S&P Sell Signal

Nobody said anything about absolutes. Selling when the market is down and buying when it is high, as apparently this BRM fellow did, is not a good investment strategy.

Here are my returns from a system I have developed. It is similar to BRM's

Date BRM/OtG S&P B&H

BUY 2006-04-24 100.00 100.00

SELL 2006-06-19 95.49 94.96

BUY 2006-10-02 96.48 102.97

SELL 2007-09-04 105.37 110.91

BUY 2008-06-09 105.32 103.77

SELL 2008-07-14 95.98 96.19

BUY 2009-06-01 98.17 71.73

SELL 2010-06-21 116.70 82.16

BUY 2010-10-18 117.38 90.27

SELL 2011-06-27 125.85 102.22

BUY 2012-01-03 127.87 97.50

Current 2012-02-21 136.32 103.94

Over a 6 yr period it can outperform the S&P 500 by 5-6%/yr. This is not rocket science. Anybody can do it.

I sold in the summer of 2008 and stayed out for almost a year. That is a long time to ignore Flagpole et al. But my returns are far better.

Blowing.Rock Master wrote:

As I stated earlier, the sell signal is wrong half the time.

Great, your signal is like a coin flip. Marvelous. Great system ya got there, buddy.

Adam Rant wrote:

Great, your signal is like a coin flip. Marvelous. Great system ya got there, buddy.

So you think the effect of losing 50% and gaining 50% have an equal effect on your portfolio?

Off the Grid wrote:

Adam Rant wrote:

Great, your signal is like a coin flip. Marvelous. Great system ya got there, buddy.

So you think the effect of losing 50% and gaining 50% have an equal effect on your portfolio?

If you're trying be smart, you're missing the point. The point was that a buy/sell system is bet on the direction of the market, not percent gains/losses.

dingle wrote:

If you're trying be smart, you're missing the point. The point was that a buy/sell system is bet on the direction of the market, not percent gains/losses.

no....it IS a bet on the % gain/loss. The point being, its difficult if not impossible to recover from large losses.

I'm glad for you that it worked out (I really am), but it was risky to do what you did as most did not see the market dropping as far as it did, and of course you would have been better off doing it in October 2007 than waiting until 2008.There aren't too many financial experts who would recommend that you go all in or all out at any time...just had a dude talking about this last night on one of the financial shows...should be easing in and easing out if necessary (hopefully only in retirement), but never going all out or putting huge chunks in at one time either.The problem with getting in and out is that you have to time it on both ends, and you lose any dividends during the time you are out (and as research shows, investors who do this typically SPEND anything they would have invested in the market while they are out).I don't like crazy risk, so I will never get in and get out like that. The ONLY thing I do based on my view of the market is that I may put in EXTRA money if I have it and if I believe the market is low. I always maintain a certain level of regular contribution though at all times, and that is a great strategy.

Off the Grid wrote:

Here are my returns from a system I have developed. It is similar to BRM's

Date BRM/OtG S&P B&H

BUY 2006-04-24 100.00 100.00

SELL 2006-06-19 95.49 94.96

BUY 2006-10-02 96.48 102.97

SELL 2007-09-04 105.37 110.91

BUY 2008-06-09 105.32 103.77

SELL 2008-07-14 95.98 96.19

BUY 2009-06-01 98.17 71.73

SELL 2010-06-21 116.70 82.16

BUY 2010-10-18 117.38 90.27

SELL 2011-06-27 125.85 102.22

BUY 2012-01-03 127.87 97.50

Current 2012-02-21 136.32 103.94

Over a 6 yr period it can outperform the S&P 500 by 5-6%/yr. This is not rocket science. Anybody can do it.

I sold in the summer of 2008 and stayed out for almost a year. That is a long time to ignore Flagpole et al. But my returns are far better.

Off the Grid wrote:

So you think the effect of losing 50% and gaining 50% have an equal effect on your portfolio?

Losing 50% and then gaining 50% would result in a 25% net loss.

So you get your investment advice from TV? From the fund management companies in whose interest it is for you to remain full invested in their funds at all times?And you think it is riskier to be OUT of the market? That is interesting.

Flagpole wrote:

I don't like crazy risk...

Buy and Hold is much riskier than the trend following systems OTG and Myself use.

The standard deviation for Buy & Hold on an annual basis is 16.97% (1960-2010 data).

The standard deviation for the system I've been using is 12.49%.

The max drawdown for Buy & Hold is 55.55%. For my system it's 35.96%. In fact, Buy & Hold did as bad or worse than my system 4 times in 50 years.

How do define crazy risk if a 55.55% drop doesn't qualify?

Blowing.Rock Master wrote:

Buy and Hold is much riskier than the trend following systems OTG and Myself use.

Why did you capitalize "myself"?

For the first time, I am starting to look at market timing as a way to avoid major losses - I've always thought the problem with market timing is that you have to be right twice - when to buy and when to sell. And I do not want to rely on intuition.

http://seekingalpha.com/article/108708-testing-the-5-10-20-trend-following-strategy

What I like is that it gives clear signals to buy and to sell, and that it seems to be working in today's market.

Blowing.Rock Master wrote:

In fact, Buy & Hold did as bad or worse than my system 4 times in 50 years.

Which means buy & hold was as good or better than your system 92% of the time.

What was your point again?

I guess my post wasn't clear enough for you. I didn't say Trend Following outperformed Buy & Hold 4 years out of 50. I said Buy and Hold had 4 drawdowns that were as bad or worse than the worst drawdown for Trend following. This was during the 50 year period from 1960 to 2010.

Top 10 Worst Drawdowns for Buy & Hold:

55.55%

49.21%

37.60%

35.96%

30.54%

26.88%

23.35%

23.35%

22.18%

20.36%

Top 10 Worst Drawdowns for Trend Following:

35.96%

23.84%

22.83%

16.71%

12.00%

8.75%

7.99%

7.77%

6.17%

5.56%

What Flagpole does is much riskier than what OTG and I do.

Blowing.Rock Master wrote:

I said Buy and Hold had 4 drawdowns that were as bad or worse than the worst drawdown for Trend following.

drawdown avoidance is the key to success. if you have a method that sidesteps major crapouts, and gets you back in in a reasonable fashion, you end up WAY ahead of the game.

You need a method. If you try to use your, "gut" anytime in investing, you will fail. This is true for market timing as well.

These methods have been used for decades if not centuries. It is nothing new. Google, "trend following" and you will get everything you need.

My Sharpe ratio is 3.0. A B&H Sharpe ratio is 0.6. There are numerous other metrics that speak to the relative risk of this approach.

Greater risk could mean greater returns. Yes, it could also mean greater losses.

Flagpole wrote:

I don't like crazy risk, so I will never get in and get out like that. The ONLY thing I do based on my view of the market is that I may put in EXTRA money if I have it and if I believe the market is low. I always maintain a certain level of regular contribution though at all times, and that is a great strategy.

To be fair, methods like mine/BRM *are* risky if you do not thoroughly understand them, and are not completely comfortable with what might happen e.g. being out for 1yr, losing money based on a decisions *you* made versus blaming it on, "the market", etc.

Long term trend following is closely related to B&H, and other mechanical strategies. Dogs of the Dow, Margin of Safety, etc. These all have the same characteristics - a set of rules (based on numbers) that have been proven to work. Like many strategies, they go through periods when they do not work, so allocating all your eggs to any one strategy basket can end up failing you.

Cliff Asness, who found $42bn trend following hedge fund AQR recommends that investors split their portfolio 50/50 trend following and value. And this from a guy with a phd who is regularly quoted in academic journals and the popular press.

Off the Grid wrote:

These all have the same characteristics - a set of rules (based on numbers) that have been proven to work. Like many strategies, they go through periods when they do not work, ...

It's a glorified crap shoot.

[sigh]I get my advice from a lot of different places. Really though, I have a strategy and I can just listen (not too long either) to find an expert who agrees with me. You will have some who agree with you too...just shows there's no one way to do this. Note that I didn't say your way was wrong...I just said it is riskier...and it is. It MAY bring you better returns than what I get, but it also may not. I'm not after the biggest possible score though. I'm after solid somewhat predictable returns that give me enough to retire comfortably.