Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-26-2008, 05:16 PM   #141
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
The thing is, these "crisis times" come up with a fair amount of frequency. I count three times in the last ten years. The "Asian contagion, LTCM" downswing of 1998, the "tech meltdown-9/11" of 2000-2003, and now the "housing bubble". In the decade before that, there was the S&L crisis, Black Monday, and the banking crisis of the early 90s.

We've seen a fair amount of the earnings for this quarter. The banks that stuck to decent standards (USB, WFC, JPM) are doing ok. Others are not doing well, and may have to raise more capital. A very few have gone under.

Honestly, if you never watched any financial channel like CNBC, would you even know there was a problem?

We've had some minor job loses from the housing downturn, but housing has always been a boom/bust business, we just forgot that for 10 years.

Gas is expensive, but most people only buy about a tank a week.

I just don't think this qualifies as a crisis yet. The 70s were a crisis. So far this is just noise.

Quote:
Originally Posted by RockOn View Post
As far as using historical data, I don't think that applies because I am proposing to use during times of crisis management, not for regularly trading markets. (If one could avoid the whipsaws and gaps, it could be used all the time.) I know it is not clear when crisis times are, but when banks are going down and foreclosures are soaring, I'd say this is one of those times.
__________________

__________________
Hamlet is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-26-2008, 09:48 PM   #142
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by Hamlet View Post
The thing is, these "crisis times" come up with a fair amount of frequency. I count three times in the last ten years. The "Asian contagion, LTCM" downswing of 1998, the "tech meltdown-9/11" of 2000-2003, and now the "housing bubble". In the decade before that, there was the S&L crisis, Black Monday, and the banking crisis of the early 90s.

We've seen a fair amount of the earnings for this quarter. The banks that stuck to decent standards (USB, WFC, JPM) are doing ok. Others are not doing well, and may have to raise more capital. A very few have gone under.

Honestly, if you never watched any financial channel like CNBC, would you even know there was a problem?

We've had some minor job loses from the housing downturn, but housing has always been a boom/bust business, we just forgot that for 10 years.

Gas is expensive, but most people only buy about a tank a week.

I just don't think this qualifies as a crisis yet. The 70s were a crisis. So far this is just noise.
Not a crisis yet....ok.........I'd agree there has not been a meltdown yet........but not a crisis yet.....ok.......We each see things differently I suppose
__________________

__________________
RockOn is offline   Reply With Quote
Old 07-26-2008, 10:09 PM   #143
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by ERD50 View Post
ETFs like SPY trade at very low spread, low commissions and no trade limit. Market's closed now, but I'll look again Monday, pretty slim IIRC.

-ERD50
Those would work pretty well, the whipsaw losses could be small if the market is watched closely intraday. One could get several whipsaws in one day though. Overnight gap openings could also be a problem.

Instead of going long on these signals another option would be to buy 2X leverage short funds on a close below the number to fully hedge. Or there are many ways to use options.

The bottom line is how much risk do you think there is. If you think there could be a significant selloff in the near future some type of timing might make sense at times like this. The idea presented was the simplest of methods, more complicated methods may not actually be any better. For market timing, the simplest ideas tend to work best. Timing systems don't always work, they do work at times though.

We'll watch this for awhile. In several months we'll be able to see if the whipsaws were a price worth paying for limiting downside while still getting in on the upside.

As some have said, this isn't for everyone. If you cannot trade in and out because of fund restrictions or large commisions, it's really not a plan for you. I could do it with little cost, maybe you could, maybe not. There are some costs.
__________________
RockOn is offline   Reply With Quote
Old 07-27-2008, 11:09 AM   #144
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,288
Quote:
Originally Posted by RockOn View Post
Those would work pretty well, the whipsaw losses could be small if the market is watched closely intraday. One could get several whipsaws in one day though. Overnight gap openings could also be a problem.
I may have lost a detail along the way. You picked the DOW, 11,400 number; sell if it drops below, buy to hold if it goes above, right? But are those Market close #'s? I thought so, then you talked about intra-day (maybe this was mutual funds versus ETFs?).

If you are saying ETFs could be bought/sold intra-day, then you need to pick some hysteresis to make that practical. Some sort of 'banding' around 11,400, or you could end up trading 10x in a day if it was flittering right at 11,400 for a few hours. I count somewhere between 10 and 20 trades on this one-day chart, not enough resolution to be certain.

If you band that at 11,410 buy, 11390 sell, you would have six trades that day, and a 20 pnt loss on each buy/sell trip, so 60 points lost. On a day the DOW was up 220 from the prev day, and up from the open (according to their liste open price, can't see it on the chart).

Quotes for ^DJX - Yahoo! Finance

Maybe that is made up other days? I don't know.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 07-27-2008, 11:21 AM   #145
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
The bad news is that you'd slowly go broke from transaction costs.

The good news is that you could count on getting a very nice Christmas card from your broker. (If E.Trade, they'd send you a very heartwarming autogenerated email)
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 07-27-2008, 11:31 AM   #146
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
ERD50

You are taking this a little farther than I intended it, it is no longer simple. When I started the idea I was talking on a closing basis, not intraday.

But if you want to take it that far, even if I traded 20 times in a day and paid a commission each time, and lost 60 points in a day, I still might be better off than losing 30% of my assets if the market were to eventually tank. If I have a million dollars, that would be a $300k loss. That would pay a lot of $30 commissions. If I could trade intraday at a very low bid/ask and was on the button each time it crosses my number, the losses could be minimized somewhat. (If I were a sophisticated hedge fund I could probably figure out a way to keep the whipsaw costs down with futures/options and the like.) The odds are that a market trading on crisis type news, will not likely hang around my number for long. That is why I suggest it only for markets like this. If it did hang around my number, that would not be good but I still eventually would be on the right side of the market. There are no guarantees.
__________________
RockOn is offline   Reply With Quote
Old 07-27-2008, 12:13 PM   #147
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,288
OK, keep it simple and just trade based on market close.

But, you are saying to do this only when you view the market is particularly unstable, so that you might avoid a 30% (or whatever ) loss. Well, that is assuming that you are reasonably correct in your ability to predict times when the market is readty to diverge significantly. This might be such a time, or it might just move along in a 10% range for a long time.

So, if you choose to do this based on your judgment, instead of all the time, you risk absorbing the comm, fees, gaps, an whipsaws for no benefit sometimes, and you may still miss a 30% decline that you did not anticipate.

So unless you can include an objective definition of when to use this approach and when not to, you can't really measure it's success factor. Unless you just stay in it all the time. Otherwise all you'll have is (maybe), 'it works when it works, and it doesn't when it doesn't'.


edit/add: I'm not saying that to be negative, it's just the reality of the thing.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 07-27-2008, 12:46 PM   #148
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
This all reminds me of a sentiment that I hear from my mother sometimes: "I'd like to invest prudently, but I'm so far behind (or the market is so bad) that will never get me where I need to be so I need to make investments that are riskier than I'm comfortable with".

There's a sense that we can wave our hands at obvious risks if it seems urgent or necessary. What brought this up was RockOn saying that losing 0.6% per normal day on transaction/whipsaw costs might be worthwhile. Sorry, but I just can't buy that. Any strategy that squeezes you that fast will bankrupt you in half a year. Yes, you could lose 30% by not following the strategy, but by following the strategy you will lose more than 30% in 60 days just on frictional costs.
__________________
free4now is offline   Reply With Quote
Old 07-27-2008, 01:32 PM   #149
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by free4now View Post
Yes, you could lose 30% by not following the strategy, but by following the strategy you will lose more than 30% in 60 days just on frictional costs.
Well, I think we're all missing the point--you only use this system at certain times--when the market is "like this." When the market isn't "like this" you use a different set of rules (TBD). Or you buy an annuity and get a very juicy return. We already know how to maximize the return on any annuity--just assume that you'll live 6 years longer than the insurance tables say those of our age normally live--simple!

ERD50 is a very patient guy.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 07-29-2008, 03:44 PM   #150
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
Man, the market missed triggering a buy for RockOn's system by less than 3 points!
__________________
Hamlet is offline   Reply With Quote
Old 07-30-2008, 05:13 PM   #151
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
There it goes. We've triggered our second buy.

Quote:
Originally Posted by Hamlet View Post
Man, the market missed triggering a buy for RockOn's system by less than 3 points!
__________________
Hamlet is offline   Reply With Quote
Old 07-30-2008, 07:24 PM   #152
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by Hamlet View Post
There it goes. We've triggered our second buy.
which means the next whipsaw (if there is one) will cost at least 1.6%
__________________
FIRE'd@51 is offline   Reply With Quote
Old 07-31-2008, 03:33 PM   #153
Thinks s/he gets paid by the post
 
Join Date: Aug 2006
Posts: 1,361
Sell baby. Whipsawed.

Quote:
Originally Posted by FIRE'd@51 View Post
which means the next whipsaw (if there is one) will cost at least 1.6%
__________________
Hamlet is offline   Reply With Quote
Old 07-31-2008, 04:21 PM   #154
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,322
Quote:
Originally Posted by Hamlet View Post
Sell baby. Whipsawed.
Yep, whipsaw cost = 1.8%

Total whipsaw cost so far = 2.7% (assuming no commissions or bid/ask spread)
__________________
FIRE'd@51 is offline   Reply With Quote
Old 07-31-2008, 04:34 PM   #155
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Hey, a loss of 2.7% is a small price to pay for the outstanding protection this amazing system has provided over the entire life it's existence (4 days). The good news is, it can never go to zero! (Asymptotic to zero, but it will never actually reach it)

This is interesting, thanks for conducting the experiment. Usually after the flaws become obvious the originator of the trading scheme or his minions will propose a slight tweaking based on new insights into the mysterious machinations of the market. And the process continues ad infinitum.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 07-31-2008, 11:55 PM   #156
Recycles dryer sheets
 
Join Date: Jun 2007
Posts: 183
I'm giggling over here reading this.

The way to avoid a 30 percent loss is to diversify and understand your need/willingness to take risk.

Its ironic that proponents of active management (timers, TA, et al) quote Warren Buffett as support of their method - but he much more closely resembles the buy and holders.

Best way to reduce portfolio volatility? Stop checking it so often

What is the annual 'expense ratio' of the insurance method?
__________________
innova is offline   Reply With Quote
Old 08-01-2008, 02:30 AM   #157
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,386
Quote:
Originally Posted by samclem View Post
Usually after the flaws become obvious the originator of the trading scheme or his minions will propose a slight tweaking based on new insights into the mysterious machinations of the market. And the process continues ad infinitum.
Are you guys in the business of destroying dreams? For shame!

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 08-05-2008, 09:44 AM   #158
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,288
JULY 12th to AUG 4th close (according to my accounting):

Buy & Hold return %: -1.02%

RockOn return %: -2.66%

But, if this does end up saving someone from a 30% drop, it would be a cheap price to pay.

But I'll repeat - unless RockOn can define when to use and when not to use this system, you have to assume you are doing it all the time (and at what trip level?), so those gaps and spreads will add up at every turn.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 08-05-2008, 11:02 AM   #159
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
And once RockOn defines the infrequent time periods when he would use this system, I'll propose a refinement that will stop the frequent whipsaw losses: Just get completely out of the market during the times you would otherwise use this system.
__________________
free4now is offline   Reply With Quote
Old 08-05-2008, 11:45 AM   #160
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by free4now View Post
And once RockOn defines the infrequent time periods when he would use this system, I'll propose a refinement that will stop the frequent whipsaw losses: Just get completely out of the market during the times you would otherwise use this system.
Hey! Don't dismiss this system. In fact, I have a SURE FIRE way we can make money with it.
1) Keep tweaking it with hindsight-driven buying and selling rules until we can claim that "this method would have returned 85% per year average over the last 10 years, and never would have made less than 20% per year." It might mean that the buy/sell decisions are based on some type of numerology using the ticker symbols of the companies, etc. Doesn't matter--just write it down and get it witnessed/notarized.
2) Start a publicly-traded company to implement the plan for investors. Print up lots of slick brochures. There will be some regulatory hoops to jump through if we do this, so maybe instead we'll start a company to offer seminars and newsletters: "Enroll and we'll send you the buy/sell signals." Lots of radio ads and TV infomercials to pump it up.
3) Short our new company's stock like crazy.
4) When the public gets wise and the investigations begin, the company's stock will plummet. We'll all be rich.

All thanks to this stock-picking system--the system that will make us rich.

If I could have shorted Wade Cook, I would be wealthy today.
__________________

__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Market Timing??? rpow53 FIRE and Money 43 06-22-2007 10:05 AM
timing markets NYCGuy FIRE and Money 20 12-17-2005 09:39 AM
Timing GIM mikew FIRE and Money 5 11-19-2005 08:32 PM

 

 
All times are GMT -6. The time now is 12:38 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.