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10 comments:
No mention in the analysis of the conspicuous lack of volume toward the upper end of this rally.
Roger
I agree with your point wrt not being concerned with trying to nail the bottom.
Using the moving average crossover as a buy/sell signal has its own problems. You will generally miss any big downturns (that's good) but you will incur a loss every time you act on a signal (not so good). Loss is from buying above, selling below the average line, as well as false moves up/down moves that reverse. Worst case scenario is several years of flat market performance that has you going in/out multiple times, each time taking a haircut while overall market ends where it started.
When I backtest various parameters it's really interesting how none of the simple crossover approaches that might immediately come to mind improve long term returns. They do reduce risk (in sense of max drawdown, monthly volatility, etc.) but to a large extent they're really just rearranging the risk. Rather than mostly up with the occassional big down, you get lots of small downs.
In my book this is better, but I'm an individual guy answerable only to myself. It seems to me you will have the challenge of trying to explain to clients why their portfolios will lose value by this strategy in a flat market - and that's a good thing. I can easily imaging you having to explain this one over and over to clients only to have them continue to be upset that they're getting exactly what they signed up for.
It makes me glad I don't manage anyone else's money...
Michael
Hi Roger,
First of all, I'm glad I found you. I think your commentary on the market is measured, well thought out, and full of insight that helps me evaluate my own thinking. Great!
Quick question - I'm primarily someone who likes to stay with broad equity classes (e.g., small growth, emerging market, etc.) via ETFs. Do you see any utility to using the 200 DMA in terms of go-in, come-out, in the overall scheme of in-out? Just curious.
Thanks again for being here.
Ed
Not to mention the fact that the big money boys at the IB prop desks and such have perfected the art of the false breakout (or breakdown). If there is a well known resistance level and they plan to sell, they will make damn sure that the level is breached first to create the appearance of a breakout and bring in the buyers they need to distribute to.
Michael, you are way off in terms of just about everything in your comment at least as far as how it plays out in the portfolios I manage.
Crossover implies like 50 day crossing the 200 day or some other 2 numbers. Not what I do. I did a back test that you can read here looking back 25 years and it did work quite well.
further, the context you write about is not what i do. there are literally a couple of hundred posts on how i apply this which i'm guessing you did not read.
Ed, big picture how do you feel about absorbing all the bumps in the road? The answer to that question tells you what you should do, i think.
some sort of defensive action makes sense for some people but not everyone. the manner in which you choose to access the market doesn;t necessarily address the question about bumps in the road.
Great video, as usual Roger.
Personally I will be happy to
see some of the etfs close...
just too much to keep track of...
http://finviz.com/map.ashx?t=etf
(I think above is a very informative site...how come your
blog doesn't list on it?)
Anyway, my head hurts from trying
to figure out everything that is going on...because I'm very much a skeptic...I think it's called
"Goldiebars and the 3 Bears"
(Bear Sterns, Be(a)rnanke, and
Russia)
Roger, one of the sub-texts in many of your recent posts is to invest, or at least investigate investing, where the money is flowing. Sometimes that seems to refer to budget surplus countries and other times it seems to refer to the thematic flow of investment dollars. I'd love to hear you expand on that at some point. Is there a site that tracks such things? Lazlo Birini is the only person that I recall touting a strategy like that.
Thanks very much.
Roger although I'd buy your book in the blink of an eye I don't believe you'd publish one because you're not blogging here for the money.
Peace to you and your family.
Roger,
What are the really wealthy doing? Mostly value investing and doing bond ladders? Buying convertible bonds? Life settlements? Private financing deals? Or, are they tracking the 200d crossover / bullish % reversal?
If the really wealthy do not want to feel every month in the road they either pay someone like me to watch somethng like the 200 DMA or they do themselves just like everyone else except you apparently.
And if they don't care about every bump in the road then they pay no heed to it, just like anyone else.
BTW, implying bond ladders are some sophisticated tool misses the mark. Bond ladders imply no work being done whatsoever. If you are really wealthy and paying anything more than zero for a bond ladder you are being overcharged.
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