Sad time for investors

Actually, what is sad for Buy & Hold investors like Flagpole is that the S&P 500 is only 11 points higher than it was 13 years ago on 1/1/2000. Any index investments held since the beginning of the century have made about 2% -3% per year (the dividends that were paid out).

Here are some charts showing how simple trend following methods would have fared in comparison to Buy & Hold.

http://etf-strategies.com/Trade_Data.html

Flagpole wrote:

Yeah, pretty damn good. Gotta talk it down a LITTLE so that too many of you non-investors don't start investing now, helping cause a bubble that then pops before I am able to acquire too much more at such a low price. So, I'll stick with "solid". 2009 and 2010 were CRAZY GOOD for me and then 2011 just sort of good and then 2012 CRAZY GOOD again.

You make a good point about lots of people right now being too poor to invest. So, poor people and uneducated about the stock market people have been out of the market since 2008, 2009.

Put me down as NOT sad. I'm still long SP500 futures contracts, comex gold (not less than 10 of them), US dollar index, and my safe money is in Bill Gross' Total Return Fund--and I'm not sad about any of them.

But there's a MAJOR problem that you and other Vanguard-type stock fund proponents aren't addressing--that game's a joke and many individual investors have figured it out.

Keep in mind that if you own "the market", you are still lower than you were in late-2007, and that is really the market dynamic in play. As agip has pointed out, there have been sharp market moves before, but what he didn't point out is that moves like 1974-1980 came after some of the largest bear markets we have had....and that is really the market dynamic these days.

This is a long-term futures chart of SP 500 going back to 2007:

Take a look at the Open Interest. It's less than 1/3 of what it used to be. After the 2008 massacre, large numbers of individuals bulled their money out. I read in one article in the New York Times that since 2009, close $500 billion has been pulled OUT of stock mutual funds. It's not that people are not investing; They have pulled what money they have left OUT, because they can't afford to lose any more.

Here's another part of the problem you have. This is a chart of the total return of the Pimco Total Return Fund vs. Vangard Total Stock Market Index for the last 15 years:

No amount of "educating" will make up for the simple fact that if you've been "investing" in Vanguard-type no-load funds for the last 15 years, Bill Gross has been eating your lunch. And that's why people simply aren't in these funds like they used to be. This fact would NORMALLY be positive from a contrarian point of view. Unfortunately, these people are not short term bears with cash to throw on the pile. That money is GONE, and it appears that it will continue to be gone until people can see that the market situation has changed IN THE LONG TERM. No amount of talking about how much money has been made since 2009 matters, because these people know what has happened in the past AFTER that point: Been there, done that, and not doing that again.

"Investing" by no-load stock index funds is essentially throwing lots of darts at the market, and hoping the market will bail you out. The problem here is liquidity. We are close to prior market tops, the economy is improving, unemployment is improving, corporate profits are at all time highs...BUT THE LIQUIDITY SIMPLY ISN'T THERE. I'm a trend follower, so I don't really try to predict anything. But it looks to me that as soon as the economy improves enough for the FED to back away from its present policy...we go right back to where we came from.

So I would recommend people buying finds like PIMCO Total Return, and simply wait for the marked to back down. We appear to be in a long term trading range, so it's not that hard to get an idea of what is overvalued and what is undervalued.

Flagpole. You have to be one of the dumbest poster one here. No small feat must say.

It is better to be invested in the market when you are losing money than when you you are making money?

Flagpole doesn't know anything about finance. I used to work on Wall Street and when I would read his threads I would laugh out loud. Seriously.

Walmart Money wrote:

Flagpole doesn't know anything about finance. I used to work on Wall Street and when I would read his threads I would laugh out loud. Seriously.

The stupidity of his comments is breath-taking

Walmart Money wrote:

Flagpole doesn't know anything about finance. I used to work on Wall Street and when I would read his threads I would laugh out loud. Seriously.

If you worked on Wall Street, then I think you'll admit that there was a time between about 1984 and 1999 when the buy and hold advice (funds or stocks) was right. Between 1991 and late 1999, I made a 61.5% average annual exponential return by buying and holding MSFT, INTC, CSCO, ORCL, and a couple more (the Peter Lynch method with stocks, not funds). I avoided the 2000-2002 massacre by listening to Warren Buffett.

That stuff just doesn't work these days. You need a different game plan. There's a line in hoops that goes, "Take what the defense gives you."

Same Same wrote:

Flagpole. You have to be one of the dumbest poster one here. No small feat must say.

It is better to be invested in the market when you are losing money than when you you are making money?

That's not what he wrote. So I guess this is the pot calling the kettle black.

there are about 12 things wrong with this but I am cooking salmon with lentils so I can't respond. But I am angry and working up a good fervor with my entree.

This should make Flagpole happy, then.

http://www.blanchardonline.com/investing-news-blog/econ.php?article=5395

Unless you are focused on companies and their internals, chances are you are NOT going to make much money.

Taking the long term, conservative approach is still the best way of building a retirement fund. A steady 9% return over 20 to 30 years is my cup of tea and that is what I have been getting, with little movement in and out of the market. I also sleep easy at night.

Same Same wrote:

Walmart Money wrote:

Flagpole doesn't know anything about finance. I used to work on Wall Street and when I would read his threads I would laugh out loud. Seriously.

The stupidity of his comments is breath-taking

Now I know that Flagpole has his limitations but you folks are way off base. Generally he is a sensible lad with solid, if obvious, advice.

I have come to defend buy and hold.

Some have said that buy and hold has stopped working. these people have very short time horizons. Over 10 years Vanguard total stock market has gone up 8% per year. How is that failure? Although that 10 yr period started at a market low so it isn't that meaningful.

Over 15 years the results are worse 5% per year, but only because that started near the peak of the internet bubble.

So the start period means everything here, but even at its worse, starting near the top of the great bubble, you made good money.

Also, we are very narrowly looking at stocks - mostly big cap us. A diversified portfolio would be far, far, far ahead. Emerging markets 15 yrs: 10% per year. Small Cap US 15 yrs 7% per year.

So coach d you are really looking at one corner of the market and that is unfair.

As for liquidity...well, obviously the time to buy stocks is before the liquidity - before everyone rushes in. Like...now. Unless I am misunderstanding your argument.

to conclude, buy and hold has worked wonderfully if you had a properly diversified portfolio.Small and midcap indices are at ALL TIME HIGHS now, and are up in a large way over 2000 peaks. As are emerging markets. Build a good portfolio. be diversified. hold costs down. use some bonds. You will do well.

bump

aw come on coach d

1/2000 - 1/2013 your returns for monthly buying of VFINX, assuming divs reinvested immediately, is 2.8%/yr.

B&H is better than trend following when the measurement period ends w/ a 10-20yr bull run e.g. 1980-2000. In 2000, trend following looks bad compared to B&H.

However, all other times it outperforms B&H significantly. the past 10 years have been a disaster for B&H, and trend following has done very well

see

www.FundLogik.com

for more.

I worked in the City of London, with the gnomes of Zurich and on Wall Street since 1986. I've worked for more than a dozen investment banks in both permanent and consulting roles.

Does that qualify to give me financial advice. No. I work in IT support.

The majority of employees on Wall St could predict the weather in 6 months more accurately than the market. That includes traders.

The vast majority of trading and market predictions are performed by computers, analysts and economists. Traders and sales people are told what to buy and sell on a daily basis.

Trading volumes are so high that banks only need to be forecast the market of stock performance right 51% of the time in order to make huge profits. That means that they can predict the market wrong 49% of the time and still make money.

In other words, just because someone works on Wall St doesn't mean that they are qualified to make a call any more than the individual investor.

I leave my savings and 401K to someone else to manage. They have delivered about an 8% gain even per annum.

Apologies for the poor grammar and the odd misspelling.

Off the Grid wrote:

1/2000 - 1/2013 your returns for monthly buying of VFINX, assuming divs reinvested immediately, is 2.8%/yr.

B&H is better than trend following when the measurement period ends w/ a 10-20yr bull run e.g. 1980-2000. In 2000, trend following looks bad compared to B&H.

However, all other times it outperforms B&H significantly. the past 10 years have been a disaster for B&H, and trend following has done very well

see

http://www.FundLogik.com

for more.

Why are you picking the top of a historic bubble as your start point? That is manipulating/mining the data.

Why are you looking at just large cap US stocks? Almost every other kind of stock has done far better. Again, I'd say you are manipulating/mining the data.

To get the truth you have to look at 20-50 years of returns of all kinds of stocks because 1) 20-50 years is an investing lifetime and b) looking at one corner of the stock market is not representative of a diversified portfolio.

Anyway, you are completely wrong to say that 'the last 10 years have been a disaster for b/h - even the s/p 500, which is not a diversified index, is up 7.2% per year over the last 10 years. That is a disaster? (but 10 yrs ago was the bottom of the market, so 10 yr data are meaningless right now)

I do use some trend following - I tend to sell some stocks when they fall below the 200 day moving average. But since 2009 that hasn't worked - stocks have rocketed back quickly. I think buy and hold except when te market is below the 200 day is probably a good long term strategy.

Here is a question to ask anyone who gives you investment advice:

“This is what I want to do. I want to give you ALL of my money to invest. You get to invest however you want. Here is how I will pay you. At the end of the year I will calculate how much money I would have had if I had just invested it in low cost index funds, including all the fees, etc. However much I am better off because of investing with you, I will give you 67% of it. If I am worse off because of investing with you, you will pay me back 50% of the difference.

So, for example, if my index calculation says I would have made $20,000 that year and you make me $30,000, I’ll pay you $6,667. If my calculation says I would have lost $10K that year and with you I only lost $5K, I’ll pay you $3,333. But, say my index calculation says I would have made $20K and you only made me $10K, you would have to pay me $5,000.”

You won’t find a single investment person who will take that deal. And, that deal is basically telling them they can make a ton off of you if they are just better than average every year. What does that tell you? Just invest in index funds and pay attention to your asset allocation.

you aren't wrong factually but you are massively wrong in a behavioral sense. The problem with people managing their own money is that they sell in 2002, they sell in 2009, and they never get back in. While the stock market rises at 10% per year, the average stock investor probably makes something like 4%, because greed and fear wrecks his investing.

A smart guy once said 'look, investing is like changing your oil. You can do both well yourself, but...will you? Will you get under the car? Will you build a diversified portfolio and hold it for the long run?

Very few people can do this. financial advisors make much of their money by stopping people from being stupid.

But if you have the time, energy and smarts to do it yourself, you should.

Off the Grid wrote:

B&H is better than trend following when the measurement period ends w/ a 10-20yr bull run e.g. 1980-2000.

True. OTG, I realize we're pretty much in agreement on this so the following is really for those who think there's something magical about B&H.

But here's the difference between B&H and Trend Following -

During a prolonged bull market B&H will beat Trend following by a little. From the beginning of 1980 to the end of 1999 B&H with the S&P-500 grew at a rate of 17.70% a year including dividends, while the 10 week EMA - 40 week EMA Cross (one of the worst trend following systems) grew by 15.77% a year. So B&H wins, but even with the loser you're still making a lot of money.

But when you hit an up and down period, like 2000-2009 or 1970-1979, B&H does poorly while Trend Following still makes money. From the beginning of 2000 to the end of 2009 B&H LOST 0.94% a year INCLUDING dividends (Flagpole is lucky he didn't have to retire then, he would have lost nearly half his stash in a year and a half). The 10-40 weekly EMA Cross grew by 6.43% during that same period.

For those who say I'm cherry picking, lets put the 1980-1999 period (the best the stock market has ever had) and the 2000-2009 period together. From 1980 through the end of 2009 B&H grew by 11.12% a year while the 10-40 Cross grew by 12.57% a year. Using B&H, $10,000 at the beginning of 1980 grew to $236,400 at the end of 2009. Using the 10-40 Cross, $10,000 grew to $366,500. That's a huge difference.

So yes, B&H will beat trend following during a bull market, but it will kick you in the arse during roller coaster rides like we've had for the last 13 years.