SWIFTLY TRADING SLOWLY LONGER TERM

[sd]

There are several articles I have read that suggest that holding a lower volativity fund- yields out performance in the longer term with less downside risk-
Part of this may be the potential dividend yield contribution .
I should have linked these better- trying to take notes as I go along here-
For example- An interesting article in SA by Ploutas 1-11-13 examines the outperformance of SPLV vs the Spy ....
He has a number of good articles IMO .
Concerning the emerging markets, another author is postulating that the EEMV will be an outperformer of the EEM.
seekingalpha.com/article/1122031-low-volatility-stocks-consistently-outperform-dividend-investors-rejoice.
I am taking a starting position in EEMV Tomorrow if my limit order is filled.

AS I try to develop a general sense of a diversified portfolio, I also would like to add a certain element of conservatism to my approach. That conservatism can be accomplished in several ways- starting with the type of instruments selected, along with the timing approach one chooses to employ. The argument could be made that if one had a good timing strategy, one could invest in the more volatile ETF's if one could enter/exit in a winning fashion- but my history of trading suggests that I likely would not succeed using a discretionary approach-
So, At the same time, I want to see a level of growth when the market is trending. Initially starting off when the mkts are essentially at recent highs may be a poor entry strategy, but the purpose here is to develop an outline of an approach using lesser amounts within the trading account and then possibly extending it to include the IRA account at some point.
Developing a strategy where I can accept wider swings and pullbacks in price will be my challenge- I suspect i can do that within this trading account,as a learning tool, , perhaps not as easily with the IRA .

I am inclined to think I want a greater exposure outside of the US mkt than a traditional allocation would suggest- I will also want to have a focus on dividend funds for some of that exposure-US and EM.

[bankedout]

My Uncle owns an ETF that perhaps you would be interested in:

www.wisdomtree.com/etfs/fund-details.aspx?etfid=53

He also owns DEM

For a closed end fund on precious metals he owns CEF

I thought I would toss these out there just in case they are helpful to you in any way.

Good luck, and thanks for sharing.

[ira85]

Thanks SD for the info on the low volatility ETF strategy. I read both of those, but then forgot about them. Seems like an issue worthy of more consideration. I saw another interesting strategy on SA, using a mid cap index and seasonal timing to significantly out-perform the SP 500. I found it interesting.
seekingalpha.com/article/1118541-mdy-long-term-moderate-risk-passive-strategy-to-beat-the-market?source=email_etf_daily&ifp=0

-ira

[sd]

Thank You for sharing Bankedout-
DGS & DEM both are dividend players in the EM space-
They were actually included in the last SA article I read this weekend # 1121441-
They are both going to be on the narrowed list of EM potential positions.
CEF as I recall is a canadian based institution that actually controls the physical bullion-vs holding it in the form of derivatives. It the stuff ever really hits the fan, CEF makes sense over Paper backed holdings. -I think there are SGOL & one other that hold the bullion as well.
At the present time I do not understand the hows and whys that Gold & precious metals are not going skyhigh-in response to the general money printing that is occurring-
At the same time i do not understand the market complacency -
It's as though everyone thinks the punchbowl is the continuously refillable kind. I guess it is until the market decides it isn't- someday. However, I don't know where I would place a bet on the precious metals- I would assume they will continue to go much higher in the future.
Thanks for posting-

[sd]

That is an interesting article IRA-
I think considering seasonality as outlined in that strategy may indeed be the most viable concept - as it may indeed be worthy of considering across a wider spectrum as well. Perhaps lighten up mid April with 1/2, and then trail a close stop into May?
Interesting concept, and easy to look back on in general.
The S & P Midcap 400 reportedly outperforms the 500 historically to begin with- by several % per annum if i recall- read something on SA about that .
The way the article puts it, the leveraged play looks compelling on a historical basis- I suppose it will continue to work as long as the market continues to trend higher-
It's likely a worthy comparisom for other leveraged positions as well- In order for a strategy to work, the more robust or wider application it conforms to, the more likely it would be to succeed. I am still not comfortable with the potential downside swings of leveraged etfs- but using a smaller position size on such trades, would limit the Risk some-
One would need to review the volatility swings of any such trade historically to determine if one could sit through the potential ups and downs- I think that's the only way I can consider present leveraged trades is through a faster hourly chart- It is doubtful that I have what it takes to sit through the magnitude of swings that likely occur on a daily chart over 3-4 months. The returns look impressive though!
Thanks for bringing the concept to my attention-
The midcap position itself may be a good candidate for a core type of position in the us mkt.
And thanks for posting!

[sd]

The link is to ETFdb's mutual fund to ETF converter-
Since many mutual funds have a relatively high (compared to ETF's) expense ratio, this conversion tool should allow one to compare funds they may own with a comparable etf and to check past performance & expenses.
etfdb.com/tool/mutual-fund-to-etf/

[bankedout]

For longer time frame trading, one could consider mutual funds. Perhaps the skill of the fund manager would more than offset the increased fee vs. an ETF?

My question is, how does one decide which fund is most likely to outperform going forward? Or is that unknowable with any degree of certainty?

[sd]

I think it is unknowable as to the future-
Often, the outperforming fund is flooded with additional $$$$ and is unable to continue it's outperformance because it has to diversify wider.
Along the same lines, For longer term investments- and I'm speaking of multi-year long term allocations- I would tend to believe that in a diversified portfolio, one may find an exceptional active fund manager periodically- in the relative short term- for 1 or 2 of the investments-
In the aggregate, longer term, most funds will likely not equal or outperform over the longer term- And the longer they do, the more likely they will subperform in the future- One will only know when the past decade is over- who the outperforming long term fund manager was-
It is a compelling argument for a diversified asset allocation across a spectrum of the market using low cost index funds. Who is that rare outperforming manager? How many years will he outperform?
For example, I hold a number of different mutual funds in my employer's sponsored account, but If Vanguard can give me a comparable Index fund at $.20 and my mutual fund comes in at 1.50 or 2.00 in expenses, when I think of a 10 or 20 year investment horizon, the additional expense of the actively managed fund will likely be a serious drag on the potential return compared to the index.
The claim is that 85% of the active managers, hedge funds etc fail to beat their comparable index- So, the question becomes, WHY take the longer term Risk, and higher Fees charged- Why not simply enroll in a diversified allocation strategy one adjusts periodically and eliminate the higher fees?
The facts seem to point to that the mutual fund industry is on the ropes- ETF's are gaining every year-
Clearly, if one can establish a low cost ETF allocation through a broker that does not charge anything- How can a mutual fund- with it's initial commission - often 5% off the top- and annual fees of 1-2.5% hope to compete? When one can move in and out of an ETF position at NO COST- No Trade Commissions!
Through my employer , I am presently able to change my holdings at no charge- but i am limited to moving no more than $4,999.00 in any account per single day. I believe Ameritrade and E trade allow trades in specific ETF's at no cost with a 30 day gap between trades- In a longer term approach, this is likely a very good condition.

I can only forsee a future where individuals become better informed, take control of their own financial destinies- The ETF's of today will surely replace the mutual funds of yesterday- and it is for the benefit of the individual for the longer term end result-
Even if one had an exceptional manager that indeed outperformed consistently year after year in one fund, One should be diversified, and over the remaining funds the likelihood is that the funds will outperform the active managers over time- The longer the time horizon, I expect the outperformance would dramatically increase.
All of this being said, I think a longer term approach can be greatly improved by actively adjusting the portfolio allocation pending periodic adjustments- including stop-losses.
Just got to figure that part out!
LOL! SD

[sd]

www.huffingtonpost.com/2009/04/17/jim-cramer-flips-out-at-h_n_188443.html An interview with commentary between Cramer and Daniel Solin
Solin has several books-
"The Smartest Portfolio You'll Ever OWN" essentially has an advocate for still taking a long term market approach with a diversified portfolio and for most investors that is best achieved with a low cost ETF/ Vanguard type fund. Solin does not believe in market timing per se, but does recommend periodic rebalancing of the holdings-
Solin is absolutely critical of the financial industry.
He comes up with a few different recommended portfolios -depending on how large an account one has.
Solin does not believe that actively managed mutual funds will improve the portfolio performance- He believes the additional tax consequences of mutual funds actively trading incurs tax consequences for the fund (usually not deducted when the Fund's returns are published) , that the majority of these funds are there to promote their own end through expenses, and investors can do much better over the course of their investing.
What is interesting in his book, is that he not only recommends a 9 fund portfolio (One of 4) , but he shifts the component weights of the fund to change the "Risk" over 5 different Risks levels from Low to High.
This is similar to Target Funds modifying their allocation, and as an investor has less time until potentially needing to use the assets, the target funds progressively reduces the riskier growth components and increases the bond allocation.
Solin points out that small caps & value yield the greatest return historically, as well as potential volatility.
His most simple portfolio consists of an all-world total stock fund (VT)or ACWI, plus 2 bond funds -SHV, BWZ
one US based and one international. The weightings vary from 100% in VT and 0 in bonds, to a low risk 20% VT with 40% in each bond fund-
He references different bubble investments, and uses Gold as an example of the present day As a bubble- He provides ample examples of historical evidence to support his approach.

papers.ssrn.com/sol3/papers.cfm?abstract_id=891719&rec=1&srcabs=1356021&alg=1&pos=3
on this page is a link where one can download research papers If one can read through it all- Faber, French, Fama, Cremers-
Cremers seems to suggest that small targeted mutual fund managers can engage in "active" management and outperform the benchmark by a wide enough margin to cover the additional fees incurred and bring additional gain to the investor- These papers are written for the academic, and so as a layman I did not try to follow all the various formulas they used in making their model. I also don't know that he actually gave results that indicated what % of active managers were able to maintain superior results after additional taxes and higher expense ratios- Solin would likely challenge the conclusions.

What to do ?
I am going to compare my mutual fund holdings Through ETFdb and see what type of ETF they compare to- and then review the historical results. I will get a better understanding of my "Risk" allocation
using these funds.and then plan to change the allocation in terms of performance, or market Risk - For example- the seasonal trend of "Go Away In May" would suggest swinging some allocation out of stocks and increase the weighting of the bonds -

Roth IRA- I opened separate Roth IRAs for myself and my wife last year with Scottrade- I did not make any investments with those accounts- I will take those monies, along with this years Roth contribution, and open an account with Vanguard or TDAmeritrade -depending on the rules/cost of moving between allocations.

I would intend to apply a timing component to reduce weight in times of weakness- This would ideally be viewed through a weekly chart only.
If there is weakness in May, it may offer an opportunity to invest at a reduced cost. I have not yet determined a timing method, but I will be comparing Renko charts with Candlesticks- and perhaps use both-
The Renko to keep a perspective, and a candlestick to view price action.

[sd]

us.ishares.com/content/stream.jsp?url=/content/en_us/repository/resource/market_perspectives_mar_2013.pdf&c=blp&cmp=russk_em&chn=EMC&investorType=FP

[sd]

IFA- www.ifa.com/12steps/step1/

[sd]

www.usatoday.com/story/opinion/2013/02/05/social-security-retirement-benefits-column/1891155/

[blygh]

An interesting troika of articles - with respect to the Fed I do not believe there will be any problem draining liquidity from the economy when unemployment falls to 6.5%. Inflation is a purely monetary phenomenon. All they have to do is stop increasing the money supply. Moreover there is a lot of stuff to buy - it can be produced just about anywhere. Competition will keep prices.
BLYGH

[blygh]

With respect to index funds, no doubt about it - trying to bet them takes a lot of homework. The relative success of index funds may reflect the fact that active investors maintain a cash balance (in most cases) with little or no return. The superior value of the index fund investment may reflect an 'All in' investment i.e. a no cash position.
With respect to the dearth of retirement savings by boomers - it is going to be ugly

[sd]

"With respect to index funds, no doubt about it - trying to bet them takes a lot of homework. The relative success of index funds may reflect the fact that active investors maintain a cash balance (in most cases) with little or no return. The superior value of the index fund investment may reflect an 'All in' investment i.e. a no cash position."

That's an important point Blygh- The time in the market vs the timing of the market. particularly over the long run.
The IFA.com site has a lot of information on it's site that supports index investing and portfolio reallocation periodically-
With the periodic reallocation contributing to a greater return.

Yes, the more I read about this, the more convinced I am that the backbone of an investment approach should be based on an indexed portfolio that is periodically rebalanced at regular intervals - The other elements are the asset allocations one uses, the periodic rebalancing intervals, and if one thinks they can improve the results by timing or swapping between periods of market decline or strength. It is doubtful that trying to time the market swings will be successful over the long run- and that is the crux of the issue of most investors underperformance.

There are a lot of reasons why I also fit the profile that causes the majority of investors that also try to trade to underperform the market- We ( active investors) think we can "improve" our results by taking an action based on our "sense" of the market, our technical analysis -chart reading, or our investing acumen and ability to understand and correctly predict future company or sector movements. The reality is that the majority of those results are to be determined by the larger market forces over time- I have allowed my Bias to limit my market exposure in my IRA , often reacting during minor pullbacks to reduce my exposure (Fear of Loss) and then not getting back in. in a timely manner to see the additional enhanced gain. I can rationalize and justify this behavior as simply being cautious- and that historically I was correct once in following the lead of those that said to get out in 2007 earlier than late.
But failure to get back in in 2009 as the market rallied off a V bottom, I lost out on the potential larger gains that would have been the reward of an early exit and following low cost reinvestment. That lack of Trust in the market established my Bias, where I will selectively tend to give greater credence to words of fear, rather than words that justify optimism-
I indeed belong to a large group of investors/traders that will have occaisional successes but will underperform in general over time. There are a lot of reasons why this will occur-Some touched upon in this IFA TV video -T"The psychology of Investor Behavior" - just highlighting some of the reasons why investors can adobt certain beliefs that they can control their market through their actions.
www.ifa.com/-Look under the IFA TV show 75- Investor behavior- There are 74 additional shows on different subjects btw. I intend to go through in more detail some of the ifa materials also found-

The Link below will take those interested to John Bogle's blog site- There's a number of video clips, the most recent Bogle discusses his most recent book, as well as touching on elements of his history and experience-and investing philosophy

johncbogle.com/wordpress/
He is a remarkably candid individual, even when he comes to discussing how he almost ruined Wellington Fund- and I found the hour long video quite interesting,; prompting me to choose to learn more from his insights.
I have read articles about him , and Vanguard- and will be ordering his most recent book "The Clash of the Cultures"
I will be ordering from Barnes and Noble btw vs amazon to support that company-
www.barnesandnoble.com/sample/read/9781118122778
I actually went ahead and also ordered the Little Book of common sense investing as well.

I have not finished reading "Aftershock" yet- so The Bogle book will likely be the antithesis (sp?) to that theme of coming collapse.

I spent some time on the IFA site, and watched a few videos there: One can find the IFA different model portfolios 1-100 using the DFA (dimensional fund advisors) - funds- The IFA model charges just under 1% , uses DFA "lower cost" funds in it's allocations- and I think directs the assigned broker on the periodic rebalancing ($19 if the broker is TDAmeritrade)
One would need to look closely at the actual funds' performance comparisoms- IFA seems to show an outperformance above the market index. The fee seems reasonable to keep an investor on track with asset allocation modeling and rebalancing- taking the emotion out of the equation, and replacing it with a disciplined approach.

This would be particularly true if the expense ratios of the DFA funds is considerably less than that of the typical mutual fund most advisors would place you in.
That's a subject for another day, but it prompts me to compare the American Funds family returns that I own in my company's Ira with the comparable market index fund. I did apply the conversion calculator to their funds and found that many of them were simply overlapping and highly correlated to one another, according to the calculator.