I did it! I beat the index using index funds! (bragging)

[anisotropy]

For our asset allocation: 10% cdn bond, 30% tsx comp, 30% msci eafe, 30% s&p, the index ytd return is roughly 7 to 8%.

I managed to get over 15% ytd return for our portfolio, hence the obligatory post to brag about it. How did it happen?

1. Timing: We managed a get a small return from Jan to early Feb via other investments (ie, mostly sitting on the sideline) before we went in big on the indexes near the low.

2. Currency "Hedging": Being Canadian, our portfolio is in Canadian dollars, which is highly correlated with the oil price. We switched the money between etfs to "speculate" the relative currency strengths through out the year. (thanks Fed for your rate policies)

3. Timing (again): the market had mini cycles around ECB and Fed's scheduled announcements, small money to be made here and there, even after taxes.

4. Value stocks: prime example being buying a chunk of brk.b near $128 usd with our usd reserves, over 28% return to date !

5. Timing (again): sold a portion right before Brexit and bought back after. Did the same with trump although we actually lost money there.

Since I am not planning to do any more active management for the rest of the year, I expect the outperformance to last for the entire 2016 :D
Do I expect to be able to do it again in 2017? Nope. Ok I am done bragging.

[Space Pickle]

I started investing this year...I understand the temptation of market timing now. If I had dumped all my money in during the winter I would be up a huge amount.

[lordmetroid]

The problem with market timing is that you never know if it will continue down another 50% or if it is the bottom.

I am beating the index as well but I do it with leverage.

[2Birds1Stone]

Lol, with a sample of less than a year, you just got lucky.

99% of individuals, hedge funds, actively managed funds, etc who try to do what you did this year, underperform the market over the long term.

[anisotropy]

no doubt about it !

[marty998]

Lol, with a sample of less than a year, you just got lucky.

99% of individuals, hedge funds, actively managed funds, etc who try to do what you did this year, underperform the market over the long term.

Let him enjoy his moment. We all know the market timing is bad blah blah blah speech.

(I did a fair bit of timing too in Feb/March and again on Trump election day - sometimes the obvious presents itself)

[anisotropy]

3. Timing (again): the market had mini cycles around ECB and Fed's scheduled announcements, small money to be made here and there, even after taxes.

OP here, not necessarily reviving the dead but.... alas, someone else noticed it too:

https://earlyretirementnow.com/2017/05/03/fomc-scary-profitable-for-stocks/

I guess I am not so special after all!

[anisotropy]

keeping it in one for continuity purposes. The following is the result of our 2017 returns.

Benchmark: same as 2016, 10% cdn bond, 30% tsx comp, 30% msci eafe, 30% s&p. The index ytd return (with divi) is roughly 12.90%.

Some of you may know i have been quite bullish in 2017. As a result, I did not make any market timing moves. One would think that in absence of these actions, my return would equate to that of benchmark returns (minus fees). Alas it is not so.

Canadian dollars rose quite a bit against the mighty Dollar (with capital D), a comparison of vun and vus reveals that the exchange rate would cost us almost 5% after fees. On the flip side, cad dropped against eafe currencies on average, and a comparison of xef and zdm reveals the exchange rate would give us a boost of 2.9% after fees.

For a market timer, in a low volatility year where the home currency appreciated against foreign currencies on average, the best one could hope for is to tie the index. This year makes a good case for using currency hedged etfs as Canadians, as opposed to always using non-hedged etfs that most people favor. I ended up going back and forth, sparingly, to avoid excessive tax penalties.

My ytd return is 12.58%, below the 2017 benchmark. A completely non-hedged portfolio would return about 12.45%.

Note that none of the five "tricks" I used last year were that applicable this year, save for #4. We bought some cdn value stocks that totally smoked tsx this year (~16% return), but that alone wasn't enough due to the stock positions accounting for only 1.5% of the entire portfolio and was more or less offset by disney's underperformance.... Even the colossal berkshire barely outperformed s&p this year.

I am disappointed that I didn't get to beat the index (using index funds, no less) this year, even though the odds were against me (low vol, strong cad, taxes). This year's result shows my "models" appear to be working, we will see what happens going forward.

[surfhb]

Oh brother!   

Another "look at me....I just cherry picked a single year in the best bull market in history and beat the indexes" post 

Congratulations!!

Op.....just a word of advice.   If you keep going down this same road you are highly likely to loose alot of money.   Im just letting you know.   Good luck

[anisotropy]

Oh brother!   

Another "look at me....I just cherry picked a single year in the best bull market in history and beat the indexes" post 

Congratulations!!

Op.....just a word of advice.   If you keep going down this same road you are highly likely to loose alot of money.   Im just letting you know.   Good luck

edit: I like your other posts so will take a step back and let it go this time. But please read more carefully in the future. Thanks.

[surfhb]

Oh brother!   

Another "look at me....I just cherry picked a single year in the best bull market in history and beat the indexes" post 

Congratulations!!

Op.....just a word of advice.   If you keep going down this same road you are highly likely to loose alot of money.   Im just letting you know.   Good luck

edit: I like your other posts so will take a step back and let it go this time. But please read more carefully in the future. Thanks.

Huh?

[anisotropy]

Hi surfhb,

Basically, this thread contains results from 2016 and 2017 (original and reply #7, respectively). I probably should have started a new thread for this year's result, but I kept everything in one so it's easier to track.

Why did I pick 2016 and 2017? Because 2016 is the first time where I had a complete year doing this (timing, not sector or market rotation, using index funds with no leveraging), so no cherry picking at all. Note I only beat the index in 2016, and is lagging in 2017 by about 0.5% due to the reasons I laid out in reply #7.

I am not denying the fact these past two years had been great, ie, roaring bull market. A strong bull market makes it much more difficult to outperform the appropriate index, especially when your home currency appreciates materially, which was the case for 2017. In fact, I am not sure if it is mathematically possible for one to beat the market using index funds with no leveraging in said environments, net of taxes.

If you read my earlier replies you would have found that I was very skeptical about the long term success rate about my method. As most people know, the biggest shortcoming of any market timing strategy is to call the top too early and miss out on massive gains. 2017 more or less showed me that my method is at least somewhat reliable on this front.

While my method appeared to have also timed the top and bottom in 2015/2016, I am still not that comfortable with it and could very well be just luck.