Preface: I would like to first explain my recent absence, if anyone cared. In March I got into an argument in an off topic thread.
I discovered a poster called me, in secret, a “MRA Dipsh!t” as I merely used ontological reductionism and statistics to present my views. I caught them in the act and protested; the Mod ninja-deleted my post and locked the thread promptly (literally minutes) after. I decided I no longer wanted to be associated with this forum and ceased to participate. Shit happened. March 14th, I will get back to that.
Then I got into active “investments” (Re: light tradings here and there), which took a whole lot of my time to research so my trades would be profitable. Oh and there was the (our first) annual religious ritual to worship and make sacrifices to the Oracle and Supreme Leader in Omaha. Wife and I had originally planned to be away for only a week, but it evolved into a month long road trip in the Mid-West, typical post-FIRE life stuff.
Despite all that, I suspected Mr.D might hold me to my promise one day, so I checked the thread from time to time. Sure enough, I have been summoned, so let’s do this.
MrDelane,In my March 9th post, I made the assertion that someone had nailed both the top and the bottom in quick succession, which caused the lull in post frequency between March 2nd and 6th. I was of course referring to none other than myself. Ahem. Or rather, my greatprophet alter ego, in the form of monthly sermons.
First, the call for top. Under my “greatprophet” persona, my monthly sermon on
Feb 1st post (#1890) cleared stated “Sometimes to continue our ascent, we must first go down; to go further, we must first set camp and recover our strength.” I believed while the major top still lie ahead, a local top had been reached, S&P was 2821 at the time. In the same post, I also mentioned the volatility would be way higher going forward and positioned accordingly, the details can be seen in
post#2116. I still lost money in early Feb when compared to late Jan, but like I said, it was likely a less severe loss when compared to other index investors, much less than the S&P itself.
I want to point out, prior to my Feb 1st post, unlike some timers here (coughthorstasch) I had been quite bullish in general, as can be seen in many of my past posts. Anyway, my Feb 1st post was my very first “omg top” post, which proved to be quite timely (lucky). One for one, so far.
You might ask, why did I still lose money if I am so good at timing? More importantly, why didn’t I just liquidate completely if I knew market was going to drop? I was mainly concerned about taxes. I’ve mentioned in the
past that I timed (out then in, luck no doubt) the market in 15/16, since then, like many people, my portfolio has gone up ~45% (massive unrealized gains, I am working on it) as of Feb 1st 2018. If I were to liquidate completely, I would be hit with a guaranteed 8% loss (taxes and loss of “benefits”).
Assuming everything played out optimally, the market would then need to drop a minimum of 8% for this action to be a net positive. I was not convinced this would happen, as the fundamentals were still good in January. My objective then, was to find ways to profit should the market does tank (HUV / VXX in my
post). As long as my “net loss” remained below the market (index?) loss % and the 8% threshold, it would be a “success” so far as timing the top is concerned. In this correction so far, peak to trough is around 11% for S&P, 8% for an index that best resembles my asset allocation (30% MSCI, 30% TSX, 30% S&P, 10% bond). Luckily, my “anti-market” bet worked out in my favor. I still lost money, around 4% peak to trough.
Now, the call for bottom. In the timing game, calling top is only half of the battle, you gotta nail the bottom too. Again, my alter ego proclaimed in the monthly sermon on March 1st (
post #2447) “The climb shall be renewed”, signaling a bottom (S&P 2685 at the time). I then observed as the market advanced from Mar 3rd to March 6th (2660 to 2725), an eerie silence descended upon the crowd, and the post frequency dropped off a cliff, this prompted me to declare “victory” on March 7th (post #2486), which led to our exchange on March 9th and 10th.
I will concede the silence was probably due to other factors, the weekend for example, but we will never know for sure; unless every regular poster up till then would divulge their reasons for not posting during that time. But let’s forget about the lack of posting and examine my bottom call on March 1st.
As far as numbers go, S&P today 2721 is higher than 2685, but it is more complicated than that. As of March 1st, I thought the correction was likely over and we would start going up to new highs “momentarily”. In fact, I was so sure of it I arrogantly proclaimed we would see new “market highs once again by our next sermon”. That turned out to a be a incorrect call, as S&P never made it back, sure the NASDAQ made new highs on March 12th, but S&P is the biz and the measuring stick by convention. I was then in a bind, I couldn’t publicly update my view until market hits new high! By Mar 15th, I realized we were likely going back to test the previous low, but by that point I was done with this forum. You see, the event I mentioned in the beginning of the post happened on Mar 14th, and you can see I had posted nothing else until today.
Of course I made more moves in April and my views changed, but they were not documented here, so we will ignore all of that. For our purpose, let’s just look at how the market performed prior to Mar 14th, when I decided to leave. March 1st turned out to be near a local low, not breached before Mar 14th, and was followed by a local high on March 13th.
If nothing else, we can look at how my recorded calls here turned out in the last 4 months for a hypothetical portfolio, ignoring taxes and fees, for now.
B&H: 2673.61 > 2721.33,
YTD gain of 1.784%.
Timing: 2673.61 > 2821, gain of 5.536%; 2685 > 2721.33, gain of 1.353%.
YTD gain of 6.964%, gross difference of 5.18%If we assume the portfolios did not have any prior unrealized gains, net of taxes, the one that timed based on my calls would be ahead
by about 4%. This number might look small but is in fact a big deal. 4% over performance over 4 months from timing moves
alone, and this correction wasn’t even that severe.
Can we say my score is now two for two? I think not, as I am a bit of a perfectionist. I timed
a local bottom, but not
the bottom prior to Mar 14th. On the plus side, S&P is still trying to break out of range and make new highs, but I am pleased to report (brag) that my portfolio has been making new highs for three weeks. Note, this is after we had paid our hefty tax bill in April, and in absence of any new contributions, as the increase in portfolio value was “endogenous” from timing the top and BTFD, and light trades.
Recall in our
earlier conversations I mentioned I wanted to call the major top here, should I spot it coming. After what happened on March 14th, however, I no longer believe in such endeavor, in fact, I will stop making public forecasts altogether here. You can thank the Mod for possibly saving you quite a bit of money as we know no one can time the market perfectly all the time*. I might, however, give my opinion to certain posters that had helped me on various occasions (the kind person who gave me tips regarding Omaha this year for example). They can then do w/e they please with that information.
*by now we’ve seen you don’t need to time it
perfectly to make money, this exercise is a great example.
I hope this reply is to your satisfaction. As I pride myself as an evidenced based investor, I am fully aware luck could have played a major role in all of this, in fact, it probably did. By the same token however, if we are to entertain the idea luck played a major role, shouldn’t we also entertain the idea luck played a minor role only?
One way to deal with this is the Bayesian way of looking at the things: when in doubt, don’t be 100% certain, let the evidence decide for you. Since I started my monthly sermons on Oct 2017, I had been bullish the whole time until my Feb 1st post, right before the correction, was it all luck? I picked a local bottom before I left in protest, was it also all luck?
There is no magic in investing, as least I don’t know any, everything I do is rule (math) based. I would like to point out, a small group of investors/timers have been able to make good calls time and time again, maybe it’s all luck, or maybe Buffett was right, it has to do with intellectual origin.
The Superinvestors of Graham-and-DoddsvilleScientific inquiry naturally follows such a pattern. If you were trying to analyze possible causes of a rare type of cancer — with, say, 1,500 cases a year in the United States — and you found that 400 of them occurred in some little mining town in Montana, you would get very interested in the water there, or the occupation of those afflicted, or other variables. You know it’s not random chance that 400 come from a small area. You would not necessarily know the causal factors, but you would know where to search.
I submit to you that there are ways of defining an origin other than geography. In addition to geographical origins, there can be what I call an intellectual origin. I think you will find that a disproportionate number of successful coin-flippers in the investment world came from a very small intellectual village that could be called Graham-and-Doddsville. A concentration of winners that simply cannot be explained by chance can be traced to this particular intellectual village.
– Warren Buffett, 1984