Simple Timing system

[RockOn]

True, annuities have no volatility. The moment you sign and give them your check the SPIA will always have a value of $0. If times get tough, you could always see what JG Wentworth will give you for your annuity.

The second part of giving them the check is the money starts appearing in the mailbox each month. Let's not forget that. If the checks are large enough, that makes up for the $0.00 balance. At least that's how I see (and calculate) it.

If you gave someone $1,000,000 at age 55 and they gave you back $150,000 a year for life, you would take it. I know those numbers are not even close but at some payoff even you non-annuity people would be begging to buy one. I can just be bought for much less (around a 6% IRR if I live to 86). Everybody has their price.

I owned BAC also at 37, thought I really missed out when it went to 42 after I sold it, but not now.

 

[Hamlet]

I would believe him if they hadn't been buying Countrywide stock from 20+ to about 4. I don't have any confidence that they know Countrywide's liabilities well enough to guarantee the dividend.

This guy could come out looking like a genius if the housing market stages a sharp 2009 recovery. I don't want to count on that though.

BAC is my last remaining individual stock. I'm amazed at the plunge its taken. It seems like every day an analyst comes out with the same warning that BAC will be forced to cut its dividend and recapitalize. The stock dutifully falls 5%. I thinks its about half of its 52 week high and sets new lows almost daily.

The CEO has come out twice since the carnage began and has said that he sees no need to either increase their capital or cut the dividend. Somehow he has no credibility. Over 2% of the total stock outstanding is shorted. This is monstrous for a company like BAC. There's either a safe but harrowing 11+% dividend here or a CEO than needs a good whippin'.

 

[Hamlet]

If only I practiced what I preached .

A few of my holdings have made me much more aware of risk in the last few months.

TCB and FR are the dramatic examples.

Their prices imply that they will need to cut their dividends. I don't think they will.

I'm hoping that I'm right and the market is wrong

You might need the gun if that happens!

I do think your list looks pretty good, you are obviously knowledgeable about lower risk.

Good luck with it. It would be fun to keep track and see how they did in 5 years.

 

[Enuf]

Please tell me which!!!!! I want another buy on BAC. I bought at $30 and sold at $25, lost $50k.

When should I buy? I love the div!!!

BAC is my last remaining individual stock. I'm amazed at the plunge its taken. It seems like every day an analyst comes out with the same warning that BAC will be forced to cut its dividend and recapitalize. The stock dutifully falls 5%. I thinks its about half of its 52 week high and sets new lows almost daily.

The CEO has come out twice since the carnage began and has said that he sees no need to either increase their capital or cut the dividend. Somehow he has no credibility. Over 2% of the total stock outstanding is shorted. This is monstrous for a company like BAC. There's either a safe but harrowing 11+% dividend here or a CEO than needs a good whippin'.

 

[clifp]

A S&P 500 Dec 120 put (roughly equivalent to Dow 11,000) is currently selling for roughly $14.35. Why not just buy a put, you'll collect about $4 in dividends so the total cost is roughly 8-9% for 17 months of downside protection. If you are content with earning 6% you could simultaneously sell a Dec 135 call for $13.65. So you have now hedged downside risk to almost zero (counting dividends, and option premiums) but your upside is also limited to no more than 11-12% not sure if that averages out to 6% but it is close.

 

[RockOn]

A S&P 500 Dec 120 put (roughly equivalent to Dow 11,000) is currently selling for roughly $14.35. Why not just buy a put, you'll collect about $4 in dividends so the total cost is roughly 8-9% for 17 months of downside protection. If you are content with earning 6% you could simultaneously sell a Dec 135 call for $13.65. So you have now hedged downside risk to almost zero (counting dividends, and option premiums) but your upside is also limited to no more than 11-12% not sure if that averages out to 6% but it is close.

On the first idea, 8 to 9% for 17 months of protection is a lot of money. But combining that with selling the call, that makes it interesting. Thanks for that idea. There are ways to limit risk.

Just staying out until the market starts a new bull market looks like a cheap way to go, but there are some problems with that idea. Potential whipsaws and gaps as we have discussed.

 

[2B]

Please tell me which!!!!! I want another buy on BAC. I bought at $30 and sold at $25, lost $50k.

When should I buy? I love the div!!!

I got my BAC from a series of bank acquisitions. My cost basis is about $9 and I've held it since the mid-90s. I hadn't sold because it had a large capital gain I wanted to not take plus it has a good dividend. It's also well less than 1% of my portfolio. It has been a good reminder why I don't invest in individual stocks anymore. I think it will come through this without having to raise capital or cut the dividend. I think they are just being hammered by rumors and panic. But, what do I really know about this?

I'll just keep on watching the drama unfold.

 

[Zathras]

Annuites aren't the only way to get monthly checks.
While not the exact same every month, dividends pay me monthly/quarterly/semi-annually and over the long run provide an increase in principal.
In addition, IF the insurance company providing the annuity goes under, well, that is that (as I understand it). If one of my companies goes under I loose <1% to 8% of my portfolio.
Diversification is the key to limiting risk. After all, what is a mutual fund but a bunch of individual stocks that someone else picked for you

 

[CitricAcid]

In an unsure volatile market, writing covered calles or naked puts on ETF's that track indices could be the way to mitigate the risk and produce a little income depending on what direction you think the volatility will swing further. I think by writing the options on the indices of choice (if an ETF exists for one) would be the best way to mitigate the risks while keeping the costs much lower.

 

[clifp]

This weeks market is a pretty good example of the dangers of a simple timing system.

If your get out number was say dow 11,000 you sold out on Tuesday. If you got back in on Wed you lost out on 2.5% gain if you waited until Thursday another 2%.

IIRC, more than 1/2 of the gains of the market in a year are made in less than 10 trading days,you don't want to be on the sidelines on those days.

Who knows maybe it goes below 11,000 tomorrow and you'd have to sell again, but it is an expensive trip in this volatile market.

 

[RockOn]

This weeks market is a pretty good example of the dangers of a simple timing system.

If your get out number was say dow 11,000 you sold out on Tuesday. If you got back in on Wed you lost out on 2.5% gain if you waited until Thursday another 2%.

IIRC, more than 1/2 of the gains of the market in a year are made in less than 10 trading days,you don't want to be on the sidelines on those days.

Who knows maybe it goes below 11,000 tomorrow and you'd have to sell again, but it is an expensive trip in this volatile market.

Whipsaws at their best. You are right. That is the downside of moving average types of timing. I wouldn't try it except possibly when downside risk is running wild. That appears to have let up until at least tomorrow.

P.S. but if I could have bought and sold a heavily traded ETF (to get quick executions within a penny or two of the index price) during the day each time it crossed my number I wouldn't have lost much even if it whipped through a few times a day. If we could get to 24 hour trading, 7 days a week, and heavy bid/ask interest in index ETF's during the entire 24 hours, you might give it another look. No?

 

[Finance Dave]

The only timing I do is determine my FIRE date...which admittedly moves around a bit as the market over/under performs.

 

[al_bundy]

This weeks market is a pretty good example of the dangers of a simple timing system.

If your get out number was say dow 11,000 you sold out on Tuesday. If you got back in on Wed you lost out on 2.5% gain if you waited until Thursday another 2%.

IIRC, more than 1/2 of the gains of the market in a year are made in less than 10 trading days,you don't want to be on the sidelines on those days.

Who knows maybe it goes below 11,000 tomorrow and you'd have to sell again, but it is an expensive trip in this volatile market.

looking at the last few years market performance there is usually a 15% on average correction every year, usually in the 3rd quarter. and then a nice rally that takes the indexes 20% to 40% gains in a few months. i've never read of anyone who was serious into timing the market who tried to catch the very top or the very bottom. pretty much everyone says it's best to catch it within 3% - 5%. most importantly catching the top is more important than catching the bottom because preservation of capital will do a lot more for long term returns than capital gains.

and i've never read of anyone advocating a timing system based on 1 day gains or losses. pretty much everyone who does this uses some variation of averaging out the last few weeks action to look at the trend

 

[ziggy29]

The best timing system is "find out what ziggy29 just bought, and short the bejeezers out of it."

 

[youbet]

I wouldn't try it except possibly when downside risk is running wild.

Those looking at history can always point to data that shows downside conditions were "running wild" just before a significant drop in the market. Sadly, those looking ahead hardly ever do better than guessing (at best) and have a feeble record of accuracy.

For myself, if I had bet the farm everytime I was sure that conditions were "running wild" and indicating an impending up or down market move, I wouldn't be FIRE'd today!

 

[guest]

I guess it is my turn to be slapped around a little but like my daddy said, you’ll be a better man for it! I mostly agree with RockOn.

First, I must confirm my full weak-knee-ness. I had trouble with the market fluctuations and general negative trends a long time ago and after enduring all I could I got out. It was my position that at my “life plan” stage (retire in a year and a half or so) I could not replace my loses (and keep the schedule) and it would be better to get out now while I still had enough to continue my plans. Since then the market has only gotten worse and most investors have lost some percentage of their portfolio. Most likely, a greater percentage than I had lost when I jumped ship. Sleep has come pretty easily after that decision.

But through all my past years investing I have never felt comfortable with just watching the numbers fall away! Some say it is only numbers and “that they never really had that money anyhow”. I believe that is pure balderdash! I jumped ship in 2000 and skipped the market gyrations of that time and rejoined the fracas in 2002. Market timing? It was not my intention, I just felt that there was obvious bad news and I could wait until things settled down! I see RockOn’s point using a black and white number as a guide but isn’t it better just to chill until the general market trends become readable and then move? It doesn’t take a financial wizard to see things are a mess and that there is no real positive news anywhere on the near horizon! Even if I was in the accumulation phase of life right now, I would not be in this market very heavily.

 

[ERD50]

RockOn - let's back test it. Pick a point, and you also need to decide on a range before you trade. The index could move above/below that point 100 times in a day if it was teetering on the line - you have to have some delta between your sell and buy points. That will force you to sell low and buy high sometimes (maybe not often though - it just depends).

I suspect that between a few sell low buy high rushes, and some daily gaps, that you will lose a fraction of a percent enough times to add up to real money. An option position just might be cheaper. As was pointed out, an option 'collar' can cost nothing, you just trade limited downside risk for limited upside opportunity (plus the spread and fees).

And of course, a back test doesn't prove anything, since the future will be different, but it might give you an idea of what could happen (hey, sounds like FireCalc!).

-ERD50

 

[samclem]

RockOn - let's back test it. Pick a point, and you also need to decide on a range before you trade.
-ERD50

I'm sure he'll weigh in, but I think he has rejected this idea.

From his post above:

Whipsaws at their best. You are right. That is the downside of moving average types of timing. I wouldn't try it except possibly when downside risk is running wild. That appears to have let up until at least tomorrow.

So, apparently you can't use this method all the time, just when downside risk (subjective? P/E based?) tells you to.

Ahh, technical analysts . . . the battlefield of investing ideas is littered with their bones, yet more are spawned daily.

 

[RockOn]

I'm sure he'll weigh in, but I think he has rejected this idea.

From his post above:


So, apparently you can't use this method all the time, just when downside risk (subjective? P/E based?) tells you to.

Ahh, technical analysts . . . the battlefield of investing ideas is littered with their bones, yet more are spawned daily.

I've backtested things like this before. It really depends on what was happening in the market. It can make me look like a genius or a fool, depending on how much the number picked is optimized to fit the data.

My thought was that things are "running wild" right now. I watched a run on a bank on TV a few nights ago as an example. I am not talking about falling market prices, I am talking about the possibility of a meltdown. Chances are that will not happen, but a simple timing system may have it place right now. Market timing methods do work at times, the problem is figuring out when those times are.

 

[Spanky]

Market timing methods do work at times, the problem is figuring out when those times are.

And there is no shortage of market newsletters to provide simple buy and sell signals.

 

[Alan]

I guess it is my turn to be slapped around a little but like my daddy said, you’ll be a better man for it! I mostly agree with RockOn.

First, I must confirm my full weak-knee-ness. I had trouble with the market fluctuations and general negative trends a long time ago and after enduring all I could I got out. It was my position that at my “life plan” stage (retire in a year and a half or so) I could not replace my loses (and keep the schedule) and it would be better to get out now while I still had enough to continue my plans. Since then the market has only gotten worse and most investors have lost some percentage of their portfolio. Most likely, a greater percentage than I had lost when I jumped ship. Sleep has come pretty easily after that decision.

But through all my past years investing I have never felt comfortable with just watching the numbers fall away! Some say it is only numbers and “that they never really had that money anyhow”. I believe that is pure balderdash! I jumped ship in 2000 and skipped the market gyrations of that time and rejoined the fracas in 2002. Market timing? It was not my intention, I just felt that there was obvious bad news and I could wait until things settled down! I see RockOn’s point using a black and white number as a guide but isn’t it better just to chill until the general market trends become readable and then move? It doesn’t take a financial wizard to see things are a mess and that there is no real positive news anywhere on the near horizon! Even if I was in the accumulation phase of life right now, I would not be in this market very heavily.

So when did you pull out this time? Interesting that you say you jumped back in during 2002, which for me was my worst year ever (-11%). If you agree with RockOn, do you have a system like he is suggesting for timing or do you time the market using other methods?

 

[al_bundy]

And there is no shortage of market newsletters to provide simple buy and sell signals.

people actually pay for these when there is so much information free on the internet

 

[guest]

So when did you pull out this time? Interesting that you say you jumped back in during 2002, which for me was my worst year ever (-11%). If you agree with RockOn, do you have a system like he is suggesting for timing or do you time the market using other methods?

I retreated back around November or December. This retreat was because I simply felt retirement was too close (5 months now), all my numbers worked, and any more loses would be hard to recover in such a short length of time. The fact that things have just gotten worse makes my decision look good but it is just coincidence.

The 2002 jump back in was not in January...but the exact date I would have to look up. I don't claim to have a system but what I liked about RockOn's approach was he felt the bleeding of the market and wanted to react to stop it. Setting a number got you by the very thing I have a hard time with….dumping money into the market and checking the balance and it shows less and less! I still have to deal with this with my wife’s retirement stuff…..geez. She is diving daily and putting in faithfully monthly.

My approach is to keep informed, read a lot, and listen some. If I see a bank collapse in the news or look at stock numbers diving, mortgage crisis….I can get a good feel that even if it went up today it is going to stay in struggle mode for a while. OTOH, when the news is about global warming (sorry, I couldn’t resist…) and how much my politicians have done for me, maybe some nice news about oil prices and the market numbers are on the plus side for a bit, I would be more inclined to stick around. I did not try to jump around a lot. There have been good times and bad and honestly speaking, I pretty much always tried to stay in and keep pumping the money to it….just not during the long downturns.

 

[guest]

Just checked and it was October 2002 when I rejoined the land of big gains and possible loses and I "stayed the course" until my jump out at the end of last year.

 

[Alan]

Just checked and it was October 2002 when I rejoined the land of big gains and possible loses and I "stayed the course" until my jump out at the end of last year.

Well good luck in future timing, it's not for me.