Down goes the Dow

Ghost of Igloi wrote:

Investopedia,

True, but when valuations do correct they do so with a vengeance. Keep in mind that the fifteen year return of the S&P 500 including dividends is roughly 5% which is the same for bonds. Also we have had two over 50% drops in the market during that period. John Hussman does a good job on the subject in this week's commentary:

http://www.hussmanfunds.com/wmc/wmc160328.htm

Igy

for the record,

15 year returns:

US stocks (vtsmx): +6.6% per year

US Bonds (vbmfx) +4.6% per year

So stocks are doing better than 5% now, and much, much better than bonds over that 15 year period igy cites.

agip,

15 year returns as of 3/24/2016:

Barclays Aggregate Bond Index: 4.90%

S&P 500 Index: 5.91%

All-Country World Index Ex-US: 4.94%

Igy

agip wrote:

Ghost of Igloi wrote:

Investopedia,

True, but when valuations do correct they do so with a vengeance. Keep in mind that the fifteen year return of the S&P 500 including dividends is roughly 5% which is the same for bonds. Also we have had two over 50% drops in the market during that period. John Hussman does a good job on the subject in this week's commentary:

http://www.hussmanfunds.com/wmc/wmc160328.htm

Igy

for the record,

15 year returns:

US stocks (vtsmx): +6.6% per year

US Bonds (vbmfx) +4.6% per year

So stocks are doing better than 5% now, and much, much better than bonds over that 15 year period igy cites.

I can live with that. ;-)

Investopedia,

Since stocks and bonds are at record highs, can you go for -2% return for the next seven years?

Igy

10700

I was referring to the 5+%/year that agip illustrated. Not too hard to take.

Investopedia,

Got it. From a valuation perspective, I was just pointing out that the future returns from here, on a historical basis should mean revert to lower.

Igy

...and then higher, then lower again, then higher again, etc. Its not rocket science.

Rocket,

And since we had six years of higher through May of 2015, we are entering the period of lower. As you said not rocket science.

Igy

Which follows at least several weeks of upper, which follows an early 2016 period of lower, etc. It's not rocket science.

...then down....

You said it first and I finished it using your words. Earnings are in decline and the market direction is down. You are wrong, but why quibble....it's not rocket science by the way.

Igy

Ghost of Igloi wrote:

Investopedia,

True, but when valuations do correct they do so with a vengeance. Keep in mind that the fifteen year return of the S&P 500 including dividends is roughly 5% which is the same for bonds. Also we have had two over 50% drops in the market during that period. John Hussman does a good job on the subject in this week's commentary:

http://www.hussmanfunds.com/wmc/wmc160328.htm

Igy

You correctly identified me as a system trader/investor, which I have been since 1989, actually. If you look at the Barclays CTA results from 2015, with systematic traders up 117% as I recall, I'm one of those. The scientific method is definitely in at Wall Street firms, and what follows here is why firms like Goldman and JPM have been hiring tens of thousands of engineers and mathematicians this business cycle because we can do math that the traditional finance/MBA types really can't. I see a lot of things particularly from mutual fund and CFP/RIA types that are highly unsophisticated compared to what we normally have in engineering and, frankly I see the CFP types going the way of the Dodo Bird. If all the value add you have is to package mutual funds, millenials can do and are doing that now with Robo Advisors on their phones.

Below is results from a backtest of Ben Graham and Robert Schiller CAPE trading rules. The person who did the analysis is a former professor of finance who has a PhD in finance from the University of Chicago:

What you see here is that both Graham and Schiller methods have failed as a value add for investors as a TRADING strategy as opposed to a stock selection strategy. Many/most investors, myself included, certainly use valuation as a tool when selecting stocks to buy, including people like me who use quantitative methods. But using this as a trading method to sell or swap out when the market is "too high" flat out doesn't work. At every point in the link above, using Graham or Schiller methods to trade to "avoid risk" resulted in lower returns than simply holding the SP500. I am not pushing the U Chicago "efficient market theory" but the data is what the data is.

This is the Campbell and Schiller original paper from 1997:

I've raised some statistical issues with this paper in the past, particularly lack of evidence of statistical significance, but assuming that one accepts the data and conclusion, the authors state multiple times in the paper that stock valuations are high in 1997, when the paper was written and that "prices will fall in the future to bring the ratios back to more historical levels." But below is what happened betwee 12/31/1996 and 12/31/2002. I added my trend following system for comparison but is not actually relevant to the conclusion:

What you will find is that if you take the average price in 1997 and swapped out at that point, by the end of 2002, you would be worse off (particularly if there are tax considerations) than if you just sat there like Flagpole did. And you left a 50% profit on the table.

What you are selling flat out doesn't work.

But this time is different, right?

coach d,

In the current environment what you have done and do works. What you do and what ever Wall Street firm does is piggy back on the same trades. I don't need an engineering degree to see the pattern. I suppose if this environment continues into the future your vision of the path will be the correct one. On the other hand traders and quants may get fooled by their logic of their methods and what will be is not. It's rarely that easy.

Igy

D:

You keep committing the same error - thinking that what is easy for people like you is easy for Mr and Mrs Smith.

The idea that many of my clients would trust their future to a computer program is absurd. And that everyone should be trend following traders rather than long term investors is equally silly.

It's sort of charming that you have such optimism about people and their investing skill, but it is misplaced.

Ghost of Igloi wrote:

coach d,

In the current environment what you have done and do works. What you do and what ever Wall Street firm does is piggy back on the same trades. I don't need an engineering degree to see the pattern. I suppose if this environment continues into the future your vision of the path will be the correct one. On the other hand traders and quants may get fooled by their logic of their methods and what will be is not. It's rarely that easy.

Igy

Right on cue!

[quote]agip wrote:

D:

You keep committing the same error - thinking that what is easy for people like you is easy for Mr and Mrs Smith.

The idea that many of my clients would trust their future to a computer program is absurd.

Buy they "trust" (sic) their future to you, or any investment advisor?

They would be better off using tea leaves due to the savings on the fees.

Hey, K5, I don't think agip's clents missed much of the bull market like you did.

I forgot the classic Coach D post - when he said something like 'why settle for just 10% per year with the Sp500? Pick stocks that go up 1,000%! '

I've said this before - I think D is a very good investor - certainly better than me.

I just don't think his recommendations are good for anyone but people like him.