Time In The Market

[Julia]

Provided the business or asset is a good one, and you purchase it at the right price inactivity will produce better results they hyper active trading.

I am not talking about trading here, Just talking about buying an interest in a business. If you by a wonderful business at a fair price over time you do not have to trade in and out of it to do well, just sit on it.

But you were indeed talking about trading when you alleged that inactivity will produce better results than hyperactive trading.

This prompted my response that that would depend on the skill of the trader.
Just don't think you can make such a generalisation as you did with validity.

 

[skc]

Just an initial thought, the first problem with this, and there are many, is that even if we take the most basic of calculations into account it is not worth $982,200 at all!

Depending on when you take CPI from, and how you apply it - there are a few ways, you would have in real terms, applying it to your final figure between $645k and $710k.

However, this should be applied every year, and every qtr, and every month you hold the stock - cant just compound the parts you like, so in fact you are looking at an amount between $518k and $540k.

The problem with the investment world is this sort of fluff, wipe over the surface and you soon see the real world.

Not a bad investment all the same, yet there are a number of other problems with your math.

I'll worry about that when I have the time.

Why do you need to apply CPI to the value of the share today? $982,200 is exactly what it is in today's dollar. There is no need to quote shares value in 1984 dollars!

The only thing you can say is that the return after inflation is not quite 16.8% p.a. But that's not what is being claimed.

 

[bob99]

Why do you need to apply CPI to the value of the share today? $982,200 is exactly what it is in today's dollar. There is no need to quote shares value in 1984 dollars!

The only thing you can say is that the return after inflation is not quite 16.8% p.a. But that's not what is being claimed.

Why? Because its BS, thats why, you do not have $982,200 at all, you have the figure on paper which is the equiv of this amount, yet you do not have this much in your account in REAL terms.

Why must I have to argue this sort of thing? Really? You would have had to have made in excess of $1.4m to have made this much money, and you have not.

This is not withstanding that the figures themselve dont add up at all. Do the math.

 

[Tysonboss1]

Why? Because its BS, thats why, you do not have $982,200 at all, you have the figure on paper which is the equiv of this amount, yet you do not have this much in your account in REAL terms.

Why must I have to argue this sort of thing? Really? You would have had to have made in excess of $1.4m to have made this much money, and you have not.

This is not withstanding that the figures themselve dont add up at all. Do the math.

Firstly just on the highlighted section - Because it's a discussion thread, if you make a statement that others don't understand or don't aggree with they may ask you for clarification, In this way if you are right you may teach them something and if you are wrong you may learn something.

In regards to your comment as a whole, I agree with SKC and don't understand what you mean when you say you have to earn $1.4M to actually earn $982,000.

The point is if you put $14400 in 80's dollars into BHP you would have $982,200 of 2011 dollars. If you put the money under the matteress you would still only have $14,400 of 2011 dollars.

 

[Tysonboss1]

But you were indeed talking about trading when you alleged that inactivity will produce better results than hyperactive trading.

This prompted my response that that would depend on the skill of the trader.
Just don't think you can make such a generalisation as you did with validity.

Yes, it's been proven in studies that Hyperactive traders in general do worse than their inactive counter parts, the transaction fees get them.

however i aggree it does depend on the skill or luck of the trader, there will always be people with above average results, just like there is some 70 year old smokers.

But remember I did use the term "hyperactivate",

 

[mazzatelli]

Yes, it's been proven in studies that Hyperactive traders in general do worse than their inactive counter parts, the transaction fees get them.

Can you point us to a specific study?
I ask because there is a lot of high frequency/algo trading going on by the banks, hedge funds, MM's etc and many would be contradicting your point above

Usually these studies start off with the assumptions that the portfolios (trading or investing) selections are random entry.
Buy and hold has net positive expectancy over time, but the concern is does it beat inflation.
Derivatives are negative expectancy and yes its because of transaction fees AND slippage.

 

[ROE]

Firstly just on the highlighted section - Because it's a discussion thread, if you make a statement that others don't understand or don't aggree with they may ask you for clarification, In this way if you are right you may teach them something and if you are wrong you may learn something.

In regards to your comment as a whole, I agree with SKC and don't understand what you mean when you say you have to earn $1.4M to actually earn $982,000.

The point is if you put $14400 in 80's dollars into BHP you would have $982,200 of 2011 dollars. If you put the money under the matteress you would still only have $14,400 of 2011 dollars.

Agree with Tysonboss1.. why complicate things when there is no need for it? CPI, Maths calculation? what for?

you have 14K put into a business, that 14K now worth 900K
is there anything else that deliver better return?

Can cash in the bank, under the mattress do better?
Can property do better? Can gold do better? Can Silver do better?
Can CBA do better?

No? then it's a damn good investment..

That the trouble with the world, people complicate things with technical, fancy graphs, maths formula when there is no need for it ...

 

[KurwaJegoMac]

Yes, it's been proven in studies that Hyperactive traders in general do worse than their inactive counter parts, the transaction fees get them.

however i aggree it does depend on the skill or luck of the trader, there will always be people with above average results, just like there is some 70 year old smokers.

But remember I did use the term "hyperactivate",

It's also been proven in many studies that inactive investors perform worse than 'hyperactive' ones. 'Hyperactive' traders also generate the bigger returns in a much shorter length of time (have a read about the history of hedge funds and they trump any buy and hold investor in returns - and there are a lot more of them around than Buffets).

The simple fact of the matter is both styles can make fantastic returns. One is not inherently better than the other and to stubbornly oppose that any style outside of your own can be effective is in my opinion, incredibly naive and bigoted.

 

[tothemax6]

I think 16.8% return has got inflation covered

Agreed, but inflation wasn't always just around 3% though right? I don't know much about Australian history, but weren't there periods of high inflation?

 

[tothemax6]

(have a read about the history of hedge funds and they trump any buy and hold investor in returns - and there are a lot more of them around than Buffets).

This is true, the medallion fund is a marvelous example. However, most people are not mathematical geniuses (and besides, even the CEO of the medallion fund started out as a fundamental investor). They think they can profit on short time frames with various TA pattern voodoo - when in fact it requires complicated statistical modeling to offer better than 50/50 outcomes.
And of course, LTCM proved that even 'bullet-proof' hedged statistical arbitrage can blow up.

The benefits for a long time frame trader are as follows:

• It is profitable if one is good at it: Druckenmiller, Rogers, Buffet etc
• It is less time intensive
• It lowers transaction costs (more important for small investors)
• It is arguably less stressful (but requires more patience)
• You are less likely to indulge in squiggle-voodoo

 

[Julia]

It's also been proven in many studies that inactive investors perform worse than 'hyperactive' ones. 'Hyperactive' traders also generate the bigger returns in a much shorter length of time (have a read about the history of hedge funds and they trump any buy and hold investor in returns - and there are a lot more of them around than Buffets).

The simple fact of the matter is both styles can make fantastic returns. One is not inherently better than the other and to stubbornly oppose that any style outside of your own can be effective is in my opinion, incredibly naive and bigoted.

What I was trying to say, albeit less effectively.

Agreed, but inflation wasn't always just around 3% though right? I don't know much about Australian history, but weren't there periods of high inflation?

I clearly remember that in NZ (and I imagine Australia would have not been that different) in the 1980's peaked at almost 20%.
It wasn't all bad news, either, despite paying 22% or so on IP mortgages, in that capital gains on property went through the roof.

 

[brty]

I'm surprised that so many here fall for one of the classic survivorship bias stocks.

There are many stocks that exist today that have had a remarkable performance in those 27 years. There are many more stocks that have performed poorly or disappeared during the same time period, including many that showed great fundamentals.

The classic example of survivorship bias I like to use is Woolworths. If on the same day in 1984 you had bought $14,000 of Woolworths shares, that particular investment would be worth precisely nothing today, despite there being a company currently listed as Woolworths and holding the assets of the earlier version of it.

The real question is why are some promoters trying to bring this to peoples attention without mentioning survivorship bias??

 

[Tysonboss1]

Can you point us to a specific study?
.

I study done by brad barber and terrance odean divided thousands of traders into 5 catergories based on how often they turned over their portfolio.

Extremely patient
very patient
patient
impatient
hyperactive

the study found that almost all five groups had exactly the same return before costs they were within 1 percent of each other, after transaction costs though there was a big difference.

Below I list the how much each groups per annum return was reduced by transaction costs.

Extremely patient..... less than 1%
very patient .............1%
patient ....................1.5%
impatient .................3%
hyperactive ..............7%

As a group before transaction costs they beat the market by 0.75%. but after transaction costs all but the Extremely patient failed to beat the market,

The extremly patient group beat the market by 0.5%.
the hyperactive group underperformed the market by >6% (their brokers are happy though)

 

[skyQuake]

The classic example of survivorship bias I like to use is Woolworths. If on the same day in 1984 you had bought $14,000 of Woolworths shares, that particular investment would be worth precisely nothing today, despite there being a company currently listed as Woolworths and holding the assets of the earlier version of it.

Wow thats really interesting. Can you give some info/links to it?

 

[Tysonboss1]

.
It wasn't all bad news, either, despite paying 22% or so on IP mortgages, in that capital gains on property went through the roof.

Thats the point I always try to get across to people regarding inflation, If you own real assets that have the ability to to raise prices and trade in current terms inflation is no worry to you because the income you receive is likely to increase along with inflation and therefore the capital value increases with inflation.

So in this example, yes some of the growth in BHP value comes from inflation if inflation reduced the value of the dollar by 20%, the price of iron ore they dug from the ground probably increased by 20%.

 

[Tysonboss1]

I'm surprised that so many here fall for one of the classic survivorship bias stocks.

There are many stocks that exist today that have had a remarkable performance in those 27 years. There are many more stocks that have performed poorly or disappeared during the same time period, including many that showed great fundamentals.

The classic example of survivorship bias I like to use is Woolworths. If on the same day in 1984 you had bought $14,000 of Woolworths shares, that particular investment would be worth precisely nothing today, despite there being a company currently listed as Woolworths and holding the assets of the earlier version of it.

The real question is why are some promoters trying to bring this to peoples attention without mentioning survivorship bias??

Diversification and Benjiman grahams margin of safety will take care of that.

It's funny you mention that the woolworths that went bust had great fundamental, The reason it went bust was because of a speculative takeover and junk bond financing. That should have rang alarm bells.

 

[brty]

Diversification and Benjiman grahams margin of safety will take care of that.

Exactly correct. both of which means you would not have bought $14,000 worth of BHP shares in 1984 and held through to today.

$14,000 in 1984 was about 25% of the value of the house I owned. If you are to diversify you would have needed to have a lot of money to be able to invest $14,000 in one stock.

The margin of safety aspect would not have you holding BHP from 1984 to now. On several occasions it looked like BHP did not have that much of a bright future.

Skyquake, Woolies was taken over by Adelaide Steaship in the mid 80's in a paper swap. It consequently went bust and Woolies was refloated by the liquidators, to totally new shareholders.

brty

 

[Tysonboss1]

1,Exactly correct. both of which means you would not have bought $14,000 worth of BHP shares in 1984 and held through to today.

2, $14,000 in 1984 was about 25% of the value of the house I owned. If you are to diversify you would have needed to have a lot of money to be able to invest $14,000 in one stock.

3 ,The margin of safety aspect would not have you holding BHP from 1984 to now. On several occasions it looked like BHP did not have that much of a bright future.

1, Maybe, But there are other stocks that have similar results, even an index fund would have provided a credible return ( not super star though )

2, whether you put in $14,000 or $1,400 or $140,000 the percentage gain is the same. I don't know about you but I have alot more than the value of my house invested so it would have been possible.

3, I don't really agree, I guess it depends on you interpretation of the margin of safty principle and the various forms there of.

 

[brty]

I don't know about you but I have alot more than the value of my house invested so it would have been possible.

Yes for now, but you were a lot younger 27 years ago, so was I. 27 years ago I was paying off a house and had little to invest relative to the value of a house at the time.

I did have a few thousand dollars invested in a few different stocks at the time. Some were blue-chip, some were speculative miners, they all went bust over time. The reporting of the companies was not as good as today, information was much less reliable and harder to get.

The corollary of the example given by the OP, would be the answer to this question. What "quality stock" today would you be prepared to invest ~$125,000 and keep for the next 27 years, with the assumption you do not have millions to invest?

brty

 

[Wysiwyg]

The corollary of the example given by the OP, would be the answer to this question. What "quality stock" today would you be prepared to invest ~$125,000 and keep for the next 27 years, with the assumption you do not have millions to invest?
brty

The forum hindsight investors aren't too dissimilar from the forum hindsight traders. The source being we all love to "if". :