An interesting tone has developed in the comments lately, one that has come up before, about different approaches to market participation.
The thing that gets lost in there sometimes is that there are many different methods of investing in the capital markets. If you spend time looking you will find research that says buying strength wins out. Spend a little more time and you will find research telling you to buy weakness. Same for selling strength and selling weakness.
Research shows ways to trade a lot and have success while other research says to never trade. Then there are studies about behavioral finance which make it seem like no one could possibly trade well. If you spend enough time you will find research from someone credible on every possible aspect of investment approaches.
At different points in time any of them can work and at other points any of them can fail miserably. I don't see how any one style can work all the time. Fortunately long term success doesn't hinder on never ending success.
Part of success comes from being able to sleep with whatever you are doing. If you are trading too much to be comfortable then trade less, if you are not trading enough, trade more. If you are comfortable then big changes don't need to be made but over time as you learn more you would probably make subtle changes.
On this site I write about what I am comfortable doing and why. I think the only tactical advice I give is that you should have some sort trigger point to take defensive action. I don't say what yours should be, I just tell what mine is. Some readers, in that same spirit are generous enough to share what they do in the interest of capital preservation.
The thing that I would hope you take from this blog is a little bit of my process, then go to other sites and take some of their process and combine that with what you believe and create your own process. My style, whatever that might be, is the same thing; little snippets from other people combined with my own observations.
One last point is my style, still evolving as it always will be, is right for me, not you. You need to create your own style, assuming you manage your own, that needs to be right for you.
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20 comments:
C'mon Roger, does anyone REALLY say PoTAHto anymore? [grin]
Huge point here. "Whatever you're comfortable with" is something that takes many years to figure out. Just identifying your style takes a long time (I used to think I was insanely aggressive until I actually went really aggressive and could not sleep). Then after you figure out why you're not sleeping, you need to figure out ways to help you sleep. Maybe it's puts, maybe it's cash, maybe it's inverse ETFs. Only you can answer that question and there is no right answer.
I appreciate you sharing with us Roger. I have learned from you and the others that comment here.
Roger
Congrats on maintaining the emotional presence to stay above the fray. It's difficult for many to keep a rational dispassionate perspective on financial issues at times of high stress (i.e. when they're losing $).
I observed long ago that when many people are upset about their own portfolios, they find it difficult to accept that they made their own decisions and must accept the consequences of their own actions. It is more emotionally gratifying to some to direct anger at others - and someone who is making profits, or losing less is a pretty obvious target. I think that may be source of some of recent comments.
Anyway, like you I use simple moving average triggers to get defensive. I've done some backtesting that suggests to me that it is likely to work over time and so I use an algorithm that takes me to more defensive posture if market rolls over. But downside is tracking error - my returns are often quite different than others. This can be painful during the transition (I strongly suspect that's where we are now) but I remain confident that this risk profile is better for me than "buy and hope" in the long run.
Different strokes for different folks. The point is to know what you've gotten yourself into, and accept the downside of any approach, so that when it happens you are emotionally capable of dealing with it. For myself, and hopefully most readers of your blog, I think it's helpful to read your thought process.
Keep up the good work!
Roger,
You use a pretty classical approach to getting defensive with the 200 dma. You kinda tweak when you activate it , but it is pretty standard so to speak.
I might also comment that it really does not save you that much on the down side IMO, as it prevents you from knee jerk selling everytime the market falls 3 to 8%. That is the real beuty of your approach - it keeps you in bull markets by getting rid of emotion.
Have you ever explored getting defensive when market averages get so far above the 200 dma? For instance sell 20% of your equities when S&P is more than 10% above its 200 dma.
The % above and the % to sell are probably wrong, but I'm wondering if there is a better way to gauge an overvalued market
I'm still flumaxed over the number of people who view your blog as some kind of trading method, rather than an informational blog about asset classes. Maybe it's that new nickname you started using; Roger "The Executioner" Nusbaum? lol
Flummoxed or not, you gotta get a laugh out of the guy screaming "it's time to SELL EVERYTHING NOW. I'm happy to take my 5% money market return"
and I'm thinking "sell? bah. Maybe in 25 years."
One of Wall Street's most favorite charts to pull out to investors, esp. newbies, is the chart that shows how much you would have missed by not being in the market on the markets best performing days...
If your broker pulls this chart out on you, ask him to show you what your returns would look like if you had avoided the worst performing days...
The chart is out there, Rydex has it.
It doesn't see the light of day very often....
:)
The above comment is not meant to criticize Roger whatsoever!
It is an endorsement of his defensive action.
This is not a "buy it and forget it" atmosphere.....
linda p,
can you post the site to the chart?
tia
I seems to me that much of the frustration being vented everywhere is based on the fact that our "wise and sound" investments are never completely insulated (if at all) from the consequences of events such as the failures of S&Ls and the wreckless and irresponsible lending practices of the greedy SOB's that kicked off and/or jumped into the sub-prime "game". Those who are responsible appear to always get bailed out, while those who try to invest responsibly suffer by association. Too bad that nobody is watching the store!
Yes, Roger... thanks for the cool head.
Tom
Roger,
Well put. The problem is to make sure that your potatoes don't end up mashed.
Doesn't matter how you pronounce them.
As you know, I stick to an extremely disciplined approach to my stock holdings. That seems to be the only reasonable method; develop your own peculiar set of rules and then stick with them.
I suppose it doesn't matter whether you are a value or a momentum investor or a contrarian or technician. Decide what is is that you want to see in a stock before you buy it and then know ahead of time what your goal is with that stock. And when it reaches that point, either on the upside or downside do what you planned to do!
It may also be possible to use your own portfolio as an indicator that directs you how to trade in the market. That, at least, is what I try to do.
Sales on 'good news' or appreciation suggests that the water is fine and you might just want to take a dip. Sales on bad news or losses suggests the contrary. I sit on my hands in those cases.
Thanks for the great writing.
Bob
Stock Picks Bob's Advice
Roger,
I have lost over 15% of my retirement since I started reading your blog and using your knowledge. I am disgusted with myself though and cannot blame my large loss on you.
Rooss
Roger,
I am up roughly 40+% since I have been reading your Blog and many other sources as well.
I love your Blog, but know my losses or gains are my responsibility.
Thanks
"it's time to SELL EVERYTHING NOW. I'm happy to take my 5% money market return"
You are certainly are entitled to your opinion and can laugh at anything you choose to, but I would agree it is time to sell.
Unfortunately I think Marc Faber is finally correct (he had to be correct some time) and truly excellent buying opportunities will occur at the end of this "correction"
I am actually rather glad there was someone like you waiting to buy my equities when I wanted to sell.
I will check back with you in 3 to 9 months.
ok, lotta comments.
Tom makes a great point about "wise and sound." There are truisms about about what should work and when but all those can do is put the odds in your favor a little bit. Certain things should be doing better in this event but only some of them are.
the person who is down 15%; i'm not sure how that can be. the market is up a lot over the last year. you don't mention how long you have been reading this site, but you need to explore some serious changes if you are down that much in any time period.
all of the posts labeled "portfolio strategy" are about diversified portfolios that reasonably follow a broad benchmark. I would submit you are not "using my knowledge." The only way to be down 15% in any unnamed time frame is with some big bets gone bad layered in. apologies for being harsh.
Tia,
Check in with Rydex. They should be able to help you.
Sorry I couldn't be more helpful.
"I am actually rather glad there was someone like you waiting to buy my equities when I wanted to sell.
I will check back with you in 3 to 9 months."
You're missing the point. But oh well.
sigh, I guess you're either with him or against him? LOL
Linda,
The 10:57 anon was saying Thanks In Advance (TIA) and not signing as "tia".
Anon, you do not need the chart to get the point. Just calculate the compounded returns instead of the annual returns and you will see the point. That's what RW was saying couple of days ago but people missed the point.
I just shorted enough to hedge 60% of my portfolio against a continued decline/ bear raid. The markets are clearly breaking down as we speak. Strength and dips are being sold not bought.
James Overton
Thanks Sami,
Boy do I feel dumb....
:)
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