LOL!'s Market Timing Newsletter

[Mr._Graybeard]

It would be interesting to know how all this trading activity is paying off for you over time ... say, account balance as of 6/30/19 vs. account balance 12/31/2018. Percentage gain/loss would work if you don't want to post $ amounts.

[LOL!]

It is really not that interesting because I am making about the same as my benchmarks. I'm ahead of some of them and behind others. It takes quite a lot of humongous transactions to move the dial as I explained in 3 posts starting here:
http://www.early-retirement.org/foru...ml#post1787189

But the short summary is: If you want to outperform your benchmark and only move 10% of your portfolio that does better than the benchmark by 10%, then you only outperform by 10% of 10% or a mere 1%. For many people 1% is in the noise.

Plus the benchmarks differ by more than 1% each year in their own right. For instance VBIAX and VSMGX are two of the Vanguard balanced funds that both have 60/40 (stocks/bonds) asset allocation. As of yesterday their YTD total returns were 12.68% and 10.46%. It is clearly better to be in the stronger performing asset class (US equities) and avoid the lower performing asset class (foreign equities), but those can switch around from year to year.

So if I make $20,000 extra on a $5,000,000 portfolio, that's a mere 0.4% outperformance and in the noise, isn't it? And even then, it is outperformance to switch temporarily from a 60/40 asset allocation to a 70/30 one? Should one's benchmark be a 60/40 fund or a 70/30 fund? How does changing risk level on the fly count?

The math is inexorable, so this is more about fun and at the same time not losing money nor increasing my taxes.

[Mr._Graybeard]

OK, so your TR is about the same as if you bought and held a 60/40 benchmark, plus the entertainment value of buying and selling. Thanks.

[LOL!]

Quote:

Originally Posted by Mr._Graybeard OK, so your TR is about the same as if you bought and held a 60/40 benchmark, plus the entertainment value of buying and selling. Thanks.

Yes, except in the years when the portfolio performance exceeds the benchmark performances by a percent or two.

I have accounts that I never trade in such as my taxable accounts and an IRA, but I have accounts that I trade in such as Roths and traditional IRAs. The traditional IRAs are meant to have 100% bond funds in them. So if I 3 or 4 times a year switch them temporarily to equities and then handily outperform the return of a bond fund, what does that mean? It is not fair to compare the performance of such an account to the performance of a simple bond fund because the account did not stay in a bond fund for the whole year. It is also not fair to compare the performance of the account to the performance of an equity fund because the account did not stay in an equity fund for the whole year.

[LOL!]

Update: Sold a tranche of total US stock market at just 1 cent off the current high for the day. Every tenth of a percent counts!

And with MTUM trending higher here 15 minutes before the close, I sold all the shares purchased 2 days ago.

[LOL!]

Today was significant for the portfolio because the ETF MTUM dropped below where I last sold and small-cap value ETFs are up from where I bought them, so my transactions in August are very profitable. 606 Bond funds have also dropped the past few days in a relatively big way for bond funds.

I have been tracking the alternative outcome of doing nothing and it had been winning until today when current portfolio popped significant ahead with a 5-figure difference in outcome, so today is my lucky day!

I made a few minor trades today: selling some IJS to pay a credit card bill and buying some bond ETF shares with the dividends paid today. Otherwise, it is steady as she goes. Thanks for reading!

[NW-Bound]

Regarding the earlier exchange on this thread about actual return of trading activity, indeed the difference from the benchmark will be small even if one jumps in/out of the market and varies the AA by 10% as long as the stock composition still resembles the market.

Much higher diversion from the benchmark occurs when one keeps the AA deviation for longer periods, or picks stocks to have a different composition than the total market. The difference of course could be good, or bad. And it can be much more than a few percents.

[LOL!]

Quote:

Originally Posted by NW-Bound Regarding the earlier exchange on this thread about actual return of trading activity, indeed the difference from the benchmark will be small even if one jumps in/out of the market and varies the AA by 10% as long as the stock composition still resembles the market. Much higher diversion from the benchmark occurs when one keeps the AA deviation for longer periods, or picks stocks to have a different composition than the total market. The difference of course could be good, or bad. And it can be much more than a few percents.

Yes, the math checks out.

[NW-Bound]

The math does check out.

For example, I am looking right now at my trading account, which holds 40% of my investable assets and is my largest account. I have been selling covered calls on all positions that are most volatile, such as information technology, biotech, EM.

The idea is to make a bit of money, and to reduce volatility of my account too. To that 2nd goal, yesterday for the 1st time, I bought a slightly out-of-the-money put on the S&P. That put purchase was done on a lark as I usually only sell options, mostly covered calls. The put only covers 1% of my portfolio, and only cost me a few hundred bucks.

I am looking at the brokerage screen right now. My largest position is down -2.45%, while the S&P is down -0.65%. The whole account is down only -0.25% due to all the options. That large position is completely hedged by covered calls.

Long-term return is unknown, but the hedging by options works for me right now.

[LOL!]

And another day like yesterday: MTUM down, IJS up, bonds down! So a BIG day for me since I am overweight in small-cap value and under weight in MTUM. 961

I am not sure what's going on, but it almost seems as if a state actor is in here manipulating stocks. The difference between MTUM and IJS in the past 2 days is more than 8% which is HUGE for a pair of US stock ETFs with dozens of companies in each of them (124 for MTUM, 472 for IJS). My portfolio is weighted to the right side of this action for a change, but it makes me want to unwind soon.
Here is a chart from 9/3/2019, so the past week.



Does anybody have any idea what is going on? Is it the probe of giant tech companies by the 50 states which is trashing MTUM?

[NW-Bound]

Could this be the effect of Michael Burry? He recently opined that small cap stocks were neglected and undervalued.

And indeed small cap value stocks have been trailing the S&P for a while. The action of the last few days is nowhere near enough to close the gap.

[NW-Bound]

My equity positions go up more than 1.5% today. Not that impressive, if one considers that the Russell 2000 goes up 2.12%. But on the other hand, less than 1/5 of my positions are small cap. Just one of those lucky days.

Diluted out by the 63% stock AA, plus all that hedging with options to reduce volatility, and I have 0.88% left all in. Not complaining.

Nearly all the options are in-the-money and will get exercised next Friday, 9/20, unless the market crashes. I will have my stock AA reduced to 50% as I wished.

I am feeling greed coming on now, wishing I had gone offensive instead of defensive. Need to remind myself to stay with the plan.

[LOL!]

After a one-day pause, US small-cap value continues its upward slog this morning. It has quite a ways to go to catch up with the YTD numbers of US large caps and momentum equities still. I'm sure I will have to rebalance before too long. 362

[LOL!]

In the past few days US Total Bond Index has dropped about 1.4% while the Short-term corporate bond index has dropped only 0.3%, so that is a worthy disparity to make a trade on. So I sold some SPSB and bought some SPAB a moment ago. With the FOMC meeting next week maybe the slide in Total Bond will abate and I can get a 0.5% or more move upwards. It isn't much, but these trades don't cost me any commissions or taxes, so a half percent here and a half percent there and pretty soon we are talking about a billion dollars. But really the way I think about this is that I missed a loss of 1% in the past few days. 413

[LOL!]

Update on the last trade: The recently purchased bond fund shares have gone up 1% in 6 trading sessions which is outstanding, so much much better than holding any cash. But the short-term bond funds shares I sold have since gone up about 0.4%, so the net is only 0.6% better than doing nothing.

And folks are worried about bond funds?

[NW-Bound]

Almost 2 weeks ago, I wrote:

Quote:

Originally Posted by NW-Bound Nearly all the options are in-the-money and will get exercised next Friday, 9/20, unless the market crashes. I will have my stock AA reduced to 50% as I wished. I am feeling greed coming on now, wishing I had gone offensive instead of defensive. Need to remind myself to stay with the plan.

The market suddenly collapsed midday on Friday when the Chinese delegate on trade talks canceled their planned visit to American farms.

As a result, not all the covered call options were assigned. My stock AA is reduced, but still at 58%.

Today, the market is recovering. I will look to sell more covered calls on the more volatile stocks and ETFs that I have, and keep the more defensive stocks such as utilities and consumer staples.

[LOL!]

Quote:

Originally Posted by LOL! Update: So on a day like today I like to sell the asset class that I own that has gone up the most intraday and use the money to buy the asset class that I own that has gone down the most. That means I submitted an order to exchange VBTLX (total US bond) into VSIAX (small-cap value index). I intend to unwind this trade in a few days or weeks by using a different account where I will sell some other US small-cap that I own to buy a US bond index. This way I avoid any frequent trading restrictions in all these accounts. The accounts are all tax-deferred, so no tax issues from the transactions. 311

So with bond ETFs down about 0.5% and small-cap value ETFs up about 1.3% right now, it is time to unwind the above trade from last month. I've submitted an order to exchange VSIAX into VBTLX. This is not all the VSIAX that was bought last month, but it is more than half. I consider this a rebalancing move from stocks to bonds as the portfolio is overweighted in equities at the moment. 331 I will admit that if I had done the exchange a week or so ago, then it would have been more profitable, but it is hard to be perfect with market timing.

After the market close, I will look to see if I need to continue to rebalance or not.

[LOL!]

That last trade was reasonably profitable since the stock market dropped the past 2 trading days and bond funds went up. I just checked my asset allocation and I am a tad underweighted in equities mostly due to the 2-day drop in stock markets. I did receive some quarterly dividends and more will show up on Monday and later in the week since it is the end-of-month and end-of-quarter.

Thus, I think next week I will be buying equities with the cash and with an eye to getting my AA back in line. But there is no particular stock sector that is a compelling buy to me. Maybe MTUM? Maybe an international developed ETF?
706.

So if you have any ideas of what equity ETF to purchase, send them my way please. Thanks!

[LOL!]

Today (Tues) seems to be starting off as a rather odd day to me. US small-caps were up more than 1% in the first 45-50 minutes of trading, then things cratered quickly. I'll have to check the news later today.

Anyways, I took the dividend money from equities received in the past week and bought odds and ends to get back to minimal cash. 981

[NW-Bound]

The Purchasing Manager Index (PMI) fell to 47.8, indicating contraction of the domestic manufacturing activities (50 is neutral).

That knocked the air out of the market, right in mid trading.