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Old 07-22-2011, 10:58 PM   #61
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OK, I'm up for the market timing challenge. I will post trades in the other subforum.
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Old 07-22-2011, 11:12 PM   #62
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Otherwise I'm done here.
I think I am too. As I said, I have no burning need to convert anyone.

And frankly when the reactions vary between "ho hum, more of this crazy sh*t again" and outright ridicule, with nary a response to the hard facts I posted, it appears very much to be a very closed-minded dogmatic bunch. You're all convinced you're right, and I'm not only wrong but only worthy of derision. So why should I bother?

kumquat, I have no long personal track record with this method -- or any other, quite honestly. Outside forces have prevented me from implementing anything consistently, plus I'm still learning. (Though as I say I know quite a few people who have run various timing/trading strategies for years, quite successfully.) I have no interest in trying to prove anything by posting realtime track records, since it would take many years to show anything.

Y'all are happy with what you know and (for the most part) you vary between "not interested" and "hostile" to approaches that don't match your answer. You've seen it all and are quite sure anything that looks like market timing is some form pathetic delusional disease. So I won't infect you any further.
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Old 07-22-2011, 11:35 PM   #63
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kumquat, I have no long personal track record with this method -- or any other, quite honestly.
That's my point. I have an open mind to things that might work or have worked in the past. Well, your's might work but you can't show it to have worked in the past. The "I know a few guys..." argument doesn't cut it. Get them to post what they did and the results and I might listen.

FWIW, I've done OK and not by following the AA and re balance method that most here use. I've probably taken risks that most here would consider downright stupid. I don't get dumped on because I don't suggest to others that they should do what I have done. I certainly don't suggest that others should do what I haven't done.

Jumping in with a "this is the way" post is going to raise hackles. If you had posted a "what about this strategy" reply, the reception may have been better. Let's see what the future holds.
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Old 07-23-2011, 12:46 AM   #64
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Gary, Gary Gary,

As you may have discovered by now, the vast majority of the people on this board do not believe that market timing works--especially over the long run (I can't define "long run"). Anyhow, you come along and state you have a timing method that works. You came on a bit strong. So, maybe it's the way you delivered the message that's the problem (part of the problem)? So, while I also don't believe market timing works (but, for some reason, I still harbor a hope that it does work) what's my next step? What do I look for? But, keep it real simple: no head and shoulders/candlestick stuff. Full moon stuff I'm down with.
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Old 07-23-2011, 08:01 AM   #65
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Full moon stuff I'm down with.
Just making sure you *did* realize that the full moon comment was a joke.

One week before and after a full moon is exactly half of a typical month and so you would expect the market to be up an average of 50% in this time period.
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Old 07-23-2011, 08:34 AM   #66
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I am guilty of one market timing trade. Around earnings for certain tech companies, I will buy a in the money LEAP (long dated stock option) on a company expected to post good earnings (say like Apple for example) and then sell a closer dated option out of the money. I do this because there are so many people trying to make a killing on options that they will buy lots of pie in the sky out of the money options with a short duration.

I will give an example of two of my trades:

Bought 50 GLW Jan 2013 $12.50 call contracts for $5.30
Sold 50 GLW Jan 2012 $19 call contracts for $0.80

Net 4.50 paid per option calendar spread, profit at $19 = 44% plus remaining time value of 2013 leg...probably 50% total.

Bought 5 AAPL Jan 2013 $300 calls for $95.20
Sold 4 AAPL Jan 2012 $400 calls for $20.15

Net $75 paid per option calendar spread, profit at $400 = 33% plus remaining time value of 2013 leg...probably 40% total.

I consider both of these market timing because it gives me a chance for a 2012 recovery if the market goes south for a few months (the short leg will expire worthless and I can sell July 2012 options to create a new spread). If the market goes north, I still make 100% annualized and 80% annualized respectively. Even if the market falls 10% by Jan 2013 I should break even.
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Old 07-23-2011, 08:55 AM   #67
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If you believe in the religion of B&H, and you're sure that nothing can possibly beat it -- then good luck to you.
I don't need luck (it works, and has worked for me/DW, over an extended period of time, over the last 30+ years).

It's the proverbial old story of two men running from a grizzly in the woods (and I'm sure you heard of it).

I don't need to be faster than the grizzly - I just need to be faster than the other person the grizzly is chasing (in this case, the long term market returns).

Lucky? I think not. I'll change my tact (on my sailboat) on a constant wind, but I don't rig the sales to take advantage of a "transient wind".

Just my simple POV.
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Old 07-23-2011, 09:23 AM   #68
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I am guilty of one market timing trade. Around earnings for certain tech companies, I will buy a in the money LEAP (long dated stock option) on a company expected to post good earnings (say like Apple for example) and then sell a closer dated option out of the money. I do this because there are so many people trying to make a killing on options that they will buy lots of pie in the sky out of the money options with a short duration.

I will give an example of two of my trades:

Bought 50 GLW Jan 2013 $12.50 call contracts for $5.30
Sold 50 GLW Jan 2012 $19 call contracts for $0.80

Net 4.50 paid per option calendar spread, profit at $19 = 44% plus remaining time value of 2013 leg...probably 50% total.

Bought 5 AAPL Jan 2013 $300 calls for $95.20
Sold 4 AAPL Jan 2012 $400 calls for $20.15

Net $75 paid per option calendar spread, profit at $400 = 33% plus remaining time value of 2013 leg...probably 40% total.

I consider both of these market timing because it gives me a chance for a 2012 recovery if the market goes south for a few months (the short leg will expire worthless and I can sell July 2012 options to create a new spread). If the market goes north, I still make 100% annualized and 80% annualized respectively. Even if the market falls 10% by Jan 2013 I should break even.
I wouldn't call those trades market timing at all. They are trades based on your opinion of the direction that those stocks are going during a certain time frame but if you call that market timing, then every single trade made is market timing. My definition of market timing would be a person changing their fundamental long term AA based on what they think the market will do in the short term.
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Old 07-23-2011, 09:32 AM   #69
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Measuring against a benchmark is essential also.

During the Gulf oil leak, I traded BP/calls figuring it was over-sold on hysteria. I was pretty proud of the nice profit I made, yet, when I measured against the S&P B&H for that same period, I did slightly worse than B&H.

A friend trades options (credit spreads are a big part of it) and swears he's making a great profit. Yet, I can't get him to pin down any % numbers versus a benchmark. He won't acknowledge the risk he's taking ('the odds of xyz stock going down that low in that time frame are almost nil!'), and doesn't think that even the S&P is a good benchmark ( 'that can go down 30% - not me!'). Good luck, I say.

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I wouldn't call those trades market timing at all. They are trades based on your opinion of the direction that those stocks are going during a certain time frame ....
Agreed, those and my BP example are what unclemick calls 'testosterone trades'


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Old 07-23-2011, 10:05 AM   #70
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buy and hold, you are only going to get about 9% return. after inflation, about 6%.

if you want more return, either you must leverage in some fashion (my option plays are leverage but you could also buy on margin) or find a much riskier asset like penny stocks or junk bonds.

I prefer leverage, and if I cap my profits at a reasonable amount I can eliminate the time premium or even make it work slightly in my favor by using the calendar spreads. I keep 80% of the portfolio in the boring 9% return index though (well actually more like 50% stock index, 30% bond index, 20% leveraged trading).

A decent year might show:

50% * 6% + 30% * 3% + 20% * 80% = 19.9% real return

versus a 50% bonds 50% stock decent year real return of:

50% * 6% + 50% * 3% = 4.5% real return

A flat year for my portfolio might show:

50% * 0% + 30% * 3% + 20% * 20% * 30% = 6.9%

versus a 50% bonds 50% stock real return of 1.5%

And a horrible year where the market drops 25%?

My portfolio:

50% * -25% + 30% * 2% + 20% * -80% = -27.9%

versus a 50% bonds 50% stock real return of -11.5%

Is the risk worth the return...hard to say. Depends how many -25% market returns we get over the next 20 years.
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Old 07-23-2011, 10:40 AM   #71
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Regarding market timing I'd suggest a few ways of testing your results before putting your fortunes down on the system. WARNING: details ahead.

Suppose you use the monthly data from the SP500 from 1950 to present for investigate approaches. First you have to add in dividends (which you can get from Schiller's data). Now you come up with a scheme based on some momentum criteria and maybe even have a valuation factor like PE10. Let's say you come up with a CAGR for the 60 year period that beats the buy-hold CAGR by 2% per year. That is really good even though there are a few whipsaws. Any if you really do things right you have maybe only 1 trade every 3 years or so.

But there is more testing to go. You can construct another data series using not just the 1st trading day of the month but also the 6th, 10th, and maybe 16th trading days (trading days in month average 21). That is you can have a total of 4 separate series. Now you find that some whipsaws not seen in the first case are present in the other series. This drops your CAGR a bit but also is a caution that you might someday be on the wrong side of the market for a few months. That is reality #1.

But wait, you are still not finished testing. Now you gather up the French Fama data set and use the appropriate parameters for the SP500. Now you can back test to the 1930's with one monthly data set. Did it work in the Depression years? How did it do in during WW2? That is reality #2.

There's a little more testing to go but I think if you've read this far you might get the point of this post.

P.S. I've done this sort of testing ... but I like details
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Old 07-23-2011, 11:01 AM   #72
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During the Gulf oil leak, I traded BP/calls figuring it was over-sold on hysteria. I was pretty proud of the nice profit I made, yet, when I measured against the S&P B&H for that same period, I did slightly worse than B&H.
I would call this an "event driven" strategy, not market timing. I put some cash to work and went long GE in the wake of the Fukishima accident for the same reasons.
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Old 07-23-2011, 11:15 AM   #73
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I'm sure folks would have fun setting up their model portfolios based on their systems (technical analysis, fundamental analysis, lunar phases, etc), and it would be fun tracking the horse race over time, but would anyone be convinced by the results? After a decade, would everyone say "Yep, George's system is best. It will provide the best returns going forward." The time period will always be too short and the inability to know if future market conditions will be the same as those over the trial period will cast doubt on the enterprise. And the "Yabuts" will proliferate ("Yabut, if I changed my moving average period from 200 days to 227 days, I would have had results better than George.")
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Old 07-23-2011, 11:43 AM   #74
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I'm sure folks would have fun setting up their model portfolios based on their systems (technical analysis, fundamental analysis, lunar phases, etc), and it would be fun tracking the horse race over time, but would anyone be convinced by the results?
I'd do what I already do with other documented results: do my own due diligence and put some money into it.

If I liked the experience (profitable as well as compatible with my risk appetite and my lifestyle) then I'd do more. At about 10-15% of my asset allocation I'd say "Hey, this seems to be working" and I'd be convinced.

If I didn't like the experience then I'd file it under "Lessons ReLearned and keep searching.

Some of these investing experiments took me a couple years to arrive at a conclusion. Others have been running for four years and will probably not conclude for at least another 10.
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Old 07-23-2011, 11:55 AM   #75
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I think I am too. As I said, I have no burning need to convert anyone.

And frankly when the reactions vary between "ho hum, more of this crazy sh*t again" and outright ridicule, with nary a response to the hard facts I posted, it appears very much to be a very closed-minded dogmatic bunch. You're all convinced you're right, and I'm not only wrong but only worthy of derision. So why should I bother?

kumquat, I have no long personal track record with this method -- or any other, quite honestly. Outside forces have prevented me from implementing anything consistently, plus I'm still learning. (Though as I say I know quite a few people who have run various timing/trading strategies for years, quite successfully.) I have no interest in trying to prove anything by posting realtime track records, since it would take many years to show anything.

Y'all are happy with what you know and (for the most part) you vary between "not interested" and "hostile" to approaches that don't match your answer. You've seen it all and are quite sure anything that looks like market timing is some form pathetic delusional disease. So I won't infect you any further.

Gary,

Most folks here (and conventional wisdom outside of this forum) says that market timing does not work as a long term strategy.

Not saying that someone can't come up a winning strategy timing the market for a quick return...but consistently, following a system, people are still looking and looking...
Since conventional wisdom says market timing over a long period of time does not work, it's only natural to be skeptical when someone says they have "the system."

It's similar to as if you said, offense wins world series in baseball or you don't need a good quarterback to win a superbowl. Conventional wisdom says pitching wins championships and yes you do need a good quarterback to win superbowls. There were exceptions in the past, but they were not the norm.

In my opinion, it is so much easier to shoot for the easy (and safer, in my opinion) way and not do any market timing.
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Old 07-23-2011, 12:38 PM   #76
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I know Ken Moraif and have a few friends that use his firm and have nothing but positives to report about the performance he has achieved for them over many years. Ken utilizes several model portfolios based on a client's individual circumstances and rebalances periodically to the model. I believe many of his clients are retirees and that most are on a 60/40 model. The market timing only relates to when Money Matters will reduce/increase equity allocation based on the the S&P moving above/below its 200 dma by X%, as well as a few other indicators. He is not out to make anyone rich and doesn't claim that, but he will get you a decent return while protecting your principal.

Some people need help with investing and staying disciplined and Ken is probably as good as it gets if you want an investment manager that will let you sleep at night. He is a very nice individaul, and I feel he genuinely cares about people, and supports many charitable causes. Just to be clear, I have no $s invested with his firm, as I am do it yourself type.

The other firm in the metroplex which I think is a decent one is AssetBuilder Inc. - Registered Investment Advisor which is affiliated with Scott Burns.
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Old 07-23-2011, 12:40 PM   #77
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I don't need luck (it works, and has worked for me/DW, over an extended period of time, over the last 30+ years).
And 20 of those 30 years encompassed the biggest bull market in history. Of COURSE it worked then. (I would genuinely be very interested to hear how you've done since 2000.)

If you believe that history will repeat, then B&H will probably work as well in the future as it did in the past. If you believe (as you might have guessed that I do ) that the next 30 years is unlikely to repeat that performance, then you might want to consider other options.

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Anyhow, you come along and state you have a timing method that works. You came on a bit strong.
I guess the "delusional" comment was probably uncalled-for. Other than that I was just trying to say that what has worked in the past is not guaranteed to work in the future, and here's an option that I believe will help people respond to down markets and sideways markets. Then I did my best to document that with hard math.

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So, while I also don't believe market timing works (but, for some reason, I still harbor a hope that it does work) what's my next step? What do I look for? But, keep it real simple: no head and shoulders/candlestick stuff. Full moon stuff I'm down with.
Hey, no fair! I'm not supposed to be infecting you guys any more!! Get thee behind me!

But, well, since you asked...

As Dora said, her moon comment was a joke. I actually know a few people who use moon cycles in their trading, and they claim it works. But that's a bit too voodoo for me.

If you believe the simple method I proposed might be worth investigating, then just follow the steps I outlined. Once a month, calculate the average of the last 12 monthly closes. If this month's low is above that average, switch to "bull market" mode. If this month's high is below the average, switch to "bear market" mode. That's it. No candlesticks or patterns. No moon cycles or chicken entrails.

Right now it's in "bull" mode. The average as of the end of July is 126.21 for SPY, and this months' High was 135.70. Until the monthly High crosses below the average, it stays in "bull" mode.

You decide what you do in bull and bear markets. Maybe you switch between SPY and tbills, maybe you adjust your AA, whatever works for you. This is just a tool to help you determine if it's a good time to increase your risk in the market.

Here's a comparison of two simpleminded approaches: "buy SPY and hold" vs. "buy SPY when in bull, hold cash when in bear." I didn't include dividends or taxes. Neither approach is what you'd do in reality but it gives you an idea how this compares.



As you can see, it fell behind a bit in the fire-breathing bull of the 90's. And as I said, if you expect that to happen again, then B&H works great. If not...

But look how it does when the market isn't going into orbit. It ducked nearly all of the big dumps in 2000-2003 and 2008-2009. According to investing gurus like Warren Buffet, rule #1 is "don't lose money." This helps you avoid losing money.

This works because the market is NOT random. It tends to trend -- meaning that it tends to do what it's been doing more often than not. By far the strongest trend has been up, but the down moves also persist pretty well. If it heads down, it tends to keep heading down for a while, and that's a good time to be more conservative. (Much of the underperformance of the late 80's was due to it getting caught by the 1987 crash. It took the crash losses, then said "time to get out" -- and the market instantly took off again. That's a pretty unusual event.)

Now as I said, I have no idea how rebalancing would affect the B&H results. I need to go study Bogleheads. Probably BH&R would greatly outperform the simple-minded "buy SPY and go away" example I show here. BUT doesn't BH&R work better if you have a feeling for the market direction? Might you be able to do better at BH&R if you rebalanced into a more conservative stance when the market is in "bear" mode?

This is just a tool. I'm not saying you should buy SPY and hold it, or buy SPY in "bull" mode. This is a green-light/red-light indicator to tell you when it's safer to be in the market, and when you might want to think about lightening your risk. Many people try to do that subjectively by watching the market, reading the papers, looking at the economic situation, etc. That's tough to do well. This is an objective method that has a very good track record.

Now if you'll excuse me, I have to go practice my flouncing.
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Old 07-23-2011, 02:41 PM   #78
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GaryinCo,

You said to calculate the monthly avg of SPY and compare it to the high or low depending on the situation. Are you using the avg of the closing price of SPY each month? If so, how many months back are you going? Or are you using the avg daily closing price of SPY for the present month?
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Old 07-23-2011, 03:28 PM   #79
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If you believe the simple method I proposed might be worth investigating, then just follow the steps I outlined. Once a month, calculate the average of the last 12 monthly closes. If this month's low is above that average, switch to "bull market" mode. If this month's high is below the average, switch to "bear market" mode. That's it. No candlesticks or patterns. No moon cycles or chicken entrails.

Right now it's in "bull" mode. The average as of the end of July is 126.21 for SPY, and this months' High was 135.70. Until the monthly High crosses below the average, it stays in "bull" mode.

You decide what you do in bull and bear markets. Maybe you switch between SPY and tbills, maybe you adjust your AA, whatever works for you. This is just a tool to help you determine if it's a good time to increase your risk in the market.

Here's a comparison of two simpleminded approaches: "buy SPY and hold" vs. "buy SPY when in bull, hold cash when in bear." I didn't include dividends or taxes. Neither approach is what you'd do in reality but it gives you an idea how this compares.

I am a bit confused in the the Green chart, I thought you showed a sell signal around 4/11. Did the market reverse itself and go into bull mode again?

Since I too lazy to actually do the calculation, (and not entirely clear on the process) I would appreciate it if you would start a thread. Then each month or quarter or whatever post the average numbers. Obviously if there is a sell signal then please let us know. While I am not entirely sure how'd I'd use the information I do change AA on periodic basis depending on my propriety valuation calculation (aka SWAG scientific wild ass guess). It certainly would be a factor I'd consider.

Back in the end of 2007 early 2008, Running Man made a number of post about the problems with banks/mortgage etc. Since his posts contained a lot of good analysis (but were against conventional wisdom), when his prediction proved accurate I did not dismiss them as a example of the stop clock being right twice a two. Suffice to say if takes the time to say XYZ is trouble in the future I'll do more than just read his posts.
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Old 07-23-2011, 05:09 PM   #80
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You said to calculate the monthly avg of SPY and compare it to the high or low depending on the situation. Are you using the avg of the closing price of SPY each month? If so, how many months back are you going?
I said "Once a month, calculate the average of the last 12 monthly closes." So at the end of each month, add up the monthly (not daily) closes for the last 12 months and divide by 12.

E.g. next Friday, 7/29, will be the last trading day of the month. That weekend, go to the website below and add up the closing values from 8/31/10, 9/30/10, 10/29/10, ... , 6/30/11, and 7/29/11, and divide by 12. Then compare that result to the just-closed month's High and Low. That's all there is to it.

You can get the last 12 monthly closes, and the current month's H/L, HERE. Use the "Close" value, not the "Adj Close." Yahoo actually displays the first day of the month, but in reality they're showing the closing value of the last day of that month. So the value they call "June 1, 2011" is the closing value for the month ending 6/30/2011.



As Lsbcal correctly observed, you might get very slightly different results if you did it on the 1st, or 7th, or 15th, or whatever. But the overall results should be very similar. You want to use the High and Low of the previous month, ending on the day that you look at the Close, so it's easiest to use the monthly bars that Yahoo creates for you at the end of the month.

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I am a bit confused in the the Green chart, I thought you showed a sell signal around 4/11. Did the market reverse itself and go into bull mode again?
Green chart?

It's been in "bull" mode since 10/1/09. See the chart in my first post.

Are you referring to the little dip near the end of the chart? That's when the market declined (and thus the value of the SPY position dropped) from 4/10 to 7/10.

Quote:
Since I too lazy to actually do the calculation, (and not entirely clear on the process) I would appreciate it if you would start a thread.
The process is really trivial, as explained above. I'll be watching this and I'll try to remember to post a notice when it switches to "bear" mode.
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