The official "ASX is tanking!" panic thread

sinner · 14 September 2011

A worthy read for those stating they are "going in for the long haul" and don't care about further downside. Examines bonds, REITS, stocks, EAFE stocks and GSCI.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461

I remember Radge has publicly stated a few similar concepts, like buy the 52 week breakout sell the 13 week breakdown, or buy a break of the 80,2 boll and sell on break of the 80ma...but for individual stocks. I also know you aren't supposed to run techtrader scans when the index is under the 180ema of lows.

The returns may not necessarily be 100% of market but as the paper clearly quantifies, you can participate safely in 2/3 or more of the upside and avoid 50-70% of the downside with simple trend following technique.

First, a trend-following model will underperform buy and hold during a roaring bull market similar to the U.S. equity markets in the 1990s. On the flip side, the timing model avoids lengthy and protracted bear markets. Consequently, the value added by timing is evident only over the course of entire business cycles.

Obviously this doesn't concern swing traders or whatever, I just put it out there for those seemingly willing to long for the "long term investment" type rationale.

Starcraftmazter · 14 September 2011

sinner said:
A worthy read for those stating they are "going in for the long haul" and don't care about further downside. Examines bonds, REITS, stocks, EAFE stocks and GSCI.

Hey mate, thanks for the share

craft · 14 September 2011

sinner said:
A worthy read for those stating they are "going in for the long haul" and don't care about further downside. Examines bonds, REITS, stocks, EAFE stocks and GSCI.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461

I remember Radge has publicly stated a few similar concepts, like buy the 52 week breakout sell the 13 week breakdown, or buy a break of the 80,2 boll and sell on break of the 80ma...but for individual stocks. I also know you aren't supposed to run techtrader scans when the index is under the 180ema of lows.

The returns may not necessarily be 100% of market but as the paper clearly quantifies, you can participate safely in 2/3 or more of the upside and avoid 50-70% of the downside with simple trend following technique.

Obviously this doesn't concern swing traders or whatever, I just put it out there for those seemingly willing to long for the "long term investment" type rationale.

When viewed as a whole, timing contributes nothing to wealth creation. As far as excess returns from timing are concerned, for someone to gain, someone else has to lose. In fact it is less than a zero sum game because of transaction costs and because trading crystallises the government’s right to their share via the taxation system.

I don’t think the paper really even address the issue of timing as superior to buy and hold. What it does actually suggest is that one form of market timing can outperform buy and hold – but for this to be true the excess return can only come from other market timers making equivalently poorer results than buy & hold plus paying all the transaction and tax costs.

The majority of market participants are competing against each other via timing – some (by the laws of mathematics) are actually above average and can make excess returns but those returns will be provided by the trading losers not by the 'buy and holders'.

I prefer to try and outperform the market by stock selection. It’s less crowded doesn’t have the commission and taxation drag. Whilst it is closer aligned to buy and hold then market timing it does have subtle distinctions. For example the drawdown’s are not as large as the market averages because you are avoiding inferior business models and over-indebted companies.

Whilst I am one of

those seemingly willing to long for the "long term investment" type

this paper offers very little in way of valid argument against my strategy.

skc · 14 September 2011

craft said:
When viewed as a whole, timing contributes nothing to wealth creation. As far as excess returns from timing are concerned, for someone to gain, someone else has to lose. In fact it is less than a zero sum game because of transaction costs and because trading crystallises the government’s right to their share via the taxation system.

I don’t think the paper really even address the issue of timing as superior to buy and hold. What it does actually suggest is that one form of market timing can outperform buy and hold – but for this to be true the excess return can only come from other market timers making equivalently poorer results than buy & hold plus paying all the transaction and tax costs.

The majority of market participants are competing against each other via timing – some (by the laws of mathematics) are actually above average and can make excess returns but those returns will be provided by the trading losers not by the 'buy and holders'.

I prefer to try and outperform the market by stock selection. It’s less crowded doesn’t have the commission and taxation drag. Whilst it is closer aligned to buy and hold then market timing it does have subtle distinctions. For example the drawdown’s are not as large as the market averages because you are avoiding inferior business models and over-indebted companies.

Whilst I am one ofthis paper offers very little in way of valid argument against my strategy.

Just because not all market-timers can make money (by definition which I agree), it doesn't seem to lead to a conclusion that one should not attempt market-timing, or that buy and hold is a superior strategy.

A positive way to look at it...Market timing works because there are plenty of other suckers providing you with the returns. The more people try it, the better your return.

craft · 14 September 2011

skc said:
Just because not all market-timers can make money (by definition which I agree), it doesn't seem to lead to a conclusion that one should not attempt market-timing, or that buy and hold is a superior strategy.

A positive way to look at it...Market timing works because there are plenty of other suckers providing you with the returns. The more people try it, the better your return.

Absolutely agree with you.

If you don’t want to give your money away you had better be pretty honest with yourself as to whether you are above average or not.

I would also suggest that the Pareto Principle is alive and well in trading so 80% if not more goes to 20% or less. That means a large and ongoing stream of suckers on the other side.

Are you good enough? Can you compete against highly resourced and capitalised opponents?

Or are you feeling lucky!

http://www.youtube.com/watch?v=u0-oinyjsk0

skc · 14 September 2011

craft said:
If you don’t want to give your money away you had better be pretty honest with yourself as to whether you are above average or not.

I would also suggest that the Pareto Principle is alive and well in trading so 80% if not more goes to 20% or less. That means a large and ongoing stream of suckers on the other side.

Yes so true...

Svenson (1981) surveyed 161 students in Sweden and the United States, asking them to compare their driving safety and skill to the other people in the experiment. For driving skill, 93% of the US sample and 69% of the Swedish sample put themselves in the top 50% (above the median). For safety, 88% of the US group and 77% of the Swedish sample put themselves in the top 50%.[25]

http://en.wikipedia.org/wiki/Illusory_superiority

tech/a · 14 September 2011

While Im enjoying the short on the SPI that reversal is pretty damned ugly!

TheAbyss · 14 September 2011

So what is the average time a stock remains in the ASX top 100? 1 year, 10, 25, 50? Time in the market may be a valid strategy but if you bought the top 100 50 years ago would you even own a stock today?

nomore4s · 14 September 2011

tech/a said:
While Im enjoying the short on the SPI that reversal is pretty damned ugly!

Very ugly indeed. AUD, Oil, Asia all getting smashed. Hong Kong has lost 450 points since open.

Chasero · 14 September 2011

Wow, COH shares had a 2 day dead cat bounce then plunged off the cliff!!

Looks like the market's in for a terrible ride over the next few months over rumours & speculation.

prawn_86 · 14 September 2011

TheAbyss said:
So what is the average time a stock remains in the ASX top 100? 1 year, 10, 25, 50? Time in the market may be a valid strategy but if you bought the top 100 50 years ago would you even own a stock today?

Agree, survivorship bias is an issue most dont consider. Thats why if you do want to invest in the index long term you should be buying an index fund which mirrors the wieghtings of the index.

skc · 14 September 2011

Chasero said:
Looks like the market's in for a terrible ride over the next few months over rumours & speculation.

The market is very broken at them moment. Following rumour of Chinese investing in pizza and pasta, we bail out rumours from Russia and Brazil last night.

No prize for guessing that India will start buying up Europe tonight... Do they even have foreign exchange reserve? Or will they raise debt so they could "invest" in Europe?!

Aussiejeff · 14 September 2011

skc said:
The market is very broken at them moment. Following rumour of Chinese investing in pizza and pasta, we bail out rumours from Russia and Brazil last night.

No prize for guessing that India will start buying up Europe tonight... Do they even have foreign exchange reserve? Or will they raise debt so they could "invest" in Europe?!

Throw this into the witches' cauldron and we have a mighty toxic brew...

Chinese Premier Wen Jiabao, facing calls to widen support for indebted European countries, signaled that developed nations should cut deficits and create jobs rather than relying on China to bail out the world economy.

“Countries must first put their own houses in order,” Wen said today at the World Economic Forum in the Chinese city of Dalian.

http://www.bloomberg.com/news/2011-...must-cut-debt-and-deficits-increase-jobs.html

What hope is there if China are declaring they will pick up their bat and ball and won't play the game?

Answers, anyone???

skc · 14 September 2011

Aussiejeff said:
Throw this into the witches' cauldron and we have a mighty toxic brew...

http://www.bloomberg.com/news/2011-...must-cut-debt-and-deficits-increase-jobs.html

What hope is there if China are declaring they will pick up their bat and ball and won't play the game?

Answers, anyone???

Well... on a more positive note he didn't say "他媽的关闭"

LifeChoices · 14 September 2011

There was supposed to be a bounce today. This afternoon has been a shocker. Going down sharply now.

sinner · 14 September 2011

craft said:
When viewed as a whole, timing contributes nothing to wealth creation. As far as excess returns from timing are concerned, for someone to gain, someone else has to lose. In fact it is less than a zero sum game because of transaction costs and because trading crystallises the government’s right to their share via the taxation system.

The paper addresses both transaction costs and taxation issues. Did you bother to read it?

I don’t think the paper really even address the issue of timing as superior to buy and hold. What it does actually suggest is that one form of market timing can outperform buy and hold – but for this to be true the excess return can only come from other market timers making equivalently poorer results than buy & hold plus paying all the transaction and tax costs.

err no, the paper actually identifies exactly where the excess return comes from:

Lower volatility.

I prefer to try and outperform the market by stock selection. It’s less crowded doesn’t have the commission and taxation drag. Whilst it is closer aligned to buy and hold then market timing it does have subtle distinctions. For example the drawdown’s are not as large as the market averages because you are avoiding inferior business models and over-indebted companies.

Whilst I am one ofthis paper offers very little in way of valid argument against my strategy.

No idea how you pay less commission buying multiple stocks than an index once a year, or how you avoid taxation either. It isn't an "argument" against your strategy, just something to read and consider if you want to be a buy and hold type. The paper clearly quantifies that momentum provides alpha over a huge timeframe.

LostMyShirt · 14 September 2011

What the heck is going on?

I love how insto's project doom and gloom - they probably go ahead for some buys right after their doom and gloom announcements. Oh well, thats just me. Paranoid and losing $$$. Time heals all wounds Kinda...

nomore4s · 14 September 2011

LifeChoices said:
There was supposed to be a bounce today. This afternoon has been a shocker. Going down sharply now.

Why was there supposed to be a bounce today?

LifeChoices · 14 September 2011

nomore4s said:
Why was there supposed to be a bounce today?

It was wishful thinking more than anything else.

sinner said:
A worthy read for those stating they are "going in for the long haul" and don't care about further downside. Examines bonds, REITS, stocks, EAFE stocks and GSCI.

Thanks for posting. Makes sense to me. Don't really see too much sense in just watching shares depreciate daily when you could step aside have the money in the bank earning close to 6%

sinner · 14 September 2011

LifeChoices said:
It was wishful thinking more than anything else.

Thanks for posting. Makes sense to me. Don't really see too much sense in just watching shares depreciate daily when you could step aside have the money in the bank earning close to 6%

It makes sense to me too. I moved (just as an example, so nobody gets their knickers twisted) my super to cash in August 2008. Spotted this on my super website earlier this month as I was doing my spreadsheets:

Cumulative intermim-credit rate table
Crediting rates for previous 3 financial years ( After tax and fees )
2008 - 2009 2009 - 2010 2010 - 2011 3 year compound average to 30 June 2011
Cash 3.72% 3.70% 4.47% 3.96%
Balanced -9.12% 9.57% 8.88% 2.73%
Growth -12.68% 9.85% 9.45% 1.64%
Aust. Fixed Interest 10.00% 6.78% 4.75% 7.16%
Listed Property -34.66% 20.98% 10.11% -4.52%
Aust. Shares -16.00% 12.50% 10.17% 1.35%
Intnl. Shares -18.35% 11.43% 8.41% -0.46%

Plain to see that volatility has compounded and eaten whatever cumulative returns provided by other asset classes since the GFC got really underfoot. Cash and fixed interest ftw.

Could I have done better by going back into stocks at the start of '09? Sure. As long as I got out again mid '11! But my return has certainly not suffered in comparison to those who continued to buy and hold into their supers and investment accounts during the whole period. In hindsight, fixed interest did even better than cash but as I'm unsure exactly what this investment option entails in the case of my super (is it fixed interest into some crappy corporate bond basket?) I left it alone.

In other words, wake me up when we are back above the 200ma Until then, buying volatility in pig stocks and buying gold is where the edge is at imho.

The official "ASX is tanking!" panic thread

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The official "ASX is tanking!" panic thread

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