Reply to
@scott:
Hi Scott,
Thanks for participating on this topic.
Based on your submittal, I suppose you subscribe to the axiom that if you don’t agree with the message, attack the messenger.
According to your assessment, I am a buy-and-hold geezer who is mired in the past. If you were a baseball hitter that would not be a bad batting average since you got one of the three characterizations correct.
By most accepted definitions, I qualify as a geezer. That status is not all that bad; it does come with some physical handicaps, but it also offers some redeeming qualities. One of those redeeming qualities is that Geezers do absorb at least a little wisdom during the aging process. Professor Warren Bennis has coauthored a wonderful book on the subject. It is aptly titled “Geeks and Geezers”. The book illustrates how era, values, and defining moments shape leaders and differentiate the perspectives of the two cohorts.
I immediately take umbrage with your uninformed assertion that I am a buy-and-hold investor, and that I am mired in history. Neither is a correct assessment. I will not waste too much verbiage defending my positions since they are not germane to the TA issue. Just be aware that I trade a minimum of twice annually (near the beginning and ending of each calendar year with separate objectives), enter the markets more often given a dynamic environment such as we are currently experiencing, use actively managed mutual funds and ETFs for a large fraction of my portfolio, and vigorously pursue evolving investment concepts.
Although I study history to guide my decision making, I am fully cognizant that history never precisely repeats itself, although it sometimes reflects strong echoes from the past. I am committed to a program of continuing education, and I am dedicated to introducing neophyte investors on this Forum to the nuances of investing. That’s my primary motivation in submitting my rather lengthy postings.
If you are searching for a simple characterization of my investment style, I consider myself an economics-directed investor. I have a rather large portfolio; its size alone essentially means that I own almost all segments of the global marketplace. Therefore, my primary investment tool kit is rooted in national and international economic and political considerations. I try to be very open-minded and flexible when addressing our constantly evolving and maturing investment environment. Sometimes (maybe too often) my judgment fails, but I do learn from those failures. You judge me incorrectly. That hardly matters to me personally except it casts a doubt on the clarity of my submittals. That’s not a good thing.
Prior to
retirement, I spent a lifetime as a practicing engineer. I fully understand the need to expect the unexpected. Engineering practice embraces the concepts of inclusive planning, data gathering, cost control, contingencies, safety factors, and multiple backup systems. Those are part of our DNA. By nature we are skeptical and very demanding of proof-of-concept. We love experimental data and like pilot programs to stress test novel approaches. I have consistently applied these common engineering principles to my personal investment program.
Almost by definition, engineers must be an optimistic breed; perplexing and challenging assignments demand that viewpoint. Unabashedly, I am an optimist. Simultaneously, engineers are trained to seek multiple solutions and execute tradeoff studies. We always develop a Plan B as a safety valve for a poorly performing Plan A. Both training and practice have drilled that discipline into our very souls.
Engineers attempt to anticipate failure modes and to accommodate them with innovative designs. We have always employed mechanisms to identify approaching hazards, to provide alternate load pathways, to mitigate component failure damage, and to continue the mission under adverse conditions. Portfolios can be constructed in a similar manner. Mine is.
Our glass is always half-full, but we resiliently seek a stronger glass, and search for propagating cracks in that glass. I apply these time-tested generic engineering principles to my investment philosophy. It has served me well. I do not worry over the marketplace today, nor tomorrow, nor next month. I am confident in the asset allocation decisions that I previously made, and review them very infrequently. For example, I do not currently know the value of my portfolio because it is unnecessary to do so. I do not plan to assess it until the third quarter ends.
By the way, you have properly identified a fundamental limitation in all Technical Analysis. Embedded in that methodology is the assumption that nothing really changes, that the past provides a perfect, mirror image of the future. The TA specialist trades on the reliability and repeatability of chart patterns. Of course that happens randomly, but it is a gross oversimplification.
From your postings, you seem like an angry man. I hope your postings assuage some of that anger and direct it into more productive channels. I am happy with my investments; I hope you are as happy with both your portfolio elements and overall.
Best Wishes.
The Siren’s Song of Technical Analysis Hi Guys,
Technical Analysis sings a Siren’s song.
I have noticed an uptick from MFOers who are now defecting to technical analysis to inform their mutual fund investment decisions. That decision is likely prompted by a roiling marketplace that has destroyed investment returns.
Unfortunately, expected Technical Analysis (TA) results are more an illusion than a reality; TA methods are mostly a set of ad hoc rules that have no scientific foundation, little, if any, verifiable returns, and a paucity of documented performance studies. Its limited success is mostly asserted by the countless books and seminars that create wealth for their authors and lecturers, but not for their clients. The Internet offers a zillion technical analyses methods and unsupported claims.
The reason for its popularity is obvious; it promises reward without risk; it promises wealth by next Friday; it promises a mechanical system that requires no anxious decision making. These are false promises that are not reliably deliverable. Random successes occur.
I personally know several investors and have been exposed to a host of financial advisors who champion TA; some are True Believers, but others are slippery charlatans. I actually admire the principle-motivated True Believers, but they will learn over time of the discipline’s shortcomings. I did.
I started investing in the mid-1950s. My initial decision making tool was TA-based. My decisions were rooted in the methods proposed by Robert Edwards and John Magee in their classic book “Technical Analysis of Stock Trends”. I applied their methods using arduous, hand-drawn graphs. I still occasionally consult my tattered copy of their tome. My general conclusion is that pattern investing is a wasteful and profitless investment procedure, although graphs are a useful way to summarize huge data sets and it does yield some very generic trend guidelines.
TA proponents like to equate their methods with those of scientific, natural laws. I suspect that ephemeral comparison is made to foster credibility in the mind of investors; numbers have a powerful influence given uncertain outcomes. But investment outcomes are not governed by inviolable physical laws. Natural physical laws are static and do not change with circumstance or time; investment outcomes are dynamic phenomena that are event and people-driven happenings.
Physical laws are controlled by atoms and electrons on a sub-particle level, and by material properties and interactive forces on a macroscopic level. Equivalent investment laws do not exist because the agents (people, institutions, and events) and the characteristics that generate the interactions change constantly to reflect circumstances and human emotions.
Behavioral research has established that humans are pattern seekers. We like to identify and connect the dots. Technical analysis purveyors trade on this predisposition. And these TA purveyors and their techniques have proliferated. There are hundreds of TA procedures readily available for application. But, do they work as advertised?
What all these TA procedures have in common is the lack of a performance track record. This MIA (Missing In Action military jargon) evidence is shouting a loud message. If the success of the methodology is well established, its purveyor would jump at the opportunity to publish those results. He would be instantly famous. He can’t because it does not exist.
Most often, a recommended TA system is endorsed because of a successful back-tested comparison. Of course it was successful; that’s the primary reason that it is being endorsed. All the other procedures that failed in the search for a fruitful correlation have been summarily rejected and tossed into the wastebasket.
The challenge is if the recommended method will produce consistently superior returns in the future. That is the acid test. Be assured that they all have failed that test somewhere along the road. Otherwise, that surviving TA methodology would be the toast of the investment world. It would quickly and universally be adopted by all of us seeking financial security. It is an unfulfilled dream.
I do not know of any billionaire TA wizards. Even starting with a small kiddy, if these TA systems were so superior, they would create a billionaire in a short timeframe. Historically, equity markets annually return 10 % on average, bond markets about half that return. Warren Buffett manages an annual return in the low 20 % range, as does a rare group of other financial wizards. All these wizards fall into the conservative, fundamentally driven class of investors. Does any billionaire advocate a TA approach as the basis for his wealth? If so, has he documented the approach? My answer to both questions is a firm No.
I have discussed TA with John Murphy at the MoneyShow conferences several times. He is a humble, honest, and dedicated TA True Believer. I own several of his numerous books on the subject. But he can not document his methods with hard performance data. He is an emperor without cloths. He works very hard at conferences selling his books; I suspect he makes far more from giving investment advice than from actual investment success.
In almost all forms, TA is simply a momentum strategy, either based on price movement or trading volume dynamics. In the mutual fund world, the FundX family of funds have practiced that discipline for an extended period. Their flagship product is FundX Upgrader, FUNDX. Janet Brown is the president of the DAL Investment Company that assembles and managers the growing FundX family. She is a compelling advocate for their brand of the generic TA approach. It is a pure momentum play that has enjoyed some successes, as well as some recent disappointments.
The issue here is that the deployed methodology is not constant over the reporting timeframe. It is slowly maturing so the record is distorted by that evolutionary process. In its early embodiment, the FundX holdings were more heavily committed to a small number of hot-hands, and diversification was sacrificed. Methodology adjustments have been made.
I subscribe to the WSJ. I wonder why, on a daily basis, the Journal graphically displays a 65-day Index Moving Average, and each Monday, it presents both the 65-day and the 200-day Moving Averages. These are rather arbitrary standards. Why not a 100-day criteria? The perturbations are endless.
Most other TA techniques are similarly vague about their selected data collection logic and criteria timeframes. They seem purely arbitrary, and most likely represent a rule set derived for a specific stock analyzed for a specific time. The operational rule extracted from this restricted study was extrapolated to become a universal rule. That rule has almost zero likelihood of being precisely applicable for the broad array of equities that populate the global marketplace. Its application to a group of ever-changing holdings that compose a mutual fund is even more suspect. Good luck on that extrapolation.
Can anyone explain the rationale or logic that dictated the various data gathering periods that are incorporated into the MACD (Moving Average Convergence/Divergence) statistic developed by Gerald Appel? A 12-day minus a 26-day accumulation period coupled with a 9-day crossing signal indicator seems unduly arbitrary. This unlikely specificity smacks of a data mining operation.
And MACD is just one of scores and scores of TA Indicators that are proposed for investment decision making. If that’s not enough, the TA protagonist also endorses combinations of this infinite array of dubious tools. An equation, or a theory, or a procedure that does not rest on a rock-solid fundamental understanding is literally a crapshoot. Do you want to risk a secure retirement on a dice throw?
In some ways TA is religion-like. True Believers believe because they want to believe.
Let me close by offering a challenge. If you are a TA True Believer and apply that approach to all or a segment of your personal portfolio (not someone else’s unverifiable claims made on the Internet), please submit a posting to this forum. Share your success stories and wisdom with us. I am still searching for a TA practitioner who has achieved market rewards that are a few percentage points above a realistic benchmark for his portfolio. To paraphrase a song, a good TA system is hard to find.
I’m patently waiting. I am always prepared to learn. We humans are hard wired for pattern recognition and are unduly susceptible to false patterns. Anyone for Robert Prechter and his form of the Elliot Wave Theory? How about some Oscillators or some Head and Shoulders necklines? Or a Fibonacci number or two? God, I hope not. All this is glittering junk science.
Best Regards.
Our Funds Boat; week, -.01%, YTD, +3.32% AUG 20 2011 Howdy ron,
We're always pleased to have input about our holdings. The discussions help keep all of us alert, eh???
As to the numerous holdings. We have several retirement accounts that can not yet be consolidated/rollovers. So, when attempting to be invested in particular sectors and/or funds; we are sometimes at the whim of choices available from various vendors. We are usually able get a bucket full of similar offerings; but from various sources; and this works out okay as these "group of funds" effectively become one large mix, as with the HY/HI bond funds.
This house hopes to be out of the permanent work force within one year. Other opportunities for part-time decent work exists; but the full time grinder hopefully comes to an end. We'll both miss the additional income that could be had, the added SS increase and no more participation in company retirement plans. Tis the trade off and the decision, eh?
We have been good with our savings and spending over many years; and don't anticipate that we will run out of money if we live to 90. On the other hand, we have already both had "work" since we were very young and it is time to move on with other "work", such as continued efforts with the portfolio.
One may suppose in the long run, part of everything is some form of a gamble; we are/have just tried to keep the game in our favor.
We have always been very good with keeping a running total of living expenses and know the "knowns" for food, gas, house, taxes, etc., and know some inflation will adjust some of these areas. There are bound to be some changes yet unknown, but we plan to have enough slack monies to not have to dig deep into other monies. Heck, if I gotta dial the winter heat way down and wear more clothing inside, than that is what it will take.
Ultimately, IF we can stand back from drawing on SS too early to let that build, and coast with our pension and side work monies , and eventually at 70.5 age; have to start withdrawals on the IRA's; we just may be able to stretch things til the end.
Another side of the retirement thing, is that we probably all know some who worked past the time of stopping; and in spite of longer live spans on the "average", there are those who are/were on the "young" side of the averages and never found much time left to discover the other areas of knowledge and pleasure.
Retirement will find a bit more travel; but both of us travelled globally in our early twenties; when we didn't mind carrying our house and belongings in a 75 pound backpack. We could not do that today, so the travel will be different.
If we err in our judgement about running out of money; we will have hopefully had enough time to add to our more pleasant retirement period. We will be just about as busy, but doing other things.
Thanks ron for the questions and notation. You sure got me into a chatter box
Take care of you and yours,
Catch
Fund Managers' Cash Holdings Nearing Credit-Crisis Levels
"Should Investors Be Mad At Markets Or Themselves?"... Tony, with all due respect your author is presenting a false choice here. It may also be considered a red herring as it distracts from some very real issues. Definition of "investor" is always a tough one in the first place. Is that anyone with some skin in the game? Many workers have been "defaulted" into target retirement funds where they work who have no idea what they're investing in. Some don't even realize they're investing in a mutual fund, or for that matter couldn't tell ya what a mutual fund is.
But, we digress. Yes there's some real anger in this land and it surfaces in some of the posts on the board. IMHO no one here is angry at "the market", but rather at incompetence at the highest levels which adversely affects markets, and also at elements in society, particularly elected leaders, who have perhaps unwittingly made the markets an uneven playing field or, worse yet, have corrupted them by promoting the false assumption that every Tom, Dick, and Harry can achieve a comfortable retirement through market based investments managed by himself. Kind of a modern day version of "Sugar Candy Mountain" in Orwell's Animal Farm.
Ain't so and the politicians know it. For starters it ignores widely differing education levels and skills among these "investors" and also ignores the fact that markets are by their very nature susceptible to peaks and valleys, either of which can persist for decades. The false assumption does in fact lead to disillusionment among many and the angst your author is likely referencing. More importantly, it has led to/allowed a trashing of pensions public and private alike. Even the minimal safety net provided by Social Security is now threatened. Meanwhile wealth continues to concentrate more and more in the hands of a few. Warren Buffet maintains that in many years he pays a smaller percentage of his earnings in taxes than does his secretary or house-keeper. And yes, it makes me angry.
Thanks for the post but I must take issue, hank
For those with high cash levels, when will you start to buy? I haven't stopped by in a while ... hey looks like 2008 all over again :-)
Doing more of the same this time this time around: Five or so years from retirement: Still saving like crazy, some tax harvesting of obvious long time losers like DODGX and VEURX (and even some QQQ that's been stinking up my portfolio since 2000), buying on the dips but limiting my bets to a thousand or so a week (so as not to fall into the "falling bloody axe" trap.) This time around I have given up on managed funds almost completely. Vanguard lets me trade their ETFs free, so I can consolidate into sectors like VPU, VDE, VWO, VTI a few shares at a time..
Asset allocation worked for me 2008-2010. As stocks fell, my cash increased to about 15%, I bought until cash fell to 10 or 12%, since late 2010 I've seen mostly saving cash and conservative allocation sector funds. Now it's back to stocks and conservative allocation funds. I don't think S&P500 will fall much below 1000, but 1500 is a long way away.
Our Funds Boat; week, -.01%, YTD, +3.32% AUG 20 2011 Howdy,
NOTE; back to the original format for this; so that new folks who visit this write, may know more about the reason(s) for the holdings.
Again, a thank you to all who post the links and also start and participate in the many fine commentaries woven into the message threads.
For those who don't know; I ramble away about this and that, at least once each week.
NOTE: For those who visit MFO, this portfolio is designed for retirement, capital preservation and to stay ahead of inflation creep; if and when it returns. This is not a buy and hold portfolio, and is subject to change on any given day; based upon perceptions of market directions. All assets in this portfolio are in tax-sheltered accounts; and any fund distributions are reinvested in the funds. Gains or losses are computed from actual account values.
While looking around..... I won't attempt to add anything to the numerous posts of the past couple of weeks; as these have been a lot to chew upon and I will presume most folks here have read the posts. I will be most curious as to what words or lack of words are expressed by Mr. Bernanke at the Jackson Hole summit this next week. The Fed can still fiddle around with which duration Treasury bonds it chooses to help "adjust"; but their influence is limited by "all in the global market place" who really "decide" what the yields should be, associated to all other risk in the world markets. I can not speak for others here at MFO who I know also live in Michigan; but our portfolio and related thoughts about any forward growth in the U.S. economy is still tempered from many years ago (1985 ish) and viewing (then) the slow unwind of the manufacturing sector in this state. Not unlike other states with a variety of large and small industry; the unwind continued with the closing of the 1,000's of many small machine and parts vendor businesses. Of course, all of this small and large company unwind affected the many businesses that benefited from the highly paid employed. Many of these small business operations have been closed for years. Related to this; and something that still makes me point at the tv (beginning in Dec 2008 through yesterday, Aug 19) to tell them they don't "get it" are the commentators who continue to compare today to the recession period of the early 1980's. Friday, Aug 19; on Charlie Rose's program, a Mr. Ip (the Economist Magazine) stated that the economy came "roaring" back in 1982; after the various experiments with monetary policy. Well, YES; but that is not where the economy is today !!! The manufacturing/industrial/middle class base is NOT even similar to 1982. My thoughts to these folks, including Warren Buffett (a most fine and knowledgeable person); is that this comparision is totally invalid, and perhaps from whatever life experiences shaping their viewpoints along with too much time with "data" and too little time with the "real folks world" has perverted their thoughts and that they may be caught in the; "they don't know, that they don't know." This syndrome, among many other problems has and is a most apparent problem in DC. Someone/some folks are wrong about the state of the economy; and I hope it is not this house. OK, enough jabber from this fella today; as I have rambled enough through the past week in the threads here.
Such are the numerous battles with investments attempting to capture a decent return and minimize the risk.
We live and invest in interesting times, eh?
Hey, I probably forgot something; and hopefully the words make some sense.
Comments and questions always welcomed.
Good fortune to you, yours and the investments.
Take care,
Catch
SELLs/BUYs THIS PAST WEEK:
NONE
Portfolio Thoughts:
Our holdings had a -.01% move this past week. And yes, we are satisfied with our risk adjusted returns YTD. If the portfolio can pull a +10 to 12% for the year; you will not hear any whining from this house. (This sentence was from an April write; and I/we suppose a +5% for the year may now look good, too !) Our portfolio is at - 2% from the high point in mid-July. Obviously, the cash and some bonds are supporting the loses in the equity/high yield/income bond sectors. I will still maintain, as noted several weeks ago here; that a -25% in any of the broad indexes may be as low as the hedge funds, big traders and the machines may be able to tolerate; before buying again. Some sectors have already hit or are near the - 25% pull back. I can envision the "algos" set in the machines for the - 25% BUY signal. We continue to hold our equity positions, as the % vs the overall portfolio totals is low enough to not completely kill our monies invested; and any loss taken now with a sell; may be selling near a short term bottom. We may, however; sell into a short term equity rally. I/we, at this house; are surely not in a postion to "guess" where the equity markets are headed at this time.
Good investment fortune to all in the coming months.
The old Funds Boat may make 5% or 25% this year. I expect some rough waters, changing winds and opposing currents; causing the most serious attention being given to a firm hand upon the rudder control. (April report text)
The immediate below % of holdings are only determined by a "fund" name, NO M* profile this week
CASH = 8.3%
Mixed bond funds = 81.8%
Equity funds = 9.9%
-Investment grade bond funds 18.6%
-Diversified bond funds 18.5%
-HY/HI bond funds 25.8%
-Total bond funds 14.6%
-Foreign EM/debt bond funds 4.3%
-U.S./Int'l equity/speciality funds 9.9%
This is our current list: (NOTE: I have added a speciality grouping below for a few of fund types)
---High Yield/High Income Bond funds
FAGIX Fid Capital & Income
SPHIX Fid High Income
FHIIX Fed High Income
DIHYX TransAmerica HY
DHOAX Delaware HY (front load waived)
---Total Bond funds
FTBFX Fid Total
PTTRX Pimco Total
---Investment Grade Bonds
APOIX Amer. Cent. TIPS Bond
DGCIX Delaware Corp. Bd
FBNDX Fid Invest Grade
FINPX Fidelity TIPS Bond
OPBYX Oppenheimer Core Bond
---Global/Diversified Bonds
FSICX Fid Strategic Income
FNMIX Fid New Markets
DPFFX Delaware Diversified
TEGBX Templeton Global (load waived)
LSBDX Loomis Sayles
---Speciality Funds (sectors or mixed allocation)
FCVSX Fidelity Convertible Securities (bond/equity mix)
FRIFX Fidelity Real Estate Income (bond/equity mix)
FSAVX Fidelity Select Auto
FFGCX Fidelity Global Commodity
FDLSX Fidelity Select Leisure
FSAGX Fidelity Select Precious Metals
RNCOX RiverNorth Core Opportunity (bond/equity)
---Equity-Domestic/Foreign
CAMAX Cambiar Aggressive Value
FDVLX Fidelity Value
FSLVX Fidelity Lg. Cap Value
FLPSX Fidelity Low Price Stock
For those with high cash levels, when will you start to buy? Reply to
@JoeNoEskimo: Totally agree with JoeNo that investing has become gambling. Don't think it was always that way. At least not what they taught in school. Today there seems no logic whatever. Checked cd rates and your looking at maybe half percent if ya willing to lock her up for couple three years. H%#* your better off burying it in in a hole at them rates. Why would ya trust FDIC insurance when some politicians appear willing to see govt. default?
Now whoever decided Joe or Jane or Molly down at the dollar store would be better investing their hard earned cash in the markets themselves than having a company sponsored
retirement plan ought have their %$&^#% head examined. H@#% this is enough to give Buffet or Lynch ulcers. Whats little feller doin in these crazy markets? Trends last fantastically long nowadays and go to fantastic extremes. Could be computers as some speculate. I think has more do either with crowd mentality with so many people playing or maybe the big players with the skills and information to push everything to its limits. Maybe these fellers figure govt will bail them out rather than see economy go down the tubes when things backfire.
And another thing, was reported on the news yesterday that in this country 1% of the population controls a third of the wealth. Now with so many poor people whose gonna be left to buy them cars and houses to keep the economy running?
Now I did try gambling one time and remember blowing the whole wad on a football game where the 43 point "favorite" folded in the first quarter and couldn't get out of it's own way. Cured me for good. So I will say at least in investing your likely to end up with some of your $$ left at the end. But maybe not much.
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