ASX spin-offs

[ReXXar]

Lets cut the crap....

If you are 100% confident

I will invest with you if you give me an exclusive lien over your assets.

Give me the market return plus 10% surplus P.A over a 3 year period,

and you can keep any surpluses over 10%+ market return.

If you don't then I take the difference from your assets.



Otherwise you are talking out of your hat.

Which I expect you are.

Yes I'm 100% confident on average, the keyword is on average. One year's price movement may be purely random, the fund I used to work for guarantee well above the index but only if the customer doesn't withdraw in 5 years, they even view 3 years as random. You may be down 30% in one year, up to 60% the next, the only guarantee is on average.

 

[OmegaTrader]

Yes I'm 100% confident on average, the keyword is on average. One year's price movement may be purely random, the fund I used to work for guarantee well above the index but only if the customer doesn't withdraw in 5 years, they even view 3 years as random. You may be down 30% in one year, up to 60% the next, the only guarantee is on average.

Ok will you then guarantee me 10% above the market,

If I don't withdraw the money from you for 5 years.

and if you fail the deficiency comes from the lien on your assets.


Stop fluffing around.....


Put your money where your mouth is or

STFU and stop bullshi**ing

 

[skyQuake]

Yes I'm 100% confident on average, the keyword is on average. One year's price movement may be purely random, the fund I used to work for guarantee well above the index but only if the customer doesn't withdraw in 5 years, they even view 3 years as random. You may be down 30% in one year, up to 60% the next, the only guarantee is on average.

Care to explain the underperformance of the backtested results over the past 15 odd years then?

 

[OmegaTrader]

Care to explain the underperformance of the backtested results over the past 15 odd years then?

I said it before I will say it again.

ReXXar is married to the hand.


No matter what anyone says or what the data says he will still back his own hubris.

ReXXar I wish you luck

But I think you will learn the hard way.

All the best I am not wasting anymore of my time to play silly buggers.

Show me the data or guarantee my returns .

Otherwise.....

Goodbye and Good luck

 

[ReXXar]

I said it before I will say it again.

ReXXar is married to the hand.


No matter what anyone says or what the data says he will still back his own hubris.

ReXXar I wish you luck

But I think you will learn the hard way.

All the best I am not wasting anymore of my time to play silly buggers.

Show me the data or guarantee my returns .

Otherwise.....

Goodbye and Good luck

I find your message frankly to be somewhat offensive, you asked me questions and I gave my best to answer them, you will never get guaranteed returns in equity unless you purchase bonds. And to the other guy who asked about the results, I have no idea your parameters, but it looks awfully simplistic, you'd best to ask O’Shaughnessy himself, I recommend getting a copy of "What works on Wall Street", first few chapters explains the parameters, its the only research that tested using data from 1900 I think.. I'm only quoting his research.

 

[Joe Blow]

I said it before I will say it again.

ReXXar is married to the hand.

OmegaTrader, this kind of provocation is completely unneccesary. I understand that people may have disagreements and differences of opinion, but there is no reason to insult others.

This is a good thread. Let's not let disagreements get in the way of constructive discussion and debate.

 

[ReXXar]

Care to explain the underperformance of the backtested results over the past 15 odd years then?

I had a look through your chart, how do you define EV, did you exclude sectors like utilities and financial? Did you re-balance monthly? How do you define FCF (you'd best to use EBITDA)? How did you deal with time lag from financial reporting? How did you account for dividend? Did you exclude companies cut dividends by 50% or more? How did you account for companies that went off-market?... O’Shaughnessy's team been using computers for last 30-40 years to find what works and what doesn't in practice, any individual investor think they know better when it comes to passive investing is almost impossible in my opinion. The best passive investing I believe is actually those quants designing codes that can "teleport" their order in front of other large orders, basically arbitraging countless transactions a day, 0 risk and guaranteed return.

 

[skyQuake]

I had a look through your chart, how do you define EV,

EV = regular dictionary definition : theoretical takeover price

did you exclude sectors like utilities and financial?

No, the blog i read online says it didnt matter whether to include or not

Did you re-balance monthly?

Yearly, otherwise you're trading off changes in EV alone (since FCF doesnt update that often)

How do you define FCF (you'd best to use EBITDA)? How did you deal with time lag from financial reporting?

Used 12M trailing FCF to deal with time lag. EBITDA could work too though

How did you account for dividend?

Ignored. Comparison is against a non-accumulation index anyway


Did you exclude companies cut dividends by 50% or more?

Ignored. Haven't see this as a measure before. YoY divvie cut? Total $ value or yield?

How did you account for companies that went off-market?...

Either 0 or whatever their takeover value was.

O’Shaughnessy's team been using computers for last 30-40 years to find what works and what doesn't in practice, any individual investor think they know better when it comes to passive investing is almost impossible in my opinion. The best passive investing I believe is actually those quants designing codes that can "teleport" their order in front of other large orders, basically arbitraging countless transactions a day, 0 risk and guaranteed return.
Pretty sure thats at the other end of the passive/active spectrum !

Replies in blue. Will retest with suggested changes.

 

[skyQuake]

So lets start off with a sanity check:

http://www.wallstreetdaily.com/2014/06/06/ev-ebitda-valuation-metric/


Ok cool still sane

AU stats with the same model:

Note AU has no data before 2002 but doesnt impact the end result overly much

AU stats with no financials and utilities (from 2002 data onwards)


Something that works well in the US but not Aus. Might be worth exploring more but seems a bit too 'loose' for me. Robust systems don't need fine tuning to work well, they should work across different markets and timeframes

 

[OmegaTrader]

OmegaTrader, this kind of provocation is completely unneccesary. I understand that people may have disagreements and differences of opinion, but there is no reason to insult others.

This is a good thread. Let's not let disagreements get in the way of constructive discussion and debate.

My apologies, if you are insulted ReXXAr.


It is not meant as a insult.

I refer to it colloquially as a psychological concept.

In poker someone keeps betting even though they have the worse hand and it is obvious.

It has nothing to do with that person but the choice they have made.

I suppose I just find it out outrageous that someone can make 100% guarantees and not back them up with evidence.

What happens if someone reads those statements with no rebuttals.

That is what causes ASIC notice and legal problems


No one can make those claims with clarity that is why my reply is so hostile.

 

[ReXXar]

My apologies, if you are insulted ReXXAr.


It is not meant as a insult.

I refer to it colloquially as a psychological concept.

In poker someone keeps betting even though they have the worse hand and it is obvious.

It has nothing to do with that person but the choice they have made.

I suppose I just find it out outrageous that someone can make 100% guarantees and not back them up with evidence.

What happens if someone reads those statements with no rebuttals.

That is what causes ASIC notice and legal problems


No one can make those claims with clarity that is why my reply is so hostile.

Oh don't worry I'm not insulted at all, I'm so socially awkward in real life I think I've become numb to insults. As mentioned, I am making the assumption that any rigorous long-term studies like O'Shaughnessy which show a predictive pattern will translate into similar behaviour for ASX, this is why I'm so confident. I fail to see how it won't, if patterns in markets are driven by human nature, and for patterns which are time-tested, it should work in every market. If it doesn't, it also goes against common sense, intuitively a basket of high EV/EBTIDA (overvalued stocks) would underperform a basket of EV/EBITDA (undervalued stocks), thus a basket of low EV/EBITDA would also outperform the index which is composed of both high EV/EBITDA and low EV/EBITDA.

To skyQuake: I like your charts, what program are you using? I pulled those parameters off the top of my head when I was in a cafe. Maybe I can try myself when I have time and see if I can add the other parameters in the book and do some fine-tuning. For example in regards to re-balance, I think he also did rebalance every year, but he found that depending on the month can result in big difference, so he averaged the results of yearly rebalance based on every month. Also with regards to financial reporting, if you're using trailing 12 months, information can only be obtained the day the annual report is released to public, which would be about 3 months lag. He included dividends (I think?) as this is part of your real income from this strategy compared to holding an index, this may skew your results in a big way. How did you account for splits?

 

[skyQuake]

Oh don't worry I'm not insulted at all, I'm so socially awkward in real life I think I've become numb to insults. As mentioned, I am making the assumption that any rigorous long-term studies like O'Shaughnessy which show a predictive pattern will translate into similar behaviour for ASX, this is why I'm so confident. I fail to see how it won't, if patterns in markets are driven by human nature, and for patterns which are time-tested, it should work in every market. If it doesn't, it also goes against common sense, intuitively a basket of high EV/EBTIDA (overvalued stocks) would underperform a basket of EV/EBITDA (undervalued stocks), thus a basket of low EV/EBITDA would also outperform the index which is composed of both high EV/EBITDA and low EV/EBITDA.

To skyQuake: I like your charts, what program are you using? I pulled those parameters off the top of my head when I was in a cafe. Maybe I can try myself when I have time and see if I can add the other parameters in the book and do some fine-tuning. For example in regards to re-balance, I think he also did rebalance every year, but he found that depending on the month can result in big difference, so he averaged the results of yearly rebalance based on every month. Also with regards to financial reporting, if you're using trailing 12 months, information can only be obtained the day the annual report is released to public, which would be about 3 months lag. He included dividends (I think?) as this is part of your real income from this strategy compared to holding an index, this may skew your results in a big way. How did you account for splits?

Hey ReXXar, backtest is via Bloomberg which has good historical F/A stuff. I did test divvies, and compared against ASX300 accumulation index and the relative difference was similar in the end so didnt bother updating. Bloomberg auto-scrubs data for any corp actions.
I would caution against adding more parameters or optimizing by changing dates - classic example of curve fitting

 

[OmegaTrader]

Oh don't worry I'm not insulted at all, I'm so socially awkward in real life I think I've become numb to insults. As mentioned, I am making the assumption that any rigorous long-term studies like O'Shaughnessy which show a predictive pattern will translate into similar behaviour for ASX, this is why I'm so confident. I fail to see how it won't, if patterns in markets are driven by human nature, and for patterns which are time-tested, it should work in every market. If it doesn't, it also goes against common sense, intuitively a basket of high EV/EBTIDA (overvalued stocks) would underperform a basket of EV/EBITDA (undervalued stocks), thus a basket of low EV/EBITDA would also outperform the index which is composed of both high EV/EBITDA and low EV/EBITDA.

Long-run ASX return is around 10% per year, thus you can just buy a basket of spin offs and achieve 20% return on average, no talent required.

What I was originally taking issue with is that you were stating that the spinoff strategy could beat the market by 10% with no effort or extra risk.

If you refine the strategy further and mix some other value metrics you can OUTPERFORM by over 18-19% per year AND lower volatility as well. So in the very long-run, if the market rises on average 10% per year, you'll looking at 38% per year with lower downside volatility (hence I think all fund managers should use 38% benchmark).


I'm 100% confident that on AVERAGE if you break the ASX300 into 10 deciles by EV/FCF and buy the lowest decile you will outperform the market at least in the mid double digits per year.

These are the other statements I have issue with that came later. Especially when there is not data to back it up


It had nothing to do with EV/EBITDA, that only came later......

I am not saying a variant strategy from your idea/s will not produce risk adjusted returns


The point I am making is that just because it is a good idea and make sense does not mean it will work in reality.

Life is just not that easy all of the time.