There were a lot of comments left yesterday on the When To Go Back In post.
It seemed like there was a fair bit of indecision, people questioning themselves, questioning me and readers seeking out new ideas. All of these are valid.
One reader asks how many people are ahead of buy and hold this year. Great question. It may not be the right question however. First it speaks to not trading too much or too nimbly. Over trading usually is not the best thing. Over time tweaks need to be made. The reason may be a good one like a stock may have been a home run, is now too big and needs some trimming or it may be a bad reason like you were wrong. In a diversified portfolio there will be some of both.
Even if you only make four changes a year not all of them will be correct. At 1304 the S&P 500 is up 4.29% plus dividends. Work with me here and assume every one benchmarks to this index. Chances are half the people are ahead and half are behind the index YTD. Next year it will not be the same half ahead. Some of those who are beating the market this year will beat it again next year and some will not.
What matters is whether what you are doing gives you a reasonable chance to meeting your goal pursuant, hopefully, to some sort of plan you have saved in a spread sheet somewhere.
If you beat the market last year by two points and you lag it this year by two points you are not hurting yourself. However if you beat last year by a little and you are trailing by 15% this year you may need to make some changes-this calls for some genuine introspection. It would be reasonable to apply other numbers here but you get the idea.
For me the focus is getting where I need to be in the time allotted good years and bad years included, and there will be bad years.
As far as fear being in vogue and the question does the market have to go down; Helene Meisler studied this and in the 1970's, sentiment was correctly bearish-contrarian thinking be damned.
One person who manages money left a comment saying that he is 75% in and sees "no fundamental value in the names propelling the market," yet he is 75% in. I think this guy gets it. He could be dead wrong in his no value comment (I don't know) but he lightened up a little, which is what he thinks is right, and won't hurt people if he is dead wrong. Let's face it, 1220 to 1304 is a nice move.
One reader shared going from 70% to 80% cash. I think that is extreme but he has to do what he has to do. I will correct him on one thing though. He says I am more concerned with missing a move up than being in a move down. I am far more motivated to miss a big move down. I am cognizant that big moves up often come when no one expects and the market has not done badly-circle back to my idea of too nimble.
One reader seems intent on going all ETF yet seems to have a lot of unanswered questions-some of which I could not follow. RW makes the right point (if this is the reader's concern) about day traders in ETFs. If you are buying 2000 shares of an ETF, that trades 10,000 shares per day, to hold for what you think is a long time I wonder what difference the noise made by traders would make. If you have owned an ETF for two years and six months ago there was some big trading one day and someone got a crappy fill (not that you would know) I submit it means nothing to you the holder.
The better question which RW also asks is do you have a plan based on something that makes sense? A lot of what I see out there does not make use of what is available, does not diversify very well and tends to be shorter term than what most folks need.
Take this post as a ramble but hopefully it is useful.
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7 comments:
This was posted possibly too late and too far upstream for you to answer. (Or too obvious???)
How long do you watch an new etf (like Wisdom tree offerings) before making purchase decisions and what do you use as criteria? Close correspondence to the index (Wisodom tree made their own???) and liquidity? Others? Thanks.
There is no simple answer to this-no shock right?
The DNH fund that I wrote about before will be a good proxy for Australia for teh forseeable future despite the montly rebalance because of the yields available down there so I feel good about that, with the caveat that the mining exposure needs to be supplemented somehow.
With the domestic etfs i am less certain. With those i think i would want six months of track record.
I have no interest in Japan but if I did i would think the wisdom trees would be better than EWJ.
The European ones are a tough call. I like the idea of being able to narrow down to specific countries, ditto Asia. The idea is that the countries have enough unique attributes that I think it matters.
I would agree with Roger about foreign exposure by country. Back testing data studies, at least prior to globalization, show that most variance is explained by country and not as much by industry or other factors.
Roger, do you have an historical perspective to what degree there has been a monumental shift away from the U.S. mkt? In the old days I thought that consensus was that our mkt dwarfs overseas and that with poor transparency not worth the bother. Times have changed, but how many domestic mutual fund managers are allowed to weight overseas? I think more and more.
Great stuff as ever, Roger, thank you.
I was intrigued to see you write that you "have no interest in Japan". Is that a "never-not-in-a-million-years" call, or a tactical call now? Fair enough if the latter; or if you pick-up Japanese exposure through broad global ex-US allocations - you could probably ignore the rest of this comment, which takes your point to be that you avoid considering Japan altogether.
Do forgive me if I misunderstand you, but I wonder why you would exclude what is still one of the largest economies and largest stockmarkets from your thoughts? Japan may or may not be emerging from its lost decades of deflation; but surely there's a good case for taking a view one way or the other on that and trading that view - especially for an investor prepared to go "off-piste" into smaller and more esoteric markets like Iceland and New Zealand.
What's more, you can make a case at least for Japan being one of the few major markets with diversification potential for US/European investors. Sure, exports to the US (but increasingly China too) are a key driver for the cycle in Japan, but there is potential for domestic economic activity to ensure still that Japan moves in a different cycle to the US and Europe, for better or worse.
I can quite accept the long-term argument to be wary of Japan; the demographics are awful and competition from China and elsewhere will surely threaten many Japanese industries - you could argue that the same is true of most of Europe - but I'd be wary of ignoring it altogether: there will often be shorter-term trades or niches to target in this market.
Anyway, rant over. Keep up the great work...
For historical perspective; not really in the context I think it is being asked, not that I can quantify anyway.
I beleive the US makes up about 50-52% of the cap weight of MSCI world index.
Re:Japan. Let's not forget I may be wrong and that I did miss the great, recent run. That being said what does Japan offer? Manufacturing. Yet the rest of Asia makes the same stuff cheaper. They import all of there oil, the US only imports 40% of its oil.
The feast of the 1980s and the famine (economically) since makes me wonder whether there is anyway they can effectively manage a large economy.
All I know are some questions, I don't really have answers. Since I don't have answers and have trouble latching on to other people's answers I leave it alone.
i heard that the designated market-makers for ETFs and annual management fees suck a nice chunk of the performance of any corelation dynamics???
why not straight out commodity futures positions to avoid all the middlemen???
long nybot coffee
short comex copper
long cbot wheat
short nymex crude oil
long swiss franc
short e-mini sp500
the idea of going direct is valid, I think (just an opinion) that your idea requires a lot more work which will not be right for some people.
It boils down to is the expense of any middlemen worth not having to manage rolling forward and the like.
Either side of this is valid.
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