Yesterday I answered a question about technical analysis and someone left a very funny nasty-gram saying you have to know when to get out and when to get in. He chided me for gloating, and every aspect of selling EEM which as I say I did not own I was just using as an example to show where the market was at the time I reduced the exposure.
Aside from the fact that emerging markets had grown to be very large in portfolios and that staying double digits, percentage-wise, is not something I plan to do it is clear that there is no way I can with this guy. Although he said nothing about the energy trade I'm sure I can look forward to an equally lovely hello when energy turns up again.
While there is no way I will make this guy happy there might be some value in this anecdote and his comment.
Part of managing your portfolio is making decisions about how much to have exposed to what. Every so often something gets too big or too small and a trade needs to be made. Something that may be too small, as an underweight, when conditions change may make that thing better to overweight as an example.
The commenter even picked on the tax implication of reducing exposure. As a matter of philosophy I don't put tax considerations ahead of risk concerns.
The comment in question assumes that I will be "jumping in and out" which if you have read this blog you, rationally speaking, probably don't think I jump in and out of trades. The reader said I missed a 3.1% lift in EEM (again I never owned it) in the third quarter. Data mined another way did I miss a 4.9% decline from April 25 (the date of the post)?
Any position change chronicled was my attempt to do what I thought was best for clients. Obviously any trade you do is because you think it is the best thing to do. I guarantee you will not be pleased with the outcome of every trade you make.
All of the trades mentioned in the post being picked on were about managing risk (the catalysts to pick when to pull the trigger was the focus of the article). The way I look at things, something getting too large is a reason to reduce. I have not wanted to replace (which would mean going overweight again) what I sold and am not sure when I might want to go overweight again.
Now think about that 3.1% (which I did not double check BTW) for the quarter. The Schwab money market yields about 4.5% which works out to 1.125% for the quarter. I'm not so sure an extra two percentage point is a good trade off taking emerging market risk over a riskless money market is much of a success but if it annualizes out at that pace it would be.
There is one thing he said that I do need to sternly correct. He said the "advice" I gave to lighten up at the summer low seems flawed. This site is a look over my shoulder, I share process for better or for worse but I do not give advice. You are free to be critical of what I do and how I do but get it straight that this is a look at what I do and not a suggestion for you to do anything.
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13 comments:
If the guy can pick tops and bottoms in the market then he is likely a BILLIONAIRE. But then again I wouldn't think that guys who have discovered The Holy Grail like that would show up in blogs taunting the host. Just my guess. They'd be out driving around their European sports car in some far off sunny island capital with a blonde in each seat.
Guys who anonymously taunt blog hosts and brag about their market savvy likely can't trade for crap and just need the outlet to feel better about themselves.
Mark
Are We Back?
You should switch to typepad, seems to have less problems than blogger.
I'm thinking of moving. I bot randomroger.com for like 8 cents but am dreading having to pack and move all those boxes;->
It is a typical error to focus on "missed moves" in isolation from the overall task of money management (of which portfolio mix is only a part).
Those who make this error also commonly focus on illegitimate, rear-view mirror timing decisions w/ trough-to-peak analyses, e.g., "see that big up move you missed," as opposed to more accurate and revealing like-to-like analyses such as peak-to-peak. Your counterexample was spot on in this respect: EEM up 3.1% using one data point, 4.9% down using another, and the risk-free yield of a money market worth considering either way.
I've also noticed those who promulgate errors such as this tend to be members of the securities sales force which perhaps also accounts for their nastiness: Encouraging investors to think for themselves and acquire portfolio analytic skills typically doesn't promote sell-side commission generation.
Following Mark's comment though, it may be that this person wants someone to make him/her a billionaire and is chiding you, Roger, for not showing the 'right stuff' as she/he understands it. Further education may be in order.
PS: Following anon's comment, Typepad is not without its problems either; e.g., some blogs have chronic problems with post order - new posts will be placed after an older post that gets 'stuck'.
With the success of the Icelandic vodka bar, I thought I would move into another venture based on your advice:
Downhill Only Canyon Hiking
Of course we don’t actually have any canyons around here. I figured I could find some sort of bid old quarry and paint the sides of it some sort of southwesty pastel orange landscape colors (they look kind of orange on TV). Since I don’t think a quarry is as deep as a canyon, small-scale buildings would be placed at the top to give the illusion of greater depth. Put a slow elevator at the bottom and Voila! - Downhill Only Canyon Hiking for the Sedentary.
I think the nasty gram was really more trying to emphasize a point and was not blessed with an enormous amount of tack.
The point being it is extremely difficult for most of us to time the market. If you sold off earlier this year when did you buy back in? I too would like to time the market, but I think there are only 2 or 3 times a decade that one can be successful. If you read most blogs you would think it was several times a year.
I think the guy had a good point, even if it was not particularly friendly way of doing it.
Replace the word 'gloat' with 'talk' and the comment is not at all nasty. Someone is way to sensetive lately.
The guys comments were right on target.
Your post was about technical analysis, and the resultant decision to lighten up.
Trading on technical indicators, vs portfolio management are quite different arts. You seem to confuse the two quite regularly.
EEM was up another 2 percent today. What did your technical analysis indicate that you do in preparation for such a move?
Most clients are around 4.5% in emerging markets. I'm thrilled the group was up today.
Roger, have you been drinking?
Yesterday you told us your decision to lighten up on emerging markets was due to some technical mumbo jumbo.
Today you are telling us that the decison to lighten up was purely an asset allocation decision because emerging market exposure had fallen outside of your target range.
Which is it?
PS, the person who posted yesterday was a jerk, but he had a point.
bigger picture tactical, smaller picture the specific timing was more technical
Roger, I enjoy reading this blog immensely. Good job.
I recall reading several prominent articles last November saying, "Stay away from foreign property. It's overvalued." Guess what, foreign property is up over 50% ytd. Again, I see folks saying, "Watch out for foreign property. It's overvalued."
I believe that the "nasty grammer" shines the searchlight on EEM as an excellent example of what David Swenson would label "market timing decisions taken quite lightly." I think that the point of his note to you is that NOBODY can really know that a market like EEM or foreign property is over, or under-priced, especially on very short notice.
Whenever I see such "over" and "under" price pronouncements, I just laugh at all the traders who stupidly listen and act upon such moronic statements.
By the way, here's a really good one! Ever taken a look at what percentage of "EEM-like"(translated, "Managed") mutual funds actually outperform EEM? Answer comes tomorrow!
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