Author Topic: An alternative to index investing  (Read 2238 times)

jffcldwll

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An alternative to index investing
« on: February 27, 2019, 03:13:07 PM »
Hi everyone!

I have been a MMM fan for many years, which has lead me to switching careers from engineering to finance and now to opening my own investment business.

I've always been a fan of index investing since it's a good method of autopiloting your way to decent returns over the long run.  However, I thought that it could use a little tweaking because being on autopilot meant mostly average returns and having to stick it out through market downturns.  My strategy involves investing in the overall market just like an index fund, but boosting the return during the good times and investing elsewhere during the bad times.

I wanted to reach out to the community that helped bring me to where I am today to see if anyone would be interested in investing with me.  Please feel free to ask questions here or reach out to me:

[MOD EDIT: Spam links removed.]

Thanks!
« Last Edit: February 28, 2019, 09:07:46 PM by arebelspy »

nereo

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Re: An alternative to index investing
« Reply #1 on: February 27, 2019, 05:39:48 PM »
I've always been a fan of index investing since it's a good method of autopiloting your way to decent returns over the long run.  However, I thought that it could use a little tweaking because being on autopilot meant mostly average returns and having to stick it out through market downturns.  My strategy involves investing in the overall market just like an index fund, but boosting the return during the good times and investing elsewhere during the bad times.


Thanks!

Sounds like a sure-fire way of getting below average turns. Waiting to invest until times are good means you'll miss buying when stocks are on sale.  Where would you invest during bad times?

v8rx7guy

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Re: An alternative to index investing
« Reply #2 on: February 27, 2019, 06:12:43 PM »
OP You are pitching your poor investment strategy based on market timing to the wrong group.  I don't think you are as big of a "fan" of MMM as you think you are.

ender

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Re: An alternative to index investing
« Reply #3 on: February 27, 2019, 06:15:40 PM »
because being on autopilot meant mostly average returns

Great, where do I sign up?


@sol is going to love this thread.
« Last Edit: February 27, 2019, 06:39:06 PM by ender »

Laserjet3051

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Re: An alternative to index investing
« Reply #4 on: February 27, 2019, 06:24:33 PM »
Mr. Caldwell:

Are there any good inverse triple-leveraged ETFs you might recommend for the imminent crash ahead of us?

Telecaster

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Re: An alternative to index investing
« Reply #5 on: February 27, 2019, 06:42:08 PM »
Besides the initial post selling something, the way you know this is scam is by this statement:

Quote
I've always been a fan of index investing since it's a good method of autopiloting your way to decent returns over the long run.  However, I thought that it could use a little tweaking because being on autopilot meant mostly average returns

That's exactly what charlatans and scam artists say.  If you index, your returns will be great than 95% of professional money managers.   Top 5% percentile is not average! 

Only someone who doesn't know what they are talking about--or a scam artists--would say something like that. 

Frankies Girl

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Re: An alternative to index investing
« Reply #6 on: February 27, 2019, 07:54:17 PM »
Besides the initial post selling something, the way you know this is scam is by this statement:

Quote
I've always been a fan of index investing since it's a good method of autopiloting your way to decent returns over the long run.  However, I thought that it could use a little tweaking because being on autopilot meant mostly average returns

That's exactly what charlatans and scam artists say.  If you index, your returns will be great than 95% of professional money managers.   Top 5% percentile is not average! 

Only someone who doesn't know what they are talking about--or a scam artists--would say something like that.



I'll drink to that...

« Last Edit: February 27, 2019, 08:00:11 PM by Frankies Girl »

sol

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Re: An alternative to index investing
« Reply #7 on: February 27, 2019, 08:54:46 PM »
@sol is going to love this thread.

If you already know what I'm going to say, do I even need to say it?  I think my work here may be done.

Hey Jeff Carleton, what's your fee structure for active management look like?  I mean, other than gratuitous bloodsucking, how exactly are you personally turning a profit from people who might foolishly give you their money to manage?

jffcldwll

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Re: An alternative to index investing
« Reply #8 on: February 28, 2019, 01:03:13 PM »
I've always been a fan of index investing since it's a good method of autopiloting your way to decent returns over the long run.  However, I thought that it could use a little tweaking because being on autopilot meant mostly average returns and having to stick it out through market downturns.  My strategy involves investing in the overall market just like an index fund, but boosting the return during the good times and investing elsewhere during the bad times.


Thanks!

Sounds like a sure-fire way of getting below average turns. Waiting to invest until times are good means you'll miss buying when stocks are on sale.  Where would you invest during bad times?


True, if you wait until times have been good for a while before you invest, that would be a case of FOMO.  Buying high is generally a sure-fire way to lose money.  (e.g. the run-up in Jan 2018 followed by the immediate crash)

I'm suggesting holding off until good times have returned in a statistically significant manner.  The industry standard 50/200 is a simple, numbers-based way of achieving this.  You won't buy back in at the absolute lowest price, because we can't see the future, but you will end up buying back in at low prices.  (e.g. a 50/200 would have had you exit in Dec 2007 and enter in June of 2009)

During bad times, I invest in asset classes that are negatively correlated to the stock market.  Pulling out into cash is still better than being in the market, but I found that there are assets that more often than not behave opposite of the market, allowing you to continue to be profitable even when the market is going down.



edit:  by 50/200 I am referring to the moving averages
« Last Edit: February 28, 2019, 01:10:36 PM by jffcldwll »

jffcldwll

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Re: An alternative to index investing
« Reply #9 on: February 28, 2019, 01:04:00 PM »
OP You are pitching your poor investment strategy based on market timing to the wrong group.  I don't think you are as big of a "fan" of MMM as you think you are.

In the strictest sense of the term, you are correct, this would be market timing as you are going in and out of the market.  In general, this does lead to worse performance on average.  However, in the colloquial sense, I'm not "timing the market."  I'm using statistics to determine an appropriate point to go in and out.  Even if you end up being off by a decent bit, avoiding most of a major recession will boost your average return.

jffcldwll

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Re: An alternative to index investing
« Reply #10 on: February 28, 2019, 01:04:32 PM »
because being on autopilot meant mostly average returns

Great, where do I sign up?


@sol is going to love this thread.


I usually recommend SPY or a similar investment for this.

jffcldwll

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Re: An alternative to index investing
« Reply #11 on: February 28, 2019, 01:05:23 PM »
Mr. Caldwell:

Are there any good inverse triple-leveraged ETFs you might recommend for the imminent crash ahead of us?


As part of my research, I tried several methods of shorting the market to beat it.  I couldn't develop any way to get consistently better returns than the market by shorting.  I would not recommend buying inverse ETFs.  I'm sure there's someone out there who has found a use for triple leveraged inverse ETFs, but in general, I would say they are pretty terrible investments.

jffcldwll

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Re: An alternative to index investing
« Reply #12 on: February 28, 2019, 01:06:04 PM »
Besides the initial post selling something, the way you know this is scam is by this statement:

Quote
I've always been a fan of index investing since it's a good method of autopiloting your way to decent returns over the long run.  However, I thought that it could use a little tweaking because being on autopilot meant mostly average returns

That's exactly what charlatans and scam artists say.  If you index, your returns will be great than 95% of professional money managers.   Top 5% percentile is not average! 

Only someone who doesn't know what they are talking about--or a scam artists--would say something like that.


Per the description, I thought this part of the forum was for selling services amongst other things.

I completely agree with being better than most managers by using indexing.  I tried for a while to find a way to "beat the market", but always came up worse off no matter what I tried.  My method is more of a "if you can't beat 'em, join 'em" mentality.  There's nothing magical about index funds.  Just like anything else in this world, they are not infallible - they have their weak points.  Granted, their pros far outweight their cons.  However, my thought was, if there's some way to negate their cons, why not do it?

Also, please allow me to clarify.  Yes, an index return will generally do much better than the return of most managers, thereby making it above average numerically speaking.  I intended to use the word average meaning normal, typical, expected, etc, and I was not meaning that it was numerically average.  To your point, index funds do have above average performance.

jffcldwll

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Re: An alternative to index investing
« Reply #13 on: February 28, 2019, 01:06:40 PM »
@sol is going to love this thread.

If you already know what I'm going to say, do I even need to say it?  I think my work here may be done.

Hey Jeff Carleton, what's your fee structure for active management look like?  I mean, other than gratuitous bloodsucking, how exactly are you personally turning a profit from people who might foolishly give you their money to manage?


I'm a strong proponent of index investing.  My opinion is that it is unfair to investors to charge them money simply because they trusted you with it, so I have a 0% management fee.  As a comparision, VTSAX charges 0.04%.  I also believe that managers have no justifiable reason to take your money unless they can beat the market, because otherwise, people might as well just stick their money in an index fund.  Therefore, I only charge a fee toward the positive return that beats the stock market index fund (i.e. the value that I am adding), of 50%.

A few examples:

I receive no fee if I lose you money, even if I beat the market:
Market index = -10%, my fund = -5% --> I receive nothing
Market index = -5%, my fund = -10% --> I receive nothing

I make you money but don't beat the market, I receive nothing:
Market index = 20%, my fund = 15% --> I receive nothing

I make you money and the market loses money:
Market index = -10%, my fund = 10% --> I receive 50% of the positive return, so I get 5% and you get 5%

I make you money and beat the market:
Market index = 20%, my fund = 30% --> I receive 50% of the excess, so I get 5% and you get 25%.

jffcldwll

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Re: An alternative to index investing
« Reply #14 on: February 28, 2019, 01:07:25 PM »
I would also like to propose some food for thought.  As mustachians, we apply DIYing, tinkering, tweaking, re-engineering, reverse engineering, etc to every facet of life.  In fact, we've re-engineered so much of how we live that people look at us like we have two heads when we try to explain what mustachianism is.

My question is this:  Why have we allowed ourselves to become so dogmatic about investing?  Everything else must pass through the mustachian filter before we start doing it.  Why is investing allowed to escape this?  Shouldn't everything be up for discussion?

Regardless of my offering, we as a community should be tinkering and re-engineering how we invest.  Index funds are great, and I'm not bashing them.  All I'm suggesting is that they have their flaws, so why aren't we working toward a way to improve upon them?

Tass

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Re: An alternative to index investing
« Reply #15 on: February 28, 2019, 01:19:47 PM »
Every strategy has its weaknesses, eh? What are the weaknesses in your plan?

sol

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Re: An alternative to index investing
« Reply #16 on: February 28, 2019, 01:22:53 PM »
In the strictest sense of the term, you are correct, this would be market timing as you are going in and out of the market.  In general, this does lead to worse performance on average.  However, in the colloquial sense, I'm not "timing the market."  I'm using statistics to determine an appropriate point to go in and out. 

Like every market timer we've met on this forum, you're saying you are not a market timer you're just timing the market.  Here's a news flash:  every market timer thinks their proprietary technique for timing the market isn't really timing the market.

I only charge a fee toward the positive return that beats the stock market index fund (i.e. the value that I am adding), of 50%.

A few examples:

I receive no fee if I lose you money, even if I beat the market:
Market index = -10%, my fund = -5% --> I receive nothing
Market index = -5%, my fund = -10% --> I receive nothing

I make you money but don't beat the market, I receive nothing:
Market index = 20%, my fund = 15% --> I receive nothing

I make you money and the market loses money:
Market index = -10%, my fund = 10% --> I receive 50% of the positive return, so I get 5% and you get 5%

I make you money and beat the market:
Market index = 20%, my fund = 30% --> I receive 50% of the excess, so I get 5% and you get 25%.

This part is fascinating, though.  You're proposing to make zero profit for yourself unless you can beat the index?  Don't you see the perverse incentives this would create?

If I was in your position, I would be using leveraged funds.  If you put everyone's money into a 3x fund and the market goes down 10%, your clients lose 30% and you would have no income, but you don't actually lose any money.  If the market goes up 10%, you and your clients would split 50/50 the 20% leveraged extra performance, so they would get 20% and you would get 10%.  Basically, this strategy would allow you to pocket 100% of any market gains as fees, while risking none of your own capital.  Is that the business plan you've chosen?

Because that's a really shitty deal for investors.  It sounds good on the face, to say you only get paid when you beat the index, but in reality you're offloading 100% of the downside risk to your clients while taking 50% of the upside for yourself.  They would all be better off just investing in leveraged funds for themselves.
« Last Edit: February 28, 2019, 01:36:27 PM by sol »

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Re: An alternative to index investing
« Reply #17 on: February 28, 2019, 01:27:18 PM »
If I had a dollar for every “my market-timing scheme is not market timing!” thread I’ve read here I’d probably be FI already. At least I would be if I took those $1s and invested them in VTSAX as I do with most of the rest of my dollars.

I wonder if we need a new sticky thread like the Investment Order, but one dedicated to compiling all of the reasons and research why market timing is not a statistically likely winning strategy. It would save us time.

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Re: An alternative to index investing
« Reply #18 on: February 28, 2019, 01:41:35 PM »
My question is this:  Why have we allowed ourselves to become so dogmatic about investing?  Everything else must pass through the mustachian filter before we start doing it.  Why is investing allowed to escape this?  Shouldn't everything be up for discussion?
"We"* are not dogmatic about investing. Investing strategies are discussed at length repeatedly on these forums. Dividend investing, momentum, timing, asset allocations, portfolio theory, etc. The result after many years of repeatedly going through the Mustachian filter is a general consensus of passive index investing being superior to active managed investments. This fits with the Mustachian mindset of not outsourcing. Handling your investments yourself instead of paying someone to do it for you to maximize efficiency.

So the few people on this forum that are interested in timing the market are more likely to want to do it themselves than to trust someone else. If you were to share your methodology then we could have an actual discussion and analysis about the specifics.

* - I'm really not buying that you're part of of the MMM community when your first post is trying to sell something.

v8rx7guy

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Re: An alternative to index investing
« Reply #19 on: February 28, 2019, 02:08:31 PM »
Time to lock this crap up

Telecaster

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Re: An alternative to index investing
« Reply #20 on: February 28, 2019, 02:36:04 PM »
I would also like to propose some food for thought.  As mustachians, we apply DIYing, tinkering, tweaking, re-engineering, reverse engineering, etc to every facet of life.  In fact, we've re-engineered so much of how we live that people look at us like we have two heads when we try to explain what mustachianism is.

My question is this:  Why have we allowed ourselves to become so dogmatic about investing?  Everything else must pass through the mustachian filter before we start doing it.  Why is investing allowed to escape this?  Shouldn't everything be up for discussion?

Regardless of my offering, we as a community should be tinkering and re-engineering how we invest.  Index funds are great, and I'm not bashing them.  All I'm suggesting is that they have their flaws, so why aren't we working toward a way to improve upon them?

Fair questions.  But first, and I had figured your post was a one-and-done spam.  Had I known you were a real person I would have been more civil  :)  Please accept my apology for the tone.  The comment about average returns is pet peeve of mine however.   By having the discipline to be boring, you beat the pants off the pros.  Imagine you could become a better free throw shooter than 95% of NBA players--without practicing.   

I have a couple thoughts on this topic.   It seems like there ought to be  systematic ways to improve returns.   And indeed if you hunt for them, you will find some.   But they never seem to work very well post-discovery.   I have some theories, but I'm not entirely sure why that is.  I believe one reason is the world changes a lot in ten years.   In any event, what does seem to be true, is that if you are going to beat the market, you have to do something different than the market.   That means, almost by definition, some of the time you will under perform.   Think of Michael Burry in the Big Short.

The problem comes when you are in that period of under performance you don't know if your method actually works, or if you have the post-discovery problem. 

jffcldwll

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Re: An alternative to index investing
« Reply #21 on: February 28, 2019, 03:27:14 PM »
Every strategy has its weaknesses, eh? What are the weaknesses in your plan?

In reducing the chance of being in the market during a recession, you end up seeing some false alarms.  In these cases, you may exit the market and then it turns around and starts going back up.  During the time before you get back in, you'll miss out on some returns.  However, the net benefit is that the avoidance of recessions will have a greater impact than the occasional smaller positive movements that you miss out on.

With having leverage, you end up doing quite well while the general movement is upwards.  Now while you can avoid recessions, there is of course a tipping point between when the market starts going down and when you get out of stocks.  With leverage, this is amplified.  Again, since the upwards force in the market is so prevalent, the good outweighs the bad.

Of course, this will mean that sometimes you under perform and sometimes you over perform.  The overall goal being to do better over the long run.

Obviously this is not an exhaustive list, but it encompasses two major impacts.

jffcldwll

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Re: An alternative to index investing
« Reply #22 on: February 28, 2019, 03:28:18 PM »
In the strictest sense of the term, you are correct, this would be market timing as you are going in and out of the market.  In general, this does lead to worse performance on average.  However, in the colloquial sense, I'm not "timing the market."  I'm using statistics to determine an appropriate point to go in and out. 

Like every market timer we've met on this forum, you're saying you are not a market timer you're just timing the market.  Here's a news flash:  every market timer thinks their proprietary technique for timing the market isn't really timing the market.

I only charge a fee toward the positive return that beats the stock market index fund (i.e. the value that I am adding), of 50%.

A few examples:

I receive no fee if I lose you money, even if I beat the market:
Market index = -10%, my fund = -5% --> I receive nothing
Market index = -5%, my fund = -10% --> I receive nothing

I make you money but don't beat the market, I receive nothing:
Market index = 20%, my fund = 15% --> I receive nothing

I make you money and the market loses money:
Market index = -10%, my fund = 10% --> I receive 50% of the positive return, so I get 5% and you get 5%

I make you money and beat the market:
Market index = 20%, my fund = 30% --> I receive 50% of the excess, so I get 5% and you get 25%.

This part is fascinating, though.  You're proposing to make zero profit for yourself unless you can beat the index?  Don't you see the perverse incentives this would create?

If I was in your position, I would be using leveraged funds.  If you put everyone's money into a 3x fund and the market goes down 10%, your clients lose 30% and you would have no income, but you don't actually lose any money.  If the market goes up 10%, you and your clients would split 50/50 the 20% leveraged extra performance, so they would get 20% and you would get 10%.  Basically, this strategy would allow you to pocket 100% of any market gains as fees, while risking none of your own capital.  Is that the business plan you've chosen?

Because that's a really shitty deal for investors.  It sounds good on the face, to say you only get paid when you beat the index, but in reality you're offloading 100% of the downside risk to your clients while taking 50% of the upside for yourself.  They would all be better off just investing in leveraged funds for themselves.

Ok, I see your point.  Yes, it is through and through market timing.

Yes, I can see where it could look perverse.  The fact that it isn't perverse (at least for me) is in how I invest.  Obviously, this involves some level of trusting in me on your part.  Since we are strangers on the Internet, there's no doubt you wouldn't put your trust in me right away or ever.  On the contrary, to me, I feel that the opposite fee structure is more perverse.  These billion dollar hedge funds make tens of millions of dollars a year simply by having high AUM because of their management fees.  This could be seen as perverse because now the incentive is to get as much AUM as possible while simply just trying to achieve somewhat decent rates of return so that you don't withdraw your money.

In the specific scenario you laid out, that would be the case.  Point being, if someone was going to invest in an index fund, they would have gotten 10% returns.  Investing with me, they would have gotten 20% returns.  For someone inclined to manage their own investments beyond just regular index funds, they probably wouldn't invest with me anyway.

Also, you bring up a good point.  You shouldn't invest with anyone who doesn't have their own skin in the game.  Currently, half of my company's assets are from my personal funds, so I see all the gains and losses the same as my investors.  You would be wise to not invest with someone who isn't exposing their own cash.

I also have highwater marks, so when the fund goes down, I have to make everything back up before I get paid again.

jffcldwll

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Re: An alternative to index investing
« Reply #23 on: February 28, 2019, 03:28:58 PM »
My question is this:  Why have we allowed ourselves to become so dogmatic about investing?  Everything else must pass through the mustachian filter before we start doing it.  Why is investing allowed to escape this?  Shouldn't everything be up for discussion?
"We"* are not dogmatic about investing. Investing strategies are discussed at length repeatedly on these forums. Dividend investing, momentum, timing, asset allocations, portfolio theory, etc. The result after many years of repeatedly going through the Mustachian filter is a general consensus of passive index investing being superior to active managed investments. This fits with the Mustachian mindset of not outsourcing. Handling your investments yourself instead of paying someone to do it for you to maximize efficiency.

So the few people on this forum that are interested in timing the market are more likely to want to do it themselves than to trust someone else. If you were to share your methodology then we could have an actual discussion and analysis about the specifics.

* - I'm really not buying that you're part of of the MMM community when your first post is trying to sell something.


Truth be told, I haven't spent that much time in the investing forum on here.  I'm sure there are many mustachians who do their own investing beyond just VTSAX.  My apologies for making a sweeping statement.  I was only suggesting that the flagship model was VTSAX, and that there hasn't been a significant move away from that as a whole.  At least not that I've seen.

You're definitely right that people who spend the time to research their own investments aren't going to trust their money with someone else though.  If I wasn't trying to run a business, I would love to share my model with everyone, but unfortunately I can't.

jffcldwll

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Re: An alternative to index investing
« Reply #24 on: February 28, 2019, 03:29:55 PM »
I would also like to propose some food for thought.  As mustachians, we apply DIYing, tinkering, tweaking, re-engineering, reverse engineering, etc to every facet of life.  In fact, we've re-engineered so much of how we live that people look at us like we have two heads when we try to explain what mustachianism is.

My question is this:  Why have we allowed ourselves to become so dogmatic about investing?  Everything else must pass through the mustachian filter before we start doing it.  Why is investing allowed to escape this?  Shouldn't everything be up for discussion?

Regardless of my offering, we as a community should be tinkering and re-engineering how we invest.  Index funds are great, and I'm not bashing them.  All I'm suggesting is that they have their flaws, so why aren't we working toward a way to improve upon them?

Fair questions.  But first, and I had figured your post was a one-and-done spam.  Had I known you were a real person I would have been more civil  :)  Please accept my apology for the tone.  The comment about average returns is pet peeve of mine however.   By having the discipline to be boring, you beat the pants off the pros.  Imagine you could become a better free throw shooter than 95% of NBA players--without practicing.   

I have a couple thoughts on this topic.   It seems like there ought to be  systematic ways to improve returns.   And indeed if you hunt for them, you will find some.   But they never seem to work very well post-discovery.   I have some theories, but I'm not entirely sure why that is.  I believe one reason is the world changes a lot in ten years.   In any event, what does seem to be true, is that if you are going to beat the market, you have to do something different than the market.   That means, almost by definition, some of the time you will under perform.   Think of Michael Burry in the Big Short.

The problem comes when you are in that period of under performance you don't know if your method actually works, or if you have the post-discovery problem.


Thanks so much, and apology more than accepted.  Honestly, since reading MMM and implementing things in my life, my life has greatly improved.  I was only trying to give back to the community, and I didn't realize that it would be this controversial.  My apologies if I offended you or anyone else here, as that was not my intention.

Boring is definitely good, and your NBA analogy is perfect.  I was just trying to find a way to make some kind of improvement to the already established method.

The world is definitely changing, which does affect even the best statistical models.  In turn, it could also make index fund investing bad too.  There's no one right way to do it, and the best method changes over time.  There are certainly times when I under perform the market, but that's just the way it is.  Over the past 2+ years that I've been putting this into practice, I've been successful.  You are right though that when in a period of under performance, you won't know until later if it was just a matter of the result of your method of investing or if your method is actually flawed.  Thus far, I've found that sticking to statistics is best in the end.  Allowing emotions to play a part in your investing is a sure way to hurt your performance.

sol

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Re: An alternative to index investing
« Reply #25 on: February 28, 2019, 03:40:22 PM »
Every strategy has its weaknesses, eh? What are the weaknesses in your plan?

In reducing the chance of being in the market during a recession, you end up seeing some false alarms.  In these cases, you may exit the market and then it turns around and starts going back up.  During the time before you get back in, you'll miss out on some returns.  However, the net benefit is that the avoidance of recessions will have a greater impact than the occasional smaller positive movements that you miss out on.

Except it doesn't.  We have spent thousands and thousands of words discussing the various ways to implement the strategy you are discussing, with frequent references to outside work and more than a fair bit of original analysis not published anywhere.  The sum total of financial expertise in this forum's membership rolls far outweighs any book on market timing ever written. 

As a good place to start, Mr. Caldwell, you might enjoy spending an entire evening reading this old dual momentum thread very very carefully, including the links contained therein.  There's probably 40 hour or more of reading to do in there, if you go down all of the rabbit holes, but you'll begin to have a better idea of how this forum has grappled with this topic before, and why we're generally not fans of the approach you are promoting.

I'm being about as nice about this as I can. 
« Last Edit: February 28, 2019, 03:45:25 PM by sol »

HeadedWest2029

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Re: An alternative to index investing
« Reply #26 on: February 28, 2019, 04:05:25 PM »
Trend following, momentum, 200 dma...they all seem like slight variations of the same idea.  The last whitepaper I read on it was published here
https://www.osam.com/Commentary/osam-quarterly-investor-letter-q4-2018
Empirically it would seem a 9-month momentum strategy has done the best in back-tests (in terms of return and maximum draw-down).  But all this stuff gets arbitraged away.  Value tilt, small cap tilt...they all worked until they didn't.  I suspect the same will hold true with momentum.  A diversified strategy of momentum + value tilting historically did great.  However, just ask Cliff Asness, one of the smartest people in investing who deploys this method basically, and his firm has gotten killed lately (of which he's openly written about in letters to investors...so he's at least transparent).  He has a team of mega-nerds mining data for any factor-based advantage using AI and machine learning.  Are you smarter than the team at AQR?  Just look at latest snap-back rally as an example where momentum doesn't work https://theirrelevantinvestor.com/2019/02/28/killer-vees/

I don't mean to pile on or anything, but this is just honestly the worst place to try and sell this type of strategy.  Best of luck though.  I do read all the whitepapers on this stuff even though I'm a basic 3 fund indexer because I find it interesting even though it's not actionable. 

dougules

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Re: An alternative to index investing
« Reply #27 on: February 28, 2019, 04:24:58 PM »
The market is a sociological system.  You can't beat the market because you are part of the market.  You can beat the index, but saying you can do it reliably is implying that you are smarter than the person guiding the average dollar in the market.  If there were a system to beat the market average that system would change the market itself so that that system would be less valid.   It's like a dog trying to chase its tail. 

Also, when you buy equities, you are buying a piece of a company.  If I owned businesses, say a bakery and a book store, I wouldn't day trade them.  I look at my mutual funds the same way because they are ownership in businesses. 

I'm sorry if folks on here are being kind of rough, but we've been round and round and round on market timing so much before. 

sol

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Re: An alternative to index investing
« Reply #28 on: February 28, 2019, 04:39:00 PM »
Also of relevance, there have been a variety of carefully documented market timing threads on this forum, where people publicly pursued one of these strategies.  So far, they're all losers.

This one is the most recent, and fun, but kind of short on actual data:  https://forum.mrmoneymustache.com/investor-alley/welp-i'm-going-to-take-a-stab-at-timing-the-market/

This one is almost three years old, and underperformed the market by about 10% per year:  https://forum.mrmoneymustache.com/investor-alley/playing-with-momentum/

One of our former members was a real momentum die hard and kind of a dick about it.  He tracked his momentum experiment for about a year, and underperformed the market by about 8%:  http://www.milesdividendmd.com/dual-momentum-a-year-in-review/

There are others here, if you dig deep enough.

So far, not a single market timer who has been willing to publicly document their strategy in a verifiable way has made more money than a passive index investor.  Though we have had several people who insisted they were absolutely killing it with momentum investing, without providing any actual real time data, those people are generally assumed to be lying because they never offer proof and they never make predictions that then come true.

But maybe you'll be the first, Jeff Caldwell!  You could be internet famous!  Just tell us what you buy and sell in real time, and we'll help you track it.  If you can legitimately beat the market with a convincing strategy, you might have thousands of MMM customers vying to invest with you.  If you're promising to beat the market without offering any evidence, then you'll be added to the long list of charlatans we have seen making the same claim.
« Last Edit: February 28, 2019, 05:33:32 PM by sol »

ender

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Re: An alternative to index investing
« Reply #29 on: February 28, 2019, 07:12:46 PM »
The world is definitely changing, which does affect even the best statistical models.  In turn, it could also make index fund investing bad too.  There's no one right way to do it, and the best method changes over time.  There are certainly times when I under perform the market, but that's just the way it is.  Over the past 2+ years that I've been putting this into practice, I've been successful.  You are right though that when in a period of under performance, you won't know until later if it was just a matter of the result of your method of investing or if your method is actually flawed.  Thus far, I've found that sticking to statistics is best in the end.  Allowing emotions to play a part in your investing is a sure way to hurt your performance.

Me too. That's why I stick to the only historical method that consistently performs. Index investing.

There are hundreds upon hundreds of people who have tried to beat it. All sorts of strategies over the last decades. And you know what? Some do beat the market in the short term! And some even managed to do that over a much longer period. But in the long term, a tiny, tiny fraction consistently out perform boring index funds over the long haul.

Statistically that is a risk I am unwilling to take. You might be the needle in a haystack that succeeds. But frankly, my financial security is not worth risking on the promises of someone who - statistically - is overwhelmingly wrong.

And, for the sake of my curiosity, what have your returns been in the past 2 years?

dougules

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Re: An alternative to index investing
« Reply #30 on: March 01, 2019, 10:42:01 AM »
The world is definitely changing, which does affect even the best statistical models.  In turn, it could also make index fund investing bad too.  There's no one right way to do it, and the best method changes over time.  There are certainly times when I under perform the market, but that's just the way it is.  Over the past 2+ years that I've been putting this into practice, I've been successful.  You are right though that when in a period of under performance, you won't know until later if it was just a matter of the result of your method of investing or if your method is actually flawed.  Thus far, I've found that sticking to statistics is best in the end.  Allowing emotions to play a part in your investing is a sure way to hurt your performance.

Me too. That's why I stick to the only historical method that consistently performs. Index investing.

There are hundreds upon hundreds of people who have tried to beat it. All sorts of strategies over the last decades. And you know what? Some do beat the market in the short term! And some even managed to do that over a much longer period. But in the long term, a tiny, tiny fraction consistently out perform boring index funds over the long haul.

Statistically that is a risk I am unwilling to take. You might be the needle in a haystack that succeeds. But frankly, my financial security is not worth risking on the promises of someone who - statistically - is overwhelmingly wrong.

And, for the sake of my curiosity, what have your returns been in the past 2 years?

On top of that, if you find somebody who can beat the index, you have to pay their salary.  The other beauty of index funds is that there isn't much in the way of management costs. 

sol

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Re: An alternative to index investing
« Reply #31 on: March 02, 2019, 05:03:56 PM »
Jeff?  Are you still with us?

Did you read any of those discussions I highlighted for you above, about the ways in which this forum has previously analyzed and experimented with momentum market timing strategies like the one you're advocating for?  Are you still interested in having forty thousands forum members beating down your door to invest with you, if you can demonstrate that you know how to beat the market?  You could literally have billions under management!  You'll be rich!

Or did we scare you off?  Honestly, if you're just looking for a bunch of clueless investors to give you their money and pay your fees so they can underperform the index, you're probably going to have better luck on any ANY other forum besides this one.  I wouldn't blame you for cutting bait here, and focusing your efforts on the more fertile ground elsewhere.  There's a sucker born every minute, amirite?

Maybe try the the Suze Orman and Dave Ramsey folks, they seem extra gullible.

davisgang90

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Re: An alternative to index investing
« Reply #32 on: March 03, 2019, 05:02:33 AM »
Sol!  This guy has figured out how to time the market!  How can you run him off!!???

Oh wait, trying to time the market is stupid.  Never mind.  Carry on.

Telecaster

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Re: An alternative to index investing
« Reply #33 on: March 06, 2019, 06:40:51 PM »
"Those formulas that gain adherents and importance do so because they have worked well over a period, or sometimes merely because they have been plausibly adapted to the statistical record of the past. But as their acceptance increases, their reliability tends to diminish. This happens for two reasons: First, the passage of time brings new conditions which the old formula no longer fits. Second, in stock-market affairs the popularity of a trading theory has itself an influence on the markets behavior which detracts in the long run from its profit-making possibilities."

---Benjamin Graham, "The Intelligent Investor"

sol

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Re: An alternative to index investing
« Reply #34 on: March 06, 2019, 09:23:27 PM »
OP hasn't visited the forum since last posting in this thread on February 28, according to his user stats.

I think we scared him off.

I envision him staring crossly at his computer screen and thinking "Dammit, they're on to me!  How did they figure out my scam so quickly?"  And then going over to bogleheads to try again.

nereo

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Re: An alternative to index investing
« Reply #35 on: March 07, 2019, 04:57:42 AM »
Given that 100% of his posts were in this thread that s/he started, and it began with a bunch of links to his services (since removed) ... gee, I can't imagine how we saw through the ruse so quickly.

Malkynn

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Re: An alternative to index investing
« Reply #36 on: March 07, 2019, 05:16:55 AM »
OP hasn't visited the forum since last posting in this thread on February 28, according to his user stats.

I think we scared him off.

I envision him staring crossly at his computer screen and thinking "Dammit, they're on to me!  How did they figure out my scam so quickly?"  And then going over to bogleheads to try again.

Ugh, and he was so criminally unprepared for pitching to the market he was trying to sell to.

Like, why even bother if you aren't even going to research your market, juuuuust a little bit.

That's A HUGE amount of negative brand exposure he just got on a major financial online forum that can show up in a Google search of anyone looking to research his company.

That just seems like such a reckless and stupid move in terms of protecting his brand.

Why would I ever give my money to someone who can't easily predict a potentially permanent internet black mark against their brand?

We ALL knew what would happen in this thread, he should have known as well.
It's just sloppy business.


Tass

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Re: An alternative to index investing
« Reply #37 on: March 07, 2019, 09:26:12 AM »
Given that 100% of his posts were in this thread that s/he started, and it began with a bunch of links to his services (since removed) ... gee, I can't imagine how we saw through the ruse so quickly.

Did you actually click any of the links? His wordpress website was like three sentences long. It didn't inspire much faith.