it should and does mean -- proper allocation of assets in the the portfolio).

As always, my 100% cash position is never an invitation to other Mustachians to do the same.  My intermediate term bearishness should not overshadow my long term bullishness (I think the next bull puts 1982-2000 to shame).  I think higher than average cash levels is an option available to all investors in the market we've be given, and arguing this point does not entail that I'm some raging perma-bear or advising investors to run away from the market and bury their cash, silver, and tulip bulbs in a glass jar under the basement.  I think it's possible to discuss the potential trajectory of stocks or markets without feeling like I'm imposing a false pattern or narrative on purely chaotic, random events. 



 

[arebelspy]

the benefit of hard work, research, and education in cranking up investment returns over time

Hard work, research, and education should happen so you know WHAT to invest in (in a broad, general, AA sense), HOW to invest (in a vehicle sense).. but not necessarily WHAT to invest (in a particular sense) nor WHEN to invest.

Otherwise, If you're right, it leads to returns which equate to a terrible hourly wage.  If you're wrong, it costs you money.

As always, my 100% cash position is never an invitation to other Mustachians to do the same.  My intermediate term bearishness should not overshadow my long term bullishness (I think the next bull puts 1982-2000 to shame).  I think higher than average cash levels is an option available to all investors in the market we've be given, and arguing this point does not entail that I'm some raging perma-bear or advising investors to run away from the market and bury their cash, silver, and tulip bulbs in a glass jar under the basement.  I think it's possible to discuss the potential trajectory of stocks or markets without feeling like I'm imposing a false pattern or narrative on purely chaotic, random events.

I donno.  This is nothing personal, but I hear a lot of permabears say stuff about how they're really optimistic about the future, etc. etc. but that right now it's terrible.

The problem is that it's always right now, and for them it's always terrible.

There will always be some crisis for them that makes things bad right now (peak oil, tech bubble, housing bubble, QE1&2, Euro crisis, etc. etc.) and though they claim it's just the particular set of circumstances right now that makes them bearish, they seem to always be bearish because there's always something negative in the world happening (or the media will spin stuff as negative, at the very least).

So you may in your heart believe that you aren't always bearish... but you may want to consider and probe that belief to find if it's really true.

And again, I don't know you, so it may or may not be true of you.  But it seems like that's the case for a lot of people with similar beliefs to you.

[smedleyb]

Market note:  a couple weeks ago I said that the SPX breaking over 1340 was bullish and my technical work showed that the market has some room to run to SPX 1390.  Well, while the SPX did touch 1375 last week, but has since sold off and is currently bouncing around this important 1340 level as we speak.  1340 now represents support for the market, and it's critical that it hold here if the bulls stand a chance.

But I'll say this: the news flow (especially earnings) has been outright negative, which is not surprising since 50% of S&P profits are derived overseas and Europe is an economic mess.  My sense is that these levels don't hold.  The strategy before was to unleash shorts at or near 1390, but maybe that level doesn't come into play.  Plan B  is to see how the market acts around 1330-1340, and if it breaks (drops below 1320), the strategy will be to short the first bounce back to 1340 (markets almost always seem to retest broken support levels after they break, and these retests represent the best trading set-ups IMO).

Well, it appears market held that 1330-1340 level and today we find the SPX flirting with the July 3rd high (1375).   While the situation looked bleak July 12th the market snapped back sharply and -- following  JPM's earnings release the next day and the less than expected loss due to "rogue" trading -- has set it's sights on what I perceive to be the next, logical destination -- SPX 1390-1400.  Barring any earth shattering news (say, out of Europe, China, etc) my technicals point to this area as a major resistance point, and the plan still is to short the market when it gets there, which should be soon at this rate...

[smedleyb]

the benefit of hard work, research, and education in cranking up investment returns over time

Hard work, research, and education should happen so you know WHAT to invest in (in a broad, general, AA sense), HOW to invest (in a vehicle sense).. but not necessarily WHAT to invest (in a particular sense) nor WHEN to invest.

WHAT to invest in:  Las Vegas real estate.

WHEN to invest:  several years after the housing bubble; during historically low (and getting lower by the day) interest rates.

I see the parallel.  Do you?

[grantmeaname]

Odd, because I think asset allocation is the most critical element in any successful investment portfolio.

He's not saying it's unimportant, he's saying one's rejection or acceptance of modern portfolio theory and one's desire for a diversified asset allocation does not have to run parallel to one's rejection or acceptance of the efficient market hypothesis. MPT assumes efficient markets but its significance to the layman does not depend on the veracity of this assumption.

I think my primary assertions revolves around a couple of points: arguing for the "uncanny" accuracy of technical analysis

This does not contradict weak-form EMH unless you can demonstrate that it can be leveraged to produce risk-adjusted greater than market returns after transaction costs, the same challenge I've issued you nearly a dozen times now. Moreover, you've never demonstrated it's uncannily accurate, or even that it's accurate at all. You've only made predictions, and then retroactively revised all of your incorrect predictions so that they're correct again. You've only referred to yourself as uncannily accurate without ever demonstrating uncanny accuracy.

attempting to show the usefulness of delimiting the history of the stock market into various bull and bear epochs

This does not contradict weak-form EMH.

demonstrating that human psychology impacts markets and that this behavior (greed, irrationality) can be described and predicted (within degrees)

This does not contradict weak-form EMH unless you can demonstrate that it can be leveraged to produce risk-adjusted greater than market returns after transaction costs, the same challenge I've issued you nearly a dozen times now (heard that before anywhere?)

the benefit of hard work, research, and education in cranking up investment returns over time

This could contradict weak form EMH, but you've yet to demonstrate it.

I think it's possible to discuss the potential trajectory of stocks or markets without feeling like I'm imposing a false pattern or narrative on purely chaotic, random events.

Me too. You're back to the same mischaracterization of my position that you started before this thread was even begun. History may not repeat but it rhymes, eh?

[smedleyb]

I donno.  This is nothing personal, but I hear a lot of permabears say stuff about how they're really optimistic about the future, etc. etc. but that right now it's terrible.

The problem is that it's always right now, and for them it's always terrible.

There will always be some crisis for them that makes things bad right now (peak oil, tech bubble, housing bubble, QE1&2, Euro crisis, etc. etc.) and though they claim it's just the particular set of circumstances right now that makes them bearish, they seem to always be bearish because there's always something negative in the world happening (or the media will spin stuff as negative, at the very least).

So you may in your heart believe that you aren't always bearish... but you may want to consider and probe that belief to find if it's really true.

And again, I don't know you, so it may or may not be true of you.  But it seems like that's the case for a lot of people with similar beliefs to you.

I donno, seems entirely personal, given my numerous statements I've made that I'm long term bullish on the USA.  If your only way to comprehend my remarks is by lumping me in with the inflationistas, dooms day preppers, and messianic fools doting our air and radio waves, then so be it.

 

[arebelspy]

I see the parallel.  Do you?

Yes.

I donno, seems entirely personal, given my numerous statements I've made that I'm long term bullish on the USA.   

You can take it personally if you want.

I was merely pointing out that a lot of the permabears claim to be long term bullish, and it's hard to see that they are, and I gave examples as to why.  I was hoping you'd actually reflect on the post, rather than dismiss it out of hand, but okay.

Think about what circumstances would shift you from bear to bull mode, despite the fact that there will always be some "crisis".

[smedleyb]

Grant, I'm up over 2,000% in the last 14 years buying nothing but stocks.  It's all the evidence I need.  Perhaps I'm gifted.  Most likely I'm just stupid lucky, right?

The existence of guys like Soros, Tudor-Jones, and Buffett, their outsized returns, and their universal dismissal of EMH in either weak or strong form is sufficient for me to dismiss those ideas in the context of making money in the real world.  If I can see far, it's because I'm standing on the shoulders of giants.

You want an academic rebuttal of a questionable academic concept (EMH)?  I don't have the time, and more importantly, the academic jargon to attempt that.  I can point you to the Grantham article I posted on July 4th, or Soros's "Alchemy of Finance," if you want a more detailed critique. 

And funny, the only one proffering market forecasts is me, attempting to demonstrate my form of thinking in real time, knowing full well there's a cabal of posters waiting in the wings to rip me to shreds when my forecast goes astray (as many invariably do).  It's kind of exciting!  lol. 

[smedleyb]

Think about what circumstances would shift you from bear to bull mode, despite the fact that there will always be some "crisis".

Really?  How often have I spoken of debt repayment/reorganization and investment via savings (as opposed to debt induced stimulus) as the key to rectifying the imbalances in our economy and laying the groundwork for the next bull?  I count at least 5 posts in this thread alone where I explicitly state the conditions that would turn me decidedly bullish on the markets. 

Indeed, I'm constantly bouncing the bullish and bearish viewpoints off of one another; before I execute a trade, my first thought is: "what can go wrong?"  It's never: "how much money am I gonna make!" 

[arebelspy]

Okay -- it's more than a few hours a week.  I was up til 2 AM last night studying my charts; I was up a 7 (before work) scanning headlines, preparing my game plan, attempting to locate opportunities; it's really a second job, truth be told. 

And yes, the greatest traders in the world know these zones/trends/patterns.  How quickly the opportunity is removed varies, but I've found the most glorious trade set ups allow you plenty of time to get on board.

This brings back up the question... is it worth it?  Which, of course, is primarily dependent upon three variables (as I see it).

Total amount you're trading with (using these methods):  P
Expected increase in yeild over more passive approaches:  r
Increase in time spent analyzing/trading over more passive approaches:  t

Your reward / time function then becomes   P*r/t

Using that and assuming 1,000 additional hours per year (part time job equivalent) for time here are the hourly rates recieved for every 1% increase in performance for different levels of P. 

$100,000 = $1/hour/1%
$250,000 = $2.5/hour/1%
$500,000 = $5/hour/1%
$1,000,000 = $10/hour/1%

Obviously if you spend less time these numbers change but even at 500 hours per year a 2% gain and a $500K portfolio, I'd be at $20/hr.
The opportunity cost will be different for everyone, but even that ( in my opinion top end) situation would probably not be worth it to me personally.  Especially given that the % gain is not guaranteed.  I can pick up part time consulting gigs for much better hourly rates than what I would gain spending a ton of time trying to gain a % or two on my current portfolio (for sure) and probably my FI portfolio as well.

I guess if you enjoy the analysis - maybe that should be factored in as a non monetary benefit too that would make it worth it.  I happen to very much not enjoy that side of things - even though (or maybe because?) I do statistics/modeling/forecasting for a living.

JohnGalt had this excellent analysis earlier in the thread about if the time one spends to do this trading was worth it, and essentially concluded that it wasn't, unless your portfolio is huge (and you actually DO earn more than the market for sure).

This article I just read and posted about concludes the same thing: https://forum.mrmoneymustache.com/investor-alley/when-compounding-returns-isnt-that-important/

Just wanted to cross post here with JohnGalt's analysis, since they're quite related.

[tooqk4u22]

Grant, I'm up over 2,000% in the last 14 years buying nothing but stocks.  It's all the evidence I need.  Perhaps I'm gifted.  Most likely I'm just stupid lucky, right?

You have seen me show up a bit to help you out but this statement is one that warrants attention.  That equates to about 24% CAGR and I start falling to the luck or bullshit. Maybe you bought Apple 14 years ago and held on to it - that could get you there but it is luck. 

I guess if you have a track record like that and can substantiate it then it should put grant and arebelspy arguments to bed. 

[arebelspy]

Grant, I'm up over 2,000% in the last 14 years buying nothing but stocks. 

I'm assuming that's your strict returns and you aren't counting capital added in as "returns," correct?

Often misguided people will add in money and then look at how much they have now versus then and claim it's all gains.

I give you more credit than that, but just want to confirm.

[smedleyb]

Grant, I'm up over 2,000% in the last 14 years buying nothing but stocks.  It's all the evidence I need.  Perhaps I'm gifted.  Most likely I'm just stupid lucky, right?

You have seen me show up a bit to help you out but this statement is one that warrants attention.  That equates to about 24% CAGR and I start falling to the luck or bullshit. Maybe you bought Apple 14 years ago and held on to it - that could get you there but it is luck. 

I guess if you have a track record like that and can substantiate it then it should put grant and arebelspy arguments to bed.

JDSU, QLGC 98-2000; PAAS, SSRI 2005-2007; and a whole not of nothin' in between!

Including down 10% in 2001-2002; down 12% 2009-2010; but back to all time portfolio highs as we speak.

And I didn't just stumble into my big trades.  I found them.

edit: and all cash through second half 2007- present, which I consider to be a killer trade in itself (very little stress during financial panic, e.g.)

[grantmeaname]

How did you lose 12% if you were all cash?

[arebelspy]

down 12% 2009-2010; but back to all time portfolio highs as we speak.

...

edit: and all cash through second half 2007- present

How did you lose 12% if you were all cash?

..and then gain it back to reach all time highs?

Psstt..  Currency trades don't count as being all cash.  ;)

[smedleyb]

Grant, I'm up over 2,000% in the last 14 years buying nothing but stocks. 

I'm assuming that's your strict returns and you aren't counting capital added in as "returns," correct?

Often misguided people will add in money and then look at how much they have now versus then and claim it's all gains.

I give you more credit than that, but just want to confirm.

For sure:  To give you and idea of the account (not real numbers):

1998 1K invested.

Sold in September 2000, 10K after taxes.

Between 2000-2005, mostly cash, a trade gone wrong (heavily long markets day before 9/11 -- panic and sold a couple days after markets reopened).

2005-2007, commodity bull, bought PAAS, SSRI, some other lesser metal names 10K became 20K (after selling in 2007and paying taxes).

Sitting at 20.5K today! (but again, 100% cash during panic; shorted market heavily in late 2009, got smoked, have battled back to old portfolio high since, mostly through shorting rallies).

Wages per hour?  Probably not super great, but decent (given portfolio size).

Knowledge acquired through detailed study of markets over the years?  Absolutely priceless!

[smedleyb]

How did you lose 12% if you were all cash?

Usually all cash. 

Buying SPY and QQQ puts, and then buying more when the trade went horribly wrong.

Still, after 10-12%, I stepped away for a couple of months to get my bearings (I was too negative in the aftermath  of a crash I saw coming; thought I was smarter than the market, etc.)

edit: Okay, you got me -- I forgot where I buried it! lol.

[arebelspy]

Why are you trading with such small numbers?

Also isn't that 4000%, rather than 2000?

Putting your CAGR at just over 30%?

[smedleyb]

Why are you trading with such small numbers?

Also isn't that 4000%, rather than 2000?

Putting your CAGR at just over 30%?

No, you're right.  I'll change that post right now.

Those numbers are proportional to my account growth, not the real numbers.

[arebelspy]

Why are you trading with such small numbers?

Also isn't that 4000%, rather than 2000?

Putting your CAGR at just over 30%?

No, you're right.  I'll change that post right now.

Those numbers are proportional to my account growth, not the real numbers.

Gotcha.

So have you hit FI?  1 to 20.5 in 14 years is 24.08 CAGR.

It's hard to imagine 14 years of 24% growth and not hitting FI (and sure, some losing years, but some homerun ones, such that it all averages to 24%/yr)...

Do you believe this is repeatable (by you, not necessarily by anyone else)?

[tooqk4u22]

Basically you did well on three trades and lost on the others, selling out in 2007 and holding cash (usually) was a winner but then a loser from 2009 on (so did you win or lose since then).  All in all the amounts in general are relatively small and combined with the other stuff results in a sample size that is insufficient to draw any conclusions, is it luck - not sure but kind of feels that way. 
 

[arebelspy]

All in all the amounts in general are relatively small

Well we don't know the amounts, as he's scaled them down for illustrative purposes.  I'm thinking you'd have to be FI though with that sort of return, or else the amounts really are tiny.

I agree with the rest of your analysis, other than it feeling like luck.  I'm more with the previous statement that it's hard to draw conclusions, mostly because it's based on just a few trades, rather than year in and year out performance.

[smedleyb]

So have you hit FI?  1 to 20.5 in 14 years is 24.08 CAGR.

It's hard to imagine 14 years of 24% growth and not hitting FI (and sure, some losing years, but some homerun ones, such that it all averages to 24%/yr)...

Do you believe this is repeatable (by you, not necessarily by anyone else)?

Do not try this at home! lol.

After the tech bubble implosion, I kept my savings from work separate from my brokerage account.  To this day that alternate savings account is roughly 50% of my brokerage account, so if you figure in that money (which has been all cash, all the time, with a couple good years in 2007-2008 when I was making a cool 5%) my rate of return is much lower overall.

Also, after recouping half my losses from 09-10 in mid 2010, I split up my brokerage account, putting 80% in with my cash savings, and the other 20% (or roughly 15% of my liquid assets) into a separate trading account.  It's that account that I use to trade with (and I trade infrequently by "trading standards"), since I like the size of my "Fuck You Fund" and am more concerned with "not losing" it more so than growing it at this point (having two kids has lessened my appetite for risk, apparently).   

As far as FI, it's the goal, and I see the light at the end of the tunnel.  I've been a mustachian at heat my entire life, but got derailed a little the past several years.  MMM inspired me to get back on the right path, and then to push myself a little further.  My wife and I are starting to figure things out -- we both slipped, sometimes hard -- but that's water under the bridge.  We're excited about the future, in no small part to the positive energy I -- and ultimately she -- gets from this community.   The goal is 5 years from now (with the proper lifestyle adjustments), but I suspect we might push it to 7-8 years to bank the kids' college money (but maybe that's just me, the workaholic, being scared of what FI entails for my life). 

 

   

[smedleyb]

Basically you did well on three trades and lost on the others, selling out in 2007 and holding cash (usually) was a winner but then a loser from 2009 on (so did you win or lose since then).  All in all the amounts in general are relatively small and combined with the other stuff results in a sample size that is insufficient to draw any conclusions, is it luck - not sure but kind of feels that way. 
 

When lightning strikes 3 times, it's hard to assign that outcome to luck.  I'd like to think it was through research and hard work: JDSU, QLGC were amazing companies with great prospects in 1998; the commodity bull was being pushed aggressively by some smart cookies I follow as early as 2003-2004, I jumped on late (2005) but still made the jump; the financial crisis of 2008-2009 was on the wall by late 2006, etc.  The information was out there if you knew where and how to look for it. 

I've been on the whole mostly cash for 12 years.  I realize bear cycles last around 16-20 years.  I'm personally entering the "accumulation" phase of the tail end of this current bear cycle.   You think you folks are a hard sell?  Imagine preaching the end of the financial universe as we know it to friends, family, and colleagues in 2007-2008.  Little did I know how wrong I was, because that universe is still kicking it today...

[tooqk4u22]

All in all the amounts in general are relatively small

Well we don't know the amounts, as he's scaled them down for illustrative purposes.  I'm thinking you'd have to be FI though with that sort of return, or else the amounts really are tiny.

I agree with the rest of your analysis, other than it feeling like luck.  I'm more with the previous statement that it's hard to draw conclusions, mostly because it's based on just a few trades, rather than year in and year out performance.

My bad, Missed the part about it being scaled down.  Just was saying it feels lucky, but clearly not enough data to know.

[grantmeaname]

I like that to everyone in this thread but one person, a sample size of three is clearly insufficient to invalidate a major body of academic theory on its own.

[tooqk4u22]

When lightning strikes 3 times, it's hard to assign that outcome to luck.  I'd like to think it was through research and hard work: JDSU, QLGC were amazing companies with great prospects in 1998; the commodity bull was being pushed aggressively by some smart cookies I follow as early as 2003-2004, I jumped on late (2005) but still made the jump; the financial crisis of 2008-2009 was on the wall by late 2006, etc.  The information was out there if you knew where and how to look for it. 

Three times is not enough to say.  So basically you bought stocks that went up with the internet bubble (by the way I had few of those as well) and two silver cos a couple of years after Buffett started accumulating silver in a big way and global debt drove up commodity prices. Still feels lucky but no way to tell one way or another (and that goes for you and me).  Incidentally, if you are so perfect then why didn't you move to gold or more specifically if you were that good you would still be able to identify winners even in a down market. 

I don't expect you to win every time but if you had more trades to back it up it would be more substantitve.  But I will give you this, we may not know if you have lucky buys but you have done impeccabble job at timing your sells.

[smedleyb]

I spy a right shoulder formation on the NDX at 2630-2635 and an intraday rollover.  Scooping up a few QQQ puts here at 64.25, with a stop above today's highs (about 30 cents above these levels). 

And folks, as always, do not attempt this at home.  lol.

[arebelspy]

I don't understand.. with 24% returns, can't you be FI with about 200k (or less)?  That'd return 48k/yr for you.  And sure, some years you eat into the principal with no trades, but other years you double or triple (apparently) what you have.

If this is reliable and repeatable.

I spy a right shoulder formation on the NDX at 2630-2635 and an intraday rollover.  Scooping up a few QQQ puts here at 64.25, with a stop above today's highs (about 30 cents above these levels). 

Please be more specific.

[smedleyb]

When lightning strikes 3 times, it's hard to assign that outcome to luck.  I'd like to think it was through research and hard work: JDSU, QLGC were amazing companies with great prospects in 1998; the commodity bull was being pushed aggressively by some smart cookies I follow as early as 2003-2004, I jumped on late (2005) but still made the jump; the financial crisis of 2008-2009 was on the wall by late 2006, etc.  The information was out there if you knew where and how to look for it. 

Three times is not enough to say.  So basically you bought stocks that went up with the internet bubble (by the way I had few of those as well) and two silver cos a couple of years after Buffett started accumulating silver in a big way and global debt drove up commodity prices. Still feels lucky but no way to tell one way or another (and that goes for you and me).  Incidentally, if you are so perfect then why didn't you move to gold or more specifically if you were that good you would still be able to identify winners even in a down market. 

I don't expect you to win every time but if you had more trades to back it up it would be more substantitve.  But I will give you this, we may not know if you have lucky buys but you have done impeccabble job at timing your sells.

But enough about me.  How are you doing in the markets?  And ideas, forecasts, allocation preferences? 

What stocks did you ride up in the bubble?

[smedleyb]

Please be more specific.

I bough at the money puts out a couple months, because I feel the NDX is putting in a multi-week right shoulder in a head and shoulder formation at NDX 2630-2635.  Right now the NDX is at 2623, so if it manages to get over 2634 today (intraday high) I'll take the 30 cent loss and move on.   I probably won't carry the trade overnight since there is always a chance the market gaps higher tomorrow morning and the SPX still has room to run to 1390-1400 IMO (another 2% higher) which is my primary technical framework. 

Just lowered my stop to 64.43, I think this trade may be a bit premature and I want to save my bearish energy for SPX 1390-1400.

[grantmeaname]

To be clear: you started this thread to talk about the theory. I started talking about the theory, and you said "I don't want to talk about the theory, I want to talk about my wild success". Despite its irrelevance, we followed you there and tried to discuss your "wild success", and now you don't want to talk about your trading career, you want to talk about everyone else's.

[smedleyb]

To be clear: you started this thread to talk about the theory. I started talking about the theory, and you said "I don't want to talk about the theory, I want to talk about my wild success". Despite its irrelevance, we followed you there and tried to discuss your "wild success", and now you don't want to talk about your trading career, you want to talk about everyone else's.

No, you misunderstand me.  I just don't want to talk to you. 

Buying VXX (volatility ETF).  Legging into some shorts here -- nothing crazy.  Lifted on those QQQ puts.  A little slippage and a little commish to drive everyone else's investment costs down.  You're welcome.

[tooqk4u22]

But enough about me.  How are you doing in the markets?  And ideas, forecasts, allocation preferences? 

What stocks did you ride up in the bubble?

Well actually this is all about you because I am not the one that claimed I was better than everyone or normally accepted investment theories.  I feel like you are putting me in a position to jump all over you in grant kind of way.

That said I had the unfortunate timing (like many others here) to begin accumulating wealth as the most recent bubble went up and then down - I had a little funds prior to tech bubble and made some good trades but the amounts were insignificant. So really my investment history aligns perfectly with the lost decade. My 401k is fully invested and I reallocated at various points so I did better than the broader market but it still got clobbered with everything else - I didn't sell and it came back so no it is what it is.  Like you I felt a bubble was in play and sat on a cash so good call there then as the market started unravelling and things looked better a invested a portion (maybe 20%) of cash holdings in index funds but was early and they fell further so doubled down but on the way up I sold early and put back in cash - made 5% + whatever dividends it paid - not bad for the hold period but kick myself for not staying invested.  Then market bottomed out and began investing in some individual stocks and most were up and some in a big way, but one stock kind of negated the whole thing and I am basically breakeven but with good divends yield.

So basically while I think the it is possible to beat index fund investing with a decent asset allocation my personal history does not show it.  Then again the buy and hold strategy (in my 401k) vs. my trade and cash strategy (non-retirement) returns turned out to be very similar because I didn't have the downs and there was a period there where the ING account was paying 4%.  But if that is the case then the former wins when factoring in increased risk and effort. 

Right now I have mixed feelings - feels like a terrific time to invest but there are so many issues and not really comfortable with taking the leap so I buy decent companies periodically based on certain financial metrics and stock valuations.  Bonds - you have to be crazy to have anything in bonds right now (except short term but they pay nothing). Rentals would be great but they don't work in my area unless you want to buy stuff in depressed parts of the city - I don't want to be a slumlord, but if they did that is where I would go heavy right now as it would give above average cash return, tax benefits, and inflation protection. 

I hate sitting on cash but still think it is the right call now.

[arebelspy]

I don't understand.. with 24% returns, can't you be FI with about 200k (or less)?  That'd return 48k/yr for you.  And sure, some years you eat into the principal with no trades, but other years you double or triple (apparently) what you have.

If this is reliable and repeatable.

I'm guessing by ignoring this you are saying your returns are not reliable and repeatable?

[tooqk4u22]

I don't understand.. with 24% returns, can't you be FI with about 200k (or less)?  That'd return 48k/yr for you.  And sure, some years you eat into the principal with no trades, but other years you double or triple (apparently) what you have.

If this is reliable and repeatable.

I'm guessing by ignoring this you are saying your returns are not reliable and repeatable?

Why are questioning if it is reliable and repeatable....simply do some analyis and buy three stocks during a 14 year period and get 24%. 

How could you not beleive in this:).

[smedleyb]

I don't understand.. with 24% returns, can't you be FI with about 200k (or less)?  That'd return 48k/yr for you.  And sure, some years you eat into the principal with no trades, but other years you double or triple (apparently) what you have.

If this is reliable and repeatable.

I'm guessing by ignoring this you are saying your returns are not reliable and repeatable?

Ignoring what?  Responding to the ludicrous notion that I can achieve 24% returns forever? 





 

[arebelspy]

I'm guessing by ignoring this you are saying your returns are not reliable and repeatable?

Ignoring what?  Responding to the ludicrous notion that I can achieve 24% returns forever?

Okay, so duplicating your previous success is not only not repeatable, but the mere idea is "ludicrous."

What's the point of posting about it then? 

And doesn't that equate it to just being lucky? 

[smedleyb]

Buying VXX (volatility ETF).  Legging into some shorts here -- nothing crazy.  Lifted on those QQQ puts.  A little slippage and a little commish to drive everyone else's investment costs down.  You're welcome.

VXX popping 2% into the close.  14-16 on the VIX tends to mark a short term bottoms.  Holding this puppy for now.

[tooqk4u22]

Okay, so duplicating your previous success is not only not repeatable, but the mere idea is "ludicrous."

What's the point of posting about it then? 

And doesn't that equate it to just being lucky?

Hillarious and I think we can now confirm that conclusion regardless of the small sample size.

[smedleyb]

Okay, so duplicating your previous success is not only not repeatable, but the mere idea is "ludicrous."

What's the point of posting about it then? 

And doesn't that equate it to just being lucky?

Is cutting loses quickly and letting your winners ride luck, or sound money management? 

Does the concept of "money management technique" mean anything to you in the context of investing?

[skyrefuge]

1 to 20.5 in 14 years is 24.08 CAGR.

It's interesting to see that that 24.08 CAGR is overwhelmingly powered by the 2-3 year period from 1998-2000, where smedleyb had a 900% growth in 3 years, or a 115% CAGR.  In the 12 years since then, it's been "only" a further 105% growth, for a much more modest (but still market-beating) 6.16% CAGR.

Looking at a 10 year chart of JDSU is fucking ridiculous!  When you zoom out to that level, the mountain between 1999 and 2001 is so huge that it renders any fluctuation on either side of that mountain utterly invisible.  Between March of 1999 and March of 2000, it went from $95 to $1120, a 1091% CAGR.  Insane.

Anyway, thanks for sharing some details, that was insightful.  If I had personally achieved a 900% growth in 3 years relatively early in my investing life, I would surely have a much stronger belief in my market-beating abilities than I actually do.  Right or wrong, it would be difficult to prevent an experience like that from shaping your viewpoint for years to come.

It's also been interesting and valuable for me to watch the mechanics of technical analysis play out in real time, as it was an area I was entirely unfamiliar with.  It was difficult to follow exactly, but I generally got the feeling that most of the tentative predictions didn't pan out, with new predictions constantly replacing old ones.  Then again, I guess you didn't feel strongly about any of those predictions to actually make any trades based on them (yet).  It all seems like putting way too much weight on the human proclivity for pattern-recognition, seeing patterns in anything.  If such patterns do actually exist and are exploitable, a purely algorithmic, computer-based approach would seem to be far more effective, because it would eliminate that mountain of human bias and operate much faster and more accurately.

[smedleyb]

1 to 20.5 in 14 years is 24.08 CAGR.

It's interesting to see that that 24.08 CAGR is overwhelmingly powered by the 2-3 year period from 1998-2000, where smedleyb had a 900% growth in 3 years, or a 115% CAGR.  In the 12 years since then, it's been "only" a further 105% growth, for a much more modest (but still market-beating) 6.16% CAGR.

Looking at a 10 year chart of JDSU is fucking ridiculous!  When you zoom out to that level, the mountain between 1999 and 2001 is so huge that it renders any fluctuation on either side of that mountain utterly invisible.  Between March of 1999 and March of 2000, it went from $95 to $1120, a 1091% CAGR.  Insane.

Anyway, thanks for sharing some details, that was insightful.  If I had personally achieved a 900% growth in 3 years relatively early in my investing life, I would surely have a much stronger belief in my market-beating abilities than I actually do.  Right or wrong, it would be to prevent an experience like that from shaping your viewpoint.

It's also been interesting and valuable for me to watch the mechanics of technical analysis play out in real time, as it was an area I was entirely unfamiliar with. It was difficult to follow exactly, but I generally got the feeling that most of the tentative predictions didn't pan out, with new predictions constantly replacing old ones.  Then again, I guess you didn't feel strongly about any of those predictions to actually make any trades based on them (yet).  It all seems like putting way too much weight on the human proclivity for pattern-recognition, seeing patterns in anything.  If such patterns do actually exist and are exploitable, a purely algorithmic, computer-based approach would seem to be far more effective, because it would eliminate that mountain of human bias and operate much faster and more accurately.

First, thank your for the balanced post.

Second, revealing the mechanics of TA is precisely my intention; right or wrong, big money throughout Wall Street thinks like this, regardless of what we on this board may think of it.  TA is a real like phenomenon that influences price movements and vice-versa.  One can rail against the theoretical underpinning of that endeavor -- that does not diminish the fact that in the real world of Wall Street billions of dollars in stock are bought and sold based on solely technical factors and nothing else.

[tooqk4u22]

Yeah, it was tough for me to follow the technical analysis stuff as well but there is some truth to it, but it you are trading on psychology and not fundamentals and to me that is more like gambling even if there are patterns.

I do believe in regression to the mean, not sure if that would qualify as technical analysis, but if you look at any chart about anything if it is out of whack too high or too low it will go back at some point. 

[arebelspy]

Is cutting loses quickly and letting your winners ride luck, or sound money management? 

Sure, it could be the latter.  But if so, wouldn't it be repeatable and reliable?

Does the concept of "money management technique" mean anything to you in the context of investing?

It generally means more to me in the context of gambling, but it has some applications to investing. 

But what does that have to do with your results being repeatable or not? 

[smedleyb]

Is cutting loses quickly and letting your winners ride luck, or sound money management? 

Sure, it could be the latter.  But if so, wouldn't it be repeatable and reliable?

Does the concept of "money management technique" mean anything to you in the context of investing?

It generally means more to me in the context of gambling, but it has some applications to investing. 

But what does that have to do with your results being repeatable or not?

I mean, you do realize that the ability to consistently generate 24% returns would make me -- a billionaire? 

Also, what do you mean "money management has some applications to investing?"  What do you perceive these applications to be?  Do you yourself apply these techniques -- whatever they are in your eyes -- to your own investments?

[arebelspy]

I mean, you do realize that the ability to consistently generate 24% returns would make me -- a billionaire? 

So I repeat:

Okay, so duplicating your previous success is not only not repeatable, but the mere idea is "ludicrous." (And apparently you aren't a billionaire from it.)

What's the point of posting about it then? 

You haven't answered this.