Author Topic: Wait for the Market Correction?  (Read 18945 times)

lano

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Re: Wait for the Market Correction?
« Reply #50 on: March 21, 2014, 06:08:21 AM »

...

I'd also note that for the quantitatively minded, beating the market is far far more difficult than it was 20 years ago. Staples like trading momentum in commodities no longer works. The competition is fierce, and any hope at finding an exploitable edge in the liquid securities market is a bit of a pipe dream in my opinion.

I agree that small-cap securities are the best hope for the small investor to find an edge.


You don't need an edge.  Just a correct view of the basics. 

The intrinsic value of some companies increases more every day than the intrinsic average value of all the companies.

Some of those companies have a durable competitive advantage: they can continue to increase intrinsic value for years.

All you have to do is buy a portion of these companies for a price that is not too far above the intrinsic value at any one time.

 


 

warfreak2

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Re: Wait for the Market Correction?
« Reply #51 on: March 21, 2014, 08:56:06 AM »
You don't need an edge.  Just a correct view of the basics. 

The intrinsic value of some companies increases more every day than the intrinsic average value of all the companies.

Some of those companies have a durable competitive advantage: they can continue to increase intrinsic value for years.

All you have to do is buy a portion of these companies for a price that is not too far above the intrinsic value at any one time.
How are you defining the "intrinsic value" of a company, how do you measure it and predict its rate of change, and how do you show that it's directly proportional to the stock price?

If you can correctly predict, based on publicly available information, that a company will be more profitable in the future, then everyone else who uses the same information and methodology will come to the same conclusion, and the stock price today already reflects that prediction.

You may think you're predicting than the average investor, but even if you're right about it, by definition it's an edge. Anyway, you aren't trying to beat the average investor, but the average investment, weighted by the size of the investment, and that average is extremely weighted towards the investors who are best at predicting, because they have by far the most to invest.

fixer-upper

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Re: Wait for the Market Correction?
« Reply #52 on: March 23, 2014, 02:08:44 AM »
I'm generally not in favor of market timing, but there are better and worse times to get in the market, as well as different parts of the market.

Focusing on trading pairs has worked well for me.  When you find things which have a history of working in opposite directions, you shovel money towards the one which is out of favor.  When the situation reverses, you shovel money back the other direction. 



SnackDog

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matchewed

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Re: Wait for the Market Correction?
« Reply #54 on: March 23, 2014, 05:31:58 AM »
Buckle up!

http://www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11

Seriously? Look at the time scale. We'd already have a Dow of 14000 if these pattern recognition stories were even true. The Dow is currently at 16000.

The scale of the two different plots are off, one is at 800 the other is at 50. Unless someone has some magic reason why that ratio exists...

And for posterity - http://jlcollinsnh.com/2013/01/04/how-to-be-a-stock-market-guru-and-get-on-msnbc/

And as far as buy and hold for the long run. That's what we're doing here. FIRE isn't some get rich quick scheme. It's your whole life we're talking about. It's the ultimate timeline for an individual. Of course given this perspective market timing is silly because when you started your investments is going to matter very little compared to your savings rate, withdraw rate, and overall market performance during your investing timeline not some silly blip at the beginning; see any simulation in cfiresim.

hodedofome

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Re: Wait for the Market Correction?
« Reply #55 on: March 24, 2014, 10:22:10 AM »
If you are going to entertain yourself with market analogs, at least follow www.marketanthropology.com. He does really good work with them.

That 1929 comparison chart is totally amateur. A proper analog also compares the price momentum and market environment/sentiment. Without those things it's incomplete. Analogs can be used to create really good trading systems (Paul Tudor Jones uses them) but with the understanding that they could be wrong 50% of the time. And that's for a properly constructed analog.  That being said, just picking out 1 analog is a coin flip. On an individual trade basis, it is completely random. You have no idea if it will be a winner or a loser.