Exuberant yet?

[jebmke]

The Dow dropped 153 today. S&P down 1.32%. Looks like that "Wh***" finally took effect after 1 week delay.

Brace yourself. More is to come.

Yes, there certainly will be more of something. We just have no clue what.

 

[Lsbcal]

...(snip)...
What do you folks think about using the Moving Average as a guide for getting out? What's nice about it is that it's so simple and it did a great job of exiting the market in both the dot com meltdown in 2000 and the drop in 2008.
....
Steve

There is a study of the Dow 200 day moving average from 1886 to 2001. See Siegal, Stocks for the Long Run, chapter 17. It depends on your time frame as to whether it beats buy-hold or not. Some years there are many switches like 2000 with 16 switches. Taxes can play a role too.

Most people will not want to deal with such an active strategy. I wouldn't want to personally. Too many real world problems to distract one.

 

[Gatordoc50]

I think we will be calling this the Twitter/Bitcoin crash or the Twitter/ Bitcoin run. I am going with the former.

 

[gowgow]

There is a study of the Dow 200 day moving average from 1886 to 2001. See Siegal, Stocks for the Long Run, chapter 17. It depends on your time frame as to whether it beats buy-hold or not. Some years there are many switches like 2000 with 16 switches. Taxes can play a role too.

Most people will not want to deal with such an active strategy. I wouldn't want to personally. Too many real world problems to distract one.

So this was a buy above the 200 EMA and sell below? I don't think that's the best way to use the moving average. Many use a long average and short average. So you buy when the short average crosses above the long average. In the example shown it uses a 77 day short average, a 110 day long average, and a there is a 3 day trade delay (don't act on a signal unless it remains in effect for more than 3 days) which reduces whipsaw trades.

In this example there were only .76 trades per year and 15 total trades in the last 20 years, so it's not a very active strategy. If you don't use the trade delay there were 17 trades.

Of course the numbers I used in this example are only one possibility, but I found these have worked pretty well. Many use a 50 day short and 200 day long and this had a 12.10% CAGR over 20 years.

I tried using just the 200 day average and this resulted in 157 trades total (7.91/year) so that's definitely not the way to go.

Using the moving average strategy I described, over 20 years a $20,000 investment grows to $236,245 v.s. $107,379 for buy and hold, so over double the result and with greatly reduce volatility (a maximum drawdown of 19.20% v.s. 55% for the S&P). This (or any strategy including buy and hold) may not perform as well in the future, but it might. A lot of people follow the "buy and hold" approach which is fine, but here's something to consider:

If you look at the graphs for the last 20 years and the results were reversed, and the buy and hold strategy produced the moving average result and the moving average strategy produced the buy and hold result, I think people would be absolutely raving about the buy and hold (better gains, lower drawdowns) and bashing the moving average (half the gains, horrible drawdowns).

Since the graphs aren't reversed, maybe the buy and hold idea deserves some bashing??

I propose that any strategy that has resulted in 2 stress filled 50%+ drops in the last 10 years may not be the best way to go. Food for thought.

Maybe the above mentioned strategy isn't for you (And when say you, I mean any reader, not just Lsbcal), but I'm genuinely curious about what other strategies people are using that they have found to work well. I'm here to learn.

 

[dtbach]

I think we will be calling this the Twitter/Bitcoin crash or the Twitter/ Bitcoin run. I am going with the former.

I think you might be on to something there. How do you value a company that has never made a profit?? And who the heck makes the Bitcoins?

I"ll stick with the guys at VG. . .

 

[Lsbcal]

...(snip)...
Maybe the above mentioned strategy isn't for you (And when say you, I mean any reader, not just Lsbcal), but I'm genuinely curious about what other strategies people are using that they have found to work well. I'm here to learn.

I'm respectful of such a strategy (also of buy-hold). But note it depends a lot on the individual and their willingness to follow things day to day. As we know, many investors will start out with a strategy and then start to second guess it. Many whipsaws might cause one to try something else.

I've actually done a lot of spreadsheet studies on such mechanical strategies. I've examined them going back to the 1920's with actual and synthesized data. I personally use a much more gradual monthly technique which is easier for me to implement and backtests to 1 trade every 3 years (round trip every 6 years on average). It is not a moving average type but does include a momentum component. Just mentioning it as a way to say that there are a few mad investors out there that actually think along these lines but don't disclose details.

The Bogleheads site has tons of info on buy-hold strategies and those twiddles that are referred to as rebalancing. There was also a huge thread on moving average strategies and discussions. I think that was back in 2009.

There is an interesting book that might be in your library: Amazon.com: The Physics of Wall Street: A Brief History of Predicting the Unpredictable eBook: James Owen Weatherall: Books

 

[Lsbcal]

...(snip)...
I went back to sleep and woke up after the market opened. What was going on here? Something about consumer sentiment... And as we needed to do grocery shopping for a couple of parties this weekend, I did not check the market again until later. It had been dropping through the day.

This morning I had a routine medical procedure that put me out with a mild anesthesia. Out like a light and didn't wake up until the market closed. So I know what you mean.

When I got to the computer, market had had a nice day ... without my help.

It is difficult to tell when the market will turn. People have been expecting a correction, and this may be it. Well, I've got some cash that earns next to nothing that I might use... Heh heh heh...

Hope you put the cash to work yesterday. That correction was over with fast.

 

[NW-Bound]

What?!? Are we back in exuberant mode already? Darn, the "Wh***" cycle is getting shorter and shorter. Soon, I will be day trading.

I did buy a teeny bit. That bitty portion goes up 3.49% today. Hardly makes a dent to recover the loss yesterday *, but "I've got a slow groove and I have a slow hand", and never make drastic moves. And I have also been on a culinary quest for Kaffir lime leaves, and the market did not get my full attention.

But the whole thing may go down 10% on Monday for what we know.

* I have a bit of international and emerging markets, and have to wait to see how they move on Monday.

 

[Gatordoc50]

I sold some yesterday to reach my new AA. Didn't sell a bunch but I figure by not doing it Wednesday or today cost me. Dang! The good news is that Im at my goal of 65% equities where I'll stay.