ZX-Tex

iTrader: (15)

Extending the racing metaphor... Let's say I see that there is a lot of turmoil at the front of the pack, and that most all of the mid-pack racers are pushing very hard and racing in an overly aggressive manner. I know I do not have the car to fight through to the front of the pack, and even if I did, some mid-pack yahoo might take me out through no fault of my own. So I decide to hang back a bit in the back third of the field and wait for the big crash. It happens, takes out the mid third of the field, then I step up my pace on my plentiful fuel load and relatively fresher tires and catch the front third of the field where I can battle for position again.

So I am not on the podium, but I have finished ahead of most of the field, and still get some season points. So I am not Casey Stoner, but at least I am not Randy de Puniet.

Scrappy Jack

iTrader: (2)

I would argue this is where the metaphor breaks down, unless you have a specific process for returning to the market.

For example, if you monitor two LEIs and a couple of lagging indicators and decide 3 of the 4 must confirm your directional change. Or you are a chartist and use some specific technical indicators to guide your decision making process. Or some combination.

The average retail investor has seen 2.6% annualized returns for the past 20 years. The only major asset class I can think of that did worse than that was inflation at 2.4%. The S&P 500 TR was almost 8% and the BarCap Agg was about 6%.


Ultimately, it's your money and I don't know you so I am not invested in your success or failure. Likewise, you don't know me and I may be a complete idiot. I am practically a Florida native, after all. I have not bothered to cite all of the sources for my data and you have not reviewed any sort of audited track record for my investing performance. Etcetera.

I just hate to see people making investment decisions based largely on emotion without any kind of defined strategy.

ZX-Tex

iTrader: (15)

More historical, less emotional. So if the market drops say another 10-20% over the next year I think you should check back in and let us know when your indicators say we are near or at the bottom. Or, tell us what they say now about the probability that there will be a drop of this magnitude over this timeline.

What were the indicators you like saying before the 2007 drop, and the late-year 2008 drop, and what are they saying now? I have been making comparisons myself looking for something that looks reasonable.

Faeflora

iTrader: (2)

Dude I make all my important decisions in life on pure emotion.

Buy a house? Because I like it.

Marry a woman? Because I like her.

Buy a car? Because I like it.



Not anymore.

Joe Perez

iTrader: (8)

The last time I "pulled out of the market for a little while" it was right before things hit rock-bottom in 2007. Lost about $100k on that little panic move relative to if I'd just stayed put and rode through the dip.

Emotion and "following the crowd" will get you killed sometimes. This is a buying opportunity.

Scrappy Jack

iTrader: (2)

The S&P 500 is currently off about 12% from its intra-day peak 1370.58 on 2011/05/02. The mean intra-year drawdown as discussed is a bit more than 14%. Averages, as I am sure you know, are derived from opposite ends. Unfortunately, I don't have the standard deviation data for that stat, but if you just use the average, it would be completely normal for us to drop several more percentage points from that peak.

Here are some data points:

• The Fed is running very accomodative and is likely to continue to do so for longer than most retail investors expect.
• The Money Supply is growing, even if velocity is low.
• CPI is constrained and there is plenty of slack and likely will continue to be. The most recent numbers are also backward-looking year-over-year delta numbers.
• The S&P 500 fwd pe is below its historical average.
• The ISM index reading was weak but still a 24th consecutive month of expansion
• The ADP number had a gain for the 18th month and payroll numbers were above concensus
• Corporate profits have recently hit an all-time high
• Some drags on growth continue to diminish, including one-time events like Japan
• Oil prices have fallen since the last backward-looking GDP numbers
• There is a chance the recent downward GDP revision gets changed on the next revision
• When consumer sentiment hits a trough, you often see strong 12-month equity returns
• Corporate and municipal defaults and delinquincies are low
• YoY improvements in productivity are below historical averages
• If it took 3 more years to get back to the 2007 peak, the S&P 500 would need to average almost 8% per year.

And that's just oriented toward US large-cap equities, with the caveat that the stock market and the US economy do not necessarily have a 1.00 correlation.

I am not saying you are right or wrong for moving to cash. I am not making a value judgment one way or the other. Nor am I making any kind of recommendations or predictions for anyone on this board.

I am just suggesting you have a more definitive approach to your large tactical moves than "a feeling." For instance, have a nominal or relative target for the S&P, a discounted forward PE, Dow Theory, relative strength, etc.

ZX-Tex

iTrader: (15)

The last time I pulled out of the market, it was a few weeks after the DJIA had hit 14000 and there had just been a big correction. The talk of CDS, the housing bubble, and over-leveraging had picked up and I was listening. It was becoming clear there was real risk of a housing bubble burst, or at least at its current growth rate it was unsustainable. Since a large part of the economy depended on housing, there was a clear risk of a big correction coming.

So I got out of all my funds when the DJIA was around 13,000 and planned to stay out for at least 6 months to watch what happened. The mistake I made was getting back in within just a month or two when it looked like there was going to be a rally and I feared I would miss out. Then of course came the big plunge and within a year I (and most everyone else) had lost 50%.

Of course almost all of that lost money has come back. But If I had stayed out I could have made a bundle getting back in when it was at 8000 or so, which is about where I probably would have got back in since the DJIA had been slowly climbing. So it works both ways.

S&P just downgraded our rating to AA+, stating that the US has not solved its credit problem and that more needs to be done. So I submit that my original premise still holds. DC has not solved our debt ceiling crisis, but just applied the usually ineffective BS of kicking the decision to a committee whose recommendations, as good as they may be, may or may not be followed. The underlying problem still remains, and the debate will rage again before we know it.

The nation has polarized itself well beyond the point where public debate can be effective and result in beneficial compromises. If the radicalized populist pundits on BOTH sides of the aisle don't STFU, and stop the brinkmanship, things will only keep getting worse. And, the economy and the markets will suffer as a result.

Scrappy Jack

iTrader: (2)

So, in other words, without a defined and disciplined strategy for re-entry, your fear-based investing did what for you?

ZX-Tex

iTrader: (15)

Read again

Scrappy Jack

iTrader: (2)

Help me understand. If I am reading correctly, you moved from equities to cash after the DJIA had fallen from about 14,100 to around 13,000 but then got back in shortly afterward based on fear - rather than using any sort of defined process - and still lost about half your value like "most everyone else."

Now, though, most of the value has recovered.


In what way did your emotionally driven moves do better than even a "buy, hold and forget" strategy (of which I am not a proponent)?

ZX-Tex

iTrader: (15)

That was my point. Getting back in too soon was a 'fear' move or put another way a greed move (fear of missing the rally) and it was the wrong move.

If I had stuck with my 'analysis', as amateurish as it was, that the housing market growth rate was unsustainable, and that a lot of the economic boom at the time was dependent on it, then I would have done much better.

BTW there was also the ridiculousness of people obtaining huge loans on houses with no proof of income, just so they could flip houses. And of course the flipping boom could not go on forever. This was all possible since those writing the loans did not carry the downside risk. It was clearly a bad idea, yet it was rampant during the feeding frenzy. I never understood that one, and it seemed to me it would end badly, which of course it did. No emotion there, just basic economics. I like most did not really understand how bad things were behind the scenes with this whole house of cards (no pun intended) being rolled into untraceable MBS (mortgage backed securities, or massive bull **** LOL) and leveraged so heavily by the investment banks.

Scrappy Jack

iTrader: (2)

So, with hindsight, you have identified that your emotion-based re-entry to equities was poorly timed. In what way will your current plan allow you a better probability for making the same mistake?

You said before that 8,000 on the DJIA would have been your likely target for re-entry if you had not allowed fear to force your hand early. What is/are your target(s) this time?


PS - Feel free to tell me, "**** off; it's mah monies and I do what I want!" at any time you get bored of my persistent and novice Socratic method exercises.

ZX-Tex

iTrader: (15)

Good questions. How about less 'what are you going to do this time' and more 'here were the indicators last time (2007-2008) and here is what I think I would look at now'.

For me the target was not so much re-entering at exactly 8000. It was more that the recovery had begun to take hold and the market had been steadier than it had been for awhile. That and listening to day-to-day analyses and bigger picture analyses.

y8s

iTrader: (8)

Scrappy, what's your take on support/resistance levels as short term aids for when to buy in or sell off?

I'm thinking specifically of sites like stockta.com

Enginerd

iTrader: (1)

I pulled out of the market last year after a few stupid moves (like missing dates on options expirations due to ignorance and lack of time to invest).

My pull out began when I stopped trading equities and focused just on options. I kept a few equities at first and sold some covered calls...but then found it was much more worthwhile selling puts or shorting calls. If you have a fair amount of time to research into the overall outlook of the markets, pick a few big names and trade options on them.

I haven't traded for a year or so now. I've decided the stock market (other than passive retirement contributions) is too stressful and time consuming if you want to do well. I'm on the 'save and buy a rental' plan now.

Scrappy Jack

iTrader: (2)

[This is going to come across dick-ish in text, but that's not my intent.]
I have already listed over a dozen different indicators you can look at for guidance. We use a number of different indicators (of which I have listed several) and the models are generally client-dependent. I'm not going to list specific models because (A) some are proprietary and (B) I don't want it to appear that I am giving specific investment guidance.

That sounds like a cop-out but just ask yourself if the questions I am posing make sense and, if so, whether you want to answer them differently than you have in the past.

How are you defining "the recovery had begun?" GDP growth? Fed Beige Book data? Manufacturing indices? That's an example of what I am talking about.

Again, I hate using metaphors but I would compare that to doing a tune and saying, "I'll pull timing until it feels better" but not actually monitoring knock (via sensor or even det-cans) or using anything to measure power output delta (a dyno or even a "road dyno" program).

I'm not familiar with that website. My personal take on technical analysis is that it doesn't matter in many ways whether I believe it is valid. I believe that enough other people do that it can affect market movements.

I personally do not believe in using only one type of analysis (fundamental vs technical, macro vs micro, top-down vs bottom-up, etc).

Joe Perez

iTrader: (8)

I will say one thing.

I've been sitting on the sidelines all throughout this "recovery", waffling back and forth between "This appears to be stable, and I'm missing out on the action" vs. "no, the fundamentals are still broken and this can't be sustainable."



Feeling pretty good about my decision right now. It's like Oct 2007, except I'm not losing the equivalent of a used Porsche Boxster every single day.

mgeoffriau

iTrader: (7)

Just take a short position every time Obama has another speech scheduled.

Joe Perez

iTrader: (8)

At this particular instant, I don't even have any money in a brokerage account, as I'm halfway in the middle of closing one account and funding a different one (which I'm feeling pretty stupid about right now- today would have been a great SPXU day...)

On the other hand, I was going to gobble up a bunch of AGNC, in which case I'd have taken yet another ***-******* over the past few days, so I'm glad I hadn't had a chance to do that yet.

Gotta get those funds moved. There's a buying opportunity coming.

GeneSplicer

iTrader: (14)

guess I just lost 10K today in my roth - to bad I didnt have another 10 on standby, I'd be blowing it tomorrow.